Whitehaven Coal releases 3Q FY21 production results

Highlights

• The March quarter managed run-of-mine (ROM) production of 5.5 million t, up 12% on previous corresponding period (pcp).
• March quarter managed saleable coal production of 4.3 million t, up 6% on pcp.
• March quarter total managed coal sales 4.8 million t, up 7% on pcp, managed own coal sales 4.2 million t, up 7% on pcp, total equity coal sales 4 million t, up 7% on pcp, and equity sales of own coal 3.4 million t, up 7% on pcp.
• Managed coal stocks of 2.8 million t at period end.
• As reported to the market on 23 March 2021, rail and port infrastructure were impacted by weather events in March and the outage of Newcastle Coal Infrastructure Group (NCIG) shiploader SL1.
• Strong and consistent ROM production from our largest mine Maules Creek, despite impact of March rain events on production.
• Narrabri underground mine performance impacted by continuing geological challenges which has resulted in unscheduled down time and additional longwall equipment repairs.
• Considering the ongoing challenging conditions at Narrabri underground mine, the company deems it prudent to revise FY21 production, sales and unit cost guidance.
• No known cases of COVID-19 at any of the company’s sites to date and operations remain largely unaffected but for distancing and hygiene measures.
• The safety outcome for the group for the 12 months ending 31 March 2021 was a total recordable injury frequency rate (TRIFR) of 5.92.

Managing Director and CEO, Paul Flynn, commented: “3Q FY21 has been a mixed bag from an operational perspective and in having to address a number of logistical challenges.

“Pleasingly, we are seeing much improved and more consistent performance from our largest operation at Maules Creek, notwithstanding adverse weather in recent weeks.

“Offsetting this progress to some extent has been the geological challenges encountered at the Narrabri Underground which has impacted production.

“Coal prices have continued to improve over the quarter, responding to increased economic activity as well as supply constraints.

“Disappointingly, we have had to revise down our FY21 production, sales and unit cost guidance due to the ongoing geological challenges at our underground mine, Narrabri.”

Sales

March quarter total managed sales were 4.8 million t, managed own coal sales were 4.2 million t and total equity own coal sales 3.4 million t, all up 7% on pcp.

The gC NEWC index averaged US$89/t in the March quarter, up 32% from the December quarter average of US$67/t. The increase in price for high quality coal was caused by a combination of increased demand for high quality coal and supply constraints. Increased industrial activity as the global economy recovers from the impact of COVID-19 has resulted in an increase in demand for coal for both energy generation and industrial processes. Supply constraints occurred as a result of the NCIG ship loader outages plus weather related impacts in the Hunter Valley rail network access and mine production, and curtailments in Canada. Chinese import restrictions on Australian origin coal continue to impact API5 prices and metallurgical coal segments. Subdued API5 prices have incentivised blending of 5500CV coal with high CV coal to meet Korean and Taiwanese coal specifications and market demand.

Whitehaven realised an average price of US$76/t for all thermal own coal sales in the quarter. The realised price was 15% below the March quarter gC Newcastle Index average of US$88.70/t due to two factors:

1. Approximately 40% – 50% of Whitehaven’s thermal coal contract book is priced using a lagging gC NEWC index measure such that realised prices lag the average coal price index when rapid changes in the index price occur.
2. Approximately 20% of thermal coal sales are priced with reference to sub 6000 kcal pricing structures. More recently, geological conditions at Narrabri have increased ash and lowered energy content due to out-of-seam dilution causing an increase in volume of 27% of ‘other thermal coal sales’ this quarter. Given the spread between 6000 kcal and sub grades widened by almost 3x its historical rate to average US$34/t during the quarter, any additional tonnes in this segment of the market lowers the average price realisation.

Metallurgical sales represented 20% of sales for the quarter. Spot demand for semi-soft coking coal remains weak due to ongoing Chinese import restrictions for Australian coal causing the price for high-CV thermal coal to favour sale of the product as high-CV thermal coal over selling it as a semi-soft coking coal.

Equity purchased coal sales of 0.6 million t were 4% higher than the pcp.

Maules Creek Opencast Mine

In the March quarter, Maules Creek delivered a strong ROM production performance of 3.7 million t, 58% above pcp. The mine sequencing during the quarter accessed the Braymont seam, and further access to the pit-floor has permitted increased in-pit dumping.

March quarter’s saleable coal production of 2.4 million t was 30% above pcp which has allowed for further product stock build. As reported on 23 March 2021, sales volumes were constrained due to the NSW floods and the short-term shiploader (SL1) outage that took place in March 2021. This has resulted in managed sales volumes of 2.4 million t.

Equity sales of metallurgical coal for the quarter were 0.3 million t, or 18%, of equity sales volume, reflecting strong high-CV thermal coal demand relative to SSCC demand and pricing.

Coal stocks of 2 million t at the end of the period were 208% above the pcp. The increase reflects strong production in the March quarter, the replenishment of ROM stocks and the slippage of some March sales into the June quarter.

Maules Creek FY21 managed ROM production guidance was tightened to 12.2 million t – 12.4 million t from 11.8 million t – 12.4 million t, as issued to the market on 23 March 2021. Refinement of the FY21 ROM production guidance reflects the ongoing solid production performance of the operation.

Narrabri Underground Longwall Mine

For the March quarter, managed ROM production at Narrabri of 1.1 million t was (29%) below the pcp. ROM production in the March quarter continued to be affected by geological structures first encountered in the December quarter.

Managed saleable coal production was 1.1 million t, while managed sales of produced coal of 1.1 million t was 0.4 million t lower than pcp as a result of the decrease in ROM production.

The sales mix for the quarter included a higher proportion of other thermal coal sales caused by fault-affected coal and out-of-seam dilution on coal qualities (ash and energy). Equity metallurgical sales of PCI were 0.1 million t for the quarter.

Coal stocks of 0.5 million t were up 0.3 million t on pcp and reflected an increase in both product stock at site and at port due to logistics constraints. Additionally, the pcp (March quarter 2020) stock levels were lower than usual because of the longwall change out in the pcp.

In light of the ongoing geological challenges (2 weeks’ lost production) and the associated equipment damage, key components of the longwall are required to be overhauled mid panel which results in a further two weeks downtime. In response to these anticipated delays in production, the company has revised FY21 managed ROM production to 4.5 million t – 4.9 million t from the previously announced 5.3 million t – 5.5 million t. Additionally, the next longwall move from 109 to 110 has been rescheduled from 4Q FY21 to 1Q FY22.

Gunnedah Opencast mines

Gunnedah opencast mines managed ROM coal production for the March quarter were 0.7 million t, (33%) below pcp. The decrease reflects the impact of weather events on Tarrawonga mine and to a lesser extent, Werris Creek mine.

Saleable coal production of 0.7 million t was in line with the pcp and was supported by ROM coal stock built up in the previous quarter.

Sales of produced coal of 0.8 million t were up on pcp by 16%, which were supported by stock draw-downs.

Coal stocks for the period were 0.3 million t, down (36%) on pcp as both ROM and product stock were utilised to support sales.

Gunnedah opencast mines FY21 managed ROM production guidance was tightened to 3.9 million t – 4.1 million t from 3.8 million t – 4.1 million t, as issued to the market on 23 March 2021.

Tarrawonga Mine

Tarrawonga’s March quarter ROM production of 0.4 million t was (37%) below pcp, reflecting the cumulative impact of rain events between December 2020 and March 2021. These rain events reduced operating hours while productivities were adversely affected by stop-start mining in weather impacted operations.

Saleable coal production of 0.4 million t, which was in line with the pcp, was supported by ROM coal stock built up in the previous quarter.

As previously reported, group sales for the quarter were impacted by the ship loader outage at NGIG in late March 2021.

Coal stocks at the end of March were 0.2 million t, (36%) below pcp, reflecting the decrease in ROM production during the period and the sell down of product stocks to support sales.

Werris Creek Mine

Werris Creek March quarter ROM coal production of 0.3 million t was (28%) below pcp reflecting the cumulative impact of rain events similar to Tarrawonga.

Saleable coal production of 0.3 million t, which was in line with the pcp, was supported by ROM coal stock built up in the previous quarter.

Managed sales volumes for the quarter of 0.4 million t were 48% above pcp, supported by stock draw downs. During the quarter Whitehaven has taken advantage of the demand for PCI and blending opportunities with coal from across the portfolio, which more than offset the impact of logistics issues experienced during the period.

Coal stocks at the end of March were 0.2 million t, (36%) below pcp, reflecting the decrease in ROM production during the period and the sell down of product stocks to support sales.

Logistics update

Whitehaven rails coal from mine to port via the Hunter Valley rail network and exports coal through the Port of Newcastle using the two export terminal providers Port Waratah Coal Services (PWCS) and Newcastle Coal Infrastructure Group (NCIG).

As reported to the market on 23 March 2021, rail services in the coal supply chain were suspended on 18 March due to flooding while shiploader SL1 at NCIG was taken offline for repairs coinciding with the suspension of rail services. The rail system was restored to full service on 24 March 2021 while SL1 returned to service on 30 March 2021.

In the December 2020 quarter production report and half year FY21 results, Whitehaven reported that in mid-November 2020 one of NCIG’s two shiploaders (SL2) was damaged in a storm event. Since the storm event, NCIG has been operating at reduced capacity using SL1 however work has proceeded ahead of plan and the company anticipates SL2 to be operational early in 4Q21.

The impact of these various events resulted in Whitehaven revising FY21 managed coal sales guidance on 23 March 2021, now modified to 17.8 million t – 18.3 million t as a consequence of the geological challenges at Narrabri. The sales volume slippage caused by these logistics issues is expected to be recovered early in FY22. NCIG and Whitehaven maintain insurance policies that address increased costs that may arise as a result of the damage to SL2.

Development projects

Work continues to advance Whitehaven’s three development projects:

1. Narrabri Underground Mine Stage 3 Extension Project.
2. Vickery Extension Project.
3. Winchester South Metallurgical Coal Project.

These projects underpin Whitehaven’s plans to expand managed ROM production in the next 10 years. Whitehaven remains cautious in allocating capital to expansion in the context of subdued coal markets, and does not expect to consider making a Final Investment Decision in relation to these projects in FY21. Projects will continue to be subject to Whitehaven’s strict capital allocation framework. Under this framework, greenfield projects will only be constructed sequentially.

Expenditure incurred on expansion and growth projects during the March quarter was US$4.8 million, reflecting approvals and studies relating to the Vickery Extension Project, approvals work for Narrabri Stage 3 and environmental studies for Winchester South.

Narrabri Underground Mine Stage 3 Extension Project

The project seeks to convert Narrabri’s existing exploration licence into a mining lease and use the existing portals, CHPP, rail loop and associated infrastructure to extract, process and export high energy thermal coal and Pulverised Coal Injection (PCI) coal products using the longwall mining method. The project involves extending the longwall panels planned for the mining lease south of the current main roads into the contiguous Narrabri South Exploration Licence area, to extend the approved life of the mine out to 2045.

Whitehaven submitted the Stage 3 Extension Project Environmental Impact Statement (EIS) to the NSW Department of Planning, Industry and Environment (DPIE) in November in 2020. The EIS was on public display for 6 weeks. The DPIE has requested a response from Whitehaven on submission of responses. Whitehaven has until 10 May to respond. The next step will be with the DPIE to prepare an Assessment Report.

Vickery Extension Project

Opencast and underground mining was undertaken at Vickery by Rio Tinto from 1991 through to 1998.

The Vickery Coal Project was approved in September 2014 to produce up to 4.5 million tpy ROM coal. Works necessary to maintain the current approval in good standing have been completed and the existing approval for the Vickery Coal Project will expire in September 2034.

The Vickery Extension Project seeks consent to increase the approved Vickery Coal Project to operate an up to 10 million tpy opencat metallurgical and thermal coal mine, with onsite processing and rail infrastructure. On 12 August 2020, the NSW Independent Planning Commission (IPC) approved the project. The project is now being reviewed by the Federal Department of Agriculture, Water and the Environment (DAWE) for Environment Protection and Biodiversity Conservation (EPBC) approval. A decision from DAWE is expected in the near future, subject to the injunction application seeking to restrain the Federal Minister of Agriculture, Water and the Environment from issuing the project with an EPBC approval. The injunction application was heard by the court in March 2021.

Progress on design work for the CHPP, rail spur, and other site infrastructure continued during the quarter.

Draft management plans, including those required for Secondary Approval such as noise, air quality, cultural heritage and traffic management, continue to be refined based on the conditions of approval handed down by the IPC.

Winchester South Metallurgical Coal Project

The proposed Winchester South opencast metallurgical coal mine is located in Queensland’s Bowen Basin. The project continues to progress through the Queensland Government’s Coordinated Project approval process with the draft Environmental Impact Statement (EIS) having been submitted to Queensland’s Office of Coordinator General for adequacy review in December 2020, ahead of Public Notification, expected to commence in 2Q21.

On 16 December 2020, Whitehaven Coal released its maiden reserves statement for the project and an associated update to the project’s Coal Resources in accordance with the JORC Code (2012). The project resources estimate was upgraded to 1100 million t from 530 million t, which includes 665 million t of measured and indicated resources. The project maiden reserves estimate is 350 million t, with marketable reserves of 210 million t.

Whitehaven has completed the pre-feasibility report and the project will now move into the feasibility phase.

Thermal and metallurgical coal outlook

Chinese import restrictions on Australian origin coal have continued in the March quarter. The import restrictions have negatively impacted prices for Australian origin 5500CV thermal coal and metallurgical coal. However, seaborne coal trade flows have adjusted with supply from Russia, Indonesia, Colombia and North America, meeting Chinese demand.

In contrast, high CV thermal coal demand has strengthened during the quarter with demand recovering to pre-COVID levels. China supplemented its growing domestic coal production with coal from alternative origins including Russia, Indonesia and South Africa in response to higher thermal power demand. Japanese thermal coal imports rebounded in January and February to multi-year highs and Taiwanese thermal coal demand has increased due to subdued hydro-generation levels. On the supply side, coal production was constrained due to wet weather in the Hunter Valley during March. Additionally, the weather events impacted rail logistics to the Port of Newcastle in the March quarter which was further constrained by the outage of the second NCIG shiploader, in late March. High CV thermal coal prices are expected to remain strong across the remainder of 2021.

Read the article online at: https://www.worldcoal.com/coal/15042021/whitehaven-coal-releases-3q-fy21-production-results/