Welcome, ladies and gentlemen, to Whitehaven Coal Limited's first half FY 2023 financial results investor call. All participants are currently on mute. Following the presentation, we will open up the call for questions. To ask a question, please join via teleconference and press star one on your telephone keypad to raise your hand. Thank you for joining us today. I'll now hand over to Managing Director and CEO, Paul Flynn.
Good morning, everybody, and thanks very much for dialing in this morning for the half year results for the FY 2023 year. I know this is gonna cover a lot of old ground for those who've been following and been through our quarterly results, but I'll try and move through this presentation relatively quickly and get to the Q&A session. As usual, I'm joined by Kevin, who will go through some of the financial section for us. Ian Humphris is here for those who'd like to ask an operational question. Of course, Kylie FitzGerald from Investor Relations is here as well. Kevin and I will go through these the presentation without further ado. Of course, our disclosure is on page two for you to cover off any forward-looking statements.
The half year, as you know, given that we've been through the quarter announcement, the half year has been very good for us. I'll just go through the highlights quickly. In Aussie dollar terms, AUD 552 per tonne is a pretty good realized price for the period. Narrabri has consistently performed well during the course of the half year, which is great. The financials in terms of the highlights, the record revenue at AUD 3.8 million and then AUD 2.7 on our EBITDA, AUD 1.8 billion on our NPAT, being a number you obviously have not seen before. From a taxes and royalties perspective, AUD 1.1 billion in aggregate is pretty good for the quarter and a record for us.
Our safety has continued to improve year on year at 15% improvement, and which is very, very positive. The financial results have left the balance sheet in a very good position with net cash of AUD 2.5 billion at the end of December. The Board has declared an AUD 0.32, 40 frank dividend as our interim for this half year. Of course, everybody has been aware of the buyback program. We've spent nearly AUD 600 million, AUD 592 million during the course of the six-month period. Our returns as an organization for the six-month period have been pretty decent, 101% for total shareholder returns for that period. Very, very good result. Over to our markets. You know, markets have been very good.
We are seeing some softening with obviously the less or the less severe winter for the northern hemisphere, which I suppose is very good for them. We are seeing coal prices soften in this, in the last month. I'm sure we'll talk about a lot of this during the outlook section and then also with the Q&A. Our premium products continue to see very strong demand. This graph you've seen many times, and it just depicts where the center of the universe is for us, and that is Japan, Korea, Taiwan. The emerging markets for us being Vietnam, Philippines, Malaysia and somewhat future as well for geological purposes. As far as Japan and Korea, Japan goes, that is the cornerstone of our business.
Korea and Taiwan, as you know, toggle between two and three depending on the split between the two in any given year. They're two very meaningful markets for us and pay us good prices for the quality products that we deliver to them. As far as quality goes, I think everybody understands that Whitehaven's suite of coals is generally the high water mark across the thermal market. You can see there the comparison of us and our portfolio relative to Australia as a whole and then, of course, other coal producing jurisdictions. From our perspective, we're definitely up there in terms of the 20 and 40, and that's why we get paid that premium.
As far as the split of those quality outcomes from the sales perspective go, for the first half or 77% of our sales were in the high CV end of the market. We did have a little bit more, as we talked about in the quarter, of medium CV products, but that was really just because our open cut mines had been affected by the floods during the course of this half year, and we had less marine capability across the business than we normally have. Medium CV was about 15% of our business and 8% of the total. Over to those three important end customers that I mentioned before.
This graphic's really just to re-emphasize the point that we are in a very important piece of the puzzle for energy security across these three key markets who are important to us, and we're important to them. In aggregate, if you look at these three jurisdictions, these three countries, that's 200 million people there, that on a weighted average basis, we're responsible for about half an hour of their industry, heating, cooling, cooking, you know, every day. It is a very important piece in the puzzle that we represent. The continuity of our business and potentially even growth of it is very important to the security of energy supplies in that region. As far as that reliable energy is concerned, strong demand continues to be a feature of the market we're seeing.
Supply gaps are there, and I'm sure everyone's familiar with this chart because this is not one of our own. It is WoodMac's. You'll be very familiar with it. There is definitely an emerging issue here in terms of the delta of expected demand versus what potential supply would be. We are going to continue to see a difference there, and that's going to underpin a solid pricing for our outlook as an organization, particularly as it relates to the quality end of the spectrum. WoodMac is not the only one obviously depicting a solid future here. BMA's obviously got numbers which are not dissimilar. CRU does have G2B an anomaly in that regard.
Their view seems to think that steam and thermal market's gonna be 660 million tons in 2025, which is only two years away. That's obviously gonna be quite a capitulation if you're believing those numbers. We just make sure that we're not just, we're not just looking at numbers that suit us, but we're looking at all the numbers from the various commentators across system. Our own overarching conclusion here is that we think there's going to be strong demand for our high-end quality product over any outlook period that you care to imagine on these time scales. Met, this is obviously looking pretty good as well with China taking Australian coal again.
We're going to see what we have seen, uplift in metallurgical coal prices already, and I think that will continue in our outlook period. As far as the supply and demand dynamic goes there as well, we also think that that is structurally short and the met market we think is going to be a place for us to play over time. In pricing clearly has been some very interesting prices. We had around the AUD 200 before the, before the terrible invasion of Ukraine. We have reverted to those levels now that we've seen, you know, a less severe winter in the northern hemisphere. These prices have come off as we've mentioned already.
I think structurally, the underpinnings of the strong pricing environment we see, despite the temporary falls in prices more recently, I think remain the same. That is, demand is good, supply is, additions are pretty much non-existent. With structural restrictions in terms of the consumption of Russian coal in the thermal market, we're gonna have a very good outlook, I think, here for some time to come. Metallurgical coal, as I said before, you know, structurally, I think we're very convinced that that's a very strong market over time. The spot inversion, that inversion has reversed. That's, that makes more sense to everybody on this call, I'm sure, in terms of what they historically understood about the relationship of these two markets.
Which will bring some interesting dynamics to it, I think, just in terms of, well, diesel pricing now looking starting to look interesting. Despite the spread between the various qualities in the thermal market, you will actually see people start to move back into that space. That will certainly add some momentum also to the thermal market as well. If I just summarize our market and look at the market drivers at the moment, we've got limited supply response, we've got strong demand, we've got sanctions on Russian coal. We've had weather events which are temporary, we'd say, even though that was pretty onerous for us in the first quarter. We've spoken about over the last couple of quarters' reports.
We do think that, you know, effects of that are starting to unwind in our backyard, and down the line from us in the Hunter Valley. We are seeing volumes improving there. We've seen record prices, which is fantastic and it's due to the underlying tightness that we've been seeing. There are indications here and inflationary impacts in our business are things that we'll speak about a little bit more in detail. Yeah, labor supply constraints are definitely something which the whole economy is talking about, and it's no different in our space, and perhaps maybe even a little bit more challenging given the remoteness of some of our business. COVID looks like it's hopefully behind us.
I hope we don't have to keep talking about it too much longer. It is, it certainly has, continues to see a little bit of an impact in our business, but obviously not as bad as what it was in previous periods. The inflationary pressures manifesting themselves across pretty much the entirety of our business, is something we're actively managing as we go forward. Our safety has been a really strong improvement for us year-on-year. That's nice to be able to say that, because obviously plenty of work's been done there. To have seen improvement on a 12-month rolling basis is really nice. If we look at where we closed the year last year to now, it's actually only a 4% in that same half-year period.
We all know it gets more difficult to eke out the improvements the lower in this curve you get, but we must get lower. Further effort is required in order to improve past the 5.2 for our TRIFR. The highlights is, as I said before, AUD 552 for average realized prices is certainly very good and a record. Revenue record AUD 3.8 billion. EBITDA AUD 2.7 billion, a record. Our NPAT, now that you know, AUD 1.8 billion is a very good result. Cash generated from operations is at AUD 2.5 billion. Our costs at AUD 96 at the lower end of the range that we've given you. On the return side of this equation, as I mentioned before, AUD 0.32 the board has declared fully franked.
Total returns to shareholders at AUD 959 between the dividend and buyback in aggregate. From a TS owner perspective, 101% over the six-month period. Very good. Now these numbers you've seen, so I won't, I won't labor this other than to point out that you know, we do have, we do have, a tale of two halves here. The first half, as everybody knows, heavily weather affected. We haven't seen anything like that in more recent times, once this, we've rolled past, in fact, the reporting of the December quarter report. Mining conditions have been positive for us.
We're looking forward to that continuing in the year, but I think labor and the weather remain the two riders that we would caution on in terms of achieving our guidance for the full year, which remains at the 19-20.4 level. Maules Creek, as you know, heavily weather impacted and recovering nicely now, but we're still suffering from labor shortages, which is probably the defining feature at the moment that we're balancing. We are changing and evolving the employment proposition that we're offering to people from further afield in order to bring more labor into our region. That does come with a cost. That's not surprising to anybody who's listening to any reports across any industry at the moment.
We have got a steep decline in the second half, which we've told you before, but it is, no doubt, is going to be a period of vigorous activity as we, as we deliver within our range of 10.3-11.4 Mt for Maules Creek. Narrabri, you know, is going well and progressing closely to its impending change out. So that's very positive. Overall, we're in a pretty good space, and it's nice to see. Obviously, that wasn't a weather effect, as if we talked about over the last couple of quarters. Nowhere near to the degree that the open cuts bore during that period.
For the first half, ROM, 3.6, very good, big increment over year-on-year and certainly on track to achieve our guidance of 5.6 million tons. Change out there, going from 110 to 203, we're expecting that in April, which is positive. Cut and flit has been actually mining up better, so we are seeing some momentum there building. We are thinking that in the new year, that's going to be very positive to be into the shallow ground. You'll only see a little bit of that, of course, in the balance of this final stages of the financial year. You will see 203 start to indicate what better volumes and productivity is gonna look like in that shallower ground.
Keen to see that and report on that in the final quarter of this financial year. Gunnedah Ops, as everybody knows, weather affected, which is obviously difficult. That leaves us with a reasonable task to at the end of this year. I won't dwell on that too much because I think everybody's been through that. I will just call out some numbers here so you can understand the scale of the interruptions that we've had here in Gunnedah in particular. Maules Creek did suffer, I think it was 24 days of downtime. That's days of downtime, as opposed to all the other disruptions that go from wet days and ramping up and cleaning up and so on. Gunnedah Ops had quite a difficult time as well. Tarrawonga had 74 days during there.
Gunnedah CSP3, because of its connection with the low-lying road to Tarrawonga, actually suffered 36 days during the half, which is quite a significant impost on trying to keep it up during that period. With that, I'll hand over to Kevin to give us the summary of the financials.
Thanks very much, Paul. Well, it's not very often when you get to turn up and talk about a first half that's better than probably, four of your last five years. AUD 3.89 billion or AUD 3.8 billion in revenue. A really strong, first half of fiscal year 2023. Average realizations, AUD 552, whereas in FY 2022, our average coal price was only AUD 325 a ton. I say only because that was a cracking year as well. As a result of that revenue, a little bit of pressure on costs, but we're not immune from that, and we're not alone on that in the world.
I think the focus in the business was to make sure the tons came out of the ground and went to the customers in the premium markets at premium prices. As a result, revenue AUD 3.8 billion, as I've said, EBITDA AUD 2.7 billion, just a shade behind, a tenth behind the full year for FY 2022. NPAT was at AUD 1.8 billion, which was a great result. The cash generated from operations was a touch over AUD 2.5 billion. You can see that we've built cash on the balance sheet. Now, that cash has got some claims to it. We'll go through those in a slide a little bit further on. The board has declared a AUD 0.32 frank dividend to shareholders. EBITDA margin on the next slide.
With these coal prices, as I said, the focus really was on production and selling the coal in the premium markets. You can see that from the earlier slide Paul put up, more tons went into the Japanese market than in previous years. That really was a function of having the tons blended up, and having the tons to sell. In the first half of FY 2023, our EBITDA margin in the ton of coal was AUD 414. You can see the costs were up about 13, and we'll go through that in a moment, just on the breakup of what's driving that.
If you look at the first half of fiscal year 2022, we were pretty pleased with a margin of AUD 102 a ton, AUD 414 is a happy day for a CFO. Over the page onto how we got from the first half of fiscal year 2022 to the first half of fiscal year 2023. There are no surprises in this. FX was a little friendly to us, gave us about AUD 300 million, the real driver on this was the increase in coal price. You can see that the thermal coal price in the first half of fiscal year 2023 averaged AUD 381 versus AUD 146, you can see the coking coal, which was a smaller proportion of the business, was at AUD 285 frank AUD 155.
As I said before, costs were up about 86, and we'll go through that on the next slide. All in all, it is a record half and it's an outstanding half. If we go to the unit cost, we've talked about this, and there shouldn't really be any surprises. We've seen the impacts of flooding, which was really in that first half, around that September, October, November period. What's surprising for most people, strong Narrabri performance actually lowers our costs because the yield is very high. They're about a 98% or 99% yield, and that actually contributes to the outcome here. You can see there, we've accelerated the debt amortization. There was an article, I think, in the AFR the other week talking about this.
The producers have decided that they want to reduce the risk in that business as banks have, you know, decarbonization targets around 2030. In the back end of this, you can see other costs that we're not immune from. Higher diesel prices, labor payments we've made, OEMs that are asking for a little bit more on their equipment and all in all, that's how we get from AUD 83 to AUD 96. Again, those costs, some of those we would expect to see come out of the business in time to come due to the impacts of flooding. We would expect those diesel costs and labor to soften over time as well. Come to cash flow generation, and it has been a very strong half.
We had about AUD 1 billion in net cash at June 30 2022. We generated AUD 2.5 Billion. In accordance with this capital allocation framework that we put out to the market about this time last year, we've invested capital in sustaining the business. We've paid AUD 945 million to shareholders in the form of tax and dividends. We've got another AUD 280 odd million coming in dividend coming in about two weeks' time. It left us with about AUD 2.4 trillion. Some people will say, Well, what are you gonna do with that AUD 2.4 trillion? Well, there's no claims to it. Let's go to the next slide.
We expect to pay this fiscal year 2022 income tax of about AUD 552 million in the next few days. There's income tax in relation to the first half of fiscal year 2023. We'll pay that on the full year 2023 result in around December 2023. We've got an interim dividend there of AUD 274 million. After that, if I can call it the unconsumed cash or the untagged cash, there's about AUD 879 million or AUD 890 million of cash there. We'll retain some of this on the balance sheet for future needs, and we'll use some of that cash, and the cash that's generated in the second half when we return to buying back shares in the second half.
Net cash and liquidity, I really don't propose to stay on this for long. You can see in here the cash that we've got on hand, our ECA facilities or export credit arrangements tail off over about a seven-year period. Finance leases are shrinking, our net cash is AUD 2.471. Whilst the liquidity there includes an undrawn facility, we don't expect to play in that space. We expect to leave that alone. We expect to reposition our funding over time. We are still looking at capital markets, although there's no real need in the business for it at the moment. We stay prepared for that discussion, and we look to align the sources of our capital with the places where our coal goes.
Come over the page on capital allocation and I expect to have a few questions on this, through the question and answer period. Let's try and take you through this. It's really a disciplined approach to capital. We spent some money on maintaining and optimizing operations. We spent AUD 85 million in sustaining capital, including some Narrabri mine's development. We repaid some finance lease payments of about AUD 36 million. The cash on the balance sheet went up. That's because we've got tax payments to make on both fronts, and we've returned AUD 0.32 to shareholders. In half one fiscal year 2023, we bought 67 million shares for a total of AUD 592 million.
Since March, when we started this discussion, we've bought back 14% of the stock for AUD 955 million. We haven't dilly-dallied in that, and we still see value in that approach today. The payout ratio for the first half is about 36%, which is midway between the bottom end of the guidance of 20% and 50%. The overarching comment I'd say to people is that we look at an annual result rather than splitting the half straight arithmetics. We'll work our way through and see what the end of the year result looks like. From that, you'll see us continue within this capital allocation framework. Here we go. Trying to put a bit more clarity into cash that comes to shareholders versus how do we allocate capital from returns.
On the left-hand side there, you can see the actual capital that has been returned, which is a record number. You know, it's literally double what we've delivered in previous years, but we've delivered that in the half. And that's been cash in the buyback that we talked about and the final dividend that came out of the fiscal year 2022 results. If I come to the results, the capital that's allocated to shareholders, you can see AUD 274 million is gonna be in the AUD 0.32 dividend coming to you in about two weeks' time, and the AUD 367 million of capital that we have, we've spent on the buyback in the first half.
All in all, that's a payout ratio of about 36% of NPAT, whereas the payout ratio for FY 2022 was about 53%. What I'd say to you is that you can see that we're not paying special dividends, and that's consistent with the approach we've had when we talked about back in from early February, March in 2022. Let me just hand it back to Paul and I'm looking forward to questions and answers.
Thanks, Kevin. Over to guidance now, quickly for you. No change in there, as we've mentioned before. ROM remains at 19-20.4, as I mentioned earlier. Sales on a managed level at 16.5-18. The costs, as we've mentioned now, at AUD 26, we're reporting obviously we're just above the bottom of the range there, which I think has actually been a decent effort given the bumps we've had with weather and the temporary impacts on costs that we've gone through that have related from the flooding related matters. We think with the second half that's more heavily volume weighted, there's a good chance we can improve on that current position, which is very positive.
We're underspending on the CapEx, which is not surprising, given supply chain and other related issues there. I mean, generally, we underspend the first half, for those who've watched us in the past. We're unlikely, I think, to get to the total of that capital, balance of the year remaining. There are lots of inflationary pressures in the business, as you know, so we're doing our damnedest to try and keep that all under control. In terms of the market outlook, we'll just finish on this here. I mean, the Russia sanctions I think are the impact for us in the near term. Let's see how that unfolds. Weather does feel like we've got a better weather pattern in front of us.
Not taking that off the table. Clearly labor issues are causing us and everybody, a lot of concern and the inflationary impacts that go with that as well. I'm sure there'll be questions in a minute about this whole reservation policy with the New South Wales government, has announced the details of that. We don't have for you unfortunately at this point in time. We do expect there's imminent directions from the government in that regard. We can perhaps talk about what we know. We don't have the details, we'll need to stay tuned for that. As I said earlier, I think the Northern Hemisphere winter, mild as it was, that's good.
That does mean that in the short term you've got a little bit more oil, gas, coal laying around than what you had planned for. That's probably good for them. Less good for the rest of the market in the short term. I really think the structural issues associated with sanctions remain. I think this is just a temporary softness that we're seeing in the market. Prices are improving. China taking Australian coal again is... We've always think it is for information fair. That's very positive. Long term, obviously energy security is gonna continue to be a real issue. High quality coal is gonna be needed for longer. The transition by supply of the coal that we produce to our important markets.
We'll continue to play that important role, particularly for those 200 million people I mentioned earlier. Without any supplier side response coming on here, I think that bodes very well for the longer-term outlook. As far as our individual focuses at company level for the balance of this year, we wanna continue to focus on our safety. We're doing well. We need to do better. Environmental compliance and sustainability outcomes for us have been very positive also. That needs more effort. We're obviously focused on delivering our guidance, and given the rough start we've had with weather and so on in the first half, we're very much focused on bringing home bacon in the second half.
Managing our costs and keeping the margins in the right place is very much part of our focus. The capital, as I said, we're likely probably to underspend there. We are looking very closely at Pit Creek. I did say to people at the quarter report that we'll say something during the course of March on the prospects for a staged introduction for Pit Creek. That's very much front of mind for us. We're working hard on that. We'll work with the timeline, which actually present an opportunity for everyone to have a discussion on that during the month of March. Then once we know more about this coal reservation policy, I have to say something on that as well, no doubt.
With that, a very, very good half year. We're really positive about the results. We've been able to reposition the company financially, set it up well for the future. We look forward to some of the improvements that we see in the current pricing just for the second half. I'm saying, I think the structural underpinnings of the market going forward are very, very constructive for our business. With that, I'll just thank everybody, all our employees and all the shareholders for their support during the first half of the year and look forward to the second half. I'll hand back to the operator now for Q&A session to open up.
Thank you to Paul and the team. Now is your chance to queue for a question. If you've joined in over the phone conference, you can press star one on your telephone touch pad, raise your hand, and we'll pause a moment to assemble a question queue. Just a reminder, that's star one to queue for a question. Our first question comes through from Chen Jiang from Bank of America. Please go ahead, Chen.
Good morning, Paul and Kevin. Thanks for the presentation. I just have a few questions. Well, two or three, please. On slide five, there's a big jump for your sales volume to Japan in the last six months. I guess this will continue with the sanctions on Russian coal. I'm wondering, have you seen any increased competition with diverted but heavily discounted Russian coal into your sales destinations such as Korea, Malaysia, India, and other Asian countries who don't have Russia sanctions? Perhaps two more updates. Thank you.
Yeah. Thanks, Chen. Look, Japan definitely is a big piece of the puzzle. I think in the short term there is some might say risk, others might say opportunity for more volume to go in there, particularly as Russia's sanctions come into force there from the first of April. We may actually see directionally more of our volume going into Japan. As I mentioned earlier, Korea and Taiwan toggle between second and third in our in terms of our sales mix. I probably suspect that in the second half and even further into the new financial year, you might see Taiwan even grow a little bit more. Korea does appear to be taking Russian coal.
That's not a consistent position across the Korean market in its entirety. We have got different organizations that we're dealing with taking different positions there. By and large that industry is taking some of it. Whereas Taiwan has excluded it altogether. Russian coal that is. I do, if I'm forecasting going forward, Japan a little bit more, Taiwan a little bit more. Korea may be moderating slightly in terms of percentages. That's where we're seeing it. In India, I think it's taking quite a bit of Russian coal, and it's being offered at completely discounted prices. It's understandable at a level that they're taking that. Obviously, that's not a market we're playing in, we don't see. We're not seeing any real displacement of coal that's causing us greater concerns. We know that Japan has been searching around the globe looking for available coking coal as a material. They've been tapping on the door of pretty much most competition jurisdictions. I don't think the volume response to that has been much at all. Hence, our prediction that we'll probably keep putting a little bit more into Japan in the foreseeable future.
Thank you very much, Paul. May I ask another question on slide 30 of your presentation on shareholder return? In terms of dividend, AUD 0.32, that's 16% dividend payout ratio. I guess that's lower than the market expected. You still have 80% of buyback to complete in the next eight months. When you still have 80% of buyback, your second half FY 2023 payout could be potentially, you know, more than 50% just on the buyback. I'm just wondering how should we think of your dividend payout ratio in the second half of FY 2023? We had a look at your split of the dividends and buyback in the last 12 months. It seems like 40/60. Just by considering your magnitude of buyback, how should we think of your dividend payout? Thank you.
Thanks, Jen. I might start this off, and I'm sure Kevin will add something to this. I think there's the numbers that you've accounted there, of course, are correct. There is an element in our thinking of a little bit of caution here. Typically, we pay a little bit less in the first half and we've been more heavily weighted in the second. I think our view on that is probably a little bit more focused given the softness in the market. We know that the second half on average, revenue-wise, is, you know, going to be less than the average of the first half. Kevin's highlighted the claims already over the cash balance that are there that would need to be fulfilled.
You know, there will be other capital needs, if I can call it that, which we should also bear in mind. As I, as I've just mentioned to you, we will talk to you in about a month's time about our thoughts on the state of Vickery and our thoughts on the stage and production of that. We are bearing these sorts of factors in mind as well. With that, Kevin, you can speak to the balance of the buyback. Which of course, Jen, you'll acknowledge, the minute before our AGM was held, clearly the government took off the table the off-market buyback route.
The prospects of us being able to do a full 25% within the 12-month period, I think everybody understood that was not possible. We've been consistent performers in the buyback period. Since then, with our buyback in the periods we're able to trade, and we'll continue to do that. We see that's a very important and broadly very well supported by shareholders in doing so. Over to you.
No, happy to step in, Paul. I'd probably say, I'd say this. First half, we're generally a little more cautious on dividends in FY 2023. The full year, we've given guidance between 20% and 50%. Clearly, with the approval from the shareholders in October of the second stage of the buyback, we've really only had a couple of months to get a swing at that. We would expect to be back in the market, and we expect to be back in the market in the second half. We see the shares as being compelling. I would say wait for the full year. I'd also probably say this, that, we wanna keep the balance between buyback and dividend. That ratio that you talk about there is about where we like to see that.
We don't wanna get too far ahead of that on the dividend because in the past that's just encouraged transient shareholders, would be the way I'd describe it. Stay tuned for the second half, Jen. We should be compliant with the policies we put out to people and the guidance we've given you.
Great. Thank you very much, Paul and Kevin. May I have another, the last question regarding your costs? First half FY 2023 cost AUD 96 per ton of your lower end of guidance of AUD 95-AUD 102. Your production in the second half is going to be, you know, more than the first half, second half weighted as per your guidance, and you were expecting less weather disruptions. Is it fair to assume your second half FY 2023 unit cost is likely to be at the lower end as well or lower than the first half FY 2023? Thanks.
Thanks for that. I think that's a really good question. I'd probably look at the mix of operations that are gonna contribute in the second half. In the first half, Narrabri's performed very strongly, and that's helped to lower the average cost. In the second half, we're gonna see better performance from an overcut and less representation, proportional representation from Narrabri. That AUD 4 of benefit, which you saw in the first half, is unlikely to be repeated in the second half. We should get better volumetric outcomes, and we're seeing slightly lower diesel costs in the business. Our expectations are second half, we should still be around that bottom end of the guidance, would be my view. I think that's as much as I wanna say.
We're hoping for less weather impacts in the second half.
It's looking that way.
All right. Thank you very much, Paul and Kevin. I'll come back down. Thank you.
Thank you.
Thank you, Jen. Our next question comes through from Paul McTaggart from Citi. Go ahead, Paul.
Hi guys. I might ask five questions. No, I'm only kidding. You think I did wanna follow up a couple things. You made some comments, Paul, about labor in Maules Creek and going further afield. I just wanted to get a sense of what you were doing around, you know, trying to kinda get labor.
Yep.
Second was, you know, I mean, you produce a coal that traditionally is not used, consumed in New South Wales Cove-side power station. How does that discussion go with the Government to get any sort of recognition from the Government that that's the case?
Yep. Okay. My temperature's going up already on with the second question, but give me some time to breathe there, and Ian can give you some answers, Paul, on the efficient issues that we're engaged in now at Maules Creek and across the business.
Okay. Morning, Paul. Look, we are looking at the various areas that we can source labor from rather than the traditional sort of target areas we've had. That's proving beneficial. We have looked at various roster options to, I guess, facilitate those different areas we've looked at, and they've been implemented recently. We're seeing some favorable results there, and we're hoping that that's gonna grow. You know, we continue to ensure that sort of the remuneration and incentives and things that we have to our employees is, you know, market competitive and, you know, that continues to move, and we keep following that. You know, we continue to look at what we can do to grow, train trainees, indigenous engagement programs and things for our local community. There's a suite of activities there and, you know, we need to keep moving with the market and staying dynamic in that space.
Ian, so to remain market competitive, I mean, you know, how much kind of pressure is that putting on some of your labor costs?
Well, I mean, we've introduced what we call a market allowance to our both our employees and contractors. We've linked that to a coal price. I guess what we, the initiative there is to ensure that should the situation change, that we're not impacting that cost profile. You know, effectively that's upwards of a 10% increase to them on an annual basis, while ever that's in play.
Those are the quarterly retention payments that we've mentioned to you in the past, Paul.
Yeah.
As you're saying, there are other, there's other momentum there, unfortunately, inflationary-wise, you know, as enterprise agreements are up for up for tabs. That will be no news to anybody that the requests that have been made there are escalating. We're working hard to make sure we can manage, you know, the cost of that, but still achieve the outcomes we need from a total BCE perspective. I mean, that is a real battle. The market isn't obviously one market, of course. When one company goes out and does a certain thing, that ripples around the market pretty quickly, and other people are looking for similar sort of initiatives.
Yeah, look, it is a challenging environment, but seeking people from further afield when we've tapped out the local market is a theme that we're having to engage more and more in over time. If we wanted to bring on more volume through a staged introduction to Vickery, that's only going to compound that issue.
I think the other one, Paul, you mentioned in a previous call is the housing policy and developing additional housing in the regional areas for those that wanna move out there. You know, that's a slightly longer term strategy, but we've kicked it off and that, I guess, comes back to that sort of plethora of options that we have to different people to meet their various requirements.
Paul, just on the other part of your question, that has been a very difficult range of discussion, not just with us, of course, right across the industry. There are people obviously already embedded in the supply relationship for the domestic power generators. As you rightly pointed out, the types of coal that they've historically sought and supplied and consumed bears no resemblance to the coal that we produce. The notion that we would sacrifice high value, you know, export revenues for the company, for the state, for the country, to be diverted internally and, of course, dirty up in order to be able to be consumed, isn't a particularly sensible option. We have raised this, as had the other effective power producers.
You know, of course, it makes no sense for us to be giving anybody 6,300 material to burn in a power station that's not designed for that. You know, a 9%-10% ash product is not useful when they've been historically consuming anywhere between 24% and 28% ash. Yeah, that's difficult. We're helping the government understand the dimensions of this and the ramifications of that in the marketplace, and also the logistical considerations associated with supplying certain power stations. I mean, it's very difficult for everybody to get trains into the Central Coast. We all use much longer trains than the loops there can accommodate. There's gonna be some inefficiencies imposed on people having to use smaller trains.
Yeah, there's a lot of dimensions which I think the bureaucracy, the government bureaucracy who's been charged with evaluating this, is coming to terms with. We'll just have to keep helping them understand the limitations of both the product and the physical nature of this. I mean, look, Paul, in my view, at the end of the day here, this is largely a political issue. It is my concern. We've got a shortage of coal going round. It's a price issue. You know, people's electricity bills are going to be pretty unfavorable from a government's perspective, especially a government that wants to get reelected. You know, I think it's been caught up in all this.
There is coal available, and if you wanna pay export parity price, then it is available. That is the market construct that governments, successive governments over the many terms have orchestrated here. Long-term assets with shorter term supply agreements attached to them and our price rise was always going to deliver this exposure to export parity pricing. It's now come.
Thanks, Paul. Let's hope sanity prevails.
Fingers crossed.
Thank you, Paul. Our next question comes through from Tony Mitchell from Shaw and Partners. Please go ahead, Tony.
Thanks very much. Paul, what's the Labor Party's policy on the domestic coal situation here?
Tony, I don't think they have a stated position here in that, in this regard. I think they're. The only thing that I've heard from them thus far is to echo the government's position, is that whilst this thing is afoot, there's no change in royalties. Obviously, everyone's concerned about having seen what's gone on in Queensland.
Yeah.
We can't be having two of these initiatives compounding the effect negatively for our sector. I don't believe there will be any change from an opposition perspective. I think they're letting the government obviously take the pain on announcing it.
Mm-hmm.
But the industry has been able to extract from the government, you know, royalty changes, and the opposition has echoed that.
Okay. Thanks for that. Do you have any interest in buying the BHP mines at either Blackwater or Daunia in Queensland?
Well, we've got plenty on our plate if you believe this way.
That's it. Yeah.
You know, we're, we didn't talk about Winchester South. In fact, we haven't mentioned it at all during the course of this call. We have mentioned it a couple times, and we are looking at that very closely. We have a lot on our plate and on... Whilst we've heard the rumors, of course everyone's heard the rumors about some assets coming to market. We look at everything as it comes along the way. I don't wanna be caught up in too much of a discussion on that other than to say we've got plenty on our plate. I'd rather deal with the prospects of a staged introduction of Vickery, and in six months time, we're hopeful that we'll actually have a stage gate for Winchester South.
Sort of maybe on the more bulky side of things, maybe in months to nine months. There's no reason why it can't come out in that period. Of course, you've got to engage at the federal level. The met coal mines being developed up in Queensland, that's still a viable prospect. There's no one's debating the structural nature of the shortage in met coal going forward. Queensland is obviously well-positioned to be able to service those needs in Asia. I think that.
Yeah.
Sorry.
Does the company have a planned percentage of your coal to come from metallurgical coal over the next few years?
Yeah. We want it to be 50/50 was our aspiration.
50/50. Right. Okay.
50/50. Yeah. I mean, we're obviously not shy about our coal. We've got the best coal in the market, and customers love it. We do think over time our proposition as a company is better balanced by having more met in business. As I mentioned earlier, semi-soft with prices now reverting, met coal prices now reverting, semi-soft inbound interest has been also better than what we've seen in the past two years in the future. Of course, we think we can swing more Maules Creek and potentially Tarrawonga into that semi-soft market. Of course, Winchester South would be the game changer from our perspective from a met composition perspective.
Can you get to that 50/50 just doing, Winchester South and your other and decrease? Can you achieve that objective over the next few years just doing those things without acquiring any trading collections?
You'll have to hand the baton on to someone, Tony, after your three questions. You can't get to that just further met coal sales out of Maules Creek and Vickery and then Winchester South. You'll make a huge difference in bringing Winchester South on, of course. Yeah, we're not obviously up in there for one asset alone, that we think there are other opportunities over time, but we're not racing out to try and create some transformation here.
Can I ask one final question?
Well, not really. You know, your time's up. Come on, hand it on.
Okay. Sorry. Okay. Thank you.
Come back, Tony, after the other questions have been exhausted if there's, if there's some time remaining.
All right.
Thank you, Tony. Our next question comes through from Paul Young, Goldman Sachs. Go ahead, Paul.
Paul. Morning, Kevin. A lot of the high level questions have been asked, so I just wanna dig into some of the projects. In particular, starting with Narrabri. I mean, we're pretty soon flipping over to the third part of the mine, which will be great for that operation from a production and cost perspective. Just wanna focus on the CapEx spend in Narrabri in the half. Just the one area where you fell short versus the run rate for the full year. Open cost and grade project spend was in line with the full year. I noticed just on Narrabri that, you know, obviously a lot of money's going into the 200 series in the mains development, you know, for the future. Just wondering, you know, has it any impact on potential future production or development, because of access to labor, et cetera?
Paul, no. No, I don't think there's been no impacts that are delaying us. We have experienced some delays though. There's no doubt about that in mobilizing some of the equipment and that we'll bring equipment to site for that work. But as far as the float and so on goes for us, we've got no issues there. We're well covered. Yeah, you will see more going out in the second half. As I said earlier, we won't get to the full numbers based on where we are today. There's just, it's slid to the right, but we're well within the bounds of our project requirements.
Okay. There's a question on Vickery, Paul. I mean, it's, you don't have to really go through the history here, but it's been years of sort of waiting on permits and talking around sell downs and all sorts of things over time. Now we're in a situation where you're looking at a capital light model on a starter project and, another transition of the larger project and, you know, obviously go through the feasibility study or recover the
Mm-hmm.
Of the capital test and et cetera. I've just a question. What's the end game here in Vickery? Is it still to, you know, finish the studies and the capital update on the, on the larger project, the AUD 700 million, over AUD 1 million larger project? Are we still aim, goal seeking or targeting, you know, potential sell down of this asset? You know, I'm just curious about, you know, the overarching strategy of Vickery.
Yeah, that's a good question. That's a good question. Staged introduction is what I mentioned a couple of times there, with the early mining case at Vickery. When I say staged, I mean, I'm thinking it's a two-step introduction. A smaller version, if we can get that on quickly, and obviously we've got accelerating revenue in this period to be able to take advantage of existing surplus capacity at the Gunnedah Prep plant and also those surface take or pay. I think that would be useful. The board of proposition for the full size degree, we will put to the board within this year, this calendar year. So we are interested still in bringing the whole thing on. There's no lack of interest in that regard.
As you can imagine, there's lots of work going on at the moment because capital estimates are hard to nail down. You can imagine the team, the project delivery team is working pretty hard to try and get the best estimates they can on that because when we do eventually come to the board with not just a small version, but in any bigger version, there's gonna be an allowance that has to be made for capital inflation.
Yeah. Makes sense, Paul. When it goes to board approval, if or when I should say, then you can go out and obviously present that, those results et cetera up in the data room and then get, you know, potentially look at bringing in a partner.
Yeah, that's right, Paul. Look, energy security concerns being what they are, people are very interested to see the volume come on. There's no doubt about that. Obviously that means us, if we bring in other people, that means us taking all the risk on that. We would like to see if there's other opportunities for us to share that risk. Having said that, as I've mentioned on these calls in previous periods, we are attracted to the idea of having full, unencumbered use of our own coal to spread across our business and blend it as we see fit. That's, that is a very big part of the value proposition that Vickery represents given, you know, you've got differences in the market between the various segments between, you know, the lower rank coals, the 50-500, the GCV, you can see that the potential opportunity is very meaningful. We don't really. It may not be in our interest to have anything structurally in place that impedes our ability to get our hands on our coal, such as, you know, we have greater restrictions at Maules Creek, for instance, we've inherited. We're looking at other means by which people can give us financial support, but perhaps not direct equity in the project.
Okay. That's interesting. Thanks, Paul. That's it from me.
Thanks, Paul. You there, operator?
Thank you. Our next question comes through from Glyn Lawcock from Barrenjoey. Please go ahead, Glyn.
Morning, Paul. Look, just a quick one. Are you gonna start from tomorrow or from today? Just from a technical perspective, any issues?
There's just one buyback issue at the moment, Glyn. It's a good question. Thank you for raising it. Ordinarily, we would start the day after the results go out. Ordinarily, we would. We are holding off that until such time that we, there's an imminent pronouncement from the government on whatever this reservation policy is going to mean. We, you won't see us in the market for a day or two until such time. That's, I understand it's imminent, so it's got to be flushed out. I wish it was today so we could talk about it. It's, there'll be some days before we can move forward, I think. That's the only thing that's keeping us from moving back into the buyback program.
Okay. Then the government, any issues there on the windfall tax or has that been quiet?
Haven't heard any more discussion. That seems to be more in the media than it is in dialogue with the government. That part of it seems to have gone away and has had any suggestion of problems with diesel fuel rebates and other considerations.
All right. Just finally, you probably zigged and zagged at the wrong time. You know, coal prices have fallen and you went 80% met, 20% thermal. How quickly can you get back to your 80/20 if you prices stay at this sort of disparity now the other way around?
Yeah, yeah. Look, I think we've done pretty well out of the zigging and zagging, actually. Yeah, the market's reinflating on the met side. That's great. You know, that's really good. We can move back into that market pretty seamlessly. We haven't tied ourselves up commitment-wise for long-dated thermal contracts that will present us from moving back into the semi-soft. We'll be pretty responsive to that on the basis, Glyn, that still makes sense.
I just wanna qualify that because, even though the semi-soft numbers will start to look very good, if they're not good, in terms of the blending, the blending opportunity, you know, given the difference between 5,500 imperial and 6,000, there's still a very strong argument for blending on the thermal side versus a discrete sale on the semi side. I just wanna raise that just in case, in case people start having more expectations on the semi side. We will definitely thermal semi. I can see that coming. The blending opportunities on the thermal are still very strong.
Just to clarify then, we should be expecting at least in the back half of 2023 to be like 90- 8, like it was at the moment. Just can't quickly this back half. It will be back in 2024 when you can readjust again.
It'll be early in the new financial year that you'll see a change there. We certainly have unsold tons in the balance of this financial year, so that's possible to move more in there. Yes, in the early 2024s when you'll see it.
All right. Thanks, Paul.
Thank you. No further questions at this stage. I'll hand back over to Paul and the team.
Thanks very much, everybody, for all your time this morning and the questions. I appreciate that. If there's any further questions, I'm sure we'll see many of you during the course of the next couple of weeks. Thanks for the time and, we'll come to a close now. Thanks, operator.
That concludes the call today. Thank you all for joining. Participants may disconnect.