Financials and operations

Our export business

EBITDA* $42.6m (FY19: $67.4m) (equity share)

As signalled to the market early on, we were expecting a reduction in export earnings this year due to global market factors that were having a downward pressure on pricing. With the advent of the COVID-19 pandemic, the expected recovery did not eventuate. This saw our average price received drop from NZD $212/tonne in FY19 to NZD $163/tonne in FY20.

Despite this, given our low cost base and hedging put in place for this exact type of scenario, we still achieved a 32 percent operating profit margin.

* EBITDA is a non GAAP reporting measure and represents net profit/(loss) before net finance costs (including interest), tax, depreciation, amortisation, impairment, fair value movements on derivatives and deferred consideration, and movements in rehab provisioning.

Stabilising demand

Our relationships with most of our export customers span over many years, including two for more than 40 years. For many of them, our product is a valued and unique ingredient in achieving the precise coal blend they require.

As a result, our product is not easily substituted, being a small but key component in the blend for a range of properties. The long-term aspect of the relationships with our clients, also provides a much better chance of navigating the logistical aspects of the disruptions from the COVID-19 pandemic – or any other event that may cause similar disruptions in the future.

This means that we are potentially less exposed to fluctuations in demand – and that we can better focus our energies on derisking our business from fluctuations in pricing, which is outside our control.

The FY20 coking coal market

The HCC index pricing for coking coal dropped from a peak of USD $236/tonne (“t”) in FY19, to a low of USD $109/t towards the end of FY20.

A slowdown in the Indian auto industry market and construction demand in Japan, combined with uncertainty surrounding import controls and economic growth in China and other macro factors caused the initial downward pressure on pricing levels earlier in the year, with an average benchmark of USD $150/t over the first half of FY20.

The impact of the COVID-19 pandemic, particularly in China which continues to be a key influencer on global pricing, saw the benchmark price drop to an average USD $136/t in the second half of FY20. This reflects a temporary drop in demand for coal as countries implemented various pandemic related restrictions to slow the spread of the disease, which had associated economic impacts.

Looking ahead

The global pandemic continues to play a meaningful role in determining the outlook for coking coal prices. While near-term prices are skewed to the downside, over the long term coal prices are expected to rally with the need for blast furnace steel production in a post-COVID world.

We are continuing to look at ways to increase the diversity of our export sales, trialling new markets in Japan and India, with the majority of FY21 sales under contract.

We will continue to monitor the situation as it develops over time. In the short term, we have marginally reduced production levels to ensure the mine’s ongoing profitability, and will continue to utilise hedging and cost-cutting strategies.

For many of our customers, our product is a valued and unique ingredient in achieving the exact coal blend they require.