FULL year financial results for 2018 showed Yancoal’s Australian operations are performing well, with a record annual total saleable coal production of 50 million tonnes (32.9mt attributable) up 59 per cent from 31.5mt (or 18.5mt attributable) in 2017.
Yancoal’s coal mining operations produce a mix of premium thermal, semi-soft coking, and PCI coals, together with mid-to–high ash thermal coals.
To maximise pricing opportunities, Yancoal also has the diversity of product types and mining operations to blend Run-of-Mine (“ROM”) and washed coal (“Saleable”) to meet specific customer needs.
ROM production was 17.3mt – up 9pc compared to the previous corresponding period (PCP) – and saleable coal production was up 2pc over the PCP at 13mt.
Yancoal chairman Baocai Zhang stated that the company’s combined asset base is delivering results and that 2019 production is tracking towards the guided target of around 35Mt of Saleable Coal production.
“2018 has been a year of extraordinary growth and success, with a record dividend declared, debt reduced by more than half a billion dollars, and Yancoal Australia listed on the Main Board of the Stock Exchange of Hong Kong,” Mr Zhang said.
“Our exceptional full year financial results have also provided Yancoal with the cash required to begin 2019 by immediately reducing our debt liabilities by a further US$500 million.”
Yarrabee and Middlemount
2019 marks the 10-year anniversary of Yancoal’s ownership of the Yarrabee mine, which has sites 40km north east of Blackwater in the Bowen Basin and has successfully produced up to 3mt of saleable ultra-low volatile, semi-anthracite PCI (or pulverised coal injection) coal annually for export to steelmakers in Asia via the Port of Gladstone.
For the year ending 2019, Yarrabee had a total coal resource of 195Mt and had produced 0.6mt or ROM coal by the March 2019 quarter – up to 100pc over the PCP.
The successful production rates didn’t end there; Yarrabee achieved 0.7mt of saleable coal in the quarter, 75pc over the PCP.
Wet weather impacted the ROM coal production in the first quarter, increasing time spent on processing ROM stocks which influenced the saleable coal output.
But Yancoal is positive this would not be indicative of Coal Handling Preparation Plants (CHPP) feed material through the majority of 2019 and stated that it still expected to deliver on its full-year targets.
Unlike Yarrabee, Yancoal’s Middlemount mine was unable to echo the company’s positive results across its assets for the March Quarter.
Usually producing 4mt of saleable coal (low volatile PCU coal and hard coking coal), Middlemount produced 1.1mt of ROM coal steady against the PCP and 0.8mt of saleable coal – a disappointing drop of 20pc from the PCP.
Wet weather was also a factor in lower production rates, with the rain delay compounding some geotechnical (coal seam thinning) and geological (model reconciliation) issues.
Middlemount ended 2018 with a total coal resource of 135mt.
The site, 90 km north east of Emerald in Queensland’s Bowen Basin, was a joint venture with Yancoal’s ownership consisting of a near 50 per cent interest and the remainder owned by Peabody Energy.
The future of coal
Yancoal’s split of thermal coal and metallurgical coal sales have successfully met market demands and achieved the maximum price for the company.
Sales volumes typically exceed the saleable coal production as Yancoal purchases additional tonnages for blending purposes and to enhance the overall sales mix and pricing achieved. The attributable sales volumes, including purchased coal, in the March Quarter, was 7.8mt I thermal coal sales volumes and 1.6mt in metallurgical coal sales volumes, 16pc up and 33pc up on the PCP respectively.
“Without question, this year’s financial turnaround demonstrates the robustness of our operational, investment and cashflow management strategies,” Yancoal chief executive officer Reinhold Schmidt said.
“We are exceeding expectations and continue to forge our own path as a leader within the competitive global coal market.”
Yancoal was optimistic in the March 2019 quarterly report that coal prices were expected to remain stable and potentially increase as the year progresses due to the curtailing of new supply growth which are impacted by ongoing challenges associated with obtaining Australian development approvals for greenfield developments – which have the potential to strengthen premium coal prices.
“As a result, locally-based operators with brownfield expansion opportunities are likely to benefit from the combination of sustained premium grade undersupply and greenfield limitations,” the report stated.
“Seaborne supply from South Africa, Russia and Indonesia is also likely to be constrained to satisfy their own domestic energy requirements and likely to positively impact international coal prices.
“Based on pure market supply and demand fundamentals, coal price stability should occur in 2019 at current levels.”
The company is confident that the demand for high quality low ash and low sulphur coals remained strong, as developed economies in Asia including Japan, Korea and Taiwan continued to implement environmental policies requiring coal users to consume cleaner, higher grades of product.
As higher grades of coal quality remain in tight supply, price premium increases for suppliers are expected during 2019.
“Coal remains a critical part of global baseload energy supply and we are well positioned to maximise returns from current market conditions by meeting increasing needs for high quality coal supply,” Mr Zhang said.
In its March 2019 quarterly report, Yancoal stated that Asia remained a dynamic market, with coal currently representing over 50 per cent of the Asian energy requirement and remaining the cheapest energy source for developing nations.
Similarly, while China continues to introduce an alternative energy policy, it remains a growing economy in need of certainty of baseload energy supply.
“Throughout the March quarter pricing, higher grade coals held up better following the impediments to Australian thermal coal deliveries into China adversely impacting prices of lower quality coals,” the report stated.
Yancoal has the flexibility to reallocate cargoes to alternate buyers, and on March 29, Yancoal formally agreed to enter into four coal sales agreements with South Korean steelmaker POSCO (and/or its associates) for the purchase of coal during the financial year ending December 31, 2019.
Two of the agreements are set to expire on December 31, with two expiring on March 31, 2020, and the maximum annual transaction amount to be received by the Group from POSCO will not exceed US$780 million.
2019 outlook
In the year ahead, Mr Zhang said Yancoal will continue to focus on exploration and expansion works across the Mount Thorley Warkworth (82.9pc ownership) and Moolarben (85pc ownership) sites in New South Wales.
“At the operational level, the integration of the acquired Coal & Allied assets of Hunter Valley Operations and Mount Thorley Warkworth is going well and operational synergies continue to be delivered ahead of expectations,” Mr Zhang said.
“We have fortified our position as a leader in the international coal market and returned the Yancoal Group to a position of market strength and financial health.”
Exploration drilling for the prefeasibility on the target seams for the conceptual underground mine at Mount Thorley Warkworth was completed at the end of 2018 and is estimated to produce 6mt ROM per annum.
The company has also received approvals to commence mining activities associated with the Lot 1 and Lot 2 areas of Mount Thorley Warkworth. which would enable the extension of the existing West pit on the Warkworth side in 2019.
Proposed modifications for the Moolarben open cut pits are awaiting approval, as Yancoal continues to maximise improved extraction rates in both the open cut and underground mines.
Mr Schmidt said that Yancoal’s Australian assets looked to have a strong year ahead.
“In the year ahead we will invest in new fleets and operational efficiencies across our open cut mines, and progress our pipeline of Australian brownfield projects, with a specific focus on the Mount Thorley Warkworth and Moolarben operations,” Mr Schmidt said.
“With three of the most successful low-cost, high-quality producing tier-one assets in Australia, we are aggressively pursuing new organic growth opportunities to sustain the profitable return of Yancoal.”
