Whitehaven Coal Limited (WHC) Earnings Call Transcript

Good morning, everybody, and thanks very much for attending today. Welcome all to the Q2 report for our December quarter for FY 2025. I know there's lots of activity in this shortened week for people or groups reporting. So we'll get through our document you as quickly as possible and get to the Q&A. I'm joined here with Kevin Ball, our CFO; Ian Humphris, our COO; and our IR team, as usual. And let's get through the highlights and move on to our Q&A, as I say. We're pretty pleased with another solid quarter from our operations right across the board and which really consolidates our position at the end of the first half of the year and what's been a very good start for the business in the first full financial year in its enlarged form. So I'll just go through some highlights here. Our safety is decent, but we've got more room to maneuver there of about 4.9 for our TRIFR. The managed ROM production at 9.7 consistent with where we were in September as we say, a solid start to the year for the first half. Total equity sales have produced coal at 7.8 million tonnes, so assuming to be up 22% up on the September quarter. Revenue split for the period, 63% met coal, 37% thermal, come back to a little bit later. Unit costs are at the bottom end of our guidance range, and I'm sure we'll have more discussion on that as well, but doing very nicely there. Net debt there just for the record, there are AUD 1 billion but I'll get to that a little bit later as well. And of course, we're anticipating the formation of a joint venture with our incoming joint venture partners there, which would conclude in this quarter, in fact. So -- but on track, and I'm sure there'll be further questions on that. Quickly Queensland, ROM production of 4.6 million tonnes, a little down on the September quarter, but just mine planning associated with that. Sales have been strong and so 4.6 million tonnes for Queensland, 28% up on September. Average realizations there, about 75% of the PLV hard-coke price across the 4 products there of AUD 237 per tonne, and very good productivity moves and certainly cost out initiatives starting to show the benefits in this period. New South Wales across the open cuts have done nicely and Narrabri volumes are in line with our plan. The ROM total there of 5.1 million tonnes, so it was certainly up on September by 17%. Equity sales have been strong at 3.2, up 15% in September. Average coal price there at AUD 211 per tonne or less in line with gC NEWC for the quarter. And so as I say, ROM production across the mines, certainly in line with guidance, if not to the better end of where we've guided you. I'll leave the table there for your digestion, but you can see there pretty quickly that up on the September quarter, in line with our plans. We've done about 19.7 million tonnes now for the half, puts us in a very good position, and I'm sure you can extrapolate that in terms of where it goes full of the full year guidance, certainly trending towards the better end of our guidance range, which is nice. Just say Queensland operations themselves, 4.6 million tonnes. Certainly, a little bit lower but in line with our sequence and plans. So nothing that we're worried about in that respect. The sales were strong and that is a recurring theme across the Queensland business there that the products out of our Queensland operations are well sought after. So sales have been very good, and stocks at a reasonable position at 1.4 at the end of the quarter, so bodes well for the next. Our cost-out initiatives certainly are tracking well. And as we're saying today, we are running at the bottom end of our guidance there. And so as we get to the publishing the half year numbers, you'll see a bit of color there, and we'll speak to a little bit more about how that's tracking, but certainly trending in the right direction. Daunia's had a good quarter, ROM production at 1.5 million tonnes, despite it's being 7% lower than before, but it's doing very well. So we're very pleased with how Daunia is tracking. And certainly, any issues that we've had in the previous 2 quarters of our ownership for dysfunction on the rail corridor has been mitigated and coal availability and just the demand itself has led us to a very positive outcome for the sales perspective for Daunia. Blackwater at 3.1 was 17% lower than September, but again, just sequencing related matters. We have had some weather, and I'm sure there may be a question or 2 about that. So the rain has certainly been well seasonal, but not unexpected, but we have been experiencing quite a little lightning in the area as well. So there's some downtime associated with that, when it occurs, and we can talk a little bit more about that as well, just to give a little bit more color. Last at inventory levels, as we've spoken about this a lot of the things we've inherited that we wanted to overcome in our period of ownership. We have rectified that now. So the team has done a great job to get back on top of that from what we inherited at transition, and really does bode well for now reestablishing what we believe to be the pre-strip inventory levels necessary to run our 7 drag lines as well. And so that's an important piece to the puzzle now we're on top of. Sales volumes for Blackwater, 3.1 were higher by September quarter by some 25%, which is good. But again, good demand for all the 4 products coming out of Queensland. New South Wales is very solid at 5.1 manage ROM. So that's very positive, 17% up on the previous quarter. So very pleased to see the operations consistently delivering across the business in New South Wales. All the open cuts were very good. Narrabri had two good months, but then we did have some downtime unplanned in the month of December, but Narrabri remains within its guidance with share of the guidance overall, which is very positive. Sales are 4.1, 17% higher, which is also very positive. We had closed out with decent stocks as well 1.3. As everybody knows, Narrabri does have a change out coming out in the second half. So the open cuts certainly are weighted a little bit more in half 2. But Narrabri obviously won't be weighted in the same way, even though it does have that period is required for the change out. So Maules has done well, nice to see that consistently 2.9 million tonnes, 20% above the September quarter, mine sequences, it does have, as I say, a little bit more tonnes coming in the second half of the year and sales very strong there at 1.9 million tonnes. Narrabri as said we've had some unplanned downtime. We've had some defects with chain failure that we're working through in the month of December that has been replaced and we're back into moving again and looking at just in terms of what we need to do differently in -- given that we have a change that coming up, and we want to make sure that any quality control matters associated with chain are dealt with as part of this impending [ change out ]. Sales at Narrabri were good and 33% up on the September quarter at 1.8 million tonnes. The Gunnedah Ops doing well. So Tarrawonga at 0.5 million tonnes, 39% up on the quarter and Vickery itself 400,000 tonnes doing nicely for the December quarter. Obviously an improvement over the previous, but we are on just that ramp-up phase, but having moved past some of this lower productivity over than material that we were working our way through, the coal is starting to emerge nicely there. So over to the equity coal sales and realized pricing. So the December equity sales have produced coal at 7.8 million tonnes, 22% higher than previously, and the September quarter resulting a 28% increase on Queensland, and 15% increase in New South Wales. The sales mix as I previously said, 63% revenue from the mix coal side of the business and 37% from the thermal side. And there you've got the repeat of the stats there in terms of the realized pricing for Queensland operations, average price at AUD 237 and as I mentioned there earlier, later down there is AUD 211 for the New South and operations. Overarchingly, met coal for us realized USD 152 relative to the index of USD 203, and so it's about a 75% yield, if you like, a realization on the PLV index for the average of the quarter itself. And again, trying to give you some stats that you can use here in terms of the splits of the products. They do vary from quarter-to-quarter. But -- and 75% is a little lower than what we would expect generally in a normalized spread of the products across, say, a year. So we actually that's a little lower. So we think it will be more 79% to 81% in that range, given a normal spread of products of sales during the period. New South Wales, as I mentioned earlier, the AUD 211 is basically at the index for the average of the quarter. And that's what you should see from the New South Wales business in the absence of more Vickery tonnes coming through that will actually lift. So your expectation should be gC plus with more Vickery tonnes in the mix. But in its current form at a relatively modest level, running the small version of the Vickery, in a flat market, you should get the gC. The gC index is an average, and that's certainly what's played out here for realizations for the thermal product of New South Wales. In terms of the market, the underpinnings of the markets on both sides of our business still remain consistent and positive. Now we do see shortfalls in the production of metallurgic coal given the demand profile that we see both in our markets and certainly for the key markets, and then also India, obviously, has been what would be anticipated for the growth engine of met coal consumption in our markets. And the thermal coal is the same, undersupplied underinvested. So we see those thematically being the same underpinnings of the markets generally. But in terms of what we've seen in the quarter, the markets have been relatively flat, but no doubt about that. And with a little bit of uncertainty, obviously, in terms of what China is doing, producing lots of steel, and we can see the Indian customers taking advantage of some of that -- some of that cheap steel being offered into the market and therefore, lower production of their own, although you can see, I'm sure various comments have been seen about impending restrictions on coking ports into India and therefore stimulating the consumption of their own coke processing on the ground, which will require more inbound metallurgical coal from the seaborne trade. In terms of the thermal side of the business, our markets have been good and consistent, although albeit well-supplied. All our good customers are taking their coal and margins -- or sorry, our premiums are consistent across the market as well, which is very positive. But the market is well supplied. And you've seen a dip down since the closure of this quarter. And so we sit at -- but as you've seen in the past, it doesn't stay there for very long. So we expect that certainly to tighten up. And with a colder winter, being experienced in what we've seen in the last couple of winters. I expect that to draw down inventory levels and put some tightening back into both sides of the business once that resumes. Production costs, as I mentioned, are tracking nicely. So we are at the bottom of our range, which is very positive. I'd say in a few weeks' time, we'll release our half year results, and you'll see that and we'll give you some more detail in terms of what we're seeing on that. But certainly, the cost out and issues that have been taking place and the shaping of the Queensland business, which is more focused on where we think it should be under Whitehaven ownership and management, that is yielding benefits. And of course, coupled with the productivity gains that we've seen at both the Queensland sites, and quite frankly, New South Wales is also doing well in that regard. So nice productivity benefits being seen across the board there, but for the bumpy December that we saw from Narrabri. I won't worry about too much about the net debt, other than just to say -- we have after disclosure of quarter, a couple of days later, paid the same treaty on our Queensland acquisition. So as much as that hurts, the Queensland government will definitely benefit from AUD 363 million appearing in the wallet to their benefit. So that's annoying, but it is where it is. The JV, all the conditions precedent for the JV are tracking nicely. So we feel pretty confident about the closure of the formation of the joint venture and the closure of the deal, including the USD 1.08 billion to be paid to us as a result of sale of 30% of Blackwater. So we feel that's tracking nicely, and we'll keep making sure and staying on top of it just to ensure that we do have closure on that on a timely basis. But as you know, not all of it is under our control, but the necessary piece of the puzzles are falling into line as we would expect it to be. For your information, there is just the analysis that we've given you over the last quarter or two, the expectations that we have, which we subject to verification of the contingent payments to BMA as part of the transaction, now that with the average price slightly less than what it was in the past, so our expectations are of what we'll need to pay are moderating. So that system in terms of upside and downside sharing is working and our estimate at the end of the quarter of USD 33 million, although if prices continue to be the way, we think that will soften a little further as it comes to the closure of the first year of our ownership. There's a few comments there for development projects exploration, I won't go into anything particular there because there's nothing that I really feel that we need to draw to your attention on the projects as such. Guidance remains well positioned and consistent and unchanged. As I said earlier, you could see where the managed ROM production is going, the sales are all trending towards the nice end of the guidance scale, and in the case of our costs well down at the bottom end of the scale. And as I say, you'll see that for half year numbers in a few weeks' time. So other than that, I think we'll just close the discussion of the highlights and move over to the Q&A session. So I know that there's plenty of other companies reporting this shorter week, so let's get into that and hopefully we'll answer all the questions that you have for us. Thanks very much, operator.

[Operator Instructions] Your first question comes from Rahul Anand from Morgan Stanley.

Two questions from me. Firstly, the Narrabri longwall changeover, my understanding was that the changeover or rather the refurb of the longwall and the longwall move was going to happen during this quarter, obviously now you're talking about a push into February. Just wanted to understand some of the drivers there, and if you can overlay that with perhaps the acid health. Obviously you had an AFC chain failure also back in March and there are considerations still to extend that longwall life. So how are you seeing that? That would be great. That's the first one, and then the second just on Queensland, you've talked about optimization of rail logistics, so where are you seeing the constraints in the system now and if you can help us understand, sort of how that's progressing alongside the weather impacts? That's the second one.

Yes. Thanks, Rahul. Narrabri, first I'll make a few remarks and then Ian, I'm sure we'll want to contribute a bit more color. Look, you're right, and good memory, Narrabri has had a few chain related interruptions, and so we are investigating what we believe to be some nuances here in terms of quality control and that feedback has been passed back to the suppliers. So yes, we were cutting nicely first two months of the quarter and then December had some interruptions and of course as you know when you have an interruption and it goes on for a little bit, you are susceptible to a bit of roof instability if you stop, and so there's been a bit of that which is annoying. The chain has been replaced and so we're moving on, which is nice, but as I say, there are some learnings we think that need to be taken up as part of the change out. Now I think your comments just about change out timing. I think just to complete what you were saying there is that we were expecting to have the change out appear entirely within Q3. Now given the delays in starting it, it will migrate a little into Q4 in terms of the total change out period. So if we're not starting until the end of Feb, say for instance, then yes, of course it's going to straddle the end of Q3, start of Q4. But our numbers still remain within our guidance range, so we're okay with that. It's just it is a little annoying I have to say. And then of course there's the refurb and work that we're going to do on the longwall itself as part of the change out remains the same. Anything else that you want to throw into that?

I mean, just on the chain change out. We had to change the first 1 out, which is a little bit premature and the nature of these changes, there's quite a long delivery time. So the one that we had in order was effectively the same as the previous one. And we ran that through expecting to see debt to the end of the block, as Paul indicated just prior to the end of the year, we had a couple of failures there. And I guess we elected that it would be a smoother run to change that out. The chain that we have put on there is the change of chain, both from a material type and also a design type. So I guess we look forward to seeing how this one performs and there is a body of work going on in the background in and around the assessment of the chain, the two fail that we have historically used.

Rahul, just on your Queensland question. We are certainly receiving better service through the network, there's no doubt about that. So that's nice to be able to say to you, and that means the allocation of pathways to us in line with our contract. And so that's improved our lot out of Daunia significantly because you can see the production has been pretty healthy relative to where it's been historically. That means we've got plenty of coal to keep up to the prep plant and therefore, product to go on the train to utilize them. So our challenge here, I mentioned before that we were using third parties to complement or to cover the shortfall where we weren't getting the pathways that we wanted. We are winding that back now, which is good. So that should bring a cost benefit associated with it as well, because we're -- our objective here is to just get back to the contracted parts that we have and the functional operation of all that contract. But that doesn't mean from time to time, we are going to use ad hoc pathways because there is some flexibility that's useful in doing that, particularly where as I say, we've been producing very well, and if we need an extra pathway too to get a bit more coal down the line, and there's an opportunity to do that, we will use those ad hoc pathways as required. But yes, look, the performance of the network is better. There's no doubt about that.

Just before you go on to the weather, Paul, in terms of the ad hoc pathways, if we do exclude them, where do you think the constraints are in the system? And are you getting everything you've signed up for now? Or we're going to see a bit of variability in that continuing?

Yes. Look, I think that system, the system always it is busy system and some might argue that it's over contracted. But you're always going to have a bit of ebb and flow associated with the other mines approximate to us who were trying to get their product to market, particularly at either full year or half year times, depending on what your financial year-end is there's always a bit of compression there in the same day that the New South Wales. But the key difference for us in terms of how these 2 systems functions, New South Wales has HVCCC and Queensland doesn't have the equivalent coordinating authority that all the suppliers subscribe to. So it's a little bit more get in there and defend yourself. And whereas New South Wales has a different setup, which is -- which works for us.

Yes. Okay. And just finally, on the weather.

Yes. Weather, look, we've had some rain, but that's sort of more or less in line with rainfall predictions. So we're not really too out of shape about that, but we have had quite a bit of lightning. So there's nuance here in terms of what lighting means for us. And it's a little complex, but it goes back to that predates our ownership. And so there's just an interaction with the regulator, and we need to get some clarity for us as Whitehaven as opposed to BMA was talking to the regulator about various arrangements as to how they could operate for how long, in circumstances where there was lightning in the area. And BMA have put in place some measures to be able to manage that so that they could run for longer. And -- now that these 2 mines are separated from BMA, there's a little bit of clunkiness in terms of whether or not those are concessions or initiatives are being conferred on us and now today, it's not quite yet. And so we are suffering a little bit from just lightning being in the region, and us having to stop early, and then we think it's necessary given that those initiatives are being -- have been transferred to us. We are operating the same way as what BMA was continuing to do in those circumstances. But there's some paperwork that needs to be put it in our name in order to allow us to run under those conditions.

Yes, I think a pretty good summary, Paul, I mean, but we envisage hopefully over the next 2 to 3 weeks, there's been some movement in that space, and we're working with the regulator, and we should be able to get back to how they used to work sites in particular, Blackwater, prior to the directives being placed that we inherited effectively.

Got it. Okay. So it's very short term, you're envisioning only 2 to 3 weeks. So that's pretty clear.

Couple weeks to the solution. I guess it's been 3/4 now of our ownership though.

Your next question comes from Paul Young from Goldman Sachs.

Paul, first just overall just guide us there for the full year and great to see the conviction that you can actually hit the top end, but I think the second half does imply that you'll repeat run of mine coal production will be just repeated the first half. So understand you had the impacts from lightning and actually some of your peers call out the same thing in the Southern Bowen, so it's consistent, but where's typically in Queensland is more sort of February, March, April. So I'm just curious about what gives you a conviction around that second half will be a repeat of the first half. Is it which -- to do with the fact that your blasted waste stocks are higher and also you're getting those a couple of new, I think it's excavators or shovels in the door this half?

Yes Paul, there's lots in that. Look, our conviction is obviously to push as hard as we could in the first half knowing that, as you say, history says there's a bit of weather in Q3 in particular, and some in Q4. Although Q2 is not immune and looking back at all the analysis over the many years of weather up there, what we're seeing, as I said, at the moment, as you say others have called it out, is reflective of history there and nothing more. So productivity is improving, so we're doing better along the way as you say, we have the extra dirt moving capacity in place, which is now on the ground and doing what it should, which is good. And as Ian, just covered off in terms of the lightning, if we could move for longer rather than what we're being subjected to at the current situation, then we'll be able to make sure that we've derisked to some degree the second half's earnings. Now Daunia is obviously a different beast as well because being fully autonomous, there's different arrangements that can apply in there. We run longer with the autonomous trucks when it starts to get wet, so there should be an opportunity in all of that as well versus demand. But the weather has been factored into our plans and we feel pretty good that we're certainly trending the right direction. Like I say, we're going to be on the better end of our guidance based on what we say today, but if there's 5 cyclones in Q3 rather than 3 or whatever the number might be, then that is a variable which everyone in Queensland's got to live with. But based on what we're seeing today, we feel pretty good about it.

Yes. No problem. And just a second one on thermal coal realizations, I know you called out Vickery, what did you get? But just I thought they might have been a little bit better considering that Werris Creek, I presume Werris Creek volumes have all been sold and Maules did reasonably well and it gets a decent premium on both ash and energy. So is there anything else to highlight, just on the court about why your realizations are in line with index?

No. Look, I think we repeatedly said to you that in a flat market that's where we should be. There's no doubt that the trade, if I can call it that, swapping out Werris for Vickery is a positive trade from a realization perspective, no doubt about that. But you're not seeing the full impact on the sales side of things quite yet. And so the sales of Vickery have been relatively modest in terms of the mix, but you will see that play out a little bit further in quarters to come and that should improve it. And the other challenge here is when you've got Narrabri tonnes, Narrabri tonnes obviously inherently just under the gC level, so to the extent that you're making sales of it as a standalone product rather than a blended product through group contracts, then that is sub gC realizations relative to the premiums that Maules and Tarrawonga and Vickery achieve. So I expect this to moderate in a positive way and improve, I should say, as more Vickery tonnes manifest themselves in the sales mix. And as I say, those tonnes out of Vickery came relatively late in the period, so you can see that the stock build in New South Wales reflects the fact that there's better quality tonnes sitting on the product stockpile there as well.

Your next question comes from Jonathon Sharp from CLSA.

Just a first question on Queensland price realization. So it looks like it was a 10% variance with the met coal price up there that you realized compared to consensus, consensus was a bit higher. Can you just give us some details on what this would be so, what are we missing? Was it driven by product mix or something else?

Yes. Thanks, Jonathon. I think the challenge here with quarters is looking at it on a quarterly basis. It's a very short-term horizon. And -- and so we feel like that should be a little bit higher as I mentioned to you before. There's certainly late 70s is where we think it should be through to early 80s, and so the 79% to 81% is where I think it goes over at least an annual period. But yes, you will get product mix differences quarter-to-quarter. No doubt about that. And more importantly, is the spread between the various products changes on a relatively short-term basis. So that also is playing out in the 75% that we've given you. So year-to-date, the number is obviously higher were affecting the first quarter being better, but we think that continues to moderate. So I tend not to try and look at it too much on a quarter-by-quarter basis, and we were generally not encouraging people generally to be banking on that on a quarter-by-quarter basis. We were encouraging, obviously, investors to stay longer, so they can see these things play out on a longer-term basis. But no, it's just mix and the spread jumping around a little bit from quarter-to-quarter, nothing else that we should be concerned about. The product -- the interest in the product has actually been very good. And so incremental sales have been very easy to come by not because we're offering them at substantial discounts or anything like that. They're actually pretty good pricing that we're seeing. And our marketing team, I mentioned last quarter, our marketing team has taken a very close look at the product quality specs that the products are being offered into the marketplace. And we will be pushing an improved specification as the official position for these products in this coming quarter. So I mentioned that last quarter. That's certainly the case. And obviously, that's no new news to people who like the product and you can sort of understand why they like it so much because they probably were getting it, a better product than what they were paying for. But for new customers, with the republished specs on these products, we'll be driving the realization question northward, that's for sure.

Okay. That's clear. And just another question on whether just interested in how the weather has been in January given this quarter is historically the lowest ROM production in Queensland. I think it's well known that this quarter is the lowest. And just also consensus currently has Q3 production will be higher than Q4, at least Blackwater. So would you expect that? Or is there any reason for this? Or are you expecting Q4 to be higher?

Well -- I'll have Ian talk through the weather. But as to why consensus will be doing that, I don't know. Because you just said that it's well known to Q3 is generally the one that sees the most weather impacts. And on top of that, we haven't been giving a sculpted guidance range quarter-to-quarter. So what the consensus we'll doing that, I'll leave that for you all collectively to work through. Ian, weather?