What we own

Kestrel is an underground coal mine located in the Bowen Basin, Queensland, Australia. It is operated by EMR Capital and PT Adaro Energy  (‘EMR’ and ‘Adaro’). The Group owns 50% of certain sub-stratum lands which, under Queensland law, entitle it to coal royalty receipts from the Kestrel mine.

The royalty rate to which the Group is presently entitled is prescribed by the Queensland Mineral Resources Regulations. These regulations currently stipulate that the basis of calculation is a three-tiered fixed percentage of the invoiced value of the coal as follows: 7% of value up to and including A$100; 12.5% of the value over A$100 and up to and including A$150; and 15% thereafter.

Performance

Although COVID-19 did not result in any operational disruption at Kestrel, its impact was more keenly felt through lower coal prices particularly in Q2 and Q3 of 2020. This occurred largely due to Indian port closures as the country imposed severe restrictions in an attempt to manage the pandemic. With the disruption to this key market, tonnages were diverted onto an already imbalanced seaborne market which pushed prices down considerably.
Consequently, there was a ~35% reduction in the prices realised by Kestrel in 2020, which not only reduced the sales revenue to which the Group’s royalty is applied but also the applicable royalty rate, leading to a 51% decrease in the royalties earned from £37.0m in 2019 to £18.1m in 2020.

The Group’s royalty income from Kestrel was also impacted by slightly lower volumes, with sales from the Group’s private royalty lands decreasing from 6.2Mt in 2019 to 5.6Mt in 2020. Overall sales volumes from Kestrel have fluctuated over the past 12 months with 3.1Mt sold in H1 2020 and 2.5Mt in H2 2020. The relatively subdued saleable coal volumes in H2 were due to a
longwall changeover from LW408 to LW409 in Q3 as well as the presence of expected difficult geological conditions which affected the productivity of the longwall.
Although Adaro had expressed a target to increase volumes in FY 2020 by around 6% (pre-COVID-19), in August 2020, Adaro revised its production base case for Kestrel to 6Mt for 2020. Of saleable production, 95% of this was subject to the Group’s private royalty.