Thank you all for standing by and welcome to Whitehaven Coal's June Quarter 2022 production report conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question-and-answer session. To ask a question at that time, you'll need to press star one on your telephone. Please be advised that today's conference is being recorded, and I'd now like to hand the conference over to Mr. Paul Flynn. Thank you. Please go ahead.
Good morning, everybody, and thanks very much for taking the time to dial into our June Quarter production report for 2022, which rounds out production results for the financial year 2022. As usual, I'll just go through the highlights, and then we'll get on to the individual discussion around mines and open up to Q&A. As everyone knows, the market is very solid, so our average price that we've achieved during the course of this period on an equity basis was $514, which is a significant uplift on what we've previously seen, and for the FY22 period as a whole, API 8, it's $325 per tonne achieved prices, which are fantastic. Subject to audit, of course, we do expect our EBITDA for the year to end up in around $3 billion, which is a significant result. Run-of-mine production for this quarter was actually very good at 6.4 million tonnes.
For those watching the report, they'll notice that we've actually changed the structure of the report to a quarter-on-quarter comparative basis, so you'll be able to see the trends. June quarter total equity sales have produced coal at 4.4 million tonnes, was up 23% on the March quarter, which is a solid result. Managed sales have produced coal at 17.6 million tonnes, is in the middle of our range, which is a good result considering all that has gone on during the year, and we'll get to that a little bit further. As a result, again, we've got our accounts to be finalised and so on, but as a result, we've got a net cash position of about $1 billion and significant cash generation during the final quarter of this year, $1.4 billion during the period.
That is after actually executing three quarters of the buyback that we had planned, approximately 100 million shares. We've purchased 76 million shares already, dedicated AUD 362 million to that. You would have seen the announcement previously that we've upped the cap to achieve that 10% buyback to AUD 550 million. Onto safety. Look, safety has been quite good. We've been very pleased about the second half performance here, and we've managed to bring our TRIFR down to 5.4, which is a very good result, a significant improvement of 10% on the year before and 22% improvement over the last five years. Just the overview, I mean, the context is obviously an interesting year, of course, but an interesting quarter as well. I mean, the year has been characterized by lots of disruption, not the least of which is COVID, which everybody's been experiencing.
We obviously had floods, which locked us out of our sites for a couple of weeks back in December, and then the rain has been quite significant during the course of this last six months, and absenteeism and labor shortages have been significant during this period, so we're pleased with the results having been able to land within our guidance on every front, so just you'll see the tables there of our managed production sales and stock volumes. Again, just noting for you that we're looking at the quarter-on-quarter change as opposed to the previous corresponding quarter, but those numbers are also there for you to work through. Importantly, just in terms of our equity numbers from our own financial results, you can see that we're at 5.245 in terms of ROM equity for the period versus 4.1 versus the previous quarter of March of 2022.
Our equity sale of coal production is just over nearly 4.1 versus 3.6. These numbers all closely align to the managed numbers above, but we've obviously had a slightly better performance on the mines that we own a higher percentage of relative to the managed totals. But good results all over. Equity coal stocks at the end here are 2 million tonnes. That's a little bit up on the last quarter, although we have been drawing down stocks to achieve decent sales during the quarters I'll get to. Over at Maules, as I say, Maules has had a decent result for the quarter at 3.1 and for the year as a whole, landing at 11.22, slightly less than what we would have hoped for.
Maules at 11.3, but a very solid result given that we've had significant intermittency as a result of rain and COVID-based absenteeism and then labor shortages more generally. I know everybody's been reporting that across the resources sector and other sectors, of course, with COVID, but given all of that, I think we've managed ourselves reasonably well to get through the period and ended up with decent results. The saleable coal production at 2.6 million tonnes is in line with the previous quarter. Our sales volume at 2.8 million tonnes, 15% above the previous quarter. Met coal split has been 23% of Maules Creek, which is a good outcome for the quarter, and our stocks, as I say, up a little bit, but a million tonnes here. We'll draw that down pretty quickly as we continue to rail during this next quarter, but overall, a very solid result.
Just pleased, given all the disruptions that occurred during the course of the year, that we've been able to achieve that. Now, Narrabri has been on a solid pathway, as many will have observed, at 1.5 million tonnes, slightly up on 1.4 in the previous. But that's really just a good result to get to the end of 110A, and we're in the step around now. We do expect to be in the commissioning phase in 110B within the next week. So that's very positive. So let's look forward to a seamless ramp up into 110B. But overall, a pretty decent result at a total of 4.8 for the year. At the upper end, I suppose, of the range that we're given for guidance, which is nice to see.
Tonnes are modest in terms of stock at 0.3 or 300,000 tonnes, which you would imagine in a step-around. We'll probably clean that out during the course of the next few weeks. Our Gunnedah and our operations have had a big quarter, as you knew they were going to, so that's been pretty solid. But they had some ground to make up, as you knew, based on the wet weather that we'd achieved, that we'd received. Overall, we've got good results there at 1.75 for the quarter and just under 4 million tonnes at 3.98 for the full year, which is a positive result. Going into the individual mines themselves, Tarrawonga produced 1 million tonnes for the quarter versus 363 in the previous quarter. That's a big result and 2.4 overall for the year, which was, again, a very good result.
Saleable coal production there for the quarter at 500,000 tonnes was 30% up on the previous quarter. So it's quite a big step up there. We had been suffering some road haulage sort of shortages of labour, just COVID-related, which has been challenging. But I think that's all working its way through now, and we're starting to see a little bit better performance on the ground. Coal stocks at Tarrawonga at 700,000 tonnes is a step up, reflecting that production over 230,000 tonnes in the previous quarter. Werris Creek at 88,000 tonnes was essentially double what we did in the March quarter. So again, a big run home, which is very positive. Coal stocks there at 354 versus 256 doesn't reflect the same ramp up because we have been selling that very much into the market in this last quarter.
So we have been drawing as much of that down as we could. The market's been very strong, and we've been able to get that coal away at very good prices. I'm over on our export coal sales and realized pricing table, and I'll just call out a few numbers here for you just so you can see the obviously very strong market that we're operating within. I mean, just to quote the quarterly indexes just for you, just to start off with, at 377 for gC NEWC for the June quarter, obviously was a significant step up on 264 for the previous quarter. The JSM Quarterly at 368, also up on versus 275 for the June quarter. In terms of what we've been able to achieve, I mentioned the Aussie dollar numbers, but we'll just go back down to the US dollar numbers.
370 versus 377, a 2% discount, done a good job there. I think that's certainly normalised with better product quality and premiums offsetting any small discounts for the small proportion of non-gC NEWC sales that we made during the course of the quarter. And the metallurgical coal sales have also been pretty decent at 334 versus 368, so 9% down as a discount for the period. Again, given the step up in prices period on period, so quarter on quarter, we're always going to have a little bit of a lag, but you can see that the premiums that we're generating are largely offsetting the discounts for any mid-CV sale that we're making during the course of this quarter, as evidenced by that 2% discount overall, which is a good result.
In a stable price environment, I know we'll talk about that list, but having seen prices again jump during this period has been a positive thing. I suspect that we'll still be talking about lags as we move through the course of this new year. For the June quarter, thermal coal sales were 84%, and 92% of that, as I say, were gC NEWC sales, which is a positive result, and that's why we've been able to achieve that 2% discount overall. In terms of the market outlook, the market outlook is still obviously very strong, and we're seeing very strong demand across the board. There's supply constraints, which everyone's observed in different areas. Our customers in North Asia are certainly desiring more coal.
The Russian and Ukrainian problems have been obviously weighing very heavily on the market, and we're seeing plenty of customers excluding Russian coal from tenders for new supply. We will see the European import embargo on Russian coal commence in mid-August, and so we get to see what the physical impacts of that are, but we can certainly see that lots of customers already are self-limiting their own exposure to the Russian coal well ahead of that. We are receiving inbound inquiries also from Europe, which I think will be interesting to see, and we had made a couple of trial shipments already or committed to a couple already for customers in the European market who are clearly looking to try and find a replacement for the Russian coal that they're otherwise taking. The logistics update for us is really a post-quarter impact.
You would have seen there's some floods down the line in the Hunter Valley. Railing is back up and running there, but otherwise, during the course of the quarter, we had a solid railing period, and that was very much enabled us to get to that sales target that we looked at at 17.6, which is a positive result overall. Just on the development projects now, the only thing to really call out here across our three projects really is Narrabri Stage 3, of course, was approved by the IPC, which is very welcome, but we have been notified of the EDO, this pro bono law firm has commenced judicial proceedings against the IPC and us joined in that, seeking to overturn the IPC's judgment to approve the project on climate change grounds.
Of course, this is not unexpected or unusual in this industry, so I think we'll be defending that with all our energies to make sure that we can move ahead with that project on a timely basis. Nothing particularly I'll call out for of note on the Vickery Extension Project during this period, but also during the period just on Winchester South, you would have seen the separate announcement which improved the quality of the Winchester South reserves that we published back in the 20th of April 2022. Now, that brings us to the end of our presentation, other than to say that guidance, we've hit our guidance along the way. Our costs, we expect our costs to be at the upper end of guidance, so unadjusted costs and unhedged, of course, at AUD 84, so it's the upper end of our range.
We are experiencing, as everybody is, significant inflation on many aspects of our business. So it's not just labor and the efforts required to make sure you're retaining people in this type of market, but all our suppliers are also experiencing disruptions from a supply chain perspective. So, as everyone has been talking about across industries across the country, inflation is a real thing, and in our industry, it has been going for some time, and we'll see more of that. But overall, we've been able to wrap up a very good year financially. Obviously, those numbers will be confirmed with audit and published with our accounts on the 25th of August, but it's a very, very tight market. We've seen lots of demand for our coal.
The premiums are strong, and obviously, this is a time when you wish you had a little bit more production than what you've got. But otherwise, we're in pretty good shape, and it's nice to round out the year despite the challenges that came with it in decent form. So with that, I'll hand back to the operator and get on to Q&A. Thank you. Thank you, Paul. We will now begin the question and answer session. If you'd like to ask a question, please slowly press star, then the number one on your telephone keypad, and wait for your name to be announced. Please stand by while we compile the Q&A roster. Our first question comes from Jiang Chen from Bank of America. Please ask your question.
Good morning, Paul. Thank you. Congrats on a strong quarter. Just a few questions from me, please. With thermal coal price trading more than doubled than semi soft coal, I'm just wondering how should we think of your met, I mean, your semi and the thermal coal split in FY23? Thank you.
Yeah, thanks, Chen. Look, that's certainly an interesting arrangement and distortion in the market we're all observing. You can see the splits. That's not particularly new. That has been a feature of the market for a little while now. So you can see the splits that we've highlighted here for the full year for FY22. We're not expecting a material change from that in FY23, but obviously, we're having detailed discussions with our customers about this anomaly. And where possible, many of these customers who are semi soft customers are also thermal customers for us as well. So we're just trying to optimize the right balance with our customers between the thermal coal that we're paying, we're sending to them, and also the semi soft. So not a material change, but I wouldn't expect the distortion between the market to be the actual prices that we achieve for FY23.
But we can talk about that more when we give guidance with our full year wrap up of the numbers in a month's time.
Yeah, sure. Thanks, Paul. Just a follow-up, please. Do you think most, sorry, thermal coal producers, your peers, can switch producing semi coal to thermal coal easily?
Chen, I would have thought that anybody who could do that is doing that already. So I wouldn't worry about too much more switching. The motivation has been there for some time, for probably a couple of years now, where gC NEWC generally had been a better answer. And so if you're able to do that without causing too much disruption to your long-standing customer relationships, then you should be doing that already.
Yeah, sure. Thanks, Paul. Just a second question on your FY23 production. How should we think of Maules Creek and Narrabri? Could you please remind us the longwall movement planned for Narrabri for FY23? Thank you.
Yeah. Yeah, we'll certainly give our guidance for FY23 when we publish our results on the 25th of August. But just to remind you, that's right, that we do have a change out from 110B into Panel 203 on the southern side, and that will occur in Q4 for financial year 23.
All right. Thanks, Paul. Last question from me, please. Could you please give us an update on the flooding situation with the Hunter Rail, Hunter Valley Rail, and the Newcastle Port? I'm wondering what's the impact for Whitehaven, please.
Yeah, Chen, you might want to give someone else a bit of a go here. Three questions generally means a meeting for us. Definitely a meeting. But the railing has resumed on the line, so our mines weren't flooded, so that was very positive. The impact was really on the eastern side of the Great Dividing Range, so the Hunter Valley producers have had a difficult time. As I say, the line is up and running. Everybody's railing at the port. The port is operating under freshwater conditions at the moment, so only Panamaxes, not Capes, are in and out of there at the moment. But we were able to move everything we could, we should, and because it's happened early in the quarter, we don't see this causing us any issues for FY23, subject to more weather later on.
Sure. Understood. Thank you, Paul. Again, congrats on the strong quarter. I'll pass it down. Thank you.
Our next question comes from Hugo Nicolaci from Goldman Sachs. Please go ahead.
Yeah, morning, Paul and Kevin. It's actually Paul Young here. Thanks for taking the question, and really difficult to comprehend just the numbers you guys have just printed, extraordinary. Paul, really good questions on the thermal coal market because I think that it's quite a dramatic backdrop we're seeing at the moment, but the big looming date and event for the commodity and the market is really the 10th of August, where EU needs to rebalance its imports from Russia. Question I have is that, based on your discussions with customers, have you seen any rebalancing yet in the thermal market, or do you think the majority of the rebalancing needs to take place post 10th of August?
And if you could crystal ball, this is obviously what everyone wants to know, is that what does that do to the market from a perspective of price and just the freight market?
Yeah, thanks, Paul. I was in Japan a couple of weeks ago, speaking to customers for the first time since COVID, which was great. And yeah, the market's very tight, as you observe, and everyone was very keen to understand continuity of supply and security of supply. I think that was the thing first and foremost on their minds. In fact, there's very few, if any, raised price as an issue in any of those discussions other than perhaps the back end of it. So their concern's clearly the continuity. And while they're already taking sourcing sanctioning steps, if you can call it that, by excluding Russian coal for new supply, they are continuing to take coal.
And in the case of the Japanese market, they've got contracts which they are seeking to fulfill, which some of them actually go up until December, and there's a few of them they mentioned to us they have contracts which terminate at the end of their financial year. So they'll go through to the 31st of March. So whilst Europe's going to obviously have their challenges in a few weeks' time, the Japanese are tapering at a more measured rate, if I could say that, but it is coming. And so we haven't seen that physical impact in the market from our perspective yet. As I mentioned just briefly, we have received inbound inquiries from Europe. Interestingly, that has been on a met coal basis to start off with, actually. So those inbound inquiries have been for semi soft. And so that is interesting in and of itself.
I suspect we will see inbound inquiries for thermal as well. We are seeing that out of other jurisdictions, say, for instance, South America, say, for instance. So the market's really tight. I suspect we've got more tightness to come. As I say, customers are really just worried about continuity of supply. They were quite measured in the conversations. They all understood that cycles come and go, and that obviously prices were high at the moment, but they've obviously enjoyed periods when prices were quite low. So they're quite measured about it in that regard, but they're just starting to raise their attention more towards even two- to three-year type contracts, and it was really just about locking in that physical supply rather than the price right now.
Yeah, thanks, Paul. That's all pretty positive for the next six months. On that basis, do you see your order book from a customer perspective changing at all in the next 12 months on the thermal stock?
Yeah. Look, it's possible. I think our existing customers, as I say, they're starting to look at longer-term arrangements. So where we've had, say, for instance, an evergreen type annual contract, they wanted to do something a little bit more firm and, say, put a second or third year on the back of that. So we understand that. We have new customers in Southeast Asia as well, so in Malaysia, Philippines, and Vietnam. And so there's certainly a draw on our thermal output, which is increasing absent these other changes. So there is a tricky balance which we're going to have to manage here just in terms of interest out of other jurisdictions for us, non-traditional jurisdictions, and balancing the needs of existing customers who've been with us for a long time. So I do think that's all promotes more tightness and presumably a longer horizon of good pricing here.
All right. Thanks, Paul. That's it from me.
Thanks, Paul.
Once again, if you wish to ask a question, please press star one on your telephone. Our next question comes from Glyn Lawcock at Barrenjoey. Please go ahead.
Good morning, Paul. Just a question on Narrabri Stage 3 extension, and you made the comment that you'll be moving into the south at the end of the fiscal year. That's '23. Does the extension issue, if you don't get it, does that have implications? Because is the first panel you're going to do planned to go into the extension, or is it going to be a shortened panel just in the southern area? Just trying to understand how detrimental or how impactful this Stage 3 extension claim is. Thanks.
Yeah. Thanks, Glyn. That's a good question. Look, in the case of continued operations, there's no immediate concern because 203 and the 200 series panels generally are actually in what we call Stage 2. Stage 3, as you know, was the potential to drive those panels longer. And the first issue for us, timing-wise, will just be about laying down some of the infrastructure necessary, which will serve later panels in the 200 series, but also be complementary and necessary early workings for Stage 3, the 300 series panels when it turns to that. So we don't have any immediate pressures, but by the same token, this is pretty annoying. But it is expected because these things seem to happen with some regularity when the project gets through the IPC.
We're going to make sure that we devote all energies to that and try and resolve that as quickly as possible.
Could you give me a feel for is there a period when it starts to get problematic in terms of if this delays the approval for Stage 3 extension by 12 months, or is it two years? When do I start to get nervous?
As to when you get nervous, I'm not sure, but I'll be nervous in a couple of years.
Okay. Good. And then maybe I think you said Kevin might have been there. Just your comment on the front page of the release about paying franked dividends. Could you just remind me? I mean, obviously, you haven't been paying tax, but you're obviously going to be due a big tax bill based on the earnings just gone. So how does it work? If we wanted to frank the August dividend, does that mean we're going to be paying tax early in the half? Just to put my mind at ease on that. Thanks.
Let Kevin deal with the mechanics of that.
It's a very exciting question, Glyn, when you start talking about the mechanics of a franking account. So you pay the tax in December, but so your franking account needs to be trued up every six months. And because we pay the dividend in September and pay the tax in December, they get trued up in the same period. So you fully frank the dividend for fiscal year 2022.
Okay. Cool. So you don't bring it forward to enable the payment of the dividend. It's fine that it's paid after.
But we will end up being a substantial taxpayer over 2022, 2023 on current numbers. So we'll have to.
I would think so.
We'll help with the deficit. That's why I'm saying.
The New South Wales budget deficit for royalties as well. But thanks a lot. That's clear.
Thank you.
Once again, if you wish to ask a question, please slowly press star, then the number one on your telephone keypad. Our next question comes from Alex Wrenn at Credit Suisse. Please go ahead.
Hi, Paul, Kevin, and Kylie. Congrats on the result. AUD 800 million net debt and through AUD 1 billion net cash in 12 months. This is stunning. Just one quick question from me on cap management, please. So is the 20%-50%, I guess, EPS payout policy still relevant these days? Just to know, the first half of the capital management program was AUD 480 million versus 300-something and basis points. That's already above. And now you've got probably AUD 200 million left for the existing extended buyback. Potentially another 10% to come. Could you just share a bit of color on how you and the board is thinking about dividend returns? Any potential for a special beyond the current policy, given you're pretty much printing AUD 4,500 million free cash flow a month these days?
As far as that follow-up question is just, do you have a net cash or war chest target in mind for future growth projects? That's it.
Thanks, Alex. I'll hand over to Kevin. He can answer that one well for you.
Thanks, Alex. We put that update to that capital management framework out in February with the results. And then we started the first buyback for the business, and we've gone reasonably quick on that buyback, and we're really happy with those results. So our expectations are that the board will make a decision on final dividend. As Glyn referenced, it'll be fully franked. Where the policy came out basically saying that between 20%-50% of NPAT would be the preferred range for capital management. Now, that includes both dividends and buybacks. If you take the 550, there's still room in there for a reasonable dividend at the back end of fiscal year 2022. And I think that'll become clearer when we push out the results for the year and explain where we're going. You asked about a target. I think your words were war chest.
Look, our view on that is that we'll take these as they come along. We'll have a look at what forecast CapEx looks like. We'll have a look at where we're going. Historically, we've returned cash to shareholders in different forms. Our expectation is that continues. But I'd probably say to you that the balance sheet and the funding structures will be reconsidered as we move forward, just simply because of the cash that's in the business. And you can see a number of banks across the market with decarbonization strategies. So we're taking all of that into account, Alex.
Understood. Great. Congrats again. Thanks.
Thank you.
Our next question comes from Peter O'Connor at Shaw and Partners. Please go ahead.
Wow. Big numbers. Paul, firstly, on Narrabri, you talked about the Stage 3. Can I just give you a hypothetical? If Stage 3 isn't approved, the blocks are back to what they were, the shorter blocks, what does that mean for mine life longevity at Narrabri?
Yeah. Thanks, Peter. Yeah. Look, I might just step back a little bit and with this question, we're already focused on the shorter blocks, as you know, although the Stage 3 approval does give us the option to go longer blocks if we wish. But the shorter blocks is our preferred plan, which we've been discussing with you all now for perhaps 12 months now. So that's our preferred plan. The Stage 3 approval covers all of that work. So the existing approved Stage 2, which we can continue on with, and the new, essentially, what was otherwise a 10-kilometer panel, but being now 4 and 6, a second panel of 6 kilometers long. There is some shared infrastructure that we do need to put in place for deeper panels in the 200 series that would be beneficial also for the 300 series.
Most notably, there's some shaft work that we need to get done, as I mentioned the timeframe to Glyn earlier. That needs to be done in a couple of years' time. Look, I'm not concerned overall that this is one of those things which is designed to waste people's time and money. I'm pretty confident that all climate change deliberations conducted by the IPC and the government before that, obviously in recommending the project for approval to the IPC, have been pretty thorough. This notion that the EDO and I forget their name, Bushfire Survivors for Climate Action or someone like that association, I'm pretty sure that they've got nothing new to consider from a climate change perspective that the government and the IPC hasn't already done. We'll work our way through this and get to the end of it.
As I say, it'd be annoying if we couldn't get this shaft work done within the next 24 months. That'd be annoying. But otherwise, we'll just put our heads down and get this sorted out as soon as we can.
So, just to be clear, when you talk about infrastructure, it is just the shaft work and development to the base of that shaft. It's not related to main gate formation of dry fence and concrete work that's a long-term establishment. So all that stuff is within Stage 2. Great. Okay. And Paul, can I segue to the inflationary pressures? You talked about those in your comments. Could you, Paul or Kevin, give us a sense of the pie chart of what the cost structure looks like and specifically talk to wage growth and wage push, what that's running at and what it was, what it is, and also the impact on diesel across the site? And are there any other standout consumables that we need to be aware of?
Yeah. Well, look, I think there's a range of different things you've mentioned there. I mean, our EA negotiations thus far have been pretty reasonable, I have to say. We've been able to settle those at very reasonable levels. That's nice. That's not to say that all of the ones that we've settled recently came before the government's 5% basic wage inflationary adjustment. So who knows what happens with any subsequent EA discussions thereafter? But we have been paying voluntarily, Peter, retention bonuses for people to make sure that they're in our instance, we're paying on a quarterly basis just to make sure people stay put because the market's very, very tight. All the miners are running hard, as you know. And then the government obviously is competing for the same labour with all the infrastructure building they've got going around the country, stimulating the country.
The government's contributing to a lot of the inflationary pressure by their own actions here. And so that's challenging for us. Kevin can get to that. And there's a few other notable examples there just where we see this supply chain constraints from COVID manifesting itself. I know that one of our tire suppliers wanted a 26% increase in the cost of tires. Now, obviously, tires. We spend a bunch of money on tires every year, but I mean, that's not the end of the world to see that in a relative term. But that's indicative of the supply constraints that we see in some of the materials that we use.
Yeah. And diesel, Kevin? Diesel, I think, Peter, to your point, if you roll down the expense, a third of the business cost is port and rail. Demurrage has probably been a bigger number. I think we're going to pay at an equity level, we've probably got a number with 40-something in front of it as opposed to 4 in the previous year. Diesel in June, diesel was about AUD 1.50 a liter, up from 50-something cents a liter in fiscal year 2021. And that's a function of crude price that was over $110, increased margins in refineries, and it then comes down to a lower Aussie dollar. So that's quite substantial on it, but that's affecting everybody across the business. And that's pushing cost curves up.
Labor, as Paul talked about, generally the workforce wants when you sign an EA, that's fine, but then what you need to do is actually be competitive in the market, and that's really the retention structure that's there. Some suppliers are looking for increases in basic equipment where they've been held tight for the last couple of years as a result of COVID. Skills and trades. You could imagine with 3.5% unemployment in this country, trying to find electricians and boilermakers and fitters and turners becomes particularly difficult. Diesel mechanics. So the inflation you see across the whole industry, we see. I think the rise in cost to 84, we signalled that back in February or back in December, I think, actually, and it was really around flooding and COVID's impact on that, and you're seeing that play out across the industry.
So I don't expect that there'll be much more inflation coming through, but I do expect that it'll remain while ever global economies remain tight and supply chains remain difficult. I do know that shipping these days is starting to improve. Time on the water is coming down, and ports are starting to free up. And I look at some of the base metal side of the world and see that they're all softening, so maybe the world is starting to soften a little bit there. So that's a good news, bad news story. Costs are coming down, but does that mean that the world is getting a bit softer?
Yeah. But the demurrage piece will only be a function of weather rather than a function of the business. When the business is operating at its normalized level, the demurrage conversation is a background conversation.
The demurrage conversation is about 60%. So.
Kevin, I didn't understand your four versus 40. What does that mean?
Those were millions. Those were millions, Kevin was citing. Millions.
I think so, yeah. Got it. Got it. Yeah. Okay.
Total demurrage in a year versus what we'd otherwise see it. When we're operating normally, it's just those floods and the backlog, and then the consistent rain during the course of the year, not just flooding other mines, but then causing the rail interruptions during the course of the period. There's fresh water effects on the port as well. All those things contribute to, unfortunately, a lack of coal flow in the last six-to-nine months. And so, Peter, say, for instance, when our coal's tied up with someone's putting one of our competitors' coal in a boat, and there are supply constraints there, then demurrage goes up.
Got it. Perfect. Thank you.
The other thing driving that, Peter, is that charter fees on boats have pretty much doubled since 2020, the bottom of 2020. So you pay on a daily charter fee. Yep.
Yep. Perfect.
Our next question comes from Rahul Anand at Morgan Stanley. Please go ahead.
Hi, team. Thanks for the opportunity. I've just got some further follow-ups, Paul, perhaps on Stage 3, if you can help me understand that. Look, your medium-term guidance there was 7-8.5. And I just wanted to understand, at what point do you transition out of Stage 2 into Stage 3 in terms of years? So FY26, if we talk about that first up, is that being fed through Stage 2, and Stage 3 is not producing at that stage? Am I understanding that correctly?
Yeah, that's right. That's right. We won't be into Stage 3 before that period 26. So, as I say, the issue is really just if there's any restrictions on us putting in those ventilation shafts that I mentioned in particular, which will be shared between the 200 panels and the 300. So that's the key thing that we're focused on. But otherwise, we'll be in the 200 series panels for the next few years, and that's not impacted by this action in the EDO.
Understood. Okay. And the Stage 3 main development, what year do you start doing that? Is that FY 2027 then or 2026?
I don't have that in front of me, Rahul, but I can come back to you on that one.
Okay. Okay. Perfect. No worries. And then, look, just to touch upon the cost question that Peter had, you also have some positive impacts next year in terms of in-pit dumping, obviously, with ramp up. And then Narrabri perhaps would be much more predictable than this year, I would hope. So some of those could offset that cost inflation. I just wanted to understand, how are these positive impacts looking going into next year for that cost side? Is everything to plan and all the cost savings looking good, or is there any sort of change in mine plan or anything that we should be aware of that could sort of not provide that positive offset to the cost inflation?
Yeah, Rahul, I think the key. Oh, are you still there?
We dropped out.
Yes. Right here.
Yep. Okay. No, just the screen's dropped out in front of me. Sorry. Look, I think in terms of our expectations for Narrabri and its reduction of cost and increase in volume, that still remains. So we're not concerned in that regard. The thing for FY23 is that we'll only have a very small impact of operating that shallower ground in FY23 because the changeover to 203 doesn't happen until that last quarter. So there'll be a period of ramping up, but we certainly will be guiding more tons than this year. I mean, this year's been a pretty solid year as far as Narrabri's performance has gone, so we're happy with that. But there will certainly be a step up in expectations, of course, in operating in 203 and beyond.
So while the full effect of that won't be obvious in FY23 when we give you that guidance on the 25th of August, there's no reason why we shouldn't expect savings and lower costs associated with increased volume in the southern panels at Narrabri.
In-pit dumping at Maules is the plan? Any sort of updated.
Yeah, yeah. Yeah, that's going well.
In terms of numbers you're expecting there in terms of saving costs?
We've given numbers previously on that. You can go back and refer to the investor presentation, I think about two years ago. It might be three years ago now we gave a presentation on that. Creation of in-pit dumping space in the pit is going well. I'd go as far as to say within 24 months, might be adding 18 months now, Rahul, that we'll be completely in-pit dumping, in fact, at Maules Creek. So there will be savings associated with that there, no doubt. Yet to see what happens with the commercialization of autonomous haulage as well. That also is going to be an interesting phase over the next six to nine months there.
Okay. Perfect. And you're expecting the trials of that, as you said, six-to-nine months, is it?
Six to nine months, yep. We're about to embark on setting another fleet loose in autonomous form, which we're looking forward to see how that goes, and obviously, the critical item for us to satisfy ourselves over the next six to nine months, really nine months now, is just to assure ourselves that the manned and unmanned interaction is obviously robust enough to want us to roll it out on a broader scale across the pit.
That makes sense. Okay. Perfect. That's all from me. Thank you very much.
Thank you.
Just a final call. If you would like to ask a question, please slowly press star, then the number one on your telephone keypad. Our next question comes from Peter O'Connor at Shaw and Partners. Please go ahead.
Kevin, circling back to your question or the comment about the cash that you're generating and talked previously about looking at bonds and particularly Asian bonds, do you still have an appetite for having that financing in your arsenal going forward?
To answer your question, Peter, and it's a really good question. We're still doing the work on it. We've got basically an offering memorandum in draft form in front of us on a regular basis, so we maintain that and keep that up to date. Clearly, when you're carrying AUD 1 billion in cash, the carry cost in today's disrupted markets for debt makes that a little difficult. So my answer to you is we're maintaining a watching brief on that market. We think our credit position, where our credit rating improves quite considerably, and so we'll just wait and see where this plays out. Clearly, we've got no need to raise funding, so we'll need a supportive market, a strong balance sheet, and I'm enjoying watching the cash roll through the front door, Peter.
Nice change. Paul, to your comment about wanting you've got a lot of demand and you'd love to have more coal. Just thinking about the Hunter Valley supply chain in its totality, you're one of the big players. You purchase a lot of coal. In a market where you need more or you'd love more coal, is there opportunities from other players to pick up more coal? Could we see your sales books pick up and blow it out with not blow it out, but expand with more sales to customers on a third-party basis? Is that a likely outcome, or is it too tight to change the sort of numbers we're seeing?
Yeah, Peter, I think the market's really tight, and I think everybody's doing well selling their own coal. And even the lower-quality producers are obviously selling their coal for numbers, which are obviously making them very profitable too. So look, I don't well, our current view of the market is there's not a lot of coal laying around. And absent this recent flood in the Hunter Valley, which sort of knocked out the rail for a week or so, absent that, the shipping queue was coming down, but we do note that most of the shipping queue that was there was actually there for reasons of coal supply. So people obviously were short on coal, not us. We produced well during that period. Obviously, we didn't have the same level of operational disruptions in the weather because we were on the other side of the range.
But most of those people were short on coal anyway. So getting your hands on other people's coal has been very, very difficult. So I wouldn't be predicting that you see our purchase coal numbers ballooning out in this area. I wouldn't forecast that.
Could you just talk to your comment about distortion between semi-soft met and thermal coal? The distortion is extraordinary. What is driving that, in your view, and your views from your customers, and what would change that to be at a level which it should be trading at, and when, given that backdrop, would it realistically be likely to occur?
I think we need a separate meeting for that one, Peter, but I'll try and give you a quick update on what I think about that. Look, I mean, the met coal market has softened, and demand-wise or otherwise, relatedly, the index comes down. The semi-soft index comes down with it. And so, look, that's interesting. Most of that, the semi-soft market isn't very deep anyway, as you know, and we haven't been chasing that. And most people have been, to the extent they can, the previous question was asking about moving that semi into the thermal market. So it's a real strange phenomenon at the moment. And so we're just working our way through that delicately with important customers. We're certainly not indulging too much new customer inquiry whilst there is this spread. So it's better off focusing on the thermal.
But we do have important customers who obviously acknowledge that there is obviously a spread that is quite inexplicable at the moment. So we are looking at alternative pricing scenarios in terms of how we can still allow them to meet their requirements and then obviously achieve a sensible outcome financially for us.
Peter, you're looking back into the 1970s when this last happened. Largely, that's just about inelasticity of demand for energy, and people will pay what they need to in order to get energy. What you see is a softening in the steel market, which is driving the met coal price and all the met coal relationships, but the thermal side of it is being driven by a shortage of energy across the globe, as I say.
Based on that, I, sorry.
I was going to say it's like twice in 50 years is the way I think about it.
Based on the way we see the landscape in Europe and to the question before about the 10th of August and just how things play out, this is not a month-to-month event. This is potentially multi-year.
Someone asked me this back in February, and I think the best analogy I've got for you is if you go back to the first world oil shock, it took about five years for alternate forms of energy. Now, it's a bit more complex on the globe today between gas, thermal, nuclear, and oil. And each of them have their own transition periods, or each of them have their own ability to resupply. That's why I say this is a long meeting conversation, not an update on a quarterly. But it's complex, and it's difficult to see alternate forms of energy coming into the market without certainty of off-take and certainty of price.
Can I just throw in China import restrictions? Is that just a political play, or is that something that's going to change its dynamic?
I'll wait and see how that plays out, Peter. I haven't seen anything official yet. Generally, it didn't bother us too much at all, that restriction. It's really the 5,500 that bore the brunt of that. So look, to the extent that there's. I think everyone looks at what's going on with Russia and says, "Well, China's going to help them out." Russia has reasonable quality coal, so that doesn't really answer all of China's needs. China does need to have more of that 5,500. So I suspect there may be a benefit for them out of that. And probably the loser, if you like, out of that would probably be Indonesia, I would say, more generally. But the world's short of energy, Kevin, just to highlight it to you, and as you all knew. I'm not expecting too many challenges to come from that.
Certainly, from ours, we didn't benefit from it greatly, and I don't think we'll see too much negative from a gC NEWC perspective. I don't buy any of that anyway, as you know.
Okay. Thanks, Paul. Thanks, Kevin.
Our next question comes from Shashir Prajapani Please go ahead.
Hi, guys. My question is just around royalties. We've seen the royalties update from the Queensland government about a month or so ago. Can you just talk about your views on New South Wales and potentially the risk of an out-of-cycle rate hike? Thanks.
Topic of all questions, that one for sure. Look, New South Wales obviously put their budget out without any change predicted there. I mean, it's hard to sort of speak too nicely about what's going on in Queensland. I think that's very negative one way or the other from the Queensland government's perspective, but lack of consultation and just the dramatic nature of it. I mean, it's clearly not a royalty. It's a tax. And so look, we hope certainly there's no change to the position in New South Wales. And we'll be making sure that New South Wales government leading up to the election in March next year understands the critical role that the resources sector plays in New South Wales and that the need for further investment requires certainty in that regard.
Unpredictable natures, things such as occurred in Queensland, don't really foster the confidence necessary to commit billions of dollars in capital to the likes of projects that this industry typically spends.
Okay. Thank you.
Our next question comes from Paul McTaggart at Citi. Please go ahead.
Morning, all. Look, it was really a follow-up on this royalty issue. Excuse me, I'm a bit cranky with the cold. A lot of the value, as you know, is being at the right time and the right price when you get the commodity price boom in your coal price and you're going to mint money for a period. And many coal companies will do Monte Carlo simulation around price assumptions. So in the case of Queensland now, you've now taken a lot of the kind of value out of the upside with the introduction of these royalties and ad valorem. How does that change your thinking about Winchester South?
Thanks, Paul. And I look forward to you pricing in a few of these spikes in your model for Winchester South going forward if we're going to gain a lot of value through those periods. Look, it's obviously concerning generally just the unpredictable nature of what's going on in Queensland. And it's quite dramatic, as I say, not with consultation and not just a small adjustment, but a material adjustment. Now, when you come back and have a look at it, I mean, we haven't been using a price deck which contemplated the upper ends of the scale that they're taxing now. And so in that sense, it's not a material effect on our proposition as far as Winchester South goes. But as you say, and you rightly point out, that in this industry, you need those spikes to capture a lot of value in a cyclical business.
And if the Queensland government is taking part of that topside away from you, then obviously people are going to look differently in terms of how they rate that region as being prospective for further investment. So it's a general negative, I have to say. And so it's going to become quite a topical, I suspect, even political thing over the next year or two.
And so the follow-up is, do you think they care about future investment in coal? I mean, that's kind of my take on it. Maybe they don't.
Paul, I think they do. I think they do. It's a significant piece of the Queensland economy. And I think, well, my personal view is this is a reaction to the budgetary problems they've got, not actually their view on coal mining generally. They just think this is an opportunity to fill a hole in the budget. And I suspect the voting populace in Queensland will have a view on that at some point.
Okay. Thanks, Paul.
We'll take the final question from Peter O'Connor at Shaw and Partners. Please go ahead.
So, Paul. Paul McTaggart has asked my question, but I've got a follow-up. So in Queensland, given the changeover price is about $200 USD, where the new royalties really kick in and hit, Kevin, you've obviously run the numbers on Winchester South and looked at IRRs and NPVs. I guess this is more a function about your price deck than it is about the royalties. It's a bit of both. Can you quantify impact?
Probably about 3%. 3% of the NPV of Winchester South.
Excellent. Thank you.
That basically means that we're not running the price deck that you're talking about.
Right. Okay. And Paul, milestones for Vickery. The pathway to FID, what is next on that pathway?
Yeah. I think, as we said before, Peter, on previous conversations around this, that we wouldn't be coming to the market within 12 months with that project. I think that still holds firm. The work that we're doing, in fact, as we speak, there's a bit of ground truthing going on in the rail corridor just to, as we've mentioned before, firming up the estimates of costs for the building of the rail corridor work and then also the geotechnical ground conditions for the mine infrastructure area itself. In the meantime, there's management plans, which are about three-quarters done, I have to say. So we're doing well with that. But there's still about a quarter of the management plans yet to be signed off.
And then all the while, we're obviously looking at going back to the conversation about inflation previously, what that means for our estimate of the cost to build the Vickery project. But I think you've still got 12 months here of work to do.
So, Paul, given it's kind of a rolling 12, because I think we first talked about that probably six months ago, is that a rolling 12, or is it a 12 months less six months?
Rolling sort of things rolling says that you're going to have a perpetual rolling, and that's not what I'm saying at all. I'm just saying, from where I sit here today, I think still a further 12 months is necessary here.
Okay, so it's like 24 would be the earliest we'd expect.
Yeah. I mean, the interesting thing about this, Peter, just to add some other commentary, which I know wasn't part of your question, but relating back to the trip I recently had to Japan speaking to customers. I mean, there was lots of interest in Vickery from customers wanting to know what our plans were, how quickly that might come on. And fortunately, because Vickery has been mined before under Rio's ownership, lots of customers understand the quality of Vickery already, know that that's very good coal, and would like to see it when they know that there's going to be structural tightness in the market for some time to come. And speaking to the customers, across a few customers, there was an aggregate of some 3,000 megawatts coming on ultra-supercritical plants, all of which would be ideally suited to Vickery.
They're brand new units coming on with 30-40-year type horizons on them. So they're wondering where that coal of the future is going to come if people stop investing.
You would no doubt have slapped down, "Then I stopped talking the talk and walk the walk." What are they proposing? When do JVs come on the table again?
Yeah. That's where the discussion starts, isn't it? Yep.
Thanks, Paul. Thanks, Kevin.
Bye.
Thank you. Paul, we've had two more questions come through if we have time.
Yep. Why not? Two more then.
Thank you. We'll take the next question from Lachlan Shaw. Please go ahead, Lachlan.
Yeah. Morning, Paul. Great update. Thank you. A couple of questions just quickly. So just following up on the semi-soft thermal spread, are you hearing power customers looking to start buying met and blending up power station feeds?
No. No. No. Generally, it's not. You don't get a very good outcome there because of the different characteristics of the coal. So no, we're not hearing that.
Okay. Thank you. And then secondly, just on how the conversation with customers has moved to security of supply, if you will, and just expanding that out a little bit. So do you detect any sort of structural change or signs that the debate around ESG from a customer, shareholder, financier point of view, is that debate and has that changed or has it started to change given what's happened this year with Europe's energy system and this push towards supply security?
Good question, Lachlan, because I think that's definitely a feature. The sentiment has certainly moved, I have to say. Now, no one's forgetting the commitments that each country has made, but I think everyone's looking at this and saying, "Well, a lot of our energy concerns" well, put it another way. "Look how fragile our energy system is when you have changes in the marketplace." And obviously, no one expected Russia to start a war with Ukraine. That's a terrible thing to do. But it's obviously sent ripples right around the world in terms of the finely balanced nature of our energy systems more generally, be that gas, oil, coal, you name it, the whole lot.
And at the same time, obviously, the world has been incentivizing intermittent sources of energy into the system with the hope that that would do the same thing as baseload infrastructure does, which it doesn't. And so everyone's looking at that going, "Well, what do we do about that?" So I suspect energy security will be re-rated as a priority and certainly necessary in jurisdictions such as Europe. And it'll just be something which people knew before was important, but we'll have to reassess in terms of the priorities that it's given in areas where they're not directly exposed. But everybody is indirectly exposed around the globe to what's going on in Europe, everybody. And so everyone's going to have to take a new view on this.
Yep. Thanks.
Our final question will come from Michael Harrowell at Harrowell. Please go ahead.
Thanks, Paul. Just a very quick one, I guess. If Russian coal from the Urals becomes the marginal price supply of coal in Asia, given that there's some Asian countries that are still not really signing on to sanctions, what would that do structurally to the long-term thermal coal price given current consensus is at $80 a tonne?
Yeah. Michael, I don't think $80 is going to hold. That's my view of it, but you probably expect me to say that anyway. But I think it's unrealistic to think that $80 is going to be the answer anyway. I just don't see how that settles at that level. Some countries will continue to take Russian coal. I think, as you rightly observe, China is doing it. India is doing it. But I don't think that satisfies all their needs in any event. One way or the other, this is going to be a tight market. I think where it settles, that's a good question. Again, one of those questions which is a longer-term meeting rather than just the last question of a quarterly call. I think $80, not a chance that it's going to settle at that level, I think, long term.
Kevin?
Sorry. Just to see.
Go on.
Just that the structure of the question is to give some dimensions, some numbers around the possibility for recasting the $80, right? So if the marginal coal tonne because we're going to be short of coal here structurally until the war in Ukraine is over. And then even after that, there might be some reluctance to take Russian coal, which leaves Russia 200 million tonnes of exports and 40 million tonnes of exports bound into Europe, finding another home which will be to those marginal, not sanctioning type customers. And if you had to ship coal from the Urals to Asia, I mean, it's probably like $100 a tonne at least, which by its nature will then lift the cost curve from $80 or whatever the forecasts think it is. It'll lift it by another $100.
Michael, I think your observations are interesting. I think the better observation is that each of the analysts who have a long-term view of coal have a reinvestment rate with a return of something like 15% as their implied marginal tonne coming into the market, and if you think 15% is the reinvestment rate upon which coal is currently being priced, some people who are producing those charts need to redo their analysis, and that's the point that I would raise here, where there's a huge disconnect in long-term pricing in most models based on a piece of economics, which implies a reinvestment rate that's unrealistic.
Thank you.
Thank you, everyone.
Goodnight.
Paul, I'll hand back to you for any closing comments.
Yep. Thanks, Tara. Yep. Thank you, everybody, for your time today. Really appreciate the questions and the focus on Whitehaven's final quarter for the year. Look forward to catching up with you all through the course of the rollout of the full year results on the 25th of August and beyond. But if there's any questions in the meantime, you know where to find us. Thanks very much for your interest.