Good day, and thank you for standing by. Welcome to Yancoal first half 2026 financial results. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will 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, or you can submit a written question via the webcast at any time during the call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to our first speaker today, Brendan Fitzpatrick, Investor Relations Manager. Please go ahead.
Executive leadership team to recap the first half performance and participate in the question-and-answer session. Commentary provided today is based on the first half 2026 financial results and associated announcements published to the Australian Securities Exchange and The Stock Exchange of Hong Kong yesterday, the 19th of August. Slides two and three contain notices and disclaimers relevant to today's presentation and the forward-looking statements it contains. Please make yourself familiar with the content of these two slides. Throughout the presentation, we use Australian dollars unless otherwise stated. Sharif Burra, our Chief Executive Officer, will provide the introductory remarks for the first half results.
Thank you, Brendan, and welcome to everyone on the call. Those of you familiar with our presentation format may notice we've shuffled a few of the slides. This allows me to provide the in—
Please remain on the line.
Hello, Maggie. Brendan in Hong Kong. We have reconnected. Can you hear me?
Yes, I can hear you. Please continue. Thank you.
Before we recontinue, could you please advise what was the last element delivered before we dropped off?
After the paragraph, sentence two. Please continue from sentence three on slide four.
Start again from slide four, please, Mr. Burra.
Thank you, and apologies, everyone. Keeping our workforce safe is always our first priority, which was why we have already taken action to tackle the recent deterioration in the TRIFR statistic. We have implemented targeted safety intervention activities to correct the safety statistic trend, and pleasingly, we have seen improvements in July. Earlier this year, we published our AASB S2 sustainability report. We have since commenced work on a climate transition plan to strengthen our climate resilience and support the Yancoal P4 sustainability strategy. We are developing our Scope 3 data collection and calculation methodology to ensure we are ready for mandatory disclosure obligations next year. Our P4 report provides an annual update on sustainability activities, including progress to deliver the company's P4 sustainability strategy. The 2025 P4 report is available on the yancoal.com.au website. During the first half of the year, we delivered another great operational performance.
Raw coal production was 32.5 million tonnes, and our attributable saleable coal production was 19.8 million tonnes. This was a first-half production record for Yancoal. We are on track to deliver in the upper half of our production guidance and set a new annual production record this year. Our cash operating costs were AUD 96 / tonne. Given the widely discussed impact on diesel price resulting from the events in the Middle East, as well as broader inflationary factors, our people have done an exceptional job to keep cash costs under control. Our overall realized selling price for the half year increased to AUD 154/ tonne, giving an implied cash operating margin of AUD 42/ tonne after government royalties.
The record production and higher realized price lifted revenue by 13% to just over AUD 3 billion, and our operating EBITDA increased 29% to AUD 767 million at a 24% margin.
The operating profit before tax increased 42% to AUD 328 million. Our statutory profit before tax was AUD 56 million. This was due to the impact of non-operating items on our profit, which Kevin will explain shortly. The company retains a strong balance sheet, with AUD 2.1 billion of cash and no external debt at the end of June. This was after distributing the 2025 final dividend and paying the USD 40 million deposit for Kestrel. Yancoal's portfolio of quality assets and financial discipline has allowed us to acquire an 80% interest in the Kestrel Coal Mine, while continuing to return cash to shareholders. The board has elected to distribute AUD 92.4 million to shareholders as a AUD 0.07 per share, fully franked interim dividend. I will now hand over to Kevin Su, our CFO, to talk through the first half profit.
Thank you, Sharif. We added a slide to the presentation so we can help investors understand the non-operating or accounting-driven elements behind the profit we have reported in the first half. If you look at the light blue columns on the left and the right side of the charts, you can see the operating profits and the profit before tax we reported in the first half last year. In most periods, these are similar, with only minor accounting factors creating the difference between them. However, this was not the case for this reporting period due to AUD 272 million of non-operating items. We had a higher production and higher realized prices, which lifted the operating profits by 42% to AUD 328 million, as Sharif just mentioned. However, after we account for the non-operating items, the profit before tax is reduced to AUD 56 million, and the profit after tax is AUD 17 million.
There are a few things to appreciate about these non-operating items. These are all non-cash items except for the AUD 20 million contingent royalty expense. So there is very little impact on our cash flow and cash balance. The largest item is the AUD 188 million hedge reversal loss. This is a non-cash exchange rate retranslation loss on our previous U.S.-denominated loans. The hedge reserve balance has now been fully recycled and reduced to zero. This item will only occur in the future if we apply similar accounting hedges to future U.S. dollar-denominated debt. The second-largest item is a AUD 49 million non-cash impairment on the group's equity accounted investment in Middlemount. We hope this puts in context the profit before tax and the profit after tax we reported this half, and the wider underlying operation remain robust. I will hand over to David Bennett, our EGM operations, to talk about operational performance.
Thank you, Kevin. Slide eight summarizes the operational drivers behind our half-year performance. As Sharif mentioned, we delivered a record first half performance, almost 20 million tonnes of attributable saleable coal production. Our cash operating costs increased just 3% to AUD 96 /tonne . The daily effort of everyone at all of our mines to keep costs contained, along with higher production, limited the increase in cost per tonne. Mark Salem will provide more detailed commentary on our coal sales and the coal markets. Turning to slide nine , we see total raw coal production on a 100% basis was 32.5 million tonnes. In prior years, we tended to have production weighted to the second half. Last year, we established a somewhat more consistent production profile across the two halves of the year and are looking to further improve that balance in 2026.
This year, we prioritized overburden removal in the first quarter to optimize coal mining over the remaining three quarters. Even with this scheduling approach, the 67.3 million tonnes mined over the 12 months to the end of June was close to record performance. Attributable saleable coal production was 19.8 million tonnes, up 5% compared to the first half last year. As I just mentioned, even having prioritized overburden removal in the first quarter, we were only just short of our best six months performance in the past few years. We have great operational momentum heading into the second half and are aiming for the top half of the production guidance range. Last year, we set two separate world records with our Liebherr R 9800 excavators.
At Moolarben, we set a world record for total material movement with 17.6 million BCMs. At MTW, a second excavator set a world record for total material movement in a month of 1.75 million BCMs. Based on the first half output, MTW's R 9800 excavator could potentially move around 17.9 million BCM this year and exceed the world record set at Moolarben in 2025. These performances demonstrate Yancoal's capability to operate at the highest industry levels. Sharing knowledge and best practices between our mines is improving our performance across all operations. Slide 12 includes data we have used in the past. The charts display our three largest mines in the context of other Australian thermal coal mines. Total cash costs are shown on an energy-adjusted basis to counter the influence of coal quality on the operating margin. We updated the slide to show the same data set 17 months apart.
May 2026 compared against December 2024. The scattering of mines on the charts and the industry averages have not changed materially. The key takeaway is that large-scale, low-cost mines have a competitive advantage. This is why we focus on maintaining our assets and operating them as we do. Slide 13 shows our cash operating costs. As Sharif said, our cash operating costs were AUD 96 / tonne in the first half. We continue to work extremely hard to keep our cash costs in check and to offset inflationary pressures, such as recently elevated diesel prices. The increase in the raw material category to AUD 36 / tonne is mostly related to the higher diesel price. Increased production, mine plan optimization, as well as equipment reliability and utilization, all contributed to combating cost inflationary elements.
As we have said in the past, we see our ability in keeping costs flat over the past few years as a great outcome relative to the sector, and this leads to the next slide. Turning to slide 14, we demonstrate why keeping cash operating costs low is crucial. Our implied operating cash margin in the first half was AUD 42 / tonne. This chart shows the expansion and contraction of margins we have experienced over the past five years. The margin, while lower in recent years, remains strong. Combined with our scale of production, this drives the financial performance, which Mike Wells will cover shortly. I will now hand over to Mark Salem, our EGM of Marketing and Logistics, to cover the coal markets.
Thank you, David. Starting with the product mix on slide 15, 84% of our sales were thermal coal, with the balance being metallurgical coal. This product split varies a little between periods, dependent upon operational performance, which coal seams are in production at the time, customer requirements, and market optimization strategies. The 19.8 million tonnes of attributable sales matched attributable production, and this maintained our inventory levels. On the way to delivering this sales volume, Moolarben achieved a record figure for coal rail links in June, with around 2.1 million tonnes railed to the port. This was the first time the 2 million tonne threshold had been achieved by any mine that ships product out of Newcastle. It was a great collective effort by the site, the logistics team, and the marketing teams, as well as our own rail provider. Turning to slide 16, we show our market split.
We contrast both sales revenue and sales volume splits for the first half of 2026 against the first half of 2025. We continually optimize the revenue contribution of our various coal products to specific markets. China is a significant offtake partner both on a volume and revenue basis. Customers in China tend to take a higher portion of our relatively lower energy content thermal coal, whereas our Japanese customers purchase a significant portion of our higher calorific value thermal coal, low vol PCI, and semi soft coking coal. Accordingly, it contributes the largest portion of the revenue we receive. In AUD terms, our overall realized price was AUD 154/ tonne, up 3% from the first half of last year. This year, volatile energy markets have caused end users, traders, and speculators to weigh geopolitical risk factors against supply and demand fundamentals.
In these market conditions, security of energy supply is increasingly important for many nations. The market conditions have also resulted in gas to coal switching across Japan, South Korea, and Taiwan. At the same time, we see reduced supply from Indonesia, South Africa, and Russia, with exports from these countries down 2%-11% over the first seven months of the year compared to the same period last year. We price our thermal coal against the Argus McCloskey API 5 and globalCOAL Newcastle indices. Our realized price in USD terms sits between the indices as shown in the chart. In AUD terms, our realized thermal coal price was AUD 143/ tonne for the first half, up 3%. The typical lag between price indices and our realized price means we have yet to fully capture the benefit of recent spot market prices.
Turning to metallurgical coal markets, we observe a strengthening steel market and stable demand for metallurgical coal. It appears there has been a shift from demand-driven pricing to cost-based pricing, with the marginal cost of supply now setting spot prices. In AUD terms, our realized metallurgical price was AUD 216/ tonne for the first half, up 4%. There are various groups providing forecasts for international thermal coal markets. A theme we have observed over recent years is the ongoing revision of when coal demand will peak. Delays to projected coal dates for existing coal power generation, combined with new facilities coming online, drive the evolving demand profile. Since we last included this slide, we have seen a substantial uplift from the first half of 2025 in the short term, and from 2028, the estimates mirror 2025 assumptions, estimating peak demand in 2029.
One can conclude that this ever-changing profile indicates coal still has a significant role to play. On slide 20, we look at projections for seaborne supply over the next 10 years. Approval and financing challenges for new mines compound natural reserve depletion in the coming years. Many energy market participants now recognize coal still has a meaningful and ongoing role in the global energy mix, and there is potential for a supply shortfall in coming years. Compared with 12 months ago, less coal supply is forecast from the leading export countries. This forecast is one that aligns with increased concern about the security of supply we are observing. In the seaborne metallurgical coal markets, demand from mature regions like Europe and Northern Asia are likely to decline over the next 15 years.
However, this is quickly being outpaced by growing demand from emerging economies like India and Southeast Asia, leading to a growth in total demand. In the seaborne metallurgical coal market, some supply growth is required over the next 15 years to meet this demand. Unless the additional supply entering the market has a total cash cost profile lower than the existing supply, which seems unlikely, this situation should lift metallurgical coal prices in the forward years. I will now hand over to Mike Wells, our EGM Finance, to cover our financial performance. Thank you.
Thank you, Mark. Starting with the key numbers on slide 23. The combination of higher sales volumes and realized prices lifted revenue, operating EBITDA, and operating profit compared to the first half of 2025. The profit before tax and profit after tax include the non-operating factors which Kevin previously explained. The other element worth addressing is the 29% increase in operating EBITDA compared to just a 2% decline in the operating cash inflow. The primary driver is timing differences on net cash receipts from customers and payments to suppliers prior to the 30 June accounting date relative to the same time last year. Overall, we retain a strong financial position with AUD 2.1 billion of cash at 30 June, about half of which we expect to use as part of the settlement of the Kestrel transaction.
The two charts on slide 24 demonstrate the correlation between average realized price, revenue, operating EBITDA, and operating EBITDA margin. The other element is the production profile, which as David mentioned earlier, had a second half weighting in prior years, but has been more consistent since 2025. Looking at slide 25, the operating EBITDA and operating cash flow profiles are well correlated, noting that the operating cash flows also include net interest and tax payments. However, there can be one-offs, such as the large tax payment in the first half of 2023. I will now hand back to Kevin to cover the financial position and dividend.
Thanks, Mike. Looking at slide 26, we can see the net cash position Yancoal has carried over the past few years. In April, we announced the acquisition of an 80% interest of the Kestrel Coal Mine for upfront consideration of AUD 1.85 billion, with a further potential AUD 550 million of contingent payment. We anticipate completion of the transaction at the start of October or perhaps earlier. At that time, we expect around half the June cash balance will be utilized to partially fund the acquisition. We will take on debt to fund the remainder of the acquisition with a gearing of approximately 15%-18% on the pro rata basis. Turning to slide 27, we look at how Yancoal has rewarded its shareholders during the past five years. The directors have allocated AUD 92.4 million to pay a fully franked interim dividend of AUD 0.07 per share.
The dividend reflects our confidence in the underlying earnings, cash generation, liquidity position, and the long-term financial strength of Yancoal. Maintaining dividends to shareholders while also completing the Kestrel transaction demonstrates our capacity to fund growth and reward shareholders simultaneously. It is our disciplined approach to capital management over recent years that enables us to do both concurrently. Slide 28 has our operational guidance for 2026. We are looking to carry forward our operational momentum into the second half and deliver attributable saleable product in the upper half of our 36.5 million-40.5 million tonnes guidance range. Our guidance range for cash operating costs is AUD 90/tonne-AUD 98 /tonne . After allowing for higher diesel price this year, we expect the cost will be in the upper half of the range.
With first half capital spend of AUD 254 million, we have revised our capital expenditure guidance range down by AUD 150 million to AUD 600 million-AUD 750 million. The reduction is mostly timing due to expenditure deferrals to 2027. We continue to balance production, product quality, efficiency metrics, cash costs, and capital expenditure to maximize our performance. I will now hand back to Brendan to coordinate the Q&A session.
Thank you, Kevin, Sharif, David, Mark and Mike. As usual, we have included appendices and additional information for reference at the end of the presentation pack. We will now take questions from the phone line and written questions submitted via the webcast. Maggie, could you please start the process for questions from the phone lines?
Yes. Thank you. As a reminder, to ask a question, please press star one one on your telephone keypad and wait for your name to be announced. To withdraw your question, please press star one one again, or you can submit a written question via the webcast. If you wish to ask an audio question, please press star one one on your telephone keypad.
Thank you, Maggie. I do see some written questions via the webcast. I will start with those and return to you shortly to see if questions are coming through on the phone line.
Thank you.
One of the first questions, Kevin, I will direct to you. It is asking, what is the exact structure of the USD denominated loans responsible for the AUD 188 million non-cash translation loss? And will this currency exposure be permanently unwound or restructured once the Kestrel acquisition closes?
Thanks, this is a very good question. Actually, for investors who is familiar with Yancoal accounts, AUD 188 million cash reserve recycling was actually booked and disclosed in the previous financial statements. This is the very last piece in Yancoal's hedge reserve accounts, and that is why we made a statement, the hedge reserve balance now is zero. This is basically due to Yancoal adopted a hedge mechanism called accounting natural hedge. In other words, using USD cash, our revenue generated in USD cash to hedge our USD loan exposure. As such, when the loan is repaid, the booking rate difference will be kept in the hedge reserve accounts and will be recycled back into P&L when the loan maturity date expires. That is exactly what happened for the current AUD 188 million hedge loss. For now, there is no debt outstanding in Yancoal book.
As just mentioned, the hedge reserve now down to zero. In the future, if Yancoal take up new loan, this may potentially happen, but can go either way. It depends on the spot rate when the loan is repaid. This will be for the future acquisition, the future loan exposure. I hope I explained the question. Thank you.
Thank you, Kevin. Just for context, can you recollect, have there been instances in the past where there was a positive non-operating hedge reversal that we reported?
In Yancoal history, we do have incidents, the cash reserves become positive. However, given the current balance, what you have seen, they all largely inherited from loan facilities 5 - 10 years ago. Back then, we were talking about the loan started when the Aussie dollar rate at a $0.95 or even close to parity. As such, the unfortunate accounting translation tend to be at loss position. If today we take up a loan, the booking rate for the loans is actually going to be at a $0.70, or $0.71. Then if we look at the market fair value, if we believe the current level is market fair value, then the potential movement for the hedged reserves can be a lot more moderate.
Thank you. That's good context. Appreciate that. Another question coming through from Jacob at Barrenjoey. Recognizes the strong result and the cost control, which appears to be outperforming peers in the coal industry. Question is, what is the diesel cost assumption in our guidance, and how does that compare to spot diesel prices we are currently experiencing? Can we provide some cost sensitivity to diesel price, for example, dollars per tonne unit costs relative to a AUD 0.10 /L move in the diesel price? I will turn to perhaps Mike Wells. This might be something that falls within your area of expertise to provide some comments. Can you provide some insight into the input of diesel costs on our guidance and the sensitivity of the diesel price exposure, Mike?
Yeah, thanks, Brendan. David mentioned it in the comments on the way through, where he referenced the fact that in the first half, there was a AUD 4 increase in the raw material costs in our actual reported numbers, and the majority of that increase was attributable to the increase in diesel price in the first half. Obviously, the price has moderated since then, so we see less of an influence in the second year. As noted, we still expect the increase in the first half to elevate our full-year forecast. Just in terms of forecasting, we use forecasting from various external sources in terms of what the market is expecting in the second half. Our guidance is framed around using sort of external market forecasts for the diesel price over the remainder of the year.
Thanks, Mike. Can I confirm that last year, for the full year, diesel was approximately AUD 7 /tonne of direct costs within our reported AUD 92/ tonne?
Yeah, that's right, Brendan.
At the start of this year, when we originally set the guidance, we had effectively a similar diesel price assumption?
Yeah, correct.
Therefore, if people look at diesel prices in the market, they should be able to work backwards to get some sensitivity from diesel price movements and the increasing costs we accommodated in the first half?
Yep.
Yeah. Look, thanks, Brendan. It's Brad here. The only other comment I would make is that our open cut mines proportionally use a lot more diesel than our underground mines. So you need to take into consideration the production profile of underground performance, which is largely electrified versus the open cut, where diesel usage amongst the heavy earth-moving machinery is proportionally higher for granted.
Thanks, Brad. Good observation. Maggie, I will come back to you, see if there is any questions on the phone line.
Thank you. I see no further questions at the moment, but just a reminder for those who wish to ask a question on the audio, please press star one one.
Okay. I will come back again to check if any questions come through. In the meantime, a question from Eunice at Millennium. It is asking about the dividend policy. Makes the observation with the AUD 92.4 m illion Australian dividend for the interim result. It appears to be lower than 50% of free cash flow numbers. What can investors expect for the full year after the non-operating costs we have incurred? And I will add an initial component also bearing in mind the Kestrel transaction completion that we are working through. Who would like to take the initial comment?
I will talk about the dividend first. Yancoal's dividend policy has been quite consistent. We normally take the higher between 50% of NPAT with 50% free cash flow. I noticed the comments was made about this is lower than the 50% free cash flow. I just want to explain, actually, we do have our internal calculation to make sure we reflect the most accurate free cash flow from our operation accounts. The current dividend payment of about AUD 0.07 per share is driven by better cash flow from that perspective. So we are very consistently following our dividend policy.
Thanks, Kevin. It is correct to say that the 50% reference we use typically is on a full-year basis. So the interim is only partway through to the full year, and the final dividend, subject to board discretion, would ultimately determine the payout ratio for the full year.
That's correct. This is a very good point. When Yancoal management team propose to the board, and the board make a decision, we not only look at the half-year number, we only look at it from the full-year perspective. What would be the most sensible driver to decide the dividend in the current year, as you would notice, we have a lot of non-operating items. As a result, we tend to take free cash flow as the right benchmark. Thanks, Brendan. That's a good reminder.
Thank you. The next question from John at Easton Value. Since the deal to acquire Kestrel, have we been able to get a closer look at the mine's operations? What can we provide in terms of commentary with regards to consistency of production compared to the past, the cost, the coal quality, and demand from clients in relation to the coal products? Looking to get an understanding of the Kestrel mine ahead of integration into the Yancoal portfolio later this year.
Yeah. Thanks, Brendan. Look, we're really excited about being able to bring a very good quality asset into the Yancoal family. The mine is well run, has good management, good operational practices. And we are looking at the Yancoal as has been mentioned previously, in the start of October, if not quicker. I think, from what we've seen, and our integration teams have been working diligently in terms of making sure we're ready to welcome Kestrel into Yancoal. I think, what I would say is we welcome a strong asset, with good production performance coming into Yancoal.
Thanks, Sharif. A follow-up question. The acquisition completion, what is the latest commentary on the potential completion timeline?
Yeah. As I have said, we are aiming for the start of October, if not sooner.
Thanks very much. Another question from John at Easton Value. Are the management anticipating a stronger second half given hopes of resolution in Iran have not materialized, and we see a very low level of storage build of gas in Europe, suggesting that an even average Northern Hemisphere winter could result in strong demand for coal and gas prices getting pushed higher globally. Mark Salem, can you provide a view on what we are anticipating for the second half, bearing in mind that we do not explicitly give price outlook?
Sure. Yeah, look, I think in answer to that question, we have seen some gas to coal switching, as I mentioned, happening in Japan, Korea, and Taiwan. We have also seen the market kind of rebalance itself from the issues in Hormuz. The volatility we are not seeing as drastic as we used to see it. It would take a substantial shortfall of energy, and that potential gas shortage in Europe would take away a lot of the Colombian South African coals out of the Asian market. That in itself will then create a little bit of impetus to the GCNewc. The theory is correct if that was to happen, but you will see the increase in the European indices appreciate quicker before the GCNewc reacts, depending what happens in Asia.
Thank you, Mark. That is very helpful. I do not see any questions coming through on the phone lines. I will continue with the webcast. Another question from Jacob at Barrenjoey. A broad question. Regulatory environment in New South Wales somewhat improved, at least for brownfield expansion in our view. Given the importance of coal mining in local employment, Ashton, Mount Arthur, Mangoola, et cetera, all coming off in the next few years and thousands of jobs to be lost permanently. In regard to the HVO extension project, which is going through IPC, is that still on track for IPC determination this quarter and federal approvals in the fourth quarter? I think the HVO element is probably the most interesting in that question. Mark Jacobs is no doubt best placed to provide a comment on what has occurred at HVO with the IPC process.
Mark, could I hand over to you for an update on what we have seen to date?
Thank you, Brendan. You are correct that the project is going through the IPC process. There was a public hearing held on the 16th, 17th, and 22nd of July. Based on historical processes, we expect the IPC will likely make its decision by mid-September. That is the normal kind of cycle that the IPC will make its decision within. We obviously are not going to speculate on the nature of that decision. We need to wait for the IPC to run through its process. But it is perhaps worthwhile also adding that both the New South Wales Premier and the New South Wales Resources Minister have made public statements reinforcing the importance of HVO to both the region and to the local economy.
Thanks, Mark. With that likely or potential IPC process in mid-September, are there subsequent steps or processes that are relevant for external observers?
The important one, as noted in the question, is the federal approval, which we expect that to follow relatively hot on the heels of the state government approval. It is a separate and parallel process. Then there are the conventional updates to management plans, all of which are business-as-usual activities and within HVO's control.
Thank you, Mark. Another question of financial nature. With the capital expenditure, we have made the observation, AUD 150 million reduction in the guidance range, primarily due to deferral of capital expenditure. Will this delayed spending drive up cash operating costs once Kestrel is integrated? Perhaps more broadly, how is the timing of the capital expenditure being determined?
This is Kevin. The deferral of AUD 150 million CapEx into 2027 was just simply due to timing of some internal CapEx projects. There is nothing really special linked to all these deferral. This is going to just naturally become part of the 2027 budget for the CapEx. Then we will adjust our guidance accordingly. We do not feel this will have any implication with the Kestrel, as the Kestrel will be separately assessed. Then we will be posting the acquisition. We will reassess the whole Yancoal Group CapEx and issue a guidance accordingly with Kestrel to be part of Yancoal.
Thanks, Kevin. A question on the coal markets from Ben at IPFM. Have you seen sustained demand coming from Japan, Korea? As you noted in your quarterly results, could you provide any insight on supply coming from Indonesia? Mark, could we turn back to you for what we have seen in terms of demand out of Northern Asia and how that relates to the buy-out of Indonesia?
Sure. Yes. Thanks, Brendan. Look, demand from Japan and South Korea in particular, as well as Taiwan, it has been very solid. I think we will see overall, the numbers are slightly above year to date, are slightly above last year. I think overall for the whole year, we will see an increase in demand in those markets compared to last year's results. As I said, a lot of that has got to do with the gas to coal conversion and just the need for more secure energy supply and coal being the likely candidate. What also is happening in Indonesia is very interesting at the moment. There was a lot of talk at the beginning of the year about the Indonesians applying quotas to exports. Those quotas were predominantly in their lower-grade materials, not their higher-grade materials.
Their higher-grade materials award the higher prices, so the government was keen to maintain the royalty that is attracted. That higher-grade coal goes to Japan, Korea, and Taiwan. The Indonesian impact really has not had a big result in those markets. We are seeing a little bit in some of the Koreans who take the mid to high ash, and we are definitely seeing it in China, with China imports of Indonesian coal significantly down year on year. The impact there is the quotas were cut to 600 million tonnes. There is a recent report that is saying they could be up to 700 million tonnes, and there was also an increase in how much producers have to allocate to the domestic market as well. The Indonesian policy structure is one market that we are watching very closely.
It is always at the 11th hour before they will make any firm policy decisions in that regard. I hope that answers the question.
Thanks, Mark. I think it should do. For all the participants, I have just about exhausted the webcast questions, and I do not see any phone line questions coming through. A final reminder to add a question to the phone list or the webcast if you have one. I will read the final question I have, and if I have not heard further, we will move to the closing remarks. The last question that I have at this time from Mark Paterson at Bell Potter. Looking at the first half and Argus McCloskey API 5 starting the year at AUD 108 / tonne and finishing at AUD 135/tonne, how do we see the split between first quarter and second quarter EBITDA of AUD 767 million? They are asking so that they can try and understand the run rate between first quarter, second quarter, and undoubtedly heading into the second half.
I will just give a quick response here. In our quarterly production report, we didn't disclose every quarter financial performance. That's why this EBITDA number is the first six months instead of two quarters. That's the reason why you couldn't see the run rate. We fully appreciate that. Because we haven't disclosed it, I will be very cautious to give any number. I think from, if you look at our price, we have several slides with the coal price movement. You can see clearly the coal price is moving, reflecting the recent trend due to the latest energy crisis from Iran-U.S. conflicts. For that reason, we naturally can say the financial performance of EBITDA can be consistent with the realized coal price. You will see the EBITDA for Q2 was definitely a lot stronger than Q1 as a trend.
Thanks, Kevin. I think you're referring there to slide 17 from earlier in the pack, where you can see those indices have been plotted and rising, and our realized prices, while moving upwards, yet to perhaps capture that full benefit, which is typically the case. The general reference we make is about a three-month lag between indices and realized price.
Thanks, Brendan.
This is all the questions that I can see on the webcast. I do not see any questions along the phone lines. Maggie, could you please confirm no phone line questions?
Yes, I confirm there's no phone line questions.
In that case, I will now say that we have concluded the question-and-answer session. I will ask Sharif if you could please provide the closing remarks.
Thanks, Brendan. 2026 is shaping up as another great year for Yancoal. We've delivered a first-half production record with strong EBITDA margin and cash flows and are on track to beat the annual production record we set last year. Our people are leading the way in the industry, setting world records with our excavators and breaking records with our coal railings. We're excited about completing the Kestrel acquisition in the next month or two. It is a high-quality, long-life, metallurgical coal mine operated by a great team of people. We anticipate it will complement our existing portfolio and further enhance our financial strengths. Asset quality and financial discipline put us in a position to acquire Kestrel, but not at the expense of maintaining dividends to shareholders. After the transaction, our remaining cash balance and net debt position will still afford us the capacity for a balanced allocation of capital.
We're optimistic we'll deliver a strong operational performance in the second half and deliver the best possible outcome with our executives and people. We look forward to giving you our next update on 20 October after we release our third quarter production report. Thank you to everyone who joined us on the call, and have a great day.
Thank you, Sharif. Thank you. Maggie, could you please conclude the call?
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.