Whitehaven Coal provides December 2021 quarterly report

Highlights

• Whitehaven achieved coal pricing averaged AUS$211/t for the quarter (FY21: AUS$94/t, 2Q21: AUS$86/t).
• December quarter managed run-of-mine (ROM) production 3.2 million t.
• December quarter managed saleable coal production 3 million t.
• December quarter total managed coal sales 4 million t, managed own coal sales 3.5 million t, total equity coal sales 3.3 million t and equity sales of own coal 2.9 million t.
• Managed coal stocks 2.1 million t as at 31 December.
• Whitehaven expects to fully repay its senior debt facility in February 2022 and be in a net cash position in March 2022.
• Narrabri longwall relocation from panel 109 to 110 successfully completed in December.
• Weather events across the Gunnedah Basin and Hunter Valley have impacted operational productivity and road access, resulting in a cumulative impact on production and sales volumes for the quarter. FY22 guidance has been updated to account for the effects of significant rainfall associated with La Niña and COVID-related labour shortages.

Managing Director and CEO, Paul Flynn, said: “Coal prices continued at attractive levels through the December quarter and remain well supported for the near future given strong underlying demand and persistent supply-side disruptions.

“Cash generation has been strong, with the business expected to be net cash in the March quarter.

“Whitehaven has unfortunately not been immune to recent heavy rains that impacted large parts of regional New South Wales (NSW) and Queensland as La Niña made its presence felt for the second Australian summer in a row.

“While we remain very confident about ongoing favourable supply and demand dynamics, there is elevated uncertainty associated with COVID’s impact on workforce availability and resourcing through our supply chains.

“The strong balance sheet and robust market environment is an appropriate backdrop to provide an update on our capital management strategy with our half year results.”

Safety

The safety outcome for the group for the 12 months ending 31 December 2021 was a total recordable injury frequency rate (TRIFR), on a 12 month rolling basis, of 6.1.

Whitehaven managed production, sales and stock volumes

Unusually heavy rain in the quarter caused local flooding that saw road access to the mines and Gunnedah CHPP cut off for up to two weeks. Flooding is estimated to have caused approximately 600 000 – 700 000 t of ROM production at Maules Creek to be deferred and 100 000 – 200 000 t of ROM production at the Gunnedah opencasts to be deferred. The spread of COVID throughout NSW has resulted in an increase in the number of workers self-isolating, with associated production impacts of 200 000 t in the December quarter.

Maules Creek Open Cut Mine (Whitehaven 75%)

Maules Creek delivered ROM production of 2 million t in the December quarter, 39% below pcp for the reasons outlined above.

December quarter saleable coal production of 1.8 million t was 15% below pcp, reflecting reduced processing days due to the loss of access to site.

Sales volumes for the quarter of 1.8 million t were 16% below pcp, reflecting saleable coal volumes.

Equity metallurgical sales of semi-soft coking coal for the December quarter were 0.25 million t, representing 18% of Maules Creek sales volume.

Coal stocks for the end of the period were 1.3 million t, reflecting the draw down of ROM stock being offset by a build in product stock volumes due to slippage of sales caused by logistics issues.

Narrabri Underground Longwall Mine (Whitehaven 77.5%)

The longwall was relocated from panel 109 to 110 during the quarter and managed ROM production at Narrabri was 0.4 million t. Longwall production recommenced on 22 December. A tight labour market restricted the availability of contract labour to complete the longwall move necessitating redeployment of mine development labour. The step around from panel 110A to panel 110B is scheduled to commence in May 2022 and be completed in late June 2022.

Saleable coal production of 0.6 million t for the quarter was 32% below pcp, reflecting ROM production partially offset by the drawdown of ROM stocks.

Managed sales volumes for the quarter of 1 million t were 8% above pcp. Sales were supported by the drawdown of stockpiles, which resulted in a 34% decrease in coal stocks of 0.3 million t when compared to pcp.

There were no equity metallurgical sales of PCI during the quarter, reflecting the mine plan. PCI sales will recommence in 3Q22 with mining of panel 110A.

The commencement of cut and flit mining of panels 201 and 202 is expected in late 3Q22 due to contractor and supplier labour shortages.

The next longwall move from panel 110 to 203 is scheduled for late 3Q23. Relocation of the longwall to panel 203 will see the return to mining in shallower ground, and is expected to bring improved production, improved productivity and lower unit costs.

Gunnedah Open Cut Mines (Whitehaven 100%)

For the December quarter, Gunnedah opencast mines achieved managed ROM coal production of 0.8 million t.

Tarrawonga Mine (Whitehaven 100%)

Tarrawonga’s December quarter ROM production of 0.6 million t was in line with pcp, despite the impact of flooding and COVID.

Saleable coal production for the December quarter of 0.4 million t was down 24% on pcp. As previously mentioned, localised flooding restricted road access in the Gunnedah area. As a result, coal haulage between the mine and the coal handling and preparation plant (CHPP) in Gunnedah was restricted.

In response to the record price differences between 6000CV and lower grades of thermal coal, Whitehaven’s marketing strategy has been to wash Tarrawonga ROM coal harder to produce higher quality coals that can be used to blend up lower grade coal. This strategy trades off lower yield and higher costs for improved coal quality to support increased blending opportunities within the group, to lift overall coal quality to maximise profit margins.

Tarrawonga sales for the quarter of 0.4 million t were 18% below pcp due to the interruption of coal supply to the CHPP.

There were 0.2 million t of equity metallurgical sales of semi-soft coking coal during the quarter.

Coal stocks at the end of December were 0.3 million t, 34% above pcp reflecting an increase in ROM stocks at mine site due to the previously mentioned impact of weather events on road access to CHPP.

Werris Creek Mine (Whitehaven 100%)

During the quarter, wet weather events interrupted operations. December quarter ROM production of 0.3 million t was 21% down on the pcp.

Werris Creek’s ROM coal production is 100% bypass, which means the coal is crushed in preparation for transport and blending, but no washing of coal is undertaken. Saleable coal production for the quarter of 0.3 million t, 45% below pcp, reflects the current quarter ROM production profile and the pcp being supported by a drawdown of ROM stocks.

December quarter sales volumes of 0.3 million t, 11% down on pcp, reflect the saleable coal production profile supported by a stock drawdown. All sales for the quarter were thermal coal.

Coal stocks at the end of December were 0.2 million t, 40% below pcp, due to the drawdown of stocks to support sales over the past two quarters.

Equity coal sales and realised pricing on own coal sales

Whitehaven achieved an average price of AUS$211/t1 for sales of own coal during the quarter, 144% higher than pcp.

The gC NEWC (6000 CV) index averaged US$184/t for the December quarter, up 10% from the September quarter average of US$168/t. The gC NEWC index price posted an all-time record high in October of US$222/t, falling to US$159/t in November before rebounding in December to US$170/t. The rebound was caused by a combination of strong Asia based end user demand and production constraints due to wet weather and flooding in the Hunter Valley and Gunnedah Basin. This is reflected in full year coal throughput from the Port of Newcastle of 157 million t, down 2 million t from 2020 and 9 million t from 2019. Strong ongoing demand for all fuel types has also continued to buoy the coal market. Even at record prices, coal remains a more attractive and less expensive alternative to LNG.

Whitehaven achieved a December quarter realised average thermal coal price of US$155/t, with the following factors impacting Whitehaven’s pricing outcomes:

• Approximately 50% of Whitehaven’s thermal coal book in the December quarter was priced in prior periods. Realised coal prices reflecting prior periods occurs under a number of scenarios. Firstly, some of the thermal coal contract book is priced on a lagging gC NEWC index basis such that realised prices lag the average gC NEWC index. The benefit of these rising prices will be seen in the coming quarters. Secondly, some sales have been delayed from prior quarters as a result of weather events earlier in the calendar year. Thirdly, a number of fixed price sales set in a prior period were fulfilled during the December quarter.
• Approximately 27% of thermal coal sales were priced with reference to sub gC NEWC 6000 CV pricing structures. This was almost exclusively the higher ash Narrabri fault-affected coal, where price differentials between the gC NEWC index and the API5 index have widened to average US$68/t in the quarter, a similar level to the September quarter.

Equity coal sales for the December quarter, including purchased coal, were 3.3 million t, 11% below the pcp. Equity coal stocks at 31 December were slightly lower than pcp at 1.7 million t.

Sales volumes of Narrabri non-gC NEWC index coal product in the December quarter were similar to those in the September quarter. Some fixed price non-gC NEWC index coal product sales slipped from the December quarter into January. However, price realisations for Whitehaven’s thermal coal are expected to return to above gC NEWC index in 2H22.

Metallurgical coal represented 12% of sales for the December quarter. Spot demand for semi-soft coking coal has been limited.

Thermal and metallurgical coal outlook

The gC NEWC and API5 indexes both set all-time records in October at US$222.35/t and US$145.56/t respectively. The gC NEWC index averaged approximately US$184/t for the December quarter, up 10% from the September quarter average of US$168/t. The API5 Index averaged US$116.04/t for the December quarter, up 20% from the September average of US$97.14/t. As at 19 January 2022 month to date ( MILLION TD), the gC NEWC index is US$216.06/t and API5 is at US$117.16/t.

In 2022, demand for seaborne thermal coal remains strong and ongoing constraints from both Australia and Indonesia have seen thermal prices soar once again. In Australia, COVID is adversely impacting production as the Omicron wave runs through NSW and Queensland. The December quarter also saw wet weather cause flooding in the Hunter Valley and Gunnedah Basin which impacted mining operations, including cutting access to some mines. In Indonesia, the government imposed an export ban from 31 December for the month of January or until domestic power utility PLN achieved regulated inventory levels. As at 11 January, exports re-started for some producers, however the ban has reduced exports of seaborne coal supply by approximately 10 million t in January MTD.

Thermal coal customers came to the market across the December quarter to procure supplies through to the March quarter, in many cases having to accept inferior quality to what they were seeking. More recently, some tenders have attracted zero bidders, a strong indication that supply is very tight, and incremental supply is almost non-existent. Physical prices for 6000 CV quality coal for near term delivery are at substantial premia to the paper market.

Premium low volatile hard coking coal (PLV HCC) FOB Australia averaged US$369.10/t across the December quarter, up 41% on the September quarter average of US$262.30/t. Supply constraints for metallurgical coal have emerged over the end of the December quarter due to increased rainfall in Queensland related to La Niña weather patterns. In addition, a number of tropical cyclones have formed in the Coral Sea adding to concerns of possible further supply interruptions. As a result, the PLV HCC spot price has remained strong, currently at US$388.13/t January MTD. The Platts SS index has increased in January to US$254/t MTD after averaging US$234.97/t for the December quarter.

Both thermal and metallurgical coal prices are expected to be well supported over CY22.

Logistics update

During the December quarter, a number of weather events impacted rail and ship movements. Rain events in November and December cut site access to Maules Creek on a number of occasions affecting production, processing and train loading; both Tarrawonga and the Gunnedah CHPP also had road access cut.

Port movements were impacted by high winds and swell on multiple occasions in the quarter. In addition, the harbour operated under fresh water conditions from 29 November – 22 December due to flood waters, which restricted vessel movements.

The period ended with a combined vessel queue of ~50 across PWCS and NCIG.

Corporate

As at 31 December 2021, there were US$98.7 million of foreign exchange hedges at an average exchange rate 0.73314 for fixed price equity coal sales of 0.7 million t with contracts deliverable between January 2022 and December 2022. In addition, there were US$679 million of foreign exchange hedges at an average rate of 0.71831 for non-fixed price equity sales with contracts deliverable between January 2022 and June 2022.

Development projects

Work continues to advance Whitehaven’s three development projects. Projects are subject to Whitehaven’s strict capital allocation framework. Under this framework, each project must pass through a series of tollgates (PFS, DFS, FID). If Vickery and Winchester South pre-construction activities were to advance on a concurrent timeline, Whitehaven would not construct them concurrently.

Expenditure incurred on development projects during the quarter was AUS$4.4 million, reflecting approvals work and studies.

Narrabri Underground Mine Stage 3 Extension Project

The project seeks to convert Narrabri’s adjacent 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 to 2044.

Whitehaven submitted the environmental impact statement (EIS) to the NSW Department of Planning, Industry and Environment (DPIE) in November 2020. The EIS was on public exhibition for six weeks and received 63 positive responses, 16 comments and three negative responses.

In January 2022, the DPIE prepared an overall project assessment report and recommended the project be approved. The project has been referred to the Independent Planning Commission (IPC) for final determination. The IPC will now review the project and is expected to make a decision during 2Q22.

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.

In August 2020 the Vickery Extension Project received approval from the NSW IPC to operate an up to 10 million tpy opencast metallurgical and thermal coal mine, with on-site processing and rail infrastructure. On 16 September 2021, the Federal Minister for the Environment approved the project under the Commonwealth’s ‘Environment Protection and Biodiversity Conservation Act 1999’.

Works are currently being undertaken as required for secondary approvals such as water, noise, air quality, cultural heritage and traffic management.

Winchester South Metallurgical Coal Project

The proposed Winchester South opencast metallurgical coal mine is located in Queensland’s Bowen Basin. At full capacity, the mine is targeting ROM production of up to 17 million tpy to supply the international market for about 30 years.

The project has recently completed the public notification phase for the draft EIS and is working with the Office of the Coordinator General to address submissions received.

FY22 Guidance – La Niña and COVID impacts

There continues to be material uncertainty regarding these two unpredictable issues and their impact. However, as of January 2022, the impact of La Niña and COVID has caused a ~5% decrease in expected ROM production.

Updated unit cost guidance per tonne includes the following variables:

• Increased diesel prices AUS$3/t.
• Increased demurrage costs due to disruptions to coal production/supply AUS$2/t.
• Volumetric impacts of flooding in 1H22 AUS$2/t.
• COVID related absenteeism AUS$1/t – AUS$2/t.

Read the article online at: https://www.worldcoal.com/coal/26012022/whitehaven-coal-provides-december-2021-quarterly-report/