Earnings call transcript: Stanmore Coal Q2 2025 highlights operational gains

Stanmore Coal reported robust operational performance in Q2 2025, with positive operating cash flows and significant debt reduction, despite a marginal decline in stock price. According to InvestingPro data, the company maintains a "GOOD" overall financial health score of 2.5, with particularly strong growth metrics. The company maintained its full-year production guidance, projecting recovery in the latter half of the year.

Key Takeaways

• Positive operating cash flows of approximately $90 million.
• Net debt reduced to below $100 million.
• Maintained full-year production guidance despite weather challenges.
• Metallurgical coal pricing remains suppressed.

Company Performance

Stanmore Coal demonstrated solid operational execution with significant positive cash flows and a reduction in net debt to under $100 million. The company reported an overall liquidity of more than $400 million as of June 30, 2025. With an impressive gross profit margin of 78.4% and revenue growth of 162.5% over the last twelve months, as reported by InvestingPro, the company has shown strong financial fundamentals. Despite a decrease in the consolidated average sales price to $127 per tonne from $139 in the prior quarter, Stanmore Coal sustained its operational momentum, notably at South Walker Creek and Isaac Plains, which saw increased production and sales volumes.

Financial Highlights

• Positive operating cash flows: $90 million for the quarter.
• Net debt: Reduced to below $100 million.
• Liquidity: More than $400 million as of June 30, 2025.
• Consolidated average sales price: $127 per tonne, down from $139.
• Sales price realization: Just under 70% of the premium low vol index.

Market Reaction

Stanmore Coal’s stock saw a minor decline, with a decrease of 0.85%, trading at $2.36. This movement is within its 52-week range, which spans from $1.58 to $3.85. According to InvestingPro analysis, the stock appears to be trading near its Fair Value, with impressive returns of over 376% in the past year. The stock’s performance reflects ongoing challenges in the metallurgical coal market, despite the company’s strong operational results. InvestingPro subscribers have access to 10+ additional exclusive insights about Stanmore Coal’s valuation and future prospects.

Outlook & Guidance

Stanmore Coal maintained its full-year production guidance and anticipates a recovery in the second half of the year. The company remains optimistic about potential improvements in low vol index pricing and continues to monitor developments in the Eagle Downs project. Cost optimization initiatives are ongoing to enhance financial performance. For a comprehensive analysis of Stanmore Coal’s future prospects, including detailed financial projections and expert insights, check out the full Pro Research Report available on InvestingPro.

Executive Commentary

CEO Marcelo Matos stated, "We are pleased to have delivered a robust quarter operationally," highlighting the company’s strong performance despite market challenges. CFO Shane emphasized the translation of operational success into positive operating cash flows. Matos also assured stakeholders, "We have not done anything that would be detrimental to our mine plans."

Risks and Challenges

• Suppressed metallurgical coal pricing continues to pose revenue challenges.
• Weather-related disruptions could impact future production targets.
• The narrowing gap between Chinese domestic and FOB Australia prices could affect pricing strategies.
• Supply constraints in Australia may offset weak demand but also limit market opportunities.
• Ongoing stamp duty payment disputes could have financial implications.

Q&A

During the earnings call, analysts inquired about strip ratio expectations and the timeline for the Eagle Downs project study. The company also addressed a stamp duty payment dispute and analyzed the potential impacts of changes in the Chinese coal market.

Full transcript - Stanmore Coal (SMR) Q2 2025:

Conference Moderator: I would now like to hand the conference over to Mr. Marcelo Matos, Executive Director and CEO. Please go ahead.

Marcelo Matos, Executive Director and CEO, Stemo: Good morning, everyone. Welcome to today’s call, where Shane and I will present the June quarterly activities report highlighting our performance, achievements, and the outlook for the remainder of the year. Overall, it’s been a solid quarter, and we are pleased to have reported a strong recovery in our Ronco mining volumes, which has supported the maintaining of our full year saleable production guidance. This has been achieved despite the wet weather challenges from the first quarter continuing into April when more than a 110 millimeters of rain was recorded in Moranbah, bringing the year to date figure just four months into the year to the April to almost a 100% of the annual average from the previous five years. Furthermore, we are very proud that this recovery was achieved without any serious accidents, facilitating the return of our serious accident frequency rate to zero for the first time since late to, 2023.

This is a remarkable result given the circumstances, and I would like to commend our site operational teams for their unwavering discipline when it comes to safety. On the market side, it should come as no surprise that metallurgical coal pricing conditions remain suppressed and range bound during the quarter as China steel exports remain at record levels and supply related constraints persisting. Annualized Chinese steel exports for the 2025 were 116,000,000 tons compared to the full year exports for 2024, which were already at record levels of 111,000,000 tons. This has continued to place pressure on steel margins globally and resulted in an extended period of demand softness that has been sufficient to offset the supply side constraints in the Australian market. Considering these conditions, cash preservation has remained vital for the industry and we are pleased to report that Stemo generated positive cash flow over the quarter and retains a strong liquidity position of more than US400 million dollars I’ll now move on into the body of the report and begin with a brief update on each of our operations.

South Walker Creek had an exceptional quarter delivering the highest brown production since the Amazon ship in mid twenty twenty two and more than a million tons in the month of June alone. This signifies the beginning of the step change in output following the completion of MRHUC and the broader expansionary activities early in the year. Productivity ramped up during the quarter given the ongoing wet weather in April and subsequent dewatering activities. As such, production volumes were very much back ended resulting in a buildup of bromine venture this quarter on quarter, meaning that saleable production ultimately remained in line with the March quarter. Yield was impacted during the quarter, nevertheless, as we needed to ensure that the CHPP operated at capacity as much as possible.

And this meant that coal was washed on demand, therefore, limiting our ability to blend rum types to optimize washing yields in line with our regular plans. Nonetheless, the strong run coal mining volumes especially during the second half of the quarter together with the upgraded processing capacity of the CHPP have supported the maintaining of full year saleable production guidance for 2025. We also expect improved yields in the second half of the year as raw volumes from higher yielding pits are expected to be mined. Maximizing CHPP operating hours and utilization will remain a critical factor for the achievement of our second half volumes, but we remain confident on our ability to deliver them. Portrail continued its strong run off production numbers posting a 7% increase in raw production and 14% increase in co sales quarter on quarter.

The sales performance has been supported by proactive adjustments to the mine plan to overcome the adverse weather conditions as well as continued drawdown of its healthy inventory position over the course of the year to date. Highlighting this is the strong CHPP feed for the first half, which exceeded 3,700,000 tons despite a schedule shutdown during the month of May. Saleable production was slightly down on the prior quarter, however, remains above the annualized run rate of guidance and is well positioned to deliver for the remainder of the year as strip ratios and production continue to normalize in the dry conditions. Separately and as highlighted in the report, the June saw the conclusion of a sixteen month auger mining campaign for trail. It saw more than 200,000 tons of raw coal volumes that were previously deemed unviable recovered from the Southern End Wall using the world’s largest auger mining system.

This is an extremely commendable effort from our site personnel and demonstrates our collaborative attitude to drive innovation and exploit incremental value no matter the scale of the opportunity. Isaac claims recovered strongly from a heavily weather affected first quarter to deliver raw volumes of 932,000 tons, a 60% increase on the prior quarter. This result is once again commendable given the ongoing wet weather in April, which severely impacted coal availability and resulted in clean coal production being very much back ended. Year to date, saleable production remains below the run rate to achieve full year guidance and yield was also impacted at Isaac Plains during the quarter, mostly driven by the mining of the overthrust areas at Isaac Downs North, which was not expected. However, with productivity having returned to the expected run rate in this quarter, we have left guidance unchanged at this time barring any further unplanned interruptions.

Finally, a brief update on the key projects before I hand over to Shane. As you know, for our update in the last quarter, we have softened the pace on Eagle Downs in the current market conditions. Nonetheless, we have continued the base level studies and design work required to maintain momentum in optimizing the capital and operational parameters of the project with a view to concluding these works by mid-twenty twenty six. Meanwhile, the Isaac Downs extension work has been progressing well with preliminary design work large largely complete in line with our required time frame for mining these application, application requirements, and EIS submission. I’ll now hand over to Shane to summarize our corporate activities and guidance.

Shane, CFO, Stemo: Thanks, Marcelo. Moving now to a quick summary of our financial position and cash flows over the June. We are pleased to report that our robust operational performance translated into positive operating cash flows, including leasing, tax and interest of approximately US90 million dollars for the quarter. This is before certain nonoperational cash flows outlined in the report, including our six monthly term loan amortization, capital expenditures and a US24 million dollars of stamp duty related to the Eagle Downs transaction. It should be noted that while payment of stamp duty was not a surprise, the amount assessed by the Queensland Revenue Office was well above what we had reasonably expected based on legal advice and how similar transactions had been assessed in the past.

On that on this basis, we have now formally objected to the quantum of the stamp duty assessed and have paid the initial amount simply to preserve our right of appeal should the objection process fail. Notwithstanding this cash outflow, solid operational cash flows resulted in a reduction in net debt quarter on quarter, with net debt decreasing to more than one to below $100,000,000 overall liquidity of more than $400,000,000 as at thirty June twenty twenty five. This provides the platform necessary for us to withstand this period of softer market conditions with substantial capital expenditure, deleveraging and organic reinvestment also now largely behind us. In terms of guidance, as noted in the operational update from Marcelo, we are pleased to report unchanged guidance despite the challenges faced earlier in the quarter from wet weather. We expect the recovery story to continue throughout the second half from significantly higher volumes with year to date saleable production tracking at only 46% of the midpoint of full year guidance.

Finally, as you are aware, this year we have commenced reporting consolidated average sales price on a quarterly basis to provide a clearer insight into realization trends. During the second quarter, the consolidated average sales price was US127 dollars per tonne compared to US139 dollars per tonne in the prior quarter. This represented a realization of just under 70% of the average premium low vol, or PLV, index compared to 75% in the prior quarter. The primary drivers for this change were threefold. Firstly, sales slippage from March to April, driven by the considerable wet weather discussed earlier, moved lower priced March sales from Q1 to Q2.

Secondly, the Tier two low vol hard coking coal index used as a benchmark to price Portrell’s coking coals dropped to an average of 79% of the PLV index for the first half, well below its five year average of 90%. And finally, Stamore’s thermal byproduct coals also witnessed a lower price realization as the API five thermal price index traded at a historically low relativity to higher calorific value thermal coals such as those using the nuke index. Pleasingly, PCI relativities have remained stable at around 75% and currently closer to 80%, even trading at a slight premium to the Tier two low vol hardcooking coal index in recent weeks prior to a recent upswing in that index, which will also assist our ASP relativities in the second half. On that note, I will hand back to Marcelo to conclude the briefing with a more general overview of market conditions.

Marcelo Matos, Executive Director and CEO, Stemo: Thanks, Shane. As highlighted in the report, FOB Australia prices remained range bound over the quarter with very limited offers in the spot market from producers and market direction being set by intermediaries and broader market sentiment. As mentioned at the beginning, weak sentiment continues to be driven by the glut of steel exports from China, which have been tracking at levels even higher than the record year of 2024. The Chinese domestic market was very well supplied over the quarter, including from calls from Mongolia that have competed with Australian material in terms of quality. It has resulted in a widening of the spread of China netback pricing to FOB Australia during the second quarter, which has begun to narrow in the third quarter as Chinese mines understood to having been operating at unsustainable levels of the cost curve.

This weaker sentiment on the demand side was partially offset by ongoing supply constraints in Australia, driven by the ongoing adverse weather conditions, the long term outages at key mines, and ongoing cost curve pressure for higher quartile seaborne producers. Looking ahead, India has headed into the earliest monsoon season in sixteen years and done so with historically low metallurgical coal inventories. With safeguard measures introduced on steel imports and an extension of the coke import quota, as well as ongoing blast furnace commissioning, we are hopeful that the combination of these factors will support a resurgence in need and demand post monsoon season. With that, I’ll now hand over to the moderator so we can take some of your questions.

Conference Moderator: Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Your first question comes from Brett McKay with Petro Capital.

Brett McKay, Analyst, Petro Capital: Another strong quarter. Good to see that recovery well underway. Just a few questions from me, if I may, this morning. Just the strip ratio seemed to drop quite a bit quarter on quarter. Can you just give us a bit of a feel for how that’s going to look going forward?

And if you expect any catch up? Clearly, you’re focusing on long volumes. But on the wayside, is there anything that we should sort of be aware of over the second half that would sort of see that potentially lift a little bit?

Marcelo Matos, Executive Director and CEO, Stemo: Thanks, Brett. Yes. I think we’ve seen a a drop, which is basically us, of course, focusing on catching up on the on the cold flow on on raw volumes in q two. You you’ve probably seen a, let’s say, larger a reduction in South Walker and in Port Trail relatively twice the planes. Isaac planes will see a large volume of ROM actually very back ended in the year, which is which is a a result of of the sequence at at the pit five North mining.

Most of pit five North, we will finish this year. So, Isaac will still, let’s say, we will still, have a bit of a lagging a lagging approach to catching up on on strip ratios, and probably we’ll see a largest reduction in in, in q four. But as for Southwalk and Portrail, I think they are tracking in line with the trends expected. And we still expect a slight reduction for the remainder of the year with both expected to finish 2025 very close to around the eight to one strip ratio on on a prime basis. Isaac plans, I would say, around the 10 to one, which is in line with the the plans we have indicated previously.

Brett McKay, Analyst, Petro Capital: Yeah. That’s perfect. Thanks, Nafar. Just a couple of ones on Eagle Downs. Can you just remind us what you expect to present to the market come in the q two next year with respect to that study?

Just around, you know, what you’d like to you know, what the the ultimate outcome you’d like to to present at that point in time?

Marcelo Matos, Executive Director and CEO, Stemo: Brad, I think the outcome depends on many on many factors. Of course, we need to understand the, let’s say, what to expect from the project from a from a from a capital requirement standpoint. That’s one of the focuses on on the work. Obviously, we have there’s a lot of work also happening around operational parameters and how how resilient we we can expect the the mine to be. Of course, to withstand different market conditions at different at different coal prices.

Obviously, funding and funding solutions is a is a is a critical part of the equation. Okay? So as I’ve been saying repeatedly over the the past few quarters, a lot of the the the focus of the work streams is to make sure that we are we are ready to make decisions. Okay? I think whether or not an investment decision will be made, I think will depend on on a on a lot of these different parts of the equation equally including market conditions, Brett.

So I I think nothing has changed What what the the output that can be expected by mid next year is around some of this this the parts of this equation. But the pace of it will also depend on market conditions and and how we make sure we manage our cash. Okay? So there’s there’s a lot of expenditure that goes into the the the studies work stream. And we decided that we we needed to make let’s let’s say, pace it in a different way, to cater with the the the the cash position of, for the business given that would be very unlikely that we’ll make any commitment late this year.

And whether or not we’ll make any commitment mid next year, it’s also to be to be decided. There’s a lot of water to go under that bridge.

Brett McKay, Analyst, Petro Capital: Okay. Understood. And just maybe a quick comment on that Stan Chili payment. Are you able to you probably can’t say much, but are you able to sort of say what you expected to be relative to what you paid as to what the difference might be there.

Shane, CFO, Stemo: Yeah. No worries, Brett. As you’re right, we don’t wanna comment too much on this with the ongoing process underway, but we were expecting a number close to sort of the $2,000,000 $3,000,000 range with point of contention just being around the contingent vendor royalties and the treatment for stamp duty purposes that we’re looking at there. So, yeah, at this stage, we’ve we’re just reserving our rights and and following the process from here.

Brett McKay, Analyst, Petro Capital: How long is that expected to take, Sean?

Shane, CFO, Stemo: There’s a two step process. So one firstly involves objection, which has been lodged with the QRO. That will take, you know, a couple of months to to work through. Depending

Marcelo Matos, Executive Director and CEO, Stemo: on

Shane, CFO, Stemo: the outcome of that, if it goes to appeal, that can take quite a bit longer. So more like the one to two years sort of range, but we’ll see how it goes.

Brett McKay, Analyst, Petro Capital: Okay. Alright. Thanks. Just a final one. Your comments in the quarterly there, and I saw around China coal crossing uptick in the month of July.

Can you just give us a bit of flavor for how you expect that might translate through to Australian crossing and when we might see that. We we yeah. We’ve seen a couple bucks here and there on the Aussie prices, but just trying to put the $2.02 and 2 together from a, you know, industry insights point of view.

Marcelo Matos, Executive Director and CEO, Stemo: Sure. Brad, I think a lot so far has been driven by some of the announcements by the Chinese government on, let’s say, a bit more discipline on production limits by the domestic producers. If we know there’s been a quite a significant gap between the the Chinese net back price with the FOB indices. I mean, at a certain point, they were I mean, that that gap was over $30. At the moment, we are it’s it’s already below $15.

Okay. So that that gap’s closing. Production, I mean, domestic producer producers they are, I mean, especially the higher cost one, were losing money. Steel makers in China, they are they are making margins. They they they are profitable.

Let let’s let’s let’s put it like that. So we we have seen, know, China, you know, releasing reasonably strong GDP results, which means most likely the the strong exports out of China are expected to remain given that we we are not very confident on any significant stimulus. So what’s gonna be driving a lot of their GDP is the, our exports out of China, which means we do expect some of that those steel export volumes to remain, But with potential production cuts or or let’s say more discipline on the on the on controlling controlling production limits, we could expect, you know, improvement in domestic prices. There’s a bit of margin that could be transferred from Chinese steelmakers to the to the coproducers to to fix some of these loss making situation. Obviously, with that gap narrowing with the between domestic prices and FOB and Australian prices that, of course, helps helps, let’s say, bit more discipline, especially in the low vol sector.

We we we send the that gap with the low vol index. The the low vol index is basically, in Australia is a is a proxy for the for the wrangle type of hard coking calls, right, the wrangle measures. And but they are are direct competition to some of the domestic calls in in China, but also with Mongolia. So a a lot of the Mongolian, volumes into China and the at low price, they have put pressure on that low index. From a value and use standpoint, that was never sustainable in the same way that PCI relativity is at the low fifties eighteen months or a couple years ago were never sustainable.

We’ve seen that PCI relativity is improving. We are already seeing a bit of an improvement in the low vol index, which will I mean, a lot of that recovery in domestic Chinese coal prices will will support some of that of that of the recovery of the low of low vol index relativity that I mean, it was at a sustainable level.

Brett McKay, Analyst, Petro Capital: Alright. Thanks, Marcelo. I’ll pass it on. Appreciate it.

Conference Moderator: Your next question comes from Tim Elder with Ords. Please go ahead.

Tim Elder, Analyst, Ords: Hey. Good morning, gents. Thanks for taking my question. It was just on Isaac Plains. I think the quarterly report referred to the fact that you changed some of the sequencing there.

Just interested to understand exactly what that change is and the rationale behind it. I think you might have referred to it a little bit earlier, Marcello.

Marcelo Matos, Executive Director and CEO, Stemo: But, Tim, Isaac I mean, it’s it’s probably why we have less flexibility if you look at where we can go, especially when we are doing we are dewatering pits and we are having a lot of of recharge out of spoils. We needed to I mean, from a sequence standpoint, we needed to redirect a bit of mining and and coal flow into the I I’d be north. Okay. Isaac Downs North, which is where we have that area with the with the overtrust that has impacted obviously yields and and and coal flows. I think now with with the with all the dewatering us back to to sequence, I think that we should see an improvement in in the second half.

But as I said before, Tim, I think one of the one of the key elements for I Isaac in the second half is when to expect big five volumes. That’s gonna be very backhanded. So a lot of the ROMCO volumes in IP will be in q four, especially driven by some of the the ROM volumes that we expect out of Pit five more.

Tim Elder, Analyst, Ords: Fantastic. Thanks all. That’s all for me. Thanks.

Conference Moderator: The next question comes from Paul McTaggart with Citigroup. Please go ahead.

Paul McTaggart, Analyst, Citigroup: Good morning, guys. Look, I just want to clarify something. So the net debt position at the end of the quarter, US99 million that included the benefit of the $48,000,000 income tax refund. I don’t know if that was I mean, that’s what it says in the release, but I was a bit confused by that because it said following the submission of your annual tax return for June 25, which I would have thought you’d submitted post the end

Shane, CFO, Stemo: of the quarter. So I

Paul McTaggart, Analyst, Citigroup: just needed to clarify that, please.

Shane, CFO, Stemo: Yeah. No worries. Thanks, Paul. Yeah. So as you remember, we’re at December year end, calendar year end.

Yeah. So our tax return for the last calendar year end was just submitted in late May, early June, and therefore, the the tax the benefit of that tax return came through in the month of June.

Paul McTaggart, Analyst, Citigroup: Okay. Great. Yeah. I was forgetting that. Thank you.

Shane, CFO, Stemo: Yeah. No worries.

Conference Moderator: Your next question comes from Glen Lawcock with Baron Joey. I

Glen Lawcock, Analyst, Baron Joey: just wanted to have a little bit of discussion around costs and CapEx. I mean, obviously, it was back in April when you lowered the guidance, and you said you’ve done nothing then to put the future production at risk. Are you working on anything else that might help the cost in CapEx? Or do you think, given your sort of trading water at current prices, that’s where you want to sit now? Is there much more you can do?

Marcelo Matos, Executive Director and CEO, Stemo: I think we are I think we are on track. Okay. If you look at of of if you look at the guidance range we’ve provided that we revised the previous quarter, Glenn. Obviously, we will release a bit more color on that when we do when we release the the the first half results on financial results and costs. That’s I mean, we have as I said in the previous quarter, we have met, let’s say, a portfolio of initiatives to manage costs, okay, and cash.

And then as I explained before, from a capital standpoint, a lot of the those the the the the changes to guidance were more driven by the capital deferrals. I don’t think that has changed. We are pretty much on track. Of course, as we speak now, we are starting to work on the budget for ’26. Obviously, depending on coal prices, I mean, we are simply not gonna take all the deferrals and just add to the to the plan for ’26.

So I think I think we are, of course, looking at what can be deferred as well out of ’26 and to have a more, let’s say, balanced capital profile for for next year. As far as this year is concerned, we are on track. As you see for for the for the performance that we just announced, we are a bit below the let’s say that annualized guidance for CapEx, but there’s there’s catching up on the second half. So I think we still expect to be within within that guidance range. From a cost standpoint, again, we are on track.

Second half, I think there’s probably a FX impact, okay, that we can expect given where FX is is now if you look at the US dollar guidance range that we’ve provided. On the other hand, we have bigger volumes in in the second half and that that’s all obviously gonna help the unit costs. The the plan of banking cap cost improvement is is is happening as we speak, Glyn. There’s a lot in the in the in the pipeline. And as I explained previously, that we haven’t done so far anything that would, let’s say, would would be detrimental to the to to our mind plans and and sequence.

Need be that that’s possible. As in for example, even looking at blasting inventories and so on and and pushing that back. But for the moment, we haven’t we haven’t done that.

Shane, CFO, Stemo: Yeah. Just just to add to that and provide a little bit more color on the FOB costs as well. We’ve we’ve managed to finish the first half within the guidance range, which was quite a good effort for us given the volume is more heavily weighted to the second half of the year. So with a lower denominator of that metric, we’ve still managed to bring that in within guidance. So quite happy with those results.

The second half, as Marcelo alluded to, when we set guidance, we’re assuming an FX rate of 64.5¢. It’s now closer to 66¢. Now even at those levels, you know, we haven’t, today, announced any change to guidance. We’re still aiming to to finish our cost within guidance, but we’re keeping an eye on FX so that could move things a little bit as well. And we will start to see some benefits come through from some of the cost reductions ramping up a little bit in the second half, so some labor optimization that we’ve just recently completed and some other initiatives that are that are rolling through.

Glen Lawcock, Analyst, Baron Joey: No. That’s great, James. So just to clarify then. So if the currency stays at 66¢, you still think you can achieve the guidance. Is that what you’re saying?

Shane, CFO, Stemo: Yep. At this stage. Yep.

Glen Lawcock, Analyst, Baron Joey: Alright. That’s great. Thanks for the color.

Conference Moderator: Thank you. There are no further questions at this time. I’ll now hand back to mister Matos for closing remarks.

Marcelo Matos, Executive Director and CEO, Stemo: Thanks everyone for your questions and for joining today’s call. We are pleased to have delivered a robust quarter operationally and provide further confidence that the business remains in good shape at this stage of the cycle. As usual, I’d like to thank our employees and contractors for the continued discipline, particularly regarding our safety performance over the last twelve months. We look forward to provide our full financial update in late August and meet with many of you then. Thanks, everyone.

Have a good day.

Conference Moderator: That does conclude our conference for today. Thank you for participating. You may now disconnect.

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