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Edited Transcript of WHC.AX earnings conference call or presentation 26-Aug-20 12:30am GMT

Full Year 2020 Whitehaven Coal Ltd Earnings Call

Sydney, NSW Aug 26, 2020 (Thomson StreetEvents) -- Edited Transcript of Whitehaven Coal Ltd earnings conference call or presentation Wednesday, August 26, 2020 at 12:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Kevin Ball

Whitehaven Coal Limited - CFO

* Paul J. Flynn

Whitehaven Coal Limited - MD, CEO & Director

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Conference Call Participants

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* Glyn Lawcock

UBS Investment Bank, Research Division - MD, Head of the Australian Mining & Energy Team and Research Analyst

* Lyndon Fagan

JPMorgan Chase & Co, Research Division - Analyst

* Paul Young

Goldman Sachs Group, Inc., Research Division - Equity Analyst

* Peter O'Connor

Shaw and Partners Limited, Research Division - Senior Analyst of Metals and Mining

* Rahul Anand

Morgan Stanley, Research Division - Equity Analyst

* Sam Webb

Crédit Suisse AG, Research Division - Associate

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Presentation

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Operator [1]

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Welcome, everybody, to the Whitehaven Coal FY '20 Full Year Results Call. (Operator Instructions) Thank you again for joining us today. I will now hand over to Paul Flynn, Managing Director and CEO.

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Paul J. Flynn, Whitehaven Coal Limited - MD, CEO & Director [2]

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Hey, good morning, everyone, and welcome to you all. And thank you for taking the time to dial in, plug in, press a button to join us on our webinar this morning. We are sort of trying to find our rhythm with all these things over time. I suppose we would have another 6 months of COVID working from various location experience. So let's see if we can get the technology working well. And I'm presuming everybody can see the presentation. And as the operator said, there's a means by which you can lodge your questions.

So with me this morning, I have got Kevin Ball. He is physically in the same room with me. We are appropriately distanced. Ian is significantly distanced on the phone also, up at Tarrawonga. And of course, Sarah McNally from IR is here as well. Usual format, I will go through a few slides, and then we'll get into our Q&A.

Yes, look, I don't propose to go through all the physicals in detail as we've done that through the passage of quarters during the course of the year, so we'll keep this at a high level. Of course, we'll deal with the financials, which I'm sure you all want to work your way through. And let's get to the Q&A.

So look, I think this slide is useful. Just I'm looking at the slide with Whitehaven's customer base in Asia just to remind everybody about where our footprint is and the spread of customers between the met and thermal products across Asia. It is an expanding customer base, which is very positive for us, and typically defined by customers who are looking for a mix of high-energy, low-trade settlements, as you know, ash, sulfur, phosphorus, nitrogen and high energy, of course, and then the semi-soft and coking and PCI coking products that we sell across this footprint as well. India being now 50% of that met coal business, and you can see there, of course, no thermal product going into India. And of course, the obvious exception here is no China either.

It's always useful to remind ourselves about the future demand for coal and because there's plenty of other people who might seek to extend a different narrative of that. But along with the rest of the world, Asia really wants to continue to grow. And whilst we're all buffeted by COVID-19 and here in Australia, of course, and our customers' jurisdictions as well, it's best to remind ourselves of the fundamentals here and that is that our region, Southeast Asia in particular as a subset of the broader Asian region, is requiring greater energy in the future. Now when I say energy, I mean, all sources. So we're not saying coal or gas or renewables for one matter or another. It's just all energy sources will be required in order to meet their growing demand on the other side of COVID. And you would be surprised there's too many commentators who would be proposing a counter-narrative to that.

A couple of references for you, obviously, with the IEA numbers as we use continually with our presentations and then BP's very good statistical review is always a good source of input.

I'm over to the next page and our business in particular. And I think it's worthwhile just stopping here for a moment just to help our shareholders and stakeholders to understand the robustness of our business. And certainly, that was encapsulated in our sustainability report last year, our inaugural report, where we did incorporate the TCFD framework. And I think we were the first pure coal -- play coal company to do so on a global basis. But under all those scenarios, even the most obviously aggressive from an emissions reduction perspective, the sustainable development scenario, our business is robust and which is very positive for us. And we will publish our sustainability report in about a month or so's time ahead of our AGM, where we will refresh our view of our TCFD framework work, which will be a good read for everybody to focus on, not just how we see ourselves from a sustainability perspective, but also measured against these obvious scenarios.

In the meantime, I think it's worthwhile also just acknowledging the New South Wales government's leadership in outlining for our industry our most important document, which was the strategic statement on the future of coal exploration and mining in New South Wales. It's very important for us to have some certainty in this regard. The state obviously acknowledged that there's a significant -- we are a significant player in the economy. And our neighbors in Southeast Asia, in particular, are very dependent on us continuing to do what we do. And I think it was useful for the government to endorse that view that we've got a long-term future here and that -- and also help us understand where the state would like to see further development reside. And so I think that clarity was welcome from the state government of New South Wales.

On COVID, we've spoken about this over the last few quarters to give you an update on COVID impacts for us as a business. We have just highlighted there for you that whilst it's cost us $1 million in direct cost, it's relatively modest. And we have been able to operate significantly through that -- the last 6 months relatively unimpeded by COVID measures, obviously being classified as an essential services, helped considerably, but we haven't had any cases amongst our workforce. And the region more generally has been touched very lightly by case numbers, which is fantastic. And we're doing all our best to make sure that, that continues to be the case.

But obviously, met coal markets have been buffeted by COVID, just as many other markets have. We had, had core closures in India for a period. And although we do see that that's starting to change, shipments that we sort of requested for deferral in the June quarter are starting to move now in this September quarter as our customers had requested. So that's quite positive.

I mean I think the picture with China is a little harder to decipher. There's no doubt that economic activity there in China is starting to re-liven and with some force, I have to say. So I think that, that will play into the met coal picture going forward. But there is early signs of turnaround in our markets, Japan, Korea and Taiwan, in particular. And more broadly, they have managed themselves relatively well from a COVID perspective, which I think will mean that they will probably come out as a pack once a bit more momentum starts to be gained in each of these economies.

I'll move over to the results and call out a few highlights here for you. And again, some of these things will be familiar to you because they were highlights which were called out in the June quarter. Of course, production at 20.6 million tonnes of ROM, I think, at a managed level, everybody understands that, and our sales, excluding purchased coal, at 17.5 million tonnes for the period. Narrabri had a great time in terms of 1 million tonne month in April, which is wonderful. And with COVID as a backdrop and that increased level of production at last quarter, it's very gratifying to see our safety results do so well in this year. That TRIFR of 4.13 is a company low. And the challenge is on, obviously, this new year to try and improve on the very good result.

Vickery, of course, has been approved, which is -- it's nice to be able to say that to you now after so many times accounting for the delays, which obviously weren't our fault, but over many, many quarters, that is nice to say that has happened. We can talk a little bit of that further.

Earnings obviously have been subdued. Prices -- average prices in the year are vastly lower than what they were in the '19 year. And so the resulting impact of that is EBITDA at $306 million. We have significant liquidity on our balance sheet and at our disposal. So I'm sure Kevin will speak to that a little bit later on. And of course, as you know, we have refinanced our facility up to July 2023. So I think the team has done a good job in doing that ahead of any impacts that we've seen in the last 6 months.

So again, safety, just to quickly bring that home again. This is the right relationship on this graph. Rising production must be -- correspond with better safety. We've always demanded that of our people. And it's nice to see that it's happening, particularly at a time when there's a lot of other safety concerns going on, be that COVID-related. I do think that's actually helped us in a sense because it has heightened people's awareness of safety. But 4.13, as I say, the challenge is on to make sure we can continue that momentum improving and of course -- and produce more than 20.6 million tonnes.

It's worthwhile just highlighting just quickly the environmental management because a couple of pieces of our business, as you all know, has switched now into a rehabilitation phase, with Sunnyside and Rocglen. So I thought I would just highlight to you a couple of pictures here of Sunnyside. This work is progressing rapidly and doing very well, in fact. So in fact, some of the final landform you can see on that right-hand side picture is now in place. And we have a requirement there for free-draining void at Sunnyside. And I got there a month or so ago, having to look at this work, and it's certainly coming to a conclusion quickly and I think will be a very good example of contemporary rehabilitation that we can show the community, given that Sunnyside is actually not very far out of town. And it's easily reachable if you want to take people out to see what contemporary rehabilitation looks like. So that's very positive. And we look to see that conclude and also Rocglen's work, perhaps 12 months after that, given that that's a bigger operation to finish up the work on.

I thought we would always -- we would just remind everybody that despite what we think at times, the community actually is very supportive of us as a company, the sector as a whole, and our role that we play in our regional community. I mean this came to the floor during the presentations of the IPC of -- for Vickery, both back in February '19, when we had the initial IPC hearing, and then more recently this year. And you can see, period-on-period, we've actually seen the largest jump in positive sentiment towards the company that we've actually seen since we've been taking this polling.

And I think we're on the right path, I think, in terms of orienting ourselves around local workforce, making sure we spend a lot of our procurement locally in the region. We do make a lot of discretionary contributions to community-based programs. And as everybody knows, we are a significant employer of indigenous people in our community. And as a company as a whole, the proportion that they represent of our workforce is consistent with the proportion they bear in the community at large. I think there's not too many organizations in New South Wales that can say that.

I'm over to ROM production. Again, I won't belabor this because I think you've all seen these numbers before. But just to highlight a couple of numbers here for you. You can obviously see the period-on-period or the half-on-half change in ROM to the first half for 2020 through to the second. As we know, we had a softer first half than what we would have wanted and then came home with a significant production volume rush in the second half and the last quarter, in particular. That obviously did give us significant stocks to bring in to this new year. So our logistics chain is working very hard and effectively, I might add, to move that coal into customers' hands in this first quarter. So that is working well. And the sales volumes on the other side, they are half-on-half, as you can see, broadly consistent, again, using the stocks that we brought into the '20 year, which were meaningful. And the same will occur in this new year, 2021.

And just over to our products. And as you know, this is a slide we have presented on various occasions. This gives everyone a sense of the split between our thermal and metallurgical coal by market. There's no real change here. Of course, you can see India is important to us in terms of our met penetration there. So I know we've been talking about that for some time. But we have a couple of large customers there, who, as I say, did ask for some deferrals into this quarter. But those shipments are now resuming, and that's a positive thing for FY '21.

I might just concentrate quickly on a couple of the highlights for the operations before we move into the financials. Maules Creek obviously had a big rush towards the end of the year at 10.7 million tonnes, which is a decent outcome from where we were after the first half. But of course, it is down period-on-period from 11.7 million tonnes in the previous year. Obviously, the operations there had to suffer some challenges in terms of labor shortages back in the second quarter of the year, which we had addressed through the third. And certainly in the fourth quarter, we were at full manning, which allowed us to continue to produce at a level which brought us home to that 10.7 million tonnes in total.

The AHS operations has switched over into 24/7 for that one fleet that we have deployed there. That is promising. We are looking forward to bringing on another fleet as soon as we can and continue this rollout of the technology. We are seeing promising results from this. So we can talk about that perhaps in Q&A a little bit further on. And we'll wrap up the guidance a little bit later on, but we've put a chart in there -- a bar in there, just on the end of the chart, just so you can see where we're going from a guidance perspective overall.

This next chart I thought might be useful just to give people a sense of Maules because, I think, oftentimes, people may not understand completely the number of seams that we're working with here at Maules then. And we're not to say that this is a problem, this is a very good deposit, but I thought it would be useful in a simplistic way and it is a simplistic depiction of it because it really only highlights one big area where we have multiple areas open to us in the mine plan. But what it does highlight to you is that, that big seam in the middle, you can see that light blue, the Braymont Seam, it's nearly 30% of the overall resource. When you hit that, it does obviously produce a lot of coal. And then you then trend back into seams which are much lower in proportion of the total reserve that we need to manage as we're mining.

So you will see some variation here, where you've got more Braymont or less Braymont. And that will kick you closer, if not over, at times, the 13 million-tonne run rate, hence our desire to go to 16 million tonnes with Maules Creek. Because we know, in certain years, there will be times when it will have the potential to kick it over the current limit of 13 million tonnes. But I thought I would just include this slide just so you could see, firstly, the multiple seams and of course, the pit floor, which is where, obviously, our in-pit dumping opportunities are. And now that we have created in-pit dumping opportunities for ourselves, you will see that migrate to 100% in 2030 -- 2023.

I'm over at Narrabri just for the moment. Narrabri did certainly have a decent year. And as I say, that second million-tonne month was a nice thing to be able to deliver in the year or certainly positive to be able to see that, particularly that we are operating much deeper in the mine than we were when we experienced our first million-tonne month. The longwall change-out, as you know, it was long, longer than we've ever done and more complex, but that was carried out in good order, on budget. And obviously, we have a longwall much better able to manage the weighting events that we experienced on a periodic basis as we traversed, particularly, through slightly deeper ground in the next panel.

And of course, you all know that we did buy 7.5% of Narrabri from EDF during the course of the year. And you'll see in estimates going forward, there are the progressive payments of those installments over the next 5 years, I think this year being the first of the 5 installments -- FY '21, I should say.

And then, just finally, on the Gunnedah Open Cuts before I hand over to Kevin. Look, there's -- the Gunnedah Open Cuts had a modest year, we would have to say. Obviously, Rocglen has finished up, and so you're now -- you had a year essentially of 2 pits, the 2.4 and 1.2, in terms of the numbers we wrapped up for Tarrawonga and Werris, respectively. In this new year, you will see a slight increase over that, of course. Tarrawonga obviously has its fleet on the ground now, and it's moving to a mine plan that can sustainably support a 3 million-tonne run rate, where it is fortunately past these intrusive and oftentimes unmapped underground workings. So we should also see a better run at Werris Creek in this new year. But finishing up at FY '20 at 3.9 million tonnes was not where we wanted to be overall, and we would like to think that we can do a bit better than that in this new year.

With that, Kevin, I'll hand over to you.

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Kevin Ball, Whitehaven Coal Limited - CFO [3]

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Thank you, Paul. So let's talk to the main P&L and balance sheet items. And you can see that underlying EBITDA is $306 million for the year. That's down about 69% on financial year 2019. And the single biggest impact on that, and we'll come to that in the slide, is coal price. Coal prices in fiscal year '19 reached -- are low at the end of fiscal year '19. We saw the full impact of that through fiscal year '20 before we got into the fourth quarter when COVID-19 impacted coal prices.

So in these circumstances, it's important that we manage the balance sheet well and we take a disciplined approach to capital. So at the end of the year, you would have seen our financial -- our net debt stand at $787.5 million. But importantly, that reflects the diversification strategy we've been adopting, which is expanding our sources of capital to include leases and ECA facilities. So there's $216 million worth of finance leases on the balance sheet and $62 million of ECA facilities. The ECA is typically 8-year fully amortizing. And the lease facilities we will roll as time goes on, and we've referred those -- we conduct major overhauls on those best pieces of equipment to bring them back.

At the end of the year, our $1 billion facility with the group of banks was drawn to $638 million, which meant we had about $470 million of liquidity in the business. And today, we have about that same level of liquidity. So as Paul has mentioned, soft Newcastle index pricing for the year has had an impact on earnings, and I'll just get to that.

So if I take you to the next slide, which tells you the difference between the $1.042 billion last year and the $306 million this year, it's basically coal price. You can see that there's $621 million there as a result of the actual coal price, and we got a little benefit of about $89 million from a softer FX, where FX was 0.67 this year, but it was 0.72 last year.

The difficulties in production that Paul referenced earlier at the operations caused a reduction in sales volumes, together with the closure of Rocglen and Sunnyside. And that lack of volume at about last year's margin was mid-60s. So we're about 1.3 million tonnes down. That's about here, $82 million, and the costs were up about $8 on the previous year. And that really explains this, so largest contributor to coal price, and you can see the impact of some of the production issues in fiscal year '20.

If I turn the page now and get to unit costs. I'll take you through this bridge. I think many of you will have seen elements of this before, but for clarity's sake, we'll put it out here. In fiscal year '19, we're about $67 a tonne. And in the back of this pack, you'll see how you can calculate that off the face of the balance sheet or pace the P&L for those that are interested. And I think it's $67 and change, play $75. And what you see is the drought, the bushfire and the latest coal shortage have added about $1.50 a tonne to our costs. Importantly, when we had that back-ended production in June, that meant that our cost of sales, which is how we determine our unit cost, it's not a cost of production number, it's a cost of sales, we locked up somewhere around $0.5 in low-cost stocks at the end of June.

The production or the decrease in the production for the year also meant that we underutilized rail and port and some overheads in the business for about $2.50. And the Maules Creek, as we've talked about, Maules Creek's haul distance and elevation before it gets to in-pit dumping of 100% in FY '23 has contributed to about $2.

On the longer-term things, clearly, we've been selling a better-quality coal, and that's reflected in the realization, the average realization better than gC Newc's or about $2 for the year better than gC Newc. But clearly, that cost us when we throw a little bit more material under the refuse pile. So that's the $0.50. And this year, Tarrawonga reached 10:1 as a strip ratio, which is its life-of-mine strip ratio for the rest of its year. So that impact, I think, is going to stay with us until we can work on improving operations there.

Turn the page to D&A and net financial expense. I know this is a big number for a coal company. I saw the Yancoal numbers yesterday were about $22 a tonne for DNA, and ours were about $16 a tonne. The key components of this really are our -- the fixed plant that we build together with our orange and yellow goods. So in previous years, when we had IFRS 16 here and these were operating leases that were amortized on a straight line over the lease term, now that we've rolled them into finance leases, this equipment is being amortized over its asset life, which is really on an hours-of-use basis. So you should see that more closely correlate now to production, and some of the bumps that we might have seen in previous years in this charge will now be smoothed out.

Our own PP&E, which is really the fixed plant, is either depreciated over the life of equipment or the ROM profile, depending on whether it's the life of mine asset or is going to be replaced. And our mineral tenements, which was really the acquisition cost of Maules Creek at the time of the merger with Aston, that comes out on a ROM profile over the life of mine.

Importantly, net financial expense, we're down about $1 million on last year. And we do see having quite some detail in the notes of the financial statements. But net financial expense was down from last year. Really, that's a function of a couple of things. The bank bill swap rate, the RBA, has reduced rates. They're down about 0.25% now. So we're seeing a little bit of a benefit from that. We have a grid-based margin -- or a leverage grid-based margin. So as our leverage increases with the decline in EBITDA, we'll pay a little bit more in years to come or the year to come.

Our interest on lease liabilities is down about $1 million, and that reflects the refinance of equipment from operating to finance lease and reduced principals at that point. We also include quite a few other changes there from banks for undrawn commitment fees and bank guarantee fees so -- and they're relatively flat year-on-year.

And when we refinanced our debt in February, the accounting standards required us to revalue that liability, and then we booked a small gain from that. But we refinance that debt every couple of years. So don't be surprised if you see that turn up every time we refinance.

Balance sheet and net debt. Let's move on to the balance sheet. Our cash, typically, we retain about $100 million in cash, so this year, $106 million versus last year, $119 million. We did draw down on the senior bank facility, going from $160 million to $638 million, and I'll give you a net debt bridge in a page or 2. We did undertake a lease conversion strategy with finance leases or operating leases at Maules Creek coming onto the balance sheet and -- but the biggest contributor to the drawdown was the $312 million of dividends, which was a $0.30 dividend from the final in fiscal year '19 and the $1.50 dividend in fiscal year '20 as the interim. And if you can see the net -- sorry, the equity falling from $3.5 billion to $3.2 billion really just reflects our dividend and the earnings over the year.

I did want to -- on the financing -- yes. On the financing, I just wanted to draw your attention to, really, we do try and diversify our sources of capital. There will be some companies that run a central treasury. We run a business where we're trying to raise funds or we're raising funds from senior banks, and that's our senior debt facility for $1 billion. And it's been about that number now since 2012. So it's been quite strong and well supported. We go to export credit agencies, which really help OEMs supply us with mining equipment. And with the program of work we have over the next decade, we see that as an important source of alternate capital. We use finance leases, and we use asset rentals.

Importantly, to support our rehabilitation obligations and then our logistics, we have bank guarantees. And that is quite a large number, at $450 million, but that's well supported by a range of banks.

The key thing I wanted to point out again here is if you look at the end of the year, we have liquidity of about $470 million. We have a very strong banking group that as well -- that supports us very well and has supported us over these years. And we have great banking relationships.

You'll also see -- in the appendices, you'll see an explanatory slide about the covenants. And I'm happy to take calls and talk to people about that either in our one-on-ones or later as we finish this process.

Net debt bridge. That lease conversion strategy was something we were -- we started with last year, but we really closed out all of the operating leases with Narrabri in this year and moved them over into finance leases. And if we had not restated that, you would have seen us start the year with about $300 million of net debt.

The $146 million in cash inflows from operations, I'll come to that in a moment. We invested about $216 million, which is the capital spend that I'll take you through in a moment. We borrowed about $52 million from the ECA, which, really, that's that 7-year facility that's going to support the expansion of Tarrawonga. We paid $312 million in dividends. And there's some others in there that gets us to a total of about $788 million for the net debt. But importantly, there's a range of suppliers of capital. There are no near-term maturities, and we have a well-supported facility.

EBITDA to operating cash flow. Traditionally, our conversion ratio was a lot higher than this. But there's a few things in here that I would probably draw your attention to, the -- essentially timing differences. So Narrabri has development there. You can see we've invested about $29 million, which is really we've developed longwall panels, we've put in gas drainage and we've put in other works, which is ahead of what we've actually mined in the period. So in future years, that will unwind, and those numbers should reverse.

And overburden in advanced investment, as Paul talked about with Werris Creek, typically, that doesn't look like that. It reverses in the fourth quarter with strong production in the fourth quarter. But the impact of the underground workings has meant that, that production is going to turn up in the September period. But when I look at our forecast, I think that's going to be flat in 2021 and starting to unwind in '22 quite strongly as the mine comes to the end of its life.

We continue to pay our creditors. We built a large inventory balance. So you can see a working capital investment of about $35 million. And I think as Paul talked to earlier, the heavy lifting on rehabilitation at Sunnyside and Rocglen has been undertaken in fiscal year '20, and that's that $22 million. I think that work -- there's a little bit more of that to come this year, and then I think that's probably at the end of it. We're back into a monitoring and maintenance program after that before Werris Creek finishes in the mid-2020s.

Interest paid at $30 million is recurring. I did put the annual tax payment in there at $14 million. But if you look on the face of the balance sheet, I'm going to get most of that back in the back end of this year. So I think the net will be about 1 by the time we're done.

Over the page to investing cash inflows. So through the cycle, we continue to invest in this business. And if I start from right to left rather than left to right, I would say we bought the 7.5% of Narrabri because we like that asset and we found that price interesting and the structure was quite interesting to pay for that over 5 or 6 years. We invested in some growth projects and some water security. The drought taught us in '18, '19 and into '20 that we needed to do a little bit more support there, so we spent some money there. We've spent some money on Tarrawonga's expansion. The hydraulic cylinders at Narrabri, they are doing a good job. And we're working on the AHS project at Maules Creek, which seems to be -- or which is going very well. And you can see the growth projects under there at Vickery, Winchester South and Narrabri Stage 3. And our sustaining CapEx at $62 million was below the guidance of $77 million to $89 million, but the sustaining CapEx -- and that's not an unusual occurrence.

I'm over the page to capital allocation. Through the price cycle, we see ourselves as being prudent debt managers. We'll float up and we'll float down as the cycle goes along. But if I take you through our history, at Maules Creek, we brought that into production and then we focused on retiring debt, and we retired it very quickly. When we put a dent in the debt stack, we turned to providing returns to shareholders. And over that period, you can see that we've returned about $1.1 billion to shareholders since fiscal year '16, while at the same time, we've invested in making sure that our business -- the capital in our business remains robust and that we've got development programs at -- in our brownfields and greenfields programs. And I know Paul is going to come to that and talk to that in a minute. And I imagine there will be a lot of questions out of that in the Q&A to come.

The Board declared an unfranked dividend -- interim dividend of $0.015, and that really is about 50% of NPAT. And in the interest of where the world is at the moment, the decision was taken that, that -- because it represented $0.50 -- or 50%, that would be sufficient for the year. With net debt in the upper half of our preferred range, our priorities really are to remain prudent with debt, to return surplus cash to shareholders when conditions improve and to make sure we maintain and sustain the existing business for years to come.

I might be harping on a little bit here, but this is how we think about -- this is how about -- how we think about the business, and I've talked about this. It's about debt -- it's about balancing debt, shareholder returns and managing growth all the way through the cycle.

So on that note, I'll hand to Paul who can talk through the growth portfolio.

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Paul J. Flynn, Whitehaven Coal Limited - MD, CEO & Director [4]

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Right. I think for many of you, you've seen this slide before, and it really is just a dissection, if you like, between brownfields, opportunities in our business and greenfields projects. And I'll speak to each of these in turn. And the only difference on this slide is that Vickery is approved.

So over on Vickery, of course, very pleased to have finally received the IPC approval without any conditions associated with it that cause us any great level of concern. The community has been quite pleased to finally see that project move forward. And from our perspective, it really is now working on the management plans that we've got. All of those signed off for both the construction phase and also operations and concurrently working our way through the EPBC approval process.

Lots of, obviously, if you would imagine, factors in our mines in terms of decision to go ahead with the Vickery project. We have said, of course, we're not going to be addressing an FID decision this side of the end of this calendar year. And we'll use that time to continue to refine and look at ways to make sure we can optimize the capital spend on this project. Of course, discussions with joint venture participants will start. But the reality of that is that people have got a lot on their plate at the moment with the pandemic. And I suspect that will take a little bit more time than what it otherwise may have been. But very pleased to receive it. This is quite the unicorn, I think, as far as our industry is concerned. Our view is let's get this as ready as we can so that we're at the go line ready when it's the right time to turn this on. And if you look around you, we're one of very few who can actually do that. There's a lot of other projects that people would like to contemplate, but they're not -- they don't have that important approval to be able to go when the time is right. So Vickery is quite unique in that sense.

Lots of work going on at Winchester South, I have to say. So there's a bit of a tabulation here of the things that are going on there. We are actually doing more drilling there. And our primary focus of that is to work out how much of the Fort Cooper measures we want to incorporate into the project. We are still on track for our JORC reserve at the end of this year and also similarly, to launch our EIS at the end of this year also. There was the government's bill to have us try and do that ahead of an election, but we didn't want to get tangled up politically on that. And quite frankly, there's more work to be done anyway. I think that, that time line was nice as an aspiration but never realistic despite us wanting to obviously keep the government on the right side here. But you'll see more movement on this project, certainly, as we draw towards the end of this calendar year.

Stage 3 similarly is interesting as an important phase because we are looking to try and launch our EIS at the end of this quarter. So important studies around, where a lot of money is going to be spent. Ventilation, gas management, conveyor systems and so on have been done and are just now being finalized as far as that final EIS drafting is taking place as we speak.

Coal quality work has been reassessed and -- which was quite positive, actually. We've got better results there than what our initial thoughts were on the coal quality in that southern region. So I think there's a useful uplift there in that coal quality. And we know there's other qualitative attributes of mining down there. There's lower gas levels, say, for instance, would appear to be less vaulting in there. So it's -- that's certainly been positive for us. So I look forward to lodging this at the end of this quarter and starting the EIS process off with the government.

We have turned this slide in just because it's really just -- it's the -- it wraps up the finality of our restructure of our leadership team here. So we have all components of our leadership team on the ground now with the arrival of our EGM HSE, Sarah Withell, on the ground and doing a great job. So you can see that the 2 likely ones there, P&C and HSE, the new entrants at the executive level in the company, and obviously some restructure around the projects, which now Mark Stevens has commanded Vickery, Winchester South and Stage 3. And of course, Ian, on this call, has the run of the land in terms of all our operations. But I do think that's the end of our current structure -- restructure of our team, and that puts us in a great place to manage not just the complexity of our business today, but our aspirations in terms of existing new projects.

All right. To the outlook. So guidance here is always a tricky thing. A couple of people have asked us whether or not we're actually putting guidance out this year, I know, because many companies haven't. But look, at the end of the day, we do feel like we are in a position where we can give guidance. Of course, everybody understands that there's a range of -- a range of risks, both known and unknown, that may eventuate here. But based on my -- what I said earlier on in terms of our line of sight of what physically is going on with our customers, we're not anticipating major disruption in that sense. So we do feel like we're in a position to give guidance.

And so from a managed ROM basis, our guidance is, for this year, 21 million tonnes to 22.8 million. And the splits there for our Maules Creek, Narrabri and Gunnedah ops relatedly are there. Managed coal sales at 18.5 million tonne is the bottom end to a 20 million-tonne coal sales top of the range, and that does exclude, obviously, purchased coal. We will be purchasing some coal during the course of the year. We do need some access to some lower-rent coals, which we don't have from our portfolio in the volume that we would like to be able to continue the blending benefits that we've seen. Particularly, in this past year, we've done quite well out of that. So there will be more of that.

But importantly, we've put a range on our cost this year of $5 for $69 to $74. And there are, again, there are a number of factors in this, which we want to make sure that we accommodate appropriately. Maules Creek, as we said, does have a little bit more strip in it for 2 years and what last year had been one, this year being another. Depth of cover at Narrabri always plays its hand here. Obviously, diesel costs have come down. So that's important. So that's actually to the good, essentially from a cost perspective. And of course, at these numbers, we are anticipating better absorbing all our infrastructure costs, which was a burden for us in this past year, which we -- which management has to be in a position to be able to absorb as much as we can, the take-or-pay contracts that we have.

There's some guidance here also on capital. And so the 2 main buckets, I'm sure, will be of interest here as just sustaining CapEx. We have with our -- we've highlighted here for you and separately, which we didn't actually at the beginning of last year, although we have expended considerable capital also on our fleet because the Maules Creek fleet, as you know, came in, in various tranches. And they are approaching times when major rebuilds are required, and so we thought we would just call this out separately for you in terms of highlighting the impact of that in this new year. I think the number actually last year was in the 20 -- early 20s, $22 million to $23 million that we spent last year. This year, we've got more of that fleet coming on up for its work. You'll see a spend between $30 million and $35 million.

Of course, down the very bottom has been the tranche associated with the next payment of the EDF deferred consideration. And of course, our projects for Vickery, Winchester South and Narrabri Stage 3, we've obviously looked at that very closely and ensured that only the appropriate expenditure is going into each of these projects at a point of lower cash generation that we are in the cycle. And so we've provided a range there of $35 million to $40 million.

And finally, I'll just go to our focus for the year in terms of our priorities. Of course, we want to improve, must improve our operational compliance. And of course, safety is amongst that, but environmentally as well. From an operational productivity perspective, we have commenced on the project, the technical project, STRIVE. We haven't spoken about that too much, but that is a full productivity and cost review across our business in its entirety. It has already been to Maules Creek, currently at Tarrawonga and will move on to Narrabri shortly. But that's a significant issue for us in terms of ensuring that our productivity and cost reductions at this important time in the cycle are maximized to the degree possible.

The continued rollout of AHS is obviously a point of focus for us. Promising signs, as I mentioned, but taking that next leap in incorporating another full fleet is a focus for us in the short to medium term. Vickery, of course, as I've mentioned, the subsequent approvals required for that and discussions with potential joint ventures there as well. We'll publish those -- the maiden reserve for Winchester South later on in the calendar year.

And of course, as Kevin's been at length to emphasize to you, we have a strong balance sheet. And we feel we're in a good liquidity position to manage our way through compressed margin times. And we'll continue the capital discipline that you've seen from us in the past in this year and beyond.

So with that, I think you've heard from us enough. And why don't we hand back to the operator for commencement of the Q&A session?

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from Rahul Anand from Morgan Stanley.

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Rahul Anand, Morgan Stanley, Research Division - Equity Analyst [2]

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Can I please start with the production guidance for next year? So you said weighted to second half, 55%. I wanted to understand, I mean, you've got Narrabri doing a longwall move in the second half of next year, yet the guidance is weighted to the second half. I mean is this saying that Maules Creek is again going to slow down post that very strong result in the last quarter of FY '20? That's the first one.

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Paul J. Flynn, Whitehaven Coal Limited - MD, CEO & Director [3]

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Yes. Thanks, Rahul. Yes, look, I think the point we made here in the last quarter of last year and we made it again, and it's the reason why I put that slide in there showing the different seams at Maules Creek, there's no doubt that when you hit that big glorious Braymont Seam, it produces a lot of lovely coal in a short period of time. And then when you're out of it, as you can see in the seam sequence, obviously, you're back into seams which are anywhere between 5% and 12%, say, for instance, of the total resource, so contributing much less coal in that next period until you hit those bigger seams again.

So there is a balancing act in that. So once you're out of the Braymont, then you do -- you're back to a more normalized and -- level of production. And so you'll see that in this first quarter. We did say that this was coming, and that, that will still be a feature of the mine sequence for the next couple of years. So there is again a weighting to the second half, not through any production issues of any particular import, but it's really just the mining sequence itself.

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Rahul Anand, Morgan Stanley, Research Division - Equity Analyst [4]

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And in terms of the in-pit dumping, I mean, are you going to be able to get more out of that in terms of cost savings going into next year? Or I mean, are we seeing the quantum of that in the numbers as they stand?

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Paul J. Flynn, Whitehaven Coal Limited - MD, CEO & Director [5]

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You will see that start to pick up, Rahul. We are -- I mean there's 2 benefits of that. Obviously, the length of the hauls starts to diminish as you increase your proportion of in-pit dumping. And there is upside also in optimizing the rise and run, minimize the elevation differences of between where you picked up the dirt and where you drop it. You will see us dumping outside the pit still for essentially another 2, 2.5 years. 2023 is the year that we actually get to the -- or arrive at a state where we're 100% in-pit dumping. And we have talked about reductions associated with that in our investor presentation previously.

And look, this year, you'll see us start to increase that momentum that we are dumping currently in the pit, which is nice to be able to see. We would like to do more of it, and we're accelerating that. It is actually a year earlier at 100% at in-pit dumping than what we previously had anticipated.

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Rahul Anand, Morgan Stanley, Research Division - Equity Analyst [6]

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And that 16 million tonne per annum run rate at Maules as well, I mean, are you still expecting that coming through in the mid of FY '22? What's the progress on that, please?

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Paul J. Flynn, Whitehaven Coal Limited - MD, CEO & Director [7]

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Yes. Good question, Rahul. Look, we -- tactically, we didn't want to lodge an application for 16 million tonnes whilst Vickery was on foot. And we thought we're just asking -- we've got a lot of stuff, as you can see, from the various projects requiring consideration by the government. We've got an EIS for Narrabri Stage 3 about to hit the deck at the end of this quarter from the government's perspective. And we were cautious just about throwing too much at them in a short period of time. So now that we're on the other side of the Vickery IPC process, we will move forward with the application for 16 million tonnes.

It does require some more work, there's no doubt about that, just in terms of noise, dust and vibration, all the necessary things that you know that are going to come from an increase in tempo at the mine. They do need to be studied both in detail and seasonally also. And so that work is ongoing, but we look to launch that as soon as we can now that we're on the other side of Vickery.

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Rahul Anand, Morgan Stanley, Research Division - Equity Analyst [8]

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So would you be looking to update that sort of time line for mid-FY '22? Is that still valid? Or would you think that actually...

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Paul J. Flynn, Whitehaven Coal Limited - MD, CEO & Director [9]

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That's still okay. That's still okay.

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Operator [10]

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The next question comes from Sam Webb from Crédit Suisse.

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Sam Webb, Crédit Suisse AG, Research Division - Associate [11]

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Just a couple on the balance sheet, if I can, Paul, or maybe for you, Kevin. Just interested in how net debt is calculated under your facility. So do we include those liabilities that are excluded? And are there any restrictions on that AUD 360 million that's undrawn currently in that facility?

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Kevin Ball, Whitehaven Coal Limited - CFO [12]

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I'll answer the second part first, Sam. There's no restrictions. The full balance is drawable. The second question is that the original facility started out when IFRS 16 was not enacted. And when IFRS 16 came in, what we do is we make adjustments to the face of the financial statement numbers to come back to, a, interest and EBITDA as if it were calculated without the impacts of IFRS 16. So there's a little bit of adjustment we need to do with banks, but it's well understood. And that's how they stand.

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Sam Webb, Crédit Suisse AG, Research Division - Associate [13]

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Okay. So if we were trying to calculate that number, what net debt figure should we be using for that test?

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Kevin Ball, Whitehaven Coal Limited - CFO [14]

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It's actually a -- it's not actually a -- there's not actually a net debt test in there. There's 3 tests, if you go back to the -- go to the appendices. The first one is an ICR, which is interest cover ratio, which is EBITDA -- or adjusted EBITDA divided by adjusted interest. The second one is a net worth test, which we're comfortably in excess of, $1.5 billion of headroom on that. And the third one is a gearing, and we're about half of where we need to be if we were to run into trouble under that one.

So the real test here, Sam, is simply what's your interest under IFRS and -- sorry, what's your interest under IFRS adjusted numbers and what's your EBITDA adjusted for IFRS numbers. But it's hard to explain on the phone call. It's probably better off one-on-one, to be honest, with a range of people.

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Sam Webb, Crédit Suisse AG, Research Division - Associate [15]

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Yes. Got it. Got it. And just the threshold for that interest cover ratio test, what is that number?

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Kevin Ball, Whitehaven Coal Limited - CFO [16]

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I don't think we've ever disclosed it, but I think you've got a bunch of people out there that have similar numbers. That's the nicest way I can say it.

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Sam Webb, Crédit Suisse AG, Research Division - Associate [17]

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Got it. And just one -- the second one, just on CapEx, if I can, please. The CapEx guidance for this year, if we're in a normalized -- somewhat more normalized pricing environment, how much CapEx have you pulled back or out of this year that we should anticipate to go back in later years? Or is it -- is this just a true CapEx number if things were more normalized at the moment?

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Kevin Ball, Whitehaven Coal Limited - CFO [18]

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Look, I think if you look at our sustaining CapEx over the last several years, it's been around that $60 million. So I think we have trimmed a little bit out of it. But that $60 million included mains. So we have trimmed a little bit out of there, but I wouldn't -- it's in the tens of millions, not in the 50s. And really, the trimming there was done around the growth projects and holding those back and doing the minimum work we needed to in order to progress them rather than going perhaps as hard as we would have gone if conditions are a little bit more conducive.

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Paul J. Flynn, Whitehaven Coal Limited - MD, CEO & Director [19]

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Yes. I think we've sculpted this in a way which that those things that didn't need to be spent now, we've sculped it in a way that pushed those out. I mean the projects themselves have their own capital budgets such that, say, for instance, Stage 3, say, for instance, may require a purchase of offsets and land, say, for instance, as we explore and launch our EIS Stage 3. And there are ways in which you can sculpt that so you can defer that off. So we just said we don't have to do that now, why do we need to not block up more land now, let's not do that. You obviously want to put your foot on it to the extent that you need it.

But those are the types of things that we've done, whereas more immediate land acquisitions, say, for instance, say -- and Vickery being the notable one that we actually said, no, no, we've got commitments that -- because that project has obviously crossed the threshold here in terms of its approval. There were certain triggers around that. We have incorporated that into those guidance numbers. But we definitely have sculpted this in a way that looked at what's essential to preserve the time lines of our projects. And as you would imagine, the nice-to-haves have been scrutinized with greater tout.

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Operator [20]

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The next question comes from Lyndon Fagan from JPMorgan.

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Lyndon Fagan, JPMorgan Chase & Co, Research Division - Analyst [21]

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The first one is just on the costs. So the FY '21 guidance, the midpoint of that is still $5 a tonne higher than FY '19. But as I understood it, there was a whole bunch of costs that were one-off related to sort of bushfires and labor shortages and things like that. Plus, we had some cost-out coming through with autonomous haulage, in-pit dumping, et cetera. And I'm just still trying to understand why costs in FY '21 aren't looking a bit more like FY '19 at sort of $67. And I guess I'm also a bit confused about how to think where costs are going forward. So I would appreciate a bit more discussion on that, if you could.

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Paul J. Flynn, Whitehaven Coal Limited - MD, CEO & Director [22]

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Thanks for this. Yes. Look, there's -- that's quite a wide range that we provided in there. And I think if I'm going to say something directional, I would just say, well, look, I think now is not the time to be aggressive in that regard. I think there's an element of caution in that range that we provided, which I think is prudent at this time.

AHS, as a general statement, is not a net reduction yet in costs. So you shouldn't think of it that way. In fact, it's increasing cost in the short term because we do have one fleet operating, but we've had to recruit obviously new skills for -- to be trained up in managing that new technology. And in fact, we don't actually see cost reductions until you probably got your third fleet up and running. So with only the first one going, hopefully, a second one soon, we're on that journey. But in the short term, we're not relying on cost reductions from AHS.

In-pit dumping, we'll see cost reductions. There's no doubt about that, but we obviously do still have long-haul profiles for the next couple of years, as we've mentioned. So that is -- that reduction, there's no change in our view on the reduction that will come from in-pit dumping, Lyndon. It's just that it's not -- you've got 2 more years of this before we get to 100% in-pit dumping. And as I said earlier, that's actually a year earlier than what we've previously advised. So that's positive.

I mentioned earlier, you've got things like fuel, will drive a benefit for us. There's no doubt that that's actually a significant impact in this year. So Kevin...

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Kevin Ball, Whitehaven Coal Limited - CFO [23]

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Yes, and fuel will be -- in fiscal year '20, the -- because of the stock build, a lot of that lower-priced diesel in May and June ended up in the inventory number. But today, I think we're down -- our July number for diesel was mid-50s per liter versus probably mid-70s in the previous year. So you will get a benefit out of that -- or we will get a benefit out of that. But I think, as Paul said, Lyndon, the -- we've kept this a little bit wide.

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Paul J. Flynn, Whitehaven Coal Limited - MD, CEO & Director [24]

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Yes.

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Kevin Ball, Whitehaven Coal Limited - CFO [25]

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We've kept this, just being cautious.

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Paul J. Flynn, Whitehaven Coal Limited - MD, CEO & Director [26]

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We don't expect, say, for instance, I mentioned earlier, Lyndon, we don't -- we're not planning to have the same level of underutilization of our take-or-pay contracts that we did in FY '20. So there will also be a benefit from that.

So we do see cost reductions coming. There's no doubt about it. And our STRIVE project is also -- start a part of that, although we haven't included any of the savings that come from that project in that range. We're not sticking our necks out on that yet, although we do see lots of good initiatives stemming from that, which will assist us in this regard.

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Lyndon Fagan, JPMorgan Chase & Co, Research Division - Analyst [27]

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And the next one I've got is just on Narrabri Stage 3. So there's $400 million we've got to put in our models. When should we start that?

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Paul J. Flynn, Whitehaven Coal Limited - MD, CEO & Director [28]

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Well, that's definitely an important question for us. And at the moment, we're reviewing the timing of all of that expenditure. Some of it we have already factored into our work for, not this year '21, but for '22. So we have actually said that we can take a pause on the out -- on a major expenditure for Stage 3 for a further 12 months, and that's why some of that capital guidance looks a little lower than what we're being questioned on earlier.

There are some options there to better manage that. And so we've taken that opportunity to do that. But you can't wait forever, as you would imagine, on all these things. You've got to actually get in there and make sure the development work is done in time. But yes, we will be -- we've pushed that out. We've been able to push that out 12 months more.

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Lyndon Fagan, JPMorgan Chase & Co, Research Division - Analyst [29]

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So we're starting that in FY '22. And...

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Paul J. Flynn, Whitehaven Coal Limited - MD, CEO & Director [30]

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FY '22 is our plan, for sure, to start that work.

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Lyndon Fagan, JPMorgan Chase & Co, Research Division - Analyst [31]

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Great. And sorry, how long does it take to spend that money?

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Paul J. Flynn, Whitehaven Coal Limited - MD, CEO & Director [32]

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We put the guidance on that. I'll have to come back to you on that one, Lyndon. It's over a couple of years, but the specifics of that, I don't have to hand right now.

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Kevin Ball, Whitehaven Coal Limited - CFO [33]

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Let us go back to that Investor Day presentation last year, and we'll help you out with that.

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Operator [34]

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The next question comes from Peter O'Connor from Shaw and Partners.

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Peter O'Connor, Shaw and Partners Limited, Research Division - Senior Analyst of Metals and Mining [35]

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Just further to the question on Narrabri. Having a decent float of development for Stage 3 would obviously be nice, but it requires working capital. And I understand your conservatism. But given the length of the blocks, would it be -- are you starting to press the risk a bit high now by pushing that back? Are you actually increasing the risk, not reducing the risk?

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Paul J. Flynn, Whitehaven Coal Limited - MD, CEO & Director [36]

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Yes. Peter, that's an important question, of course. And then you would imagine that's front of mind for us in any of our deliberations in this regard. So it's definitely -- as we stand today, we think we've got an appropriate balance there. But of course, that's critical to the continuity here. So we're mindful of it and managing it appropriately.

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Peter O'Connor, Shaw and Partners Limited, Research Division - Senior Analyst of Metals and Mining [37]

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So the continuity is not impeded by that. It started developing in FY '20. And can I just -- to the -- more holistically about the spend, the Stage 3 spend, Vickery spend and potentially Winchester spend, thinking about that over the next coming years as you mapped out in the presentation last year, when you did the Investor Day, and the current level of debt and your financial liquidity and the state of the market, you got a very confident pitch last year that, I guess, the market backdrop in COVID and all of these is very different. Funding of each of those 3 sequentially, does it still make sense?

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Kevin Ball, Whitehaven Coal Limited - CFO [38]

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Yes. Peter, I think we've always said that we're not so bold as to try and run 3 major projects concurrently. We will run projects sequentially. Of course, Narrabri and the timing of that isn't quite the same as a Vickery or a Winchester South. But we've said we've never run Winchester South and Vickery concurrently. We would run them consecutively. And that's certainly our game plan.

The challenge with that, at the moment, Peter, as you would know, is that Vickery is approved. That's a pretty good start. But the Queensland has played a pretty good game at giving you approval. So I think it's going to be interesting to see whether we run into one or both of those on timing, but we'll have to make a choice if that pops up. But we won't be running 2 concurrently. It's as clear as I can say.

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Paul J. Flynn, Whitehaven Coal Limited - MD, CEO & Director [39]

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Yes. I think you've noted, Peter, look, the world has changed significantly, obviously, in the last 12 months, as you said. And look, I think we've all got to be just cautious. And as a general statement, we're a cautious folk. And so with that in mind, as Kevin said, as we said repeatedly, 2 projects at one time, we won't be doing. And so there will be a natural sequencing of the priorities here. And a little bit of extra time in that regard allows you to continue to hone each of these projects, not just Vickery, Winchester South being further down the pipe, of course, but allows you to further hone what you believe to be the capital requirement for that project.

And in the same way, we've been continuing to hone our view on Stage 3 and what's the optimal capital spend and the sequencing of that. Of course, there's a slightly blurred line between the operational CapEx at Narrabri that which normally gets consumed within that mine and then preparations for what we think or what we call Stage 3. But I think we've just got to be judicious in how we meter out the capital spend at a time when cash generation is pretty modest.

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Peter O'Connor, Shaw and Partners Limited, Research Division - Senior Analyst of Metals and Mining [40]

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Well, can I follow up the questions -- sorry.

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Kevin Ball, Whitehaven Coal Limited - CFO [41]

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I was going to say, Peter, the other comment that I would make there is that, that revolver is well supported. But I think as we said at the Investor Day and in other discussions we've had, we have diversified sources of capital, and we would expect to diversify the sources of capital as we go to do these development programs. So putting money in the ground on an available project at the right time and spending the right money on it is a good thing to do, so we'll be sensible with that. But we'll find -- I think you'll find we'll be in alternate capital markets looking for funding for these assets at a later point in time, in addition to the existing funding we've got for in lieu of the existing funding we've got.

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Peter O'Connor, Shaw and Partners Limited, Research Division - Senior Analyst of Metals and Mining [42]

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Kevin, one of those is clearly a joint venture sell-down, and Paul's comments seem to suggest that's been pushed out. And I know you cased it around or framed it around the COVID issues. I get that. Is there any more -- an undercurrent of that narrative I should read about customers not quite as receptive at the moment? Or is it an ESG sense? Or is it purely just the COVID getting a data room ready and trying to get that process run?

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Paul J. Flynn, Whitehaven Coal Limited - MD, CEO & Director [43]

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Look, I think, Peter, there's nothing that we've detected that says there's a change in posture from serious candidates. I mean there's a bunch of people who have expressed interest, as we've spoken about before, who are not necessarily the right fit for what we would like in a joint venture. But when we've -- a bunch of -- we received a bunch of congratulatory remarks from interested parties on the receipt of our approval, but they all acknowledge that times are -- our priorities have changed at all for them and commencing -- they've noted our public statements before, and commencing discussions on these things right now is not really the right time for them. And so we've just got to acknowledge that. It's not the right time for us either.

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Operator [44]

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The next question comes from Glyn Lawcock from UBS.

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Glyn Lawcock, UBS Investment Bank, Research Division - MD, Head of the Australian Mining & Energy Team and Research Analyst [45]

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Paul, I just wanted to talk a little bit about the guidance on volume. You gave us at the Strategy Day the yields free to the mine. So if you take the ROM by the yield guidance or the yields provided, you actually only get your coal sales, the number you gave us. So have you left out inventory drawdown? Or are you expecting to get yields below the sort of the normal nameplate for each of the mines? That's the first one.

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Kevin Ball, Whitehaven Coal Limited - CFO [46]

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I'll answer that one for you, Glyn. The -- you're right. When you go and take the yields, and Sarah does a great job of putting that on the back page of the quarterly production report, you can see what the yields look like rolling 12 months and you can do those maths. We do expect to have some drawdown of stocks because we came into the year with quite heavy stocks. We were naturally cautious around -- if you take the bottom end of that range on production guidance, there is some drawdown included in the sales number. If you take the top end of that guidance, then we are thinking that maybe that happens at the back end of the year and thus, again, the stock doesn't get drawn out as tightly as we thought. So it's going to be a function of timing of production. But your analysis, your worksheet there is working fine.

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Glyn Lawcock, UBS Investment Bank, Research Division - MD, Head of the Australian Mining & Energy Team and Research Analyst [47]

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Okay. And then, I guess, I'm just looking back at -- we were sitting here 12 months ago, and Maules Creek was supposed to do 12 million to 12.5 million tonnes of ROM with a high strip ratio. Yet 12 months on, we're -- actually, we've gone backwards. I'm just trying to understand what -- how have we gone backwards? I thought we dealt with all the problems? Or are some of the problems that we encountered in FY '20 still lingering?

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Paul J. Flynn, Whitehaven Coal Limited - MD, CEO & Director [48]

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There's not a simple answer to that, Glyn. It's a good question. There's not a simple answer. It is a big mine and a complex mine. And I think, during the course of '20, you would have to say -- and in the latter part of '19 as well, I would have to say, I think it's the challenge of running obviously 14 seams in a large-scale mine. There's no doubt that better planning was required in order to make the most of the opportunity that this very good asset presents. So we have -- and part of that, I think, was actually getting the right skills to be able to better plan a complex multi-seam mine. And I think we're in a better place to do that. The quality of the planning at Maules Creek, I feel, is better now than where we were 12 months ago. And so I feel we're on a more sustainable footing than that.

Now as I say, 13 million tonnes, you can go over that when the Braymont turns up in good form. But we haven't -- obviously, we've underperformed in terms of hitting our total dirt movements to be able to hit those 13 million-tonne ROM targets on a regular basis. Better planning is required to do that. And as I say, I think better resources are now in place and better planning is taking place to be able to do that on a more regular basis. So just acknowledging that we've had a deficit in some skills there for the complexity of the task, but I think we're in a much better place now having made changes in that regard.

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Glyn Lawcock, UBS Investment Bank, Research Division - MD, Head of the Australian Mining & Energy Team and Research Analyst [49]

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Okay. And just a final question. Just trying to think about how much cash is going out. So if we just take cost at $70, call it, there's about $7 a ton of capital, $1 a tonne on Narrabri, $2 a tonne on interest, $4 a tonne on lease payments and about $1 a tonne on rehab spend. So I sort of get your cash outflow at about AUD 85. And then when I add royalty on top, it's about just over AUD 90 a tonne. And I guess at spot prices, you're only getting probably just over AUD 70. Is that about right? So you could be burning at current prices upwards of AUD 300 million? So you could go through your facility in 12 months. So I was just wondering if that -- if spot stays where it is, what levers can you pull?

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Kevin Ball, Whitehaven Coal Limited - CFO [50]

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Well, I think I'll probably step in there ahead of Paul. But I would say all the numbers that we run don't support that outcome there, Glyn. The liquidity that we have, we see as lasting a couple of years there. And the reason...

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Paul J. Flynn, Whitehaven Coal Limited - MD, CEO & Director [51]

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At these prices.

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Kevin Ball, Whitehaven Coal Limited - CFO [52]

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At these prices. And I would probably say this to you, rather than get into the depths of why one or other of the numbers aren't right. We're -- we've been holding that net debt number now at about that same number for about the last 4 months and hasn't moved under those coal prices. So there's plenty going on under the water in this business to maintain that balance sheet. So...

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Glyn Lawcock, UBS Investment Bank, Research Division - MD, Head of the Australian Mining & Energy Team and Research Analyst [53]

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Okay. I guess what you're saying is good spot prices, but you're getting some premiums around that's helping as well if I just use straight spot. And in the last 12 months, you've been neutral free cash flow in the last 4 months.

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Kevin Ball, Whitehaven Coal Limited - CFO [54]

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Yes.

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Operator [55]

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The next question comes from Paul Young from Goldman Sachs.

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Paul Young, Goldman Sachs Group, Inc., Research Division - Equity Analyst [56]

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A question on the balance sheet and another question. Kevin, your gearing's at -- of 20%, is it the top end of the target range? Is there a level that you wanted to get that down to before you commit to growth? And also, other banks, any banks in the syndicate actually telling you to get that down before drawing down more debt?

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Kevin Ball, Whitehaven Coal Limited - CFO [57]

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Thanks, Paul. That's actually -- very good questions. The facility has -- there's no banks calling us and telling us to get your gearing down. In fact, the conversation we have with banks is that relative to other customers they have that are going through difficulties at the current moment, they're quite happy with the way in which we've managed debt in the years gone past. And they're quite happy with the way in which we've responded through this last 6 months. There are a range of people, a range of borrowers who draw down revolvers and acted in strange ways. We've just continued in that process, and we've continued an open dialogue with the banks on a monthly basis across the relationship banks. So that's really strong. So there's no restrictions.

How should we think about the 20%? The 20% and the $1.5 million was struck at a time when we didn't have a lease conversion strategy. So if you look at the footnotes on -- I think it might be the slide that dealt with that. Paul, you'll see that we're going to revisit that this year. That doesn't mean we want to take on more debt. But at that point in time, when we pull those ratios together, we were -- we didn't have leases coming into the balance sheet with a diversified source of capital.

So I'm not really -- my view on -- we're at the upper range of -- in the upper range or the upper half of the range where we would like to be. We don't want to see that grow much more. And we'll be doing our efforts to reduce that, leading into construction programs coming forward at better times in the future.

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Paul Young, Goldman Sachs Group, Inc., Research Division - Equity Analyst [58]

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But there's no -- I mean $0.10 to $0.20 through the cycle, you are going to adjust that, as you just mentioned, but there's no number that you want to get that down to before you commit?

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Kevin Ball, Whitehaven Coal Limited - CFO [59]

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I think that will be a function of where we see our sources of capital coming for this, right, and how well matched they are to the underlying asset. So we've got a -- when we built Maules, we built Maules out of the revolving facility, knowing it was a Tier 1 asset with quite quick payback and strong support. When I look at the quality of the coal coming out of Vickery, I think that's an exciting asset, but it's not quite the same cost structure as Maules Creek. So the way I think about that, Paul, is I think about how do I find a piece of borrowing that may have a little bit longer in tenor, and how do I put that together with an Australian bank debt package.

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Paul J. Flynn, Whitehaven Coal Limited - MD, CEO & Director [60]

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And if you're in the same -- or let's just say, moderately improved but still not back to where we were price environment, a joint venture discussion becomes important to the timing of the question about non-Vickery.

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Kevin Ball, Whitehaven Coal Limited - CFO [61]

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Yes. And Paul, did that answer your question?

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Paul Young, Goldman Sachs Group, Inc., Research Division - Equity Analyst [62]

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No. No. It does. It makes me think, at least. And then looking at capital management, reflecting on the past and the benefit of hindsight. But Paul, do you think you paid out too many dividends? And just based on what we've just gone through on effectively going to no net debt to now, call it, $900 million with leases. Does this make you think differently about dividends going forward?

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Paul J. Flynn, Whitehaven Coal Limited - MD, CEO & Director [63]

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Well, I think there's -- Paul, it would be fair to say that we didn't contemplate at the time the level of trade dysfunction that we saw pre-FID in COVID, and obviously, we didn't contemplate COVID either. So I think there's no doubt -- I mean it's quite an extraordinary turnaround isn't it, when you consider last year's results to this year's. I mean that's such -- that's a big transformation. I don't think anybody expected that. We weren't certainly budgeting on continuity of that -- the average prices that we achieved for '19. We weren't doing that.

But yes, look, I will say there's been -- we'll temper our enthusiasm going forward. I mean we've paid a lot of specials during that period. There's no doubt. But our policy remains the same in terms of the 20% to 50% range. So the Board hasn't changed its mind in that regard. And look, I don't think we feel regretful in any way that we paid those dividends. I think we've had a lot of strong support from shareholders over time that we felt it was the right thing to continue to reward them. And as we've said repeatedly over the years, if we thought there was a reason to raise capital for something that made sense, having done the right thing in returning capital to shareholders during the course when we had surplus, it would be viewed favorably if we were requiring capital back for something that was meaningful. And we still remain in the same position, Paul.

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Paul Young, Goldman Sachs Group, Inc., Research Division - Equity Analyst [64]

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Okay. And last few. First one, another one to Kevin on rail and port charges, which were up $20 million year-on-year, yet your sales were down. And you can see then that, obviously, the cost bridge at $2.50 a tonne of take-or-pay impacts is coming through. Just for FY '21, Kevin, is there a gap again between what your budgeted rail volumes are versus your take-or-pay?

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Kevin Ball, Whitehaven Coal Limited - CFO [65]

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We're a little bit long on port. We're a little bit long on port, and that will stay. That's why the full benefit of that or the full impact of the $2.50 that's on that slide doesn't come back, Paul. We're pretty well matched on above rail. And I think we're just a touch over on -- sorry, we're pretty well matched on below rail, and I think we're a touch over on above rail. So of that $2.50, there's maybe $1 of that stays, $1 or $1.50, and then there's $1 to $2.50 that comes back.

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Paul J. Flynn, Whitehaven Coal Limited - MD, CEO & Director [66]

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Yes. I mean I think, Paul, just reflecting back, the knowledge of Rocglen's completion was always factored into our equation. We didn't take on the full take-or-pay in any sense for Vickery, but we certainly -- and that's a decision yet to be taken. But we certainly did contemplate that there would be a small surplus available to us for early tonnes on Vickery. No one expected Vickery to waste 2 years in the current process. Nobody expected that. And so we do have a small surplus, as Kevin's pointing out, which will remain until we extract some further tonnes out of our other assets.

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Paul Young, Goldman Sachs Group, Inc., Research Division - Equity Analyst [67]

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Okay. Last question is on the carrying of the asset base, $4.1 billion in PP&E, is it -- there's 4, 5 different components of that. I can't remember. You're spending $4 billion on resource and PP&E, Kevin. But how did you survive an impairment test? And/or another way of looking at it, the impairment test you did conduct, what assumptions were in that to avoid a write-down?

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Kevin Ball, Whitehaven Coal Limited - CFO [68]

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I've probably not put the model up on the page, but I probably -- not probably, I would say this to you very strongly, Paul, that when I look at the net assets between 2013 and 2020, they don't vary that much, but the coal price does vary quite a lot. If I look at what transactions are for quality assets, that's generally not priced off a spot price and spot FX. Particularly, I would say to you that some of those assets that have traded in the last couple of years have all traded on 10-year and 12-year averages of coal prices on the basis that those assets will be in business for quite a long time.

So our impairment testing, we go through that in quite detail with the Board and in quite an amount of detail with EY. And we have a fairly robust discussion around that. And we came to a conclusion, as we have done consistently, that there isn't an impairment in the assets that are there.

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Operator [69]

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The next question comes from Peter O'Connor from Shaw and Partners.

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Peter O'Connor, Shaw and Partners Limited, Research Division - Senior Analyst of Metals and Mining [70]

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Paul, with just the South reserve resource, you've got red flags. In the last week or so, we just had an interesting position where a peer company, I don't want you to comment about them, but in a similar area, a similar coal product, in kind of getting cold feet given the amount of work that you've done, reserve and reserves, is there anything that's come up which has made you less or more confident about your position with which you have to sell?

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Paul J. Flynn, Whitehaven Coal Limited - MD, CEO & Director [71]

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Well, I mean, that doesn't -- if that's your definition of a red flag, Peter, it doesn't meet mine. I have to say it's -- I mean, that's not new news, and I'm sure you understand that, that those guys were contemplating some changes in posture there. I mean that noise has been around the market for a long time. And so -- and those operations, it's not really for us to comment on. But for us, our focus is making sure we optimize our investment. We put some money down on this asset. Of course, we want to make sure we get a decent return from it. And for us, our focus is making sure that we can convert the maximum amount of our resources into reserves. And as I mentioned before, that drilling is ongoing now just to make sure we can optimize the mix of the Rangals and Fort Cooper coal measures that we have access to.

So look, it doesn't change my thinking or our thinking one way or the other to see their more recent discussion on their position. I mean each company makes up their own mind for their own particular reasons. And I can't speak for them in any way, but it doesn't really change our focus on what we're trying to do with our asset there in the Bowen Basin.

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Operator [72]

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We have no further questions at this time. So I'll hand it back to you, Paul, for any closing remarks.

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Paul J. Flynn, Whitehaven Coal Limited - MD, CEO & Director [73]

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All right. Thank you, everybody, for the discussion and taking the time to listen in to the presentation for the full year results for 2020. Look, if there are any further questions, of course, you know where to find us, be that through Sarah or any of us as well. I'm sure there will be a few more as people are thinking about through what's going on in this year and importantly, what the outlook looks like. I don't think that's an easy picture for the new year to get your head around. We've taken all the settings that we've given you in terms of guidance, and the positioning of the company for the year is reflective of some caution, I will say that, because I think there's a lot of uncertainty out there that we need to navigate our way through. But in our instance, sales and volumes are moving as we would expect them to, and so that does give us the confidence to be able to form a view on guidance as we have.

So any further questions, we look forward to catching up with you in due course through the one-on-one meetings as well. And I will leave you to get on with the rest of your day.

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Operator [74]

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That concludes the Whitehaven Coal FY '20 Full Year Results Call. Thank you once again for joining us today and for your interest in Whitehaven Coal. You may all disconnect.