Earnings call transcript: Yancoal Australia Q2 2025 sees robust performance amid challenges

Yancoal Australia Ltd, the second-largest coal producer in Australia, reported its Q2 2025 earnings, highlighting a strong operational performance despite a decline in sales volume due to port closures. The company ended the quarter with a cash balance of $1.8 billion and paid a fully franked dividend of $687 million, representing an impressive 10.58% dividend yield according to InvestingPro data. The stock price saw a notable increase of 3.97%, closing at $5.29, continuing its strong momentum with a 7.84% gain over the past week.

Key Takeaways

• Yancoal maintained full-year production guidance, tracking towards the upper end.
• The company experienced a sales volume slip due to port disruptions.
• Strong cash position with $1.8 billion and no debt.
• Global thermal coal demand remains robust despite regional export declines.

Company Performance

Yancoal Australia demonstrated resilience in Q2 2025, with operational efficiency leading to a 12% increase in total ROM coal production compared to Q1. Despite challenges like port closures affecting sales volumes, the company managed to uphold its financial stability, backed by strong performances at its Moolarben and Mount Thorley Warkworth mines. The company continues to benefit from a competitive cost structure and robust demand for both thermal and metallurgical coal.

Financial Highlights

• Revenue: Not disclosed for the quarter, but strong cash balance of $1.8 billion.
• Dividend: $687 million, fully franked ($0.52 per share).
• Average realized coal price: $142 per tonne, down from $157 in the previous quarter.

Outlook & Guidance

Yancoal remains optimistic about delivering delayed sales in Q3 2025 and anticipates a potential recovery in coal prices by the end of the year. The company is also exploring value-accretive opportunities while maintaining its dividend policy of distributing 50% of free cash flow or net profit after tax.

Executive Commentary

Kevin Su, CFO, stated, "We have delivered the best first half operational performance of the past five years," underscoring the company’s operational success. Mark Salem, EGM Marketing, noted, "We are beginning to see supply side respond to the lower coal prices," indicating potential market adjustments that could favor Yancoal.

Risks and Challenges

• Port disruptions affecting sales volumes.
• Fluctuating coal prices impacting revenue.
• Global economic conditions influencing coal demand.
• Environmental regulations potentially affecting operations.
• Ongoing CEO recruitment process creating leadership uncertainty.

Yancoal’s Q2 2025 earnings call highlighted its strong operational capabilities and financial health, setting a positive tone for the remainder of the year despite external challenges. Trading at a P/E ratio of 7.61 and price-to-book of 0.83, InvestingPro analysis indicates the stock is currently undervalued. The company’s proactive management strategies and market positioning continue to bolster its competitive edge in the coal industry, supported by its impressive current ratio of 2.39 and minimal debt-to-equity ratio of 0.01.

Discover comprehensive analysis and 1,400+ detailed Pro Research Reports, including Yancoal’s full financial picture, by subscribing to InvestingPro.

Full transcript - Yancoal Australia Ltd (YAL) Q2 2025:

Desmond, Conference Call Operator: Good day and thank you for standing by. Welcome to Yancoal Australia Second Quarter 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 need to press star 11 on your telephone. You then hear an automated message arising. Your hand is raised. You can also submit your questions via the webcast under the bottom of the page. Please be advised that today’s conference is being recorded. I would now like to hand the call over to your first speaker today, Brendan Fitzpatrick.

Kevin Su, Chief Financial Officer, Yancoal Australia Ltd: Thank you.

Desmond, Conference Call Operator: Please go ahead.

Brendan Fitzpatrick, Investor Relations, Yancoal Australia Ltd: Thank you, Desmond, and thank you to everyone on the call for joining this briefing on Yancoal Australia’s second quarter production report for 2025. We have several members of Yancoal’s executive leadership team on the call to recap the quarter and participate in the question and answer session. On the call we have Mr. Yueh, our Co-Vice Chairman and Acting CEO, Kevin Su, our Chief Financial Officer, Laura Zhang, Company Secretary, David Bennett, EGM Operations, Mark Salem, EGM Marketing, Mike Wells, EGM Finance, Sheriff Burra, EGM Health, Safety and Sustainability, and Marc Jacobs, EGM Environment and External Affairs. The commentary provided today is based on the quarterly production report published to the Australian Securities Exchange and the Stock Exchange of Hong Kong yesterday, 17 July. There is no presentation pack for this call. The Yancoal website holds past presentations for any participants who require additional information on the company.

I’ll hand over to our CFO, Kevin Su, to provide second quarter highlights.

Kevin Su, Chief Financial Officer, Yancoal Australia Ltd: Thanks Brendan. I would also like to welcome everyone joining us on today’s conference call. We have delivered the best first half operational performance of the past five years. During the second quarter we were able to build up our strong first quarter and halfway through the year our long coal and attributable saleable coal volumes are 15% to 16% ahead of last year. This contrasts with the past two years where we started the year slower and increased the production volume throughout the year. We are currently ahead of the midpoint of our attributable saleable production guidance range of 35 to 39 million tonnes with minimal disruptions over the remainder of the year, where it should push toward the upper end of the guidance range. As with past quarters, we don’t include cash operating cost per tonne in the quarter reports.

However, we can say that we expect the cash operating cost for the first half will sit toward the middle of the guidance range of $89 to $97 per tonne when we release our first half results in August. As most participants on the call are likely aware, coal prices continued to decrease during the quarter. During such market conditions, we focus on maximizing our operational efficiency and minimizing cost to navigate the typical low in coal prices. We finished the quarter with a cash balance of $1.8 billion after paying a fully franked final dividend of $687 million or $0.52 per share. We also had a significant volume of sales slipped from the second quarter to the third as a result of the temporary weather-related closure at the Port of Newcastle. This negatively impacted both the revenue and cash generation we recorded in the second quarter.

I’ll hand over to all the members of the executive team to share further details, starting with David Bennett, our Executive General Manager, Operations.

David Bennett, Executive General Manager, Operations, Yancoal Australia Ltd: Thanks, Kevin. Our total recordable injury frequency rate reduced through the quarter and was 6.32 at the end of June. Although the rate is below the industry weighted average of 7.93, we remain committed to improving our performance through targeted safety intervention activities. During the quarter, total ROM coal production increased in line with our forecast with production of 17 million tonnes. This was 12% more than the first quarter this year and 23% more than the second quarter last year. We produced 9.4 million tonnes of attributable saleable coal, similar to the first quarter and 15% more than the second quarter last year. Our mines operated to plan despite some weather disruptions, and our prior investment in pumping and water storage capacity continues to give us the advantage to quickly resume mining at full production rates after heavy rainfall.

Although our mines operated to plan, the wet weather and subsequent flooding of the Hunter River system impacted rail and port activity. The mine sites and our logistics teams work proactively to manage production and transportation priorities. This in turn allowed us to avoid operations becoming stock bound due to restricted vessel movements at the Port of Newcastle. As Kevin mentioned, we are well placed to deliver a strong operational performance this year at Moolarben. The longwall started the quarter well before hard coal conditions encountered in May and June slowed the equipment advance rate. The reduced advance rate means the longwall move scheduled for June commenced in early July. In the open cut, Mount Thorley Warkworth received fewer rain disruptions than the Hunter Valley mines and delivered a 4% increase in ROM and saleable coal volumes compared to the first quarter.

The two Hunter Valley open cut mines both performed well with ROM coal production up 13% compared to the first quarter at MTW. Increased productivity across the equipment fleet and an efficient recovery from the wet weather experienced in May were major contributing factors to the strong operational performance at HVO. Adjustments to the mining schedule were implemented to manage the stockpile levels. At the end of June, coal product stocks remained higher than normal. However, ROM coal and saleable coal production were both running ahead of forecast. In Queensland, Yarrabee delivered strong volume increases compared to the first quarter, and at Middlemount, the recovery plan developed after the first quarter delays started to deliver positive outcomes during the quarter and production deficits were reduced. As mentioned in the past, Middlemount is equity accounted so its volumes sit outside the production guidance we provide.

Our attributable sales volume of 8.1 million tonnes was similar to the first quarter and 1.3 million tonnes lower than our attributable saleable production. I will now hand over to Mark Salem, our Executive General Manager, Marketing, to expand on this point and provide commentary on the coal markets.

Mark Salem, Executive General Manager, Marketing, Yancoal Australia Ltd: Thanks David. Our attributable sales volume of 8.1 million tonnes was a typical mix of thermal and metallurgical coal products. As David mentioned, the sales volume was 1.3 million tonnes lower than our saleable production. You may recall that at the end of the first quarter Cyclone Alfred caused delays to vessel movements along the east coast, which resulted in the timing of some of our sales slipping from March to April. We had a similar experience in the second quarter where temporary rail network outages and closures of the Port of Newcastle due to adverse weather systems resulted in sales slipping into the third quarter in excess. About 1.4 million tonnes slipped of Yancoal sales. We fully expect to deliver the delayed shipments throughout the current quarter. During the second quarter, we continue to observe strong supply and benign demand conditions in the international thermal and metallurgical coal market.

Despite the Port of Newcastle closures, which extended ship’s queues and impacted about 2 to 2.5 million tonnes of exports, global thermal coal demand remains strong. However, we note there have been some cuts to global supply with Indonesian exports down 11% so far this year due to weather impacts and lower demand. Also, Colombian exports are down 23%, mostly in response to lower prices and from planned cuts in production. On the demand side, the Northern Hemisphere thermal coal restock for summer was slow to start, but increasing temperatures might see demand pick up. Unfortunately, domestic supply in China has increased this year, contributing to an approximately 14% reduction in thermal coal imports through the first five months of 2025. In India, the early monsoon bolstered hydropower generation and combined with higher domestic production, domestic imports dropped 5% so far this year.

Japan’s imports have also fallen 6% due to increased nuclear power generation and gas-fired power availability. Similarly, Korea and Taiwan imports are lower due to more biomass coal firing and gas power generation. The positives were increased coal imports by Vietnam due to new coal-fired power builds, by European due to gas market uncertainty. We have also seen an increase in spot buying activity on the back of inconsistencies in renewable and nuclear generating capacities in the Asian areas. The metallurgical coal markets have also seen sluggish demand as a result of weak global economic conditions, global trade, tariff concerns, and the export of excess steel supply from China. The average prices during the June quarter for the main indices were down between 2% and 12% compared to the March quarter. The API5 index averaged $68 per tonne and the GCNewc index averaged $100 per tonne.

The low volatile PCI index averaged $138 per tonne and the semi-soft index averaged $104 per tonne, all down from the previous quarter. Our realized prices tracked the relevant indices and our average realized thermal coal price was $130 per tonne and our average realized metallurgical coal price was $197 per tonne. The overall average realized price was $142 per tonne compared to $157 per tonne in the prior quarter. Having made all these comments, we are beginning to see supply side respond to the lower coal prices, which aligns with our view that coal industry indices are well below marginal costs on the global cost curve. We anticipate further supply side reductions from higher cost producers contributing to a potential recovery in coal price indices as was the case with past coal price cycles.

I will now hand over to Mike Wells, our Executive General Manager, Finance, to touch on how everything that has happened in the market translates to our financial position. Over to you, Mike.

Brendan Fitzpatrick, Investor Relations, Yancoal Australia Ltd: Thanks Mark.

Mike Wells, Executive General Manager, Finance, Yancoal Australia Ltd: The key observation to make is that we remain in a strong financial position. We ended the quarter with $1.8 billion in the bank and no interest-bearing debt. This was after distributing $687 million to shareholders in April to pay the fully franked 2024 final dividend of $0.52 per share. As Mark noted, the 1.3 million tonne differential in attributable production and sales volume during the quarter is a timing issue only, and the delayed sale should be delivered before the end of the current quarter. However, this does need to be borne in mind when assessing our second quarter financial performance and the first half results.

Kevin Su, Chief Financial Officer, Yancoal Australia Ltd: We will report next month.

Mike Wells, Executive General Manager, Finance, Yancoal Australia Ltd: There was also a final end of year tax payment made in June. We have indicated our cash operating costs per tonne for the first half are likely to be toward the middle of our guidance range when reported. This reflects the much more consistent production profile forecast throughout the year. This is in stark contrast to the previous two years, where our cash operating costs were well above the full year guidance range after the first half, mainly due to the elevated production rates through the second half. To bring the production costs back into the guidance range, I will now hand back to Brendan to coordinate the question and answer session.

Brendan Fitzpatrick, Investor Relations, Yancoal Australia Ltd: Thanks, Mike. Thanks also, Kevin, David, and Mark, for highlighting the drivers of our second quarter performance. We will now move on to the question and answer session, starting with questions from the phone, then moving to questions submitted via the webcast. Desmond, could you please advise if there are any questions coming through on the phone line?

Desmond, Conference Call Operator: Certainly.

Mark Salem, Executive General Manager, Marketing, Yancoal Australia Ltd: As a reminder, if you would like to.

Desmond, Conference Call Operator: ask questions on the phone, kindly press star 11 and wait for your name to be announced.

Thank you.

One moment for the first question. Our first question comes from the line of Wayne Feng from CMBI. Please ask your question.

Kevin Su, Chief Financial Officer, Yancoal Australia Ltd: Hello.

Yes, thanks management for the call and congratulations on a very strong quarter. Production quarter in third quarter and this is Wayne with CMBI. My first question is about the sales volume because we have roughly around 2 million tons of increase in inventory because of the logistical issue, which is a difference between the production and sales. Should we expect these volumes to be fully translated into sales in the third quarter? My second question is about the metallurgical coal volume. The growth of this segment is faster than thermal. What should we expect in the overall mix going forward? Thanks.

Mark Salem, Executive General Manager, Marketing, Yancoal Australia Ltd: Wayne.

Brendan Fitzpatrick, Investor Relations, Yancoal Australia Ltd: Thanks very much for the questions. I think perhaps for the first one with the sales volume and the inventory build up, Mike, could I hand over to you to revise some of those comments we shared about the position in the catch up?

Mike Wells, Executive General Manager, Finance, Yancoal Australia Ltd: Yeah, thanks Brendan, and thanks for the questions, Wayne. Yes, as we said, the sales slipped.

Kevin Su, Chief Financial Officer, Yancoal Australia Ltd: From the second quarter.

Mike Wells, Executive General Manager, Finance, Yancoal Australia Ltd: The third quarter was about 1.4 million tonnes, and as Mark noted, we would expect those to be recovered in quarter three. Those sales would largely be sitting on stockpiles either at site or the port. We expect them to pretty much generate the typical sales price, less a bit of transportation cost, less the state royalties, and we’d expect that to.

Brendan Fitzpatrick, Investor Relations, Yancoal Australia Ltd: Come through in the third quarter. Thanks, Mark.

Mark Salem, Executive General Manager, Marketing, Yancoal Australia Ltd: Brendan, can I just add to that just for clarity’s sake? It’s not expected that we’ll maintain our production levels for Q3, so this carryover will be in addition to our normal sales profile. Therefore, it’s our normal sales profile that we all expect, and this is based on the conditions that everything is going well at the ports and all the weather conditions, etc. It’s not to say that we couldn’t expect some sales to slip from Q3 to Q4, which is historically normally the case anyhow.

Brendan Fitzpatrick, Investor Relations, Yancoal Australia Ltd: Thank you, Mark. Wayne’s second question about the metallurgical coal volumes. Perhaps we could take the opportunity to comment on the relative production split in the quarter and how it sits to the normal profile.

Mark Salem, Executive General Manager, Marketing, Yancoal Australia Ltd: Yeah, our metallurgical coal volumes are very well, you know, two aspects. From a production aspect, the identification of our metallurgical coal is very clear and very articulate. A lot of our metallurgical coal can’t be transferred into thermal coal and therefore we have to sell that independently as well. Most of our metallurgical coal positions are very well sold in terms of our contracted position. Our overall metallurgical coal position represents about 20% to 25% of our overall sales and that will be pretty stable moving forward.

Brendan Fitzpatrick, Investor Relations, Yancoal Australia Ltd: As usual, that commentary refers to all the sales that Yancoal Australia Ltd is responsible for. There’s some differentiation between the Yancoal attributable sales which we’ve touched on in the past.

Kevin Su, Chief Financial Officer, Yancoal Australia Ltd: Yeah, correct.

Mark Salem, Executive General Manager, Marketing, Yancoal Australia Ltd: We’re responsible for most of the sales out of the Middle Mount project, even though it’s not on our trip devices.

Brendan Fitzpatrick, Investor Relations, Yancoal Australia Ltd: Thank you, Mark Salem, could we go to the next question on the line, please?

Desmond, Conference Call Operator: Certainly. One moment for the next question. Our next question comes from Lawrence Lau of PCI. Please ask your question.

Hi, thank you for taking my question. I actually have one question. When I look at the saleable coal output and the thermal coal output in the second quarter, I noticed that some mines actually have slower growth or decline.

Brendan Fitzpatrick, Investor Relations, Yancoal Australia Ltd: In.

Saleable coal output compared to ROM coal output. I just wonder, is it because you’re slowing down the processing of coal in view of some logistic problem in sales, or actually some decline in processing yield? Can you clarify?

Thanks.

Thanks, Lawrence. Good question. Appreciate that one. David, could we turn to you to comment on how we saw the production volumes and the difference between ROM and saleable coal production in the second quarter at the various mines and across the collective portfolio?

David Bennett, Executive General Manager, Operations, Yancoal Australia Ltd: Yeah, thanks. Thanks Brendan, and thank you for the questions. Firstly, certainly we do not slow down our CHPPs, our prep plants. We operate to try and match the production that has been extracted from each of the mines. Typically, the disparity between run of mine coal and product coal generally relates to the yield. In the majority of our open cuts, we mine many different seams that all basically have a different inherent yield. The return that we get in terms of saleable production to ROM coal will vary based on the seams that we’re mining and processing at that point in time. Further to that, Hunter Valley operations through the second quarter did lose a number of ships.

I think it was in the order of around 6 days production through the CHPP due to their load points being stocked out to the point that we made earlier around the port delays and the like. That actually had the effect of building ROM stocks higher. However, we still maintain our full year guidance with regard to both our attributable ROM production and saleable production, and that extra coal that has been stockpiled at that particular mine will be processed and is being processed through the second half of the year. Thank you.

Thank you.

Brendan Fitzpatrick, Investor Relations, Yancoal Australia Ltd: Thank you, David. Thanks for the question. Yes, Desmond, I was just going to say, any more questions on the phone line?

Desmond, Conference Call Operator: Yes, allow me to take the next question from Glenn Lawcock from Baron Joey. Please go ahead.

Good morning.

Brendan Fitzpatrick, Investor Relations, Yancoal Australia Ltd: Just two questions.

Firstly, just on the costs and the CapEx guidance for 2025, given the current price environment, just wondering what, if anything, you’re looking to do or can do to maybe mitigate the cost and the CapEx if prices stay at this lower level. Secondly, you make a comment in the release: strong financial position will enable you to consider opportunities that may present during the cyclical downturn. Does that mean you’re still looking to acquire during the cyclical downturn? How do you balance that versus capital management and returns? Thanks.

Thanks, Glyn, appreciate you being on the line and asking the questions. Kevin, would you like to provide a few observations on the cost and CapEx mitigation responses we have, and of course mindful that we’re still a month out from the half year report, so somewhat limited in terms of potential comments ahead of the result.

Kevin Su, Chief Financial Officer, Yancoal Australia Ltd: Sure. First of all, as you can see, a very strong first half production results. You will see more details from our interim financials, but we can assure all investors the company is doing whatever we can to minimize, if any, unnecessary cost output at the same time. Talking about CapEx, I think in this announcement we made it very clear we’re currently very much in the range. This is largely due to all these major CapEx commitments being very much just contractual. Once again, the company is doing whatever we can to optimize the profile. As for the opportunity you just mentioned, how the company balances the CapEx and also the current market, clearly we are in a cyclical market at very much the bottom, which means there’s a great opportunity.

Also, at the same time, it’s not only about a $1.8 billion cash you can see from our balance sheet, it’s also about the company being able to secure sufficient debt capacity and at the same time maintain a very healthy CapEx as well. That’s why I don’t think from a company perspective we will have any issues to balance between the demand for cash, for the cash we have on hand for the CapEx component, also for the potential debt funding capacity. Thanks.

Brendan Fitzpatrick, Investor Relations, Yancoal Australia Ltd: Thank you.

Desmond, Conference Call Operator: Thank you for the question. There are currently no questions from the line. Please continue.

Brendan Fitzpatrick, Investor Relations, Yancoal Australia Ltd: Thanks, Desmond. I’m looking at the questions coming through on the webcast, and I appreciate many of these were submitted ahead of or during the call, and some have been partially addressed through the Q and A we’ve just conducted. Let’s start with one coming through with regards to the coal markets, asking an outlook on the coal industry and what time range a recovery might take. Mark, you mentioned earlier we were starting to see some responses coming through in terms of a supply reaction to the current cyclical prices. What can we say about the broader outlook and timelines? Sure, yeah.

David Bennett, Executive General Manager, Operations, Yancoal Australia Ltd: Thanks Brendan.

Mark Salem, Executive General Manager, Marketing, Yancoal Australia Ltd: I think it’s been in the press recently that there’s been a few mining operations that have basically stopped because of the current pricing. We are now seeing some supply coming off stream in small ways. They’re not significant operations, but we are seeing people now suffering from these lower prices and the higher cost profiles, especially for newer operations. There’s a lot of sentiment in the marketplace at the moment that we’re basically at the bottom of the cycle and we should start to see some recovery. From my own personal point of view, I think that recovery will take still some while before we see some true supply recovery. It probably will not.

We will not see something significant until the very end of this year on the back of hopefully strong winter buying and then naturally, as you know, the weather has a big impact to the coal market, but we should see some recovery towards the end of the year.

Brendan Fitzpatrick, Investor Relations, Yancoal Australia Ltd: Thank you, Mark. I’m looking at the question list. There’s another one coming through on the coal markets. There was the observation that China imports decreased by 11% and curious to know how this influenced Yancoal and whether that required redirection of our shipments, and if there’s any comment about the coal price outlook, perhaps in that API 5 segment of the market which relates to the typical Chinese imports.

Kevin Su, Chief Financial Officer, Yancoal Australia Ltd: Yeah, sure.

Mark Salem, Executive General Manager, Marketing, Yancoal Australia Ltd: Yeah, thanks. Thanks for the question. Yeah, China’s imports have decreased and China’s imports have decreased on the back of very strong domestic production. Last year China produced 4.7 billion tonnes and their current production rate annualized is touching on 5 billion tonnes. If you look at China’s overall demand, their coal demand is still up in terms of the demand that they require for electricity generation due to their EV requirement as well as data requirements. They’ve also, even though they’re ahead on their renewable capacity program, some of the renewable programs are not consistent and they’re still using coal as basically a total backup mid peak load fulfillment of their energy requirements. That said, even though their domestic production is up, they still need the better quality Australian coal for their blending requirements and especially in the southeast China.

From a Yancoal Australia Ltd position, we’ve got most of our business into China under a contract position and we’re not seeing any impact or any effect of the reduced imports impacting the delivery and the performances of those contracts. From a coal price point of view, the API 5 does back is very relative to the CCI, the China index for domestic coal, and there’s a strong relativity between those two indices. On the back of the improved production we have seen the API 5 stay relative, continue to depreciate and the arbitrage between the API 5 and the GCNUC has expanded. That said, we have now seen some recovery in the China domestic prices, very small, on the very hot summer and the increased demand, and we have seen some stocks in China also decrease.

On the back of that we should see some recovery in the domestic prices, which then should flow into the API 5 prices. We’re just waiting to have a little bit more substance behind that position at the moment.

Brendan Fitzpatrick, Investor Relations, Yancoal Australia Ltd: Thanks, Mark. Very comprehensive. There’s a question in relation to the recent visit from Australia’s Prime Minister to China and asking for any insights into the business of coal exports from Australia to China. We typically don’t comment on the bilateral relations, but we do look at the market drivers, and I think the comments just provided by Mark Salem gave a good insight as to where we see the relative drivers in a supply and demand sense for at least the Chinese section of the thermal coal seaborne exports. I see a lot of questions coming through about the slip of sales from the second quarter to the third quarter and then leading into the revenue and the cash flow impacts.

Mark, perhaps if I could turn to you just to ask some quantification on the impact of that potential slip from sales and bearing in mind Mark Salem’s earlier comments about looking to catch them up, but also subject to the infrastructure capacities. In your comments, you’re mentioning the volume of sales that were lagged relative to the production. In the context of what we saw in terms of realized prices, giving some context for magnitude ahead of the given that we do have the half year result.

Mark Salem, Executive General Manager, Marketing, Yancoal Australia Ltd: Yeah, Brendan, I might be best to just comment in terms of the sales and the realized prices because those sales that have slipped from June to July will maintain their June pricing, and because those sales are now basically under a contract position and those contractors, all our coal sales contracts clearly articulate the pricing that will flow through for those transactions. In a sense, those prices are now known. They’re no longer subject to market movements, they’re known prices, and that will reflect the Q2 pricing. That’s why I say that those sales are now locked in. We’ve got the coal at the port, the vessels are off the queue. The queue at Port of Newcastle reached 105 vessels in June, which has never been experienced before. It’s the highest queue ever, and due to all the wet weather delays. This situation is very unique and very unusual.

We had a substantial amount of sales, about 1.4 million tonnes out of New South Wales and about 300,000 tonnes out of Queensland because Queensland was also mildly impacted, that slipped physical sales. This is managed on vessel movements physically.

Brendan Fitzpatrick, Investor Relations, Yancoal Australia Ltd: Moved from Q2 to Q3.

Mark Salem, Executive General Manager, Marketing, Yancoal Australia Ltd: Those prices are very well established, and those contracts will be performed.

Brendan Fitzpatrick, Investor Relations, Yancoal Australia Ltd: Sorry, Mike.

Mike Wells, Executive General Manager, Finance, Yancoal Australia Ltd: Yeah, and just to add to that, just to reiterate my earlier comments that, you know, because that coal is at the stockpiles, either at the port or at the site, there’s not a lot of additional costs to be incurred in order to effect those sales. There’ll obviously be the state royalties that will be deducted from that. Essentially, that coal is ready to be sold, which will then, you know, convert to revenue and down the track, convert to cash. If you sort of take the average price, it’s obviously subject to the vagaries of the actual contracts and whether delays met coal versus thermal. The average price in the quarter was A$142. As a rough guide, you’re talking A$142 less a few costs, less the royalty by the 1.4 million tonnes would sort of be the rough calculation of the slippage.

Brendan Fitzpatrick, Investor Relations, Yancoal Australia Ltd: Excellent. We’ll look forward to seeing the half year result, being able to see a little more detail there. There are some questions coming through that extend on that discussion point, the change in cash balance or the cash added to the balance sheet through the second quarter. As we noted, there were several events that related specifically to the second quarter, the largest one being that payment of the fully franked final dividend from 2024. There was also a one-off tax payment required to complete for the prior calendar period and the change in the or the timing of the sale. Several elements came through which were somewhat unique to the second quarter. The key message there is we did end the period with that $1.8 billion in cash on the balance sheet, which Kevin referred to earlier, and that gives us a great financial position going forward.

The extension of that is the questions coming through on possible dividends, dividend outlook, which we often receive heading into a half year or a full year results period. Kevin, you touched on capital management earlier. Would you like to reiterate some of the comments around the priorities and how the Board and the management team think about the opportunities going forward? Sure.

Kevin Su, Chief Financial Officer, Yancoal Australia Ltd: Thanks Brendan. From the company’s perspective, the dividend policy in the constitution is very consistent as 50% free cash flow or 50% net profit after tax, whichever is higher. As a result, if we just hypothetically have 50% net profit after tax happen to be higher than 50% free cash flow, it’s most likely going to be following the higher one, subject to the board decision as always. We just want to reiterate the policy from the company constitution perspective is very consistent. We’re not changing.

Mike Wells, Executive General Manager, Finance, Yancoal Australia Ltd: Thanks Kevin.

Brendan Fitzpatrick, Investor Relations, Yancoal Australia Ltd: Worth clarifying that policy operates on a calendar year basis. There is some flexibility for the Board to use their discretion between the interim and the final, but ultimately it will be the Board’s determination, and we’ll be in a position to pass on the comments from the Board and the position taken at the half year results in August.

Kevin Su, Chief Financial Officer, Yancoal Australia Ltd: Thanks Brandon.

Mike Wells, Executive General Manager, Finance, Yancoal Australia Ltd: That’s correct.

Brendan Fitzpatrick, Investor Relations, Yancoal Australia Ltd: We’ve talked about the production volumes, the ROM impacts. I’m looking at the questions coming through. There is a considerable overlap, not surprisingly a lot of investors thinking about similar aspects. There are questions coming through on the other side of capital management, potential M&A scenarios and how that might proceed. Questions asking about when we’ll be able to communicate intentions for the potential use of cash given that we’ve been holding a cash balance for some time now. I’ll make an initial comment from the Investor Relations perspective and then perhaps Kevin can expand. We’ve been quite clear over the last 12 months that we’re in a very strong financial position. There has been the capacity to consider both corporate initiatives and capital returns as we already know we’re debt free, so there’s no debt reduction required and the company capacity is fairly unique at this point in time.

Of course, as the coal price moves through cycles, different opportunities may present as the speculation on timing. Only as when such a point is reached that there’s something definitive to say would we then be able to come to the market and make a comment on potential growth scenarios. Gavin, if you’d like to hit some of the high points of the corporate strategy at the broader level.

Kevin Su, Chief Financial Officer, Yancoal Australia Ltd: Yeah, thanks Brendan. We fully appreciate $1.8 billion is a lot of cash. If we just look at Yancoal 20 years history, normally companies do not keep that much cash, so it’s clearly for a good intention, hopefully to look for value-accretive opportunities, and we will otherwise the market when necessary.

Thanks. Thanks.

Brendan Fitzpatrick, Investor Relations, Yancoal Australia Ltd: There’s a question coming through regarding the CEO recruitment process. What we can say in that regard is the process is underway, we are making progress, and we look forward to informing the market once we’re in a position to say something definitive. Rest assured that there is a process and we are working towards resolution. In the meantime, as we said in the past, we’ve got an incredibly strong management team, and as we can see from the operational performance through this first half and the financial position, the company is being very well managed in the interim. Whilst we’re going through the CEO recruitment process, I’m looking down through the question list. I’m mindful that we’re looking at some repetition of questions whilst I’m looking at the questions on the website.

Desmond, could I go back to you and check if we have any questions coming through on the phones?

Desmond, Conference Call Operator: Certainly. One moment for the next questions on the line. We have a question from the line of Peter Wang from CICC. Please go ahead.

Kevin Su, Chief Financial Officer, Yancoal Australia Ltd: Hi, it’s Peter from CICC. I have two questions regarding the operations and financials. Could you provide an update on our current coal stock levels compared to end of June last year? Also, you just mentioned that you completed additional tax payment related to FY 2024. Could you share more details on the amount of this payment? Thanks.

Brendan Fitzpatrick, Investor Relations, Yancoal Australia Ltd: Okay, Peter, thanks very much for the questions with regards to the coal stocks and the inventories, able to from memory compared to where we’ve been in past periods. I know that we typically try to match production and sales, and there’s just timing issues at various points, various cycles.

Mark Salem, Executive General Manager, Marketing, Yancoal Australia Ltd: I think from a coal inventory point of view, the fact that we’ve had a great amount of slippage of sales due to the port closures, and that’s in total in the order of about 1.7 million tonnes. Not all of that is always in total inventory, and it’s overall probably an increase of about 1 to 1.2 million tonnes has increased overall from a saleable stock point of view at mine and port. Again, under the circumstances, that’s not too bad. The second question was Peter’s second.

Brendan Fitzpatrick, Investor Relations, Yancoal Australia Ltd: Question related to the tax payment we mentioned and what we were able to say in terms of the magnitude and the relevance of the prior period?

Mike Wells, Executive General Manager, Finance, Yancoal Australia Ltd: I think we defer on commenting on the actual quantity at the moment, but suffice to say it was essentially the end of the tax year payment at 30 June to a set. We pay instalments every month, and in June there’s effectively a true up payment based on what your actual turnout is for the tax year. That’s what the payment related to. It was a normal course of business payment just based on the timing of payments throughout the last 12 months.

Kevin Su, Chief Financial Officer, Yancoal Australia Ltd: Thanks, Mark.

Brendan Fitzpatrick, Investor Relations, Yancoal Australia Ltd: Thank you, Mark Salem. Do we have further questions on the phone line?

Desmond, Conference Call Operator: Certainly. One moment, please. Our next question comes from the line of Eunice Wu from Millennium. Please go ahead.

Kevin Su, Chief Financial Officer, Yancoal Australia Ltd: Hello.

Good day, Brendan, and good evening. I’ve noticed that your cash balance dropped from $2.6 billion in Q1 to $1.8 billion over the last three months. It looks like a cash outflow of around $150 million adjusted for the dividend paid in Q1. Could you comment on what’s the plan in terms of the future cash generations for Yancoal going forward, maybe in the second half? How does this change your thinking around the cash on balance sheet versus strategic opportunities you might have or the dividend return to shareholders?

Brendan Fitzpatrick, Investor Relations, Yancoal Australia Ltd: Thanks, Eunice. You’re correct in identifying the change in absolute value from the cash on balance sheet from end of March to end of June. The dividend was the single largest component in terms of the change. The tax payment, which we’ll be able to clarify in the first half results next month. There’s also the sales which didn’t take place, which we’ve touched on at great length in the call. All those elements were at work in terms of future cash generation. I think the key message is probably the one that was mentioned in Mike’s comments earlier. We are operating our business as planned. The cash operating costs are expected to be within the guidance range when we report them next month for the first half, and we see our cash operating costs as a very competitive position relative to the industry.

Maximizing the operations, having full sales volumes achieved, keeping our cost to the minimal level is the best way for the company to work through the cyclical low in the coal prices, and it is a cyclical coal industry that we’re looking at. We can see some indications of coal price recovery potentially coming through. We are well positioned with our strong cash balance sheet to navigate the cyclical low, and these are the elements which the board and the management team will undoubtedly take into consideration as we prepare for the half year results next month and any consideration towards capital management. Fortunately, our scale and cost of operations puts us in a particularly strong position, and we’ll work through this cyclical low as we have in the past.

Thank you, Brendan. Maybe just a very quick follow-up question. I wonder how you split the CapEx between the first half and the second half. I know that it will be well on track, but I just want to know how much CapEx has roughly been spent in the first half of this year.

Thanks, Eunice. The observation we make is the capital expenditure profile is fairly consistent through the four quarters of the year. Being capital expenditure, equipment purchases, it is somewhat lumpy in nature. However, that said, it’s relatively even across the quarters across the year, and as we get to the tail end of the year, we’ll look at the projects and the commitments and whether or not they’ll fall within this calendar year or slide to the next calendar year as we have sometimes seen in past periods.

Sure. Much appreciated. Thank you, Brendan.

Thanks, Eunice. Desmond, further questions on the line.

Desmond, Conference Call Operator: Yes, we do have questions. One moment please. Our next question comes from the line of—I beg your pardon, the question was cancelled. Please continue, Brendan.

Brendan Fitzpatrick, Investor Relations, Yancoal Australia Ltd: Okay, thanks Desmond. If there are any other questions, please let me know. We can come back. I’m looking again at the questions that we see on the webcast. A lot of these topics have now been covered. I come down to the bottom of the list to see anything new coming through. There’s a question with regards to potential asset acquisition. The query is are we looking at metallurgical coal, thermal coal, target size, greenfield, brownfield? The comments we’ve made in the past are quite clear. We are the second largest coal producer in Australia. Coal is the core strength of our business. We have some of the best thermal coal assets in the industry. We’ve acknowledged that the metallurgical coal is the lesser component of our portfolio and additional metallurgical coal could be complementary.

That said, we’re always looking at value accretion and opportunities that are beneficial to our shareholders. We’re quite open minded in terms of coal product type, target size and status of operation. As Kevin mentioned earlier, that strong balance sheet, both the $1.8 billion in cash but also access to debt markets gives us very good scope for potential scenarios of considerable size should they arise. Some follow up questions. Are there any existing operated mines able to be bought out or proportionally increased in stake? As we say in regards to external opportunities, we also continually look at internal opportunities. At times in the past we have increased ownership of assets. We would continue to consider those opportunities going forwards but similar to external scenarios, only as and when something definitive is reached would we be able to comment specifically and bring information to the market.

There’s a question coming through on the finance side. Given our $1.8 billion in cash, is there any notable interest being earned on the cash and how it benefits the company holding the cash on the balance sheet?

Mark Salem, Executive General Manager, Marketing, Yancoal Australia Ltd: Thanks, that’s a very good question.

Kevin Su, Chief Financial Officer, Yancoal Australia Ltd: Although we are not in a position to disclose precisely how much we are earning the yield from our cash deposit, there’s some good reference you can see. Historically, Australia has been known for high interest, high yield country, and the current RBA rate, the base cash rate, is 3.85%. Similarly, if we look at our Federal Reserve, the U.S. dollar base rate is 4.25% to 4.5%, and as a company, normally we place our cash, will be earning higher than the base rate. I think probably this will give you a good indication both rates will be a lot more positive compared with the equivalent rate yield if you can see from either China or in Hong Kong. Thanks.

Brendan Fitzpatrick, Investor Relations, Yancoal Australia Ltd: Kevin. Another question on the topic of capital management, the suggestion coming through from one of the observers on the webcast, a buyback would be a potential use of the current cash reserves. Could the company comment on this option, noting that we have touched on it during past conference calls.

Kevin Su, Chief Financial Officer, Yancoal Australia Ltd: We can reiterate the company’s position. First of all, we’re not changing our position at the moment. The company is not looking into buyback options given our liquidity is still at a level we feel, you know, to be further improved. Thanks.

Brendan Fitzpatrick, Investor Relations, Yancoal Australia Ltd: I see. One of the questions coming through makes the observation that the Yancoal share price is down about 6 to 7% on trading on the ASX this morning, asking for a view on the market reaction to the quarterly activities report. My perspective as Investor Relations, the company had performed very well on the equity markets over the past two months and potentially we should look past the single day’s reaction. I am mindful that the response and the reaction in the share price today comes after a strong run up in the share price and potentially there are some adjustments to positions being taken by participants in the share market. That said, it was a strong quarterly production report. We’re delivering to plan and we’re in a strong financial position. Let’s wait and see what happens over the coming days. One question here.

Could the company make a comment on the position of the Queensland government’s position on royalties? The royalties in Queensland changed two years ago, three years ago. Now we have some of our operations in Queensland. The bulk of our production comes out of New South Wales. Consultation between the industry and governments on royalties is always beneficial. The coal industry, Yancoal, as a participant in the coal industry, generates a large contribution to both state and federal governments through taxes, royalties, and the various other components of our business. We’re always proud of the contributions we make through the various channels, both to state and national government. There’s a specific question coming through with regards to profit generators in the quarter, calculation being made by the participant on the call.

$390 million in profit by their calculation, taking the $142 per tonne less an assumed cash operating cost and attributable sales. I think the observation is we provided various data points through the quarterly production report as we usually do. It should provide the equity market participants with the capability to provide or to determine a view on the financial performance. We look forward to providing the detailed financials at the half year results next month. I think I’ve exhausted all the questions on the webcast. Appreciate that I have amalgamated or modified some of the questions given the overlap. Desmond, I’ll come back to you one last time to check if there are any further questions on the phone line.

Desmond, Conference Call Operator: Yeah, no more questions from the line. Please continue.

Brendan Fitzpatrick, Investor Relations, Yancoal Australia Ltd: Thank you, Desmond. Having addressed all the questions, I’d like to thank everyone once more for taking the time to join us today. To close the call, I’ll reiterate three messages from the company. First, we have delivered a strong operational performance over the first six months of the year. As noted in the quarterly report, we can potentially reach the upper end of our production guidance range for the year. Second, we will likely report cash operating costs towards the middle of our guidance range in the first half results. As mentioned, our ability to operate the mines with comparably low cash costs is something we see as a distinct component competitive advantage in the current coal market setting. Third, as touched on numerous times through the call, we still hold $1.8 billion in cash.

We have good access to the debt markets, and this places Yancoal Australia Ltd in a strong financial position and provides the company with the ability to consider opportunities that may present themselves through this coal price cycle. We look forward to speaking with you all again next month after we release our first half results on the 19th of August. Please have a good day. Thank you, Desmond.

Desmond, Conference Call Operator: That concludes today’s conference call. Thank you for your participation. You may now disconnect your lines.

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