Stanmore Coal: quarterly report

Wotonga South

On 12 June 2018 Stanmore announced the acquisition of MDL1374 and EPC7285 (Wotonga South) from Millennium Coal Pty Ltd. Stanmore has agreed to acquire the Wotonga South coking coal deposit for AUS$30 million cash (consisting of AUS$6 million payable at completion expected in July 2018 followed by a series of deferred payments totalling a further AUS$24 million payable over the following 12 months) plus a production based royalty capped at circa AUS$10 million (paid quarterly if the premium HCC coal price is over AUS$170/t).

Isaac Plains East

At Isaac Plains East, operations commenced in June with topsoil removal and drill and blast preparation works. This paved the way for the commencement of truck and shovel waste removal on 13 July. First coal is expected during August. This milestone is a great achievement for the company as it will lower mining unit costs through operating in a low strip ratio environment with an improved coking yield.

In FY19, Stanmore intends to operate Isaac Plains and Isaac Plains East concurrently. This involves mining Isaac Plains East initially with a truck and shovel fleet until Isaac Plains mining ceases when the dragline will walk to Isaac Plains East.

In light of the commencement of mining at Isaac Plains East and the acquisition of Wotonga South, the company will continue to review and optimise the cost and production profile focusing on prioritising high margin sources of coal to feed its existing infrastructure at Isaac Plains.

Stanmore has agreed to a contract extension with Golding Contractors Pty Ltd for FY19, including the mining operations at both Isaac Plains and Isaac Plains East. The company is currently negotiating a longer-term contract for Isaac Plains East, post FY19. There were no material direct impacts during the quarter as a result of the dispute between Aurizon, the Queensland Competition Authority and coal producers. Stanmore will continue to monitor Aurizon’s performance.

Stanmore is expecting to boost ROM production to approximately 2.3 million t ROM for FY19, representing a 40% increase over FY18 and 1.8 million t product, representing a +50% increase over FY18.

Coal sales

Coal sales in the June quarter were 320 000 t, down from a prior quarter of 404 000 t (which included 10 000 t of purchased coal) as coal sales in the March quarter were inflated by closing product stocks from the December quarter (177 000 t). The average price per tonne of coal sold was AUS$162 with 225 000 t of semi-soft coking coal sold at AUS$181/t and 95 000 t of thermal coal sold at AUS$116/t. Stanmore’s pricing for its semi-soft coking coal is based on a quarterly negotiated benchmark price agreed in advance of the commencement of the quarter, as well as a negotiated lagging benchmark price which references the hard-coking coal index of the first two months of the current quarter and the last month of the prior quarter. The September 2018 quarterly advance benchmark price was settled at US$137/t (US$136/t in prior quarter). The June quarterly lagging benchmark price has yet to be agreed (expected by end of July), while the September lagging quarter price is to be negotiated in August/September.

Isaac Plains Operations

Mining performance at Isaac Plains during the June quarter benefited from the acceleration plan put in place to ensure production guidance for the full year (following geotechnical issues), which utilised both dragline and truck and excavator overburden removal for coal production. ROM tonnes mined in the June quarter were 547 000 t, up from 382 000 t in the prior quarter as the acceleration plan came into effect. Product tonnage produced stood at 314 000 t, up from 302 000 t in the prior quarter.

Coal production was on the lower end of guidance, largely due to the timing of coal mining resulting in ROM stockpile increases and impacted by lower yields due to increased faulting. During the quarter, the financial assurance amount held with the Queensland State Government was reassessed following a successful FY18 rehabilitation programme, together with planned rehabilitation and disturbances (including Isaac Plains East) in FY19. This resulted in a reduction in bank guarantees of around AUS$8 million reducing Stanmore’s cost of bonding in FY19. Underlying FOB costs in the June quarter were AUS$114/t resulting in a Full Year FY2018 result of AUS$111/t. Full year guidance was AUS$105/t. The slight increase in costs was largely the result of worse than expected geological conditions impacting coal recoveries and yields, following the implementation of the acceleration plan. During the quarter Stanmore completed the handling of 3 rd party coal on a toll loading basis, with a total of 610 000 t railed to DBCT for FY18.

Isaac Plains Underground project

A maiden JORC reserve (compliant with JORC 2012) of 12.9 million t was declared during the quarter, based on the pre-feasibility study. Marketable Reserves total 9.4 million t (8.2 million t coking, 1.2 million t thermal). The outcome of the pre-feasibility study supported the commitment of capital funds to develop a BFS3 for the Isaac Plains Underground project in conjunction with Mastermyne based on an early contractor engagement model. The BFS is targeted for completion in CY2018. A financial investment decision on the project is planned for FY19 and subject to the outcome of the BFS. The company will consider mine development, to supplement the open cut ROM feed to fully utilise the CHPP infrastructure and rail loop at the Isaac Plains Complex.

Safety Performance

During the quarter, there was only one minor injury (TRI) recorded at Isaac Plains, with no injuries across other Stanmore projects and tenements. The 12-month total recordable injury frequency rate (TRIFR) at the end of the June 2018 quarter was 16.4 compared to 12.46 this time last year.

Read the article online at: https://www.worldcoal.com/coal/20072018/stanmore-coal-quarterly-report/