Q2 2020 CONSOL Coal Resources LP Earnings Call
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Thank you call and good morning, everyone welcome to Consol energy and consult coal resources second quarter 2020 earnings Conference call.
Any forward looking statements or comments, we make about future expectations are subject to some risks, which we have outlined in our press releases and in resi see filings that are considered forward looking statements within the meaning of section 20 Onee of the Securities Exchange Act 1934.
It does not undertake any obligations of updating any forward looking statements for future events or otherwise.
We will also be discussing certain non-GAAP financial measures, which are defined and reconciled the comparable GAAP financial measures in our press releases and furnished to the FCC on form 8-K, you can also find additional information regarding the company's on our website www Dot Consol energy Dot Com and W. W.
Dots easier LP dot.
On the call with me today are Jimmy Brock, our Chief Executive Officer, Majestic car or Chief Financial Officer, and Jim Mccaffrey, Our Chief commercial officer.
His prepared remarks, Jimmy will provide a recap of our second quarter 2020 performance specific insights on marketing and operations and an update on our ongoing response to the cobot 19 pandemic.
But test will then discuss or liability management program financial result, cash preservation efforts and outlook for the remainder of 2020. After their prepared remarks, there will be a QNX session, which all three executives will participate with that let me turn the call over to our CEO Jimmy Brock.
Thank you night and good morning, everyone.
To this point 2020 has been extremely challenging year for us our industry and the U.S. and global economies.
We first out what the weak demand early in the year due to warmer than normal winter.
Then the cold, but not team pandemic hit us Oh.
Most economies across the world essentially grinding to a halt to try to stop the spread of this disease.
This led to an unprecedented destruction in energy demand specifically in the second quarter 2020 [noise].
From a demand perspective, Q2, 20 was the worst quarter that I've seen him up 40, plus year career and the most challenging market conditions, we've experienced in the 30 plus year history, other Pennsylvania mining complex.
The widespread government imposed shutdowns cost other covert not team pandemic created an unprecedented decline in energy demand both domestically and abroad.
In response, we idled or Enlow Fork mine early in the second quarter ran our Bailey mine on an as needed basis and went into cash preservation mode.
I'm proud of power operations and corporate teams responded.
As we quickly pivoted and pulling back on discretionary spending in an effort to protect our liquidity.
The finance team moved early to secure an amendment to our credit agreement that essentially provides us with eight quarters a covenant relaxation.
Well also preserve full access to our 400 million dollar revolving credit facility.
To be able to secure this amendment in a challenging market was extremely impressive.
We also want to thank our banking partners and investors for their overwhelming support and believe in us and our business.
As always we continue to place the safety of our employees and their loved ones above all else, we announced last quarter that we adopted enhance sanitation and social distancing measures at our operations and implemented staggered shifts reduced elevator capacities and mandatory temperature checks at all mine entrance locations.
Across our Pennsylvania mining complex.
We continue to improve upon these practices everyday and we are proud of the buying from the entire consulting and their dedication to safety.
We will continue to monitor the risk posed by the cobot not team pandemic and we'll take any additional steps that we deem necessary to keep our employees their families and communities say.
Before I dive into operational marketing details.
Let me now provide a brief recap for the quarter.
Despite the significant demand decline, we achieved several important goals during the second quarter.
The safety front.
We delivered a very strong performance as our Bailey mine by the preparation plant consolidating thermal and Hitmen project age had zero recordable incidents.
On the operation in marketing fronts, we faced significant headwinds from reduced customer demand.
However, we were able to leverage our operational flexibility to helped soften the impacts of these declining market conditions.
We work with our customers throughout the quarter to identify solutions to help navigate this extremely challenging situation.
These solutions, including partial contract buyouts and in some cases new feature business.
On the financial front as I touched upon already we completed a timely credit amendment. Additionally, our finance team continued to focus on cost reduction and liquidity conservation, which resulted in limited cash burn despite a significant decline in shipment volumes compared to Q2 of knotty now.
Let me provide our second quarter operational performance.
Coal production at the Pennsylvania mining complex decreased to 2.4 million tons in Q2, 20, compared to 7.2 million times and the year ago corridor.
The decline was due to a significant reduction in customer demand as most global economy shut down due to cold it not team pandemic.
We also ran at a significantly reduced operating capacity seek into mass production with demand.
Rich have to Pennsylvania mining complex CCR produced 600000 tons of code during Q2, 20 compared to 1.8 million tons in the year, though quarter.
On the cost from.
Our average cash cost of coal so per tonne was $25 a 90 cents in Q2 of 20.
Paired to $31 in seven cents in Q2, if not team as our operations team was successful in keeping tight control over Cas expenditures in the quarter.
The adjustments, we made two operations allowed us to reduce our overall average cash cost of coal so proton on a producing assets and to partially mitigate the financial impact other reduced production volume.
Improvement was primarily driven by lower mine maintenance and supply cost contractors and purchase service cost and subsidence expense.
The consolidating terminal headed throughput volume of 1.6 million tons during the quarter compared to 3.7 million times and a year ago period.
Despite a decline in shipments our terminal revenues for the quarter were only modestly impaired at 15.9 million compared to 16.7 million into your though quarter.
However, cash operating costs were improved to 3.8 million versus 5 million into your go period. That's the tomorrow employees also successfully limited their cash expenditures in Q2 20.
Let me now provide an overview of the coal markets and an update on our sales performance and accomplishments.
There is no sugar coding how difficult the second quarter 2020 was from a demand perspective.
After a tough start to the year, where coal demand was impact impacted by mild winter weather and low natural gas prices. We were then hit with the widespread government imposed shutdowns of non essential businesses due to the covert not team pandemic.
On a year to date basis. They shut downs peaked in the second quarter as most global economies essentially shut down for multiple months to curb to spread the krona buyers.
This resulted in an unprecedented decline in energy demand as an increase in residential energy consumption couldn't nearly replaced a decrease in the industrial demand.
On the power prescribe average PJM west they had power prices or 28% lower in Q2 of 20 compared to Q2, if not team.
Additionally, Henry hub natural gas spot prices averaged $1.70 per million beat to you during the quarter, which was down 34% compared to Q2, if not team.
These low natural gas prices and the overall demand decline resulted in a substantial reduction and coal burn into us.
Which led to increased coal inventories for our customers.
Similar to the first quarter of 2020 this translated into reduced demand for our coal and led us to complete several contract buyouts in the second quarter.
As we sell to help our customers manage their inventory levels.
We leveraged our strong contracted position in the quarter to negotiate these buyouts, which involve the early termination of a portion of several customer contracts in exchange for payment of certain fees to us during the second quarter and contributed 30.1 million to our miscellaneous other income.
Substantial buyouts were key to helping us limit our operating cash burn in the quarter.
On a positive note the is estimating a significant domestic supply response in 2020 and projects a 29% decline in us coal production versus 20 not team.
Additionally, low natural gas and crude oil prices have led to reduced activity in capital expenditures for MP companies.
Hi, Jeff market reports that active U.S. gas rig stood at 76 in early July down from 174, a year ago and down for more than 200 active rigs in January of 2019.
As a result, several industry observers now expect natural gas prices to rise above $3 per million beat to you in 2021 as gas production declines due to lack of capital spending.
This is leading to forecast of an additional 100 125 million tons of incremental domestic coal burn and 2021.
Finally, we believe the lack of investment across the co space will limit the coal industry's ability to quickly ramp backup to meet this demand.
This could be very advantageous situation for us as we prioritize keeping our minds, well capitalized and strong markets, which gives us the ability to scale up very quickly.
The export front, we began the year with the intent to ship nine to 10 million tons export in 2020.
Through the first quarter, we were on pace to accomplish that but 2.4 million tons shipped.
However, in the second quarter, we shipped roughly 800000 tons.
This was entirely caused by the worldwide economic shutdown created by the coded mounting pandemic.
It is important to note that these times were not replaced by other times or other fields that were lost due to unprecedented demand destruction.
Global demand begins to recover and India's retail season restarts as monsoon season comes to an end demand for our product remains strong.
We have started receiving inquiries again, and we expect steady recovery for the second remainder of the year.
From a marketing perspective is encouraging to see that demand for our coal has steadily improved month over month since may which was lowest point of demand for our coal this year.
This recent demand improvement has allowed us to restart one longwall at or Enlow Fork mine. After it was out for most of the second quarter.
We continued to maintain 100% of our existing customer base and have begun to see improvement from a contract in perspective beyond 2020.
We announced this morning that during the second quarter 2020, we successfully contracted 4.3 million tons for the 2021 to 2024 period.
We are now 49% contracted for 2021, assuming a 26 million ton run rate and not including any potential 2020 deferrals.
We're also fully contracted for 2020, but we understand the significant uncertainties uncertainties that will just in the marketplace.
We will remain flexible and we'll continue to work closely with our customers to manage our respective contractual obligations with that I will now turn the call over to test to provide the financial update.
Thank you Jimmy and good morning, everyone. Let me start by providing an update on our liability management program and credit facility Amendment I will then review our financial results for two acute Wendy and touch up on our cash preservation of folks and second up 2020 outlook.
As we've stated all your top broader do you put 2020 watts to remain laser focused on improving the risk profile of our balance sheet, but reducing our outstanding debt and creating long term value for our should see I actually had holders MCC ought to unitholders.
In the near Tom You also realize how important liquidity is during these uncertain times since the beginning of plenty plenty, we have taken several steps to reduce our outstanding debt and capture the arbitrage that exists between different financing costs, while maintaining strong liquidity.
Let me know summarize some of our key liability management initiatives since the beginning of the.
In the fourth quarter of it significantly reduce spending on out admin project, which the for $25 million of Capex. We then devoted that spending towards buying back approximately $43 million up second lien.
Notes at a significant discount to par value, which helped reduced our leverage introduced annual interest expense by nearly 5 million.
In the second quarter, we suspended Ccs gas distribution go all unitholders, which resulted in annual cash conservation of approximately 22 million foresee.
And approximately $58 million RCC.
You know our willingness to keep the mines, well capitalized and strong markets as we did in 2018 and 2019, we are now able to reduced capital spending at the Pennsylvania mining complex to 75 million dollar this year and approximately 50% decline from 2019 levels.
On the financing front really is approximately $29 million of capital through a sale lease back and multiple finance leases in the first half of 2020.
And last but not the least we proactively work with our banking partners and done on the investors to amend our credit facility early in the second quarter, which effectively provides us with eight quarters of covenant relaxation. While also providing continued access to a 400 million dollar to Wasnt credit facility.
We also added additional flexibility to repurchase outstanding secondly, north without a leverage test.
During this unprecedented demand decline brought on by the covenant and in pandemic.
Keeping full access to our revolving credit facility cannot be understated.
Thank our bank group working with us as we navigate these challenging market conditions.
Additionally, our credit Amendment also included amending the affiliate loan facility between CCR Agency.
Rich and don't also provides CCR with eight quarters of covenant relaxation and continued access to its 275 million dollar intercompany loan with consult energy.
Given the uncertainty in the marketplace.
Continued access to liquidity and financial flexibility you little bit better I'm on for both companies moving forward.
Although the amended credit agreement also allows us to repurchase up to 25 million up our second lien notes without a leverage test we did not execute any buybacks in the second quarter given the uncertainty created by global economic shutdowns, we decided to Brazil. Our cash however, restore to talk 14 million of outstanding debt in the second quarter of 2022 required.
Nations.
In the quarter.
We made to repayments of 7.2 million 6.3 million when 700000 on our asset backed financing arrangements Donadoni Domino would be respectively.
Our goal is to have significantly lower level of debt. The board. Our 2024 don't be matures and we will continue to strive towards that goal with that let me now recap our second quarter 2022 is ours, but it will you see exposed NCC.
CX supported a second quarter 2020, net loss attributable to see upshot overdose of 18 million or 69 cents per diluted share compared to net income of 43.3 million or dollar 56 per diluted share due to 19.
Ceocs also reported Twoq trendy adjusted EBITDA of 34.2 million, an organic free cash flow of negative 24 million, which can best to 112.9 million and 34.8 million respectively. The yoigo quarter. The significant decline in our earnings metrics compared to the automobile to that as part of the unprecedented demand decline experienced in the second quarter.
In Twoq, Wendy we use $4.7 million of net cash flow on operations and spent 19.3 million on capital expenditures.
As a result, CX ended the second quarter with negative 24 million of organic free cash flow.
Our cash flow from operation included a working capital use of 19 million due to significant decline in our accounts payable balance.
$10 million semiannual interest payment on our second the notes.
We ended the quarter with cash and cash equivalents of 33 million down from 78 million at the end of the quarter.
Notable cash outflows during the quarter included approximately 19 million in cash interest payments.
Approximately 14 million and mandatory debt payments and approximately 8 million and transaction costs related to the reason do discussed amendment to our credit agreement.
We also incurred 31.8 million and cash idle costs into 20, However, our 30.1 million in contract buyouts to essentially offset this expense.
After accounting for these items, we had a net cash burn off approximately $4 million into quarter.
This also accounted for all capital expenditures and working capital adjustments as well as the remainder of the operating cash flow.
While the quarter was ultimately disappointing from a shipment and cash flow generation standpoint, it was encouraging to see the response of the team and its ability to manage and preserve cash when times were tough.
The time at the end of the quarter, we've had in full compliance with our credit covenants and currently mint in full access to our revolving credit facility.
Now, let me update you on CCR.
This morning, CCR reported a net loss of 7.9 million adjusted EBITDA of 6 million and distributable cash flow negative 4.7 million for the second quarter.
This compares to net income up 14.4 million adjusted EBITDA of 27.6 million and distributable cash flow $16.8 million, respectively in the auto quarter.
In Twoq, you trendy CCR generated 6.5 million in net cash from operating activities, which included a 2.8 million improvement in working capital.
After accounting for 4.1 million in capital expenditures, and 1.6 million and finance lease payments were able to modest introduce on outstanding debt on the intercompany loan with CEO X by 1 million in the second quarter.
Nonetheless, due to continued reduction in the trailing 12 month EBITDA CCF finished the quarter with a net leverage ratio of 2.9 times.
Now let me we wanted to providing some color on what we expect for the remainder off twentytwenty.
Given the difficulty in forecasting the duration reality of the corporate 19 pandemic and the resulting economic slowdown in energy demand decline, our twentytwenty guidance remain suspended at this time.
However, let me provide some qualitative guidance and comments on how the third quarter is progressing.
On the operational front you may have noted that much of the second quarter and look forward idled.
And the Bailey mind round sporadically, we're pleased to announce that one longwall or download for on resumed operation in July.
Also one long water to Bailey mine and one on one of the how do we mined brand consistently in July this allowed us to ship more coal in July than we shipped in May and June combined.
Earlier this month, we also restarted our fourth longwall.
Which is the second long what are the Bailey mine, we expect August to be significantly improved compared to July even though we have to longwall moves scheduled for the for the month.
It seems like shipments are now returning to more normalized levels, but a lot of uncertainty still exists.
With Gordon Vexing still little rising domestically and globally, we remain cautious and we'll continue to the mean market driven staying focused on cost containment and managing liquidity will be a top priorities.
On our last earnings call, we laid out some targets, which call for nearly $100 million in cash savings. These targets included as Dziennik cash interest and tax related spending as well as nearly 50 million dollar reduction in capital expenditures versus 2019 figures.
We have made good progress on these fronts and we believe we can achieve an additional 25 million dollar reduction in capital expenditures compared to 2019 levels.
As we brought it ties cash preservation.
We also expect a 13 million dollar reduction in gaseous DNA expense, which is above the eight to 10 million dollar target, we laid out last quarter.
Let me now I'll provide some additional color on our liquidity position.
We ended the quarter with $346 million up liquidity the reduction in liquidity compared to the fourth quarter was driven by reduced cash on the balance sheet and an 8 million dollar reduction in availability under our securitization facility.
As you can imagine availability under our securitization facility is a function of quantifying accounts receivable outstanding and in this case was based on the receivables outstanding at the end of May which was already low shipment month.
We anticipate that August will be a significantly higher shipment month come back to me and that the availability under the securitization facility will also increase acting as a tailwind for liquidity at the end of peak 20.
Another potential source of liquidity and cash flow for SIIA NCC.
Could come from soda and transactional opportunities. We are currently pursuing several such opportunities that could bring in significant additional cash flow.
And EBITDA contribution during the second half of Twentytwenty.
Given the nature of these ongoing negotiations.
We will not be able to disclose any additional information about these opportunities at this time stay tune.
With that let me turn it back to Jimmy to make some final comments.
Thank you much cash.
Before we move onto the Q a nice session. Let me take this opportunity to let some of our priorities for the remainder of 2020 and address our plans for navigating the uncertainty we're facing and the current economic climate.
First and foremost safety will remain our top focus and we will continue to adhere to our adjusted procedures and protocols in order to keep everyone say and prevent any unnecessary exposure to cobot not seen.
We will continue to focus on implementing our enhance cleaning and disinfecting practices and our minds, both on the surface and underground.
Corporate staff has proven its ability to work remotely very effectively.
I continue to be impressed by our employees and their willingness to embrace these adjustments I. Thank them for continuing to place safety above all else.
For 2020, our major focus of strengthening our balance sheet and bolstering our liquidity will be Panama as we navigate these uncertain times.
In order to maximize our liquidity and ensure compliance with our covenants. We were taken all hands on Dec approach and we will remain laser focused on managing the things that are within our control. This involves adjusting our cost structure and operating schedules to best align them with demand and preserve margins.
Working closely with our customers to manage shipment and inventory levels as well as contractual obligations.
Maintaining operational flexibility and limiting any discretionary spending.
We will continue to pull as many levers as possible to strengthen our balance sheet and preserve cash flow.
Also if we began to see sustained demand and as market conditions warrant, we expect to revert to our strategy of Opportunistically, taking advantage of the significant discount and the process of our debt securities.
All of these things are within our control and we believe we have the tools necessary to manage our way through this market.
Finally, we have begun to see improved demand beyond 2020 and are currently 49% contracted for 2021, assuming a 26 million ton run rate and not including any potential 2020 deferrals.
We're also forward contract you for 2020.
But will remain nimble and willing to work closely with our customers as we weathered the storm together.
In summary, our key priorities for the remainder of 2020, our first to ensure the health and safety of our workforce their families and communities in which we operate a mix the ongoing cobot not team pandemic.
Secondly to safely and compliantly produce our high quality coal at the lowest possible costs.
Third to continue to prioritize our liquidity through cash preservation and controlling the things that are within our control fourth to continue to improve our balance sheet and manage our liquidity and finally to work with our customers to ensure that the long term nature of our relationships continue as we navigate this pandemic to go.
One final island before we move onto the question natural portion of today's call.
As disclosed in our 10-Q filed this morning. It is with mixed emotions that on announced that my good friend and colleague Jimmy Mccaffrey is retiring.
James contributions to the success of console Inergy over the last 40 plus years have been remarkable and significant.
Why I'm, certainly thrilled for Jim and his family.
I will miss his experience in wisdom.
With that I'll now turn the call over to Jim for a few comments.
Thank you Jimmy and good morning, everyone.
After nearly 44 remarkable years with console energy and this great industry.
Elected to retire October Onest 2020.
This decision does not come lightly I had plans to retire on two previous dates, but both times Jimmy encouraged me to stay.
As many of you know back in 2015, I was diagnosed with Parkinson's disease.
Tom Jimmy I agreed did if my health faltered I could move on.
I am not running away from this market or this company.
But I feel myself slowing down and others see this too.
So its time.
And we have a succession plan in place does allows me this opportunity.
In fact, I have great confidence in the future of console. Therefore, I feel it's best to leave the marketing and sales to Bob very lightweight and Dan Caudle, who are extremely talented and capable.
I also consider this combination to be the very best in the business along with our experienced marketing team.
I still expect to spend some time around the business. So I still have to see my many friends and Nicole community.
Hi, unfortunate that these friends include co workers analyst investors in bankers suppliers and vendors transportation partners are great customers and yes, even capacitors.
Hi, Thanks, Jimmy in all of the women and men of Consol energy for great career, and even a better life.
And finally I want to thank the American coal miner, particularly those that are Pennsylvania mining complex. These men and women have been the true heroes of my life and should be celebrated as the American heroes of the truly are God bless you all hope to see further on up the road.
Thank you, Jim and congratulations to you and your family, we will now move to the Q and a session of our call coal could you. Please provide instructions to our collars.
Absolutely we will now begin the question and answer session.
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Your first question today will come from Lucas pipes with B. Riley FBR. Please go ahead.
Hey, good good morning, everyone in particular, Jim I will be Mr., John on these conference calls and your insights.
A year.
Okay. Thanks.
All right.
Good.
And.
Jim maybe maybe you can kind of turning to the market first kind of what's what's your sense for the appetite.
There were some comments along those lines prepared remarks, but.
When you think about sales book today and and.
Where it stands at 2021.
What needs to happen to to make sure that.
I'm sorry.
And then a follow up some there thank you.
Well first of all.
As we've stated in our remarks.
June was certainly better than May and June July is better than June and we anticipate that August will be better than July.
So the weather that we've had a good summer weather.
The slow increase into gas price has benefited the most of our customers all of our customers.
And so we're seeing a much better burn much better capacity factors today, and we saw just a few months ago. So so that's encouraging as Jimmy said.
No in the 49% do we have sold for 2021, we don't have any carryover in that number we're anticipating that our domestic customers are going to take all of their all of those shipments or at least the vast lives share now again, there's a lot of uncertainty due to the covered situation but.
That's our view today.
And on International front.
We see inquiries picking up.
You know from the time, we took this company on the road, we said that we had the capability of pivoting from the export market to the domestic market. It back again, better more cost effectively more efficiently than anybody else into business and that has not changed but would change.
Then the second quarter was as there was no place to pivot to those just no place to go international markets just kind of SAIC.
And.
We're starting to see those rebound.
We're seeing activity in India, we think that as the year moves on to our into next year, we'll see some opportunity in Europe, again, and and southeast Asia. So we're seeing that.
We're fully contracted for the rest of the year, but.
You know our clarity is not perfect in terms of those international marketplaces, just yet, but we think.
As we get into third quarter and get to the next call, we'll be able to provide a lot more clarity that we can today, but but.
I'm encouraged by the last several weeks and the last month in the marketplace.
Hi, I appreciate that color and can you mentioned you're fully committed for the second half.
Would you be able to share.
A number in terms so.
Tons of coal committed.
And if there's any pricing around that.
Well we.
I'm kind of looking for committed volumes for the second half.
I would imagine that they're quite elevated.
What has been asking in first half.
Okay.
Well you know I learned a long time ago I don't belong into prediction business and this year's tougher to predict an ever but you know setting the buyouts aside.
We had 25 million tons contracted for this year that has not changed.
And we expect to get the value out of our contracts and we expect to deliver the value that our customers expect from their contracts. So.
That's that's what we're looking at Lucas.
I appreciate that thanks, Thank you and then.
Hello.
Question for cash maybe broader team as well but.
[music].
On the transactional opportunities.
I appreciate you don't want to get too much into that Weve side.
Could you provide a rough.
In terms of.
There are mountains, you're looking for kind of either on a single transaction in the aggregate any just kind of.
Pardon.
Good.
Thank you.
Lukas like I said like.
There are multiple opportunities, it's not one or two so it's hard for me to predict I mean, all of them I'll go to execute some could it happen in second half some good happening.
First off of next year, so it's hard to put a timeline and schedule around it but I think.
It's fair to say the these are meaningful opportunities and not just for lack of about award of small small amounts we're talking about here.
And kind of where which puts the threshold of meaningful tens of millions and millions.
Thank you could say tens of millions and the one good thing about it Lucas is these opportunities that are out there fit well within our strategy doesn't really affect the core part of our business and we believe that moving forward. It's at very high likelihood at least half of these will happen and that's about all we can say at this point.
Very helpful. I appreciate.
That that information very much and.
Jim again, congratulations I will Miss you and everyone best of luck. Thank you.
Thanks Lucas.
Okay.
And our next question will come from Mark Webber with Benchmark Company. Please go ahead.
Okay, Great, Yes, first things first Jim Congratulations we're going to Miss you very much I hope you enjoy retirement.
Can't tell you how much I've enjoyed getting to know you over the years and wish you wish you all the best.
That's very kind of Umar facts.
Absolutely and I know the sales team has and is in good hands with with Bob and Dan I'm sure you've you've trained them very well.
Let me let me move first two question from potentially if I can the tests are you confident I know you you lowered the yes, yes, the capex guidance again, I know there a lot of different moving pieces, but do you feel at this point.
You guys will be able to generate at least breakeven organic free cash flow in the second half of the year.
[music].
Mark I'll like Jim said like down a lot of moving parts with with respect to shipments then everything else, but yes. It is possible that do all we are going to have.
Free cash flow in the back half of the everybody again everything depends on the shipments, but as we sit today and.
And the looking glass that we have although it's not ask clear, but I think.
That's definitely what we're shooting point here.
Okay, great and related to that point, maybe this is forgive me. If you are comfortable what were you.
You just kind of taking to the July or the August kind of production run rates.
Would you be comfortable may be sharing what what those annualized to im just trying to get a feel for obviously doesn't look like you'll hit 25 million tons. This year, but just trying to figure out like what the operations are running at an annualized basis to get a feel for kind of how how how far along you guys are post the trough.
Yes, Mark I'd say, it's kind of hard even for us to annualize the numbers today, but it is encouraging as Jim Caf instead. It earlier, we did restart our fourth longwall. This morning, and as we move forward. If we continue to get these inquiries and we see some the inventory levels coming down and obviously with.
The borrowing capacity of what has spent the last two months, we're very hopeful that we can get back to somewhat of a normal run rate.
In the second half of the year now there are lot of uncertainties that are still tied to that one is you know our export is a big piece of our business. So what happens there with the coal, but not team situation and others is a big part of it but we are encouraged stat moving forward, we will be able to get back to somewhat of an.
Normal operations that we pad and we certainly like to see the natural gas prices moving higher that should help even further going into 2021, but for the second half of this year as in the test said in his remarks, it's very hard to give a whole lot of quantitative guidance due to all the uncertainties that are there.
That makes sense, where maybe I'll ask a qualitative question then obviously natural gas prices have moved a lot higher and if you look at kind of the calendar 21 prices there, even even higher than that and we've clearly seen a lot of nap production go lower I guess, that's the good news on on the bad side I guess, there's still a lot of inventory still sitting.
On the ground maybe record inventory.
If the present dynamic were to continue meeting gas prices, where they are right now are getting better as.
The contracts kind of move into future and production kind of stays where it is and if the weather is normal I realised three major major issues there, but how long do you think it would take to get the market back to some sense of supply demand balance if you had to venture a guess from what you see.
Hi, My Best guess at this time, if I were trying to give you a straight answer which I will.
Mark is somewhere between three to six month I think if you look at our domestic customers that here, they're somewhat getting back to normal faster than we anticipated that's because of the weather in the burn obviously, but I would think it's probably three to six months before we see those inventory numbers levelize to a number that we feel comfortable fourq.
Test and going forward.
That's great Great Haven, then last and final question for metastasis.
I think I heard it correctly, but I just want to make sure did you mentioned in your remarks and potential DNA going forward kind of at the $8 million to $10 million level did I hear that right.
No I think what I suggested well actually.
That was the remark I made in comparison to last year that earlier, we forecasted eight to 10 million dollar decline now we are forecasting $13 million decline. So on a quarterly basis I think mark you're still in the zipcar, but it's it's in a different way then I I push out it.
Got it perfect great. Thank you for the clarification and absolutely best of luck, particularly Jim.
Thanks, Mark to Mark.
And our next question will come from Matthew fields with Bank of America. Please go ahead.
Oh, hey, everyone and.
The best of luck in retirement Jen.
Thank you Matt wanted that wanted to ask about.
Bonding requirements first of all some of your peers have sort of mentioned the discussions with insurance companies heading into the third quarter.
Requiring some increased collateralization have you.
Had similar discussions about the about that into.
August.
Are you talking Youre talking about surety bonds right yeah.
So I think you might have noticed for.
For the quarter, we did not see any inquiries into end up long ago requirements. I mean, we did have caused with a lot of our surety providers.
Even while we were going to the amendment of the credit facility and stuff like that generally everybody is comfortable.
We're not seeing any significant increase Dan.
So you have somewhere.
You could see for different reasons somebody needing more collateral is somebody giving up some collateral. So we're seeing some natural sean but not any significant increase.
Okay.
Thanks for that that's helpful and then on the.
On the transactional opportunities.
It sounds like.
You are saying sort of a lot in the tens of millions not nothing like any kind of major sale lease back some of your.
Some of your infrastructure, no ability like CMT or at all or something like that.
No.
This these are more like asset sale, it's all right of way as we own a lot of land that have some land transactional opportunities.
Those kind of stuff.
Okay.
A sale of sale leaseback of console Marine terminal at least on the discussion block has that.
You are producing 40 million EBITDA at least now obviously, we'll see what the future holds but that's a pretty valuable assets I could use.
Reduce alarmed.
So it is not part of the opportunities that we were talking about but.
Got a public company and we are open for business like.
We look at everything possible and if that is an opportunity that.
We definitely consider Ed.
Hello.
Yes, I'll add to that it's a business strategy move we've had several inquiries about the Baltimore terminal that we have evaluated over time, but keep in mind. That's also a critical piece of our business as well. So it would have to be something very attractive for both of us and we still would have to have a way to use that Tom on our business going forward.
Okay. That's fair and then and then lastly, just a follow up on the on the new credit agreement.
Just just I want to make sure I am reading it right.
It seems like.
You you don't have any more capacity this year for second lien repurchases, but you refresh 25 million Bucks on on January Onest 21 is that the right way to think about it.
Because your because you're not under two times net leverage.
I think the 25 million refers to the way it was structured as we had a share repurchase bucket of 25 million, which has annual we have not use any of that this year.
And what we did as we created an ability to buy back our second lien through that share repurchase bucket. The share repurchase is subject to leverage test, but the second lien has not so we can do second lien buyback through that bucket.
Okay all right.
And that's a one time as opposed to the 25 annual spend annually, calling it is an annual bucket so to the pressures that we.
Got it.
Right.
Okay.
Thanks, very much and good luck in the in the back half here.
Thank you Matthew.
And once again, if you'd like to ask your question. Please press Star then one.
Our next question because they can start music with Stifel go ahead.
Hi, Thanks for taking the questions.
First one with the 2021 contract book.
Rationally can you give us a sense for whether pricing was up or down or flat on a like for like basis.
We're in the middle of several negotiation so for from a competitive point of view I don't really want discuss price, but I will say this if you look at the published markets.
Coal desk and evolution primarily.
The tons, we booked are better than the published markets of advertised.
Okay.
All right.
And then for 2021 Capex, how can we think about that relative to the 2020 spend.
We have obviously, we don't ever 20 for anyone guidance out there for Capex, but.
It is depending on how the market conditions play out of I think we're going to be mop market driven like we obviously, the Florida lot of the Capex, particularly on the growth side, the CR and if the market.
Turns out to be one wed be able to go back into.
Some growth Capex here.
That would probably moved the needle I think on the maintenance side. This year, we are demonstrating our ability to run it are very low level of maintenance Capex, we have done that in the past and again.
Nick will have to see how balance off 2020 plays out to give you a better color, but we can continue to run on the maintenance Capex, if we need to and one thing I'll add that I'll add to that Nick as.
We said many times before that we are well capitalized in the Pennsylvania mining complex, we are and that we would our capital spend would be tied to the demand and how we run operate the coal mines has certainly been a case as the volume pulls back even in years past, you've seen us adjust that capital spend to come back and the one benefit.
I'll say that you get from that moving forward as we learn from every one of these exercises. So we like to think that our capital stays around $4 a time moving forward and the team has done a really good job of balance Adam We think we can do it moving forward.
Yes.
And then final question just on the ex coal contracts on the.
His questions there.
Is there any update you can provide.
Well.
Let me say this we have booked some tons for the second half.
Both with X coal.
And with the third some third party players.
All of those tons of in booked on a spot basis, but by no means are we willing to give up on their skol contract for this year.
Or in the future. So we expect to get our value out of the contract exco expects to deliver.
We should have more clarity about that is as we get into the next quarter.
Yes.
Yes. It was your question more on 2021.
We've got the volume contract Poland than the.
Terminal contracts as well so that's what I was asking about like.
Are you asking about renewable renewal lot audio asking about the existing track.
Renewal.
Okay as far as renewal.
Both both those discussions of kind of meshed together, Nick but we will be continuing to talk Tesco. One thing we will be paying attention to is if we want to keep the same concentration level that we've had in the past.
So.
Again stay tuned.
Okay. Thank you.
Your next question will come from Michael deals with vertical research. Please go ahead.
Hi, good morning, everybody and Jim Godspeed.
Thank you Mike.
For Jimmy or Jim.
Could you just maybe update us on as your customer base for your coal.
Your thoughts trends, what you're hearing about plant closures.
You know load factors and looking at Neal maybe two three years out or do you still have a pretty secure visibility on your your ability to serve those types of customers and our some of those customers looking at what's going on from the supplier sector of the side certainly wanting your off after we get through this.
You know uncertainty on demand a wanting to get more.
Aggressive with.
Partnering with you as we get out the other side of this.
Well I would say no to start we are certainly concerned with the closure of power plants, particularly the ones have been accelerate but when you go back to our original strategy that we want to serve these core must run power plants, we still feel very good about the relationship.
With those customers, we've been able to ship Tom and we believe that you know if we can have a normal summer followed by normal winter, maybe even followed by normal summer after that and we can get these gas prices you know backup to acceptable levels. Then we think we're going to remain apart that energy mix and we feel pretty good about where we.
We are there with these customers, but with that said you know that's one thing that's why the export markets very important to us as well, but we continue to believe that we're going to be able to provide a low cost steel and be a part of the energy mix going forward.
Let me just add onto that briefly Mike.
Oh, we announced this morning that we booked 4.3 million tons in the second quarter for 2021.
And those 4.3 million tons extended from 20 to 24, so obviously, we booked some term business there.
We're deep in conversations with a couple other key customers about term business.
I am.
There's a lot of uncertainty in the marketplace, but I'm relatively optimistic that we will find a way to get those done and new there will be beneficial to both us and the customer.
I appreciate that just my follow up would be.
Your updated thoughts on in manual pace of where you are obviously with the.
The slowing down.
Turning to from a spending side.
The market that you see any any visible I mean, we're all looking for visibility but.
As you think about plans on in Maine is a 12 month delayed is it a market driven delayed high just how how thats going to fit and as we kind of merged with us.
Well it men as a project that you know we're really excited about it's going to be the best quality around when it comes to low vol. Metallurgical coal. However, we do have a capital allocation process and we have followed that so the highest rate of return you know on our investment right now is probably.
Debt securities. So we have deferred or literally stop most of the spending on the IP and project now we are continuing what theyre very very low cost exploratory mine and as I called it before it's very low volume tons. One crew. Once you have today, that's working there now, but we will not be spending a lot of money on Hitmen movement.
Forward until we have a better idea of where the market is and timing of what we need to continue that project.
And just so you know it's not really a question around it meant economics, it's more of a capital allocation question for US I think it's a great project. It's just that when your cash gets most banks floating spark.
I just wanted to get that confirmation gentlemen, thanks, so much in the best of luck Jim.
Thanks, Mike appreciative.
And this will conclude our question and answer session I'd like to turn the conference back over to date in Tucker for any closing remarks.
Thank you call. We appreciate everyone's time this morning, and thank you for your interest and support of Cmax and CCR hopefully we were able to answer most of your questions. Today, we look forward to our next quarterly earnings call. Thanks, everyone.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.