Good day, and thank you for standing by. Welcome to second quarter 2024 Production Report conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Investor Relations Manager, Brendan Fitzpatrick. Please go ahead.
Thank you, Maggie, and thank you to everyone on the call for joining us with this briefing of Yancoal's second quarter production report for 2024. Typically, our CEO, David Moult, provides a summary of the quarterly production report. However, David is not available to join us today. Instead, Kevin Su, our Chief Financial Officer, Mike Wells, our Executive General Manager, Finance, and Mark Salem, our Executive General Manager, Marketing, will summarize the second quarter activities. We will then open the call to questions and answers. The commentary provided is based on the production report published to the Australian Securities Exchange and the Stock Exchange of Hong Kong yesterday evening, the eighteenth of July. There is no presentation pack for this call. The Yancoal website holds past presentations for any participants that require additional information on the company. Kevin, could I invite you to provide initial comments?
Thank you, Brendan. Yancoal has consolidated the operational recovery that started at the beginning of 2023. The 18% increase in attributable sellable production compared to the first half of 2023 reaffirms the strong recovery achieved over the past 12 months. Yancoal's operational and financial performance is made possible by our people. The total recordable injury frequency rate increased to 7.0, and although it remains below the comparable industry weighted average of 8.7, we are committed to reversing the recent trend through the integration of programs that delivered to the favorable trend in 2023. Turning to the financial performance, we finished the half year with another robust quarter. We added AUD 380 million to our cash position through the June quarter.
This increase to the cash balance is after all operating costs, corporate overhead, capital expenditure, and monthly progressive tax payments. At the end of June, we were debt-free and held AUD 1.55 billion in the bank. This cash position is after we returned over AUD 429 million to shareholders as a fully franked dividend in April. Our financial performance is closely linked to our average realized coal price of AUD 181 per ton in the June quarter, consistent with the March quarter price. This price, when combined with our scale of production and the competitive cash costs, drives our business. Our 2024 production guidance is unchanged, and like last year, we expect the production volumes to increase in the second half. I'll now ask Mike to provide further comments on the operational performance, please.
Thank you, Kevin. The Australian Bureau of Meteorology moved to a La Niña weather pattern watch during May, and we saw above-average rainfall in parts of Eastern Australia during the quarter, impacting our operations. Our sites are now in a much better position to deal with adverse weather impacts. However, we still need to suspend operations at times to ensure site safety and avoid damage to assets. In New South Wales, Moolarben and MTW managed to offset some of the production losses through changes to the mine schedule, including prioritization of coal extraction and shorter haul cycles. Our total run coal for the six months was up 7% to 27.9 million tons, and the saleable coal production increased 16% to 21.6 million tons.
Our attributable share of sellable coal production of 17 million tons was an increase of 18% and annualizes around the low end of our guidance. But as Kevin mentioned, we expect increased production in the second half. Our operational performance in the third and fourth quarter of last year demonstrated what our high-quality suite of assets can deliver. There will always be some variance in production through the year due to longwall moves, maintenance schedules, and other variables. We haven't reported our operating cash costs for the half year. As is usually the case, we'll report these in the first half 2024 financial results to be released next month. Given the production profile is weighted to the second half, it is logical to anticipate a higher per ton operating cash cost in the first half, followed by a lower per ton cost in the second half.
I'll now hand over to Mark to comment on the coal markets.
Thanks, Mike. Good morning, everybody. Kevin touched on our overall average realized price of $181 per ton, which was 1% up from the March quarter. Our realized prices by product stream for the June quarter were $163 per ton for thermal coal and $318 per ton for metallurgical coal.... Our attributable sales for the period of 8.6 million tons, and the sales volume split was consistent with our usual profile, being 88% thermal coal and 12% metallurgical. Once again, the thermal coal markets appear well balanced for much of the June quarter. We observed good levels of demand, but our major end users in Japan and Korea, for example, are holding relatively higher stock levels.
Some buyers shifted away from Russia's supply after the US applied further sanctions, which resulted in a redistribution of cargoes across international markets. China sourced additional imports to counter a temporary supply interruptions caused from safety inspections. By the end of the quarter, rainfall increased, bolstering hydropower generation and alleviating the need for additional imports. Indian demand continues to rise on residential and industrial power requirements, as it has yet to see the seasonal uplift in hydro generation. Turning to supply factors, Indonesia had weather interruptions impacting smaller mines, but its primary operations performed well. Indonesia's exports were up 30% in the first five months of the year compared to 2023. It is a similar story in Australia, where exports were up 12% in the first five months of the year, despite some rain disruptions.
Also, exports from the USA remain consistent despite the Baltimore bridge collapse. Colombia also had steady export levels, with one exception being South Africa, where infrastructure constraints impacted the export volumes. In the metallurgical coal markets, reduced supply was countered by reduced demand due to an overall softening of the steel market. Similar to the thermal coal market, sanctions on Russia have led to a redistribution of metallurgical coal cargoes across regional markets. India had been a positive driver in prior periods, but demand was lower during the quarter. It may pick up after the re-election and monsoon seasons have concluded. Japanese imports of metallurgical coal remain weak on the back of soft steel demand from the automotive industry. Demand from China was also lower, despite good sentiment and stimulus factors.
Like thermal coal markets, indices fluctuated during the quarter, but the averages have remained very similar to the prior quarter. Consistent with our view over the past year, international coal markets appear relatively balanced and susceptible to short-term factors influencing supply and demand or trader sentiment. Thank you for listening, and I pass back to Brendan. Thank you.
Kevin, Mike, and Mark, thank you for those insights. I think we should now move on to the question and answer session, starting with questions from the phone line, then moving on to questions submitted via the webcast. Maggie, could I please ask you to initiate the process for questions via the phone?
Thank you, Brendan. We will now conduct the question and answers on the audio. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Just a moment for our next question, please. Our first question comes from Wayne Fang from CMB International Securities. Please go ahead.
Hi. Hi, thanks, management, for taking my question. My question is about the production volume. We had some decline in the volume in the second quarter, and so was the decline affected more by the weather or other operational factors, such as the longwall move, wash plant and truck availability, et cetera? So, which factor played a more important role, and what should we expect for them in the third quarter? Thanks.
Thank you, Wayne. This is Kevin from Yancoal. Actually, if you look at our announcement, we have a split of the explanation by different mines. You know, from Mulben, we mentioned the underground move, and also we talked about the weather issue, blasting issue, and then equipment utilization issues in HVL. I think all different mine have different reasons, very much listed in the announcement already, if you can refer to that section, please. Thank you, Wayne.
Oh, okay. Thanks, Kevin.
Thank you. Just a moment for our next question. Our next question comes from Sara Chan of Morgan Stanley. Please go ahead.
Hey, hi. Yeah, thanks for the run-through on the results, and again, another very impressive quarter. A quick question for me is, so can I have some color about your export market split, roughly for the quarter? So you've mentioned, so China demand has slowed down because of the increased hydro domestically, and then, India have been picking up. So like, for the overall mix, for the market, any notable changes, like on a quarter-on-quarter basis or on year-on-year basis across the various markets in terms of the split, like, so traditional market, Japan, Korea, China, obviously? Thank you.
Thank you. Thank you, Sarah. It's Mark Salem, EGM Marketing speaking. Look, we don't normally report on sales distribution on a quarterly basis. But I can assure you from our position, year-on-year, our sales distribution will be very similar to 2023.
All right, understood. Thank you. Can I have, yeah, one more question? So on the, on the M&A front, which I think we, local investors, are focusing on a lot, so yeah, maybe just to hear, like any, any updates, any latest thoughts on the, on the management strategy or the stance on, on acquisition? Thank you.
Thanks, Sarah. This is Kevin. From the company perspective, we made a very consistent disclosure and communication to the market by our board and our CEO. Yanco is very much interested in the diversification. However, we are not in a position to give comments on any particular transactions, you know, you would appreciate. But that kind of initiative is always with the management and our board. Thanks.
Yep. I think, that's, that's it for me. Thank you, both Kevin.
Thank you, Sara.
Thank you.
Our next question comes from Lawrence Lau of BOCI. Please go ahead.
Hi, thank you for taking my question. I just have a simple question regarding your small, one small mine, Stratford Duralie, if I pronounce correctly. I think in your announcement, you are going to shut down this mine. I just wonder, do you have to make any impairment against this mine? Thank you.
Thanks, Lawrence. It's a good question. For Stratford Duralie, Yanco has been gradually depreciating the assets, so we do not have any impairment risk regarding the closure of the mine. Thanks, Lawrence.
Thank you.
Thank you. Just a moment for our next question, please. Our next question comes from Sara Chan from Morgan Stanley. Your line is open.
No, I think, I think that's been covered already. Thank you.
Thank you. I see no further questions from the audio. Now I will go back to Brendan for the webcast questions. Thank you.
Thank you, Maggie. I note that we have several questions coming through on the webcast. Some of them are similar in nature, and some of them have been already or partially addressed by the questions already conducted on the call. So I will amalgamate or combine questions or rephrase them accordingly. Looking at the question list, there are several questions related to that large cash balance we're carrying at this point in time. Could we have a comment from you, Kevin, please, on the intentions for the cash reserves? Any commentary, perhaps around buybacks, acquisitions, dividend allocations, and how the company will approach that topic?
Thanks, Brendan. Yes, it is quite a significant cash balance for AUD 1.55 billion currently in the, on Yanco's books. I think Yanco has been very consistent in communicating with investors and the market about our intention to further grow the business. We can be very clear, in the current situation, Yanco will not conduct any share buyback, and this has been communicated previously as well. For the M&A opportunities, yes, we are interested in any growth and diversification opportunities, as just explained to Sara Chan, earlier. And about the dividends, our board set a framework about, you know, the preference of 50% of free cash flow or 50% of NPAT, whichever is higher, and this has been consistently conducted by the management team as well.
But I just want to make this very clear, this is subject to board's discretion at the end, and then balancing the growth opportunities and the capital requirements. Thank you.
Thank you, Kevin. On the topic of dividend, we have some questions related to the timing of dividend payments related, in relation to when they get disclosed, and whether there's a potential for the payout ratio to change in the future. Perhaps you could comment on those specific elements related to dividends.
Sure. If, if I understand this correctly, there are two different questions. The first one about the date. Yancoal is duly listed in both ASX and the Hong Kong Stock Exchange, which means actually in the distribution of our dividends, it's more complicated than a normal ASX companies, especially in the past few years. There are some, you know, QDII investors from mainland China with a little bit more complicated tax implications. So overall those years, I think Yancoal has been very skillful in managing such tax issues. So in the future, we do appreciate we might be able to improve our distribution window, which means we might be able to reduce the, you know, from the ex-date to the distribution date, and the company will be working on that one.
From the payout ratio perspective, we believe, the current payout ratio is, adequate. But, you know, once again, this really subject to the board, and this will be, you know, from time to time to be discussed at a board level. Thank you.
Thank you, Kevin. Previously, on the phone lines, we had a question related to the first half and particularly the second quarter production profile. I see a question coming through. It's asking, in relation to the production for this calendar year, given the second quarter's output was lower quarter-on-quarter and year-on-year, what comment do we have on the production costs? And what outlook do we have for the production going into the second half in relation to the guidance we've provided to the market at this point in time? Mike, perhaps I could ask you to expand on the commentary you offered earlier in the call.
Yeah. Thanks, Brendan. So for 2024, the timing of the coal release throughout the year is very similar to that that was achieved in 2023. And by that I mean that there was an expectation at the start of the year that there'd be a greater coal production volume in the second half of the year, just with the nature of where the pits are at and the sequencing of the mines. That is still very much the case in the current year, and so our production in the first half of this year was 18% up on the first half of last year, in total. And we are expecting a strong second half performance, similar to what was achieved last year.
So we're still comfortable that we will achieve our market guidance. With regards to costs, again, very similar to last year, our costs are very much linked to production volumes. So with the volume increase relative to last year, we'd expect to see a cost reduction. And then as commented on during the prepared comments, we would expect a strong cost performance in the second half when those volumes recover.
Thank you, Mike. I see an additional question related to the production profile. It looks to be about production beyond the current year, asking the growth potential with the assets currently on hand. Whilst we don't typically comment on the production forecast beyond the current calendar year, what we have acknowledged in the past is that when the operations are running at close to the operational capacity and the mining license limits, we see output around the level that the company achieved in the third and particularly fourth quarter last year. So that gives a sense of what the assets are capable of. Links into the comments Mike was just providing. Looking longer term, we have no specific expansion or growth projects underway right now.
If there is an expansion or a change in the production profile from any particular asset, we would, of course, inform the market at the point in time when such a plan is put into place. We've got a question or a series of questions coming through related to our free float, and people noting that it's around the 30-cent level now, and asking how that fits in with potential index inclusion, and what scenarios could potentially play out with regards to the free float going forward. Kevin, perhaps you could comment on this topic?
Yeah, thanks, Brendan. It's a very good question. For Yancoal's free float, we are getting very close to 30%, and this is benefited from the recent sell down from a second largest shareholder of C International. From company perspective, we are not in a position to give further comments to say any particular shareholder's intention to further sell down or invest more Yancoal shares. However, we notice it's so close to the 30%, and then we are confident, reasonably confident, eventually the 30% will be achieved. As for the index inclusion, this is very much about S&P, you know, index, you know, evaluation process, and then how regular they assess the free float of each company. From company perspective, we just need to be patient and wait and see. Thanks.
Thanks, Kevin. Maggie, could I go back to you for a moment and see if we have any additional questions coming through from the phone lines?
Yes, thank you. We have one question coming through from the phone line. Just a moment, please.... Next, we have Angus McGeoch from Barrenjoey / Forsyth Barr. Please go ahead.
Thanks very much, and congrats on the first half, guys. Just a quick one, or sorry, two questions from my perspective. Just inventories at mine site, so are they back to the levels that are optimized from your perspective? And I guess just how you think about inventories looking into the second half. And, sorry, following up on the free float question, can you just confirm that management's holding is part of, isn't included in the free float calculation? Or, I mean, I know you reference the and Cinda and management in your release, so just making sure that that's how we should think about that free float calculation based on what you know.
Okay. Thanks, Angus. Perhaps I'll start with Mark on the inventory position.
Yeah. I can comfortably say, Angus, that our inventory, especially from a product stock point of view, are down. They did build up after the big derailment that we had at the end of last year, and but we've now been able to manage those back into normal, optimal levels and normal operational levels. And that's reflected in terms of our sales profile that's stated in our Q2 sales profile in the Q2 report as well. You can see that being reflected there.
Thank you.
Thanks, Mark and Kevin, the additional comments on the free float.
Yeah. Thanks. Thanks, Angus. About the management holding shares, especially in the employee shares scheme that the trust better calculation from management perspective, we currently look at them as a connected party holding of the shares. But as I mentioned previously, this really subject to how S&P to calculate the free float by their own definition. It's not something very clear to the management.
Okay, got it. Thanks, Kevin. Sorry, just one last question on your production. I mean, just looking at your historicals from last year, and note that you obviously had a very big last quarter, is that 10 million tons of attributable, attributable? Is that something that you think is possible, you know, once you get the mines working in line with your own expectations, is that a number that we think is possible over the course of the year, or is that very much seasonally impacted?
Angus, Brendan here. What we've said previously is that the mines can produce at that 10 million ton level within any given quarter, as we did last year. But to sustain that run rate continually over a 12-month period, you need to factor in, there's always gonna be longwall moves, maintenance cycles, inevitably some weather or infrastructure delays. Therefore, to sustain it continually for a 12-month period is somewhat overoptimistic, I suggest.
Okay, got it. Thanks, guys. Thanks very much.
Thank you. There's no further questions on my side. I will now pass back to Brendan.
Okay, continuing on with the webcast submitted questions, there's a question coming through in relation to environmental rehabilitation of closed mines and a particular focus on the ones around Gloucester. And perhaps I'll link that with another question, which relates to the pump hydro study and what we can say on that particular potential project going forward. I'll hand across to Mark Jacobs.
Thank you, Brendan. So, as stated in the announcement, last coal out of Stratford, Stratford was during June of 2024, so both Stratford and Duralie are now in closure. Closure activities are progressing at both of those mine sites in consultation with, and as overseen by our regulators. In terms of the Stratford Energy project, we have disclosed in our release that that project was granted Critical State Significant Infrastructure by the New South Wales Planning Minister. Feasibility studies are ongoing, and we expect to lodge the EIS and planning application with the Department of Planning on that asset during quarter three.
Thank you, Mark. Looking at the question list, there's one here related to our coal product specifications, and a question as to whether we can provide any detail or comment on our thermal coal, whether it's mid-grade or high-grade thermal coal output during the quarter. I assume it's the quarter just gone. Mark, I'll turn to you. To the extent that we can comment on product quality without compromising our commercial position, is there a comment available?
Yeah, we do produce quite a varied range of thermal coals, both low ash, mid ash, and high ash in terms of the spectrum. And too, quarter-on-quarter, they're all very similar. It's a very similar profile. And it's typically 1/3, 2/3 as a ratio, 1/3 low ash to 2/3 mid to high ash.
... Thank you, Mark. There's just been another question popped in, and because it's related to coal prices, I'll go to that one now. A general comment on the outlook for coal prices over the remainder of this calendar year?
Yes, thank you. I think from a coal price point of view, and we've seen over the first half of the year, a very stable supply market and supply and demand market. We've also seen very little fluctuation in coal prices. And that's also a reflection of, there's been no major event as we've had in previous years, such as the flooding or the Russia-Ukraine crisis or anything else. So I think the first half of the year is a good reflection.
From my own personal position and my own personal observations of where we're moving to in the second half, it's very much going to depend on two aspects, and that's weather in relation to a very hot summer, which there are some forecasts indicating that, but then that could be counteracted by a mild winter. So it, it's... At the moment, everything's very stable and consistent, is my current position.
Thank you, Mark. There's a specific question which related to the production profile and the recent wet weather that impacted production and the mitigation strategies in place. What we've said there is, through the past several years, we've built a lot of additional infrastructure, water storage capacity, pumping capacity, pipework. We're in a much better place to handle wet weather when it occurs. But inevitably, there will be some rain, and when rain occurs, we do need to cease operations during the rain, simply to maintain the safety and the integrity of the assets, safety of the workforce, integrity of the assets. There are some specific questions coming through in relation to potential growth scenarios, mergers, and acquisitions, which reference the Anglo assets.
We don't comment on specific assets, and we certainly don't offer views on the valuation of other companies' assets or the current conditions of any processes underway. But there is a question there that's more broad in nature, which talks of the potential divestiture of coal assets and asks how Yancoal might evaluate such opportunities, and what criteria might be relevant to Yancoal when examining potential growth scenarios in the not just perhaps the coal sector, but the mining sector more broadly. Kevin, could I turn to you for an overall comment?
Thanks, Brendan. As Yancoal has been consistently communicating with the market, we are actively pursuing growth opportunities and diversification opportunities. We are interested in different commodities other than thermal coal for at the current stage. As Brendan just mentioned, we are not able to give any comments on any specific assets, but a better initiative from growth and diversification perspective is very real, and the company is actively pursuing it. That's the comments we can give.
Thanks, Kevin. I'll come back to Maggie just one more time to check if there's any questions on the phone lines.
Hi, Brendan. There's no questions on the phone line.
Okay, to close it out, we've received one last question from the webcast. There's an observation that it's been a very good year for Yancoal. The question then turns to the topic of the dividend and what looks to be a question about the dividend yield. And Kevin, perhaps you could just reiterate the comments on the dividend framework and the decision-making by the board.
Yeah. Thank you, Brendan. From the company perspectives, management, following the framework set by the board, about dividend, which is 50% of free cash flow or 50% of NPAT, whichever is higher. And then the yield is very much a function, you know, between the dividends and also the share price in the market. At the end of day, the board has the ultimate discretion to decide, the dividend distribution. But what do we believe, whatever decision made by the board, overall, is a value accretive to all the shareholders, is just eventually gonna strengthen the dividend yield eventually. Thanks.
Thanks, Kevin. Whilst we were doing that one last question, an extra one came through. The question asks us, "Can we comment on an expected price profile for coal over the 5-10-year horizon?" We don't provide forecasts for coal on an outward basis. What we've said is coal markets look relatively balanced in the short term. There will be several drivers relevant over the medium and longer-term horizon. We subscribe to various industry forecasters. We work with their views and our own internal views when assessing coal markets and making internal decisions, but we don't have a formal forecast that we share for a coal profile on a 5-10-year horizon. That concludes all the webcast questions. We've already covered off the phone line questions.
Kevin, if I could hand back to you for closing remarks. Thank you.
Thank you. Thank you, Brendan. And thank you everyone for your time in participating today's session. Just want to reiterate the position, a few key points we made today. Yancoal has been maintaining a very strong cash position and a very healthy operating margin. We will keep the flexibility to pursue different growth and diversification opportunities. And then, please stay tuned for our next disclosure, which is the first half results in August this year. And once again, thank you very much for your time.
Kevin, thanks to you and all our management team for the conference call this morning. Maggie, could I hand back to you to close the call? Thank you.
Thank you. This concludes today's conference call. Thank you all for participating. You may now disconnect.