All images: Stanmore Coal.
STANMORE Coal’s grand plan to turn its $1 Isaac Plains mine into a 15-year mega project is beginning to pay off, with its share price reaching an eight-year high during March on the back of strong half-year results and timely acquisitions.
STANMORE Coal has risen from a near-death experience during the coal downturn, to a company that stands today with healthy cash flow and a portfolio of long-life assets.
The miner’s renaissance began in July 2015 when it nabbed Peabody subsidiary Millennium Coal’s undeveloped Wotonga (Isaac Plains East) project for $7 million.
And then – the deal everyone remembers – its $1 purchase of Vale SA and Sumitomo Corp’s nearby Isaac Plains mine and infrastructure, which included taking over rehabilitation commitments.
By February 2016, Stanmore had restarted mining at Isaac Plains, with first production in April and first shipment in May that year.
Flash forward to June 2018; Stanmore completed a $30 million acquisition of Millennium Coal’s Wotonga South coking coal deposit, which was renamed Isaac Downs.
With production now underway at Isaac Plains East, Stanmore shares have been on an upwards spiral surging to $1.23 in March compared to $0.70 a year prior, and a depressed $0.08 in early 2015.
And with a line-up of promising development assets, the Stanmore board was optimistic this rally would continue.
Rising Production
Over the last 12 months, mining was underway at both the two-year Isaac Plains mine and new Isaac Plains East prospect.
However, Isaac Plains East had to wait until December last year to receive the dragline from the depleting Isaac Plains open pit, which would now enable it to achieve a lower strip ratio and a significant reduction in waste removal costs.
In 2018, the miner produced a record 978,000 tonnes of coal, and achieved record sales of 882,000t.
In FY19 this was set to ramp up to 2.15 million tonnes, and include a higher ratio of the more profitable coking coal (90 per cent) to thermal coal (10 per cent).
About 176,000t of coal was also stockpiled at the end of 2018, which would contribute to strong sales and cash conversion in the second half of FY19 as port queues returned to normal levels.
Port accessibility had also improved following the company’s deal last year to secure additional capacity through the Dalrymple Bay Coal terminal, which would also open up options to fill its CHPP to nameplate capacity.
Stanmore Coal managing director Dan Clifford said the group would continue to pursue high value coal sales opportunities, and was taking advantage of the increased production and coal quality from Isaac Plains East to expand its customer base.
Currently, about 50 per cent of sales contracted were exported into Japan and Korea, with customer diversity expanding into Europe and India.
Stanmore also had limited exposure in China through spot sales, which were made to customers in other countries also.
“Stanmore continues to confidently capitalise on the current market conditions and operational performance by embedding strong planning and cost controls into its operations,” Mr Clifford said.
“The relocation of the dragline from Isaac Plains to Isaac Plains East represents a significant milestone for the company in meeting its objectives of generating substantial growth in returns and strong cash flows for our shareholders given the improved cost structure and product mix at Isaac Plains East.
“This progression of the Isaac Plains complex, has put the company in a great position for substantial growth in returns as we head towards the objective of 3.5mt ROM for the complex.”
Mr Clifford said coking coal demand continued to be strong.
“It’s our view in the long term it will remain that way, giving Stanmore, with the right fundamentals in place, the perfect opportunity to become a key participant in the sector,” he said.
Development Projects
In addition to Isaac Plains East, work was ongoing at Isaac Downs to fast track the project into development.
Since acquiring the project in 2018, Stanmore commenced base line environmental studies; initiated exploration; submitted a declaration in accordance with the JORC Code of maiden coal reserves; and developed a life of mine plan, which was currently being reviewed by an independent expert.
The project had a current maiden coal reserve of 24.5mt and resource of 33mt.
Stanmore also flagged potential to extend the Isaac Plains mine underground, to produce a further 1 million tonnes of run of mine coal per annum.
In February, the company said it expected to make an investment decision by the end of FY19, and a Bankable Feasibility Study (BFS) was undergoing final review by third-party technical experts.
Exploration planning had also commenced at Isaac Plains South.
Unsolicited Takeover Rejected
On the back of the company’s success, investors were pouring more money into the business, and eyeing takeovers of their own.
On 19 November 2018, Singaporean company Golden Investments – which held a 25.47 per cent stake of Stanmore shares – launched an unsolicited off-market takeover bid.
The offer was at $0.95 per share, which was immediately snubbed by the Stanmore board, who claimed it undervalued the company which had a stock price of $1.00 per share in October.
Stanmore Coal chairman Stewart Butel said he wrote to shareholders on 26 November advising them to reject the offer.
“The offer price of $0.95 is materially inadequate and does not provide an appropriate control premium to Stanmore shareholders,” Mr Butel said at the time.
“The offer is clearly inadequate against a range of comparisons and does not account for the positive outlook for Stanmore and the company’s pursuit of strategies and initiatives to maximise shareholder value.
“Stanmore is positioned to deliver its forecast FY19 underlying EBITDA guidance of $130 million to $150 million and enhanced operating margins over time.
“Our capital light strategy provides the company with the flexibility to rapidly respond to cyclical movements in coal prices.”
On 22 January, the Golden Investments offer expired, to which Stanmore thanked its shareholders for their support during the takeover process.
Stanmore said the company remained focussed on managing its operations and advancing the Isaac Plains complex.
FY19 GUIDANCE
Stanmore plans to produce 15 million tonnes of coal
Underlying FOB cost of $86 per tonne (excluding state royalty of $15/t).
Full year underlying EBITDA guidance remains between $140m and $155m.
Isaac Plains Underground investment decision due by end of FY19
Dragline successfully redeployed at Isaac Plains East
A higher ratio of the coking coal (90 per cent) to thermal coal (10 per cent)
