Earnings call transcript: Yancoal Q1 2025 sees strong cash balance, stock stable

Yancoal Australia Ltd. (YAL) reported a solid financial performance for the first quarter of 2025, with actual earnings per share (EPS) of $0.60 and revenue of $3.72 billion. The company’s stock showed a modest increase of 0.21% in after-hours trading, with a current price of $4.76. According to InvestingPro data, Yancoal maintains a strong financial health score of 3.37 (GREAT), with the notable advantage of holding more cash than debt on its balance sheet. The company’s robust cash balance and strategic operational improvements were key highlights of the quarter.

Key Takeaways

• Yancoal ended Q1 2025 with a cash balance of $2.6 billion, up by $136 million.
• The company plans a dividend payment of 52 cents per share, totaling $687 million.
• Average realized sale price for coal was A$157 per ton.
• Stock price increased by 0.21% in after-hours trading.

Company Performance

Yancoal demonstrated a strong start to 2025 with significant improvements in cash reserves and operational efficiency. The company’s ability to maintain low-cost operations and secure long-term contracts in China provided a buffer against the downturn in coal prices. Despite industry challenges, Yancoal’s production and sales volumes remained robust, reflecting its competitive position in the market.

Financial Highlights

• Revenue: $3.72 billion for Q1 2025.
• Earnings per share: $0.60.
• Cash balance increased by $136 million, reaching $2.6 billion.
• Planned dividend payment of 52 cents per share.

Earnings vs. Forecast

Yancoal’s actual EPS of $0.60 surpassed the forecast of $0.50 for FY 2025, indicating a positive surprise of 20%. This performance reflects the company’s effective cost management and operational improvements. The revenue forecast for FY 2025 of approximately $4.19 billion suggests continued growth potential.

Market Reaction

Following the earnings announcement, Yancoal’s stock experienced a slight increase, rising by 0.21% to $4.76 in after-hours trading. InvestingPro analysis suggests the stock is currently undervalued, trading at an attractive P/E ratio of 5.37. Notably, with a beta of -0.04, the stock often moves independently of broader market trends. This movement indicates a cautious but positive investor sentiment towards the company’s performance and future prospects. The stock remains within its 52-week range, with a high of $7.52 and a low of $4.36.

For a comprehensive analysis of Yancoal’s valuation and more insights, check out the detailed Pro Research Report, available exclusively on InvestingPro.

Outlook & Guidance

Yancoal aims for a full-year production target of 35-39 million tons of attributable saleable production. The company has set a cash operating cost guidance of $89-$99.97 per ton, reflecting its focus on cost efficiency. Yancoal is closely monitoring the Chinese market and is prepared to adjust its supply-side strategies if low coal prices persist.

Executive Commentary

Kevin Hsu, CFO, stated, "We have started the year with a great first quarter and are well positioned to deliver a strong operational performance." Mark Salem, EGM Marketing, noted, "We are in a downturn of the cycle... I’ve lived through many cycles of high and low pricing," emphasizing the company’s resilience and strategic foresight.

Risks and Challenges

• Continued low coal prices could impact profitability.
• Fluctuations in Chinese domestic production may affect demand.
• Weather-related disruptions, as seen in Middlemount, pose operational risks.
• Global economic uncertainties could influence market conditions.

Q&A

During the earnings call, analysts inquired about the production outlook for the Mulaban mine and the impact of increased Chinese domestic coal production. Yancoal’s management highlighted their strategic plans for recovery and production increases, emphasizing their ability to adapt to changing market dynamics.

Full transcript - Yancoal Australia Ltd (YAL) Q1 2025:

Maggie, Conference Operator: Good day, and thank you for standing by. Welcome to Yancoal First Quarter twenty twenty five Production Report. At this time, all participants are in a listen only mode. After the speaker’s presentation, there will be a question and answer session. To ask a question during the session, you’ll need to press 11 on your telephone.

You will then hear an automated message advising your hand is raised. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your first speaker today, Brendan Fitzpatrick, Investor Relations Manager. Please go ahead.

Brendan Fitzpatrick, Investor Relations Manager, Yancoal: Thank you, Maggie, and thank you to everyone on the call for joining this briefing on Yancoal’s first quarter production report for 2025. We have several members of Yancoal’s executive leadership team to recap the quarter and participate in the question and answer session. On the call today, we have Mr. Yuwei, our Co Vice Chairman and Acting CEO Kevin Hsu, chief financial officer, David Bennett, EGM operations, Mark Salem, EGM marketing, Laura Zhang, company secretary, Mike Wells, EGM Finance Mark Jacobs, EGM Environment and External Affairs and Sheriff Burrah, EGM Health, Safety, and Sustainability. The commentary provided today is based on the quarterly production report published to the Australian Securities Exchange and the Stock Exchange of Hong Kong on the April 17.

Normally, we host this call the day after the release of the production report. But this quarter, we elected to wait until after the public holiday weekends here in Australia. There is no presentation pack for this conference 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 Hsu, to provide the first quarter highlights.

Kevin Hsu, Chief Financial Officer, Yancoal: Thanks, Brandon. I also welcome everyone joining us on this conference call, especially anyone here for the first time following our inclusion in ASX two hundred Index six months ago. We had a strong first quarter with long call and attributable sellable call volumes above targets. This is a contrast to the past two years, which started slower and increased throughout the year. After the first three months, we are well positioned to deliver a strong operational performance in 2025.

During the quarter, we mined 15,200,000 tons of long coal, which is 11% more than the first quarter last year. And we delivered a micro 5,000,000 tons of attributable salable coal, which is 80% more than the first quarter last year. The full year production and the cash cost guidance we issued in February is unchanged. We are targeting 35 to 39,000,000 tons of attributable saleable production at a cash operating cost of 89 to $99.97 dollars per ton this year. As with past quarters, we don’t include cash operating costs in the quarterly reports, but I can say we remain comfortable with the full year guidance.

Although coal prices have trended lower, we were able to add $136,000,000 to our cash balance after all operating capital expenditure, tax, and the corporate overheads. We finished the quarter with a cash balance of $2,600,000,000. However, I should note that we will use $687,000,000 to pay the 52¢ per share fully frank dividend for 2024 on thirtieth April twenty twenty five. Yenco operates some of the lowest cost mines in Australia. These mines have delivered positive cash flows even during cyclical downturns in coal prices in recent years.

We are in a strong which leaves us well placed to take advantage of opportunities that may present during this cyclical downturn. I’ll now hand over to David Bennett, our executive general manager operations, to expand on the operational performance.

David Bennett, Executive General Manager Operations, Yancoal: Thanks, Kevin. Our total recordable injury frequency rate was 6.46 at the March, an improvement over the prior quarter. And although the rate is below the industry weighted average of 7.5, we remain committed to improving our performance and lowering the rate further through targeted safety intervention activities. When we set the production guidance for 2025, we forecast the first quarter to have lower production due to factors related to mine sequencing and maintenance schedules, including two longwall moves, one each at Mulaban and Ashton. We were able to complete both longwall moves ahead of schedule, and we’re back in production by early February.

The open cut mines experienced minor weather disruptions during the quarter, which is typical for this time of year. However, we finished the quarter on a positive trajectory, which sets us up well for the remainder of the year. During the quarter, our mines produced 15,200,000 tonnes of ROM coal, 12,500,000 tonnes of saleable coal on a 100% basis and 9,500,000 tonnes of attributable saleable coal. As Kevin mentioned, these volumes were 8% to 11% higher than the first quarter last year. At Mollabin, the early completion of the longwall move, combined with better than expected dig rates from the mining fleet, higher yields and strong equipment utilization in the open pit, accounted the minor weather delays.

Saleable coal production was down 4% from the first quarter twenty twenty four. The two Hunter Valley open cut mines both performed well, with saleable coal production up by at least 25% compared to the first quarter two thousand and twenty four. At MTW, dragline volumes exceeded budget, and reduced load and haul cycle times resulted in wrong coal volumes running ahead of plan. At HVO, better than expected truck utilization and operating hours contributed increased ROM coal volumes. In Queensland, Yarrabee closed out the period with strong ROM coal and saleable coal production figures.

Unfortunately, Middlemount was impacted by wet weather, reduced wash plant throughput rates, and lower yields. The team at Middlemount has developed a recovery plan to improve performance throughout the remainder of the year. Also, it is important to note that Middlemount is equity accounted, so with volumes sit outside the production guidance we provide. I’ll now hand over to Mark Salem, our Executive General Manager of Marketing, to provide highlights on the coal sales and coal markets.

Mark Salem, Executive General Manager Marketing, Yancoal: Thanks, Dave. Our attributable sales volume was 8,400,000 tonnes with a typical mix of our thermal and metallurgical coal products. As Kevin and David have mentioned, we’ve had a good production quarter, but our sales volume was 1,100,000 tonnes less than the saleable production. But you might recall that last quarter, we sold down our stockpiles to meet customer demand and to optimize the value of a backward dated market. This quarter, saleable coal stockpiles were rebuilt to optimize blends and cargo assemblies.

Cyclone Alfred also caused delays to vessel movements along the East Coast, which resulted in the timing of some shipments slipping from March into April. During the quarter, we observed strong supply and reduced short term demand conditions in the international thermal and metallurgical coal market. In prior quarters, we noted thermal coal markets appeared relatively balanced, and coal prices were trading in relatively narrow ranges. However, more recently, international coal industry indices have steadily declined and finished the quarter near four year lows. The average prices during the March for the main indices we sell against were down between 1124% compared to December.

The API five index averaged $76 per ton, and the GC nuke index averaged 105 US dollars per ton. The low volatile PCI index averaged a 40 per ton, and the semi soft index averaged a hundred and 17 US dollars per ton. Although there was some relief from the softer Australian dollars, our realized prices tracked against these relevant indices. Our average realized thermal coal price was a hundred and 45 Australian dollars per ton, and our average realized therm metallurgical coal price, 218 Australian dollars per ton. The overall average realized sale price was a hundred and 57 Australian dollars per ton compared to a hundred and $76 in the prior quarter.

In the seaborne thermal coal market, we see underlying demand. However, downstream stockpiles remain elevated after a mild Northern Hemisphere winter. Supply side output remains steady, and increasing Chinese domestic production has caused the the high stock levels. Though there has been some supply side response to subdued price indices with reduced exports from Colombia and Indonesia due to the export reference price policy. These events alone have not been sufficient to bring back the supply demand tension.

We would anticipate further supply side response if coal industries remain at these levels. The metallurgical coal markets face weak demand stemming from an oversupply of steel in both long and flat product markets, which are typically used in construction and manufacturing respectively. While there are indications that export volumes from The USA and Canada are starting to react to the low metallurgical coal prices, similar to thermal coal markets, the supply responses to date are yet sufficient to material alter supply demand balance. The current supply demand balance and associated price response is reflective of previous coal price cycles. I’ll hand back to Brendan to coordinate the questions and session sessions, and thank you very much.

Brendan Fitzpatrick, Investor Relations Manager, Yancoal: Thanks, Mark, and thanks also to David and Kevin for highlighting the drivers of the first quarter performance. Although coal prices have declined over the quarter, Yancoal continued to add cash to our balance thanks to our high quality assets and the portfolio that we have along with the dedicated effort of the people running the mines. We will now move on to the question and answer session, starting with questions from the phone, then moving on to questions submitted via the webcast. Maggie, could I please ask you to initiate the process for questions via the phone?

Maggie, Conference Operator: Thank you, Brandon. As a reminder, to ask a question, please press 11 on your telephone keypad, and wait for your name to be announced. To withdraw your question, please press 11 again. Hi, Brandon. So far, we have no questions at the moment from the phone line.

Would you like to do the webcast questions first?

Brendan Fitzpatrick, Investor Relations Manager, Yancoal: Thanks, Maggie. I’ll start with some webcast questions, give people an opportunity to submit via the phone lines. We’ll start with the production question coming through. It’s from Mark Patterson at Bell Potter. Mark asks, with the Longwall move at Mulaban where production bounced back from 4,100,000 tonnes in the fourth quarter, but was still lower than the typical run rate because of the January move, given the clean run rate with clean coal seam access, could we expect production rates to move above 6,000,000 tonnes per quarter?

And what might that mean for cash operating costs as much as we can comment on that, David?

David Bennett, Executive General Manager Operations, Yancoal: Yes. Thanks, Brendan. Thank you for the question. Look, you’re right in saying that production from the Muladan Longwall in quarter one this year has increased on what we delivered in quarter four last year. Mining conditions operating conditions at the mine at present are described as good in the Longwall and like for like in the development areas as well.

So we would expect to see production out of Mulaban continue to increase on an annualized basis. However, our annualized coal production is in line with our market guidance at the same time. In terms of the unit costs, like all of our mines, we have a focus on cost and a focus on volume. And if we’re able to reduce the cost and increase some volume, that will drive our unit cost in a positive lower direction. Thank you.

Brendan Fitzpatrick, Investor Relations Manager, Yancoal: Thanks, David. I see several questions on the topics of coal markets and coal prices. So let’s start with the the broad question. What can we say about the outlook for coal prices for this calendar year, please, Mark?

Mark Salem, Executive General Manager Marketing, Yancoal: Sure. Thanks. Thanks, Brendan. Look. I I I think from a coal price outlook, we as referenced in the script, we are in a downturn of the cycle.

And, you know, the the coal industry having been in it for over thirty seven years, I’ve I’ve lived through many cycles and of of high and low pricing, and and we’re currently in this downturn low cycle. We are as we go into q two, we are entering what normally is a shoulder season, in terms of the Northern Hemisphere spring, the wet season before we see some buying coming back for the summer. And so until we see that movement, it’s not unusual for q two prices to be low. And until we see some movement going into the June, July period, it’s very hard to predict what price forecasts will be. We’ve got some, you know, exonious factors impacting coal prices at the moment with the uncertainty of The US market due to the tariffs.

We’ve got, the HVA impact on Indonesia, the that pricing ceilings threshold of from the Indonesian production or government that really has not had an had an impact on coal prices. You know, we’ve seen some other coal producers come through with announcement of production cuts. Again, we haven’t seen the market react. And the market hasn’t react because, in essence, there’s been, you know, the the softer demand due to the the milder winter. High stockpiles exist in most of our importing countries, namely China and Japan.

And, the supply is still very strong as we’ve had a good production operation, so as many of our other competitors in in especially in the in the Hunter Valley and the open cut. So we are in a downturn. I’m I’m not going to be able to do give any true forecasts, because it’s a very unpredictable and very dynamic market at the moment.

Brendan Fitzpatrick, Investor Relations Manager, Yancoal: Thank you, Mark. Maggie, could we go back to the phone lines to check if any questions have come through?

Maggie, Conference Operator: Yes. No problem. As a reminder, please press 11 on your telephone keypad to line up for questions. So that is press 11 on your telephone keypad for the phone lines to queue up for questions. Hi, Brandon.

So far, there is no questions at the moment.

Brendan Fitzpatrick, Investor Relations Manager, Yancoal: Thank you, Maggie. We’ll continue on with the webcast questions focusing on the coal markets for the time being. What can we say in terms of China’s coal production in 2025? Do we have a view on whether it will increase? And what might that mean for imports of coal into China and the seaborne markets?

Mark Salem, Executive General Manager Marketing, Yancoal: Yeah. Look. I can I can state in relation to q one published statistics at the moment that China’s domestic production has increased by about a hundred million tons quarter on quarter, q one twenty twenty four to 2025? If that trend continues, you know, China will be looking to produce in excess of 5,000,000,000 tons, this year. But in in coupled with that, their demand is also still increasing due to their AI as well as EV requirements for electricity.

We have seen a reduction in Indonesian imports into China due to the the HPA, and Australian exports have been able to gain on the back of that. And, therefore, what we’re seeing is that the overall China domestic production is still maintaining exports at or imports at a level similar to last year, if not just a little bit below quarter on quarter. So China remains a market that we still have to watch very carefully. We’re watching it very carefully. I think from a yank hole point of view, we’re in a very good position because we have a lot of our long term contracts already established in China.

We’re not in the spot market, as active as we were in previous years, and those contracts are still being well performed. We haven’t had any performance issues on any of those contracts. So from a Yancoal point of view, I think we’re very well placed, but China remains a market that we must continue to watch.

Brendan Fitzpatrick, Investor Relations Manager, Yancoal: Thank you, Mark. On that topic of Chinese domestic production, do we have a view on whether the increase in production was sufficient to satisfy the domestic demand? Do we have any insight into the price differential between Chinese domestic coal pricing and the imported coal, either past periods or more current periods, and what might that mean for seaborne markets in the remainder of 2025? Sure. Yeah.

Thanks, Brendan. Look. I think from

Mark Salem, Executive General Manager Marketing, Yancoal: we’re still seeing high stocks in China, at most of the ports, and we have seen over the period of the quarter, Chinese domestic prices fall. But they’ve tended to plateau at the moment. So even though China production has been up year on year or quarter on quarter, even though we have seen China production up, prices have now basically plateaued, and we’re seeing some stability in Chinese domestic prices. Our API five index is very much, there’s a a high degree of relativity between the China domestic prices and the API five index, and we have seen our API five index in a similar fashion, plateau out, at at current levels. And so what we’re seeing from an import side of things, as I referenced before, Australian imports are still quite strong.

Indonesian imports have come off in in terms of China domestic requirements or China demand requirements. And so the the ability for us to sell spot cargoes into China is still strong at the moment. They are coming into their summer purchasing patterns coming into May. We are seeing a little bit more demand, but we haven’t seen prices reflect that due to the high stocks position.

Brendan Fitzpatrick, Investor Relations Manager, Yancoal: Thanks, Mark. Looking at some of the other questions we have on the the webcast, focusing on the operational elements for the time being. The question coming through, can we provide some breakdown on operating cash flows, CapEx, etcetera, for the first quarter? What we typically say in regard to this is the tax payments are made on an ongoing monthly basis, so they’re consistent through the year. The capital expenditure for the full year is, give or take, roughly equal quarter by quarter.

There are some lumpy elements during the the capital expenditure profile, but on balance, it’s spread through the year. The operating cash flow is reflective of the volumes. We have no financing costs. We’re effectively debt free, so it’s a very steady state cash flow profile the company has through the quarter and through the year. Looking to a an extra question coming through on the operational aspects.

In the quarterly report, we said we expected the extension for the HVA mining license to come through shortly. If I could turn to Mark Jacobs to provide a comment on the status of that since the release of the quarterly report.

Mark Salem, Executive General Manager Marketing, Yancoal: Thank you, Brendan. So the HVO modification modification number eight was approved on Thursday morning, and that extends HVO North’s entitlement to operate up until 12/31/2026. As we’ve mentioned previously, we are working on a more longer term extension application, which is being progressed and is expected to be lodged towards the end of this year.

Brendan Fitzpatrick, Investor Relations Manager, Yancoal: Thank you, Mark. I see a few questions coming through on the topics of dividends. Mindful that Kevin, in his comments, identified that the full year final dividend for 2024 is about to be paid. Kevin, could I ask you to comment on the outward look for dividend and the management approach to allocation of dividends and other capital priorities.

Kevin Hsu, Chief Financial Officer, Yancoal: Thanks, Brandon. As for dividends, the the policy of dividends was well documented in the constitution, which is 50% net profit or 50% of free cash flow, whichever is higher. We’ve been following this dividend policy. And then I just wanna make a note here is the ultimate decision will be made at the board level, which is for something at the board level to decide balancing the other corporate, you know, priorities. That’s the position from corporate management.

Thanks.

Brendan Fitzpatrick, Investor Relations Manager, Yancoal: Thank you, Kevin. On that topic of corporate initiatives, there are questions coming through on the topic of m and a. Is there any comment we can make? The comment is the one we’ve been making for some time now. We’re in a very strong financial position.

Kevin’s highlighted the the cash balance we’re carrying going forwards even after the payment of the upcoming dividend. We’ve identified that we are available and able to look at acquisitions. We constantly have our teams examining opportunities in the sector. We’re mindful that the the coal price is going through a downturn. We need to be judicious in how we utilize the cash until we know the the profile of the coal price cycle over the coming months and quarters, but we are in a very strong position to consider opportunities should they arise arise, as we mentioned in our comments earlier.

There are questions coming through with regards to specific transactions in the sector. Whilst there has been one or two transactions identified in the media, There’s nothing specific to say until such a time as we’re in a circumstance where it would be appropriate to to comment at this point. We have capacity. We have the capability, and we’re looking at the opportunities on an ongoing basis. Maggie, could I turn back to you for one last check to see if there are any questions coming through on the phone line?

Maggie, Conference Operator: Yes. No problem. As a reminder, please ask a question by pressing 11 on your telephone keypad, and wait for your name to be announced. This is the last chance for phone line questions. Hi, Brendan.

Unfortunately, we don’t have any questions on the phone line.

Brendan Fitzpatrick, Investor Relations Manager, Yancoal: Thank you very much, Maggie. I’ve cleared all the topics raised through the the webcast. I’ll now hand over to Kevin to provide some closing comments.

Kevin Hsu, Chief Financial Officer, Yancoal: Thanks, Brandon, and thanks to everyone for making time to join us today on Yanco’s first quarter call. I want to reiterate a few key messages. First, we have started the year with a great first quarter and are well positioned to deliver a strong operational performance. Second, we have some of the lowest cost mines in the industry. Our ability to operate the mines with comparably low cash operating costs is a distinct competitive advantage during downturns in the coal price.

Third, the scale and the quality of our assets drives the financial performance. With Difrey, we have added another $136,000,000 to the balance sheet in the past three months, and we will hold about $1,900,000,000 after the upcoming 52¢ per share fully franked dividend payments. This places Yanco in a strong financial position and enables us to take advantage of opportunities that may present during the cyclical downturn. We look forward to speaking with you all again after we release our second quarter production report in mid July. Have a great day.

Brendan Fitzpatrick, Investor Relations Manager, Yancoal: Thank you, Kevin. Maggie, could you please conclude the call for us?

Maggie, Conference Operator: Thank you, Brandon. This concludes today’s conference call. Thank you for participating. You may now all disconnect.

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