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Welcome, everybody to the Whitehaven Coal March Quarter Investor Briefing. [Operator Instructions] I'll now hand over to our host speaker, Managing Director and CEO, Paul Flynn.
Good morning, everyone, and thanks very much for joining the March quarter production investor briefing for Whitehaven. As usual, I'll go through the highlights. We'll go through a discussion on the detail of the quarter itself and move into Q&A to provide an opportunity for people for a bit of an exchange.The highlights for the quarter. Safety performance has been solid, still well and truly under industry threshold but slightly up on our previous quarter, which is still solid territory, but we need to do a little bit better on that.Quarterly ROM coal production at 4.9 million tonnes. Saleable coal production for the quarter at 4 -- at 5.1 million tonnes. Coal sales, about 6 million tonnes for the quarter. Narrabri has recovered from its slow production in the earlier part of the quarter to record nearly 1.7 million tonnes for the quarter, last month in particular being over 800,000 tonnes, which is very, very promising. I'm sure it'll feature in questions later on.Quality drilling is ongoing actually at Winchester South as we speak, which is nice to be on the ground and doing physical work there.We'll talk about Vickery a little bit later. I'm sure we want -- I'll give you an update on where we're at with the IPC process, but the hearing did occur during the quarter, which was very good. 75% of the submissions that have been made to those public hearings were in favor of the project, I think, which is a bit of a new thing for the government, they tell us.Saleable coal production has been modified lower in this quarter due to some scheduling in Maules Creek, which we'll get to a little bit later.And just in format-wise, we have actually changed the format of how we presented our guidance trying to gather these -- the pieces of these together and tabulate it all for you in 1 page.So if I move over to Page 2, accept that this page has a lot of tables, I'll just quickly go through the data for you, and then we'll move on to the guidance itself. Managed ROM coal production at 4.9 million tonnes is actually -- is 1 million tonnes down on the previous corresponding quarter, 5.9 million tonnes. For the yearly totals at March year-to-date, we're at 15.9 million tonnes versus the 17 million tonnes on previous corresponding period. Manageable saleable coal production at 5 million tonnes is versus 5.2 million tonnes, 3% down on period on period for the quarter. March year-to-date at 14.6 million tonnes versus 16.1 million tonnes year-to-date, '19 versus '18, 9% down. Managed total coal sales at 6 million tonnes is up on the quarter. Obviously, those large stocks in December have helped us with sales during the period versus 5.4 million tonnes the previous corresponding quarter. Year-to-date March on managed total coal sales, 16.3 million tonnes versus 17.3 million tonnes, 6% down on this point last year.The equity numbers are tabulated there for you as we normally do.Moving on to our safety. As I say, 8.3 is still a very good number, but certainly, it's moderated slightly from where our quarter was last at 7.6, which is not where we want to. The direction is the wrong way, although we are rolling out more intensive safety training regimes as we speak in order to make sure that this moves back in the right direction and we continue to improve safety on sites. Quality of -- or severity of instances are much lower than what we've had in the past, which is great, but still incident numbers need to come down.On to the guidance table. So this is the change that we provided here. We thought we'd just bring it all together in one place and tabulate it here for you. ROM coal production from our previous guidance at 22.3 -- 22 million tonnes to 23.2 million tonnes has now been revised to 21.8 million tonnes range to 22.8 million tonnes. The key change here in that one is really Maules Creek, there's about 400,000 tonnes. We're going from 200,000 to 400,000 tonnes range down, so 11.8 million tonnes to 12.2 million tonnes, now 11.6 million tonnes to 11.8 million tonnes. And we'll talk a little bit about what's that attributable to shortly. Narrabri, the same. Gunnedah, the same. But our saleable coal production does move, and the real reason for this is really a back ending of production into the last quarter. And this is a timing-related matter, but it does mean that if you back end production, then you won't be able to convert ROM production into saleable production in the same fashion that you would otherwise hope to do just because of this back-ended production focus for the year.Other elements of guidance that we've tabulated here for you, cost of coal, $67, which we previously stated. We have tabulated the CapEx for you as well, which is different from what we've done in the past. Previous guidance for the sustaining component is -- at $40 million is essentially the same but for the adding of the initial payment for the cylinder chock upgrade at Narrabri, which has gone in to create that range of $44 million to $48 million.Narrabri mains development, no change there in terms of the numbers that we previously espoused to you. This is -- there's another year of this in there before the mains are fully completed, and that will see the end of the mains developments at least in the north of the mine.Capital projects. The back of the capital projects. There's a range of things go in here. Winchester South final payment, USD 50 million plus the associated stamp duty of AUD 15 million that goes with that being the core part of that. And then associated project-related cost for Vickery EIS, Narrabri Stage 3 and some works on the Tarrawonga expansion, bringing in that new fleet, rounds you out to that total of $95 million to $105 million total project CapEx.As I say, ROM coal guidance for Maules Creek has been reduced modestly. This is a mine scheduling-related matter in its essence, which is really just the back ending of production through this last quarter in the year, which has been revised, as I say, it's that 20.5 million to 21 million tonnes on the saleable coal production basis.Sustaining CapEx, as I've mapped out there, again, the big piece of that puzzle is just that USD 50 million from Winchester South in U.S. dollar terms plus about AUD 15 million in stamp duty in Aussie dollar terms.Equity sales and pricing over here into this section of it now. Sales during the quarter, including our purchased coal, was about 4.9 million tonnes, 16% above the previous corresponding period. Managed coal sales, including sales of purchased coal, was 6 million tonnes, 12% above the previous corresponding period. Obviously, with the big run home in December, we had significant stocks on the ground and we certainly have pulled those down during the course of this quarter, which sees the large differential between sales versus production in this particular period.There would appear to be a global slowing of some elements during the course of this last 6 months, and import restrictions that we're seeing in China which started in November does seem to be having an ongoing impact. So there is a moderation in the average coal price -- thermal price that we've seen during this period of $95.88 for the quarter, some 8% lower.Obviously, as you know, we don't sell coal to China on a systemic basis. From time to time, we've had semi-soft sales there but certainly no physical exposure in these periods to that. But in terms of the semi-soft, our prices realized out for $120 had been pretty good relative to the $132. The hard coke at $110 for the quarter has been a reasonable, reasonable out road. So some significant buoyancy, I think, and even despite the fact that's come off more recently. But during the quarter, obviously, differentials between semi and thermal have changed, so it has brought it back into the range where we are looking at incremental sales. It's still -- it's in the money, but it's not significantly in the money, I'd have to say. And so we are looking at incremental sales.Now Maules Creek's premiums have been solid at 9%, and that's a positive result for the quarter. The table there, as you've now come to see over successive quarters, highlights the realized prices of the various indices for the high-quality thermal or other thermal, the semi-soft product and realizations both against the spot and the quarterly price for the semi-soft.Operationally over to Maules Creek. So ROM coal production there at 1.7 million tonnes for the quarter. Saleable coal production 2.27 million tonnes, and sales for the quarter at 2.66 million tonnes. So these numbers are lower than where we want to be during this quarter, but this is broadly just a scheduling -- short scheduling issue that I'm going to speak more to.We are focused on making sure that we can get to in-pit dumping as soon as we can. And so our effort during this quarter and also this next quarter will be focused on diving into what is the southern section, for those familiar with the picture of our lease or physically have been there, into the southern regions where we -- that is the logical place to start for in-pit dumping, is the shallowest area of the pit but it is also a relatively narrow area compared to the north, and that has had impacts on the operations during this quarter and will slightly for the next quarter. So in the narrow area, productivity is lower. And as you go into this area where the seams converge, there has been some intrusion into the coal there up against the low wall, and there will be some small elements of coal losses during this period. But what it does do is it gets us to the pit floor in for this new financial year, and we are estimating that in this new financial year, total volumes dumped in-pit will be about 20%, which will be good. This total journey of in-pit dumping will take 5 years, and we expect to be at 100% in-pit dumping in 2024, which we'll see a dramatic change in the cost of overburden haulage for the mine, generally.Metallurgical coal sales, just around the picture of Maules Creek, at 600,000 tonnes was 26%. And then the sales of metallurgical coal for that same period was about 850,000, representing 32% of total sales for the quarter for Maules Creek.Narrabri had a good month in the final end of the quarter. As you know, we -- the guidance, we pulled down because of some weighting events that occurred during January and February but certainly has returned to decent form, recording at 1.7 million tonnes for the quarter, 39% up on the previous corresponding period, a period which when we reflect back you'll recall was suffering quite a few mechanical issues at that time.Saleable coal production at 1.6 million tonnes and also sales themselves increased by 41% and 45%, again, over this period when we were experiencing mechanical issues a year ago.The improvement in performance has been very pleasing, and really, it's a result of moving to area where we did -- as a result of those weighting events, we did apply some more from surface fracking, which was -- alleviated some of the weighting issues in this area that we've now moved into. But we also have deployed another technique where we've been essentially in-seam preconditioning to promote the formation of the goaf once you're actually in a weighted event, which is a very, very helpful technique. But it is after the fact, so once you've got a weighting event on the deployment, this technique allows you to get out from under this issue quicker.Now dealing on a more proactive basis, as you know, we placed -- we've mentioned the placing of orders, which we now have been done for the upgrade of the chock cylinders in -- at Narrabri, which will take us from being able to deploy about 1,350 tonnes of force to the roof to 1,750 tonnes, which is a material upgrade which will come during the course of the next change out during November and December.Gunnedah operations has had essentially an average quarter as far as our year totals go with about 1.49 million tonnes for the quarter. So on track to deliver its tonnes for the year.Tarrawonga has had a big quarter at 700,000 tonnes, which is a solid result for it.Rocglen also had done a decent result at 200,000 tonnes for the quarter. We will be processing -- we will be finishing up mining at the end of this financial year. We will carry stocks into the new financial year which will get processed over the full -- over the next 6 months. And then we do move into rehabilitation program, which will take us between, with a small crew, 18 to 24 months. If we choose to, there are options to outsource a bit of that. But at the moment, we're thinking we will deploy some of our equipment and small crew of people to do that work.Werris Creek at 480,000 tonnes has had a good quarter. It will, as it normally does, as you know, have a wet sale in the final quarter, so saleable coal production and volumes and ROM production will be higher in this remaining quarter of the year. Saleable coal production and sales for the period, 387,000 and 467,000 tonnes, respectively.Sunnyside is doing what it needs to do as a rehabilitation exercise and pulled out 100,000 tonnes during the quarter. This again, we'll finish mining here, as with Rocglen, at the end of this financial year, and we'll carry some stocks, limited stocks, into the new financial year, which will be processed through the first half of 2020.With Vickery, we've gone through, as I mentioned earlier, the public hearing process, which was staged both -- one in -- the initial one in Boggabri and then the second one the day after in Gunnedah. As you know, this is the process where you are inviting the public at large to come and express their views as to the project itself, good, bad or indifferent. And we were very pleased that the submissions made during the open period, about 63% positive. And since those hearings, further submissions, as a result of the public hearing process, have been about 75% positive in favor of the project, which has been very good.The IPC is currently working on their issues report. They have asked for a small extension from the Department of Planning, which has been granted, in order to deliver their findings for this issues report. During the meantime, we have submitted voluminous documents addressing any of the particular issues that came out of the public hearing process that haven't already been addressed in the EIS documentation itself, with the view to making sure that the issues report, when it does emerge from the IPC, is obviously contained to those matters that are of significant to the project as a whole.I think it's still a right expectation for us based on what the IPC is telling us that an approval time line of the end of this calendar year is still the right time line to be focused on.On to Winchester South. We have lodged our Initial Advice Statement with the Queensland government. This goes into the Coordinator-General's role, a role, a pro-development role within the state government that isn't mirrored by a role in New South Wales, so it is unfamiliar in that sense. But having been invited to think about submitting the project to be declared as they have significantly have done so. And we expect that approval to be forthcoming in the not-too-distant future. All the feedback we've got from this is that's pointing in the right direction, and my sense of this is that it won't be long before this decision will be made. As I said earlier, very pleased to be on the ground and drilling on the site, the principal objective of this work is to delineate the coal qualities and also to provide material for other works such as washability. As we talked about in the past, the key -- one of the key drivers of this project will be product splits and a very important information for defining the configuration of the CHPP and other infrastructure on-site. So that's very positive to be on the ground there.Hedging is there for your noting. And I'll just move on to the coal outlook as the final piece of the formal part of our discussion.We certainly can see that -- during the course of this period that the IEA has affirmed that certainly coal demand has certainly been solid during the period but we have seen some small disruption from China. Despite the fact that we don't sell there or are physically exposed to it, we have seen some impact on coal price by sentiment-wise and certainly, some shipments being directed, we believe, to other markets where unloading has been slow in China. And certainly, that has put -- has moderated coal prices more recently as we have observed earlier in this presentation.Offsetting that, obviously, is the fact that new supply is not something that's driving this in any real way. In fact, new supply has been very subdued and projections are that they will continue to be subdued for not just the short term, but certainly into the medium term. In fact, the IEA is -- predicts in its report that there's going to be quite a gulf between their projected demand and new supply coming online and I think estimates that deficit to be valued at about $1 billion -- sorry, $1 trillion in new investment in coal mines in order to meet the IEA's estimates of demand out to 2040.So as we mentioned earlier, the Chinese government has also impacted with their slowdown, it would appear, on the metallurgical coal market as well. But again, now that there is some spread between the semi-soft prices and thermal prices, that has bought into the range where we are receiving inquiries for spot sales of semi-soft through this next quarter. So we will look at that, again, after having not been particularly interested in this part of the market over and above the contracts that we've had with our JSM-based customers.So with that, I'll bring the presentation part of the quarterly call to a close and open the floor up for questions from listeners.
[Operator Instructions] Your first question comes from James Redfern from Merrill Lynch.
Two questions, please. Just in relation to Maules Creek, I'm just wondering in terms of the developing of the box cut in the southern area, just wondering if that was not known back in February, if it was part of the mine plan originally and why guidance wasn't revised back in February? And the second question is just on the thermal coal market. I'm surprised it had fallen quite sharply in recent months. Just wondering how much of this decline you attribute to large Chinese imports versus the declines by LNG advances, which has caused switching from coal to gas in certain regions of the world?
All right. Thanks, James. Let me just deal with Maules Creek one first. Look, this area certainly has been -- there's been no change in our plans in terms of wanting to get into the southern area as soon as possible. That's always been known to be the shallowest area and the most logical place to start in-pit dumping. So that's certainly not been a change. What has caused the slowdown, if you like, in production in this area is that productivity has been lowered. It's certainly harder -- the rock is harder there. We've been blasting harder in this area. And as we got down to what is the basement of the low wall itself, there's a convergence of seams here which have been affected by clay -- claystone sort of interaction which you don't see in other areas of the pit, and certainly, it's a product of, obviously, this is the side of the pit where you obviously the -- the seams outcrop. And then -- and in with the strata, the convergence of those seams together, does bring into it what is a claystone band. It's actually very coal-like in coloration and so when you get down there, you realize that this coal is affected by this claystone band, it's -- some of it's actually we're washing and deriving low yields from it, unfortunately. But some of it, you're actually just going to leave behind. And now that we got there, we can see that there is a quantum of coal here, about 400,000 tonnes we think in this region, which is -- which we're not going to extract. I mean, it's immaterial to the size of our reserves overall, but in this current period, there's an extra part of coal here out of this box cut area that we're not going to take and, essentially, we'll leave that as part of the basement area of this box cut to the south. Jamie, anything you've...
No.
No other comments. On the thermal coal market itself, look, the switching -- the notion of switching is an interesting one. Obviously, LNG prices are low. Coal has obviously moderated as well. The switching notion, I think, we've got to look at this in perhaps on a medium to longer-term perspective. There are very few jurisdictions that can actually -- who have a duplicate set of infrastructure that allows you to switch one to the other in a material way. So there's no doubt that there's been more LNG coming into the market, so I think that's something that you'd want to continue to review. But coal demand, I have to say, despite these prices, has been very strong. So we have -- we're -- we'd love to have more coal, of course, as you know. But even at $85, in Maules case, $85 plus its premium, the underlying demand for the coal has been very good. So we're not seeing any change in that at all. And relatedly, we're actually not seeing any impact from potentially any of these other cargoes trying to find new homes in our markets, so -- which is a good thing to be able to say.
So just as a follow-on. So I mean, Whitehaven doesn't sell any thermal coal to China, it's predominantly Japan, Korea, Taiwan. But I guess tonnes that were going to China are being diverted elsewhere and so that's obviously putting the pressure on the thermal coal price. You see that as more of an issue than lower LNG prices, that right?
That's right. That's right. Yes. I mean, the LNG price you'd have to see a change over time in order to drive switching as opposed to a downward step in coal prices at -- for what might be a 6-month period, say for instance, or a 3-month period, depending on how you view this one. But we're not seeing any physical change in underlying demand for our coal. Of course, some of these coals we'll have to find a home. As many of you'll know, you can't take a 5,500-kcal product to and try and move it into Japan. That's not possible. You couldn't -- there's not a washing solution that can do that. And if you tried a blending solution in order to do that, that would -- the economics of that would be blown out of the water. You can move it to proximate next-level markets, say for instance, Korea and Taiwan if you got the blend stock to be able to do that and the economics makes sense for you, you can do a little bit of that. And to that end, we have sold coal to some of our competitors who are looking to do exactly that. But that also, that obviously attracts the premium for the product that you would otherwise achieve by selling it directly to an end-user. So that's how we're seeing it at the moment, but no change in what we can see into underlying demand in our markets.
Your next question comes from Sam Webb from Credit Suisse.
Just 2 quick ones, please. Can we just start with the in-pit dumping starting next year? Just wondering if you'd will be willing to maybe conceptually put some numbers, unit costs, dollar million savings, we can expect year-on-year for the next 5 years until you get to 100% there. And the second question is just around CapEx. I mean obviously Winchester South comes out next year, the stamp duty, it's a few moving parts. Without necessarily giving guidance for FY '20, can you maybe outline a few of the elements that we should be thinking about from a CapEx perspective for FY '20?
Yes. Thanks, Sam. Both of those sound like questions that should be answered at the full year results for next year. The in-pit dumping, as you're rightly asking about, that's a very good -- and we've been talking about this for a little while, so it's very pleasing that we're actually on the cusp of actually starting to experience the benefit of this. I do think it's better off that we leave this question until our guidance for next year, and which time I think we can map out for people not just what we think will be indicative benefits from this but how that benefit grows over time. We have said 5 years in order to get 100% in-pit dumping. We can certainly, from our plans, already see that. There is an interaction, as you'll understand, potentially the introduction of autonomous fleet, so I think it will be best if we dealt with the in-pit dumping first on a manned basis, and we'll worry about the benefit of unmanned at a later point. You can imagine the significant benefit from saying 20%. Let's just say for instance then, if your...
80 million a year.
80 million bcms a year. If you...
20% lower haulage cost.
I think that's -- if you look at 20% of -- 20% of your truck, say for instance, not having to go out 5 kilometers out on the top of our outer pit dumps and dump there. And the cycle time associated with that says, currently, you could only make 2 of those trips in an hour for 1 truck. So I think you could imagine that if you cycle that back around, you're essentially dumping it with a short haul from where you actually picked it up, cycle times, obviously, reduce significantly. And for 20%, that's quite meaningful in its first year of in-pit dumping. So I think we'll just leave the physical estimations of that from a guidance perspective to the year-end numbers. Just from a CapEx...
Sorry to interrupt, but that 20% for FY '20, when does that actually start? I mean, when do you -- I mean, does that go from July 1 or -- just understanding when that will start taking place?
Yes. Look, I think the specificity of that would be, as you imagine, you're only just approaching that, so it's going to be small in the beginning of the year and ramp-up through the body of the year. So I think the nuances of that, we can spell out for you better in the full year's numbers. CapEx for next year -- again, this is another guidance-related question, but there's not particularly anything on the radar that I observe now that's chunky for you outside of small elements of project capital required for various initiatives around the business. Obviously, the Winchester South, as we called out, is the -- is something that's nonroutine, if you like. It's obviously the product of M&A and it's got the related stamp duty impact that comes with that. But for that, and obviously, the truck legs, which we've already talked about being about AUD 35 million, of which a small piece of that will be paid in this current financial year, the balance in the next year, there's nothing else material that I could point to. But again, this is a question that's better dealt with the full year results when we put out our guidance for sustaining CapEx and growth CapEx.
Your next question comes from Paul Young from Goldman Sachs.
Paul, the first question's just again on the in-pit dumping, that program whereby you're saving 20% in FY '20, has that been brought forward at all, that program?
No. To Jamie, that's the same as what we've been providing.
No, that's similar forecast that we've been providing. And previously, I guess, no, it's in line, I guess, what we've been suggesting for some time, Paul.
Yes. And then on the automation, Paul, early days, first trucks will be -- is running around now and you have the fleet, I think, up and going in October. What -- can you actually give us an estimate on the capital -- the CapEx required for the automation to fully automate the fleet?
Yes. Paul, look, we're hoping this -- we're hoping that we'll be able to bring on 1 fleet in October is our plan. And that's -- so we've got a truck whizzing around, as you mentioned, gathering data and experience which is great. But in terms of, say, the first digger serviced by 5 to 6 trucks, we're hoping that, that starts in October, which should be -- we'll report on later. The CapEx side of things, we -- we're not heavily exposed to that at all. In fact, the retrofitting of our fleet, our arrangement with Hitachi is that there's -- our exposure to that really is only limited to infrastructure required to run the system on-site. So computers, offices, network towers, these types of repeater systems to make sure that we've got network coverage across the whole site. So our -- there's no -- there's not a material addition to CapEx -- our CapEx outlook that's required as a result of this arrangement.
Okay. Great. Then switching to Narrabri, just looking at that next longwall change, November, December. Correct me if I'm wrong, but was that supposed to be September quarter previously?
No. I mean, you may remember we were debating previously whether we're going to be step around the dike and mine the back end of 108. But in terms of when we're going to get to that point, it's still in line with that. I mean, obviously, with reports we've made from previous quarters for the issues we've had with the roof issues, that's moved back, but the November, December date is in line with what we previously reported in.
Yes.
Okay. Great. I'm going to sneak one last one in if I can, guys. Just on the CapEx of Vickery, which you've quoted as 600, 700 previously. Are you reworking that capital number? How up-to-date is it? Will you have to -- is that to a very advanced detailed engineering sort of level? Are you still comfortable with that number?
Yes, we're working through those numbers as we speak and the various packages of work had been looked at. And as we're refining those numbers, Paul, we still think that range is valid. But as we get through a more definitive feasibility stage, then we'll be able to sharpen up the focus on that. We accept that that's quite a big range and many have observed it looks like Maules in a sense in terms of those numbers, which is not wrong, it certainly does. And -- but there are things around -- it's about -- I mean, Maules spent a vastly greater amount on rail infrastructure than what Vickery would have to do, say for instance. So there are swings and rounds-abouts in that. But it's going to be a sizable project as you mentioned. You know, we're obviously not going to be washing 30 million tonnes per annum there in that sense. So the wash box itself, actually, you could bring those costs down a little bit. So that range still is good for us. And I think when we get to that -- the -- later in the year when we're actually talking to joint ventures through the formal process of the Vickery joint venture formation discussion, then we'll have more definitive comments on where we think we'll narrow that range up to something a little bit more useful for you. But that will be about July of the year.
Your next question comes from the line of Phil Chippindale from Ord Minnett.
A couple of questions, if I may. Firstly just on Maules Creek, can we just circle back to I think a question that James was asking earlier and perhaps I can ask it a different way. You mined 1.79 million tonnes of ROM in the March quarter. You're effectively guiding to at least 3.7 million tonnes in the June quarter despite referring to the challenges of the intrusion that you spoke about earlier. Could you just -- maybe just give us a little bit more sort of reasoning for your confidence, I suppose, to point to such a huge -- I would say, a pretty big jump between quarter-on-quarter?
So you may recall it was -- this is similar to the first half as well. I mean, the first quarter was below our normal sort of run of mine production levels, and the second quarter of the first 6 months was in similar production levels to what we're forecasting now for this final quarter. So the impact of what Paul described earlier with respect to the clay intrusions with these lower seams has caused us to essentially change the main pathway in terms of the sequence through the mining, and we're now back on track in terms of where we need to be to meet our full year guidance. So the tonnes we're talking about producing this final quarter is something we've done previously. So yes, we're very confident about that.
Yes. Phillip, it's annoying -- sorry, Phillip, I'm just going to add to Jamie's comments. It's annoying that it's a little bit more back ended than we'd like. Jamie has rightly observed that, that happened in the December quarter as well. It's annoying, but it is -- the saleable coal production change is a consequence of that. It's not -- acknowledging this 400,000 tonnes that I mentioned earlier that we don't think is actually salable, and there's then therefore coal losses in this small area of this box cut. As immaterial as that is, it's actually relevant to this quarter and the next. But it's really the late arrival of these tonnes that actually is the cascading impact on the saleable production because you just don't have time to funnel it all through processing, obviously, to bring it into saleable coal production categorization. That doesn't mean sales, it means that it's actually been processed as you know.
Understood. Why don't we move on to some more positive news. Just on your cost guidance that's unchanged despite the sizable sort of reduction in your coal production guidance. So clearly, the numerator is a little bit lower than you'd expected. So can you just talk to where have you been able to sort of control your costs and what's driven that unchanged guidance?
Yes. Look, I think the obvious areas are having more Narrabri tonnes, firstly. I mean, that's our, as you know, cheapest coal, so we always want to have the right representation on that to get the right weighted average impact of that. So we are -- with Narrabri resuming a more normalized production profile, then you can see the benefit of that coming in straightaway. And look, there are other initiatives around the business where we're seeing improvements in our cost run rate. I think the trajectory that we're on for the $67 is the right pathway in terms of what our current experience is. We actually think that's -- it does imply, obviously, a run rate of about $65 in the second half as we've all -- as everyone's backsolved into, and I think that's the right -- that's certainly indicative of the rate at which we're progressing at the moment. So yes, we're comfortable with the range where it currently is, with the $67 target.
Your next question comes from the line of Lyndon Fagan from JPMorgan.
First question is just back at Maules. Any of the issues that you've had this quarter, do we need to think about those issues impacting future periods? Or do you believe that they're relatively isolated to the quarter that we've just had?
No. Look, this specific issue, we believe is isolated to this quarter. I mean this information that we picked up through testing of the seams, when we got down to start extracting them, and as you can imagine, you know when you're working off a model which has got bore holes fairly sparsely spaced. It's not until you sometimes get down into the box cut and actually start looking at the coal itself that we found this problem. Our subsequent investigations indicate that there are some areas where there's some intrusions -- igneous intrusions which we're better at mapping and understanding. But we don't see them as being as high an impact in any quarter in the future as what we've seen in this most recent quarter.
Great. And then at Narrabri, you called out 800 for March. Is there any reason why you wouldn't do over 2 million tonnes in the June quarter based on that run rate?
Yes, we've just started mining through the fault. So when we come through the weighting area, and as Paul described in some of the practices that were introduced, that it gets through that area have been very, very positive. But as I say, we're into the fault now, we expect that that's going to be somewhere, in terms of timing, some 6 to 8 weeks to progress through that. That will obviously be at much lower production rates than we would typically experience. And then just on the back end of that is when we'll get some higher production levels to finish off the year. So it definitely won't be the same rate as the quarter that we've just finished. Early days, but so far, mining to the fault is progressing well and we'll just see how things continue to proceed.
But that's all factored into the guidance that we've given.
Yes. That's where that number is.
We've used indicative rates on what we experienced when traversing the faulted area, certainly 107, and I tend to think that there are appropriate, but conservative, rates of production that we've mapped out through there and I think the 5.6 million to 6 million tonnes guidance we've given is solid, and we'd all like to be at the better end of that.
Yes.
Great. And then I guess is it too early to try and sort of call out the impacts of next year in terms of longwall changes, and when you'll be back through the fault again, i.e., which are the uninterrupted quarters for FY '20?
Well, we haven't given guidance there on the quarter-to-quarter performance of the longwall other than to obviously point to everybody to the change out time itself.
It will be very much towards the back end of the next financial year or the next year.
I'd say it almost right at the end of the financial year, next year when you're traversing the same zone.
Yes, that's right.
Okay, great. And then look, last one for me. Just to revisit the China coal bans, I'm just interested in your thoughts around how structural, you think, this issue is and whether they've actually been able to replace the volumes with domestic or other supply? Or is this a sort of relatively temporary thing that we could actually see Aussie imports be accepted again this year? Just interested in how you sort of think about this issue at the moment.
Yes, look, it's one of those things where you're trying to piece together a puzzle here. It's quite interesting. My understanding is that tonnes are still actually being unloaded and albeit slowly. And that compression of your supply chain for those people selling there is what's prompting them to divert tonnes to other markets or blend them up as they try and manage that better. I know it's been characterized as some sort of Aussie-Sino, sort of trade dysfunction but -- or political dysfunction. But there are other data points which also lend me -- lend itself to the conclusion that it is a domestic issue that's being managed here as well. I'm just surmising that maybe there is a PR opportunity in this that people are seizing on in order to put some pressure on Australia for other reasons. But I do think, fundamentally, China has slowed off a little bit. They actually have produced a little more year-on-year, despite the fact that even though the country is slow growth wise, electricity demand is well up year-on-year as well. So in tonnes, and the total tonnes we're talking about here going into that market that are affected by this are actually very small. So I must admit if there was some sort of trade disruptions that I was trying to promote, perhaps there's something a little bit more material, if I wanted to give your supplier a touch up. But -- which tends to me to be more about managing the domestic market rather than necessarily a trades bet, and I think that will moderate. Well the question for everybody is, what's your time line for that change. But in the meantime, we're selling our coal. It doesn't seem as to be there's any disruption physically in our market. Of course, we'd like our price to be back up over $90 but $85 is still solid business for everybody.
Your next question comes from the line of Glyn Lawcock from UBS.
Just quickly, on the met coal sales, you said it is doing some spot sales. Just wondering which markets are showing the interest. Is it the traditional customers or someone else? And then just on Vickery. You talked about the end 2019 time line, just talk me through the critical path? I mean -- is that -- is the item on the critical path got fixed deadlines and dates? Or is it your best guess of what you think the process will take, and there really isn't a firm state that people have to come back, rule by, make decisions?
Yes. Where we've seen, Glyn, just on where we've seen incremental interest in tonnes come from. We've seen -- we certainly have seen some more inquiries from China on semi-soft. We've seen a bit out of Korea and through -- a bit more out of Vietnam, but that's really out of Taiwan in terms of the new areas where we've seen incremental interest. The spread obviously at $85-plus your outpremium for Maules, because Maules are the primary one that we would consider switching from. The $85 plus your premium versus the 107, 108 type thing is -- there's enough in that but it's marginal, so we're interested in a pathway that leads to a JSM-based contract, but if it's continual support at that level, but you're less excited about the immediate prospects unless, it is a named customer that you want to do continuing business with.
And Paul -- sorry, before we jump of that then, how much can you flex your tonnes? Like I mean I assume some of your thermal is contracted, so is it a material amount you can flex and switch if the demand on the spread opened up even more? Or do you have quite a bit of thermal commitment anyway?
Well, you can -- what's happened is -- I know we spoke before about our product strategy at Maules Creek. You've got 3 products. You've got the low-ash semi-soft which would like to keep in the semi-soft market and service those JSM customers. And then you've got the middling ash one, the 6 to 8-type percent one that we've been referring to as the switcher product and then you've got the 10% thermal. The 10% thermal is obviously there and locked in those premiums which is the right place to be. The swing one in the middle there, which is about 25% of the production that you can move around. So that does allow you to play more of an arbitrage, if you like, between that -- in that spread. So you can do that readily. And just as you know, and we commented on repeatedly through these past quarters -- past 12 months, we haven't been chasing those incremental spot sales. I know we sold 1 recently at $117 that went in. But then you've obviously seen the spot price and the gC Newc price both stepped down recently. So since that time, we've had inquiries but we haven't taken them up yet. On the Vickery, look, I'd love to be able to point you to a confirmed time line that the IPC published because it's not our process to drive, the IPC defines this. I'd love to be able to refer you to the website where they map this out, and there was a moving dot that tracked across a graph showing you what the stage of completion of this project was and how much time is left to go. Unfortunately, there isn't one of those. So the IPC maps out a series of estimates of time for each stage in their process, but they are not committing to an end date. I did refer earlier in my discussion to the production of their issued report because they do -- actually do have a commitment back to the Department of Planning to make Department of Planning time lines. Department of Planning wanted to move to 500 days on average for these types of evaluations down from a 1,000 days. You may recall, Maules Creek to be a little bit more than 1,000 days. So it sounds like a low bar, still 500 days, but that's a vast improvement on where they've been in the past. But if you aggregate the various time lines that they tell us for these various stages, that brings them well within the calendar year '19. We're just adding a little bit more in there just because there might be further delays on the process that we can't control. So all we got to do in terms of making sure that we can keep this thing on track is when there's action upon us, make sure that we turn around our piece as quickly as possible and make sure that we keep the information and responses up to them. So we're -- you put -- then because this is a public process, you can say, well, you've said that there's 12 weeks before you turn around this next report, where is it? And that's how we're attempting to try and keep it honest. But when I say the calendar year '19, we've added in some time for further delays.
Okay. And have you engaged with buyers now? Or is that still something you have to wait until you get close to the end of this process?
Yes. No. Look, we've been engaged with these people all the way along as we've reported, but we have said to them that in terms of opening a formal process, that's July. So at that time, those people have expressed interest, let's work out who's real, who's just kicking tires. That July process will open the door on this. And then they'll be invited to obviously do some detailed work, express their view on what they think the price is. Let's see whether that makes out hurdle. We think allowing 6 months for this. Because they're all interested in the 10 million tonne version of the project. They're not that excited about the 4.5-million-tonne project for the same reasons that we want the 10-million-tonne project. So we want that to converge at the end of that calendar year because they are all interested in seeing the piece of paper that says 10 million tonnes is a go.
[Operator Instructions] Your next question comes from the line of James Gurry from Deutsche Bank.
I think most things have been addressed by now, but maybe a left-field question. With China encouraging the domestic coal industry, is there a probability at all that, that country becomes a net exporter of coal like it used to be 10-plus years ago?
That's an interesting question, James. I think it was more than that ago, that they are material exporter. But look, I strategically don't think that's where they want to be. Exporting coal to essentially rival countries in their nation -- in their region. I don't think it's where they want to be. They obviously have vast coal reserves. They obviously have limited access to gas. Renewables will continue to play its part and nuclear will also be a piece of the puzzle. But I think strategically, I think these guys need this industry for themselves rather than selling fuel to their chief competitors in the region. I don't -- there's nothing I'll say, that says that they want to return to that state. That's not to say it couldn't happen but that's not easily a proposition that resonates with people who have moved up the quality curve quite significantly in the region, and these guys obviously don't have the type of quality that naturally fits with the plants that other people are building for themselves. There are ultra-supercritical plants and the Chinese have got very good ones, but they are tailored to their coal. So you're going to sell them the technology. Then you're also going to have to sell them the coal as well. But that's, as I say, that's just a -- not a paradigm that people seem to be wanting to embrace right now.
Okay. Cool. And in the Vickery statement of issues that's due in coming weeks, I think you said here, what should we look out for and what are likely to be the issues that you want to address when you respond to that?
Look, I think the good thing about the Vickery process thus far, and I think you should, for a steer on where the focus will be directed, you should read the issues report from the DPE, Department of Planning. That certainly was a very good summary of the project itself and was a very good indication to where do further analysis and inquiry should be directed from their perspective. Obviously, through the open hearing process of the IPC, you obviously -- you draw in not just the scientific aspects be they analysis of water, be that dust, be that vibration, be that traffic management, all these types of things, say for instance that are typical components of any development consent request. Then they overlay across the top of that community areas concerns. And that might be employment that might be traffic and other areas as well. It might be competing land-uses, say for instance. But I think, let's see where that goes. Fortunately when we had those IPC hearings, there were no issues that hadn't been well considered and well address in the EIS. In fact, many of those issues our responses to those submissions has been just to direct them to sections of the EIS where perhaps public -- the public person, Joe Average, hadn't actually read, which is quite an extensive document. I accept that it's hard for everyone to get their heads around four lever-arch binders of submissions that make up the EIS documents. But most of those responses from us has been around ensuring that you referred to what sort of being done as opposed to having the IPC request us to do more work in an area that's not only just being analyzed and prepared by independent reviewers but then peer reviewed by third parties as well. So I think the comfort there is that, none of the areas that they seem to be focused on are new or haven't been addressed in some fashion already in the EIS itself. But I certainly would encourage you to read the DPE issues paper. That's the paper that they send to IPC to direct them on the areas of focus that the government would be attended to. That's a very well written document. It does tell you a lot about how they think about the project.
[Operator Instructions] Your next question comes from the line of Andrew Hodge from Macquarie Bank.
I just have 3 probably forward-looking questions I want to ask. One was just in terms of what Jamie was talking about at Maules Creek and I guess the potential to do such a strong number in that quarter. Just to get an idea about what you guys think is the sustainable run rate and you guys can do in terms of lifting volume now at Maules Creek?
Well, the sites approved for 13. So as we said before, you'll start to see the annualized run rate of 13 appear in the last quarter. You will definitely see that, yes. But our current approval obviously is for 13 million tonnes. So part of this in-pit dumping element of our mining schedule and plan is all about a sustainable 13 million tonnes per annum year-on-year until such time that we were able to gain approval for something more than that. We have talked about potentially going to 16 million tonnes, which we think is entirely feasible. But the preparatory work and analysis that underpins that is ongoing, but I think you just got to allow us some time for the necessary process...
There are process, yes.
Approval processes in order to be able to convince the government that another 3 million tonnes is easily manageable within the confines of our existing footprint.
I assumed and was just thinking -- I mean you did almost 4 million in the December quarter probably, 3.7 million this quarter and if you're going to do in-pit dumping, arguably, you could probably start to increase. So I was -- that's what I was trying to work out, is when do you guys start to think about going beyond 13?
Yes. We think about that now.
We're thinking about that all the time.
Yes.
Where you're going, Andrew, is an important part of Maules' future. We think it should go larger as we've just said, and we think the productive capacity of the fleet that we've got there with the benefit of autonomous operations should be able to do 16 with the equipment we've got. And that's essentially the prize that we think we would like to achieve by introducing autonomous operation and also modifying the current production limit to something higher than 13. And so that's what we're looking to achieve. Of course, fluctuations from 1 quarter to the other in terms of the amount of ROM coal that comes out, obviously, there's variations across the mine plan as you know. We've got 15 seams there, they're not equally spaced. In fact, as they lay themselves out in the pit, they're not equally spaced. And that space between them varies from one part of the mine to another. So you're always going to have times when you're getting more coal than dirt and that varies as you traverse what's a very large footprint of this project. But our long-term goal is to achieve that next step without any further equipment.
Okay. The next question is kind of a 2-parter for -- and for Narrabri. In terms of throwing in the high capacity cylinders, is that -- which looks like it could be theoretically add an extra sort of 0.1 million, 0.15 million tonnes a year, is that within sort of the guidance you guys have given before for the 6.2, 6.6 for FY '20?
It's all about that guidance. But I mean the legs in and of themselves are not so much about the -- an increase in production although we'd be looking for that. I mean it's more about making sure that going forward, we've got the equipment in place to give us more reliable production output I guess at the guidance that we've provided previously. When we've had these issues with roof falls and the weighting event, I guess the legs are more about making sure that we've got the equipment to allow us to be able to avoid having those falls altogether, or if we do have them, that they're much less severe and we can recover the face much more quickly. So it's more about underpinning our guidance as opposed to this really giving us some incremental improvement over and above that.
Great, Jamie, what was the comment you were just making about weren't sure about the guidance?
Or the number.
We're not sure about your number.
Yes.
Where you got your number.
Page 20 of your half year results [ it is that ] ROM coal guidance for Narrabri is 6.2 to 6.6 for FY '20?
No, not that number. We well understand that number and who owns that one. But it was the number that you mentioned.
Okay, that was my -- sorry, that was my calculation of what I thought you guys could add by going from 7.50 versus 13.50.
Yes. It wasn't a number that we recognized -- our guidance takes into account, as Jamie said, obviously, the relocation. And without going back and getting that stub element of coal on the other side of the dike in this next financial year. So that is the majority of that uplift. Having said that, as Jamie's saying, this is -- the upgrade of the chock cylinder is a proactive measure. It's designed to obviously hold the roof up for longer and have less weighting events. The in-seam fracking is a reactive one, which gets you out of trouble earlier than -- once you actually had a weighting event that stopped you. The coupling of those 2, we expect, will give us a better outcome but that's all factored into the guidance that we've given you.
Okay. And then the last was just in terms of sort of more longer term, I see you guys had filed for Stage 3 at Narrabri. Can you give kind of an idea about sort of development time frames, when you guys expect sort of EIS to come out and sort of what kind of CapEx do you guys might need to be spending sort of in the short term on it?
Short-term CapEx is not material, so this is mostly consultant and design work for -- essentially in-house work. There's -- not material in that sense and maybe a little bit of land that we're looking to acquire down in the southern area. But again, not big numbers in that sense.
Existing drilling program, I guess, bit coal quality. The normal things that you would anticipate, what you doing to prove up that expiration license into a mining lease. Timing-wise is at least 12 months of that sort of work before we'd be in a position to even start to present.
To lodge.
Yes, to lodge. Yes?
Yes.
You've seen the public notifications, we've got an IPC site visit tomorrow, so the process is happening.
Okay. Yes. I mean just obviously, there's a substantial amount of reserves and you guys are proposing a fairly large footprint and I was just trying to work out that, obviously, a lot of it's already within your existing footprint at least in the first couple of years, so I was just trying to work out on the timetable of being able to try and go through. But I guess, what you're saying is it's going to take at least 12 months before you guys going to be filing with the EIS stuff?
Yes, that's right.
Yes, it's 12 months away. You've got to allow -- let's assume 12 months of the EIS. This is not obviously -- open cut mining is different. It is assessed differently from the underground mine. That is an exploration license obviously that we've had all along. The government understands, it is a valuable resource that needs to be developed. So we think the time line for the EIS valuation would be better than the equivalent open cut operations because this is an adjunct to an existing mine. But our view is that along those lines, another year plus allowing a year for assessment and then the approval, you're 2 years away from that. We finished production obviously on the western boundary of the existing northern panels of our Narrabri North mining lease in 2024. So you've got plenty of time there, but you don't want to muck around either.
Yes. I guess the point I was trying to make is, as you said that, I mean, you've got a long time yet before you are any close to the new boundaries. So like starting now, you at least got a 2-year window?
Yes, well, that's right. You've got time but obviously those longer panels is which -- what we aspire to, they're going to take some time to develop, so you need to be well into that and make sure that you've got one ready to go straight into, yes, in 2024.
Yes. And obviously, we start those under the existing mining lease. So it's that time when you step over that large mining lease into the exploration license.
The final question comes from Lyndon Fagan from JPMorgan.
Look, I guess I just wanted to explore the China ban issue again, given it caused the coal price to fall 20-odd percent and your share price to go down with it. And I guess when I look at China imports of thermal coal, they haven't really changed. So they've subbed out Australia with Indonesia perhaps. And they've been willing to accept lower calorific value coal, it seems, which is going against their environmental agenda. I guess it does look a bit political, and I'm just wondering if you think that they are willing to accept lower CV coal just to avoid Aussie coal or whether that interpretation perhaps isn't right?
Well, again, Lyndon, this area is one where everyone is trying to piece the puzzle together, and there obviously is the risk of joining dots together that shouldn't be joined. The notion that you can swap out easily even 5,500 material coming out of Australia for something from Indonesia, I don't think that should -- that idea should be encouraged too much. It's not to say that Indonesia doesn't have some material of that specification but it's not -- the broader proportion of what's taken into China is somewhat lower than that. And again, these power stations are configured within a range of quality specifications they can take. If you start stepping outside of that, you cause yourself maintenance issues and you can't do that long term. So whether or not they're actually substituting one with the others as your proposition seems to indicate, I don't have the data that tells us. But I know tonnes are still going in there. I think it's just happening slower than what the producers would like. The volumes and sales are relatively modest, and you'll be able to I'm sure name the mines that have exposure to this part of the market. Perhaps those questions might be best directed at those who are selling there.
We have no further questions at this time. I'll now hand it back over to Paul for any additional or closing remarks.
Well, thanks, everybody, again for your time to dial in today and for the questions and interest in the quarter's results. If anyone's got some follow-up questions, please you know where to contact myself and all for media-related questions, Mike Van Maanen. Look forward to catching up with you all in due course. Thanks very much.
That concludes the Whitehaven Coal March Quarter Investor Briefing. Thank you once again for joining us today. You may all disconnect.