The Good

• They made a truckload of cash in the quarter. We won't know what free cashflow looks like till next month but they roughly made 15-20% of their EV in operating cashflow in the quarter!
• As a result what was already a very manageable debt level is down by 40% compared to 3 months prior, which strongly suggests free cashflow was high.
• The momentum is good with two mine shutdowns in the quarter back in operation and operating rigs nudging up over the quarter.
• There's a sense that if they can catch a break in terms of weather and other factors out of their control, they're in a good place to be able to generate decent cash in FY26. The mobilisation costs they had flagged since last year have largely been incurred and are now drilling.
• The Loop Decarb JV is operating ahead of expectation, with a second client having signed a Letter of Intent to engage Loop in drilling operations in 2025. More on that in a bit.
• Gold enquiries are up. They've repeatedly said, including when they met with us, that the booming gold price hadn't moved the dial on demand for gold drilling. However, in the last two quarters they've indicated that appears to be changing.
• Have flagged minimal capex with existing assets to continue to be sweated.

The Bad

• The full year comps largely aren't great, but we already knew that was case. They had consistently flagged FY25 as a transitional year and the quarterly updates had confirmed it. Q4 was actually pretty good.
• Two mine shutdowns for part of the quarter due to water ingress and a gas buildup didn't help. Both were back in operation by the end of the quarter. They estimated that deprived them of 180 shifts, which roughly equates to about $1 million.
• Revenue/shift lower than last year. They claim they won't compete on price and will accept lower utilisation instead but that's not entirely borne out in the numbers, albeit a single metric.
• The coal price is in the freezer and thus while operations at existing mines continue, they do so at a reduced scale.
• The Chair didn't entirely rule out dividend payments but strongly suggested that surplus cash will be prioritised for share buybacks (I'm not sure if that belongs in The Bad section).

Loop Decarb JV

They gave some decent commentary about the new JV they've entered into, in which they claim to be the only operator. Essentially this business is a response to changes to the Safeguard Mechanism in 2023, which requires large emitters to reduce their methane emissions by about 5% per year or else purchase carbon offsets i.e. get taxed. The nature of coal seams is to attract methane (Coal Seam Gas) and this means coal miners tend to be large emitters. The Loop JV provides a service to extract the methane so it's not released during coal extraction. However, the technical nature of the process means it's much more of an end-to-end proposition than their existing business. It sounds like there is much more planning and consulting involved, things like pit design, drilling sequencing etc. One area they flagged for the future is downstream selling of the gas (I'm trying to find out what they currently do with it). Who knows, maybe this boring drilling company might play a role in bitcoin mining!

Loop is currently in the drilling phase with one customer and is in the consultation phase with a second. During the quarter the second client signed a letter of intent to engage Loop for drilling services later this year. They expect the business to initially be lumpy, but I like it when a business has legislative tailwinds behind it.

Outlook

They didn't give a specific outlook but their expectation is it will be stronger than FY25. With fewer mobilisations, fewer shutdowns and some decent weather, it might be significantly better.

[Held, underweight still]