Welcome to the Whitehaven Coal Interim FY 2020 results. All participant lines are currently on mute. Following the presentation, we will open the call for questions. To queue for a question, please press star one on your telephone keypad. Thank you again for joining us today. I'll hand over to our first speaker, Managing Director and CEO, Paul Flynn. Please go ahead.
Good morning, everybody, and thank you very much for joining us today for the half-year results for financial year 2020 for Whitehaven Coal. I do acknowledge this is a brave new world of using new technology, and from time to time, I know technology has defeated us on one or two occasions in the past, but thank you for embracing it and joining us through webinar and also the teleconference. So we'll work our way through this. In keeping with that change, we're going to mix it up a little bit for you too as well in terms of how we present the half-year results. So I'm joined here in the room with Kevin Ball, who'll do part of the presenting as well for the financial component of the business.
And we've also got on the line Quentin Granger, EGM Ops, who's going to participate also through the Q&A section that follows at the end. I believe in the webinar, when it comes to questions from the webinar, we'll read out the question and answer it, whereas those dialing through the phone can pose their own questions verbally themselves. So without further ado, we'll move on. Thank you for joining us. I'd draw your attention to slide two just in terms of our disclosures, as we always should. There are forward-looking statements in the presentation here, so you should read the disclosure. It does also refer to our reserves and resources. While not new, they were previously released back in August. They are included in this pack by way of reference.
So if I can move on to change, I'm going to deal with a little bit about the market before we actually get to our financial results, and then I'll come back after the results to talk about our projects and our growth. So moving on to page five is where I'll kick off. Looking at our customer base, we've got a chart which you've seen there in previous iterations, but reconfigured in this so it's easier to understand. Obviously, we've got a growing customer base across the growth center of the world being Asia, and that's a very good place to be strategically for us. You know that we've got a very good footprint in the thermal coal product with high energy, low trace elements, low ash, low sulfur, low phosphorus, which is a great benefit to the thermal coal users, i.e., electricity producers mainly.
And then we've also got a growing footprint with our semi-soft and PCI coals into steel producers and smelting operations across Asia. And being the growth center of the world, the outlook for us is very positive, and we'll go through that as we move through the pack. Over the page, you can see some stats here in terms of our key markets, population growth, real GDP, and urban population growth as well, all of which are key drivers in demand for electricity demand, for infrastructure demand, manufacturing, and industrial output more generally. On page seven, one of the key determinants of that drive is obviously increasing electricity consumption in our region. And I'm sure you've seen these charts from us before where we've depicted what is, in this instance, actually quite a short-term outlook evidencing significant growth for electricity across our Asian markets.
The good thing about our business is we do have the benefit of proximity to this market. We have the quality they like and an extensive customer footprint which is expanding year on year. Over the page on eight, electricity consumption is driving thermal coal demand. There's no doubt about that. Although the world is a dynamic place, and it differs depending on which part of the world you reside in. In our region, the low ash, low sulfur, high energy, low trace element coal that we sell is in very good demand, as is our semi-soft and PCI product. That is driven by the rollout of the installation of heavy plants as it relates to our thermal coal, and with growing demand for infrastructure and the associated building materials that go with that, we're seeing strong take-up of our coal in this region.
Of course, in other regions, and that's why we've got in here the rest of the world, you'll see that there are other dynamics playing out in those markets. And in some markets, they have cheap gas. Other markets, they have strong nuclear footprints. But in our backyard, neither of those things are as relevant, and we're seeing strong demand for our thermal coal. On the other side of our business, you realize obviously there's the semi-soft and PCI demand, and that is also with a strong outlook as well. These graphs really depict to you the coal as an integral component of the steel and industrial development through construction materials in our region, and that paints a very strong picture in a relatively short period of time for continued demand for our products. Over on page 10, again, for our semi-soft and PCI outlook, it is very strong.
I think there's no denying, despite the short-term interruptions that we've seen with various trade-related discussions and more recently the coronavirus phenomenon, then the backdrop for demand for our growing metallurgical business is very strong. As you know, Australia is the source of the best H ard Coking Coal in the world, and we're also large producers of PCI and semi-soft, and in New South Wales in particular, our footprint of semi-soft and PCI has been well received by the market. India now represents half of our metallurgical sales, which is quite a significant change in our business, and with the arrival of our exposure into the hard coke market with Winchester South, I'm sure India will play an increasing part of our outlook as far as our metallurgical sales go.
Just onto our results, I'll just cover off the highlights quickly, and I know much of these are numbers which are familiar to you as a result of the December quarter's release, but I will just call these out for you. Our TRIFR at 5.72 is a decent result, as we point out, much lower than the average for the New South Wales market, but that's not really the way in which we measure ourselves. Year on year, we must improve, and if we're going to produce more tons, we must continue to lower the rate of injuries in our business, and we continue to work hard in doing that.
Obviously, we're in a softening. We've had a softening Newcastle Index backdrop for this first half, which is no surprise to any of you, and our thermal coal prices average $70 for the half and $94 for our metallurgical coal products. The Narrabri changeout was our most onerous, our most challenging, and longest changeout with the upgrade of our chock cylinders during the relocation from panel eight to nine, which went very well on budget and not an injury despite all that complex work that was going on, which was tremendous. Managed ROM production at 7.5 million tons is 31% down. Maules Creek, which we'll get to, labor shortage and dust events, we've got an update on both those aspects. Of course, the scheduled outage of Narrabri being in changeout.
Equity coal sales, including purchased coal at 8.5 million tons, is actually period on period quite consistent given that we've purchased coal and drawn down stocks to maintain our sales profile with our customers. We did close the acquisition of the 7.5% of Narrabri with the purchase from EDF Trading. Long-standing as that is, as many of you have observed, that is concluded, and so we look forward to our improved ownership there at 77.5%. The board has declared an unfranked dividend of AUD 0.015 per share in line with the more subdued coal pricing, but we are keen to continue to pay dividends, and really we'll reassess this in the second half, which we expect to be a much stronger half than the first.
It's very nice to be able to say that we have concluded and amended the extent of our financing facilities here for our billion-dollar facility very successfully on similar terms to what we've had in the past, and Kevin will talk to this and now maturing out in 2023. I'll just move over to safety. As I say, safety, this picture here demonstrates the right relationship between reducing our injuries and increasing production. As we've heard us talk in the past, increased production is not sustainable if we don't actually improve our safety. That is the right relationship to exhibit, but we are looking for further improvements past the 5.72 TRIFR that we have recorded year to date.
I can say to you that the first couple of months of the year have been improving on that trend, which is nice, but there's more work required here in order for us to continue to deliver on the aspirations of growing the business past the 23-25 million tons our current portfolio can produce with the arrival of Vickery and Winchester South. And with that, I'll hand over to Kevin, and he can present the financial results.
Thanks, Paul. Thanks very much. So let's go to you can see on slide 14 the main numbers, main P&L numbers and balance sheet items. Soft Newcastle pricing for the first six months of December 2019 had an impact on our earnings, and it's been the biggest impact on our earnings. It is the main cause of the driver of the decrease compared to the previous period. Of course, there was a smaller volume of sales and a smaller volume of production, but the business that we have, that means that the fixed costs in the business were absorbed over a smaller base, and this has led to an increase in unit costs. We'll talk about that in a little bit in more detail in a few slides.
The board declared a dividend of AUD 0.015 per share unfranked, and the payment for that is scheduled for Friday, 6th of March in 2020, and that fits towards around the 50% of NPAT for the result for the year. Looking at the balance sheet, net debt is a little higher than it was at 30 June 2019, but that's not unexpected. We did pay out nearly AUD 300 million in dividends in that last six months, and that is the main cause of the change in the value of net debt. But I draw your attention to gearing. We have a range of gearing up to 20%, and we're at 15%, so we're comfortably in that range, and we're reasonably happy with that at the moment.
If I turn the page and talk about the profit and loss, you can see in the revenue line that the revenue line was down from AUD 1.3 billion to AUD 900 million, and that's really just driven by that sales line and the sales price, and we'll show you a little bit of that in the future. Interest expense pretty flat. Included in your operating expenses, there are purchased coals, so I draw your attention to the face of the profit and loss statement that we've released to the market, which will give you the purchased coal costs, and that will lead you to understand what our operating cost performance looks like. Rail port marketing and royalties are down a touch, not surprisingly because the prices were down, and our EBITDA was down from AUD 550 million to AUD 177 million.
That decrease in EBITDA margin is, as I keep saying, mainly a factor of softer pricing. However, the increased cost per tons did contribute a little bit. We'll do a bit of a deeper dive coming forward now. So if you look at the EBITDA bridge that's on slide 16, you can see that AUD 332 million came around from the price changes and a slight benefit with an FX falling from 72 in the first half of fiscal year 2019 to 68 in the first half of fiscal year 2020. There's a volume. There's about 600,000 tons less sales of owned coal in there, which contributed at AUD 38 million, and costs were about AUD 51 million.
Those costs you would expect, as we talked about in the release to market in December, were going to be impacted by labor issues and by dust and smoke events, and we've talked about those before, and certainly they shouldn't come as any surprise. But I guess the question you're going to have is, how do we get from a first half number of about $76 a ton to second half guidance of $73-$75? And we'll get to that in a slide as well. But we're coming to unit costs. I think none of this is terribly surprising. We had a first half cost in fiscal year 2019 of about $69 a ton. We finished first half of fiscal year 2020 at $76 a ton, and in this slide, you can see the places to which we've attributed those cost outcomes.
Labor shortages and dust, together with underutilized take-or-pay, come together. We've talked about an increased strip ratio at Maules Creek in the past, and that's certainly come through here, and we've got a program there of increased washing. So we've implemented a revised labor and retention program at Maules Creek. That is delivering. We are seeing more people there, and certainly on the calls that we have each week on production, we're hearing good outcomes from that. In relation to dust, I'm pleased to say, and I think Paul will talk to this a little bit more, we've had quite a strong return to summer rainfall in the region, and this has addressed the drought and bushfire conditions.
As you know, our logistics costs are often fixed in nature, and we have take-or-pay arrangements for them, but in the second half, with our expected increased productions, we're expecting to see those costs and the underutilization of those come off. We took a conscious decision in our marketing strategy to focus upon positioning these products at Maules Creek and Tarrawonga to the better end of the market, and we're washing more coal there, but that coal attracts a higher price. So the increased quality and the price of the product comes at a higher cost, but comes with a better margin for us. So we expect to continue to do that, and it certainly helps our marketing team deliver this coal into the markets of Asia because the market and the environmental benefits that a higher quality coal brings are well noted.
At the end of fiscal year 2020, our unit costs are $1 above the top of our guidance of 75, and we'll just step into how we think that gets from 75 back or 76 back into the range of 73 to 75. On slide 18, you can see here, we think we'll get better productivity at Maules Creek in the second half. We're expecting to see better productivity in Maules Creek in the second half with the labor program that's there, and we expect to see better utilization of our logistics chain as we push more coal down that chain. Again, you'll see increased production will give us a better outcome, mainly because those fixed costs that we have in the business around mine operating overheads and sites will reduce.
So that's how we think we get back from 76 to 73 to 75, and we'll move on. Two more lines in here I wanted to talk about, which was the AUD 116 million of depreciation, which is a step up from the previous year. And the unit cost of depreciation in half one fiscal year 2020 was about AUD 17 a ton, whereas in half one fiscal year 2019, it was about 13. And that change comes from three areas. So in 2019, we increased our rehabilitation assets. That's cost us about AUD 0.50 a ton. We had underutilization of assets at Maules Creek because a lot of these assets are amortized on a straight line basis rather than the units of production, and we think that's cost us about AUD 0.60 a ton.
And because we've put our efforts into overburden movement in this first half, which has led to the reduction in the volume of coal produced, that depreciation charge comes through the P&L, and so there's about $2.80 that comes from that. In the second half, as we turn to balance up the coal production and overburden movement, that number shouldn't be repeated because we'll have a bigger divisor in the tons that we produce. I wanted to take two minutes as well just to take through the interest. You'll see that the interest is down about 2 million from the previous year, or previous half year, from 2022 down to 2020, and I'll give you some breakups of that. There are some costs in this we incurred because of the nature of business and so a relatively fixed in nature each half year: bank guarantee fees and undrawn commitment fees.
There are costs that vary with the level of drawn debt in our senior facility. So while interest rates were cut in 2018 from 1.5% to 0.75%, the undrawn commitment fees come at us when we have an undrawn amount on the debt. And as you can see, establishment or upfront fees, which are all spelled out in the financial statements, are really a fixed cost each period. Over the page to the balance sheet, cash on hand, we normally hold about AUD 100 million of cash on hand, and the bridge on the right-hand side there shows you how we moved from AUD 162 million in net debt to AUD 587 million. And the main change there was the payment of the final and special dividend of AUD 0.30 per share. You'll also see that we spent AUD 132 million on investing in our business, and we'll talk about that.
And with the introduction of IFRS 16, we've been steadily refinancing some of our operating leases into finance leases, which brings them into the net debt definition. We have sourced the fleet for Tarrawonga, and again, on the right-hand side there in the lease payments, that's made up of about AUD 40 million worth of payments in actual lease fees and about AUD 40 million worth of equipment that's come on the balance sheet. And just to round it out, the decrease in equity from 3.5 to 3.2 is really the dividend we paid. Investing capital expenditure, it was a number of AUD 132 million, but as you can see, we spent about AUD 34 million on sustaining CapEx in total, AUD 13 million in Narrabri mine's development, and AUD 21 million in sustaining, but the number that we've spent the most at the moment is AUD 81 million in growth projects.
The first point in that slide you can see is we spent AUD 16 million on water security, which was with the 2018-2019 year drought. We focused on ensuring that our operations would be uninterrupted by a lack of access to water. We did a lot of work through 2018 and 2019 to make sure that happened. We bought several parcels of land, which provided us with access to productive sources of groundwater. We've relayed pipelines from those sources to Maules Creek, and I'm pleased to say that over the course of that drought, our production has been uninterrupted other than for the dust and smoke events. So I think that's been relatively successful. In the future, we will continue to address water supply and water security in the medium to long term. Okay. We also sourced a new Tarrawonga fleet. That was about AUD 19 million.
We increased the strength of the Narrabri longwall face by replacing and upgrading the longwall chock cylinders. That was about AUD 13 million. We spent AUD 13 million on the Vickery expansion project infrastructure design and studies as part of that program. Spent a little bit of money on Winchester South, again, in the studies around that program, some money on Narrabri stage one, and we spent some money on AHS at Maules Creek. Finally, I'm pleased to say that we spent about AUD 17 million on the first tranche payment for the acquisition of EDF 7.5% in Narrabri. Over the page on the financing, and Paul has referenced this, so yesterday we closed the refinance of the AUD 1 billion facility, and that number hasn't changed from the previous amount.
We do have quite a good relationship with our financiers, and we have strong banking relationships with a range of Australian banks and international banks, and that might come as a little bit of a surprise to people who aren't familiar with coal. So our banking relationship is strong. We're really well supported. We do adopt a program of refinancing our senior debt facility about midterm, so that on average, we've got no less than two years left to mature, and that really gives us a good runway into how we structure our capital going forward. This is the facility that we use to fund growth opportunities, and it supports paying shareholder returns. Over the last decade, our syndicate has changed. Originally, it was mainly Australian banks.
Now what we're finding is that the end user customer jurisdictions are coming into the banking market in Australia and providing funding for resource projects in this country, and we're certainly included in that. As you can see, we have a diversified source. We seek money from the senior debt facility. We use ECA facilities, so ECA and leasing, because that's really how we acquire our yellow goods or our orange goods in the form of Hitachi. And of course, with rehabilitation obligations and obligations around logistics, we have a need for bank guarantees. So we have AUD 424 million at 31 December outstanding in guarantees, and that, again, we've refinanced that into a series of bilateral agreements with the members of the senior syndicate. We will keep working on the ECA facilities.
We're in discussions with NEXI out of Japan, and we've met with Sinosure out of China, and we already have a Euler Hermes arrangement. So they're important sources of funding for us in a diversified capital structure. If I can take you over to the next slide, which talks about capital allocation before handing back to Paul, I just wanted to bring this to put a little bit more color about how we think about this. We are prudent debt managers, and that is how our senior syndicate looks at us, and we like to do that because that means we have a strong balance sheet and good banking relationships, and shareholders can expect to see returns continue for years to come.
What you see here is a graph which has a coal price on it from 2015 to 2020, and that improved price between 2016 and 2019 provided us with lots of opportunities to provide returns to shareholders, to invest in growth in the assets of the company, and to retire debt. The first thing we did when coal prices improved was retire debt because that was the commitment we made to our funding providers. Now, going forward, our priorities remain to continue paying dividends. We expect to return surplus cash to shareholders. I think, as Paul said, we'll get to the end of the financial year and the board will reconsider, depending on our debt levels, where we are with share buybacks, hopefully, or expecting those to be better, and we expect to construct Vickery and Winchester South in future years.
So I'll hand back to Paul, and he can talk about the operational performance for the half.
Thank you, Kevin. I'm over now on slide 24 and with the coal production and sales. Again, I won't belabor these too much because you've seen these numbers with the successive quarters through the half, but we'll acknowledge that we set out in the beginning of the year with a small first half, large second half, and certainly that's going to be the case with the 60/40 split between the two halves. The key things to watch, of course, with the second half will be the Maules Creek increased productivity as we continue to fill the workforce slots that we're looking to fill. Narrabri, of course, was expected to be low in the first half, but is returning to normal production levels.
It already has done so, in fact, doing quite well since it reinitiated production in panel nine. Then Werris Creek, which, as Kevin's mentioned, was focused significantly on the overburden removal in the first half. It shifts its weight more towards coal production in the second half as we always tap into these thicker and deeper seams in the bottom of the pit, seemingly in the second half of every financial year at Werris Creek. I'm over on 25, looking at our coal sales. Again, this is not a new picture to everybody here. As I mentioned earlier, India is now half of our metallurgical sales, which is quite a change over time.
We still enjoy very good support with our customer bases across Japan, Vietnam, Taiwan, Korea, but India certainly has an appetite for both our PCI products, which have traditionally been the coals we've sold there, but in more recent times, our semi-soft as well seems like it's hit the right spot with our Indian customers. Drilling down into Maules Creek in particular, obviously, we're going to have a bigger second half as we've all acknowledged. And as we've talked about quite a bit, we've always had some labor shortages, but we are improving significantly in this area, I have to say, rejigging the proposition that we're offering to new employees, looking and using different service providers to find the labor for us. We are actually outperforming the forecast buildup of that manning level that underpins the second half's production.
So we are ahead of schedule here and very positive about the momentum that's been created with the changes we have made. On the dust and regional dust event side of things, which caused us significant delays in October and November, in fact, we had 30 stoppages during those two months alone for regional dust events which were outside of our control. We did budget for some of that in the second half, but we actually have taken some measures to agree circumstances in which we can continue to operate from a regulatory perspective in these regional dust events. So we don't expect that to be as big a driver of stoppages as it was in the first half. Of course, our autonomous project at Maules Creek also continues to move on.
In fact, over the next two or three weeks, we will put in place the first fleet in a quarantined area of the pit, which will start overburden removal in an autonomous form. That is an exciting development, and we look forward to the rolling out of that through the balance of the overburden fleet over the next few years. Narrabri, as I mentioned, as you know, went through a scheduled changeout in the first half, so production was consequently low as you would have expected. Having said that, as I say, the most complex changeout we've done, given that we changed the drift belt and also the chock cylinders, was completed very well on time and budget, and Narrabri is back into good production, which is very encouraging.
You will see it step back up to its normalized level in the second half, and as Kevin says, that extra volume will see us absorb fully our infrastructure contractual costs at both rail and port, and that will be fully absorbed during the second half, relieving some of that cost burden we experienced in the first half. Again, at our ops, again, second half weighted in the year, you know, with Werris Creek, as I've already mentioned, Tarrawonga obviously starting to see the commissioning of much of its fleet and will be running around its 3 million-ton rate at the very end of the year. Rocglen and Sunnyside, you know, moved into the rehabilitation phase. We have thrown a slide in here on water security just to round out the discussion we've been having on that in the past.
Water security, as Kevin mentioned, continues to be a focus for us. Just because we've had very good rain across our operations doesn't mean we're taking our eye off this because there is a longer-term position that we need to put in place to better waterproof, in inverted commas, our operations and also for Vickery as well. But we have received substantial rain. In fact, we've had some short-term glitches associated with receiving significant rain in a very short period of time, in some instances, 10 inches in two weeks, which has caused some short-term disruption. But it's welcome to acknowledge that our water facilities are largely full across our operations and that the Namoi River is flowing again after over 12 months of not flowing, and we are able to use our high-security water entitlements to pump from the river during this period, which is certainly removing some pressure.
But again, I think there's more work to be done here in ensuring that, while welcoming these recent rainfalls, are not the answer for everything long-term, but certainly no problem with water security underpinning our current guidance. So, my turn to growth, and as you know, we've obviously got a pipeline of growth, and we look to diversify both in product, in geography, and certainly in customer destination. So I think you all know the Vickery and Winchester South products represent significant incremental growth, but I will just reflect back on a slide which we've shown you before. It's not just new projects. Our brownfields projects have upside as well. Maules Creek, as I mentioned, AHS is tied very closely to our drive to move Maules Creek into a position where it could produce 16 million tons per annum.
The life extension at Narrabri, while it is aptly described as such as a life extension, it will actually mean more tons once we move into those longer blocks per annum, and Tarrawonga, as you know, moving to 3 million tons. So I think all this is moving ahead. In terms of Vickery, we are waiting for the whole of government report, and it's as frustrating as it is for everybody, not in our control. We know the government's about to conclude its work, so that's positive. You will have an IPC hearing thereafter, and I think it's realistic to think that our determination there by the end of this financial year, frustratingly slow as that is.
Winchester South continues to do its work with its studies of the various components of its work both on infrastructure, both on mine plans, coal quality, and certainly we will publish our reserves, the inaugural reserve, before the end of this financial year. So over, we provide a graphic on 33, which sort of tries to overlay all of these projects together across a timeline, which should help you understand the intersection of each of these projects across the outlook period. I won't talk too much more about them, but at least it gives you a sense of how these projects will fit together, and obviously, it is obviously a graphical representation that there's a significant body of work going on in the business to execute across a broad field of endeavor.
And to be able to manage all that growth, we have actually changed the structure of our leadership team. So I know that we've talked about this a little bit, but there's a graphic just here. I might just explain this quickly for you. We do absolutely acknowledge we need further capacity to manage a bigger business, so we are investing in new skills and talents in an executive team to be able to do that. And I'll just highlight a couple of items here. Obviously, we've reconfigured the EGM Ops role, taken out of it People and Culture and HSE, and elevated that to the executive table. And as we've mentioned in the past, Lee Martin, who's taken on the P&C role, is already with us and now some six weeks into her time and really making a difference.
Mark Stevens has taken on the reconfigured EGM of Project Delivery, and so that Project Delivery role is significantly bigger than what it has been in the past. Brian Cole is retiring and having done a great job for the company, but it is time for him to retire. Mark has now taken on responsibility for not just Vickery and Winchester South, but also stage three at Narrabri. So vastly different from what's been a singular focus on a singular development project in the past. And our HSE EGM role is we're currently in the recruitment for that, and we're awash with very high-quality candidates, I have to say, which is a nice position to be in, and I look to find that down into a preferred candidate over the next month. And just onto our guidance, no change on our guidance here.
I just wanted to reiterate both on the production sales and also the CapEx guidance. The only change is there that some of the capital has slipped out into the new year, obviously with the delays associated with Vickery. Again, outside of our control, but that will be dealt with in FY 2021. And just to conclude, our focus for the year, obviously, operational discipline for the balance of this year and going forward, obviously, is very important for us. We obviously want to make sure that we improve the utilization and productivity of the fleet at Maules Creek. The AHS rollout at Maules Creek is a very exciting project, and we look forward to making sure that that actually underpins that productivity drive at Maules Creek as well.
We're chasing down, as you know, the Vickery project approval, and we'll look to explore the joint venture opportunity that that represents for us as well. Finalize the Winchester South reserves and resources, and again, as Kevin's mentioned, we'll look at returning surplus capital to shareholders with a bigger second half. Thank you all for your time this morning and going through that presentation in this changed format. I'll move on with some trepidation to the new technological domain that is the intersection of webinar and teleconference. I know I'm sounding like a Luddite, but let's pull the Band-Aid off and get onto it.
Okay, thank you, Paul. Thank you and welcome to the Q&A session. To ask a question, please press star one on your telephone keypad and wait for your name to be announced. For our participants logged into the webinar, click on the blue hand icon in the top right-hand corner of your screen. We'll be taking questions from the phone first, followed by the webinar. We'll now pause a moment to assemble a question queue. Your first question comes from Paul Young from Goldman Sachs. Please go ahead, Paul.
Yeah, good morning, Paul and team. Paul, great that there's no change to production guidance. Just on that, can you maybe just add a bit more detail around how Narrabri and Maules Creek have been performing in February and around Maules Creek, just with the labor restaffing and the impact from the rains? Is the operation back at the 13, around 13 million tonne mark, and Narrabri back up the sort of eight to nine million tonne mark? First question, thanks.
Yeah, ambitious guy, Paul. Thank you for that question. 8 to 9 for Narrabri in the second half annualized. Let me get on to that. Look, the reiteration of the guidance is obviously affirming that we do have a big second half, and that pathway for that big second half at Maules Creek is underpinned by a similar forecast of being able to fill the seats of each of our pieces of equipment to drive utilization productivity we want. As I mentioned a little earlier, we are actually achieving better than forecast in terms of attracting and securing the labor required to do exactly that. So I think that the changes that we made there are certainly yielding positive results ahead of schedule. So that is comforting, Paul. Narrabri has kicked back into gear very nicely.
The growth formed very quickly there, which is really good to be able to get out of that risky period at the beginning of any panel. And in fact, we've actually seen small weighting events during the last month, which our improved chocks managed very well. And so that's, again, a very good early sign there. Coal quality is nice as well because we're in ground which is not affected by faults or anything like that, but for a couple of little commissioning sort of niggles, I think those two big assets are in line to do what they're supposed to be doing. You've mentioned the weather, and I think it would be wrong not to acknowledge that. While that weather is great to have received all that water, we did receive it very quickly, and that has caused us some short-term disruption. Interestingly, not at Maules Creek.
It's actually been the smaller assets where they are less able to deal with the big inflows in that regard. So less material, Paul, is the answer to you there, but very welcome to have our dams full. I do note that there's more water or seems to be more rain on the way, and so we are making sure that we manage ourselves when we have full dams. We obviously need to be able to receive more water as more rain's coming, and we just need to be able to balance that equation. But yeah, it's temporary disruptions, but welcome to have relief from our tighter water environment that we've been managing now for over 12 months.
Yeah, great, Paul. Just to clarify that 8-9, I mean, you did 2 million tons of ROM in the first half, and you guided to 6-6.5 for the full year. So that implies obviously an 8-9 run rate for the second half, if my math is correct. Just a question now for Kevin on two, actually Kev. One is on working cap, a AUD 100 million working cap release in the half, if I just look at receivables, payables, and inventories. What are you looking at for this half on working cap build or release?
I think we'll do a little bit better, or we should do okay on working capital or release. We're going to build some stocks in the second half, right? It's going to depend a little bit, Paul, on the timing of sales, but really, I mean, our terms on thermal sales are 7 to 10 days, so we might see a little bit of an inventory build and a little bit of a receivables build depending on price at the back end of the period. But look, I just forecast it flat at the moment and go from there because I'll get an improvement from other parts of the business as well.
Okay, great. And then, Kev, on the target gearing and leverage ratios, just to confirm that does not include leases, correct?
It doesn't include the right-of-use asset leases, but it does include finance leases, Paul. With that change, we're pretty happy with that 15%. As we said to you, we've said to a number of people over the years, we've said probably AUD 400 million-AUD 600 million on a through-the-cycle basis is what we want to carry as net debt. We're sort of in that range, and we're expecting a stronger second half. I'm pretty comfortable with that net debt. Particularly, you look at the refinance, it was really well subscribed, really well supported, so our bankers are backing us up in terms of how we're managing the balance sheet.
Yeah, great, Kev. Last question. Do you need to see an improvement in the Aussie dollar per ton coal price to actually push ahead with Vickery in the next 18 months? So significant spend.
No, no, Paul, we don't need to see that. In fact, I did the math for someone earlier today, just as a previous question on this. Today is $68, and acknowledging we have two very good products here. Both those products are better than Maules Creek's equivalents, and so acknowledging that. But at $68 just for the thermal, you're going to get between $75 and $77 dollars just for the thermal component of it, right? And that's without overlaying any premium for the semi-soft, which the capacity of Vickery is about 60% of. So at that level, and take 77 because I haven't added any semi-soft into that, but at today's currency, well, what is $68, less your 8% royalty, you'll do Vickery on those numbers.
Yeah, yeah. Paul, I think when I look at it, I go like, "Paul says, we're getting a really good premium out of Maules, but Vickery is a better product again." So as Paul said, the math there, we get 17% from Maules product, and this has got a higher energy content again.
That's it, yep.
So let us work our way through that conversation. But we like the product. Our customers like the product more importantly, and it really does give us a really good, strong semi-soft coking coal going into that market.
Yeah, you'd love to see a better underlying Newcastle price. Of course, we would love to see it, but the point I'm making to you, Paul, at these levels, it's in the game.
Okay, all right. Okay, thanks very much, Peter.
Thank you, Paul. Your next question comes from Lyndon Fagan from JP Morgan. Please go ahead, Lyndon.
Thanks, guys. Hoping to just explore the projects a little more. So I guess between Vickery, Winchester South, and Narrabri, we're looking at almost AUD 2 billion of CapEx, and yeah, we've got a sort of 20% gearing cap. I'm just wondering how you can execute on all of those projects but maintain your gearing ratio within that range. And I guess maybe that's a through-the-cycle target. Where would you expect net debt to peak at in pursuing all of that?
Lyndon, the way we clarify that is we say that we would have a 15%-20% gearing ratio or up to 20% on a through-the-cycle basis, although we would stretch ourselves, and this is the difference between equity and debt. Equity will look at that number in the rear-vision mirror, and debt will look at it as though we've spent the money and it's contributing EBITDA to our line. We're happy to invest on a value-accretive asset, but we would expect contributions from cash flow to help fund some of those projects, and those projects aren't all being run concurrently. Yep, and we still have that program. We're waiting for the whole-of-government report to come out and the approval to come out, and then I think we'll engage in conversations with potential joint venturers.
You can see from that net coal mix slide that's there that we're reaching into places that are outside of traditional Japanese joint venture partners there. So we've got pretty good interest in what is a very strong semi-soft product coming out of this.
So I guess, Kevin, putting it another way, where would you be comfortable for net debt to peak out at while you're building all these things?
How about you leave me alone on that one, and we'll work out when we get our approvals, and we'll work out what our capital program looks like, and we'll work out what our joint venture program looks like, and we'll end up with a package that keeps. I think, Lyndon, if you go back to the slide where we talked about being prudent debt managers, that's what we'll be.
I think you're still in the zone of this where you need to think about this on a sequential basis. It's still sequential in nature. We're annoyed that the government has wasted a lot of time on Vickery. We're annoyed by that because that does bring Vickery a little bit closer to Winchester South, and it definitely does do that. That's annoying, but it is still sequential in nature, and Vickery will produce good revenue and EBITDA for us when meaningful capital for Winchester South commences.
Okay, and maybe just on Winchester then, it looks like from the new slide diagrams, perhaps the timing for construction has been pushed out a year or so. Is that interpretation correct, or is it just the way the image looks on the slide?
It's just the way the image looks on the slide, Lyndon. Sorry about that, dear. Nothing's changed there. The comment I would make on the reserves and resources, and I think it's important to make because that's an important piece of the puzzle here, and I know a couple of people have asked, "Where is that?" because you said it was coming a little bit earlier. What we have done here is that there's a two-part process. Here is the way we've divided this up. There's an easy answer on the reserves and resources. The Leichhardt and the Vermont seams well understood. Well understood. And if you wanted to cut a reserve quickly on that, no problem. We already know what those numbers look like, but we are interested to maintain the optionality for the Fort Cooper measures, which is a big piece of the overall resource puzzle there.
We're taking the extra time to work out how much of that we want to drag in in the short term, and then there's a whole lot more upside associated with those Fort Cooper resources given how close they are to the bottom of the Vermont seam. That's really the work that we're going through at the moment, which we feel deserves extra time to make sure we get that answer right. Otherwise, you could just publish a Leichhardt and Vermont-based reserve quickly here, and those seams and the quality are well understood by all the surrounding operations that you'll be aware of around Winchester South.
Okay, so just to finalize, we really shouldn't be modeling any overlap between the spend of Vickery and Winchester South, even though Vickery's sort of still facing a bit of a delay?
Yeah, look, I'll step in here before Paul, but I would say it's always been our intention to do them sequentially and certainly not to try and run two large projects concurrently. So you shouldn't do that, no.
Exactly.
All right, thanks a lot, guys.
Thank you, Lyndon. Your next question comes from Khan Peh from Jefferies. Please go ahead, Khan.
Good morning, Paul and team. Thanks for the opportunity. Just two from me. The first one, just wanted to touch on operating costs. So can you talk through how much is leveraged to volume from slide 17 and 18? It looks like it's around AUD 2.5 a tonne. And just on that, maybe can you give an update of what you expect to receive in terms of costs, benefit from Maules Pit in pit dumping in the next 12 months?
Yeah, I think, Khan, you've pretty much nailed that. It's around that AUD 3 a tonne that we see coming through in both operating costs in the pit and coming through in logistics. And because the first half tons were where they were, we have a piece of those unutilized logistics coming through. In the second half, with tons stepping back up and Narrabri coming back in and the Werris Creek and Tarrawonga producing more tons and selling them, then we would expect to see that logistics charge reduced, and we'd expect to see things like our administration costs and our site overheads absorbed over more tons.
So that's why we think that increase, we think that reverts about $2 or $3 in the second half, and that's how we end up coming back from $76 in the first half to falling in this guidance here between $73 and $75.
Sure. Just on a second question, it's more around capital allocation. Just wondering how sort of Whitehaven views up or weighs up buy or build decisions. Some of your peers have publicly indicated thermal coal assets are no longer part of their long-term portfolio, and it seems like in the current stage of the cycle, it's probably more favorable to buy rather than build, particularly in thermal coal. I mean, not looking for specific assets, just wondering how this stage of the cycle is being viewed.
Yeah, thanks, Khan. Yeah, look, it's an interesting question that you pose, and we don't look at this thing in a one or the other type approach. We do look at all the assets that come up around the place, and we have pretty firm views on what we like, but we're also balancing that. We also know that we create more value for shareholders over time if we use all of our skills. And when I say all of our skills, we have the capacity, obviously, to navigate our way through the regulatory processes to get greenfield projects up, and we can build things cheaply, and we can run them well. And when you do those three things, we create more value. There's no doubt about that.
Having said that, with our current portfolio, most will observe that we've probably got plenty of greenfields associated risk profile in the portfolio, and you may not need too much more of that for the immediate future. To the extent that there are other things on the market that make sense, then, as I say, we look at all things, but I think you've just got to be disciplined in making sure that you understand what it is that's going to add value to your business and your shareholders, as opposed to decisions that other companies may make from time to time in respect to the interest of their own shareholders. And the shareholder groups may not often align in terms of those two groups.
So we do look at that equation, buy or build a lot, but I think we've got a lot on our plate and to be buying stuff right now, it'd have to be something incredibly compelling to want to distract you from all the work that's going on in the company today.
And I think the final point I'd make on Paul's comment is we see the quality end of that market as being the important place to play. So that is the lens through which we look at these assets.
Sure, thanks.
Thank you, Khan. Your next question comes from Sam Webb from Credit Suisse. Please go ahead, Sam.
Hey, guys. Thanks for the opportunity. Just a couple of quick ones. Just with Maules going to 16, looking at the same schematic too on slide 33, ramping up to 16, so it looks halfway between 20 and 24. How long does it actually take to ramp to 16 once you get approvals? So I just want to understand that period of time, make sure that we're not putting 16 in our numbers too early or too late. Second question on the labor program. Ahead of schedule, just to give us a sense, I know we talked about a lot of the quarterly, but does this program actually go into FY21, or is this remediation work that you're doing with the labor force, is that all largely done by the end of this financial year? Thanks.
Sam, I'll try and answer that first one. Look, I don't think you should assume that that's going to IFRS 16 is an easy thing, so I think you've got to have a couple of years post-approval to achieve that. And the reason for saying that is it sounds simple, an extra 3 million tons, but there is a bit of work infrastructure-wise to be upgraded. These are not massive pieces of work, but you've got implications for stockpile footprint, say, for instance. You've got implications for the bypass circuit there, the processing capacity for the CHPP, which need to be factored in there as well. So I would consider that to be a two-year thing. So yeah, don't think that's magically going to occur in one 12-month period. And the second part of the question?
Labor.
The labor. Well, look, I think labor aspects of the business, I think, as I said earlier, we're on the better side of where we thought we'd be forecast-wise for the improvement in labor. So, I think April, May will see us at the position we want to be in the way we're tracking.
Okay, that's helpful. So just with Maules, I understand what sort of quantum capital would it take to get those incremental tons?
We haven't published numbers there. All we've done is we've mentioned the pieces of infrastructure firstly that would be affected by an increase to about 3 million tons, and we've also acknowledged that the 3 million tons obviously would dictate further coaling capacity. We think we've got, with the AHS-enabled overburden fleet, capacity there to do the 16, although the dirt associated with that. But we do think that there's further coaling capacity, so an additional fleet to be able to manage that.
Okay, thanks very much.
Thank you, Sam. Your next question comes from Glyn Lawcock from UBS. Please go ahead, Glyn.
Good morning, Paul. Just wanted to investigate a little bit more around Maules Creek and this new labor. I mean, you talked about labor hire, so I would have thought that was quick. So is this task of getting full labor up by sort of middle of this year, is that getting to a full permanent workforce, or is that just labor hire? And then how does that impact this new arrangement you want for labor? Will it have a long-lasting impact on costs, and how does that impact your views around labor for Vickery? Because I would have thought you're looking at another 600 permanent people maybe for Vickery, if I'm not mistaken. Just is it possible to get that sort of labor in the region on a full-time basis? That's Maules Creek. And then just interested to explore a little bit more the corporate facility.
I think Kevin said something about you did lose some banks out of the refi, but you've obviously picked up others. Just if you could sort of talk a little bit more in detail around which banks are you losing, who are you picking up, and if we continue to see that trend of banks dropping off, what are your alternatives for that facility, or shouldn't I be concerned? Thanks.
Yeah, I'll try and answer the first part, and Kevin can try and deal with the second. Look, when I referred to labor, I didn't really highlight the terms labor in the context of contractual labor, labor hire businesses. I mean, we use all of them. As you know, we have a contract labor component of each of our sites, and we actually use them in a permanent fashion, but we actually also use them in conjunction with our own recruitment activities as part of the front-end recruitment of people. And there's a bit of you're able to bring people on because they can use their national footprint, these labor hire companies, to bring people from other places, and you're able to assess once they're on the ground whether or not they're the people you want to bring onto your payroll.
And so we've rejiggered what we've offered them. It's not to allay your concerns there from a cost perspective. It's not material in that regard, but we have relaxed and enhanced some other parts of the overall package because it's not just about dollars per hour in order to attract the people we need. As I said, we're ahead of schedule there, which is good. I do think the way in which we were managing this in the past perhaps wasn't delivering the right outcomes, and when it wasn't delivering the right outcomes, perhaps the blame was on the people not being there. And as I said earlier, we found people quickly once we made some appropriate changes, and we're ahead of schedule in being able to ramp that up.
As it relates to Vickery, we will be with Maules, obviously, with the rollout of AHS, liberating a number of people from the roles of truck driving, which will be retrained for other roles. Now, that's not a net that's not a complete displacement of those people. There are actually new roles that come with AHS that many people are already putting their hands up because they're interested in the technology. And so we think that for Vickery, there's probably about 400-450, somewhere in that order net that you'll need to find. Now, there's more capacity in the local environment. There's no doubt about that, but we are obviously going to need to convince people to come to our region in the same way we have done with Maules and very successfully with Narrabri.
Narrabri went through this whole issue now nearly two years ago and currently is fully manned. So I think we've dealt with this before. Perhaps site-based leadership wasn't dealing with that in the way in which they needed to previously. We've made some very good changes, and that's yielding results. So I don't think this is going to be as big a matter as what it would appear to be temporarily at this time. Kevin?
Yeah, look, and happy to talk about the corporate facility. The corporate facility, and I'm not sure where you get the statement that I said, "Thanks for dropping out," but that might be in the media and the AFR, and that's certainly been the conversation that's been going on in this country for probably the last four or five years, Glyn. But what I can tell you is that we had an AUD 1 billion facility in 2015 that was refinanced to AUD 1.2 billion as syndicated. We reduced that to AUD 1 billion in 2017, and we refinanced it at AUD 1 billion in early 2020 here. And over the course of that, there have been some banks that have come and some banks that have gone.
Or reweighted.
Or reweighted. And because we run this amend and extend program every two years, what we field from particular banks that are either coming into the country or are growing in their presence in the country, they will come to us and express an interest that they want to come into the facility. So I'm really happy with the group of banks that remain there and the group of banks that have come in, and I think we've got a really strong facility and a strong relationship with those banks. So I'm not trying to oversell it. It evolves over time like many other things.
Sorry, Kevin. Maybe I can ask it a different way then. Is the pool of banks to choose from shrinking?
You're going to see, I think, on the thermal side, there's no real surprise there, Glyn, that the European banks left the market about three years ago, and they haven't been there. So we had a couple of those in the 2015 refinance that left, and we had probably one or two that left in 2017, and we've replaced those banks with other banks, typically Asian. So our syndicate has moved between 2012 and 2020. We've decided out here with an Australian-based banking syndicate with a small Asian contingent to really be in balance between Australian and offshore.
Okay, but you don't see it shrinking further? I guess it's too hard to tell, but at this stage, the pool's deep enough.
Well, I think, Glyn, one of the things that we did, and Kevin and his team have done very successfully now over three successive amend and extends here, so over the last six years, say for instance, is we think there's great merit in aligning our business to our end-user markets who fund us, who invest in us, who are large members of our share register, who are equity members in our projects, who sell us equipment and where we sell most of our product. So we see great symmetry there, and so we've brought more Asian participation into our syndicate over those six years, and we think we'll further migrate there. It doesn't mean people leave, but there has been reweighting over time as we've brought others in who are knocking on the door. I think we'll continue to do that.
Okay, that's great. Thank you.
Thank you, Glyn. Your next question comes from Paul Young from Goldman Sachs. Please go ahead.
Yeah, we already have one.
Hey, Paul? No? We lost Paul.
He might be on mute.
Okay, Paul, you might have muted your phone.
Another question while we wait? No?
Okay.
I think so.
Unless there's any other questions, I'll be closing the question and answer session and handing over to you, Paul.
All right, Rachel, thanks very much for that for everybody. And of course, if there are any questions that you haven't been able to ask or that you'd like to explore from the previous questions asked, feel free to contact us. I'm sure we'll see many of you over the next few days, anyway, as part of the results rollout. But I appreciate you again making the time, and I look forward to catching up with you all soon. Thank you.
Thank you, Paul. That concludes the Whitehaven Coal Interim FY20 results. Thank you once again for joining us today. You may all disconnect.