Stanmore Resources Limited (SMR) Earnings Call Transcript

Thank you for standing by, and welcome to the Stanmore Resources Limited September Quarterly Activities Report Investor Briefing. [Operator Instructions] I would now like to hand the conference over to Marcelo Matos, Chief Executive Officer and Executive Director. Please go ahead.

Good morning, everyone, or good afternoon to those joining from the Southern states, and thank you for joining us as we take you through our September quarterly activities report. With me today again is Shane Young, our Chief Financial Officer. The third quarter was another successful one for Stanmore. Mining conditions were favorable, with dry conditions and the investment into pit preparation through the first half, supporting a record performance at South Walker Creek and solid results overall, with no serious accidents recorded during the quarter. Year-to-date, saleable production is tracking well within the guidance range and with closing ROM stockpiles of 1.7 million tonnes as of 30 September, we are in good shape for the fourth quarter and to close out the year. As a result, we have reaffirmed our full year saleable production guidance and are currently tracking towards the top end of the range. On the market, supply tightness domestically in China and out of Russia supported coal prices with the headline PLV index trading at levels not observed since the first quarter of 2024. Our average quarterly sales price increased to USD 163 per tonne, up 6% on the June quarter. On a year-to-date basis, our average sales price is 18% higher than the first 9 months of last year. Combined with the operational performance, this culminated in a healthy cash generation with net debt reducing to USD 19 million and total liquidity improved to over USD 500 million. Finally, we remain active on the corporate front with the completion of the refinance and the announcement of the agreement to acquire the Moranbah South tenements. Overall, since our half year results, we've gained greater certainty on Moranbah South, delivered a strong third quarter and benefited from the improved market conditions. These developments have together supported strong cash generation and improved liquidity, giving the Board confidence to revisit its early decision and declare an interim dividend of approximately USD 20 million. Moving on to a summary of our operational performance and starting with South Walker Creek. Following the prioritization of stripping and pit preparation early in the year, the mine delivered record ROM and saleable production of 2.8 million tonnes and 1.9 million tonnes, respectively. This surpasses the previous quarterly ROM record set in December 2025 quarter, with saleable production supported by CHPP performing above nameplate capacity. Closing ROM stocks at South Walker Creek have also increased to more than 800,000 tonnes, positioning the operation well to deliver on the fourth quarter production and sales plan. At Poitrel, the quarter reflected the planned CHPP shutdown that we deferred from June to July. As a result, saleable production decreased to 1.1 million tonnes as CHPP feed was constrained during the shutdown before processing rates returned to normal in August and September. Nonetheless, ROM volumes remained strong at 1.9 million tonnes, which supported a buildup in ROM inventories to more than 700,000 tonnes at the quarter end. Year-to-date saleable production at Poitrel of 3.6 million tonnes remains on track towards the upper end of full year guidance. At the Isaac Plains Complex, we assumed operatorship at Isaac Downs during the quarter, as previously announced. We are pleased with the early results with strong truck and excavator fleet performance and an optimization of the dragline dig methodology supporting efficiencies. Strip ratios, saleable production and total coal sales each improved quarter-on-quarter. Turning to the development pipeline. The key new development has obviously been the Moranbah South deal, which continues to progress through the various stages required for completion and for the fourth quarter. As highlighted in the initial announcement, the Moranbah South tenements contained 724 million tonnes of measured and indicated resources, believed to be of premium hard coking coal quality in the Goonyella Middle Seam and located directly to the north of our Eagle Downs project. While we have been keeping the pace on Eagle Downs, including progressing approvals for the connecting transport mining lease between Eagle Downs and our processing infrastructure at Poitrel, we intend to bring the Moranbah South deposit into a broader, more comprehensive study scope. This includes a potential integrated joint development with Moranbah South to ensure the best development outcome for the combined resource. We plan to update the market on the time line for that work as it takes shape post completion of the Moranbah South transaction. Turning now to the core markets. Pricing during the quarter was driven by concurrent shortages of coal from key Russian and Chinese production basins. In China, safety inspections and the curtailment of domestic production, combined with the slower clearance of Mongolian landborne volumes led to a supply shortage and a rapid escalation in domestic prices. At the same time, Russian exports were materially disrupted from the Black Sea terminals following an escalation of vessel strikes, and these volumes were not fully replaced from the Baltic or Far East terminals. Higher fuel and labor costs also pushed Russian offer prices up through the quarter, while delays and reduced availability were observed from key North American export terminals. The net effect saw premium hard coking coal and low-vol PCI prices peak at USD 285 and USD 220, respectively. The rally began later in the quarter and therefore, will take some time to materialize into our realized pricing given the roughly 30-day lag on our pricing mechanisms. Looking ahead, higher coal and energy prices have placed pressure on steel margins, including in China. The direction of Chinese steel production after the holiday season and any trade flow outcomes from the tariff discussions between China and the United States will be important factors for the fourth quarter. Notwithstanding that, India's emergence from the monsoon season, together with the commissioning of new large-scale coke oven facilities, is expected to provide ongoing support for seaborne demand. Following the quarter end, it was pleasing to see the Indian Ministry of Steel drafting a national steel policy vision to 2047, which supports India's role as a long-term growth market of metallurgical coal. The draft projects metallurgical coal demand to more than triple by 2047, with Australian exporters expected to benefit from additional demand. We will continue to monitor how the draft develops through consultation. With that, I'll now hand over to Shane to update you on our financial position and guidance.

Thanks, Marcelo. Looking at the balance sheet, Stanmore concluded the quarter with a consolidated cash balance of USD 231 million. After factoring in the drawn balance of the new $250 million term loan, this translates to net debt of just $19 million as at September 30. This is an improvement of USD 53 million on the June quarter, with cash flows supported by the improved market conditions and our second half weighted production and sales profile. Key non-operational cash flow items included capital expenditure of $22 million and the initial $5 million payment towards the acquisition of Moranbah South. These outflows were almost entirely offset by a $26 million refund received during the quarter following our successful objection to stamp duty assessment from 2025 relating to the acquisition of Eagle Downs. Total liquidity increased to USD 501 million at quarter end, providing financial flexibility to support the remaining $100 million completion payment from Moranbah South. Regarding the dividend, as Marcelo mentioned earlier, the Board elected to defer an interim dividend in August given the uncertainty around Moranbah South, our second half weighted sales production profile and the importance of maintaining our balance sheet flexibility. Since then, we have gained greater certainty around Moranbah South, delivered a strong third quarter, benefited from improved coal prices and received the Eagle Downs stamp duty refund earlier than anticipated, all of which have strengthened our liquidity position. Importantly, the decision to declare a dividend today reflects our ongoing commitment to disciplined capital allocation, balancing shareholder returns with the need to maintain financial flexibility as we progress our portfolio of development opportunities. Future dividends will continue to be assessed in accordance with our dividend policy, taking into account prevailing market conditions and the group's capital requirements. Turning to guidance. We reaffirm our 2026 full year public guidance with saleable production continuing to track towards the top end of the range. While there are no changes to FOB cash cost or capital expenditure guidance, both are experiencing upward pressure, particularly from higher diesel prices and the stronger Australian dollar. For reference, year-to-date SGO index diesel prices have averaged approximately USD 150 per barrel, which is above the USD 120 per barrel assumed as part of our revised guidance range provided in the March quarterly report. Notwithstanding this, operational cost improvements and hedging benefits, together with saleable production tracking towards the top end of the guidance range, have helped partially mitigate the impacts of diesel and FX. That concludes the prepared remarks for today's call. I'll now hand over to the moderator so we can take your questions.

[Operator Instructions] Your first question comes from Christopher Creech with Morgans Financial.

Well done on the results, especially South Walker Creek. That had a really good result. First question for you guys today is in terms of Poitrel. I noticed that you obviously called out the planned CHPP shutdown in July. Was there any other reason as to why there was a big deficit between, I guess, the usual ROM and saleable sort of production, the implied yield? And was there, I guess, a bit of a delay in terms of coal mining? Was it all of it back-ended? Or was it just predominantly the CHPP shutdown in July?

Hi, Chris. It's a combination of things. I think obviously, the shut is one of the key reasons. But as you said, there was, let's say, a yield element of the saleable production number as well because we brought forward some of the primary feed in June, okay, by the end of the quarter. So there was a lot of higher-yielding volumes washed in June with some thermal and lower-yielding products at Poitrel this quarter. So I think as a combination, this was -- I think they were probably the key drivers of that, let's say, slightly lower saleable production. And there's nothing, let's say, unusual happening at Poitrel. I think things are well on track. Ground volumes are healthy. It's tracking at the top end of the guidance range and is expected to finish the year strong. And it's a bit early to provide guidance for next year, but we are actually expecting another strong year next year as well. So all going pretty well at Poitrel.

Yes. Perfect. And then I guess jumping into, I guess, your full year guidance, I mean, you guys have mentioned that you're maintaining your 2026 guidance and looking at towards the upper end. I mean with the ROM stock you guys have got, you're going to have a pretty good run for the saleable production in the fourth quarter, one would expect. And you could potentially see, I don't know, potentially above the guidance if you guys have a good run of it. Is there any production disruptions that are expecting across any of the operations, excluding weather or things that you guys can't control? Or is it -- should it be pretty steady state across the operations in the fourth quarter?

Steady state, Chris. No surprises expected. Everything is nice and steady. It's been wet for the last 10 days, to be frank, a bit wetter than expected. I think as we get to the fourth quarter, we normally make assumptions for, of course, operating hour losses due to weather. And I think we are eating through those assumptions now and those allowances. But other than potential weather, I don't -- we are not expecting anything to, let's say, to prevent us to achieve a good strong fourth quarter and finish the year towards the end of the top end of guidance at this stage.

No worries. And if I could just sneak in just one last one. In terms of Moranbah South, I guess assuming that, that gets completed in the fourth quarter and everything gets kicked over on that one, does that change your time frame for your potential FID for Eagle Downs? Or does that just -- is that, I guess, potential upside to the case rather than slowing it down at this stage?

We are not slowing down the work streams for Eagle Downs, okay? If you look at Eagle Downs on a stand-alone basis, I think we are progressing. I think it's a bit early to say if an integrated development would not, let's say, affect the timetable for an investment decision in Eagle Downs. There are things that we will need to look at if we were to, let's say, develop both on an integrated basis, especially if there is a potential in the future for us to have, as an example, 2 longwalls operating, one in Eagle Downs and one in Moranbah South using the same conveyor infrastructure, grid infrastructure and the like, so all surface infrastructure. So I think there's -- I think, obviously, we need to get the keys. We need -- there's a bit of work to do in Moranbah South on this optioneering work and this integrated development build. The reality is that Moranbah South will require approvals. So there will be a work that will be required to not only get all the ecology and groundwater data to support submission of an EIS, but also, of course, supporting the development of a plan to -- I mean, to be the basis of those submissions. And from the moment we launch an EIS down the track, I think there's still quite some time to be able to get approval. So reality is that even if there were projects developed on an integrated basis, there will be a few years until we can mine coal from Moranbah South. So we will progress with the view of Eagle Downs on a stand-alone basis, but with Moranbah South as a potential optimized integrated development down the track.

[Operator Instructions] Your next question comes from Glyn Lawcock with Barrenjoey.

Just on the cash flow over the quarter, Shane, any feel for what the cost was for the debt program through the quarter? Was that material?