That is pretty much it, it is a simple business. Your analysis...

That is pretty much it, it is a simple business. Your analysis is good.

Equity sales for Sept QTR were 2.9Mt, hopefully we get 3.9Mt this QTR to achieve 6.8Mt for the half like you have said. That would meet the lower end of guidance (13.1Mt) for the full year. This however may be a big ask since Oct, Nov and Dec have the highest average yearly rainfall by month. I think we are more likely to experience flat production volumes of prior QTR and see a boost in output in the coming half year to meet guidance.

The $250 average yearly coal price may be probable as the lower end of the coming cycle. With China and India still hungry for more coal despite their large increase of production and imports, I can't see it happening soon. Anti fossil fuel zealots are alive and well, they will help keep prices higher for longer. If we look back through history, fossil fuel prices never revert back to previous levels after such a re-valuation, especially in an economic system that requires steady inflation for its economic prosperity.

The energy appetite of the third world is still underestimated. They are either going through their industrial revolutions right now or are about to. Politics and government subsidies aside, coal is their best fuel source to bring them up to western standards.

In terms of the dividend,
- We had $1.93 Billion in the bank on Sept 30 as per the last QTR report.
- We have spent $578 million on buybacks in the first half of FY23.
- Calculated on both the completed 10% portion of buybacks that were bought in the first half and the new 25% portion up to 30th Dec.
- Divided by 900M SOI equates to a dividend equivalent of 64cents per share. This represents 28% pay-out ratio on EPS of $2.26.
- IF they stick to maximum pay-out ratio of 50% of NPAT, then they will pay a dividend of no more than 50 cents per share.
- Combined with the 64 cents in buybacks, that equals total $1.14 in returns to shareholders in first half, 50.5% of $2.26 of EPS.
- That would leave $1.14 per share x 900M SOI = additional $1 Billion in the bank.
- Bringing total cash balance to $3 Billion....

Now this of course is a ridiculous scenario, what possible justification could management have to retain that much cash? Unless they plan to pay for the full cost of both Vickery and Winchester next week? Even if they plan to plough it into a 6-month term deposit they may gain 2%p.a. on that amount at best. This is if they were to split it amongst dozens of accounts. 1% return on 6 months would equal only $30M, a pathetic amount. We really have nothing else to spend that cash on expect as returns to shareholders.

As per page 3 on the annual report, "Targeting ~20%-50% NPAT payout ratio for distributions dividends and buy-backs combined. We may exceed 50% if the best use of surplus capital is to increase distributions (dividends and/or buy-backs)",

In fact, there is more reason to pay-out all earnings for the first half. Even then, there will be $2 Billion in the bank, what reason is there to keep so much cash on hand? Any coal price above Us$350 per ton brings ~$500 Million per month earnings as NPAT.

On top of all first half earnings paid out, management could announce a special $1 dividend on top which would only reduce the bank balance from $2 billion, to just over $1 billion. This would still be a huge buffer to any disruptions.

The reality is that the pace of buybacks is not keeping up with cash generation, especially after government legislation making off market buybacks a contentious issue. Buybacks are not proportionally returning enough to shareholders based on cash coming into coffers, even with an open cheque book of 25% of SOI. All other companies I know of have the opposite problem of juggling with either high dividend payments or modest dividend with low % ongoing buyback.

We may achieve the holy trinity of business as I see it. Over 25% ROE, 25% buyback, and 25% dividend. The only possible problem would be some hair brained idea from management to do anything other than what they have proven to be good at. Absolute maximum return to shareholders ought to be their goal.