adminYancoal Australia Ltd (OTCPK:YACAF) Q1 2024 Results Conference Call April 18, 2024 9:00 PM ET
Company Participants
David Moult – Chief Executive Officer
Ning Su – Chair of the Executive Committee
Mark Salem – Executive General Manager, Marketing
Mark Jacobs – Executive General Manager, Environment & External Affairs
Brendan Fitzpatrick – Investor Relations
Conference Call Participants
Angus McGeoch – Barrenjoey
Operator
Welcome to Yancoal Australia First Quarter 2024 Report Conference Call. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the call over to Mr. David Moult, Chief Executive Officer. Thank you. Please go ahead.
David Moult
Thank you, Desmond, and thank you to everyone on the call for joining this briefing on Yancoal’s first quarter production report for 2024. I’m joined on the call by several members of the Yancoal executive team, including our Chief Financial Officer, Kevin Su; Executive General Manager Marketing, Mark Salem; and our Executive General Manager, Environment and External Affairs Mark Jacobs.
I will give a summary of the first quarter activities and then open the call to a question-and-answer session. My comments are based on the quarterly production report published to the Australian Securities Exchange and the Stock Exchange of Hong Kong yesterday, the 18th of April. There is no presentation packed for this conference call.
The Yancoal website holds past presentations for any participants who require additional information on the company. We have started the year well and we’ll look to build on the first quarter performance. I’d like to acknowledge the dedicated people at all of our mine sites who have driven our performance this quarter. The total recordable injury frequency rate, which is 5.9% at the end of March, remains well below the industry average of 8.4%. Continued support from everyone for our safety initiatives is a key factor in the overall success of the company.
In the first quarter, our cash balance increased to AUD 260 million — increased by AUD 260 million. This increase in cash is after payment of all our operating capital and corporate costs, including our monthly tax payments. At the end of the quarter, we held almost AUD 1.7 billion. We will pay the fully franked 2023 final dividend of AUD 429 million at the end of April from that cash balance. After the dividend payment, we will still hold more than AUD 1.2 billion with the equivalent to over 15% of our current market capitalization.
The cash accumulation was driven by a realized coal price of AUD 180 per tonne. The realized price was roughly double the cash operating costs we are targeting this year. And as such, we continue to generate a strong operating margin. Coal markets, and particularly thermal coal markets, faced declining conditions in recent months. Demand was soft due to the warm Northern Hemisphere winter and a soft global economy.
And at the same time, supply was elevated by export recovery from Australia, Indonesia and other regions. In the context of these factors, we view the modest decline in coal indices over recent months as a positive outcome. It suggests to us coal markets are relatively balanced and remain subject to short-term drivers and trader sentiment. 8.8 million tonnes of attributable saleable production represents an increase of almost 50% from the same period last year. Effective execution of our mine recovery funds through 2023 has reestablished our production profile over the past 12 months.
As we anticipated, first quarter production was lower than the preceding quarter. The holiday period and seasonal rainfall typically impact the operations at this time of year. 8.3 million tonnes of attributable sales lagged our attributable production by 0.5 million tonnes. The timing of shipments and reduced trade into China during the Lunar New Year period influenced the sales. Production and sales tend to swing quarter-by-quarter, but we expect them to balance out over the course of the year.
As indicated previously, we project our 2024 production profile will be weighted towards the second half. The 2024 production guidance issued in February is unchanged. We are targeting 35 million tonnes to 39 million tonnes of attributable saleable production at a cash operating cost of $89 to $97 per ton. Our large-scale, low-cost coal production profile is well suited to the current coal market conditions. Having no interest-bearing loans, a large net cash position and robust operating margins gives us the capacity to act should suitable expansion or acquisition opportunities arrive.
If such an event materializes, we will inform the market. In the meantime, we are focused on consolidating the production recovery delivered last year, closely managing our controllable cost element and maintaining our position as the leading large-scale, low-cost producer of export quality coal. That concludes the summary of Yancoal’s first quarter performance. We’ll now move to the question-and-answer session, starting with questions from the phone and then moving on to questions submitted by the webcast. I’ll now hand back to Desmond, who will initiate the process for the question-and-answer session by — in the first instance through phone.
Thank you.
Question-and-Answer Session
Operator
[Operator Instructions] There are currently no questions from the phone line. Please continue.
Brendan Fitzpatrick
Thank you, Desmond. This is Brendan Fitzpatrick from the Investor Relations team speaking. We’ve got several questions coming through on the webcast platform. There are some overlapping topics amongst the questions already submitted. So I’ll moderate or combine the questions to give a flow to the dialogue.
I’ll start with the questions coming through on the topics of productions and costs. Perhaps if we could recap that expectation for 2022 — sorry, 2024 in terms of our production guidance and costs.
David Moult
Yes. Thanks, Brendan. Just to remind everybody on the call, investors, our production guidance is unchanged, and that is 35 million to 39 million tonnes attributable saleable production and our operating cash costs are in the guidance unchanged at $89 to $97 per tonne.
Brendan Fitzpatrick
And there’s a specific question, if we had any comment on the operating cash costs for the first quarter period.
David Moult
We don’t normally issue guidance quarter-by-quarter on costs. The guidance we’re sticking with at the moment is that we’re still on track as we plan to be this year to be within our guidance range of $89 to $97 per tonne.
Brendan Fitzpatrick
Thank you, David. And as per normal, we’ll provide the cash operating costs for the half at the end of the first half period. Looking at the concept of capital management, there’s several topics related to this theme. One of the questions coming through, is there any expectation at this point for the dividend for the first half?
David Moult
Kevin?
Kevin Su
Yes. Thanks, David. Thanks, Brendan. Based on Yancoal’s public guidance, we have been consistently distributing our dividend every half year. We have no intention to change the current guidance, which is 50% free cash flow and a 50% NPAT, whichever is higher, and then finally, subject to board decision.
Brendan Fitzpatrick
There’s an extension to that question. Is there any scenario where the distribution could be higher than the 50% given that at times in the past, it has happened on occasion?
Kevin Su
It did happen in the past when Yancoal believe — just compare different priorities in our capital management, we believe rewarding shareholders is more important thing to do, which means we did dispute more than the 50% guidance as I just mentioned. But as I said, it’s very much about the capital management priority at the board level. And from a management perspective, we will propose what we believe is the right and reasonable thing to the board.
David Moult
I think just to add to the end of Kevin’s comment there, I mean, we deal with at each time at the time that were setting dividends and of course, recommendations are put to the Board depending on what is happening, both within the company and outside of it. And the Board will make that decision on a 6-month basis.
Brendan Fitzpatrick
Thank you, Kevin. Thank you, David. Another aspect to that concept of capital management and allocation of the cash resources is on-market buyback or alternatively, a share split being considered? Or are they possible at some future point?
Kevin Su
At the current stage, from a management perspective, we feel on-market share buyback, probably it’s not the time yet. I think everyone, as you would appreciate the fact, Yancoal is a part of Hang Seng index, but we’re still not part of the ASX 200 or 300, which require free float at about 30%, which currently we have about 28.4%. So it’s quite important for us to make sure Yancoal to keep, improve our free flow ratio from that perspective. On-market buyback probably is on contrary to our such intention.
Brendan Fitzpatrick
Desmond could I come back to you and check if we have any questions standing by on the phone line, please.
Operator
Yes, we do. We have a question from the line of Angus McGeoch from Barrenjoey.
Angus McGeoch
Congratulations on your quarterly, and I think particularly impressive, the uplift from a year-on-year perspective, that was despite maybe the start of the year as per your softer plans and ramping up in the year-end. So just a couple of observations and hoping to get your comments. Your production is annualizing at around 35 million tonnes. So that seems nicely in line with the lower end of guidance. Just some quick comments around how we should think about sequencing over the next 3 quarters and just your confidence into year-end that, that ongoing ramp-up in output is in line with expectations.
And I guess, secondly, how that translates to the cost outlook? Just doing some basic numbers on cost versus sales, and it seems like there’s a fair bit of room to move lower for your cost profile. So just making sure that, that’s all still in line with expectations that you’re going to see those volumes ramp and costs come off at the same time. And just any further thoughts you might have? I see that they’ve adjusted the weather outlook back in Australia again and it seems like you’re expecting weather conditions again this year.
Should that play out, how do you feel with respect to all the work that you’ve done in recent times, in reconditioning the mines? And should you get a bit of wet weather will — is that set to impact your guidance expectations?
David Moult
Thanks, Angus. Thanks for those questions. Yes. Look, we have said on a couple of occasions now that we’re back-end loaded. But we’re actually tracking to plan. We don’t see anything at the moment that indicates we’re not achieving what we want to achieve. And I think what you’ll see is you’ll see each quarter-on-quarter as we’re going through the year, we’ll be picking up those tonnes and getting ourselves into a good position within our guidance position. So I have no concerns at the moment. Yes, we — and I’ll sort of jump off cost a minute and just talk about weather, because we’ve got a little bit of rain recently. But the good thing is that all that work we put into last year, the extra investment in pumping capacity, the extra investment in storage capacity on all our sites has put us in a very good place.
So we’re in a position now where, yes, we still get some impact when it’s raining. We’ll never get away from that because just by the nature of the big trucks and the big open trucks. However, our recovery has been extremely quick. And I would expect if we get rain later this year, again, we will be able to manage that water in a way which will reduce any impact on the operations. We’re still not expecting it to be a wet year.
I mean, we’re expecting it to be a more normal year, I suppose, is the best way to put it. But weather like everything else, I mean, the forecast has changed the mine month by month. But we’re not expecting any major issues with water, and we’ve certainly got the mines in a state now where they can deal with an awful lot better than they could prior to the last issues. On the costs, we’re still confident we’re well in our guidance range. And I think on the back of what I said about production, you’ll see costs as we released on the half year sort of reflecting how our production profile is growing as we go through the year, so no major concerns from me at the moment.
A lot of focus from our management teams on cost reduction, a lot of focus on making sure that we are as cost efficient as we can across all our operations. And it’s always nice to be just able to sit here and say that we want to be the lowest cost producer in Australia, and that’s always our aim, and it’s not changed in the recent times. So fairly confident at the moment that we’re on track with everything, Angus.
Angus McGeoch
It’s great to hear, David. And sorry, just one last question just around current stockpile, the same allowed and stockpiles are up, but I might be looking at the wrong price. I can’t see current stockpiles across the group. Are you pretty happy with where stockpiles are, right now? Or how do they fit from a historical perspective?
David Moult
Okay. Our site stockpiles are a bit higher than the normal would be. Most of it sits at Moolarben. Moolarben, if you remember, when we gave our last summary, we had an issue in the last quarter with the rail line, which is the one that services the 3 big mines that sit in Mudgee or in the Mudgee area. There was a major derailment there.
It wasn’t one of our trains, but impacted us the same as it did the other 2 operations. We’ve been — and as a result of that, of course, we ended up the year with very, very large stockpiles at Moolarben. We’ve done a lot, both with our [indiscernible] rail providers. We’ve done a lot on site to move coal around. We’ve altered maintenance periods for coal preparation plants and we’re managing those stocks very well.
And we’re actually hitting some record performances now on that railway line. So, I mean, if you look at last month’s performance, it was running well above what we anticipated, if you put it on an annualized basis. So not concerned, but we’ve had a very, very, very tight focus on that area during the last few months. And it all goes back to that period in December when that rail line was quite badly impacted.
Brendan Fitzpatrick
Yes. Are there any further questions on the phone line, please?
Operator
[Operator Instructions]
Brendan Fitzpatrick
Sticking on that topic of production, there’s a specific question coming through with regards to the amount that we work with, operation, the observation made that the production in the first quarter was is below the fourth quarter [indiscernible]
David Moult
[indiscernible] and got it down as quick as we could. We’re working through — the mine is working very well. It’s operating to its expectations. And we’d expect, as we go through the year, as we release more coal, you’ll start to see those tonnage figures coming back and lifting quarter-on-quarter to go through.
Brendan Fitzpatrick
Thank you. A quick reminder to everyone. Questions via the webcast, I’ll continue to read those out on your behalf. Returning to the topic of capital management. There’s the observation that we’re now carrying a significant cash balance at this point. Is M&A an active consideration for the company at this point in time.
David Moult
We’re always looking. We’re always active in that space. We’re always looking for opportunities. I think being in a position where we have cash available puts us in a very strong position if those opportunities arise. But like we always say, when it comes to M&A, there are no discussions at the moment on anything that is out there.
However, we are looking and we are active, and I’m very keen to keep ourselves in a very strong position if those opportunities arise.
Brendan Fitzpatrick
And in extension to that concept of mergers and acquisitions, we were — Yancoal’s reported in the media as being a participant in the assets sold by BHP last year. Is there any comment on the role of FIRB and Yancoal’s capacity to act in the M&A space?
David Moult
Yes, we were — we did look at the BHP assets, and we took a decision not to proceed. However, that was not because of any issues with FIRB. We’ve had preliminary discussions with FIRB early in the process, and that will be very positive. So we don’t see any issues within the Australian approval system. And I think it’s fair to say there’s a lot happening now between China and Australia.
And I think that’s very, very good for Yancoal, puts Yancoal in a very strong position, especially with some of the visits that have been happening recently. So I think if anything, we are in a very, very good position at the moment. And certainly, we were getting very positive soundings coming out of FIRB in the discussions we’ve been having.
Brendan Fitzpatrick
We’ve covered most of the topics coming through on the webcast. Again, please continue to submit questions if there’s anything you’d like to discuss. Typically, we have several questions on the topic of coal markets. There’s nothing specific coming through at this time, but perhaps we’ll take the opportunity just to get a few comments on what we’ve experienced in the coal markets over the past quarter and whether we see any significant trends that could emerge through the remainder of the year.
Mark Salem
Thanks, Brendan. Mark Salem speaking here. Look, I suppose during the quarter, we entered the quarter again, experiencing what was a mild northern hemisphere winter. Coupled with that, a few of our major markets, in particular, Japan, they had the earthquake in the Hokuriku area as well as some maintenance issues on some power utilities. And that caused a bit of a subdued demand period with supply coming strongly, as David mentioned, from Australia as well as Indonesia and some other markets.
So we did see the prices decline over the quarter. In terms of moving forward, the feedback that we’re getting is that the Japan demand should be coming back, especially in the second half of the year quite strongly. And if we maintain a relatively good supply position, that will set us well for the quality of coal that we sell into that market. China is also one of our biggest markets. And naturally, with the lifting of the ban, we have increased our sales into that Chinese market.
And they — now our term position there in China is quite strong. And as you would expect. And China is still providing us better returns for that quality of coal that we supply in comparison to other markets in Southeast Asia and India. So our focus is definitely on that Asian market. And the Chinese market is relatively stable in terms of year-on-year imports and our position in that regard.
So as David said, I think we’re looking to a balanced market for the rest of the year.
Brendan Fitzpatrick
Thank you, Mark. I’m not showing any further questions on the webcast at this point in time. Desmond, I’ll come back to you for one final check for any questions coming through from the phone line.
Operator
Currently no questions from the phone line as well. Please continue.
Brendan Fitzpatrick
Given we’ve addressed all the questions at this point, David, I’ll hand back to you to make some closing remarks.
David Moult
Thank you, Brendan. And as always, I’d just like to thank everybody for finding time this morning to join us on this first quarter’s call. Yancoal is looking forward to a good year this year. All the signs and indications we’re getting from our operations are good. And we’re not expecting, even though we did talk a little bit about weather earlier on, the sort of conditions that we’ve had in the past. I think we’re getting back to more normality.
And as Mark has just been explaining with our — with one of our largest customers, the Chinese market back in our mix, we seem to have a very balanced market at this moment in time. So we’re confident this year is going to be a good year. We look forward to your involvement in future at our future briefings. And I wish you all best this morning, and thank you for joining us on this call.
Brendan Fitzpatrick
Thank you, David. Desmond, could you please conclude the call for us?
Operator
This concludes today’s conference call. Thank you for participating. You may now disconnect.
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