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PRESENTATION TO UBS INVESTOR LUNCH Sydney 26 July 2005 Gavin May Chief Executive -Gloucester Coal Ltd
PRESENTATION TO UBS INVESTOR LUNCHSydney
26 July 2005
Gavin May Chief Executive -Gloucester Coal Ltd
Attractive operations Low risk assets with strong profit generation
DisciplineFocus on operating and capital efficiencyDetermined and successful exploration programme
MarketingMulti-faceted approach to maximise returnsPremium pricing for high-fluidity cokingcoal
ValueStrong robust coal company focussed on sustainable returns for shareholders
Gloucester Coal overviewTalking about Gloucester coal means talking about…
OptionalitySignificantly upgraded reserve and resource baseImproving financial flexibility
• 130 km2 of exploration licenses• 26 km2 of mining leases• 38 km2 of freehold land
• Population 2500• Rural country town• 3-hour drive North of Sydney• Basin 40 km North to South
Attractive operationsGloucester Basin location
GCL - Gloucester Basin Assets
Gloucester
Attractive operationsMining & processing assets
• 5+ Mt Open cut Resource - Thermal and Coking coal
• Low Strip Ratio, 1.6:1 – BRN seam >12 m thick
• 994 Excavator with 4 – 5 Truck fleet
• Consented to produce 900,000 ROM tonnes per annum
• Low risk operation
• Two stage 475 t/hr plant
• Primary circuit – Coking; DMC/Spirals/TBS/Flotation
• Secondary circuit – Thermal; DMC/Spirals
• Efficient and cost effective plant suited to Gloucester Basin coals
• 20+ Mt Open cut Reserve - Coking and Thermal coal
• Low Strip Ratio 2.4:1 – Weismantel Coal Member >10m thick
• 994 Excavator with 2 – 3 Truck fleet (Demag backup)
• 1,800,000 ROM tonnes pa – 2005 forecast
• Low mining risk operation
Duralie ROM CoalRailed 20 km to Stratford
Preparation Plant
BRN ROM CoalTrucked 3 km to Stratford
Preparation Plant
Bowens Road North Open Cut
Stratford Preparation Plant
Duralie Open Cut
Duralie ROM Production
0
1
2
2003 2004 2005 Proj
Calendar Year
Mt R
OM
Attractive operationsMining & processing assets (continued)
Bowens Road North ROM Production
0
1
2003 2004 2005 ProjCalendar Year
Mt R
OM
Attractive operationsMining & processing assets (continued)
Attractive operations100% export focus and exposure to coking coals
Gloucester Coal sales by product type / destination
2005 Revenue by coal product
39%
61%
Thermal Coking0
100
200
300
400
500
Q4 03 Q1 04 Q2 04 Q3 04 Q4 04 Q1 05 Q2 05
Quarter
kt
Export coking Export thermal Domestic thermal
Attractive operationsLow risk - strong returns
Low risk
Direct rail link to Newcastle with excess allocation capacity in2005Secure port allocation going forward
Access to infrastructure
Blending and washing occur at StratfordDuralie and Bowens Road North connected to Stratford CPP with a dedicated transport link
Integrated operations
Well understood located reserves contiguously located within Gloucester basinLong association with assets for key team members
Knowledge of reserves
Strong returns
-
10
20
30
40
Q3
04 A
Q4
04 A
Q1
05 A
Q2
05 A
Q3
05
Fcas
t
A$/
t
Average quarterly cash margin (Q3 2004 - Q3 2005’F)
DisciplineFocus on operating and capital efficiency
Determined and successful exploration strategy
February 2005 announcement of a 50% increase in Duralie mineable reserve life to 2017
$2 million commitment in 2005 to exploration program in Gloucester Basin
Focus on converting up to 151 Mt of resources into reserves
Appointment of Dr Bryan to assist in the delivery of the announced three phase exploration program to extend mineable reserves past 2020
Land acquisition strategy over potential reserves and resources
Maintaining low cost profile in an environment of rising costs
Henry Walker Eltin (HWE) contract under administration
Emphasis on irrigation and water management plans
Challenges Solutions and plans
50% of costs under contract for next 3.5 years
Successful implementation of an optimisation strategy at Stratford
No material adverse outcome to Gloucester Coal expected
Proactive and focused review to existing regulatory regime
MarketingMulti-faceted approach to maximise returns
Export thermal coal Export coking coal
Two routes
Sold on short and medium-term contracts
Blending at Newcastle to gain synergies with other coals
Sold into Asia and Europe by major trading companies
Sold on recurring annual contracts to long-term customers
Integrity of high-fluidity coal important
Dedicated long standing Japanese customers
Noble EnergyGlencorePeabodyFlame SAOther coal producers
JFENippon SteelKobe SteelNisshin100% contracted since 1995
MarketingPremium pricing for high-fluidity coking coal
Price premium for a unique product
Fluidity is a measure of the coals plasticity in the coking process
Gieseler plasticity is very important to the Japanese Steel Mills
What is high-fluidity coking coal?
There are very few coals with high plasticity
Premium priced because they can be blended with lower plasticity coals to improve performance
Why does it attract a premium?
Current GCL coking coal contract price vs standard semi coking coal contract price
0
35
70
105
140
Semi softcoking coal
GCL premium GCL highfluidity coal
US
$/t
hard coking price US$125
MarketingOutlook for the markets
In August 2004 ‘coal experts’ were speculating about a US$80 tonne price for hard coking coal. Forecasts jumped to US$90 tonne in September and settled in the fourth quarter for US$125 tonne
GCL shipped the first US$100+ cargo in late May, the first of the new 12 month contracts and expects these new contracts to be extended for 12 months
There is now general consensus that the market for coking coal looks strong in the medium term, with greater price uncertainty in the longer term
In the short term the thermal coal price seems to have settled at around the low US$50’s for at least the the next few quarters
Of note is that GCL has contracted high ash thermal coal to the end of 2006 and is in negotiations regarding contracts that would extend well into 2007. These contract discussions suggest that thermal prices should remain at present levels for the next two years
OptionalitySignificant increase in reserves and strong resource base
Identified reserve base
Duralie open cut(>20 Mt)
Bowens Road North(>5 Mt)
2005 2010 2015 2020
Codisposal(1.6 Mt)
1.8 Mtpa
0.8-0.9 Mtpa
0.2 Mtpa
1.3-1.9 Mtpa
Resources and exploration targets
Duralie underground
Identified resource
Potential production
Stratford satellite open
cuts
Grant & Chainey open
cuts
Remainder of Gloucester
Basin
50% increase in Duraliereserves announced in
February 2005 - now a 12 year mine life
100Mt +
0.5 - 3 Mtpa + 1 Mtpa + 1 Mtpa + ?
OptionalityImproving financial flexibility Improving profitability and balance sheet
position
New coking coal contracts are now flowing through to stronger margins for remainder of the year
Debt reduced by a further $6m (14%) last quarter - 23% reduction for the half year
Increasing available options
Payment of first dividend planned (10c/share)
Further capital management activity
Capability to invest for growth0%
20%
40%
60%
80%
Q3 04 A Q4 04 A Q1 05 A Q2 05 A
Deb
t /
Deb
t +
Equ
ity (
%)
Quarterly gearing levels (last 12 months - as at quarter end)
ValueA robust coal company focused on shareholder returns
A total shareholder return of 321% since the UK Coal sell-down
Source: DFS Iress 25 July 2005
0
100
200
300
400
500
600
700
Apr-04 Jul-04 Oct-04 Jan-05 Apr-05 Jul-05
Inde
x 6
Apr
il 20
04 =
100
CEY MCC EXL FLX GCL RSP
19 August 2004Interim results - net loss $5.6m but expected to turn profit in next six months
17 February 2005Strategy announcement - plan to look at underground etc.
24 February 20052004 results - net profit of $15.8m (inc. $14.8m tax loss contribution)
23 June 2005Itochu announcement - Itochu's Stratford share exchanged for GCL shares
21 February 2005JSM contract settlement - announcement of US$100/t price
ValueIs the story factored into our valuation?
2006‘F EV/EBITDA 2006‘F P/E
Source: Bloomberg Financial Markets 25 July 2005
Source: Bloomberg Financial Markets 25 July 2005
0
1
2
3
4
Mac
arth
urC
oal
Exce
l Coa
l
Cen
tenn
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Coa
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Glo
uces
ter
Coa
l
Felix
Reso
urce
s
EV/E
BITD
A (x
)
0
1
2
3
4
5
6
7
Cen
tenn
ial
Coa
l
Exce
l Coa
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Mac
arth
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oal
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uces
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P/E
(x)
