Not exactly the cash generation we were wishing for. My key takeaways:
1. The discount to the benchmark index appears to be in the vicinity of 40% after removing hedge impacts - no real surprises here.
2. Sales were well below my expectation. There’s 200kt sitting at the port due to port availability issues late in Dec. I don’t have a problem with this as it is cyclone season, and this will happen at this time of year, it will liquidate this quarter given port is not (usually) a bottleneck. Mt Webber production was about 250kt below my expectations as they continue to try and ramp up to 9mtpa (crushing 2mtpa at Mt Dove) – this was disappointing.
3. Costs were $4/t higher than I expected. $2/t was higher shipping rates, the rest was driven by lower volumes resulting in less fixed cost dilution – they’re going to have to tighten the belt on overheads now that production has dropped from around 14mtpa to 9mtpa – there’s less tonnage to wear the overheads. I expect there were costs associated with demobilisation of equipment following the cessation of activity at Abydos, this will be one off.
4. Lump production was 50%, probably all from Webber – good signs.
5. They’ve hedged for the remainder of the financial year (not just the quarter) and it is 0.3mt at fixed price to atlas of $67/wmt ($10/t margin - fixed) and 0.9mt over US$65/t (62%fe) benchmark – a lot more exposed to IO price now as lower % hedged than usual.
Whilst overall a disappointing result, i think the sell off is overdone, good opportunity to top up. This quarter will see higher benchmark prices, a tightening of the discount, the liquidation of the built up stock at port and hopefully Webber production running at 9mtpa run rate and costs back down to $56/t (giving margins >$10/t). Wouldn’t be surprised with $25m+, but obviously depending on IO price holding up as it is.
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- Ann: December 2017 Quarterly Activities Report
Ann: December 2017 Quarterly Activities Report, page-41
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