ubs iron ore and coal conference presentation
TRANSCRIPT
3 DECEMBER 2014
Conference presentation Page 1 of 1
CONFERENCE PRESENTATION
Whitehaven Coal Limited (ASX: WHC) advises that the attached presentation will be delivered by Paul Flynn, Managing Director and CEO, at an industry conference today.
FOR FURTHER INFORMATION, PLEASE CONTACT:
Michael Van Maanen – Media Ian McAleese – Investor Relations M: 0412 500 351 T: 61 2 8507 9714 M: 61 427 227 530 E: [email protected] E: [email protected]
Whitehaven Coal Limited
UBS Iron Ore and Coal Conference
Sydney
3 December 2014
Statements contained in this material, particularly those regarding the possible or assumed future performance,
costs, dividends, returns, production levels or rates, prices, reserves, potential growth of Whitehaven Coal
Limited, industry growth or other trend projections and any estimated company earnings are or may be forward
looking statements. Such statements relate to future events and expectations and as such involve known and
unknown risks and uncertainties. Actual results, actions and developments may differ materially from those
expressed or implied by these forward looking statements depending on a variety of factors.
The presentation of certain financial information may not be compliant with financial captions in the primary
financial statements prepared under IFRS. However, the company considers that the presentation of such
information is appropriate to investors and not misleading as it is able to be reconciled to the financial accounts
which are compliant with IFRS requirements.
All dollars in the presentation are Australian dollars unless otherwise noted.
Disclaimer
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Agenda
Whitehaven Introduction
Coal and its future
Coal Industry Developments
Narrabri
Maules Creek
Vickery
Costs & Margins
Financing and Growth
Conclusion
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Our goal
Creating Australia’s premier ASX listed
coal company
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Introduction to Whitehaven
Whitehaven is headquartered in Sydney and currently employing over 650 people
with about 75% living in the Gunnedah region around its operating mines
Whitehaven owns 3 open cut mines, 1 large underground mine and is currently
developing another large open cut mine producing high quality metallurgical and
thermal coal for sale into the Asian region
Whitehaven listed on the ASX in June 2007, merged with Aston Resources in May
2012 and currently has a market capitalisation of A$1.2 billion
The large, high quality Resource and Reserve base of metallurgical and thermal
coal can support 30 year operations at current operating rates
Operations are located in the Gunnedah Basin which hosts structurally benign and
shallow dipping coal seams in a well understood basin
High margin metallurgical coal production could exceed 40% of total production
when Maules Creek is fully ramped post FY2018
Infrastructure in place for railing to port and export overseas
Stable register
• Farallon Capital Management
16.6%
• AMCI Group & Assoc 14.8%
• Prudential PLC 8.1%
• Martua Sitorus Group 5.8%
• Manning & Napier 5.0%
• Kerry Group 5.0%
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Where we operate
6
Maules Creek (75%)
• Reserves to support ~ 30 years
• Permitted & Planned : 13 Mtpa ROM
• SSCC, PCI and high energy thermal
Narrabri North (70%)
• Reserves to support ~ 25 years
• Permitted : 8 Mtpa ROM
• Planned : 6 Mtpa ROM
• PCI & low ash thermal coals
Tarrawonga (70%)
• Reserves to support > 20 years
• Permitted : 3 Mtpa ROM
• Planned : 2 Mtpa ROM
• SSCC, PCI and high energy thermal
Rocglen (100%)
• Reserves to support ~ 3 years
• Permitted & Planned to 1.5 Mtpa ROM
• Mainly thermal coals
Vickery (100%)
• Reserves to support ~ 30 years
• SSCC and high energy thermal
• Approval process well advanced for 4.5 Mtpa ROM
Gunnedah CHPP (100%)
• Permitted to 4.5 Mtpa
Werris Creek (100%)
• Reserves to support ~ 8 years
• Permitted & Planned to 2.5 Mtpa
• PCI and thermal coals
First mover advantage in the Gunnedah Basin
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Coal in today’s world
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Coal’s growing role in global energy
Nearly 3.5 billion people in the world have limited or no
access to electricity
Coal is the lowest cost source of electricity for many
countries around the world
BP expects word coal demand to increase by 1.5Bt from
2012 to 2035 when coal demand is expected to reach
6.8Btpa
A significant portion of the demand growth (1.1Bt) will come
from increased electricity generation in developing
countries as those countries lift their population out of
poverty
“For many parts of the world, fossil fuels are still vital and
will be for the next few decades, because they are the only
means to lift people out of the smoke and darkness of
energy poverty”
Bjorn Lomborg, political scientist, economist and founder
and president, Copenhagen Consensus Center
Source: BP Energy Outlook to 2035, 2014
Coal a major component of the world energy mix
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0.0
1000.0
2000.0
3000.0
4000.0
5000.0
6000.0
7000.0
8000.0
2010 2012 2015 2020 2025 2030 2035
World Demand for Coal (Mtce)
Power Industry Transport Other
In the recent agreement with the US, Chinese
carbon emissions will peak in 2030 so expect
coal consumption to continue increasing over the
next 14 years
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Australian political support
“Energy is what sustains prosperity and coal is the world’s principle energy source and it will be for
many decades to come” and
“Coal is good for humanity, coal is good for prosperity, coal is an essential part of our economic
future, here in Australia and right around the world”
The Hon Tony Abbott, the Prime Minister of Australia
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“There is no solution to global base-load power generation that does not feature a major role for coal. Coal fired power
generation has assisted in lifting over 500 million people – principally in China – out of poverty and providing them with
higher standards of living. It is a critical part of our portfolio of export minerals”
The Hon Gary Gray, ALP Energy and Resources spokesman
“We are exporting coal so that nations can lift their people out of poverty and that is a fundamental point. We are
exporting gas, we are exporting coal, we are exporting uranium. I mean, it is easy to sit in a nice studio here in Britain
and reflect on you know, what climate change is and what energy is but fundamentally, when people haven’t got
electricity, they haven’t got clean water, they want what Australia has and we stand prepared to get it to them ”
The Hon Joe Hockey, Treasurer of Australia
Political support is broadly based
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Capex falling
The downturn in the mining industry from weaker coal prices has lead to a significant fall in capex by companies
The surge of new capacity brought on in response to the high prices of three to four years ago is ending
By late 2015/2016 capex will decline to about normal sustaining levels
0
2
4
6
8
10
12
14
16
18
2006A 2007A 2008A 2009A 2010A 2011A 2012A 2013A 2014E 2015E 2016E
Total Global Coal Industry Capex (US$B)
Production growth will slow
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Industry costs
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0 50 100
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Del
iver
ed S
.Chi
na C
ost
($/t
) -
6000
NA
R b
asis
Cumulative Volume (mt)
6000kcal-adjusted export supply curve
USA ColombiaRussia Indo BitIndo Sub-bit Indo ligniteAustralia South AfricaOther Spot Price
Over 50% of seaborne thermal coal producers are currently losing cash on a delivered basis to China
With the thermal coal price so deep into the cost curve production cuts are likely to occur in the months ahead
Production cuts are likely to occur in the future
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Indonesian situation
0%
10%
20%
30%
40%
50%
60%
0
50
100
150
200
250
300
350
400
450
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Mt Indonesian coal exports
Lignite
Sub-bituminous
Bituminous
Sub-bit proportion
4
5
6
7
8
9
10
1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14
bcm/tWeighted average Indonesian strip ratio (ADRO, HRUM, ITMG, PTBA)
Source: Company Data, Macquarie Research
Source: Indonesian Government Statistics, Macquarie
Research
Indonesian industry under pressure
Exports from Indonesia have grown strongly while coal quality has deteriorated significantly
High grading by lowering strip ratios may have ended
Mine lives based on current reserves are declining with HRUM at 6.2 years, ITMG at 8.5 years and ADRO at 15.9 years
implying a reduction in production in the future
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High Grading
Increasing strip
ratios
Demand growth
0
20
40
60
80
100
120
140
160
180
200
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
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2014F
2015F
2016F
2017F
2018F
2019F
MtIndia thermal coal annual import
forecast
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1
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8
2014 2015 2016 2017 2018 2019 2020 2021
GW
Total scheduled coal capacity additions
6th plan
India expects to add significant new thermal generating capacity which will lead to strong growth in coal imports
Planned generating capacity of about 18GW to be added in Korea over the next 7 years will require an extra 45Mtpa coal
demand from the seaborne market
Japan is also considering adding an additional 10GW (25Mtpa coal) of thermal generating capacity from 2019
Korean
Source: Macquarie Research
Demand for coal in Asia continues to grow
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Industry context - productivity
0
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FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14
NSW and Whitehaven Mine Productivity
NSW t/m/y Whitehaven t/m/y
All Australian producers are working to improve their productivity levels with success becoming evident
Productivity from Whitehaven’s mines has consistently outperformed the NSW average in recent years
When Maules Creek is fully ramped productivity across Whitehaven’s operations will be greater than 20,000t/m/y
Whitehaven much better than average
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Narrabri performing strongly
15
Productivity is improving with each panel
Productivity in FY2014 was about 17,000t/m/y (ROM basis),expectations for FY2015 are for a further 10% improvement
Average monthly production has improved with each longwall panel
Longwall coal production in LW04 has commenced, production in FY2015 forecast to exceed earlier guidance of
6.5Mt ROM coal
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–
100
200
300
400
500
600
700
800
900
1,000
Jun
-12
Jul-1
2
Au
g-1
2
Se
p-1
2
Oct-
12
Nov-1
2
Dec-1
2
Jan
-13
Fe
b-1
3
Ma
r-13
Ap
r-13
Ma
y-1
3
Jun
-13
Jul-1
3
Au
g-1
3
Se
p-1
3
Oct-
13
Nov-1
3
Dec-1
3
Jan
-14
Fe
b-1
4
Ma
r-14
Ap
r-14
Ma
y-1
4
Jun
-14
Jul-1
4
Au
g-1
4
Se
p-1
4
Oct-
14
Narrabri Monthly Coal Production (000’s t)
ROM production LW 101 average LW 102 average LW 103 average
Narrabri beyond FY2015
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Narrabri has further growth potential
The introduction of a wider longwall panel face was
found to be superior to top coal caving
Key benefits of a wider panel face (400 metres)
- Increases annual productivity of mine (lower costs)
- Low risk option
- Less road development required over LOM (60km)
- Ensures SCOTA specification for LOM
- Capex similar to TCC
Wider panels if approved could be introduced from
panel LW07 and lead to increased production of about
0.8Mtpa from the mine
Formal decision on wider panels in the next two
months
Gate road development rates continue to improve
enabling a strong longwall float and assisting in costs
reductions
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0
50
100
150
200
250
LW101 LW102 LW103 LW104
Gate Road Development Productivity (m/week)
Maules Creek construction “S” curve
17
Revenue from coal sales will commence in January 2015, several months before the project is completed
Whitehaven expects to have spent about $600 million at the time of the first coal shipments from Maules Creek
Commissioning of the by-pass circuit is underway with the rest of the mine infrastructure to follow during 2015
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0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr
Maules Creek- First Coal Progress Curve
Construction
Commenced Current Forecast 1st Coal
Original Plan
1st Coal
2014 2015
As at 3 December 2014
Maules Creek mining progress
First coal mined in December
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Braymont seam exposed in the open cut
Ultra class equipment is operating in the open cut by
Whitehaven employees
Sufficient equipment to operate at 6.0Mtpa ROM rate will
be on site and operating from early in CY2105
Project likely to be declared commercial from 1 July 2015
with positive EBITDA generated in the first half credited to
the project costs
Operating costs for FY2016 likely to be in the order of $62/t
as limited washing will occur in the period
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Maules Creek – rail progress
19
Laying ballast for the rail Cut 3 Rail in place
Rail line will be completed shortly
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Maules Creek – By-pass system
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Vickery approval
Vickery Project Key Elements Details
Location About 25kms north of Gunnedah
Resources and Reserves Reserves of 204Mt contained within a Resource of 508Mt with
significant upside potential on contiguous tenements
Ownership Whitehaven 100%. Considering the formation of a Joint Venture by
selling up to 30% of the project to potential customers
Coal Quality Similar to Maules Creek – SSCC, PCI and high quality and high CV
thermal coal
Project Concept
Very low startup capital open cut mine producing 4.5Mtpa ROM coal
initially trucked to the Gunnedah CHPP for washing and loading onto
trains
Startup Earliest production likely after Maules Creek is fully ramped
Another significant growth option for Whitehaven
21
Approval granted by NSW Government in September
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Costs continue to fall
22
Operations continue to generate strong cash flow
Whitehaven increased its EBITDA margin during
the September quarter
Strong production from Narrabri combined with
sales of coal accumulated at the end of the
previous quarter led to the significant fall in costs
The decline in average revenue for the quarter
was more than offset by reduced costs enabling
the EBITDA margin to be increased
Costs for the FY2015 are expected to average
about $62/t
Sep Qtr
FY2015
H2
FY2014
H1
FY2014 (1)
FY2014
Coal Sales (equity basis, excl.
purchased coal) '000t 2,388 3,913 4,302 8,215
Average revenue (excl. purchased coal &
net of NSW royalties) $A/t 71 77 81 79
Average cost of sales (excludes
significant items) $A/t 59 67 71 69
EBITDA Margin on Coal Sales $A/t 12 10 10 10
EBITDA Margin on Coal Sales % 17% 13% 13% 13%
Unutilised Take or Pay charges for port and
rail included above $A/t 0 2 2 2
Average cost of sales (excludes
significant items and Take or Pay) $A/t 59 65 69 67
Note 1: H1 FY 2014 adjusted to reflect presentation of Narrabri mains amortisation costs in the amortisation line (i.e. excluded
from mining costs)
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Refinancing progress
Maules Creek construction is fully funded by the current debt facility and the project is being de-risked each
day as first coal sales move closer to fruition
The syndicate banks in the current facility are fully supportive of Whitehaven and have shown the ability to be
unanimously flexible with the facility
Whitehaven is fully prepared and will access the debt capital markets when the opportunity arises
Overall credit quality of the company continues to improve as Maules Creek construction advances and
Narrabri longwall ramps up production in LW04
Refinancing is not time critical as the current facility has two years remaining, although it is Whitehaven’s
intention to complete the first step in the refinancing as early as possible 2015
Credit metrics continue to improve
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Note: Graph depicts saleable coal on a 100% basis including coal destined for domestic and export sales and
excludes coal purchases
Data shown for the year ending 30 June. These estimates relate to planned future events and expectations and
as such, involve known and unknown risks and uncertainties. The actual production is likely to vary on an
annual basis as a function of supply, demand and other market conditions.
Production is expected to more than
double by FY2018 as Maules Creek
ramps up to its full capacity
Saleable production in FY2015 is
expected to be about 14Mt on a
100% basis (includes 2.5Mt pre-
commercial sales from Maules Creek)
The fully approved Vickery project
provides more growth for the
company beyond FY2018
24
Whitehaven’s low cost growth
Production doubled from 2012 and will double again
110% Growth
125% Growth
0.0
5.0
10.0
15.0
20.0
25.0
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018
Saleable Coal Production by Mine (Mt)
Tarrawonga Rocglen Werris Creek Narrabri Maules Creek
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Targets for FY2015
25
Aiming for ongoing improvement in safety performance at all operations
Ensuring construction of Maules Creek remains ahead of schedule and under budget
Developing long term markets and sales contracts for all Maules Creek production
Recruiting and training the workforce to operate Maules Creek
Broadening and deepening our stakeholder engagement plan
Engaging with local aboriginal groups to achieve our employment target
Improving the production performance of all mines in the portfolio
Driving efficiency and further cost reductions across the business
Implementing a long term financing plan that better aligns funding requirements and mine life
Creating Australia’s premier ASX listed coal company
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Thank you
www.whitehavencoal.com.au