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Condensed Interim Consolidated Financial Statements For the six months ended 30 June 2022

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Condensed interim consolidated statement of comprehensive income For the six months ended 30 June 2022



Condensed interim statements of financial position As at 30 June 2022




Review of Performance


Review of Statement of Comprehensive Income


Revenue, Cost of Sales and Gross Profit

The Group generates revenue primarily from the Energy Coal segment and the Metallurgical Coal segment, which in aggregate accounted for 100.0% of the Group's total revenue in the 6 months ended 30 June 2022 ("1H2022")(99.9% for 6 months ended 30 June 2021 ("1H2021")).

Total revenue increased by US$1,624.93 million (or 201.4%), from US$806.71 million in 1H2021 to US$2,431.64 million in 1H2022. The overall increase in revenue was mainly due to the consolidation of results from Stanmore SMC Pty Ltd ("SMC")(formerly known as BHP Mitsui Coal Pty Ltd) following completion of the Group's acquisition of 80% interest in SMC on 3 May 2022 ("SMC Acquisition"), as well as increases in the average selling prices (“ASP”) of coal in 1H2022.

Energy Coal Segment

Revenue from the Energy Coal segment increased to US$1,334.71 million in 1H2022, representing an increase of 81.9% (or US$601.11 million) from US$733.59 million in 1H2021. The increase in revenue was mainly attributable to an increase in the ASP of energy coal of 72.6%, from US$42.71/metric tonne ("mt") in 1H2021 to US$73.74/mt in 1H2022, coupled with a slight increase in sales volume from 17.18 million tonnes in 1H2021 to 18.10 million tonnes in 1H2022. The average ICI4 in 1H2022, a better proxy for the majority of the Group's coal quality, was US$85.00/mt (1H2021: US$47.89/mt).

Cost of sales increased by US$320.13 million (or 81.1%), from US$394.76 million in 1H2021 to US$714.89 million in 1H2022. The gross profit increase from US$338.83 million in 1H2021 to US$619.81 million in 1H2022 was driven by the higher ASP, partially offset by the higher royalty and cash costs on certain costs linked to index prices coupled with higher strip ratio. Production volume in the Energy Coal segment increased slightly from 16.58 million tonnes in 1H2021 to 17.61 million tonnes in 1H2022.

Metallurgical Coal Segment

The Group reported a significant increase in revenue from the Metallurgical Coal segment, from US$72.25 million in 1H2021 to US$1,096.24 million in 1H2022. The increase was contributed by two months results of SMC upon the completion of the SMC Acquisition on 3 May 2022, coupled with an increase in realised ASP of 324.2%, from US$88.80/mt in 1H2021 to US$376.71/mt in 1H2022. In addition, excluding SMC, sales volume increased moderately from 0.82 million tonnes in 1H2021 to 1.10 million tonnes in 1H2022. The average PLV and PCI indices price increased from US$132.20/mt and US$109.20/mt in 1H2021 to US$466.80/mt and US$406.40/mt in 1H2022 respectively.

Cost of sales increased by US$554.44 million (or 715.5%), from US$77.49 million in 1H2021 to US$631.93 million in 1H2022. The improvement in gross profit from loss of US$5.25 million in 1H2021 to US$464.31 million in 1H2022 was primarily due to the inclusion of two months results from SMC, higher ASP and lower strip ratio, partially offset by the higher royalty. Production volume in Metallurgical Coal segment increased from 0.81 million tonnes in 1H2021 to 2.74 million tonnes in 1H2022, largely due to the inclusion of two months' results from SMC in 1H2022.

Non-coal Businesses

Revenue from Non-coal Businesses comprises plywood and rubber sales. The decrease of US$0.18 million from US$0.87 million in 1H2021 to US$0.69 million in 1H2022 was mainly due to lower sales volume from forestry division during the financial period.

Expenses

Selling and distribution expenses

Selling and distribution expenses increased by US$66.81 million (or 61.6%), from US$108.46 million in 1H2021 to US$175.27 million in 1H2022 mainly due to the inclusion of two months results from SMC in 1H2022.

Administrative expenses

Administrative expenses increased by US$89.04 million (or 170.5%), from US$52.23 million in 1H2021 to US$141.27 million in 1H2022. The increase was mainly due to the inclusion of two months results from SMC, as well as stamp duty and professional fees incurred in relation to the SMC Acquisition in 1H2022.

Fair value gains

Fair value gains of US$2.06 million arose from the fair value re-measurement on the investment securities held by the Group.

Finance costs

Finance costs increased by US$9.18 million (or 28.5%), from US$32.15 million in 1H2021 to US$41.32 million in 1H2022. The increase was mainly due to interest incurred on the loans secured in relation to the SMC Acquisition in 1H2022.

Other operating expenses

Other operating expenses decreased by US$9.20 million (or 87.1%), to US$1.36 million in 1H2022 from US$10.56 million in 1H2021. This was mainly due to foreign exchange gain of US$12.09 million in 1H2022 which resulted from the appreciation of the United States Dollar against the Australia Dollar, partially offset by (i) the higher provision of impairment loss of US$11.10 million, and (ii) the lower in reversal of mining activities of US$0.07 million in 1H2022 as compared to US$1.31 million in 1H2021.

Share of profit/(loss) of joint ventures (net of tax)

TThe Group recorded a share of profit of joint ventures (net of tax) of US$7.96 million in 1H2022, as compared to a share of loss of US$6.51 million in 1H2021. This was attributable to the improved performance of MetRes Pty Ltd which resulted from the higher realised ASP in metallurgical coal and better operation performance, partially offset by the share of loss from the Ravenswood Gold project which was largely due to sub-optimal cost structure as the mine undergoes capacity expansion.

Income tax expenses

Income tax expenses increased by US$187.68 million (or 367.0%), from US$51.14 million in 1H2021 to US$238.81 million in 1H2022, mainly due to higher taxable profits generated from both Energy Coal and Metallurgical Coal segments.

Profit after tax

Due to the factors above, the Group's net profit increased by US$422.75 million (or 526.9%) to US$502.99 million in 1H2022 (as compared to US$80.23 million in 1H2021), and profit attributable to owners of the Company increased by US$249.90 million (or 859.1%) to US$278.99 million in 1H2022 (as compared to US$29.09 million in 1H2021).

Other comprehensive income

Other comprehensive income decreased by US$16.46 million (or 318.5%), from a net gain of US$5.17 million in 1H2021 to a net loss of US$11.29 million in 1H2022. The net loss in 1H2022 arose from the fair value loss from the investment in quoted shares and share of other comprehensive loss from a joint venture arising from fair value loss of hedging contracts, partially offset by the foreign currency translation differences.

Review of Statement of Financial Position

Non-current assets

Non-current assets increased by US$2,372.33 million (or 284.8%), from US$833.06 million at 30 June 2021 to US$3,205.39 million at 30 June 2022. The increase was largely attributable to the consolidation of SMC's results upon completion of the SMC Acquisition on 3 May 2022, reflected by the significant increases in (i) property, plant and equipment; (ii) mining properties; (iii) right-of-use assets; and (iv) investment securities.

Biological assets increased by US$1.67 million to US$9.05 million at 30 June 2022 mainly due to fair value adjustment during the financial period.

Goodwill decreased by US$11.10 million to US$73.70 million at 30 June 2022, as a result of impairment loss recorded in 1H2022 for the forestry and pulp CGU.

Investment in joint ventures increased by US$37.70 million to US$72.01 million at 30 June 2022. This was mainly due to additional investment in Ravenswood Gold project and share of profit from MetRes Pty Ltd, partially offset by the share of loss and other comprehensive income from Ravenswood Gold project in 1H2022.

Other receivables (non-current portion) decreased by US$3.89 million to US$12.14 million at 30 June 2022, mainly due to partial loan repaid by a joint venture, partially offset by the interest receivables from Redeemable Preference Shares from another joint venture.

Restricted funds increased by US$6.62 million to US$30.73 million at 30 June 2022. This was mainly due to an additional fund deposited in the interest reserve account relating to the bond retap of US$90.00 million in March 2022 and additional deposits required for rehabilitation and reclamation obligation.

Current assets

Current assets increased by US$1,090.40 million (or 148.4%), from US$735.00 million at 30 June 2021 to US$1,825.39 million at 30 June 2022.

Trade and other receivables increased by US$481.46 million to US$695.20 million at 30 June 2022, mainly due to higher revenue generated from both Energy Coal and Metallurgical Coal segments as well as the consolidation of SMC's results upon completion of the SMC Acquisition on 3 May 2022.

Other current assets decreased by US$10.38 million to US$75.70 million at 30 June 2022, mainly due to deposit refunded in relation to the SMC Acquisition, partially offset by the consolidation of SMC's results.

Inventories increased by US$81.72 million to US$120.55 million at 30 June 2022, mainly due to the consolidation of SMC's results upon completion of the SMC Acquisition on 3 May 2022.

Investment securities (current portion) decreased by US$15.51 million to US$1.01 million at 30 June 2022, due to disposal of investment securities of US$15.00 million and fair value loss recorded in 1H2022.

Cash and cash equivalents increased by US$553.11 million to US$932.93 million at 30 June 2022, mainly due to cash generated from operations and the consolidation of SMC's results.

Current liabilities

Current liabilities increased by US$691.70 million (or 149.2%), from US$463.71 million at 30 June 2021 to US$1,155.41 million at 30 June 2022.

Trade and other payables increased by US$528.72 million to US$836.74 million at 30 June 2022 mainly due to increased business activities towards the end of 1H2022, deferred consideration of US$100.00 million in relation to the SMC Acquisition and the consolidation of SMC's results.

Loans and borrowings (current portion) increased by US$93.71 million to US$162.42 million at 30 June 2022 mainly due to additions in lease liabilities which arose from the consolidation of SMC's results.

Provision for taxation increased by US$69.50 million to US$142.90 million at 30 June 2022 mainly due to higher profits recorded in 1H2022, as well as the consolidation of SMC's results.

Provision for mining activities increased by US$1.19 million to US$3.33 million at 30 June 2022, mainly due to an increase in the provision for mines rehabilitation, partially offset by depletions through settlement in 1H2022.

Non-current liabilities

Non-current liabilities increased by US$1,698.71 million (or 376.4%), from US$451.30 million at 30 June 2021 to US$2,150.01 million at 30 June 2022.

Deferred tax liabilities increased by US$318.30 million to US$393.46 million at 30 June 2022, which arose from the provisional fair value adjustments following the completion of SMC Acquisition.

Loans and borrowings (non-current portion) increased by US$1,059.30 million to US$1,393.02 million at 30 June 2022. The increase was mainly due to draw down of acquisition loan of US$625.00 million to fund the SMC Acquisition, working capital loans of US$170.00 million, Bond Retap of US$90.00 million in March 2022 and lease liabilities which arose from the consolidation of SMC.

Other payables (non-current portion) increased by US$139.85 million to US$144.78 million at 30 June 2022, mainly due to the contingent consideration of US$140.00 million in relation to SMC Acquisition, partially offset by settlement in 1H2022.

Other provisions increased by US$181.98 million to US$214.45 million at 30 June 2022, mainly due to the addition of provision for mine rehabilitation arising from the consolidation of SMC's results in 1H2022.

As at 30 June 2022, the Group and the Company reported strong financial positions, with net current assets of US$669.99 million (30 June 2021: US$271.29 million) and US$572.45 million (30 June 2021: US$365.15 million) respectively. Total loans and borrowings amounted to US$1,562.44 million, of which US$169.42 million is due within the next 12 months from 30 June 2022. The Group's cash and cash equivalents stood at US$932.93 million as at 30 June 2022.

Review of Statement of Cash Flows

The Group recorded net cash inflows of US$557.67 million in 1H2022 mainly due to the following:

Net cash generated from operating activities of US$853.28 million comprised operating cash inflow before working capital changes of US$835.27 million, net working capital inflow of US$293.86 million, various taxes paid of US$239.05 million and interest and other financial charges paid of US$39.42 million. The Group also recorded interest income received of US$2.62 million. The net working capital inflow of US$293.86 million was mainly due to (i) a decrease in inventories of US$232.98 million; (ii) an increase in trade and other payables of US$206.90 million, partially offset by (i) an increase in trade and other receivables, advances and other current assets totalling US$137.30 million; and (ii) a decrease in provisions of US$8.72 million.

Net cash flows used in investing activities of US$1,345.37 million mainly due to (i) acquisition of SMC of US$1,254.58 million; (ii) additional investment in Ravenswood Gold project of US$52.25 million; (iii) purchase of investment securities of US$1.21 million; (iv) purchase of property, plant and equipment of US$18.53 million; (v) additions to mining properties of US$28.65 million; (vi) changes in restricted fund of US$6.62 million, partially offset by (i) a decrease in other non-current assets of US$1.57 million; and (ii) proceeds from disposal of investment security of US$15.00 million.

Net cash flows from financing activities of US$1,049.75 million was mainly due to (i) proceeds from loans and borrowings of US$882.39 million; (ii) proceeds from issuance of Bond Retap, net of transactions cost of US$89.66 million; (iii) proceeds from issuance of shares, net of expenses of US$62.69 million; (iv) issuance of share capital by a subsidiary company of US$205.94 million, partially offset by (i) repayments of loans and borrowings of US$82.13 million; (ii) payment of dividend to NCI of subsidiaries of US$98.56 million; and (iii) lease payment of US$10.24 million.

Commentary


Energy Coal

As the world navigated through the pandemic, new challenges in the form of heightened geopolitical tensions and massive supply chain crisis engulfed the world economy. This led to robust energy coal prices as the demand and supply gap widened in 1H2022. Indonesian Coal Index 4 (ICI4) average monthly prices peaked in March 2022 at US$105.1 per tonne, but have since fallen to US$83.6 per tonne in July 2022. The Indonesian 4,200 kcal/kg GAR price is forecast to decline to an average of US$52.1 per tonne in 20231, driven by unexpected supply shifts as exports from Russia exceeded expectations over the past months and it is unlikely that declines will be as large as previously expected, coupled with diverging demand trends. Indonesian supply has been stronger, but there has been a sizeable pivot in destinations. A much larger swing has taken place between China and India, where exports to India have been at a record as coal burn remains well above year-ago levels and power plant stocks have not improved dramatically. Even at much higher levels of shipments to India, a sizeable portion of Indonesian coal must remain competitive into China markets. Demand for energy coal in China is weakening due to high imported coal prices and challenging economic conditions. Chinese seaborne energy coal imports are expected to decline by 64 Mt in 20222, which will primarily impact low-CV exports from Indonesia.

Metallurgical Coal

The metallurgical coal market in 1H2022 experienced favourable pricing, with strong demand and elevated steel pricing combining with ongoing supply weakness in many key exporting countries. This was particularly applicable to PCI coal, as steel makers pursued maximum production while simultaneous supply from Russia, the second largest seaborne producer of PCI, became uncertain through policy restriction expectations, and/or physical and financial hurdles to secure materials from that origin.

In contrast to energy coal prices, FOB Australia coking coal and PCI prices have declined at a much higher rate, with steel demand being impacted by reduction in end user demand as part of general reduction in economic outlook combined with a recovery in production from certain large Australia mines. Platts Premium LV average monthly price peaked at US$594 per tonne in March 2022, but has since declined to US$239 per tonne in July 2022.

In June 2022, the Queensland Government in Australia announced significant changes to the coal royalty regime3 as part of its 2022 to 2023 budget, making the royalties paid by coal producers in Queensland the highest in the world. In addition to the above, inflationary cost pressures are being increasingly experienced with higher energy related costs and general consumable prices. General tightness in the labour market in conjunction with labour supply impacts from COVID-19 are also affecting costs.

GEAR is cautious of the market shifts in the geographical rebalancing which would add volatility and transport issues and will monitor the demand and prices accordingly.

  1. Argus Seaborne Coal Outlook dated 15 July 2022 published by Argus Media group
  2. Wood Mackenzie Global thermal short-term outlook July 2022
  3. Three new progressive royalty tiers have been introduced in addition to the current structure, with the new regime as follows:
    • As per existing regime for prices below A$175 per tonne
    • 20% for prices above A$175 per tonne
    • 30% for prices above A$225 per tonne
    • 40% for prices above A$300 per tonne