Q2 2020 Alliance Resource Partners LP Earnings Call
Good morning, and welcome to the Alliance Resource Partners second quarter 2020, <unk> earnings Conference call.
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Please note this event is being recorded.
I would now like to turn the conference over to Brian El Cuatro, Senior Vice President and Chief Financial Officer. Please go ahead.
Thank you Gary I'd walk everyone.
Earlier this morning luxury forced partners released the second quarter 2020 financial and operating results.
Well now discuss these results as well with our perspective on market conditions.
Following our prepared remarks, well open the call, but your question.
Before we begin a reminder, that some of our remarks today may include forward looking statements.
That are subject to a variety of risks uncertainties assumptions that are contained in our filings from time to time Securities and Exchange Commission.
We're also reflected in this mornings press release.
While these forward looking statements are based on information currently available to us if one or more of these risks or uncertainties materialize or up our underlying assumptions prove incorrect actual results may vary materially from those me projected our expected.
And providing these remarks the partnership has no obligation to publicly update told by any forward looking statements.
Whether as a result, no information on future about four otherwise unless required by law to do so.
Finally, we'll also be discussing certain non-GAAP financial measure.
Definitions and reconciliations of the differences between these non-GAAP financial measures and the most directly comparable.
GAAP financial measures are contained at the end apparel piece press release.
Which has been posted on our website furnished to the FCC on form 8-K.
But the required preliminary talks to the way I'll begin with review our results and then turn the call over to Joe's crab, our chairman President and Chief Executive Officer for his perspective.
Coming into the 2020 quarter Air LP was taking action to mitigate the effects of the covert 19 pandemic.
It was crushing global energy demand.
Specifically, we temporarily idled all of our Illinois Basin operations, and our East Kentucky operation.
With the objective to reduce production to match existing sales commitments of approximately 28 million pounds for all of 2020.
We immediately focused our partnership on optimizing cash flows no numerous initiatives to reduce cost expenses working capital and capital expenditures.
In addition, the board of directors, a barrel piece channel partner suspended the cash distributions to unit holders for the 2021st and second quarters.
At that time due to these actions we expected coal production and segment adjusted EBITDA off from a our Lps coal operations.
But declined by more than half the contribution from our mineral fact that would be even more severely impacted in the 2020 corridor.
And while financial and operating results for the 2020 quarter were significantly lower compared to the sequential quarter.
Oh piece performance actually came in slightly better than we expected.
I'm, particularly pleased to report the strong execution of our plans to optimize the cash flow and control costs.
Total debt reduction of $49.6 million for the 2020 quarters.
Or coal operations.
Oh piece decision, but temporarily idle five of our southern mining complexes in response to the effects of the coven 19 pandemic led to lower coal production to 4.3 million tons in the 2020 quarter, a 46.1% reduction compared to the sequential quarter.
Coal sales volumes and revenues were also impacted falling 28.5%, 24.9%, respectively compared to the sequential quarter.
Lower coal sales revenue, partially offset by lower expenses costs total segment adjusted EBITDA off from our coal operations to declined 43.7%.
$55.2 million into 2020 quarter and that compares to $97.9 billion on the sequential quarter.
On a per ton sold basis wholesale price realizations rose, 5% sequentially to $45.56 per Todd.
Primarily due to an increased sales mix of higher priced Appalachian sales towns or the 2020 quarter.
Lower coal volumes as well as higher exercise and severance taxes and inventory charges, which segment adjusted EBITDAX, that's perfect on higher by 11.5% the $35, a 95 cents compared to $32.25 of a sequential quarter.
Well, our minerals segment results for the 2020 quarter also declined compared to the sequential quarter due to reduced oil and gas demand a bit the pandemic.
Lower oil and gas volumes and sales price realizations costs total revenues from oil and gas royalties at least bonuses to declined 45% $7.8 million.
Accordingly segment, adjusted EBITDA fell, 50%, the $6.9 million under 2020 quarter compared to $13.8 million and the sequential quarter.
Our minerals segment contributed 11.1 per site a barrel piece consolidated segment adjusted EBITDA This quarter.
Weak market conditions and disruptions largely caused by the cobot 19 pandemic also impacted Errol piece results for the first six months of 2020.
Total revenues decreased 41.9% $606 million for the 2020 period compared to $1.04 billion for the 2019 period due to lower coal sales transportation revenues and revenues from our mineral interests.
Lower revenues, partially offset by lower operating expenses and excluding noncash items contributed to an adjusted net loss of $34.4 million or the 2020 period compared to adjusted net income of $164.5 million for the 2019 period.
Adjusted EBITDA for the 2020 period was also lower falling to pick 56.2% to $146.5 million.
As we manage through the current volatility they are up these efforts to optimize cash flows reduce working capital requirements and strictly control capital expenditure and expensive have yielded significant benefits to our financial position.
Working capital requirements declined 29.6% from the sequential quarter as coal inventories were reduced by 862000 times during the 2020 quarter.
These initiatives also lower capital expenditures and general and administrative expenses, which declined during the 2020 period by 49.1% I'm, 27%, respectively, both compared to the 2019 periods.
Through the entire alliance organizations sharp focus on these efforts.
LP increase free cash flow by $29.2 million during the 2020 quarter.
Increased liquidity, 15.6% to $298.6 million and as mentioned earlier reduce total debt by $49.6 million, all as compared to the sequential quarter.
Although although our total leverage increased to 1.8 times at the end of the 2020 quarter.
Our Lps balance sheet remains strong and comfortably in compliance with all of our debt covenants.
Including total leverage covenant of 2.5 times.
With that I'll now turn the call it over to Joe.
Thank you Brian good morning, everyone.
As Brian Eloquently explained the first half at 2020 presented many challenges due to the co bit 19, pandemic, which negatively affected economic activity around the globe, resulting in lower demand for coal oil and natural gas.
The entire energy industry, including I.R.A.R.L.P. has had to react quickly could a rapid loss of demand.
Year over year power demand and eastern United States.
Slide 7% during the first half a 2020.
The coal fire generation following a third compared to the first six months of 19 to 29.
Demand for oil and natural gas has also been crashed and the resultant oversupply has pressured commodity prices.
In response operators have curtailed production driving old production down to approximately 11 million barrels per day in the United States.
From a high earlier this year 13 million barrels per day.
The reduction of oil production also reduce associated natural gas volumes as well.
As we reported this morning.
Environment exacted a tremendous total.
Lps financial and operating performance during the 2020 quarter.
End of period.
2020 quarter was especially top as we took aggressive action.
With the LP, having differ low more than half of its workforce for most of the quarter in an effort to match production levels to the delivery schedules are contracted coal sales for the year.
Throughout the 2020 quarter, they are LP monitored coal inventories.
At each location and work closely with customers to determine when it would be necessary to resume coal production.
Consistent with this plan.
Underground coal operations resumed in May at the River view and what are your minds and the only basin and subsequently at each of the remaining mining complexes Gibson and Hamilton in Illinois Basin, and MC mining in Appalachia.
All seven of our mining complex is our now producing coal.
However, several of these mines are running at last at full capacity due to the limited domestic spot market and a seaborne market that continues to be sub economic for us production.
Well the pandemic continues to create uncertainty in the global economy and suppress energy demand.
Customers have indicated their intention to take all times contracted for this year in most cases at the minimum levels.
Recently, we are seeing encouraging signs.
And the eastern United States, improving economic activity and favorable weather patterns are contributing to increased electricity demand and coal burn.
Which jumped 55% month over month in June.
This marks the second consecutive month of increased coal burn and pushed utility stockpiles lower where the first time since August 29 chain.
Warmer than average temperatures across much of the country have kept coal demand strong in July as well as with similar projections for August.
We are currently targeting full year 2020 production and sales volumes to be 27 million tons, and 28 million times respectively.
Well, our oil oil and gas minerals business prices are rebounding from recent lows and he and peak companies are beginning to show signs of life, particularly in the Permian basin, where drilling activity has stabilized.
And we are seeing many shut in wells returning to production.
And meaningful increase in already drilled wells being completed.
Although uncertainties remain these favorable trends for Aero piece coal and minerals businesses support our cautious optimism that the second half of this year will be better than the first.
With encouraging trends for coal demand expected to continue over the balance of the year utility stockpiles currently projected to fall toward normal ranges by year end.
The outlook for coal is improving.
The forward curves for oil and natural gas are also encouraging.
As discussed during our last earnings call.
We continue to believe their results for the 2020 quarter are not representative of the underlying strength of alliance.
Coal remains an essential part of the critical infrastructure necessary to meet the demands and needs of our country, just as our federal and state governments decided when the pandemic first close down the economy.
During the recent heat wave the essential nature of coal has again been they clear.
With coal playing a vital role in keeping the power grid stable and meeting surging demand needs across the country.
Lps low cost strategically located well capitalized long life coal operations.
Well it allow us to service the needs of our domestic customers.
As well as expand our market share is weaker competitors exit the market.
And allow us to participate an extra export opportunities when international market conditions improve hopefully in the near future.
With the reduced pace of drilling new wells as well as lower commodity prices, we expect our minerals segment adjusted EBITDA over the next several quarters to be at levels comparable to those reported in the 2020 quarter.
Someone who has been in the minerals business for as long as I have that in the coal business.
Recently reminded me of the benefits of oil and gas minerals ownership.
Specifically he said arrow piece mineral interest are concentrated in the core development areas.
Premier resource plays in the United States that are the primary area focus were industry, leading well capitalize operators in the space.
Providing you with a multi decade inventory of cost free organic growth opportunities.
Your growth requires no capital expenditures on your part you own perpetual rights and have very low holding cost.
He concluded by saying.
He has conviction that the U.S., we'll continue to be an important producer in the global oil and gas market.
And that air Lps asset base is positioned well to be the source of considerable production and the future.
Hi shares conviction with respect to oil and gas and we remain committed to our minerals business.
Also believe we are equally well position with our coal assets to meet the stable needs of our customers for many more years to calm.
As we continue to manage through these uncertainties LP remains focused on the wellbeing of our employees servicing the needs of our customers in protecting our balance sheet.
We remain committed to making hard choices necessary to emerge from the current environment.
With a strong foundation that will retire LP to sustainable growth and cash flows and deliver attractive long term value for our stakeholders.
With that I'll ask the operator to open the call for questions.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then to.
At this time, we will pause momentarily to assemble our roster.
The first question is from Mark Levin with the benchmark company. Please go ahead.
Okay, great. Thank you very much and congratulations on on the free cash flow generation in the debt reduction.
Couple of just kind of quick fire modeling questions Brian I.
I assume QQ will be the bottom for the coal business. It looks like you guys. So little over 12 million tons in the first half, implying maybe 16 million or so in the second half in terms of thinking about the split between the third and the fourth quarter to get to that number.
Any any thoughts or comments on how to think about volumes in the back out.
Q4.
Most of that due more to the typical slowdowns, resulting from holidays.
Fourth quarter.
Okay.
On.
Capex it looks like you guys spent about 84 million in the first half.
Is that kind of the right run rate I mean, if you look at the second half versus the first half sort of a comparable number or do you guys been kind of taking stuff out. So we would be would be less maybe how to think generally about capex in the back half of the year.
Yeah, I mean, we're we're continuing to monitor our capex very very closely.
I do want to point out that as we do that.
We still are taking a look at making sure that the operations.
Our capitalized so they can run safely and efficiently that's always been our priority.
That won't change.
Run rate in the first half it is likely going to be a higher than it is in the back half of the year we are completing.
I believe our.
Extension at our excel.
So you will see some capex occurring.
In the back half of this year that maybe a little bit higher than it was.
The first half.
I think when you look at our total capital and the bulk of what we're doing today as maintenance fully coming into the year, we were estimating by both for per ton long term run rate.
And I expect our.
Results from 2020 are likely going to be a little bit south of $5 per business. So hopefully that can help you.
That's very helpful.
And then just I know, it's looking out to 2021 in the middle of the pandemic sounds sort of stupid, but just.
If you could remind us of what the contracted position is for 2021, and then any maybe any color about.
Price per ton or revenue per ton in terms of whats contracted 21, the b 20.
Yeah. The contracted position is a little over 17 million tons or don't have that actual revenue number for you that can give you that after that.
In the past Joe you've been you've been helpful about just kind of modular or at least giving some idea about.
Your expectations are perceptions of where the year over year might look I mean, it wouldnt be down if you just kind of took a snapshot today and I realize 17 million on maybe you'd do more than 30 next year hopefully much more than 30.
You know any idea of how to think about price per ton next year or it's just too early.
Too early to tell a there just so much uncertainty.
With the increase in cases, and what that means the economy.
We are.
Have a buying season.
September October hopefully by the next call, we'll have some more clarity.
But that's something yes, we do feel.
And.
Before we saw this recent rise in paces.
We were feeling positive debt.
I am still get.
Within 90% of 2019 volumes.
For the industry as a whole and that we could possibly get back to.
Anywhere from that.
30 to 35 million ton range, but right now so once certain it's just hard to hard to predict comes on.
That makes sense it Brian SGN, a it's come down a lot is that is the twoq huge number representative of what we should be thinking about in the second half of the year or it was that just.
Kind of all hands on Dec during the middle of the pandemic driving caught I'd say, it's still all hands on back and I would expect the run rate that you saw in the second quarter to be relatively.
Stable for the next several quarters.
Okay perfect into my final final question. So debt was about 1.8 times I think you mentioned.
So it may be I misread, it but just in kind of reading the press release it sounded to me like protecting the balance sheet may be the number one priority. So as you guys continue to exit generate excess cash is it right to think about the priority right now be paying down debt first and then you know if that's right then it what what level are you looking forward.
Before you would consider resuming the distribution or are the two not mutually exclusive that there's a lot in there, but more around capital structure and thoughts about excess cash.
They're not totally related I think that.
The need to be cautious is just the uncertainty not knowing exactly what's happening in the economy, what's happening or natural gas prices.
Gas prices have been.
Yeah.
So that's somewhat of a major impact to the coal burn over the last six months and will continue for the next.
Three months.
There are some expectation that we'll see a rise in natural gas prices.
As the drilling activity.
As a significantly declined in the oil patch.
So and that's also impacted natural gas.
With the.
Gas price so.
Natural gas prices are key issues going forward as well as the LNG export shipments.
So.
I think that.
Back to your main point, yes, our number one focus is to protect the balance sheet.
So we felt during this time of uncertainty it was bass just.
For the distribution back they down the debt and then once we get clarity to hopefully get some stability.
And predictability and demand and then we can reassess exactly.
Where we go from there.
Great. Thanks, very much appreciate it.
Thanks Mark.
The next question is from Lucas pipes with B. Riley FBR. Please go ahead.
Hey, good morning, everyone intact, good job managing trains a day uncertain times.
Yes, Brian.
I wanted to.
Follow up a little bit on on one of marks questions.
In regards to kind of.
The reduction here and output.
Have you considered considering permanent permanent reductions in operating capacity. Thank you very much.
Permanent reductions in operating capacity.
I think with the mines that we have lobby now, we obviously have excess capacity.
And.
We plan to keep that capacity available hopefully when the market rebounds.
Are you talking about additional mine closures.
Yes, so so so besides so currently it sounds like mines are running below full.
Capacity, but.
But there, but there's still still running and.
Would it make sense too.
The increase capacity at a number of complexes and and set some other complexes down altogether.
Well each of these mines have unique markets.
So if you.
Where we are today right now we've got lawyer running.
At four units and it's running at full capacity.
In August River view will be back to 10 units, which is where it was before the pandemic hit so it's going to be up too.
Normal capacity Mettiki is running at full capacity.
XL five RMC operation, we've been moving to a new reserves, we have one unit installed in June we got another one coming up pretty soon.
And then the third that should be up and running where by mid August.
It is designed for three years ago mine that should be running at full capacity. It ended the year. So.
Where weve been short.
Tom Ridge continues to work at reduced shifts.
And Hamilton has worked at reduced shifts in and our Gibson operation, Indiana, Indiana market span over oversupplied.
And that's running it reduced shifts.
All three of those are very low cost operations.
No we would expect it.
Our operations as we see it today.
We're hopeful that.
Right.
And you dare opportunities for those mines.
Yeah I'm looking at me, Joe talked just talked about the ability to.
Well on our Longwalls it reduced share of summer or call. It with our continuous mining operations, we have quite a bit of flexibility in how we operate those number of units running based production shifts et cetera.
Without really destroying our cost structure so.
Hopefully that answers your question.
So in Brian. This is incredibly helpful. I really appreciate that that detail and.
Maybe to follow up on on this.
Kind of pretty endemic.
Consolidations in the industry was was it kind of common.
Source of discussion, including on on the cost with you and I wanted how you think about industry consolidation now.
Lot of distress out there obviously in the industry and would appreciate your perspective.
As I mentioned on the last earnings call and I've mentioned, a couple of other opportunities that have spoken.
Since then and public.
I continue to believe that consolidation is needed.
In our industry.
And.
We are.
A willing participant in that.
Whether that will impact happen or not is.
Yes.
While there was a bit more activity before now, but it hasn't happened and I can explain to you.
But I do believe it's needed there.
Yeah, I think that I've mentioned this also the.
Issue with what's going on with RMP body Thats.
I don't understand that as to why that's happening.
It's obvious that we're consolidating industry and we need that to have low cost, yes, we can compete with natural gas.
Just so obvious but.
Yeah.
And it takes time.
Okay.
So with the battle.
Yes the.
There will be very interesting to see what.
What happens there.
Maybe one.
Last thing for me and that's just in terms of customer stockpiles.
Stockpile levels still seen in a fairly elevated as at the most recent EBITDA.
And able to look out, but what's what's your perspective, and and tune obviously appear to be a much stronger burn months.
Heat wave and would appreciate.
And the perspective on recent burn.
And and then also kind of how this may lead to increased that contracting activity for 2021 at the back half yes. Thank you.
All right so yes.
Recent burn and the projected burn through August.
Has definitely.
Better pleasant.
Yes.
Experience right now you have an experience we've had over the last three months, where there have been deferrals now there is accelerations August.
We will be our highest shipping month in quite some time July should be equal to what March was so.
We're feeling good about a third quarter shipments.
And the need for our customers to.
Replenished stockpiled those stockpiles.
For our major customers in most cases are declining with one exception that they can that's just a decision they've made to.
To honor the contract [noise].
And so they came back to us.
Wanted to take their full contract this year instead of earn some times.
So.
But in most cases as far as our.
Customer base.
There are declining.
Inventories.
And we have had conversations preliminarily as to what their expectations demand.
Projections are for next year and they too [noise] same uncertainties, we do.
But I think that Oh.
We know that there are several solicitations that are going to be coming out in the September October timeframe, but again were.
Overall that.
We can get back to.
Somewhere close to 2019 levels.
And.
2021.
And that's not that's based on domestic sales only does not include any export sales.
And then.
That's based on conversations with customers on their anticipated Bert.
This is very helpful. So really appreciate that color.
So Brian and team continued best of luck. Thank you.
Okay.
The next question is from Nick Jarmoszuk with Stifel. Please go ahead.
Good morning, a first question on any free cash flow generation you talk about how you it.
And in to the extent that it's applied to debt reduction.
Your thoughts are in terms of targeting the revolver versus open market purchases on bonds.
I'd say the debt reduction with first the applied toward.
Reduction of the revolver.
We we do have the ability to acquire.
At some level of bonds in the open market, but our.
Revolver pass some limitations on that so I think we've been focused primarily on pulling back on the revolver as well as the ongoing amortization of our leasing programs.
Another factor relates to the ashes back to trying to determine.
The future as to.
How do we deploy that capital.
Net capital capacity.
So.
Everything's on the table, we would they'll get bond buybacks. So I don't want you to.
Read Endo, what Brian, saying that until we pay down our revolver, we wouldn't participate that's fair in buying bonds, but right now.
Well, we have that uncertainty we're.
Focused on keeping our powder Grasso Spi.
Okay, and then what is the limitation on bond repurchases.
I believe that baskets 50 million, we can do more we would have to go back in.
Get permission.
And then.
In terms of the outlook for the contracting environment, you highlighted the theres excess capacity.
I was hoping you could talk about how you think about the ability to maintain pricing and margins versus there being some downward pricing pressure.
Well get it depends on timing and.
Exactly how the customers plan to.
Taking a what they plan to commit.
I think that it's fair to say that.
The contracts that are rolling off.
They are higher price than the current market.
So there will be pressure on the topline.
We are hopeful with some of our cost reduction measures.
That.
We can make up some of that margin, but there will be.
It will be an impact on margin.
Don't know exactly what and how much but.
To suggest that our margins will be at the same level next year compared to this year.
Absent.
Coded 19.
You got to sort of take the second quarter out of the picture because our cost went up.
Primarily because of lack of volume.
So when we're looking at our costs the second half of the year versus the first half.
We think we'll be going back to what are more traditional levels and more.
Yes.
Yes, Hi, 20 margins.
20% margins are okay.
In the second half so.
Yes.
Yeah. So you've got to look at book of costs and revenue side revenues going to be pressured John.
Hopefully, we can make some of that up on at Casa.
Okay, and then with the contracts that are above market Q shares sort of.
What the tonnage associated with that is and then how many dollars per tonne above market you think it is.
I don't have.
As I mentioned earlier I don't have the actual revenue number for the 17 million tons are currently under contract.
And it's hard to answer the question because of the mix on the open times.
But we roughly has 11 million tons open model for them and we're planning to sell 28 million tons. This year. So.
Yes, 17 million tons committed if we were at the same rate.
We'd have 11, if we can get it to 33 them.
Yes.
We've got five more millions.
Ben but the market is.
What that plant is and maybe we'll have more information for you.
Definitely by January, but hopefully we'll have better clarity in October.
Okay.
Well I. Thank you.
The next question is from Matthew fields with Bank of America. Please go ahead.
Hey, everyone, just just want to Oh.
Another modeling question for US you did some good working capital.
Reduction, reducing inventories and second quarter can we can we look to anymore inventory reductions are positive cash flows from working capital for the back half that you that you think we should be modeling.
Yeah, I think you'll see inventories.
Continuing to come down and you will see the carrying costs.
Being reduced as well.
Similar to Twoq, you are less than that I think we're like 36, or 38 million, but you benefited that order of magnitude or or less than that.
Over the back half a year it would be equal to that.
We've got.
Yeah, right now we're targeting about 750000.
Increases.
750000 tons of reduced inventory in the third quarter.
And there's another tranche in the fourth quarter.
[music].
So we turned down a 62 this quarter.
Continue to see it gradually.
Coming down over the back half of the year.
And so we're at 1.7 million, we'd like to end the year, yes.
Maybe 600000.
Hundred 600000.
Okay.
And then on.
Lukas touched on that the consolidation in the sector.
You know you said you would be a willing participant but that also that you don't understand why there hasn't been more I mean, I think the you're kind of in the pole position to be to consolidate or so.
Why arent why isn't there more is that financing questions is that kind of.
Uncertainty around antitrust given the arch and be to use situation.
There are no other buyers so there's no urgency like.
Why do you think there hasn't been more because you're in a unique position to kind of.
Pull the trigger more than anybody else.
It takes two parties.
Consolidate.
And.
For whatever reason.
The competitor.
Landscape is such that they are trying to survive and they don't see the value.
Consolidation I guess I don't know, we haven't had conversations to.
To try to.
Affect any day.
Yeah.
But the anybody was willing seller they would be contacting us back to your point.
So the fact that they haven't.
So as they are just now ready.
I can't answer as to why that is the case.
Okay.
And then.
And you already starting to talk about capital allocation a little bit between.
The distribution and sort of reducing debt and.
I know you said it kind of wasn't exactly tied to two debt levels, but.
Can you give us like an idea of the matrix of kind of factors you're looking at whether it is the dollar value of that whether it is kind of a leverage ratio keeping that sort of two and a half times covenant in mind or is it more really operational and kind of be contracting environment that drives that distribution decision.
And again I think it's the uncertainty.
What the demands going to be.
What's the economy going to be what's the pace for the recovery going to be.
Yeah.
You know much natural gas prices.
Yes.
What other opportunities we have to deploy capital.
So we're trying to.
Manage through this the best we can try and to.
Protect the balance sheet, so that we can be prepared for.
Both the good and bad so.
You know, saying is prepare for the worst plan for the faster.
Yes, that's what we're trying to do so we're trying to position ourselves to where you know we will be able to get through this and be stronger for it and also we had a position.
Ah to make good prudent investments along the way it.
And.
We understand the.
The benefit of the distribution for our shareholder base I mean for 20 years.
We had long term stable cash flow with growing distributions.
And that's our expectation that.
That will continue as soon as we.
Get predictability and.
And those cash flow so that when we do in fact start the distributions back.
There will be sustainable.
The somewhat predictable.
Right.
And then and then last one for me I know you sort of touched on this with Nick already but.
And I know Youre limited to $50 million, a bond repurchases, but.
Don't you see the value and repair spending 50 million on on something that yield 17% versus spending 50 million on something that yields about 3%.
Yeah, I mean, the mouth is pretty straightforward.
But as Joe talked about several times this morning about making sure that we have.
Availability and flexibility.
You know pushing capital out the door, two we repurchased bond.
I'm not able to get that back and given the uncertain environment that we're in.
I think are at this point in time, our focus on debt reduction will continue to be around the revolver not taking the other off the table.
But we want to maintain that flexibility until we get a bit more clarity and predictability and what the future may hold.
Okay. That's fair enough thanks very much.
Yeah.
Your next question is from Lin Shen with Heights. Please go ahead.
Hey, good morning, Thanks for taking the cow I just want to ask a quick question, so fully or a second half this year 16 million.
Sales volume and also.
2021, 17 million sales volume a contract volume what does what doesn't mix between Illinois basin and Appalachian coasts.
I'd say, the Appalachian coals or more exposed.
So.
The Illinois Basin has more contracted guns on a percentage basis and the Appalachian time.
Okay. So should we think about second half the percentage.
Or their mix it going to be same like a first off or are going to be maybe similar to 2019 level.
I'm talking about 2021, and when I made that comment.
Okay ours money, we're sold out.
So everything's.
Contracted for that we plan to produce and.
In 2020.
Got it and the I guess I'm trying to also ask that we would talk about maximize your margin or so how should we think about.
The margin between Illinois Basin, and a bunch of Cosan <unk>.
What is the best strategy for you at two to two to maximize their margin.
Always think about the mall, apalachicola, better or down or not really.
I think a key issue for Appalachia is the met market.
So weve sold around.
500 600000 tons.
And the met market.
And right now if you look at the prices for the met market.
They would be down year over year.
21 versus 20.
So we'll have to see how that develops I think on the export markets.
We have seen the dollar.
Depreciate recently I think it's at a 22 month low right.
I've seen projections.
Among the various banks that suggests that that's going to continue.
So the second half of next year potentially has another 10% decline so all that would help the export market.
I guess, that's one reason why you're seeing.
Yes.
The price.
Two.
You know show contango.
And to 2021.
Yeah.
Another factor to that columnist steam side is the.
Low natural gas prices this year versus next year, but.
But on the met side it all gets back to the economy and.
Steel production continues to.
The rather strong really as compared to.
The demand destruction leasing on the energy side.
As to what's going on around the world and global economy.
There's a lot stimulus dollars that are out there so.
Really get a stimulus bill for infrastructure plans it.
Well I encourage more steel production next year.
Yes.
Well the money being felt around that governments to try to get people back to work. So it's really hard to predict.
Thank you very much appreciate.
Your next question is a follow up from Mark Levin with the benchmark company. Please go ahead.
Okay, Yeah, great I think Lynn linguist kind of getting it on the on the Mets side a little bit.
I was trying to think about price realizations in the second half of the year, Brian any reason why they would be material changes from Q2 to Q3 in terms of price realizations anything going on from a mix perspective or some other reason or is this just kind of I know you guys had sold everything but maybe how to think about price realizations at least in the near term.
Yes, I think the mix, obviously I'm in the second quarter benefited from a higher mix of Appalachian relatively little more guys them.
I think if you look at the current expectations for Q2, three and four you're probably going to see average realizations closer to what they were in Q1 as the mix returns to a bit more normal level.
Okay.
That's great that's very helpful and then.
Liquidity I think you you boosted liquidity I guess 40 million so you're up it you're up around 300 million is there a minimum that you guys would like to keep on hand is there some targeted level where are you just feel like to run the business you need to me given sort of that.
The vicissitudes of the capital markets and the craziness of it that Theres, just a minimum amount you need to have.
I think we've said in the past that someone on the $250 million range work our way, okay. What we would like to target, but we can be able to some degree around that just depending on okay for the next from time to time.
Sure Okay, great. That's it thanks very much for all your time to.
Mark.
Again, if you have a question. Please press Star then one the next question is from Shelly Mcnulty with Loomis Sayles. Please go ahead.
Hi, yes.
Larry.
Earlier.
Thank you had referenced wanting thinking that you could potentially get back to 2019 levels and 2021 and that was excluding exports I just want to make sure I understand are you thinking that you could get 39 million ton of domestic volume.
21, and then on top of that any export can be an addition to that or where are you thinking.
The 32 million of domestic is kind of what you're aiming for in total for 2021.
For the latter I'm okay.
Okay agent.
Looking at message here.
Sales wouldn't know export sales currently projected.
Okay got it and then on me on the question with the debt repayment.
Right now <unk> revolver over.
Open market purchases.
Good choice to.
Pay down the revolver that wasn't influenced the at all by.
Your anticipation or maybe what you're seeing now I'm, having to up the letters of credit.
Needed for.
Surety bond security or anything like that can you just comment on that.
Oh It had no influence on that at all we have not at this stage, saying.
Significant increase in our.
Collateral acquired on our surety at this point.
Okay great.
That's fine that's all my questions. Thanks Bye.
Thank you.
This concludes our question and answer session I would like to turn the conference back over to Brian Cantrell for any closing remarks.
Thank you Gary we appreciate your time this morning, as well and everyone's continued support and interest on the line.
Our next call to discuss third quarter financial and operating results as probably expected to occur in late October and we hope you can join US again at that time. This concludes our call for today. Thanks, everyone for your participation and continued support.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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