Q3 2019 Earnings Call
Men Chief Financial Officer, Sir Please go ahead.
Thank you.
Half of Ramco resources I'd like to welcome all due to our third quarter 2019 earnings Conference call with me. This morning, as Randy Atkins, Our executive Chairman, Mike Baur Sachs, our president and CEO .
Chris Blanchard, our Chief operating officer.
Before we start I'd like to share our Norman normal cautionary statement.
Certain items discussed on todays call constitute forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
These forward looking statements represent ramcos expectations or beliefs concerning future events and that it's not possible and then it's possible that results discussed will not be achieved. These forward looking statements are subject to risks uncertainties and other factors many of which are outside of Ramcos control, which could.
Cause actual results to differ materially from results discussed in the forward looking statements.
Any forward looking statements speaks only as of the date on which it has made and except as required by law Ramco does not undertake any obligation to update or revise any forward looking statements whether as a result of new information future events or otherwise new factors emerge from time to time ended.
It's not possible for amoco to predict all such factors.
When considering these forward looking statements you should keep in mind, the risk factors and other cautionary statements found in the company's filings with the Securities and Exchange Commission included in our annual report and Form 10-K .
The risk factors and other factors noted in the company's FCC filings could cause actual results could differ materially from those contained in any forward looking statements.
Lastly, I encourage everyone on this call to go to our web site Ramco resources Dot com and download today's investor presentation, which has found under the events calendar with that said, let me introduce our executive Chairman Randy Atkins.
Thank you Jeremy.
As always I want to thank everyone for joining us today to discuss our third quarter results.
We have predicted in our last earnings call in August that we felt the markup looked like it was going to become more turbulent.
Unfortunately, we were correct.
The met coal markets always seem to go through some form a perennial manic depressive kind of cycle.
We are seeing the depressing side of that experience at the moment.
Since we went public in early 2017, we have lived through mostly stronger met markets with benchmark prices hovering around $200 per tonne as recently as this June .
The landscape now in November has the U.S. benchmark closer to 130 and candidly some question as to whether that price really reflects underlying true demand.
We have said before that met coal as a proxy for steel, which in turn as a proxy for wider macro economic health.
As we look around the world, we see today that that underlying economic outlook is a best opaque.
With this somewhat sobering backdrop as an introduction we are happy that we have locked in almost all of our 19 sales over a year ago at much stronger prices and where you're seeing today.
As a result, we've reported that year to date, we have cash margins approaching $40 per ton and pricing levels at roughly $110 per tonne pretty much through the rest of the year.
We are now essentially sold out through calendar yearend and expect to come in at just under 2 million tons sold.
We realized by late this summer that the 2020 domestic sale process would be dramatically more challenging than 202019 in terms of both basic custard <unk> customer demand and also pricing into a lower benchmark environment.
As a result for 2020, we decided to dial back the amount of our higher quality blends we would place domestically and if save most of our valuable quality blends to hopefully sell into what we believe will be a stronger market condition later in 2020.
As you May recall last year, we placed about 80% of our production domestically.
2020 that figure will look more like roughly 60% at the midpoint of production guidance.
We were also keeping a good deal a production optionality on the table, which will enable us to either dial up or down dependent upon where we see the market's settling in 2020.
Next year, we looked like we can either exercise some production discipline and produce roughly 1.8 million tons on the downside or slightly step on the gas and go to about 2.3 million tons.
Either way, we feel comfortable we can continue to rely on our low cost low debt structure should produce superior returns.
We still continue to maintain our long term production guidance to afford a four and a half million tons and expect to announce next month. Some of the production add ons, we discussed earlier in the year, which we expect to begin in calendar 20.
As turbulent as the market looks right now we know markets change.
On a 10 year curve met benchmark prices have ranged from over $300 to below $80.
Reflecting on that we humbly no we can control what we can control and what we cannot and one thing we cannot control is price, but one thing that we can control is our balance sheet.
I always remind everyone that we took some care at the outset to design or amoco to be conservative go leveraged. This hopefully enables us to not only financially withstand the historic volatility of the met coal space, but also to take advantage of some opportunities in these types of cyclical down markets.
We started as a bit of a contrarian play and we will continue to do that as we grow in a prudent fashion.
We have already started to see some supply contraction from the recent downturn.
Net supply we believe is contracted probably in the four to 5 million ton range.
We've also witnessed three major bankruptcies in the last two quarters.
In line with that we are starting to see some at asset dispositions now being offered by some of our peers, who are either higher cost miners overleveraged or perhaps both.
As a result, we are actively looking at some of these situations to see if we can accelerate our growth curve either from my reserve logistical what production standpoint, and a cost effective but opportunistic manner.
We have also increasingly heard from both our domestic and international customers that they are attracted to the security of supply from a financially stable and growing counterparty. We hope as time goes by that this factor will become more important and perhaps help us in some competitive manner.
The pivot.
Let me offer some brief comments on Q3 financials, which Jeremy will fill in with much greater detail.
This quarter, we achieve roughly 14 million an adjusted EBITDA for the first nine months of 19. It is more than 46 million that has a 32% bump from 2018.
We're also looking forward to having our strongest full year yet for COVID-19.
Despite the lingering effects of silo issues, we faced in both Q1 in Q2, we have been able to hold L. Creek mine cost in the mid Sixtys, Chris will discuss those in further detail.
We continue to believe that certainly.
Outside of our peers with longwall production, we will have some of the lowest mining cost in the space for over the next several years.
We are currently being somewhat penalize by higher cost at our development mounted Berwyn until we hit the Pocahontas Ford seem next summer, which will have a much lower cost environment.
We also had some negative inventory items this quarter, which Jeremy again, we'll address.
Our total Capex was a little over $14 million in Q3, and we are projecting 2019 overall capex spend in the $35 million range, which excludes the capitalization of our berwyn development costs.
Overall, considering the headwinds in the market we are satisfied with where have we have fared thus far in 2019 and are looking forward to both perhaps taking advantage of more opportunities as they present themselves in 20 as well as hopefully some firmer market conditions as we move into the new year.
And with that I would like to now turn it over to Mike for some updates on operations and marketing.
Yeah.
Thank you Randy.
My comments regarding our third quarter will be relatively brief focusing mostly on markets and our forward looking strategy.
Our operations performed well during the quarter and shipments to customers track closely with our plan.
Most importantly, our safety performance has been particularly good in 2019.
Chris Blanchard will follow up with more operational details, including an uptick relative to our Berlin development mine.
Overall, it's good to add another consistent quarter to our operating history.
There's no doubt as an industry we've entered.
A more challenging marketplace for 2020.
Amoco restructured to be able to deal with the saw short of market conditions and fluctuations we are currently facing.
While downturns are unfortunate this should always be expected and ramco remains well positioned for continued profitability through the current low pricing environment.
Unlike many of our competitors Ramcos recently concluded quarter benefited from having an outsized domestic book of business, we did not experienced large selling price declines because our exposure to index pricing was relatively small.
This will continue into the fourth quarter. However, we do predict a slight decline in sales volumes for the fourth quarter due to a small amount of deferrals from one of our customers.
The domestic contracting season was negatively impacted by reduced amounts of coal purchases from customers year over year.
And by the diversion of high quality coals from the international marketplace to domestic markets.
We witnessed firsthand the number of blend changes in some cases, we saw very high quality high volatile coals that were previously unavailable being injected into coal plants.
These changes have in some cases altered where our coal fits and customers needs.
To date, we've committed more of our lower quality coals for 2020 sales, leaving us with the ability to upgrade our realizations if markets improve.
As we view actions by others, who have reported it is clear the fewer tons has been placed for next year versus prior years.
Coal producers are dealing with an increase in their own inventories.
From a macro perspective economies in most parts of the world are suffering.
Steel prices are depressed.
The next quarters of steel have oversupplied markets. Likewise, we have an oversupply of coke production and in turn decreased coking coal demand both domestically and internationally.
We've also seen coke for sale from producers enormously normally consume their own coke production.
China continues to be a key market participant.
Decision to impose import restrictions has undoubtedly had an impact on the market.
Ramcos recently participated in a number of international tenders.
In several cases, the validity of bids have been allowed to expire with little to no coal being purchased.
It is clear that international customers are still uncertain on their plans for 2020.
Okay.
Our marketing efforts continue to be focused on improving our international exposure as we've previously discussed we've made key personnel moves to expand these efforts.
We continue to focus a large portion of our efforts in growth regions in Asia, while still not ignoring the transportation and logistical advantages of shipping into Europe , and South America.
It continues to be our goal to have a direct relationship with our customers.
We continue to be encouraged by developments in India.
Recent projections continued to suggest that it will be a substantial growth market.
Increasing blast furnace production from 49 million tons to 92 million by 2025.
By 2031, India predicts additional growth to 166 million tons.
Unlike China, India will lead to import increasing amounts of metallurgical coal to fuel was growth.
In light of the aforementioned headwinds our actions included extra focus on securing based slowed sales.
These tons provide us with a minimum level of sold tons to run our minds.
Currently we have committed approximately 1.4 million tons for 2020.
The average price for new volumes of 1.3 million tons is approximately 90 $1.90 $1 per ton.
And is indicative of how difficult it has been to secure base load tonnage.
The remaining volume is index priced with the capability of producing as much as 2.3 million tons are uncommitted tons allow us to be opportunistic as the market continues to evolve.
New business is likely to be international and index based.
But we are in ongoing discussions with one existing domestic customer about some new volumes should additional opportunities not materialize. We also have the option to run our minds at more or less contracted levels, it's difficult to predict where full year 2020 will end up so at this point, we're not issuing official.
Volume guidance.
Meanwhile, Ramco remains one of the only organic growth stories in the sector.
The current market continues to discourage investment and indeed is forcing production cutbacks.
We have witnessed production curtailments or the number of mines in close proximity to our operations.
Ramcos plans to reached 4.5 million tonne run rate remains intact.
Well the timing of capital deployment may fluctuate, we continue to be committed to our growth plans.
Our current targets include adding processing capacity at Bell Creek, and developing the high volatile a job own scene that are not excrete complex.
Both of these projects have compelling rates of return even at todays pricing levels.
We also are in a very good position to take advantage of opportunities that might present themselves. We are currently reviewing both infrastructure based additions as well as coal properties that have synergies with our existing platform.
Ramic abuse, the current downturn as an opportunity to pursue acquisitions and capital deployment.
In summary, our low cost advantage of Jesus have allowed us to place profitable base load business for 2020, while retaining a significant amount of unplaced business to take advantage of what we believe will be an improving marketplace.
Should improve markets not materialize, we are confident that we can curtail a portion of our production or when crucial spot business.
I would now like to turn things over to Chris Blanchard, who will provide some operating highlights relative to our third quarter.
Thanks, Mike.
As 2019 wants to a close 2020 markets don't appear to be nearly as strong as we projected six months ago. However, ramcos operations are in position to perform and succeed at our projected pricing levels and also react quickly to any market recovery.
Our base operations are nearing full production and maturity and our development project at Berland is approaching its final stage.
Most importantly, our operations personnel continue to strive for excellence in safety and compliance.
Our incidence rate is down over 50% from the same point in 2018.
Accident rates are running below industry average.
Safety and environmental compliance continues to be a strong focus area for the company.
This is reflected by the fact that two of our operations will be recognized for safety performance by the state of West, Virginia, and our Knox Creek plant has won both safety and Environmental Awards in Virginia. This year.
Probably the biggest operational milestone, which was reached in the third quarter was completing all the work to install the supplemental silo supports at the L. Creek plant.
As we have discussed on previous calls these additional supports in the silos will not required to make the silos operational but were installed by ramco. After the first so silo failed as a failsafe backup system to eliminate the future possibility of any other undetected wailed failures.
Well the ELP Creek plant has had the capability to reach full feed rates for most of 2019 by virtue of the permanent bypass belt, we installed the consistency of maintaining full utilization of the plant was challenged until the silo system was brought back online.
Once back in full service with the silos in August the Oak Creek plant has operated at much higher run rates and has had its second and third highest throughput months since inception.
The plant operating at full capacity in August and September coupled with the miners vacation period in July allowed us to reduced raw coal inventories at our Elk Creek operations by approximately 75000 tons during the third quarter.
Rocco inventories at Elk rate were below 400000 raw tons at the end of the quarter.
With production shifts being moderated at Elk Creek due to market conditions in the fourth quarter as well as two scheduled vacation periods Raul inventory levels are expected to continue to decline through the balance of 2019.
While the primary minds at Elk Greek have reached a steady state and have the capability to ramp production as the market demands. We continued to deploy capital to ensure that are Elk Creek plant can match the mines output.
To give us future flexibility and to maximize the ability to dispose of the fine fraction of the waste rock, we have broken ground and continue to work on our plate Press addition to the Oak Creek plant.
This is a second set of presses, which will bring our total presses that help creek to four and give us flexibility to dispose of waste rock in either solid or slurry form.
Full plant feed rates at both our current capacity as well as at the higher levels contemplated with a full plant upgrade.
Our current plate press expansion has foundations complete the basement foreign conveyor installed and should be under roof early in the first quarter of 2020.
Anticipating a typical ramp up or break in period, we expect full operational capability on the additional presses by May 2020.
While we plan to monitor shifts work at help create get our mines in the fourth quarter to manage inventory levels. We do expect mining rates to stay at the same levels and costs to be controlled.
We have now completed a high voltage power project for our Highwall minor at Oak Creek, which we expect to lower cash cost by over a dollar per tonne on already our lowest unit cost of production for the remainder of its projected and permitted mine life.
We continue to retreat mine at our Alma mine and will move back to full seen pillar extraction at our Eagle mine as well in the fourth quarter.
Finally, our number two gas Mon will complete mining in a lower cold zone early in the fourth quarter and should benefit from higher clean tons per foot and subsequent lower cost to close out calendar year 2019.
As our mines continue to expand we look for opportunities to expand our mineral control and advantage geologic conditions as we were able to do at our Eagle mine earlier this year.
The addition of Elisa. This mine ultimately is expected to extend our dual seem mining conditions at Eagle for an additional 12 months longer than we projected at this time last year.
Turning to our development projects, we've continued to mine throughout the third quarter towards our up slope location at our Berlin mine.
Geology in the center Pocahontas number three same continues to be challenging and challenging to predict.
Our primary development section mine through two areas during the quarter, a very low coal heights with extremely difficult roofing for conditions.
Giving us some optimism in September this section had its best productivity month on record.
While the relative lack of thickness in the same will always present its challenges where this mine has encountered saw softer sandstone or shale roots productivity levels have met our or exceeded our production targets, allowing the mine to be breakeven or marginally profitable even with the lower.
Coal Heights, and doing the development work required for the upper saying.
However, where the cutting conditions have become harder the productivity levels and repair costs increased to a point where mining only makes sense as a means to the pocahontas number four seem and.
At the end of October our slope development section had less than 1000 feet of section advance remaining to reach the slope bottom.
Once development around the slope bottom is complete and slope excavation work commences, we're budgeting approximately eight months of construction work to access the vicar Pocahontas number for same.
Both legacy and our own core drilling program has defined a large reserve of thicker Pocahontas number for same coal, where we are routinely mining 32 inches or lists of coal in the Pocahontas numbers three with a fine grained sandstone roofing floor. The upper same the Pocahontas number.
For is nearly double that on average.
Where we project having to mine out of seem rock in the Pocahontas number four is more often a black shale as opposed to the sandstones. We mine currently.
Therefore, productivities are projected to be material, we materially higher breakdowns and repair costs will be substantially lower our clean ton per foot will average at or above 3.0 clean tons per foot similar to our Elk Creek operations.
Furthermore, as our mining progress is Weston sales the coal quality is projected to continue strengthening moving closer to mid volatile coal than a low volatile one.
We've had significant interest in this coal from both domestic and international buyers and are confident we will be well received by the market.
Finally on the operation side, we remain poised to adjust as the market warrants at Elk Creek. We currently hold for additional fully permitted mines to have outlay and to have all day and are working to bring one of the high vol. A permits to a state of readiness. If additional production is warranted we.
Expect to receive two additional low vol. Deep mine permits early in 2021 of which has drift access, allowing it to be brought online with low capital investment and reasonably short timelines.
Lastly at Knox Creek, we have largely completed reestablishing ventilation at the Tiller deep mine, which will serve as the access point to our high vol age all bone reserves.
We estimate seven to nine months of development work at this mine to bring it into production. Once this project is approved.
I would like to now turn the call over to our Chief Financial Officer, Jeremy Sussman for a detailed discussion of financial results and performance.
Thank you Chris in terms of third quarter financial highlights Randy hit on a number of the key points, but I want to dig into the details a bit more.
Third quarter 2019, adjusted EBITDA was 13.6 million 8 million.
Which was a 24% increase from third quarter 2019, adjusted EBITDA of 11 million.
Third quarter, 2019 revenue was 61.4 million, which compared to third quarter 2018 revenue of 62.2 million.
Third quarter net income was five and a half million versus 6.2 million in Q3 of 2018 Lastly, third quarter 2019 earnings per share was 14 cents, which compared to the prior year period of 15 cents I want to point out something that we noted in our press release in the third quarter of 29.
In the company's effective tax rate was approximately 17% in.
In fact, it has been 17% in each of the first three quarters of 2019.
However, we have also been and continued to be consistent that cash taxes should be minimal specifically, we expect cash taxes to be less than $100000. In 2019 as the company continues to benefit from a large well or net operating loss position I point this out for your modeling purposes.
Yes.
Turning to operational metrics third quarter 2019 price per ton on company produced coal is $111, which compared to 2018 price per ton of $90. This was the principal reason for the 24% year on year increase in third quarter 2019 EBITDA.
Third quarter 2019 sales of company produce tons was 510000 exactly in line with a year ago period.
Third quarter 2019 production was 460000 tons compared to 449000 tons in the third quarter of 2018.
The increase came entirely from our burn wind development mine with third quarter 2019 production more than doubled the same period in 2019 at Fairwind production at El Creek was down 17000 tons in third quarter of 2019 versus the same period a year ago.
In terms of cash costs third quarter 2019 cash cost per ton sold on company produced coal was $80, which compared to the year ago period of $65 per tonne I'd like to put some context. These figures first I'd note that these numbers are inclusive of our development Berwyn mine, which by nature of.
Thats development status as much higher cost an L. Creek at the present time.
Over a third of the year on year increase in cost per ton sold was simply due to the impact of berland with Berlin third quarter 2019 sales up 120% from Q3 of 2018.
Second about 15% of the cost increase was due to higher sales related costs, mainly royalties with third quarter realized pricing up $21 per ton year on year.
Third as noted in our press release Q3, 2019, Elk Creek cash cost per ton sold were six were $73, which has higher than our first half 2019 average of $65 per tonne as I mentioned earlier third quarter 2019 sales of company produce tons meaningfully exceeded production.
Between the lead the lingering inventory overhang from the Q4 2018 silo failure, coupled with the material weakness and the met coal market. This past quarter, we elected to sell coal from inventory rather than run the mines as hard as we could have.
While this had a positive effect of getting our coal inventory down to $9.9 million as of September 30, compared to 14.2 million at year end 2018, It had a negative effect on our cost structure for our produce coal this past quarter, specifically, we spread the fixed cost component of our costs.
Over fewer tons over fewer produce tons. This past quarter I'd note that we have the labor force in place to produce considerably more tonnage than we produced this past quarter, which we believe will position us well for our plans to continue to grow the company.
Under normal under normal circumstances, we continue to view L. Creek as a mid sixtys per ton cash cost mine.
Looking ahead to guidance, we expect company production of 1.83 million tons for 2019, which would compare to the 1.75 million tons produced in 2018.
As you may have noticed from our release, we now expect just 2.5% or 2.5% of total sales volume to be steam coal versus 4% previously with the balance of course being metallurgical coal.
Overall, we expect just under 2 million tons of total coal sold in 2019.
We anticipate 2019 cash cost per ton sold at Bell Creek of $66. Excluding inventory changes, we have just over 1.9 million tons of 2019 fixed price business committed at $110 per ton average.
Now moving to capital expenditures third quarter 2019, Capex was 14.3 million inclusive of capitalized development costs, which compared to third quarter 2018, Capex of 12.4 million. We anticipate an overall 2019 capex spend of 34 and a half million excluding capitalized development.
Costs.
It's Mike and Randy noted in their prepared remarks, Ramco was built to withstand market turbulence and I'd like to expand on this a bit and go through our balance sheet, which we believe sets us apart from our publicly traded peers first referring to the slide deck as we show on slide 11, our debt to EBITDA metrics are among the best in the industry.
If not the best I'd remind everyone that as of September 30, our net debt stands at just $11 million given our lack of meaningful interest expense cash taxes and other below the line cash items I'd remind everyone that when stress testing, how ramco may hold up in a downturn EBITDA minus maintenance capex of about $6.
Ton should get you almost all of the way there second at just $13 million Remic. Those legacy liabilities are about 98% below our direct peer group average and by far among the lowest of this peer group.
I'd like to now turn to some of our current and forward views on the macro environment metallurgical coal spot prices have fallen almost 40% year to date with spot prices a bit above the $130 per ton Mark right now.
However, despite the fall in spot prices the forward curve as hovering above the $150 per ton level and isn't a contango state.
Global Capex in the met coal space remains low.
We estimate that met coal capex as a whole with 70% below peak levels last year as the high cost of capital for many producers and ESG pressures continue.
Furthermore, we are starting to meaningfully see supply come offline with one investment bank recently, suggesting that 5% of total US met coal supply has come offline just since August we think a large part of the spot price decline. This year has been driven by the uncertainty of Chinese port restrictions.
As we show on Slide 16, the arbitrage of international coal into China has seen a $28 per ton average spreads since the beginning of August versus a near $0.
Spreads since mid 2017.
If history as a guide we look for that gap to shrink once there is a bit more certainty in the market before I turn it over for questions I'd remind investors that at its core ramcos, a low cost producer with very little debt or legacy liabilities.
We have designed our operations to be resilient and turbulent times and of course take advantage of strength in markets in good times.
Now concludes managements prepared remarks at this time I'd like to open the lineup for any questions. You may have on our third quarter 2019 results or outlook operator.
Ladies and gentlemen, if you have a question at this time. Please press Star then that number one key on your touched on telephone. If your question asked and answered or you wish to remove your cellphone Mick you. Please press the pound.
Our first question comes from the line of Mark Levine from Seaport Global Your line is open.
Great. Thanks, very much so a couple of questions about guidance. So I guess, it's not guidance technically but the the comment regarding production volume or in 2020. The range you gave a 1.8 to 2.3.
Maybe you can book market. It today's met prices Brandy or are you are you closer to 1.8 in it you know 175, you're closer to 2.3 is there some sort of.
Pricing parameters that would give us an idea of where you would expect to fall within that range.
I think mark the way to look at is almost like a C saw.
You've got price and demand so because we've got a very low cost profile, we can make money even in this market. So it's really question of assessing really where the underlying demand is and I think our view is given the cyclicality of the met pricing environment.
Where we sit in November of 19, perhaps is not going to be the same place price wise, we would sit in six months from now nor will necessarily be the same demand equation. So I think what we've done as we've really told you physically what we're in a position to do from a production standpoint, but not necessarily trying to guide you to actually what.
What sales we would.
Suggest that we're actually going to.
Land on for next year, it's kind of difficult point in the market timing wise, Mark because as I kind of mentioned.
A lot of our high potential customers still don't know what they're going to do.
And have chosen to non enter the marketplace I do believe we get a lot more clarity in the next.
45 to.
60 days or soda.
To be honest so.
And when you think that makes perfect sense and if you. If you think about what Capex in 2000, I know you guys getting ready to do your budgeting meetings. So I don't want to you know I know you're not necessarily position to be completely accurate or maybe don't even want to go go there, but when you think about what cash cost would look like at the lower.
John rate versus the higher turn rate or what capex might look like at that sort of 1.8 million versus the 2.3, what would those numbers or what would those ranges potentially look like.
I mean, Mark I think is as you said, we'll I will be in a better positioned to kind of go through go through some of the key.
Key numbers for you.
When we when we report full year results certainly after our budget meeting, but as I said in my prepared remarks, I mean at its core Al Creek is certainly a mid sixtys cash cost per ton mine site. We're comfortable that we can manage to those levels, but we will give you some more specifics.
As as we go forward. That's that's perfect and then my last question just has to do it with the domestic met pricing and.
Sounds like you guys made some interest made some strategic decisions based on what you're seeing in the market place.
When you were negotiating over the summer maybe you could give us some color about.
You know the tenor of negotiations in.
Obviously it sounds like you guys are going to hold back more the high quality stuff I don't know if you're willing to give kind of a pricing breakdown for the higher quality versus the lower quality, but.
You are that's great and then also just kind of how things sort of progressed in what you. What you saw this round domestically versus maybe a year ago.
Yes, I was really a completely different kind of kind of setting mark.
Most of the discussions with customers started with the fact that they were going to buy less coal and make less coke and.
So as we as we saw kind of phase one.
Kick in we saw a lot of calls coming back into the marketplace that traditionally weren't there may be for example, our kohl's probably would have had a higher rank in some of the blends if it were not for some of the coals that got place quickly and you can't blame customers for wanting to make strong coal coke. So we understood that it was very.
Very important for us.
With our.
Heavy load of existing business domestically to get a base load.
To get a good amount of base load demand. So we are business to sustain our operations. So we were very focused on that.
We were focused on on volume and price and I think it. It obviously had an impact where we in that ended up but.
With that being said are higher quality coals pivot more of a tendency to be based off a high vol. A type index in the international marketplace and because of that we we feel like if things.
Recover over the next six months or so that we're going to have it really good opportunity to have higher price business internationally and because of the way things develop domestically are higher quality coals were not generating the sorta demand that we.
That we saw for example last year, so hopefully that hopefully that helps a little bit and I think mark just to echo on what Mike said someone at a statement of the obvious last year when the domestic pricing and negotiations were occurring that was in the backdrop of a rising market.
Price wise this year, which is completely the opposite so it was really question, where you catch a falling knife and I think our approach was simply to step back from the table and say, we're not going to try and predict where that knife will go one way or the other but we're going to preserve optionality on our best coal so that we can preserve some pricing upside.
And I think in terms of your question about what the price might be again, I think thats, that's going market driven decision and will it remains to be saying and of course to make sure. We can run our operations and unlike much of our competition, who did not make that decision.
End of sending out war notices instead so.
Got it great. Thanks for the color gentlemen, appreciate it.
Thanks Mark.
Your next question comes from the line of Daniel Scott of Clarkson. Your line is open.
Thanks, Good morning, guys.
And when I look at the results and I think about your contract book for next year shifting to a lot more of an export what is your level of confidence in being able to place that that step up in tonnage in the export markets.
What kind of typical geographic geographies, we looking at for destinations and if that market stays soft is a domestic window closed for years, there's still some optionality to return tons domestically.
Yes, good good question and.
The good thing about the progress that we've made in the last six months is getting all kinds of exposure because of our focus to change our mix I mean, we knew we had a heavy domestic book and our focus even before the.
The downturn than we've experienced was to expand on the export side I will say that weve lean towards the growth area. I mean, we thank our highest potential is probably more or less in Asia, because it tends to be more consistent from a marketplace.
And I can say that we're kind of on deck at a couple of places.
One other more or less because of dissatisfaction with some of the quality coals that there that they're currently buying and that ours would be a good fit and fit nicely into the blend.
And so you know.
Dislike.
Trying to predict something that is constantly evolving I mean, it's difficult to say, hey, I'm, 100% sure we can do it.
I can't say that because there are lot of things that are out of our control, but we've done everything right. We put all the things in place to do it and I like the fact that we are having some discussions with some customers versus what we're seeing for example in Europe with a lot of uncertainty on buying so.
Difficult to say now the we'll know a lot more of the next 60 days.
Okay, Great and then I think your comments, where that if markets go get even weaker that you have the capacity to just basically run at the 1.3. That's contracted can you do that without really.
Blowing up the cost structure is that something you could run with with decent margins at that level and we Didnt say, we would run it at 1.3, we would run higher than that and frankly, we've got some discussions right now, which again as Mike alluded to in the next 60 days probably cover several hundred thousand more tons.
But so were we basically have covered ourselves on the downside and as I said left ourselves the optionality to capture some price upside as we go forward 20, and I did forget to answer the question about domestic business, we still do have some.
Some ongoing discussions and are hopeful that.
That we're still able to do a little bit more domestically. So I don't know that we totally write that off at this point either.
Okay, and thats not to dwell on the negative so on the positive if you kind of looking at one eight to two too.
Band, you get Ratchet and if that's markets dictated is there a lot of variability in the actual operating cost structure, there or is it pretty steady.
The this is Chris the the operating costs will.
That band will stay pretty flat, obviously, the higher we get the lower they'll go but.
Sort of our our base case is.
Pretty consistent with what we've done this year and what Jeremys.
Outlined as our view of Bell Creek going forward.
Okay, and then last for me I, Jeremy Dave had some extra color on that on the cost in the release, who is the comments about the other the sales from inventory had a negative impact on cost per unit I think you cleared up in your comment, saying that that you basically spread your cost over fewer tons per day. So it wasnt cost per ton sold those cost per ton per.
She said, they're able to think about it.
Yes, I mean, if you think about it Dan we produced 460000 tons.
And sold 510000 of our produced call whether it be from this quarter or of course prior quarters.
And so essentially.
As I noted, we we have the workforce in place to produce considerably more than we did in Q3, and we think thats the right thing too.
To do given our given our structure and given our given where we are frankly on the cost curve. So yeah, I think long story short you're thinking about it correctly.
I might add Jeremy the byproduct of eliminating inventories is an increase in liquidity. So we continue to see.
Our cash position gain when we're eliminating inventories so that's a good thing and as and Dan as our cash position. Obviously grows that gives us more optionality to to look around at some other operators.
Yes that comment sorry, just one last one in there.
At a very reasonable price and we are looking at some opportunities as we speak and then.
We talked about last quarter on some of our inhouse growth opportunities. We told the board. The last meeting we wanted to kind of sit tight and see where the market looked we're going to be back having a discussion with our board like this year and at that time, we're going to put back on the table some of these.
Ideas and see what what direction, we want to go.
I think importantly to to keep in mind is you know berwyn continues to graphs and it's been a core development and growth project and and we're getting very close to that that slope bottom, where we're going to start and so.
It's exciting.
Alright, guys like very much appreciate it.
<unk>.
Yeah next question sounds from the line off look aside from the U.I.D.F.B.R.Y. Yeah <unk>.
Hey, good morning, everyone.
Mortars Lucas.
I want it to follow up on this I'm an eight point.
Kind of what what sort of return parameters, what you'd be looking at and if it's production related would it be kind of production immediately or a year away two years away. If if you could describe some of the <unk> in more detail I think that would be very helpful. And then secondly, along the <unk>.
What what sort of financing.
Opportunities, which you'd be looking at which which you for example, I considered that as part of a as part of that or would you take on a legacy liabilities said you mention didn't you prepared remarks that currently you hardly have any in comparison to your peers. So it's a little bit more context around that would be very helpful. Thank you.
Yeah sure you know Lucas are you know obviously, our focus is always on geology, when we look at when we look at opportunities and and we have a preference of.
Either adding to the existing mine's or or putting in production that is in you know isn't advantaged geologic areas, but on so I would say that that's sort of the first line of things that you might see doesn't even necessarily need to be a large him an age thing. It could for example will be doing some additional.
Leasing and and and adding things that would be in many cases creative from a geologic perspective, an advantage geology over time. So I think there's a very good chance that you'll see some of that I think you'll also see his focus on infrastructure that can give us more capabilities and flexibility.
To to enhance our.
Ability to potentially watercolor ship cold those sort of things we continue to have a huge aversion to to liabilities.
And prefer to structure transactions the try to at least minimize them you know that being said occasionally you. You know you take those sort of things we took a measured approach. When we did knocks Creek for example, so what you won't see is any large I think emit a from us more next door stuff more off.
Opportunistic stuff more leasing type stuff, but these things could really have a pretty big impact in many cases, our costs structure and continue to perpetuate are low cost you know operations that we have so I guess based on that you know we half and we continue to have a great relationship with you know with our banks and.
I'll I'll, let Randy in Germany kind of jump in and talk yeah. Some of that I think Lucas I think you know to your first question about our lives of course, we we would like to have an I.R.R.O.I. on anything we do as possible, but I would think an easy way to look at it is.
He liked paybacks, probably in the one to three year range, which gives you. Some notion of a return you can kind of back into without having to be you know numerically precise.
In terms of our opportunities you know we've got Drypowder, we've got drypowder built into our existing dead instrument on the revolver. We've got dry powder that we're discussing is I think we've we've alluded to before with perhaps some equipment financing that we've already put in place before what we don't want to do is probably go.
Out in finance you know.
Against our balance sheet per se.
As a sort of a cash flow loan of some form nor is is you asked do we like to accept legacy liabilities, but on the other hand, we're certainly always aware that we are in a position because of our balance sheet to perhaps opportunistically do some things which might involve some they are.
Than others might not be able to do so that's kind of abroad based answer your question, but I think that's probably about as precise as we could get.
That's very helpful. I I appreciate all that color. My my second question, what follow up on some of the comments regarding pricing and demand Randy it sounded like it's pretty weak out there I think you made a common in your prepared remarks that you're not sure if current pricing.
Even reflecting demand.
Could you elaborate on on that and kind of when you drive in around in central Appalachia, what what sort of inventories are you looking at what what's your sense like if if the man just really really week, maybe we could then the market is realizing today would appreciate your perspective. Thank you.
Well I think and of course, not everybody's reported but I think I think everyone. We've probably reasonably consistent with each other I think is Mike said earlier certainly the domestic mills has a cut back on there buying for this year you know it's it's the it's the Montrose I said met reflects.
Steel demand and still demand as a function of the general economy. So as we've been a little weaker this year I think it's.
Instead of rising tide during all boats, it's a it's a sinking tad carrying all boats.
So I think as you go around central lap and and <unk>, whose down there constantly could probably comment is knowingly is anybody here at the table, but I think you are seeing a larger stockpiles you're seeing some people cut back on a lot of ships and production.
You know you you are generally seeing the the reality of people that have higher cost and higher death structures being faced with situations where in many cases, they can't sell their call to meet costs and so you're seeing shut ins you're seeing some dispositions taking place.
And you know once again not with any smugness at all but you know we we do feel that we've designed ourselves to be able to withstand these kind of turbulent times and and perhaps hopefully thrive on them. So that's that's basically where we are.
You know Lucas our book business for the fourth quarter is going to allow us to continue to reduce our inventories, but note out and we see it in the coal fields.
<unk> basically put people in a position where they have to redo shifts and it's not necessarily just five days a week gets four days a week in some cases that were seen in in some of the areas that you know that we operate in.
The encouraging thing is is is that people are taking you know sort of proactive approach is to it and in many cases you know these guys don't have the cash position or the cost structure to allow to perpetuate very long. So you know, it's well it's difficult to see those sort of things and and even layoffs.
Happened you know it it is encouraging you know production to shut in I think you know as we look not only the m. towards their but port levels immature is they're they're they're elevated and it reflects a weakness in Europe . So you know, we we watch those things on.
No a monthly basis, because we you know we've got our space you know works too so.
In any of that hopefully that gives you a little bit of color I do think that people are taking the right actions in the coal fields to reduce why yeah and I I think Lucas you know we alluded that we thought thought we have seen you know about four to 5 million tonnes come out of the market here to be perfectly candid you know if you look forward to next year. We've you know we don't have a crystal ball.
More than anybody else, but I could frankly see that number double.
So that's that's the kind of.
Contraction and supply that I think you're seeing and of course, you know you have when you said situations like this that also makes the financing for those who do have weaker balance sheet that much tougher so.
Yeah, that's that's very substantial amount of supply that that's very helpful. I appreciate all the color and best of luck.
Hi, plugs X. Lucas.
Yeah.
Then comes from the line of D.V.D. on off B.M. Okapi called markets your nineties okay.
Okay, great. Thanks for taking my questions I'll try and be brief here.
I just wanted to ask a couple of clarification question relative to comments that were made.
Historically first question is related to the comments are made in August I think I.
I understand but back in August there with it.
Plan in place for a September board meeting for approval of the prep plant expansion what happened there.
Very simply and Bad Board meeting, we were sitting there in the middle of the downdraft, we we sort of saw coming in early August when we last spoke and it was in you know the depth of the the negotiation situation, where we were seeing prices drop and demand dropped so.
<unk> I suggested to the board we step back from the table take a look and see where the the market might be a in a few months and clarify it at that time.
So we basically so that project as efficiently deferred correct. It's just basically on hold I wouldn't say it was different but <unk> Arnold understood. Okay.
And then just from May back in May.
We've talked about 2020 volumes, obviously, you know lower now but back in May there was very specific guidance provided for 2021 2022 2023.
In fact, the numbers for 2021, where 3.6, sorry, 3.1 million times, I believe 2022 or 3.6 million tons.
2023 was north of four 4.2 to 4.5 and they get was.
Oh those numbers still intact given these.
<unk>.
I think I think the short answer is the overall in number is intact. I think you know the timing to get where those numbers are is probably been you know modestly.
<unk> you know from the standpoint of what we thought was going to happen in 20, we sort of the realized reasonably steady demand and I think you know 20 looks like it's going to be a lower demand factor really across the entire board. So I think you know, we we certainly can't sitting here today and predict what we are going to see in 20 122 and.
Three but we are still committed to move forward with those levels of production in the future is the market Lawrence.
You know these are all good projects, Dave They you know they deserve the capital even in this sort of market, but you know, it's it's obviously prudent to not stress <unk>.
<unk> put the put the company under stress from Capitol deployment, and and you know hopefully we'll have a lot clearer vision on the rest of coal we place for the rest of year and can give you a lot better idea I think after the you have to the next quarter, how things sort of re adjust but one things for sure all the projects make.
Great sense of great returns, even numbers that we see today, just a matter of making sure that we deployed in capital at the right time.
And don't you know don't stress ourselves.
Okay that makes sense is very helpful actually so at some point between men and now we crossed over a threshold that made these projects <unk>.
You know made the timing of these projects, obviously less attractive so can you give us a.
A a more color on what that threshold is like to go knogo decisions, what's the price.
It's a price said, we should be thinking about where I I think we're going to make word with these projects yeah. David I think I think the the the short answer to your question is it some more subjective than an objective decision I think we want to get some general comfort of where the market looks like it is and that's not a magic price number because as I.
I said, there's a there's a little bit of a disconnect between price in demand out there right now so we want to sort of see the market to stabilize and I think once the market is stabilized we are in a position to move rather quickly to <unk> to take that a step further I think what all that then creates.
You know people, who are prudent capital was free cash flow and we we put ourselves in you know in in that category and you know the key factor if he looked at what we will do is as as we have free cash flow. We will deployed in these good projects.
And you know it's difficult to predict where we end up you know from a cash standpoint, right now with the tons. We've placed for next year.
Okay, and I said I keep it sort of have one more and it's not related at all but just when we go back to near term guidance and maybe our math is wrong, but when we back into a a an implied fourth quarter cash cost at Elk Creek.
It's down quite a bit versus a third quarter, even though volumes are down and I'm trying to reconcile whether we did our math wrong or what what should we be expecting for cash Cos It I'll Creek and the fourth quarter.
Well I think we're you know third quarter cash costs were up a little bit for all the reasons, Jeremy outlined and we expect all those there one time occurrences generally as as I mentioned in my remarks are number two gas mine.
It actually has now completed but it was mining in a local area lower coal area and it completed those reserves and the third quarter and his moved back to where it will be.
Probably equally productive from a foot per shift standpoint, but much bigger coal seam, so where that has always been one of our lower costs producers. It was one of the one of the laggards that Elk Creek although.
So we expect that to rectify itself and we've done some cost control measures that old Greek like I mentioned on the how Oman or just several things that will bring our cost.
Back in line or perhaps even a little bit lower than we've seen other points. This year.
Okay, so to get to the 66 dollar target for the year. It implies reformat the weighted average six $6 implies a weighted average house costs of 59 Bucks of the time it out Creek in the fourth quarter is is that reasonably accurate sub $60 in forecasts concert okay.
So Dave I would just note that we in our guidance tables, we do have a footnote that says that the proton guidance doesn't include the potential lemon Tory adjustments so.
We we can we can kind of go through the math off line on that but but just keep that that dynamic in mind.
Okay. Thanks, I don't want to take up too much time on the call. Thank you.
Thanks, Thanks day appreciate it.
I would now like comparing to conference back to Randy Hopkins.
Okay. So again I would like to thank everybody for joining the call. This time and we look forward to catching up with you again I guess it will be a after the first of the year to discuss or you're in results. So thanks again.
Hey different jumped them in different cities conference call think also joining give me now disconnect.