TerraCom announces September quarter report

Craig Ransley, TerraCom Executive Chairman, said: “The operating EBITDA result achieved for the September quarter of AUS$58.3 million was excellent. The export coal market remains strong and together with the South African domestic coal demand returning to pre-COVID-19 levels, the company looks forward to continuing to capitalise on market conditions and reduce debt to improve the company’s balance sheet.”

1Q FY21 highlights

• Record operating EBITDA of AUS$58.3 million for the September quarter.
  • Increasing coal prices resulted in an operating cash margin of AUS$101/t being achieved for Blair Athol (BA) in the month of September 2021.
  • All three operating mines in South Africa (SA) – North Block Complex (NBC), New Clydesdale Colliery (NCC) and Ubuntu – delivered positive EBITDA for the September quarter, resulting in an EBITDA margin of AUS$11.4/t sold.
• Coal sales for the September quarter totalled 2.47 million t, representing annualised managed coal sales of 9.89 million t.
• BA coal sales forecast for the December quarter to be 575 000 t, with forecast revenue of AUS$224/t at a forecast operating cash margin of AUS$134/t. BA operating EBITDA for December 2021 quarter is forecast to e AUS$77 million.
• BA coal is fully sold until end January 2022.
• The new refinance programme with current bondholders has now been formally enacted. With a new maturity date of 31 December 2022, the company will focus on debt extinguishment over the next 15 months.

Safety

The health and safety of its people is a core value of the business. The wellbeing of its people is a key driver for the company, and the company is committed to providing a safe working environment, whilst ensuring production targets are achieved.

The group is managing the many risks that are arising from COVID-19. Risk mitigation strategies implemented include providing for workplaces to allow social distancing, limited non-business critical contractors at each mine, temperature checks on entry into the mine, and increased cleaning and sanitation processes.

As the COVID-19 management practices evolve, the group is refining its measures to keep its workforce, their families and the communities in which it operates safe. The company’s focus is maintaining operations, in compliance with the relevant regulations and protocols in the jurisdiction of its operations.

1Q FY21 financial and operational highlights

• The operating EBITDA from the Australian and South African business Units (including other equity holders) for the September was as follows:
  • Australia:
    • EBITDA: AUS$36 428.
    • EBITDA (AUS$/sold t): AUS$64.5.
  • South Africa:
    • EBITDA: AUS$21 829.
    • EBITDA (AUS$/sold t): AUS11.4.
• Operating EBITDA for Australia showed significant growth during the quarter, with total revenue increasing by AUS$45.5/t or 48% compared to the June 2021 quarter.
• The SA operating EBITDA for the September quarter was negatively impacted by ongoing constraints being experienced within the export logistics chain. Despite the impact this had on export sales, the SA operating mines all achieved contracted offtake quantities to Eskom with net managed coal sales increasing by 86 000 t or 5% compared to the June 2021 quarter.
• Year to date managed coal sales represent annualised tonnes of 9.9 million.

Operations

Australia business unit

The strong coal prices have significantly improved the financial results for BA, with total revenue of AUS$139.6/t being achieved for the September quarter, an improvement of 48% compared to the June 2021 quarter.

The costs per tonne have been impacted by revenue linked costs, predominantly government royalties. The royalty per tonne incurred in the September quarter was AUS$11.4/t, which represents an increase of AUS7.2/t or 167% compared to FY21.

Coal sales from BA for the December 2021 quarter are forecast to be approximately 575 000 t, which represents an annualised run rate of 2.3 million tpy.

Given the exceptional seaborne coal pricing, the company is forecasting revenue of AUS$224/t in the December 2021 quarter which, if achieved, will result in forecast operating cash margin of approximately AUS$134/t. Based on 575 000 t sold, this should deliver an operating EBITDA of AUS$77 million for the December 2021 quarter.

South Africa business unit

Managed coal sales from the South African business unit increased by 86 000 t, or 5% compared to June 2021 and all three SA operating mines exceeded contracted offtake quantities to Eskom for the September quarter.

Delays in export coal sale deliveries continued due to Transnet logistics constraints, despite this all mines continued to deliver additional volumes to Eskom where available.

NCC performed well throughout the September quarter. Operational plant yield continued to improve and a yield of 68% was achieved for the month of September 2021. The colliery achieved 701 000 t of coal sales during the September quarter, a 37% improvement compared to the June 2021 quarter.

The export volumes achieved at NCC were below contracted volumes during the September quarter due to the continued logistics constraints. Despite these issues, which are outside the company’s control, management continues to explore alternate sale opportunities.

Coal sales and ROM coal production in the September quarter remained consistent compared to the previous quarter. In comparison with the prior corresponding quarter, NBC has significantly increased its production capacity to establish itself s a mine site delivering ROM coal production in excess of 4.6 million tpy.

During the September quarter, a total of 826 000 t was delivered to the Eskom power stations and 45 000 t to the export market. Whilst NBC has confirmed itself as a consistent supplier of high-quality export coal to market, like NCC, the plan to increase export supply from the colliery has been hampered by continued logistics constraints.

The Ubuntu colliery delivered its full commitment of domestic offtake sales volumes during the September quarter. The colliery is at stable production and maintains its focus on achieving operational efficiencies and cost saving initiatives to improve the overall financial performance.

Corporate

Sales outlook

Australia

BA coal is fully sold until end January 2022.

BA has contracted export coal sales for the December 2021 quarter for approximately 575 000 t, representing a run rate of 2.3 million tpy.

South Africa

Export sales

Notwithstanding the recent export supply chain constraints, the company has finalised its plans to increase its SA export sales from both NBC and NCC, which given current strong seaborne pricing, these plans are expected to favourably contribute to the overall EBITDA position. Similar to BA, the export coal produced in SA is sold to both energy markets and non-energy markets (e.g. sponge iron). This provides significant flexibility when marketing the product and should allow the company to capitalise on numerous opportunities as the export strategy continues to be advanced.

Domestic sales

Demand levels for Eskom have stabilised and the company is forecasting that all South African operations should deliver according to contracted quantities for the financial year ending 30 June 2022.

Read the article online at: https://www.worldcoal.com/coal/01112021/terracom-announces-september-quarter-report/