Thank you for standing by and welcome to the Stanmore Resources Limited Quarterly Activities Report 1Q 2024 conference call. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. If you wish to ask a question, you will need to press the star key followed by the number 1 on your telephone keypad. I would now like to hand the conference over to Mr. Marcelo Matos, Chief Executive Officer and Executive Director. Please go ahead.
Thank you. Morning, everyone, and thank you again for joining us today to go through our first Quarterly Activities Report for 2024. It's been another strong quarter for Stanmore operationally, with production and shipments tracking on plan and in line with the guidance run rate, with good recovery from the weather events experienced in the quarter. Market conditions were clearly weakening, with the headline "Premium Low Volatile Hard Coking Coal Prices Reducing" by around 32% over the quarter as demand conditions softened and some recovery in global supply materialized. Nonetheless, we take a little bit of comfort in a relatively lower impact to PCI prices, as PCI prices found some support and relativities to Premium Low Volatile Hard Coking Coal improved slightly from the previous levels of low 50%.
We also remain optimistic that post-seasonal factors in India, such as the monsoon season and the unfolding of elections as well as further new coke ovens commissioning, together may provide a positive catalyst to prices in the second half of the year. The March quarter has seen some exciting developments on the corporate and M&A side, including the acquisition of 100% of the Eagle Downs project and the addition of Stanmore to the ASX 200. Starting with safety, unfortunately, we recorded one incident that was categorized as a serious accident during the quarter, which was a result of a finger injury requiring hospital admission that occurred during the assembly of an exploration drill at Poitrel. The operator is well and recovering well. We also have seen a spike in hand and finger as well as musculoskeletal-related non-severe injuries, which are, of course, always a concern.
We are committed to continuously improving our safety standards to maintain our track record, including implementing the learnings from any injury and continuously improving our standards. Overall, our safety track record remains robust, with our rolling 12-month serious accident frequency rate of 0.35, remaining well below the latest industry average. Moving on to operations, South Walker Creek had a solid first quarter with record quarterly dragline stripping, enabling strong pit setup and prompt recovery from wet weather early in the quarter. Combined with healthy opening stock levels, this ultimately delivered raw production to move above the quarterly plan in March. CHPP performance was boosted by above-average yields of 78%, driven primarily by the timing of feed mix. With the rollout of the additional ultrafine recovery circuit last quarter, we expect that overall yields are set to be benefited by approximately 1% improvement over the course of the year.
Projects-wise, South Walker Creek Expansion Project continues to progress well with the mobilization of additional fleets, commencement of strip mining at Y-South, and the awarding of the majority of the construction packages for the CHPP expansion. The tie-in of the dense media cyclone module to the CHPP is expected to occur in the fourth quarter this year, aligned to a planned major shutdown to minimize any additional downtime. MRA2C remains ahead of schedule and well below budget, with 45% of bulk works now complete, equating to around 2.9 million BCMs. Poitrel coal production returned to normalized levels quarter-over-quarter, following strong coal mining volumes late last year, which have been brought forward into Q4 2023 starting 2024 with very healthy ROM stocks.
We took the opportunity to return focus on catching up on stripping activities with the optimization and lengthening of those pushbacks and increased cast volumes, driving a 32% increase in stripping compared to the same period last year. Saleable production and shipments were strong, with strong utilization of the wash plant and fine-tuning of feed blends to improve yields. In the last quarterly, we were pleased to report that the Southern Levee had reached the milestone height to manage a one-in-a-thousand-year flood event, and that was below budget and ahead of schedule. I can now confirm that the Levee is almost complete, with the final certification and project completion expected in the second quarter. Finally, still at Poitrel, stripping and coal mining at Ramp 10 North are progressing well and ahead of plan despite the wet weather, with much less impact compared to the same period last year.
Lastly, at Isaac Plains, despite the fact we don't have many mining areas and less flexibility compared to the other two open-cut operations, coal mining trended up through the quarter, overcoming challenges with wet weather, dragline availability, and geotechnical challenge in January to exceed plan overall and rebuild stockpiles to healthier levels. CHPP performance was impacted by the timing of coal flow concentrated later in the quarter, which resulted in below-run rate saleable production and sales. We don't foresee any issues and believe we should be fully caught up to our expected annualized levels by the end of the first half. Pit 5 North is now well established, and expect coal flows to increase in that satellite pit through 2024 and early 2025. Before I hand over to Shane, just wanted to give a quick update on the other development projects and exploration going on across the portfolio.
Development activities at Millennium have experienced some challenging conditions, with the remnants of non-geotechnical issues and water management impacting development coal in the southeast mains area of the mine, where the second production panel was set to be established. Productivity of the first production panel has been encouraging, culminating in 119,000 tons of raw coal and 90,000 tons of saleable production for the first quarter, though still below our expected plan levels. Across the portfolio, recommencement exploration at Nebo West, next door to South Walker, and studies at Lancewood are progressing well with the processing and analysis of seismic data and planning for field works during the second quarter, as well as continuing work on infrastructure options to support the project.
Obviously, we are yet to complete on the respective Eagle Downs transactions, but we are excited to get our hands on the assets to commence further optimization studies and build our understanding of how this opportunity may form part of our long-term strategy. I'll now hand over to Shane for an update on cash flow and corporate activities.
Thanks, Marcelo. While our Q1 production performance drove strong operating cash flows for the quarter, cash was used in funding our $76 million dividend payment in March and the delivery of our extensive CapEx program, which you may recall were guiding to between $165-$185 million over the course of the full year in 2024. The timing of sales and cash receipts also saw a working capital build towards the end of the quarter, which, when combined together with the dividend and Q1 CapEx, ultimately reduced consolidated net cash by $40 million over the course of the quarter.
It should be noted, however, that this working capital build has already started to unwind, with strong cash receipts from Q1 receivables in the first week of April contributing to a net cash improvement of $63 million in just that week alone, corresponding to an increase in net cash to $149 million by the 5th of April, as highlighted in our report. This, along with the receipt on the 16th of April of $136 million from the recently completed Wards Well South transaction with Peabody, sees the balance sheet well positioned for upcoming cash requirements in the second quarter. Financing cash flow sweep for 2024 of $77.5 million was paid against the SMC acquisition financing facility in February, which, together with $15 million of scheduled amortization in Q1, has reduced the principal balance of that facility to $225 million.
Remarkably, total repayments to date of that facility amount to a reduction of 64% in the principal balance of the debt in just under two years since it was taken out to fund the BMC acquisition in May 2022. Of course, a large highlight of the quarter has been the successive announcements to separately acquire both 50% interests in the Eagle Downs metallurgical coal project from South32 and Aquila, respectively. This will ultimately bring Stanmore's ownership to 100% of Eagle Downs and provide Stanmore with full control of the project. We look forward to completing on those acquisitions and providing further updates to the market as we build our understanding of the project, including opportunities to leverage our unique infrastructure and logistics portfolio to facilitate its development. Finally, we are pleased to report there's no change to our guidance figures released for the annual results.
This demonstrates the resilience of our portfolio and is a credit to our operations team in the way that they have continued to maintain strong production performance following on from 2023's outstanding performance. I'll now hand back to Marcelo to close out the report with an update on coal markets.
Thanks, Shane. As highlighted earlier, it should be no surprise that it has been a softer quarter for met coal prices overall, with the headline "Premium Low Volatile Hard Coking Coal Prices Falling" approximately $80 over the period. There have been a number of factors driving this trend, namely persisting softness in the steel demand in China and generally improved global supply conditions for met coal. Meanwhile, in India, despite stocks of Australian coal running low, steel producers were observed to be delaying purchasing decisions at the comparatively higher prices early in the quarter. Nonetheless, interest was seen coming back late in the quarter, which provided price support around the $225 per ton for prime hard coking coal and around mid-140s for PCIs, with prices having already improved since.
We remain optimistically cautious as key seasonal factors, including the India monsoon season and upcoming elections, play their part, where continued coal consumption and a recovering demand, together with the interplay of historically lower inventories, should theoretically provide support for prices thereafter. On PCI specifically, while prices are also trended down in the quarter, the relativities have improved with the Premium Low Volatile PCI index sitting at 65% of PLV as of today, which is an indication that the PCI market has found some support at these levels and has been more balanced, with the new rolling out of sanctions in markets like Korea having potential to play also a positive role in creating additional demand for Australian PCIs.
We are also encouraged by the recent uplift in overall demand and prices through the middle of April, showing signs of improvement sentiment in China as well as increased demand from India. I'll now hand over to the moderator so we can take your questions before we conclude the call.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. And if you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Brett McKay from Petra Capital. Please go ahead.
Morning, Gents. Another solid result. Just a couple of quick questions from me. Just the timing of the studies on Lancewood and Eagle Downs. I know that we've sort of had a very, I guess, loose idea of the expected timing of more detail on both those projects. But are you in a position to give us any more granularity at this point or not yet?
Morning, Brett. Look, it's lots of work going on in Lancewood as we speak, not only on actual data interpretation, okay? We've done. I mean, we've ramped up exploration and seismic quite a lot. And of course, that will include a bit of coal quality work as well. So that, of course, takes a bit of time. But in parallel, as we explained in previous discussions, there's a lot of work going on on the optioneering around infrastructure solutions for the project. That's progressing, obviously, with the conclusion of the Wards Well transaction. I think, let's say, the study of options, now we can really contemplate using the Centurion, which is the renamed North Goonyella complex, as part of the option studies, given that the transaction now is done and dusted.
But our focus is more towards the, let's say, the second half of the year for us to be able to update the market with a bit more flavor on what to expect in a way that we can narrow down the development path for the project around the infrastructure. That's going to be the key let's say, the key direction that we expect in the second half, as in, I mean, what is the appropriate infrastructure path to support development of the project. As far as Eagle Downs is concerned, I think, I mean, we closed the two deals in a sequence. So they will be completed. We expect them also to be completed in a sequence. The Baowu transaction also requires some regulatory approvals in China, okay, by regulators like the SASAC, the State-owned Assets Supervision and Administration Commission.
So that's, I would say, a third quarter story in terms of a completion timetable, possibly. And we are now, of course, working on setting up ourselves to do all the, let's say, the optimization studies. More realistically, it's, as I explained before, probably going to be more early 2025 type of timing as to when we should be able to understand, I mean, what the project can look like, especially around startup development capital, okay?
Okay. That's great. Thanks for clarifying, Marcelo. Just another couple of quick ones, if you don't mind. Just on the South Walker Creek shutdown in Q4, can you remind us how long that time is expected to take?
A 14-day shut. We would be shutting we would be doing the shut anyway. It was already planned as part of the main CHPP plan maintenance. So it is critical that we take the opportunity to shut together for the time in to avoid to have to do a second shut if, for any reason, we experience any delays, okay? So as you know, the wash plant at South Walker is the bottleneck. So if we need to stop the plant once again in early 2025, that would be it will have production implications. So we are working hard to make sure that that happens. So far, so good. I think everything is on track. And now, of course, we will avoid, as best as you can, to have to do a second shut. But it's a 14-day shut, okay?
Okay. Just clarifying, clearly, that's being baked into the production guidance for the year for that asset?
Correct. Yes.
Yep. Yep. Just maybe one for Shane, quick. The receipt of the money from Peabody in early and mid-April, respectively, it looks like that net cash balance, all else being equal, is now at $285 million, up from that $86 million that you reported at the end of March. Is that a fair representation of where you might be around that middle of the month of April?
Yeah. I think that's in the ballpark, Brett, following the turnaround in some of those receivables as well as the cash coming in from Peabody. It's sort of there or thereabouts.
Yep. All right. Perfect. Thanks. And just finally, on Millennium, can you just remind us how long you expect that difficult portion of the deposit to be around for before you sort of get both of those panels up to the full production rates?
It was always approximately around a three-year story at Mavis, Brett. So it is a short-life asset. The idea was always to move that setup into the Millennium A-Pit. It's been challenging, okay, I think, for initially geotech, water, and conditions around the first series of panels. I think the major contractor is experiencing labor constraints as well. I think, I mean, we've rarely have been able to man both panels to have all the, let's say, the uptime, the operating hours we would have expected. Multiple challenges. It was always a project that, as we've discussed before, was always very cost,priced and production-dependent, given that the setup with that contract is mostly, let's say, a fixed-cost type of structure.
So we are now expecting—I mean, the plan was to start secondary extraction from late May, okay, during June, which will, of course, improve recovery because now we are not doing secondary extraction yet. But of course, we are now doing a good review, Brett, because we need to understand what we can expect, okay, in terms of tons at different coal prices to make sure that we are managing that project prudently. I mean, it is requiring additional working capital injections to continue to grow. But as I said, I think we're always going to be making sure we have a lot of discipline on how much—I mean, how much cash we keep, let's say, investing in the project depending on how the market landscape looks like, okay?
We are producing at the moment around 40, just 40, a little bit more than 40,000 tons of ROM at this sort of rate. If we were to introduce secondary extraction, we could expect probably another 20+. But I think the plan was always to do a lot more than that. It was always to do closer to the 800,000 tons of ROM per year or above that. At lower coal prices, it becomes a much less attractive value proposition. Of course, we need to make sure we manage that asset with a lot of discipline.
If you made the decision to, let's say, place it on care and maintenance because of coal prices, would there be any material financial impact?
Look, I think we are reviewing all options, Brett. I think care and maintenance is, I mean, whatever way we want to call it, it's I mean, if anything, if we were to do something, it would be a temporary suspension of production. But I think we are not there yet. I think we are considering the options. And of course, stopping, it needs to be a lot worse than continue to mine it. And I mean, I don't think it's going to be a material impact for Stanmore as a whole, given our size at the moment and how the project compares to our overall size. But as I said, we always look at that relatively to continue to mine, with coal prices being a very important input, okay, into that decision.
Thanks very much.
Thank you. Your next question comes from Jim Zhu from Barrenjoey. Please go ahead.
Hi, Marcelo. Just a couple of questions from me. Despite the rain in the quarter, you still managed to have a pretty strong quarter for production. Should we expect to see that run rate maintained in the June quarter, or did you prioritize saleable production in the quarter given the heavy rainfall?
Well, look, we've done 3.3, right, Jim? So it's right on the mark around mid-range in that guidance range. So actually, we were originally planning to do a lot more than that. Our original plan for Q1 was a lot higher, which I mean, with the impacts, we are basically now back to, let's say, mid-type of the range. I think Q2 will be a strong quarter. We'll find that this year, the first half of the year, we'll look a lot stronger from both coal flow and sales than, for example, relatively to last year. We will have a slightly lower second half this year compared to last year, simply by the fact that we did bring a lot of coal forward into Q4 last year. We started the year with very healthy inventories as well, okay?
Okay. Thank you. Maybe just following on that Millennium and Mavis conversation, can you give any guides on kind of break-even price that that might?
It all depends on how much tonnage we can get, Jim. It's always been a, let's say, a very thin, let's say, balance between tons and coal price, okay? Getting the tons was always critical. It was always an opportunistic project, given that it was a, let's say, it wasn't a large amount of CAPEX to start. The prolonged ramp-up and the challenge experience, of course, brought some additional headwinds. At the current pace of production, which is around 40,000-50,000 tons of ROM at current prices, we are not making any money, okay? We're actually having to put more cash to sustain operation. We obviously expected tons to go up.
What we are doing now is, of course, a lot of trade-off and sensitivity analysis to understand at different production levels and different prices what we can expect because for every month, we keep going at this sort of production rate and price. We are putting actually more working capital into the project, okay? But what I can tell you is that at current prices, even if we were producing a bit more, it would still be like a very marginal outcome for us, given the effort required, okay? We need a substantial increase in production relatively to where we are today at current prices to be, let's say, for it to be a bit more meaningful as an operation for us, okay?
Okay. Understood. And maybe just a question on the market. We've seen a big step up in the PLV price last week to about $250. You've mentioned that demand conditions have improved. The Indians are coming back into the market as well. Have you seen has the Indian restocking demand passed, or is there still a bit there left?
Oh, good. Still have monsoon coming, right? So I think that's something we need to still wait and go through. There's been some controversial reaction from mills, okay, from buyers around that big spike we saw from 225 to above 250 a few days ago. It was a premium fresh cargo out of Queensland that brought prices up $25. So we need to see if that's going to hold. I think, interestingly, a lot of the previous activity that brought prices down significantly was not fresh tons being offered by producers. We saw a lot of activity in the past with traders, with unlocking positions, and even steelmakers offering cargoes. So this was probably one of the first times we've seen a fresh cargo offered that had a meaningful impact to prices.
So I think the good news is we saw that there wasn't a lot of fresh tons activity that was driving prices down. I think PCI, we haven't seen any significantly, let's say, offering as well. And you'll see that PCI is just following hard coking coal, hopefully now at a higher relativity. If price were to move now on the premium coal side of things, we might be seeing PCI moving together, hopefully at a higher relativity as well. So still a bit early, Jim. I think we need to see if that's going to hold. As I said, there's been a bit of reaction from steelmakers questioning whether the market was there at that level for this cargo that was bid and brought prices up to $250.
Okay. Thank you very much.
Thank you. Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question comes from Tom Sartor from Morgans Financial. Please go ahead.
Thanks, Marcelo. And Shane, most of my questions have been answered. Just one on the debt facility. You mentioned you'd been doing some planning on testing that market for refinancing once the window opens in May, after which it can be done at par. Just curious if you've progressed on that and if we can expect some news on that during the calendar year, perhaps?
Yeah. Thanks, Tom. Look, we are starting to explore options in that regard. As previously mentioned, it's a good opportunity with the non-call period expiring in just a couple of weeks. So it's an opportunity for us to reconsider our facilities and have them more right-sized for a company of our complexity and our size. And so yeah, we've started exploring that in earnest. And we'll see where that comes out over the next quarter or so.
No worries. That's all I had. Thanks, guys.
Thank you. There are no further questions at this time. I'll now hand the conference back to Mr. Matos for closing remarks.
Well, thanks, everyone, for your questions and joining the call today. As always, I would like to thank our teams, employees, and contractors who are the key drivers for our business success operationally and the ongoing support of our investors in the equity markets. It certainly continues to be a busy and growing period for Stanmore, and we look forward to continuing to update the market on further developments. Thanks, everyone. Thanks for your time.
That does conclude our conference for today. Thank you for participating. You may now disconnect.