Message from Chairman Mr. Baocai Zhang
Yancoal is committed to safe work practices. There is active and consistent engagement with all employees empowering them to identify and address foreseeable safety risks and injuries and we actively supported industry-wide initiatives in response to a number of tragic industry events in 2019. Pleasingly, our stable safety performance in 2019 demonstrated that we continue to be effective in our safety efforts.
Despite the challenging market conditions in which lower coal prices and cost inflation were experience, Yancoal performed well in 2019.
Significant achievements in 2019 included reduced operating costs, increased production and an improved financial position. Yancoal remains resolutely focused on efficient operations optimising output from our low-cost operations to generate shareholder value. Reducing our unit cost per tonne to $61/tonne was particularly impressive during a period in which industry cost inflation was evident.
Throughout the year, the Yancoal team worked hard to consolidate our expanded asset base and deliver the operational efficiencies that drive returns for our investors. Consistent with our Corporate Strategy, we continue to balance opportunities for asset reinvestment with the generation of shareholder returns through dividends and ongoing debt reduction.
After another year of healthy cash flow, we will make a final dividend payment of $0.2121/share to our shareholders. The total distribution for 2019 is $0.3156/share, or $417 million. Over the past two years Yancoal has made early debt repayments totalling US$1.4 billion.
As new objectives are set for 2020, we will continue our ongoing efforts to deliver further performance improvement.
In response to changes in the international coal market during 2019 Yancoal matched its sales mix and volumes with customer needs and trade conditions. The ability to optimise coal products through blending from a suite of low-cost, long-life mines is central to the Company’s ability to successfully navigate market challenges; it enables us to continue investing in assets, which will be beneficial when the next upturn in the commodity cycle occurs.
During FY19, the demand profile for thermal coal in the Asia-Pacific region softened as a result of several factors. As a consequence of evolving market conditions, index coal prices moved lower, and the premium for high-grade thermal coal relative to lower grade indices narrowed. Although the metallurgical coal market displayed better price stability during the first half of 2019, it too deteriorated during the second half of the year.
Looking at the year ahead, it is unlikely a sizable upswing in thermal coal demand will occur. New coal power generation commencing operation in the Asia-Pacific region will be countered by coal-powered generation being closed in Europe. However, there is the possibility of supply disruption, due to weather events, or global health developments or supply closure resulting from margin pressure. Such events may result in coal price improvement.
Yancoal continues to actively consider the effect that its supply level can have on specific coal markets and responds appropriately to prevailing market conditions. In response to the short-term volatility in thermal coal price indices, we continue to optimise the product quality and volume we place into the market.
Coal continues to play a key role in delivering economic growth and improved quality of life across several South-East Asian countries, including through the introduction of electricity for the first time to parts of the population. Yancoal believes its higher-quality coal, will remain a key component of the regional energy mix, and the Company has a long-term strategic commitment to ongoing growth including the expansion and extension of existing projects.
Chairman of the Board