Yancoal Australia's dividend cut amidst coal market challenges and economic shifts

Company News

by Glenn Dyer

The Chinese-controlled thermal coal miner and exporter, Yancoal Australia (ASX:YAL), has reduced its interim dividend by 28% to 37 cents per share (fully franked) due to declining revenue and earnings in the six months leading up to June, attributed to sliding world prices.

The dividend cut comes after a record payout of 52.7 cents per share in the first half of 2022, when global thermal and coking coal prices surged following the Russian invasion of Ukraine.

According to the filing, Yancoal reported a 14% decrease in the average thermal coal price to $256 per tonne and a 3% dip in the average coking coal price to $389 per tonne.

Sales of thermal and coking coal dropped by 8% to 14.9 million tonnes in the first half, as the company focused on rebuilding stocks and production, especially in the initial quarter, following disruptions caused by last year's wet weather and flooding.

Yancoal expressed its intention to boost production and sales in the latter half of the year after experiencing a 44% surge in production during the June quarter. The company aims to maintain this momentum for the rest of the year, targeting a total of 31 to 36 million tonnes of attributable saleable production for the full year.

"While increased production was made possible by favorable weather conditions during the second quarter, the primary operational focus remained on site recovery plans to rebuild mine inventory. Yancoal anticipates a positive second-half performance for its 2023 operations," explained the company.

The decline in prices and sales during the first half of June led to a revenue drop of over 16%, translating to a reduction of $800 million, bringing the total to $4 billion for the first half. This decrease also caused a 41% drop in operating EBITDA, which went from $3.15 billion in the first half of 2022 to $1.8 billion.

Costs saw a significant increase of 31%, amounting to $109 per tonne, attributed to lower volumes in the first half and a rise in the prices of key inputs, particularly energy, driven by inflation.

Despite the lower dividend, the company will allocate $489 million to compensate shareholders, which will still leave Yancoal with a substantial cash reserve.

Yancoal disclosed that it began the year with $2.7 billion in cash, conducted a final debt prepayment of $496 million, and distributed $924 million in dividends. As a result, the company retains a cash balance of $1.1 billion as of June 30.

Directors of the company noted, "Coal prices have receded from last year's elevated levels but remain robust from a historical standpoint. Coal markets seem relatively balanced, with short-term price trends likely to be influenced by seasonal or temporary supply and demand factors."

The recent depreciation of the Australian dollar over the past month is expected to positively impact revenue (the Australian dollar dropped from slightly over 68 US cents in mid-July to just above 74 US cents on Thursday morning), along with increased earnings in the second half of December. The augmented production should also alleviate cost pressures.

Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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