Good day and welcome to the Stanmore Resources Limited Full Year 2022 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press Star followed by 1 on your telephone keypad. If you would like to withdraw your question, press the Star 1 again. For operator assistance throughout the call, please press Star 0. Finally, I would like to advise all participants that this call is being recorded. Thank you. Today's presentation speakers are Marcelo Matos, CEO, and Shane Young, CFO. I'd now like to welcome Marcelo Matos, CEO, to begin the conference. Marcelo, over to you.
Thank you, and good morning, everyone. Thanks for joining us today for the call. I would like for us to begin acknowledging the traditional owners of the land on which we meet today, the Turrbal and Jagera peoples here in Brisbane. I also acknowledge the traditional custodians of the lands on which our operations are based, the Barada Barna, the Jangga, and the Widi peoples of Central Queensland. I pay my respects to the elders, past and present. Pleased to be with you on this morning in sharing our 2022 full year results. I'll begin the presentation with an overview of the financial 22 highlights. Despite some headwinds, as a result of inflation, supply chain disruptions, and unprecedented wet weather, we are pretty pleased to report 22 delivered pretty strong operating safety and sustainability results for Stanmore.
The completion of the acquisition of 100% of BMC, which is now renamed as SMC, was the highlight for us, transforming Stanmore into a leading net coal producer with 4 operating assets strategically located within 50 kilometers of radius. We are particularly pleased with our results in safety, with a significant reduction in our injury frequency rates, all whilst our mining operations were transitioning to Isaac Downs. It was a pretty busy period in Isaac Plains with a lot of activity. Of course, the inter-integration and the major efforts to integrate the SMC sites. It was a pretty impressive safety performance, and I'll cover that in a bit more details.
The growth in our production profile during the coking coal price tailwinds in 2022 enabled us to generate significant cash, which is demonstrated with our underlying EBITDA in our operating cash flows. Building value and capital appreciation for our shareholders and enabling our rapid deleveraging during the year. Also now we're just early a couple of weeks ago in January, where we made our first large cash sweep payment, which Shane is gonna cover soon. Our underlying EBITDA was $1.456 billion U.S. Significant jump compared to what we're seeing here in 2021. Our operating cash flows of $1.182 billion U.S., relatively to the $96 million we've seen in financial year 2021.
With the share price jumping 245% in less than 12 months since our entitlement offer in March 2022. Just moving on to our safety performance in slide 5. Of course, safety is our number 1 priority, and we are pretty pleased with our We have the employees in our new, let's say enlarged workforce embraced our safety journey and aligned and supported the transition process. Been a lot of learning. Strong and positive culture since the integration of the assets. Lots of learnings and of course, best practices shared across the now integrated businesses. Successful integration of the safety and health management systems from BHP. Development and implementation of new systems.
A shift from focusing on lags to lead safety indicators, together with simplifying the way we manage injury and hazards, and our incident and investigation processes. You can see here that despite the huge jump in exposed hours in the larger business, we've seen an outstanding effort across all our sites, resulting in our recordable injury frequency rate down to 1.5, significantly below industry averages. With Isaac Plains, the whole complex, with the Isaac complex currently running injury-free for 15 months despite the significant activity and transition work that we've seen at Isaac overall, including the moving to Isaac Downs, the taking over of the CHPP owner operators, and the changing of mining contractors and also haulage service providers.
Moving to slide 6. In conjunction with our growth story, Stanmore has also sought significantly growth in sustainability in our maturity journey towards our sustainability journey. We released our first sustainability report back in 2021, and we have since developed a roadmap. We've conducted emissions data assessments, developed clear objectives and targets ahead of releasing our next sustainability report, which is coming soon, by the end of March. As highlighted on this slide, we believe the various materiality topics will provide us with the right direction to focus on the needs of our internal workforce and external stakeholders. We will continue on our sustainable development pathway to ensure we maintain our social license in this very dynamic space.
In slide 7, here you can see an example of our forward-looking aspirational objectives and targets, in this case, in relation to land management and rehabilitation. More There's a lot more that will be coming in the sustainability report to be released. You can see here was a pretty impressive track record with 2022, 270 hectares of rehabilitation, including leveling, recontouring, topsoiling and seeding. Vast majority was done in Isaac Plains. There's some nice pictures in slide 8 here. You can see the green shoots in Isaac Plains, a significant amount of work done. I mean, one of the benefits of wet weather is to be able to see seeding and the green shoots already starting now in January.
Moving to slide 9. Given the regional location of our assets, we view the opportunity to engage with traditional owners in the local communities as one of our most impactful ways to provide a good and positive social impact. In addition to the landmark Indigenous Land Use Agreements that we announced last year, we are working now also with Reconciliation Australia to endorse our draft Reconciliation Action Plan, which been recently updated to include traditional owners across our expanded portfolio. In Poitrel, the New to Industry Program was another highlight, providing the opportunity for employment to more than 60 new to industry trainees to date only. There's more coming. We continue to seek opportunities also to prioritize local vendors in our supply chains and provide funding, donation opportunities to local communities.
Obviously, on the left side of the chart here, you can see significant contribution to Queensland via the coal royalties, around $458 million, after the latest royalty increases. We do expect this amount actually to be higher in 2023, given that we're gonna have a full year of operations with the acquired assets, South Walker Creek and Poitrel. Assuming, of course, that the prices remain strong. Moving into operations and the performance of the mines in slide 11. You can see there was a very strong operational performance across all sites, despite some significant headwinds. We had a wet weather, unprecedented, unseasonal wet weather, inflationary pressures. Strip ratios, they are lower year- on- year.
They're mostly driven by the transition first to Isaac Downs, which is, of course, a new young mine with low strip ratios. Also with the introduction of the low strip ratios, SMC assets, especially South Walker Creek, which is blessed with the large reserves of low strip ratio, high quality coal. Various records achieved during the year, and most importantly, very consistent performance across all sites. We do continue, though, to experience inflationary pressure on inputs, on input costs and consumables, which unfortunately, we do expect to continue to feel during 2023. In South Walker Creek, slide 12. South Walker is really industry leader in, if you look at lag indicators of safety performance. Only had two non-severe recordable injuries between May and December.
We have multiple pits being worked at any one time, providing us with a lot of flexibility in the operation, especially when events such as rain or even geotech hazards happen. Of course, minimizing downtime and providing us with flexibility to, of course produce our products and blend different satellite stockpile coals. I mean, we have significant improvement. We do expect significant future improvement and expansion opportunities. I think we've approved MIHC project during the year, and I'm gonna talk briefly about what that project means for South Walker. A best-in-class CHPP performance with leading availability and reliability metrics. Last week alone, we've done 164 hours in that wash plant. With a pretty robust throughput rates.
It is a fantastic wash plant, generating best in class performance. In Poitrel, we had above run rate production during this financial year 2022, and that's important to highlight. If you annualize the Poitrel performance since we took over in May to December, it is reasonably higher than the normal annualized historic rates. Of course, that has allowed us to Stanmore, us to benefit from the good strong market momentum. And the discipline by the Poitrel team in turning what is a very busy pit around now with seven fleets in a constrained strike length, it's been very impressive. Lots of discipline and a pretty impressive outcome for 2022.
We produced 2.812 billion tons with a 96.2 FOB cash cost and an average selling price of $271 at Poitrel. The development of Red Mountain in Poitrel, it's gonna be important. It's gonna leverage the current prices to help us transition to a major fault to ensure the future sustainability of volumes at the operation. Of course, managing strip ratios and maintaining good strike length in what I said is a very busy pit. We've seen optimization also and streamlining the operations of the RMI wash plant. With both RMI and Poitrel now consolidated under a single safety and health management system in a single SSC. Still lots of opportunities for additional tow washing arrangements.
We have been washing already Isaac Downs at RMI since late last year. As I spoke in previous presentations, we did commence mining and processing two seams, the Vermont two and three plies and the Vermont Lower at pretty low incremental strip ratios and enhanced costs, which was a fantastic opportunity to bring incremental volume during 2022 and to assist with these results. Also going forward, incorporating some of these volumes into our reserves. The Isaac complex in slide 14 produced 2.401 billion tons of sellable coal during the year with an FOB cash cost of $80.8 per ton U.S. U.S. Average selling price of $270 per ton.
It was a year of lots of milestones for the IP complex. As I explained before, the change out to a new mining contractor, the transition of CHPP operations from contractor to owner operated. The key infrastructure achievements, the construction and the start of the underpass, haul road. Of course, the transition from Isaac Plains East to Isaac Downs, the relocation of the drag line. As I said before, first-class rehabilitation performance for the year, all completed without a single recordable injury. A pretty impressive year for Isaac Downs. More to come in 2023. Concluding with Millennium, pretty good safety outcome for Millennium as well. For the complex has been outstanding. We had no recordable injuries since November in Millennium, with a TRIFR rate at zero.
We did finish 2022 with just above half a million tons of raw coal production. A majority from open-cut mining and a small amount, 50,000 tons from opportunistic auger mining out of the existing high walls. The high price environment during the year increased the economic envelope also of the open cut in Millennium, presenting some opportunities to mine some additional incremental coal, around 100,000 tons relatively to what we envisaged in the beginning of the year. In 2023 is a transitional year for Millennium. The underground development is ongoing. We expect to be reaching nameplate capacity during 2023. We have faced delays in the underground project, especially due to geotech and weather issues.
We are now still hoping that by the end of the year, we should achieve nameplate capacity at the underground. I'll hand over to Shane to cover in more details our financial results.
No worries. Thanks, Marcelo. If we start on slide 17, I think it's important just to recap exactly how this year has been so transformational for Stanmore, beginning with the equity raise back in March, and then the 80% acquisition of SMC, completed in May. We've weathered the storms of higher royalties being announced at midyear and then come through and wrapped up the remaining 20% of SMC announced in August and also completed in October and funded through cash. All in all, it's been a transformational year and one in which we've been able to generate significant total shareholder returns with a 245% return on investment for those who participated in our equity raise at $1.10.
This was driven from some fantastic financial results for 2022 on slide 18. To summarize some of these, all in U.S. dollars, as our functional reporting currency is now, $2.7 billion worth of revenue, almost $1.5 billion U.S. of underlying EBITDA, which translates to AUD 2 billion and cash flows in Australian dollar terms of about AUD 1.7 billion. Remarkable year and really no comparison to the prior year earnings of 2021. I think you also see that manifest in the graph on the right-hand side of this slide, where we see a decrease in the coking coal price from the H1 to the H2 , yet an increase in overall revenues for the organization.
That's just a reflection of now having a full six months ownership of the SMC assets. It's always something that we have to remind ourselves in looking at all of these financial results is that they are only including eight months of Poitrel and South Walker Creek's results. We haven't yet owned the assets for a full year. A little bit more detail on slide 19 on our income statement. Obviously those results have manifest themselves in a very strong net profit after tax figure of $727 million, which is AUD 1 billion.
That has been adjusted for a couple of below-the-line items, one which being the inventory revaluation adjustment and out of our purchase accounting, as well as some adjustments for the one-stop transaction costs associated with the acquisitions. Overall, a remarkable result, almost over AUD 1 billion of net profit after tax being generated. This has enabled us in the following slide to meet one of our cash management and capital management objectives, which I'll talk to in a moment, of strengthening our balance sheet to deleveraging our business. As you can see on slide 20, the change in net debt. The net debt upon acquisition of the Stanmore SMC assets was approaching that $750 million U.S. mark, which is close enough to AUD 1 billion net debt.
Very quickly, over a four-month period, we've been able to reduce that almost down to a net cash position just through the strength of operations of the new assets and careful cash management. It peaks again in October as we make the acquisition using internal cash sources for the 20%, and wrapping up the total ownership of SMC, and then again continues its trajectory down from that point forward.
Overall, in total debt terms, we've reduced total debt from the acquisition by about over 50%, with $500 million of deleveraging, half of which was prior to the end of the year, and the other half, $252 million being contained in the cash flow sweep, which was paid in February this year based on cash flows generated in 2022. Slide 21, we talk to our capital management strategy and a lot of the deleveraging efforts play very strongly into our strategy in delivering on that. It's a four prongs approach. It starts with value protection, which is really the manifestation of a strong operating performance as we talked about earlier.
Balance sheet resistant resilience, which is highlighting and has also been shown in our deleveraging efforts over the course of 2022 and now beginning in 2023. Shareholder returns, as mentioned earlier, the significant improvement and overall shareholder returns is illustrated through our strong share performance, share price performance. That enables additional capital investment and returns, using that strong balance sheet position and excess cash flows. Finally, on slide 22, obviously it's been a significant year of transition for Stanmore. In that respect, we're always conscious though of our dividend policy and our objectives in that area to return value to shareholders. In considering our dividend policy for 2022, the board looked carefully at the cash flows and adjusted free cash flows generated by the business in 2022.
The significant cash flows from operations were used to fund obviously capital expenditure, but also our acquisitions and primarily that of the Mitsui 20% acquisition, as well as the deleveraging efforts that I spoke about earlier, both pre-end of year and immediately post-end of year with the cash flow sweep payment made in February. This would leave us with adjusted free cash of around $100 million, which could indicate a dividend of 50% of that or $50 million. In the context of total shareholder returns and an effort to assist with strengthening our balance sheet after what has been an extremely busy 2022, the board has resolved to retain that cash at this time.
Of course, we'll continue to always review and consider our cash returns to shareholders in the context of our dividend policy on an ongoing basis. At this point, I'll hand back to Marcelo for to look ahead and priorities and outlook for 2023.
Thanks, Shane. Just looking at slide 24. Here we have a summary of our strategic priorities going forward in three different key areas. The first one is basically optimizing what we now own, the portfolio of operating assets and accelerating delivery of value out of this enlarged portfolio. A lot of opportunities, and we are now running those three operations at historical steady state rates. They have the bottlenecks in the three operations are well understood and learned at the moment, with lots of work going on understanding how to unlock value and realize some of the synergies. They are of course, always being assessed, with some already being captured, as I said before.
Product blending, the haulage of coal through, between Isaac Downs and Red Mountain, equipment sharing amongst others. In number two, as we can see here in this slide, we have now a much more comprehensive project pipeline than we had before this acquisition. We are just here highlighting some of the key priority projects. Of course we have a portfolio statement that's a lot, it's more extensive than this. But you can see here on the exploration front, Bee Creek and Eba West in South Walker Creek, which are projects that are here categorized as being replacement projects for depleted reserves going forward.
Also a potential expansion opportunity, if we were to expand our wash plant and expand South Walker Creek. With the Isaac South project in the Isaac Plains complex, which is just further south from Isaac Downs and also, let's say the natural progression of the open cut developments in the Isaac complex. On the development front, we do have a very interesting opportunity in 2023, which is the pit 5 in Isaac Plains. It's a small 1.5 million ton run of mine resource at Isaac Plains, at around 12 to 1 strip ratio, which we could bring into production reasonably quickly.
We are now looking at accelerating development of pit five to benefit from the expanded CHPP capacity now at Isaac Plains. It's work in progress as we speak. Isaac Underground is also being revisited and updated. It's, I mean, We have presented this before as mining around 20 million tons of exposed high walls in Isaac Plains North. We have the Kemmis North project at South Walker, which it's quite far away north from the existing wash plant. It's an interesting opportunity, again, for potential replacement of capacity or as part of an expansion or even as a potential separate satellite project. The Poitrel extension, a lot of work at the moment on, of course, looking at opportunities to expand life of Poitrel.
Relatively to South Walker is a shorter life operation. The Wardwell project, which actually we are now splitting between two separate developments. The Lancewood leases at the north part of Wardwell, we are now calling it Lancewood, is an interesting potential development with a good amount of open cuttable coal as an opportunity. The Wardwell, the massive Wardwell underground development further south. In the existing operations, we've approved the MRHC creek diversion project in South Walker. Extremely quick payback project to access low strip ratio reserves with shorter haulage distances to the wash plant.
It could be an improvement project in its current form, but it could also be a very important project as part of a potential expansion in case we were to pull the trigger to expand South Walker Creek. We're committed to the upgrade of one of our draglines in South Walker Creek from DC to AC, which is gonna provide a lot of benefits, including increased reliability and lower emissions. The development of Ramp 10 in Poitrel, I spoke about, which is ensuring consistent strike going forward, accessing low strip ratios across the major fault that we were facing in Ramp 10.
The construction of the eastern levees, just close to the Isaac River to protect our southern pits in Poitrel, with the certified flood protection structures. A pretty busy path ahead of us with a lot of opportunity in the large portfolio. MIH2C, as I spoke about, it's all about accessing around 58 million tons of reserves in slide 25. A lot closer to the wash plant, increasing dragline strike length and reducing pit intensity as well. It could, as I said, it could be part of an expansion project. In case we were to pull the trigger, it would become a fundamental element as part of an expansion.
As it stands, it is an improvement project that will keep our strip ratios low and competitive, once we start mining that resource with the extremely quick payback. Work has commenced, with start clearing very soon. On slide 26, it's a snapshot of our reserves and resources base. It hasn't materially changed since the last time we've released this. It's just natural depletion since then. As everyone can see, a pretty robust reserve and resource base to support not only the existing operation but eventually, incremental growth going forward. We have a portfolio now that present a very interesting and capital efficient incremental volume opportunities. On slide 28. Met coal market remains very pretty robust.
I think we've seen peak prices during 2022. Very volatile, though, as, I mean, the first of course peak to $670 was a reaction to the start of the Russian sanctions. We're now seeing the reopening of the Chinese markets presenting potential upside again to demand for seaborne met coal. Still demand though remain prone to supply chain disruption and, or subdued end user demand as a result of the ongoing global inflationary pressures. Australian supply performance should recover as the wet weather season abates through Q2 and mid 2023.
We, however, continue to see installation of new blast furnaces, primarily in Southeast Asia and India, supporting a net increase in seaborne met coal demand in the medium and long term going forward. We do expect of course prices to normalize from the recent very high levels that we've seen during 2022. That includes as well the relativity of some of our products, for example, including the PCI price realization relativity against the premium low-vol coking coal references. They were extremely high during 2022. They already started to normalize. They already now around the late eighties or 90%. The historical levels for PCI, it trends between 75%-80% or to low 80%.
I'll hand over now to the moderator, so we can start then the Q&A session. Thank you very much.
Thank you. At this time, I would like to remind everyone, in order to ask a question, please press star then 1 on your telephone keypad. Your first question comes from the line of Tom Sartor from Morgans. Your line is open.
Good morning, gents. Thanks for your time this morning. Just a few quick ones from me. You're not giving guidance today, noting the comments there. Can you give us a feel though for how you're tracking so far through this, what's been a very wet summer so far in terms of logistics, port and rail slowing down and, you do hold a lot of stock, but, you've made some comments about maintaining production levels on a portfolio basis. Would flat production for the portfolio be a fair result given the wet weather so far? Or any color you can give us on volume this year would be great.
Tom, thanks. I think you're right. I think it was a difficult start with some very, let's say, heavy rain and wet weather in January. Interestingly, of course, the mines were affected, but I think the worst impact was at the port, right at DBCT, which was, I mean, exposed to a significant amount of water. It took some time for the port and even, of course, the rail system to recover from the rain. January was heavily affected in terms if you look at shipments and train cancellations. We of course, are hoping to be able to recover now in February and March.
I would say that it would be possible to recover to what we would expect to be a reasonable annualized production levels within Q1. That will depend, to be very frank, a lot more on the performance of the rail system, okay, than on our co-availability. I think the operations have recovered well. South Walker ended 2022 with a very healthy amount of raw and in-pit coal inventory. Okay. Although of course we have different dynamics between the three. I would say that production-wise, I see no reason why we would not be able to recover to what would be a healthy annualized levels.
Again, the performance of the railing system is gonna be what's gonna be the main defining factor on whether we should be able to within Q1, for example, to recover to what we would otherwise be planning to achieve.
No problem. Thank you. You've spoken before about the optionality in the portfolio around incremental production, third-party processing, that sort of thing. Just thinking about Kemmis North and Lancewood, is the environment for being able to negotiate access to additional rail and port capacity becoming any easier or can we expect sort of progress on that front potentially through this year?
Look, I don't think the environment is getting easier. I think, I mean, one of the constraints in that system, in the Goonyella system has always been rail below, but more recently also above. It's been above rail performance has been quite a challenge for different reasons between the different service providers. Of course, we are working hard on ensuring we we get trains and we get consistent above rail performance going forward. In terms of securing below rail paths and network paths for incremental tons, I think there are options there in the secondary market. Some of them are more short-term assignments for producers that maybe are not using but intend to use their capacity in the longer run.
As , we have DBCT 8X Expansion expansion with the port where hopes to be able to go ahead with. It also depends on the below rail system expanding. I'm confident that we should be able, Tom, to benefit for some of the opportunities we've been working on. I mean, when the time comes, we should be able to provide a bit more color on that.
Excellent. Thank you. Finally, your dividend policy is very clearly defined, but can you talk about whether the board has a notional target level for what a sufficient amount of liquidity is in the business through the cycle and excluding any cash you might want to reserve for M&A at any particular time? Do you think about a cash buffer that you want to hold in the business like some of your peers talk about, or an amount of liquidity that you think is prudent to maintain through the cycle?
Yeah. Thanks, Tom. It's Shane here. Yeah, we do look mainly to target liquidity and access to liquidity, being in multiple sources, obviously in cash as well as facilities. We do have around $200 million of liquidity available to us in excess of our cash at the moment, and that's something that we wanted to maintain through the cycle. I think it's important to be continually monitoring though the ever-changing environment in which we work and in which the industry is. , we've seen obviously the changes with royalties come through that was unexpected. Having the balance sheet to be able to cover us for all those unexpected items is critical.
Yeah, it is something that, we're very conscious of, and I think that played into, the dividend determination at this point. That's not to say though that we're very conscious of our policy and, going forward is something that, we will monitor and continually review on an ongoing basis.
Terrific. Thanks, guys. I'll pass along that.
Your next question comes from the line of Brett McKay from Petra Capital. Your line is open.
Thank you. Just following on from the previous question on dividends. Are you able to state that you might consider dividends on a half yearly basis, as well as the obvious consideration on a full yearly basis?
Yeah. Thanks, Brett. Shane here again. Previously we had mentioned that we would, at a minimum, look at dividends on an annual basis. That was tied primarily to the existence of our cash flow sweep mechanism under our acquisition financing, which is paid on an annual basis by reference to cash flows from the previous year. On that basis, that would be the minimum at which we would assess for dividends. I think in circumstances of very high pricing and to the extent that we've been able to deleverage our balance sheet, absolutely the board can consider dividends on a more regular basis. It may not happen every year. It will be price dependent and cash flow dependent.
It's certainly something that could be reassessed if we see the very strong coal prices at $400 a ton continuing for the H1 . It's definitely something the board can reconsider, once our half year results are confirmed.
All right. Perfect. Thanks, Shane. Just secondly, relating to your comments in the announcements around the GEAR corporate actions up in Singapore. You've got there a final stop date of August of this year. Is that when you might be able to provide a bit more granular guidance, or would you hope that there's an earlier point in time you can come to the market with sort of more granular production guidance by asset and on the cost side of things? Just trying to get a bit more color around when that might be possible, please.
No worries, Brett. I mean, it's obviously detailed in our ASX release, and as you've touched on, there are some transactions going on at our majority shareholder, GEAR, which basically result in forward-looking information that Stanmore publishes, as Stanmore is a material subsidiary of GEAR, would also constitute forward-looking information at the GEAR level, which would require then a lot of admin and unnecessary costs and burden on Stanmore to make sure that they're all being reviewed by independent experts and assumptions are being tested, etc. That's played into the decision at this point not to release updated guidance, forward-looking guidance. Once the transaction is concluded, then absolutely we'll reevaluate at that time.
Okay. Thanks, Shane. Just finally, on Wardwell, given that sits under the development category in your pipeline, when might you be making a decision as to the approach to take to that project, given it is probably one of the bigger capital projects in the portfolio as it stands?
Brett, as I started to explain before, we are now splitting what used to be called by BHP of the overall Wardwell, let's say, tenure into two separate projects on the way we are naming them internally here. That includes the Lancewood part of that resource, which is the northern part of the mining leases and then the Wardwell, which sits at the south, just north of the Peabody North Goonyella operation. In Lancewood, we have identified a reasonable volume of open cuttable coal, and even a potential extension underground once we mine that open cut resource and, of course have some exposed high walls.
Our focus going forward will be on proving up Lancewood. We will need to do, of course there's a lot of work going to understand what's, what would be the right approach. A lot of, let's say optioneering around to define what's the right approach to develop the resource. There is a mining lease. We will need to do environmental studies and get environmental approvals. It could be a very interesting place to start the project. It's a premium quality hard coking coal. And a reasonable amount of open cuttable coal. Probably sometime this year we should be able to provide a bit more color on where things are at with Lancewood and the development path.
I would say that the southern part of Wardwell, we'll take, let's say, second priority behind what we intend to progress in relation to Lancewood.
Okay, great. Thanks, Marcelo. Cheers. Bye.
Thank you.
Your next question comes from the line of Colin McClelland from Petra Capital. Your line is open.
Thank you. Hi, guys. with thermal coal having sort of dropped back in the last couple of months, does mining the two additional thermal coal seams at, Poitrel, is that still in the long-term plan? secondly, would thermal coal, would you expect it to sort of drop back from the 3% you had in the December quarter back to more normal levels?
Colin, definitely yes, because the incremental cost to mine those additional supplies is extremely low. If you assume that the level of the percentage of our costs are by far the vast majority are fixed, I think, and we are mining those seams with the same setup or the same, let's say fleet. We are not like introducing incremental costs to do that. I think that it's extremely cheap to mine them. That it's very low strip ratios to access them. Yes, it's gonna pay easily even at lower thermal coal prices.
Obviously we need to validate volumes, yields and of course recoveries because a lot of that, those seams, they have not been well explored and we don't have a huge amount of washability tests historically done by BHP given that they were, they were not targets as part of the old mine plan. We are doing a lot of infield drilling and more work to better define those reserves.
Cool. Thank you. Just another one. In terms of the Red Mountain wash plant and hauling Isaac Plains coal, now that the Isaac Plains wash plant has been expanded, is that hauling going ahead or still continuing past March?
We have decided to extend that a bit further. We've had some teething issues with the secondary crusher wash, Isaac Plants since the upgrade. The full secondary crusher assembly has just been actually replaced 10 days ago. A bit more consistent, let's say, results since the restart. To catch up with a bit of the, let's say, the lost hours, we decided to extend the Red Mountain campaign a bit further, okay, within Q2. Going forward, assuming wash plant as Isaac Plants performs well as we hope, I think Red Mountain will be a more opportunistic, more opportunistic assessment on a case-by-case basis. Of course, we have lumpy production from time to time, but that flexibility is there.
Okay. Thank you.
Sorry, just one last question to Shane, probably. You, you had AUD 198.5 million in deferred tax. What's the implications of that longer term, and what can you talk around what that was from and how it'll play out?
No worries. Thanks, Colin. Yes. Deferred tax was impacted this year primarily through the acquisition of the remaining 20% of SMC. Upon owning 100% of the SMC assets, we're now able, in fact, we're required to tax consolidate those mines into the Stanmore group. Upon tax consolidation, there is a tax asset-based reset that's applied. That reset has a future tax benefit to Stanmore, and that tax benefit has been accounted for this year and represent $151 million U.S. Of deferred tax benefit going through the P&L and the tax expense lines. That's what's probably showing up in your numbers, Colin, and obviously was a good benefit of the mid-series acquisition.
Yeah. That's a one-off benefit.
It's a one-off impact to the P&L, yes. From a cash perspective, it'll be a cash benefit in lower tax ex-cash costs over the next 10-15 years.
Yeah. Okay. Okay. Thank you.
Yep.
Your next question comes from the line of John Ogden from Eurasian Value. Your line is open.
Morning, guys. Great result. Well done. Just a few from me. I'll just give you my little list. Yeah. Firstly, I know you're not giving guidance, but if we look at the H2 numbers in terms of costs, volumes and CapEx, I mean, you got a rough ballpark thing to look at. I mean, I think in terms of costs, you've got diesel and so on coming off, some other things like wages might have gone up, but maybe all in all, pretty flat. And then on volumes, I don't know if there's you mentioned the bolts at Point Shell you've got to work around. And then specifically Millennium, I noticed the volumes were low in the H2 and you've got some development going on there in terms of underground.
I don't know if you can give us any flavor on that. Royalties. I don't know if there's any further discussion between the industry and the Queensland Government if they've now got a little bit of remorse about what they did in terms of really sort of disincentivizing any greenfield developments of a what's the world's most important coal, coking coal field. Any thoughts on that? The final one is just on your appetite for M&A. If, obviously, there's a couple of assets with BHP on the market again. One is near your mine, which is quite small, and the other one, Blackwater, is big and further away.
I just wonder if you have appetite for a very big deal or if you're only, you're gonna be kind of more looking to consolidate and won't really be chasing these assets. Any kind of flavor on how aggressive you're gonna be and what's probably gonna be more competitive bidding field this time with prices higher and obviously you guys showing what can be done when you get hold of some of these BHP assets? Thanks very much.
All right. Let me cover the guidance bit first. I'll try to, of course, help you guys as best as we can in the absence of putting numbers out there. I think starting with production, as I said before, I think we are in a pretty, let's say, steady state. If you look at the three operations, South Walker, starting South Walker, it is an operation that has plenty of options and ability to produce run-of-mine coal with the current bottleneck being wash plant, which been running at this 6 million ton per annum product coal rate. Okay? That's the steady state for South Walker Creek. I see no reason why steady state is not achievable during 2023.
We are now, as I said, working on what's next, what to expect, how we can accelerate delivery of value in that asset. It will require some debottlenecking projects. MRHOC is a project that now is a cost improvement project. We're keeping strict ratios low. Potentially could be part of an expansion, but it's a project that's only gonna start producing coal in 2025. Okay? That's more or less what South Walker is from a volume standpoint and what to expect. Poitrel is going through an interesting time. It had a fantastic H2 in 2022. As I said before, it is...
If you look at annualized rate in that period, it is a bit above what it has done historically, so I think that provides you with a bit of a hint, okay, about what to expect. It is going through a time where the mine is constrained until we open Ramp 10 and increase the available strike for 7 fleets or 6 fleets to work. It will work, let's say in a tighter space and. We are working hard to try to keep volumes. I would say that the analyzed pace in the H2 was reasonably high for historical levels.
Once we get Ramp 10 developed starting in 2025, strip ratios will be good, will be lower. Until then, I think we're gonna be a little bit under pressure on strip ratios and volumes in Poitrel. With the benefit of some opportunities, as I said, this mining of this additional incremental coal supplies that we've been mining, doing a bit of auger mining, which is something else we are envisaging for this year to help bridge any potential let's say shortfall as well. On the Isaac complex, I think we have a potential going ahead to be probably one of the best years ever in terms of volumes. The mine is stabilized, wash plant is upgraded.
We are mining good volumes of ROM. The dragline is progressing well, and we still have the Pit 5 North opportunity. I think without putting hard numbers there, I think it has the potential to be a pretty strong year for Isaac in 2023. We did hope that would be the case in 2022. We ended up in a good place, but we did have some headwinds with the CHPP teething after the start and some wet weather. 2023 has all the potential to be a pretty strong year again. On the capital side, just to answer to your point, I think we have committed to 2 significant projects. South Walker Creek, the MIHC is a $183 million project.
It's gonna pay extremely quickly. In the meantime, between now and 2025, we will need to, of course, be spending money to develop that pit. It's an infrastructure expand at the end of the day and box cut and opening the pit. In Poitrel, the development of Ramp 10 is also being now capitalized, okay? Where you would see before that in OpEx, I think for many reasons it's being capitalized, and I think Shane can talk to this a bit more.
That's gonna also show in the in a relative comparison to 2022 that because of Ramp 10 and because of the fact that we are capitalizing rather than putting that into P&L, that brings our annualized levels a bit higher. I don't think sustained capital in general is moving materially. On the operational costs, the pressure is still on. Okay? I think we still have strip ratios going up, not materially higher, okay? Just the normal strip ratio progression that we would expect otherwise. Although Isaac and South Walker, they are still in a pretty good, healthy place.
Both Poitrel and South Walker, as I said, in 2025, once MIHC is developed in South Walker and once Ramp 10 is developed in Poitrel, we should be back to pretty healthy strip ratios as an average as well. I'll let Shane talk a bit more about.
Yeah. I think the second question-
Royalties, yeah.
Was around the Queensland royalties. As we've noted in our investor presentations, royalty increases did have an impact in the H2 of 2022. We saw $124 million of royalties incurred in that period. That's U.S., just as a result of the changes. That's something just to note that is incurred rather than cash payments. There's obviously a timing difference between accruing those and paying those. That gives a bit of a flavor for the impact in just six months. Of course, Queensland Government's within its rights to do these type of things. However, it was unforeseen and unfortunate and something that we're conscious of in considering moving forward.
I think-
Thank you.
Just finalizing on your question on acquisitions and the process with BHP. It is not surprising that these assets are now formally unofficially in the market. I think it's been long expected as part of the BHP, let's say, exit process, and it's been long announced. I think we're gonna continue to see that pattern happening, especially with the major miners as they decarbonize their portfolio. We are a medical company. We believe in the fundamentals of the medical industry, and we think it could be pretty rewarding and for the ones that stay and are the responsible producers like us. As I said before, we do have a very interesting organic portfolio now. Some of these opportunities that we spoke about, they are very capital efficient.
Having said that, we're gonna continue assessing some of these acquisition opportunities. If they present a compelling value proposition for us, I mean, we will assess them, and we'll have a look. Daunia is next door to Poitrel. , we have a very collaborative relationship with the Daunia and BHP. It's literally beside us. It uses our rail load out. But again, we have options and, if there's a compelling value proposition, we'll of course we're always gonna be open and looking.
Thank you very much. Sorry, one last one, guys. Can you just walk us through the different projects in terms of what was the mix of coal produced? Like for example, I think Isaac Plains is mostly semi-soft with some PCI. I just wonder if you could just give us a mix for actual coal quality coming out of each project and if that's gonna continue. I imagine it probably would. The mix would be the same again this year. Thanks.
It's a good question. We should think about illustrating that maybe, in an easier way than in the upcoming releases. I mean, South Walker Creek is a 100% PCI producer. It produces a low vol benchmark quality PCI. Poitrel produces a combination of a hard coking coal or a semi-hard coking coal that's priced at a slight discount to the low vol coking coal index. It has a secondary product which is a PCI. We did sell, as I said before, a little bit of opportunistic thermal coal. Some of those seams that we've mined that haven't been mined before, but they are small volumes.
The blend between the semi-hard and the PCI in Poitrel, it varied historically between 60/40 to 50/50. With the PCI index as it was during 2022, very very close to the premium of coking coal. It just made sense to try to let's say increase PCI volumes, which we, as you said, we also did in Isaac Plains. We also did, we did direct some of our Isaac Plains volumes into some PCI blends to benefit from some of those prices. The vast majority of the volume in Isaac Plains, if not all, is semi-hard/semi-soft coking coal with some opportunistic thermal and PCI from time to time.
Okay, thanks. Sorry, the last one was just about Millennium. I think I looked at the numbers, and was it lower production in the H2 with higher costs? I mean, just wondering what was happening there. I think maybe some orientation of the operations there. You're talking about underground. Just wondering what's happening there. What can we expect, if you can tell us anything for 2023?
Look, I think one of the main parts in the underground development Millennium were caused by first water and wet weather, but also some geotech in the low wall, close to the portals in the E pit in Mavis, which is where we are setting up the access portals. We needed to redesign that and we also ended up having to do additional strong driveage because of those changes to make sure now we have a safe and a reliable, let's say, entry, okay, and portal going forward. That caused a bit of delay, okay? Where we were looking at ramping up in mid-year, okay, in between June and July, ramping up on the underground.
We could be looking at more like say the H2 of the H2 . Let's say, the more towards the last quarter in the year. We are mining a bit of incremental tons. There is an opportunity for that to be a bit quicker. Yes, unfortunately some of those delays have impacted on the ramp-up schedule.
This concludes today's Q&A session. I would like to turn the call back over to Marcelo for closing remarks.
As a business, we remain confident in Stanmore's ability to deliver long-term value. As I said, we want to continuous focus on deleveraging, realizing synergies, delivering value, and accelerating delivery of value out of this portfolio, of this enlarged portfolio, and looking at incremental volumes and growth going forward. We have lots of options. I've been really impressed by the way our people have embraced the new Stanmore and the culture we are building here.
I'd like to take this opportunity to thank everyone, to thank our people and our teams, and our, of course, contractors and employees and all the stakeholders that are working with us for the ongoing contribution to the business, as well as our shareholders, some here on the line and all the stakeholders for the continued support to Stanmore. Thanks everyone for your time and for your questions this morning.
This concludes today's conference call. You may now disconnect.