Stanmore Coal has had great success with its pivot to Isaac Plains East operations in Queensland’s Bowen Basin, and looks set for a strong finish for 2019 with a solid toehold in the metallurgical coal market into 2020 and beyond.
STANMORE Coal has reaped the financial rewards this year from its transition from the original Isaac Plains mine to Isaac Plains East in 2018.
Chairman Stuart Bute said that favourable conditions and lower strip ratios at the new mine helped the company achieve an improved mix of coking and thermal coals, reduce production costs and increased sales prices and margins.
“The company’s revenue from operations totalled a new record of $403.1m, an increase of 93pc on the previous year,” Mr Bute said.
“This resulted in gross profit of $164.8m which was a 215pc improvement on FY18.”
Underlying Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) improved by 240pc to $154.9m, and the company reported Net Profit After Tax of $91.6m, compared with $6m in the previous financial year.
Cash generation from operations was $140m, another substantial improvement compared with $21.9m in FY18.
“This was balanced against cash outflows that will support the future growth and performance of the business including the acquisition of Isaac Downs, development capital for Isaac Plains East and planned maintenance of major equipment and infrastructure,” Mr Bute said.
As a result of this strong operational and financial performance, the Stanmore Board declared a fully franked final dividend of eight cents per share, along with the fully franked interim dividend of three cents per share.
“The combination of share price growth and dividends paid during the 2019 financial year delivered a total shareholder return of 69.5pc, which was the best outcome of any ASX-listed coal company,” Mr Bute said.
In October, Stanmore managing director Dan Clifford resigned and, while a recruitment process is underway, Jon Romcke (previously general manager business development) has stepped into the role of interim chief executive to ensure an orderly leadership transition.
“Jon has outstanding credentials in the resources sector over more than 30 years and the board has every confidence in his ability to continue to implement the company’s strategic direction and maintain our positive momentum,” Mr Bute said.
Operational performance
Mr Romcke said the transition to Isaac Plains East underpinned record coal production over the course of the year, which in turn delivered record underlying earnings.
“Stanmore delivered record operating performance during the year, with a 10pc increase in overburden removal, and a 78pc increase in open cut run of mine (ROM) coal production to 2.93mt,” he said.
“Our guidance for the current financial year is to increase ROM coal production to 3mt.”
Total product coal production for the financial year was 2.39mt and the percentage of metallurgical coal produced increased to 89pc, with an 11pc thermal coal by-product.
“This increased our average sale price to $173.80/t sold,” Mr Romcke said.
“Our guidance for this year is that product coal quantities will be maintained at this level with 2.35mt produced, with over 95pc of the coal produced marketed as IPE Coking Coal.”
Mr Romcke said the quality of coal resource and lower strip ratio at Isaac Plains East has meant the cost of producing coal is lower than it was at Isaac Plains.
“We expect that production costs will increase to $100/t (excluding royalties) this year driven by increases to strip ratios at Isaac Plains East as the open-cut operations mine deeper coal resources,” he said.
“After a solid start in the first quarter of this financial year, we remain on track to achieve EBITDA guidance of $53-56m for the six months to December 2019.”
Isaac Plains complex
Stanmore aims to further extend saleable coal production from 2.4mt to 5mt per annum by 2022, with a focus on the Isaac Downs open-cut project to hit this lofty target.
During the financial year, the Bankable Feasibility Study for the Isaac Plains Underground was completed, confirming the financial viability of the project, however the company decided to defer in favour of Isaac Downs due to the superior margins forecast from the surface operations in the first five to 10 years of mine life.
“The project approval process for Isaac Downs is now well-established,” Mr Romcke said.
“The environmental studies for the project have been completed, and our Environmental Impact Statement is complete and currently being considered by both the state and federal governments as a precursor to the public display process.
“Once community feedback is sought, the subsequent approvals for the environmental authority and mining leases are expected to be finalised in late 2020 and early 2021.”
Industry outlook
While the outlook for metallurgical coal remains fairly positive, Mr Bute said the company is always mindful that coal is a cyclical commodity, which creates the potential for pricing volatility.
“There is no doubt that coal prices have been under pressure over the past six months and the premium hard coking coal price has fallen 25pc since February this year,” he said.
“To address this, Stanmore concentrates on higher margin metallurgical coal and minimises the amount of by-product thermal coal.”
Mr Bute said the company has some protection against the cyclical nature of our market.
“A large proportion of the company’s product coal is contracted to term customers, which means we expect achieved prices to remain stable and well above the cost of production, and in line with industry forecasts,” he said.
Mr Romcke concurred, stating that Stanmore is somewhat insulated against price volatility.
“We expect achieved sales prices to be under pressure over the short term but are expected to remain well above our cost of production,” he said.
“Opportunities to enhance product quality and focus on producing higher value metallurgical coal will also support our achieved margins.
“As our operations move into Isaac Downs, we expect that a lower strip ratio and higher-ranking coking coals will provide considerable improvement in unit margins.”
