Two observations about first half 23 result (H1) are as...

Two observations about first half 23 result (H1) are as follows:

The first the higher than expected average mining cost per tonne of $109. But the good news is costs per tonne are expected to fall materially in H2 as production rises.

The second is I think the dividend of 37 cents is much higher than my expectation. Not sure what this means. It could mean that YAL is planning not to buy one or both of the BHP coal mines. Alternatively, YAL is hoping to buy one or both of the BHP mines but can largely fund the acquisition by debt topped up by $1b cash (approx) and may be a small equity raise. YAL probably has the advantage over their competitors because the Bank of China (as it has in the past) can probably provide as much debt as YAL needs.

Looking forward to the second half (H2), coal sales (ie production) is likely to be much higher (say, H2 18.6mt compared with H1 of 14.4mt), and costs are expected to be much lower (say, $95 per tonne in H2 compared to $109 per tonne in H1). These 2 positives are likely to be more than offset by lower prices. Sept Q prices are now locked in and Dec Q prices are now partly locked in given the 3 month lag. Assuming coal prices remain constant to early Oct 23 (say $US140 per tonne for GC Newcastle 6000), then the average price YAL receives could be around $A165 per tonne in H2 compared with $278 per tonne in H1. This means NPAT in H2 could be only $200-300m compared with H1 of $973m in H1. This means there will be a corresponding drop in the final FY23 dividend.

Looking forward to FY24, assuming coal prices remain constant at current levels, this means FY24 NPAT will be materially lower than in FY23 (say, $400m to $500m in FY24 compared with $1.2-1.3 billion in FY23). So lets hope thermal and met coal prices are currently at a low point. A small improvement in coal prices in late 23/early 24 will result in a material improvement in FY24 NPAT (because costs are largely fixed).

Looking forward to FY24 and beyond, I am optimistic that coal prices won't drop to levels where coal mining companies become unprofitable for long periods (as has happened in the past). Further, I think coal prices will continue to be at a level where coal companies earn healthy profits for the foreseeable future. This reflects the view that supply is constrained over the medium to long term because of difficulties building new mines and expanding existing mines and the Russian issues could take a decade or more to resolve themselves. That said, nobody has a "crystal ball".