Whitehaven Coal: Growth spurt

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 06 Jun 2017   Posted by admin


 All Images: Whitehaven Coal.

 

BY CAMERON DRUMMOND

 

ON the back of increased seaborne coal prices, Whitehaven banked record revenue during the first half of the 2017 financial year which enabled the company to pay down more than $300 million of debt.

 

Whitehaven Coal is Australia’s largest independent coal producer, with five operating mines in North West NSW.

The operations have a combined annual output of 20.1 million tonnes per annum (mtpa); however Whitehaven is undertaking expansion works at its flagship Maules Creek operation to increase its saleable coal output to 23mtpa by the 2019 financial year.

Thermal and metallurgical coal is produced from one underground mine, Narrabri, and four open cut mines at Maules Creek, Tarrawonga, Werris Creek and Rocglen in the coal-rich Gunnedah Basin.

Coal is transported by rail to the Port of Newcastle and shipped to customers mainly in Japan, Korea, Taiwan and India.

The company employs more than 1400 personnel, with about 75 per cent from the local communities near its operations, and has injected more than $850 million to the region since 2012.

Record revenue in H1 FY17 of $823.5m turned Whitehaven a net profit after tax of $157.5 million, a bumper margin when compared to H2 FY16’s profit of $12.7m and $7.8m in H1 FY16.

In H1 FY17 Whitehaven sold 7.8mt of coal at $97 per tonne (t), at an average cost of $56/t – an incredible $41/t in earnings before interest, tax, depreciation and amortisation (EBITDA).

To put this in perspective, the company made a $14/t EBITDA margin on sales in both halves of FY16.

The strong rise in coal prices in the last September quarter was the driving force behind the improved margin for the half.

Average received thermal and metallurgical coal prices for the H1 FY17 were $US78/t and $US90/t respectively, and in the December quarter had risen to $US92/t and $US104/t.

Whitehaven used the funds to reduce net debt by $231.1m and a further $105m of its senior bank facility debt was repaid.

 

Maules Creek

The $701m Maules Creek open cut mine, 55km northwest of Gunnedah in northern NSW, contains coal resources of 660 million tonnes (mt), with 510mt of reserves for a mine life of more than 30 years.

It commenced operation on 1 July 2015, and in FY16 the mine produced 7.8mt of run of mine (ROM) coal, more than guidance of between 7.1mt and 7.3mt.

Following a production ramp up, by the end of the March 2017 quarter Maules Creek was operating at a rate of 10.5mtpa and was on target to achieve its FY17 guidance of between 9.5mt and 9.8mt.

Whitehaven chief executive Paul Flynn expected Maules Creek to ramp up to its full production rate of 13mtpa by 2019.

 

“Maules Creek has been a big step up for the company, and is a forty year asset that was brought on fairly cheaply relative to other greenfields projects in the last five to ten years,” he said.

 

“There’s one more fleet that is required to come online to reach nameplate capacity, which will arrive in about 12 months time.”

 Mr Flynn said the cost of Maules Creek would be repaid within the first two years of its operation.

 

 

Narrabri

Whitehaven’s only underground operation, the Narrabri coal mine is 17km south of its namesake town and commenced operation in 2012.

It contains resources of 720mt and reserves of 216mt with a mine life of more than 22 years.

In December 2015 the NSW Department of Planning and Environment granted approval to increase Narrabri’s annual production limit from 8mtpa to 11mtpa.

In FY16 the mine produced 6.9mt of ROM coal, an 11 per cent decrease on FY15 due to two longwall changeouts during the period.

Whitehaven said it was on track to meet its FY17 guidance of between 8mt and 8.3mt.

During the March 2017 quarter, coal production was constrained in order to undertake another longwall changeout from LW106 to LW107.

It was completed by mid-April, and reflected a lower production rate of 1.33mt for the quarter.

Whitehaven said Narrabri’s next changeout was scheduled for March 2018, with the development of LW108 advancing on schedule.

 

Gunnedah open cuts

Whitehaven’s three open cut mines near the town of Gunnedah – Rocglen, Tarrawonga and Werris Creek – performed well during FY16, producing 5.8mt of ROM coal.

Mr Flynn said the mines had produced enough cashflow for Whitehaven to focus on developing its larger projects.

“Gunnedah open cuts have done a fantastic job at underpinning our business while we have been in our construction phase.”

Mr Flynn said Whitehaven had made a decision to re-open one of its shuttered open cut mines at Gunnedah due to favourable market conditions.

“We have a small open cut mine called Sunnyside and have decided to move back into the mine as we see a good opportunity to finish the remaining 1mt of coal, complete the rehabilitation and close the operation for good.”

Sunnyside had been on care and maintenance since 2012 following a strategic review of operations due to lower realised coal prices.

Gunnedah’s operations were forecast to produce a total of between 5.2mt and 5.5mt ROM coal during FY17.

 

Rocglen

Located 28km north of Gunnedah, Rocglen commenced production in November 2008, and produces about 1.2mtpa of thermal coal from 10mt of resources and 4mt of reserves.

The mine produced a record 0.58mt of ROM coal in the March quarter compared to 0.36mt in the previous corresponding period.

Rocglen, nearing completion, had been flagged to move into a rehabilitation phase in two years time after coal was exhausted.

 

Werris Creek

Located 4km south of its namesake town, the Werris Creek open cut mine produces up to 2mtpa of thermal coal and employs about 70 personnel.

It has coal resources of 18mt and reserves of 14mt, with a mine life of about three years.

Whitehaven said production in the March 2017 quarter was expected to be significantly higher than earlier in FY17 as the mining sequence entered the bottom seams of the open cut.

 

Tarrawonga

Located 16km east of Boggabri, Tarrawonga commenced production in 2006 and produces a mix of thermal and coking coal for export.

Coal resources of 76mt and reserves of 39mt support a mine life of more than 15 years at a rate of up to 3mtpa.

The mine produced 0.653mt of ROM coal in the March quarter compared to 0.576mt in the previous corresponding period.

 

Vickery project

Whitehaven’s Vickery project is a mixed underground and open cut coal mining operation with resources of 505mt and reserves of 230mt.

Whitehaven said a number of discussions were taking place regarding the formation of a joint venture to develop the project, with the company hoping to sell a 30 per cent stake to a high quality offtake partner.

“Now that we are a much bigger company we are less driven by the investment itself but are more driven by inviting high quality counterparts to join us in our investments,” Mr Flynn said.

Construction was flagged for the second half of 2019 at an estimated capital expenditure of between $600m and $700m across a two year period.

The NSW Government had approved Vickery as a 4.5mtpa open cut metallurgical and thermal coal operation, however Whitehaven was seeking to expand the scope of the project and increase its nameplate capacity up to 10mtpa.

Work on the project’s Environmental Impact Statement (EIS) for the expanded 10mtpa mine had progressed during the March quarter and was due to be lodged before the end of the June this year.

Mr Flynn said the company was looking forward to gaining approval for the expansion as it would not only ramp up production, but also benefit the community.

“This is a significant high quality resource that we think economically improves the quality of the project by scaling it up to 10mtpa.”

 “Part of the expansion plan is to also decommission the current prep plant near Gunnedah and construct a dedicated washing facility up on the Vickery site itself.”

Preparing coal on site at Vickery would remove the need for road haulage and give Whitehaven’s Tarrawonga mine rail access to the wash facility.

“This provides two big bonuses for the community by removing truck haulage from the roads completely and removing the prep plant near Gunnedah to allow further growth of the town.”

The company said it would also wait until Maules Creek had ramped up to its nameplate capacity before commencing works at Vickery.

“The timing for start up of the Vickery project remains market dependent, but will likely occur once Maules Creek has been fully ramped up to its 13mtpa capacity,” the company said.

 

Community development

Over the past four years Whitehaven injected more than $800m into the North West NSW region in the way of local employment, community projects, and support for local businesses.

Mr Flynn said Whitehaven’s focus was that the whole community would benefit from the company’s presence.

In 2016 Whitehaven opened a regional office in the centre of Gunnedah to improve communication between the company and the surrounding community that made up 75 per cent of Whitehaven’s workforce.

“Using an annual feedback survey with the local community we found that people were after more information about our operations as we are the largest employer in the region,” Mr Flynn said.

“We addressed this by putting a regional office in the mains street of Gunnedah where people can come in and communicate with our business and address any issues or concerns.

“We believe it essential to demonstrate to the community that the region is benefitting by having our operations in the area.”

In 2016, Maules Creek picked up the NSW Minerals Council award for Community Excellence in Aboriginal Employment and Enterprise Development for its commitment to employing a minimum 10 per cent Indigenous workforce.

“We set ourselves a target of 10 per cent Indigenous employment within five years and are well over that target already,” he said.

During FY16 Whitehaven supported 81 community projects via donations to local charities, as well as $6.4m in voluntary planning agreement payments to local councils to supply improved services to local residents.

At Narrabri, Whitehaven has pledged more than $20.6m in payments to the local council for community projects.

This included $5m to upgrade the Narrabri Airport, $2m towards the Baan Baa town water project, $1.5m for the redevelopment of the Narrabri swimming pool and $1.5m for upgrades to Narrabri’s central business district.