Its regulated Queensland Central Coal Rail System contributed $ 241 million to earnings before interest, taxes, depreciation and amortization in the first half of the current fiscal year. Coal haulage added an additional $ 171 million to EBIT, and haulage of “bulk” goods such as agricultural products or metals amounted to $ 61 million.

Aurizon predicted that fiscal year coal volumes would be at their lowest since 2017, in part due to the coronavirus and trade disputes with China.

Mr Harding said coal originally intended for export to China was being diverted to other markets. Yet Aurizon stuck to the group’s EBIT forecast for this year of between $ 870 million and $ 910 million this year.

Six scenarios

Morgans analyst Nathan Lead said that amount was in line with market expectations of $ 888 million. Aurizon shares were flat at $ 3.79 in afternoon trading.

Aurizon explained how its long-term modeling envisioned six different scenarios, from ‘rapid decarbonization’, in which Australian coal exports have more than halved by 2040, to ‘strong commodities’, in which volumes of coal continue to increase in the long term.

The company argued that modeling predicted its annual free cash flow to be between $ 500 million and $ 650 million through 2040. This year, it aims to generate $ 700 million in free cash flow, including $ 100 million from the sale of a business.

Free cash flow is the amount of cash generated from operating the business minus the money spent to support the operation. The remainder can be reinvested or distributed to shareholders.

Aurizon, which employs nearly 4,800 people, said it could supplement a drop in coal volumes by saving money elsewhere to meet cash flow needs. These savings included “proper sizing” – a potential reduction in staff – redeploying part of its fleet to the non-coal commodities sector, or even selling assets.

The outlook for coking coal is improving

The company highlighted its fleet in NSW’s Hunter Valley, which is heavily exposed to thermal coal. Aurizon CFO George Lippiatt said about 40% of that fleet could be moved to any standard gauge bulk market in Australia.

The rest of the fleet was limited by the gauge and weight of the locomotives. Still, these could be used for spare parts, transporting non-coal products to the port of Newcastle or shipped to Pilbara, Western Australia, where the tracks could process these locomotives, he said. .

Harding was more optimistic about the prospects for coking coal, which is used in steelmaking, and accounts for nearly half of the coal transported by Aurizon.

“The complete replacement of coking coal in steel production, for example by large-scale hydrogen production, over the next two decades is, in our opinion, a low probability,” he said. he declares.

“This is motivated by cost competitiveness, in addition to the practicalities of providing adequate supplies of high quality iron ore” and other factors, he said. This included some Asian countries that wanted to run their steelmaking facilities until the end of their natural lifespan, rather than switching to new technologies, he said.

Mr. Harding also had good prospects for transporting products other than coal for customers in commodities such as copper, zinc, nickel and lithium. “Growth in these commodities is expected regardless of the coal volume outlook,” he said.

“In fact, a prospect of a lower coal volume could potentially allow Aurizon to move its fleet and increase non-coal revenue without news. [capital expenditure]. “

He signaled plans for this division to achieve EBIT between $ 250 million and $ 300 million within 10 years. Mr Lead de Morgans said this against his current estimate of an EBIT of $ 118 million for that division this fiscal year.

Aurizon said the increase in EBIT for that division had not been factored into its free cash flow forecast.

After a meeting with local companies, Goldman Sachs analysts wrote earlier this month that the overall outlook was positive for benchmark Australian thermal and coking coal prices, due to demand outside of China. and supply issues.

“However, the opinion is that China’s import ban on Australian coals could last for years,” analysts said.



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