Stanmore Resources delivers strong coal production in December quarter to close out the year

About Stanmore Resources Limited

Stanmore Resources Limited (Stanmore Resources, the Group, ASX: SMR) listed on the ASX in 2009 and has operations and exploration projects in the Bowen and Surat basins.

Stanmore Resources is one of Australia’s largest suppliers of metallurgical coals to global markets with three major coal-producing assets, including the Isaac Plains Complex, and Poitrel and South Walker Creek coal mines. The Group also jointly owns the Millennium and Mavis Downs Mine. Metallurgical coal is essential for steel making and consumes 770 kilograms of coal to make one ton of steel.

FY2023 production volume ahead of guidance

Stanmore Resources has closed out a strong year of Run-of-Mine (ROM) coal production of 18.4 million tonnes (Mt) and total coal sales of 13.1Mt to 31 December 2023. This is materially higher compared to 13.5Mt of ROM production and 9.4Mt of total coal sales for the year to 31 December 2022. The December quarter ROM production of 4.8Mt was an impressive 35 percent of the total annual ROM production volume that was driven by improved logistics availability and strategic acquisitions of surplus capacity. This strong production outcome is above guidance and saw multiple production records set in the quarter.

Management noted that severe storm cells subsequent to the December quarter close have impacted various aspects of operational capacity and recovery work is ongoing. Fortunately, healthy levels of carried forward end-of-year ROM coal stockpiles should offset any impact on production and have minimal impact on first quarter sales to 30 March 2024.

The future of metallurgical coal

The Department of Industry Science and Resources has forecasted Australia’s export volume of metallurgical coal to rise to an estimated 172Mt in FY2024, up 9.6 percent from about 157 Mt in FY2023. The Department has also forecasted 172 Mt of metallurgical coal exports in FY2025. It is important to note that Stanmore Resources is an established producer of metallurgical coal and is ranked number four in Australia and seventh globally in terms of annual metallurgical coal production volume.

Metallurgical coal is necessary for steel production and so its value is tied to the demand for steel. Metallurgical coal is different to thermal coal which is used for electricity production. Metallurgical coal contains more carbon and less moisture than thermal coal which will likely be phased out as existing power stations close and are replaced with clean energy sources, while metallurgical coal will remain is use for decades.

Market pundits have discussed coal’s demise for years, despite it being the largest energy source for electricity generation and steel production. It is also the largest single source of carbon dioxide emissions.

Developments in China will have the largest impact for the global coal outlook because China accounts for more than half of global coal demand and China’s power sector alone accounts for more than one-third of global coal consumption. China is turning to renewable energy sources but is also rapidly building new nuclear reactors as a key energy source and this partly explains the renewed interest and surge in uranium prices over the past year. Whatever the outcome, it is widely accepted that coal will remain a vital energy source for another 20-30 years, especially for China and other parts of Asia.

Positive outlook

Stanmore Resources is well positioned for the future. Its interests in four mines with shared operating infrastructure and all within a 50-kilometre radius, in the heart of the Bowen Basin, facilitates increased production with limited development and ramp-up risk. Together, these long-life, world-class assets have a combined 13 million tonnes of annual metallurgical coal production capacity. Furthermore, the Group’s strong net cash position of US$126 million at 31 December is positive especially for its expansion prospects given that it’s proving very difficult in Australia to get a greenfield coal project sanctioned, particularly for thermal coal.

This means that supply side constraints are likely to keep metallurgical coal prices high for the foreseeable future, and combined with consistent future demand for steel making, shareholders can be confident of above-market returns into the medium term.

Stanmore’s annual report is due for release in late February 2024 will include an update on cost per tonne and capital expenditure requirements compared to guidance.