First post here. I’m a relatively new Yancoal Australia...

First post here. I’m a relatively new Yancoal Australia shareholder in Canada. Easy for us to buy on the U.S. over the counter market. My dividend and other thoughts ahead of the year-end financial report due Feb 27^th.

Took another look at the 2022 H1 financial reports. Yancoalreported stellar profit and cash flow in H1, despite the impact on productionof the weather events (rainfall and flooding) in Australia which impactedmining operations and shipping significantly. H2 will be reported Feb 27 andshould be a substantial uplift to H1 due to significantly higher pricing in H2.Unless there are unforeseen offsets, H2 net income and cash flow should be 30%to 50%+ ahead of H1. After the year-end results which will almost certainly bea bumper and unrepeatable year, the big unknown will be the intentions of themajority Chinese shareholder YKE.

The H1 results included some sales at 2021 Q4 prices due to the lag betweensales contracts and shipping. This means that the peak prices in Q3 2022 wouldhave been captured for a significant portion of Q4 sales. Similarly going into2023, Q1 sales will have a substantial component of 2022 Q4 pricing, setting upa strong Q1.

Yancoal reported Dec 31 cash at A$2.7 billion. With continued very profitablesales in Q1, plus uplift from the substantial interest savings as a result of2022 debt paydown, plus potential higher production, it is quite possibleYancoal will generate A$1.5 bn and possibly as much as A$2 bn net cash in Q1,taking total cash to the A$4 bn + range at March 31. Last years dividend datesannounced at the end of February were a record date of March 16 and a payabledate of April 29. By April 29 this year it is possible the cash level will bein the order of A$4.5bn. A substantial dividend announcement after the BoardMeeting on Feb 27 seems distinctly possible. Each A$1.00 per share of dividendtotals A$1.3bn. Payout range between A$1 and A$2 seems quite likely based onpast payment levels so total dividend of somewhere in the order of A$1.3 toA$2.6bn. Even paying out at the A$2 per share level could still leave them witharound A$2.0 bn of cash at the dividend payment date.

While Yancoal is required to pay out the higher of 50% of net income or freecash flow as dividends there is a provision for the payout to be reduced to 25%if the directors determine it is necessary to "prudently manage thecompany's financial position". For example, if Yancoal was planning anacquisition it could decide to hold back some cash to fund the acquisition. Itis quite possible that Yancoal will use this provision to keep the dividend to25% on the basis that using much of the 2022 cash flow to pay down debt was “prudentfinancial management”.

The size of the year-end dividend will likely depend on the desires of theChinese majority shareholder - YKE with 62% and possibly more if they used thecreeping provisions to purchase some of the Glencore or Cinda shares sold in2022 or used their substantial mid-year dividend payment to purchase additionalshares.

I suspect what happens depends on the intentions ofYKE. The strong financial position of Yancoal gives YKE the potential opportunity to buy out the minority shareholders using the cash in the company. If the minority stake is still 38% (could be less) it would cost YKE A$4.2 bn to pay 50% over the current A$5.60 share price for the total minority stake. A high dividend of A$2 would give YKE A$1.6 bn towards the minority purchase and would give the minority shareholders a total of A$1.0 bn in dividends, plus the purchase price for the minority shares. The A$2 bn of cash likely to remain in Yancoal at the April dividend payment date plus the approx. A$450 million YKE received as the 2022 interim dividend would cover the balance of the purchase price.

If YKE still has designs on acquiring all of Yancoal I wouldexpect them to try to minimize the dividend payment and leave more cash in the companyto be used to fund the buyout. Any purchase mechanism would depend on tax considerations to structure funding.

If YKE has other fish to fry and does not intend to makeanother attempt to buyout the minority shareholders they would likely request amaximum dividend and that would of course be good for us minority shareholders. I am assuming YKE learnt something from their botched buyout attempt in mid-2022 and are not dumb enough to try the same low offer approach again! The size of the year-end dividend payment may give some clue to the Chinese intentions.

YKE have a one-time unique opportunity to acquire thebalance of Yancoal using its own cash and I will be surprised if they do nottake it. If they do not do anything in the next few months the opportunity will erode as the cash will likely be paid out in dividends or used for an acquisition.

My thoughts ahead of the H2 results FWIW.