WHITEHAVEN Coal has more than doubled its coal production over the last five years, with further upside expected ahead as its Vickery extension and Winchester South projects come online.
The first half of FY19 saw Whitehaven Coal post a net profit of $305.8 million after tax, sales revenue grow by 11 per cent, and its net debt pile shrink to $244.2 million.
While the company reported a positive outlook for the rest of 2019, it had downgraded its FY19 guidance from between 22 and 23 million tonnes to between 21.5 and 22.5 million tonnes amid issues at its Narrabri mine.
But other than an expected decrease in production, it was clear skies ahead for Whitehaven Coal.
In a recent investor briefing, Whitehaven Coal managing director and chief executive Paul Flynn said a number of records were achieved, making it a “very good start to the year”.
“I’m pleased to report a record half year financial result and an interim dividend for shareholders which takes the total shareholder return over the past 18 months to 80 cents per share,” Mr Flynn said.
“Importantly, we have achieved this result in spite of higher, but moderating costs, underscoring the resilience of the business as it continues to grow in scale.”
The company attributed its success in the first half of FY19 to the increase in price for high-quality thermal coal that climbed $US15 per tonne to $US96 per tonne from the previous period.
This increase reflected South East Asia’s and China’s growing appetite for higher quality Australian thermal coal, as the region continued to roll out coal fired power stations.
Citing consultants, CRU, the company forecasted demand for coal in Europe would decrease, however as Asia continued to build more coal fired power stations requiring high-quality thermal coal, Asian demand would outweigh the decline from the European market.
The company predicted the global demand for thermal coal in power generation would grow by more than 400 million tonnes in the next five years.
Maules Creek
After a slower than expected start to the financial year, Glencore’s Maules Creek mine produced a record 6.2 million tonnes of ROM coal for the first half of FY19, and was on track to meet guidance of between 11.8 and 12.2 million tonnes for the full year.
The company decided it would offer a 50/50 split between coking and thermal coal, and offer three distinct products in order to take advantage of the large differences between high and low-quality thermal coal.
By blending lower quality coal from multiple seams in the mine, it would produce a very-low ash, low sulphur semi-soft coking coal; a low ash, low sulphur semi soft coking coal and a <10 per cent ash, very high CV low sulphur semi-soft thermal coal.
This would require more coal washing, and create lower yield at a higher cost to produce, however the company said that by offering the three products it was able realise higher average prices across the three different products.
“What we think, is that there is a very good opportunity here to wash a little bit more and maximise those premiums for our thermal coal in particular,” Mr Flynn said.
The company had also looked at adopting autonomous elements at Maules Creek.
“We have started the physical aspects of the autonomous journey that we’ve been evaluating at Maules Creek, and just a week ago we had our first trial in a segregated part of the pit,” Mr Flynn said.
“That will ramp up continually, but gradually as we work our way through a very exciting prospect of obviously brining costs down.”
Narrabri
During the first quarter of FY19, production was constrained due to the longwall change out.
“With the change out in September, it certainly recorded less tonnes than what you’d like to see,” Mr Flynn said.
This meant that full year ROM coal production guidance was revised to between 5.6 and 6 million tonnes of ROM coal.
In the December quarter, the mine achieved near-record levels of ROM coal production.
The company said that longwall mining would continue at the current LW108 panel for the second half of FY19, but the decision had been made to change out the longwall when reached a volcanic intrusion in the LW108 panel.
Once mining hit the volcanic intrusion, the longwall would be changed out and moved directly into LW109, where the remaining black coal from LW108 would be mined.
ROM coal production guidance for FY20 was expected to be sit between 6.2 and 6.6 million tonnes.
Narrabri Stage 3 also showed promise, which included converting the southern exploration licence into a mining lease.
“The future for Narrabri is very bright,” Mr Flynn said.
The company had dedicated a team that lodged a gateway submission to the Department of Planning and Environment (DPE), which would be the first step in the environmental impact assessment (EIA) process for the project.
At March 2019, parallel studies were underway to refine the options for expanding the mine lease.
Gunnedah Basin
Whitehaven’s three foundation mines, Tarrawonga, Rocglen and Werris Creek, and the Sunnyside rehabilitation project underperformed in the period.
Rocglen would cease production at the end of FY19, and to partly offset losses associated with the closure; the Tarrawonga mine would be expanded to a fully approved capacity of 3 million tonnes of ROM coal.
“It’s sad to see, but it will give us the opportunity to move into an active rehabilitation phase,” Mr Flynn said.
The expansion of Tarrawonga was expected to commence in the September quarter, and would involve the acquisition of new mining equipment and infrastructure that would replace the ageing equipment with a modern, larger capacity fleet.
By modernising the fleet, the company would increase the productivity of the mine and expand production to its permitted rate.
“We expect to have them on the ground in September/October period later this year,” Mr Flynn said.
Vickery Extension
On 13 August 2018, Whitehaven lodged an EIS to the DPE for its Vickery extension project, which reviewed it and placed it on public display on 13 September.
Whitehaven Coal said after six weeks, a total of 560 submissions were received with 63 per cent in favour of the project.
The DPE completed its preliminary issues report and the first public hearings were held in early February at Boggabri and Gunnedah.
Mr Flyn said it was good for the Independenct Planning Commission to know there was strong support for the project.
The company aimed to gain approval for the project by the end of 2019, and begin constructrion in early 2020
The project was anticipated to generate about 500 jobs during the construction phase, and about 450 during operations, with the majority of work to be awarded to locals.
Winchester South
Whitehaven acquired Winchester South in the June quarter of 2018 from Rio Tinto, and had been developing it since.
Winchester South was in an established mining precinct with a rail line that passed directly over the Winchester South tenement.
“We’ve moved into a phase of planning for what’s going to be a large project,” Mr Flynn said.
“We certainly think that this project is going to deliver significant boost to shareholders.”
The company assembled a small team who, after collecting technical data, determined the JORC resources for the project were 530 million tonnes; a 49 per cent increase on the 365 million tonnes predicted by previous owners.
The company said it would aim for comprehensive drilling to commence in the June 2019 quarter.
Once developed, the mine would have a life of between 20 and 30 years at a production rate of between 7.5mtpa and 15mtpa.
Outlook
In its recent report, Whitehaven said its production was forecast to grow in the coming years through the start-up of the Winchester South and Vickery projects.
Within a decade, Whitehaven expected to be operating four highly efficient large scale mines producing high-quality thermal and metallurgical coal.
“With first-rate development assets in our Vickery and Winchester South projects, we are strongly positioned to meet the wave of demand for quality thermal and metallurgical coal we are seeing through the region,” Mr Flynn said.
