In 2021 Kestrel produced its highest ever year of royalty related revenue, buoyed by strong coking coal prices during the second half of 2021 as stability returned to the market. This record was despite slightly lower volumes in 2021 due to the ongoing difficult mining conditions from known faulting resulting in sales from the Group’s private royalty lands decreasing by 7% from 5.6Mt in 2020 to 5.2Mt in 2021. Lower volumes in 2021 now look like being a positive, as these volumes are likely to be sold in a higher pricing environment in H1 2022 as the price of coking coal has increased by ~60% in the year to date backed by supply constraints at the beginning of the year and then the Russian invasion of Ukraine resulting in a rebasing of commodity price levels.
Similarly to 2020, there was a heavier weighting to Q4 sales reflecting the timing of the longwall changeovers, and together with the increase in the underlying coking coal price, this resulted in the single largest quarterly contribution from Kestrel in the Group’s history of $26m in Q4, compared to the $23m generated for the whole of 2020.
The coking coal price was subdued for most of 2020 and began 2021 in a similar fashion. This was very much against the grain of other commodities since the onset of the pandemic. The reason for this was largely due to a Chinese import ban on Australian coal, resulting in large volumes being diverted onto the seaborne market at a time when key import markets had shut down in efforts to contain COVID-19 outbreaks. Price pressure continued in the first half of 2021, averaging just $125/t. This position reversed suddenly and significantly from June 2021 onwards as Asian import markets reopened and the supply shock was absorbed.
This coincided with volumes from Kestrel increasing. Prices averaged $288/t in H2 2021 and ended the year at $340/t. Not only did this have the benefit of increasing the sales revenue to which the Group’s royalty is applied, but due to the price linked royalty rate there was also the additional benefit of the weighted average royalty rate increasing to 11.04% (2020: 8.69%).
The impact of the significant increase in price and the applicable royalty rate combined to produce record royalty revenue in FY 2021 of $48m (2020: $23m) and beat the previous record of $47m in 2019 – a year when record volumes of 6.3Mt were sold from within the Group’s private royalty land.