Q2 2020 Ramaco Resources Inc Earnings Call
Ladies and gentlemen, please remain on your line the Ramco resources second quarter 2020 earnings Conference call will begin momentarily once again your conference call will be momentarily. Please remain on your line. Thank you.
[music].
There will be a question and answer session.
Good question. During this session you will need to press star one on your telephone.
If your party further assistance. Please press star zero isn't that my pleasure to introduce Chief Financial Officer Jeremy.
Thank you.
On behalf of Ramco resources I'd like to welcome all due to our second quarter 2020 earnings Conference call.
With me this morning, as Randy Atkins, our executive Chairman liked our SAP Star, President and CEO and Chris Blanchard, Our Chief operating officer.
Before we start I'd like to share our 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 concerning future events and that as possible that results discussed will not be achieved.
These statements are subject to risks uncertainties and other factors many of which are outside of Ramcos control, which could cause actual results could differ materially from the 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.
Lastly, I encourage everyone on this call to go onto our website Ramco resources Dot com and download today's investor presentation under the events calendar with that said, let me introduce our executive Chairman Randy afterwards.
Thank you Jeremy.
As always I want to thank everyone for joining us today to discuss our second quarter two results.
We're trying something a little bit different today, given the the current situation by we're calling in from essentially two different parts of the country Barber management team is in West Virginia part of our management team is now in Wyoming.
So I.
I started last quarter's call by quoting some Chinese proverbs about operating and interesting times.
I'm not sure how to characterize this quarter other than by saying I'm sure. We want all like to never repeat the experience of operating in this kind of an environment again.
First I want to point out that Perama code. This quarter reflects only two months of economic activity for us not three.
We were essentially closed for much of the month of April and that in itself is a condition of course, we have never to repeat.
Under the outage that sometimes it's better to be lucky than smart. It's also true that sometimes you get lucky by working hard.
And I think all of our team worked extremely hard and creatively last quarter.
Fortunately despite all the overall macro conditions, we were able to pose to financially solid first half in second quarter.
As you know.
On the numbers, we booked EBITDA roughly 19 million in the first half and almost 11 for the second quarter.
This is up about 30% quarter over quarter.
Net income also bumped about 35% for the same period and of course, Jeremy will follow me with some more granular detail on economic and financial statistics.
One unusual item there was an April was that we received approximately 8.4 million in.
TPP or paycheck protection financing from the U.S. Treasury.
As a result, we have been able to book 7 million of that this quarter as other income.
As a result of securing that facility. We brought back about 200 miners that had been furloughed in late March given the effects of the pandemic.
That financing has now been completely expanded on qualified expenditures. We have also been advised by both our auditors and outside counsel that based on recent clarify accounting standards. We could treat this is other income this quarter since we properly qualify under the BBB for expected loan forgiveness.
We will be applying for such forgiveness. Later this year for discussions we've had with our PPP agent Bank and Jeremy again can certainly supply some additional detailing accounting treatment.
When we looked at our operating results for the second quarter. During the month of May and June when we actually did operate.
We had strong cost results at Elk and booked mine cost of about $64 per ton.
We also managed to increase our liquidity this quarter by about $13 million.
Which came from funds received from the PPP facility in a separate equipment line.
And we continue our central focus which is to remain very conservatively geared.
Sure. It arrived this market turmoil out and be poised to react with some degree of financial as well as operating agility when the market conditions seem to normalize.
And with respect to the market in general or there are some macro trends, which we pointed out in our earnings release, which could lead somebody to become modestly optimistic.
Right from our perspective that that optimism is tempered by heavy dose of humility.
There are uniquely way too many unknowns at this play at the moment.
All of which are outside of normal market forces, which temper and ability to really make much clarity in terms of prediction.
In reality, it would be pretty foolish to provide any meaningful strong sentiment on where the market. We'll move on a forward macro basis, frankly, even six weeks they had much less six months or a year.
But with that being said the tea leaves are out there for any of us to read.
And I'll provide just sort of a shortlist of some of the headlights, we're looking at.
First of all general economic conditions, the U.S. seem to be creeping forward there somehow looking for a reason to have some continued momentum.
Steel capacity.
Is up about.
59% Utilizations last month.
You asked manufacturing and passenger cars has jumped from about 2000 units in April to about 140000 units in June.
Which is clearly below the 200 some thousand units for the same period of 19, but that trend is probably what the U.S. steel groups are now looking at as they restart blast furnaces and certainly you're approaching the 2021 domestic tender season.
The forward curve is telling you that hope maybe around the corner the curve pricing in first quarter 21 is now about honored the $36 a ton Fob Australia.
Against current spot of about $107.
That's about a 25% upward bet on I water worldwide recovery.
Turning to China, the Chinese arb between domestic import into imported met coal hovers around a record $50 a ton and certainly China's domestic steel production has essentially fully rebounded.
And lastly, the same supply constraints, which had been hanging around the who ball year have now no doubt become aggravated by current market conditions, you've now got three demons.
One is the extremely lousy market pricing conditions, you combine that with the fact that most producers have higher mining cost per ton than us and add to that the fact that most producers have little or no access to any new liquidity.
This is kind of a perfect storm designed to precipitate some degree of supply contraction at some point.
And one of my favorite one liners is that the market can always remain.
Rational longer than you can remain liquid so we'll see.
It also goes without saying that the the dance of the 2021 domestic tender season is now upon us.
We have submitted I guess the last one this week of all our final bids for both high Vol and low vol Kohl's.
And I will again.
This year Sadly disappoint Lucas pipes to I suspect is on the line and not provide him a list of either our customers our bid prices.
But as you know we have successfully executed in the domestic markets over the past few years, hopefully, we'll be able to do so again this year.
And I'm sure by the next time, our next earnings call rolls around we'd be up we will be able to report on frankly, where everybody ended up in the dance.
We'll also making some newer inroads into export markets, we had unexplored before this past quarter. We did our first test shipment to a group in Brazil. We also entered into a pretty interesting market arrangement with a highly regarded trading group in Brisbane, Australia called square resources.
We hope square will be able to provide us a window into several of the Asian markets, we've not yet touched and we look forward overtime to building our Asian presence as the years move forward.
On the development front, we are pursuing a policy of frankly, keeping our powder dry until we can see more clarity.
We've talked before about some pretty interesting low vol, low cost new mine projects, which I'm not going to reiterate here at any detail.
But we feel we could bring on one or more of these online in relatively short timeframe and it a very reasonable capex we've discussed.
Because we can operate and execute on these projects. So quickly at this point, we don't feel that need to pull the trigger on anything until we can see some real strength in the market direction.
Once we see that clarity we've got both the existing liquidity to prudently advanced several of these projects of wants all within a six to 12 month time horizon.
Ultimately if we add all these projects up they could provide a very meaningful new level of production for us.
So to conclude my remarks, let me say that we continue to stay the course with frankly the same gospel we have breached for some time, we are low debt were low a aro or low on cost were strong liquidity and we've got to taste for being opportunistic.
We're very comfortable with this operating philosophy, particularly in this kind of a market.
And we operate to cover the downside and these frankly perilous times, but when we see finally, a little bit of upside we feel we can react quickly and hopefully we'll be rewarded at some point for a degree of prudence.
So now let me turn the the platform back to Jeremy to provide some detail on our financial results. So Jeremy. Thank you Randy in terms of second quarter 2020 financial highlights. Please remember as Randy pointed out we only had L. Creek running for a little over two months.
With that caveat EPS of six cents was up from a it was up from Q1 2020, EPS of five cents and compared to 26 cents a year ago.
Revenue was 36 million down 13% from Q1 and down 45% from the same period of 2019.
Other income totaled 8.5 million as we recognize roughly $7 million of income for the anticipated forgiveness of funding under the payment protection program loan.
This was based on our Q2 2020 usage of loan proceeds largely for eligible payroll expenses.
The accounting for this funding at the grant is based on guidance issued in June from the American Institute of Cpis, and Blessed by our independent auditors.
On the operational side Q2 sales were 362000.
Down 27% from the same period of 2019.
Despite a lengthy furlough in April Q2, 2020 production of 390000 tons exceeded our sales which were weaker than originally projected based on demand contraction from coated related issues.
Second quarter average price per tonne came in at $91, which compared to $116 in the same period of 2019.
Cash margins came down on the backup lower pricing and higher costs.
Margins on company produced call or $17 per ton in the second quarter of 2020 down 35% from Q1 and down 62% from the same period of 2019.
Cost of company produced coal came in at $74 per ton in Q2 up 4% from $71 per tonne. The same period of last year.
It is important to put second quarter cost into some context first L. Creek, both Elk Creek overall mine costs came in at $72 per tons for the entire quarter.
Excluding April mine cash cost to Bell Creek averaged $64 per ton in the second quarter, while the April furlough was necessary from a cash management standpoint, the limited mine production cost overall L. Creek mine cash costs to be adversely impacted by havent fixed costs spread over fewer tons.
I also want to touch upon capital expenditures a bit.
Last quarter, we made the decision to stop virtually all of our growth Capex a decision which is still in place today.
During our last call I said that there would be some growth capex bleeding into the second quarter. This was certainly the case as Q2 Capex came in at $9.1 million.
While this was down roughly 21% from the same period of 2019 in steel. It's still included roughly $6 million of growth Capex from two items, specifically the final $3.4 million of our $8 million plate Presque project at Elk Creek was spent in Q2, which Chris will touch upon later in it.
Yes, and roughly $3 million with spent that our borough and development complex.
Subsequently in early July we made the difficult decision to reduce our workforce at Berlin by over 60%, which materially lowered our spend there looking forward. We are now at maintenance capex levels on both cash and an accrual basis and would expect third quarter 2020 capex to come in.
Roughly two thirds of low Q2 2020 levels. This is in line with our historical guidance of six to $7 per ton of maintenance Capex.
In Q2 as Randy noted, we took on $13.2 million of new debt, consisting of 4.75 million of new equipment debt and 8.4 million from the PPP.
As we said, we anticipate ultimate forgiveness for all or most of the original PPP loan.
Moving on our trailing 12 month net debt to adjusted EBITDA level remains the envy of the industry.
Just under 0.3 times as of June 30.
In addition, we have liquidity of 31.8 million as of June 30.
This is despite a number of working capital items that were treated as a first half 2020 use of cash.
First I'd point out that inventories have written by $10.2 million since the beginning of the year.
Second when comparing second quarter 2020 to the first quarter, we had 1.4 million dollar increase in accounts receivable and a $4.9 billion decrease in accounts payable, which I would note now sit at their lowest quarter end level since 2016.
We anticipate working capital items to be a source of cash in the back half of the year, especially in the fourth quarter.
Lastly, as Randy noted I'd remind investors that we have designed our operations to be resilience and turbulent times hand to take advantage of strength in markets in good times, we do not know when but good times, we'll roll again, one day as they usually do.
I would now like to turn the call over to our President and CEO, Mike Baur Sachs Mike.
Thank you Jeremy.
The second quarter 2020 marks one of the most unusual quarters experience today at Ramco resources.
As the quarter progressed, we dealt with some of the worst uncertainty we face as a public company.
The primary concern being both our employees.
Our customers will be impacted by the pandemic didn't turn the impact your contracted sales.
Our view today is it thinks of seem to stabilize with demand from the auto sector picking up in some domestic customers restarting blast furnaces item earlier this year.
Well, we will continue to face challenges during the back half of 20 to 20 from a demand and shipment standpoint, it appears to be manageable and we hope to see continued steady improvement, especially in the domestic space.
From a macro perspective, we continue to see slow recoveries and reduced demand in the traditional Atlantic basin markets.
China, the most influential mover in the marketplace continues to recover nicely from steel production standpoint.
Conversely, they appear to be more actively enforcing important quotas keeping downward pressure on seaborne coking coal pricing.
Recovering from cobot disruptions in the increasingly important it'd be a marketplace has been challenging but recent data shows improvement.
While there are concrete instances production cutbacks most sources point to continued oversupply of coal production, particularly from the U.S. traditionally a swing.
Supplier in the seaborne market.
It appears that the real key the near term recovery will need to be in the form of government stimulus and even more impactful for the metallurgical sector infrastructure infrastructure spending.
Like others, we were recently surprised by the European unions ability to unite to enter into a stimulus effort for all members through share borrowing.
While recent projections show that the use expecting their economy to shrink by about 8.7% 2020, They project to rebound in 2021 to growth of 6.1%.
That stimulus should help reach their goal.
This an additional actions domestically and internationally could have positive impacts on the near term prospects for our customers and in turn metallurgical coal producers.
We are taking small but positive steps in our efforts to expand our international sales position.
We all floated our per shipment in Korea in the second quarter with positive feedback from our customer. We just recently loaded a vessel bound for Europe. The first loading this year for a large new customer there.
In another first we agreed to a trial cargo to a large high volatile coking customer in Brazil, which will Mark ran a coast first shipment of any kind South America.
While the markets and opportunities for large quantities and international business remains murky.
It's still very positive to note ramcos success, and securing business with new customers. During this unprecedented time in the market.
Since we last spoke domestic customers have provided more guidance relative to material adverse change enforced major impacts. Additionally, we've had an instance, where a smaller customers opted to take 10% figure contracted tons. The cumulative impact of these events will certainly had a material impact on our back.
Caf performance all of this uncertainty continues to make it difficult to provide any meaningful shipment guidance.
We can also confirm that most domestic and other north American customers have come out for 2021 business, while it's too early to determine where everything settles out we remain confident in our ability to differentiate our products from the competition.
We also have confidence in our staying power long reserve life at some of the lowest cost in the industry.
Our well capitalize mines should be targeted by buyers, who increasingly need to be worried about insolvencies and associated performance risk.
One additional focus for 2021 is our effort with regard to our low sulfur products help Creek has historically had comparatively low sulfur, but our mining has migrated into a couple of new areas that will allow us to market and ship and even better product as our customers face increasingly new restrictions on their emissions.
And have fewer producers, who can make a low sulfur product, we hope to be part of their solution.
Relative to production following a furloughed during most of April we recall or L. Creek workforce, we've developed plans to match production with our expected lower shipment volumes for the second half of 2020.
All of our mine to Mill Creek are running well.
We also extended our July 4th holiday week by adding one fertile week for some employees. It remains to be seen if additional similar actions will be required in the second half.
We continue to go to great links to address health and safety concerns related to cobot 19th.
Our operations.
Our diligently following guidelines and we remain committed to doing everything possible to keep our employee safe.
Chris will provide a more detailed discussion of our pandemic response.
At our Berlin mine, we've had to make the difficult decision to make a substantial reduction in our workforce. The mine is continuing to operate it substantially reduced levels. We continue to ship coal to our primary customer who has altered their conception downward for the remainder of the year.
We do want to make it clear that management has a number of options for the path forward it for one.
Includes having the option to develop the small block of coal in the Pocahontas number porcine accessible near our Berlin infrastructure.
Access to this reserve is above drainage and coke be developed a few months if market conditions supported.
Alternatives also include proceeding with our Berlin slope, which will take approximately six months to complete.
We continue to believe that our high quality low pressure Berlin, Pocahontas foreseen coal will be a great fit for a long list of customers, both domestically and abroad, who continue to express interest and inquire about availability for trial shipments.
We continue to labor over Capex decisions in light of the current market weakness and virus uncertainty.
As we see how things develop over the third quarter, and where we end up with domestic settlements. We are hopeful provide more color on growth capex in our third quarter call. Our guidance continues to remain suspended today.
Last quarter I discussed the lack of capital and the fact that we continue to see lack of investment in the sector.
We also discussed challenged cost structures and predicted that there will be more failures and potentially more bankruptcies from some of our competition.
Unfortunately during the last week or so we saw another competitor filed for chapter 11.
We also reminded investors that we remain actively focused on taking advantage of opportunities that present themselves in fact Ram. It could just entered into an agreement with the debtor in the black fuel bankruptcy to acquire a couple of permits that provide access to high quality job own seen reserves that we control.
This small transaction was surgical in nature, but could create meaningful value and allow us to avoid capital expenditures in the future. Indeed, we remain focused on similar situations.
Radical resources continues to perform at profitable levels and less than ideal conditions, especially compared to our peers. While management believes that ran a substantially undervalued by the market the market cap gap between much larger producers is narrowing in some cases, our valuation is greater than much larger competitors.
It would appear that investors are beginning to see the differences in management philosophy that make a company like ramco able to withstand withstand downturns.
Aro liabilities, while not immediately do still result, and eventually spending the cash debt will be repaid a result in entering bankruptcy.
Radical maybe the only company and the coal sector, if not pledge the majority of its assets against debt.
As we've said previously.
We remain confident.
That the way our company structure will prove to be one of the winning strategies that ultimately benefit from the current virus induce downturn.
In summary, I would like to thank everyone, who is participating in this call, especially those analysts who continue to cover mtc.
Like others in the sector ran a code is facing a clear set of challenges as we work our way through the remainder of 2020.
As a management team, we're not just focused on problems at obstacles. We're also focused on opportunities I.
I would now like to turn things over to Chris Blanchard, who will provide some additional insight into our second quarter and our operations in general.
Thank you Mike.
We do a few key operational milestones from the second quarter and some of our strategies for the remainder of 2020 that I'll briefly discuss this morning.
First our up primary operational concern as always remains the health and safety of our workforce.
During this period of the coated 19 global pandemic, our focus has widened to consider how the virus can affect our miners both at home and at work.
We have taken what we believed to be prudent and proactive steps as a pandemic has developed and we continue to adapt our policies and procedures as conditions have changed over the past month.
As previously mentioned one of the most material steps taken was the furlough of operations. During the month of April following the March declaration of a global pandemic and the uncertainty that was created throughout both the steel sector as well as coal space.
Most of our operations were idle three weeks during April to assess the situation and to develop action and prevention plans.
We returned focused upon social distancing personal protective equipment and sanitation of all common areas in a common areas and equipment.
Face coverings were provided to all employees prior to any of the now widespread recommendations or requirements.
We continue to require face coverings, and all and closed areas, where we're social distancing is not possible.
We are now also having all offices and buildings deep sanitized on a regular schedule.
Also despite our focus on the limiting and minimizing capital spending during the current period, we are deploying additional capital dollars for additional personnel carriers. So that are underground miners can travel in multiple machines and have more space from their co workers do during these other was congested portions.
The workday.
As the current of ours continues to spread and cases increase in the locations in West, Virginia, and Virginia, where our miners live we continue to adapt our policies to the latest governmental guidelines and modify our work rules to provide the most flexibility for our workers families.
While also providing the safest locations for them to work.
Contingency in action plans are in place for different coded 19 scenarios that may occur.
Now turning to one of our capital projects that we discussed earlier.
During the second quarter, we completed construction commission commissioned and brought into full operation Our second plate press building at the help create planned.
We have now upgraded Oak Creek to have a total of four operational fine refuse quite presses.
Where our first two presses gave us some needed relief and flexibility on disposal other find ways fraud.
The second edition containing the third and fourth presses gives us the excess capacity and confidence that L. Creek now has the technology in place.
Has the technology in place to place refuse economically for the entire life of the Oak Creek complex.
The additional press is also give elk creeping up ratable capacity to be able to handle the future disposal needs of the preparation plant.
Even after the plant throughput upgrade which is under consideration and is a part of our medium term growth strategy.
We believe that long term on the permitting of new sites for disposal of waste rock and central Appalachia will turn more towards combined refuse placement and away from traditional flurry impoundments.
And now Ramco is positioned to operate successfully under either scenario.
With this project complete we do not anticipate any similarly material capital spending at El Creek in 2020.
With planned projects limited to maintenance capital for the expansion of our minds underground and maintenance of our existing fleet of equipment.
Turning to the state of our actual operations L. Creek mines, all generally continue to operate in favorable mining conditions.
Naturally these are coal mines, and we have ebbs and flows at each location, but overall the complex is poised to perform and exceed expectations for the foreseeable future.
We've also moved into areas of our reserve, where we're actually seeing the qualities of our Kohl's improved month over month.
Which is certainly counter to the generally the tier deteriorate and quality of the central Appalachian Basin as a whole.
We clearly saw the contrast in cash costs between quarters in first quarter costs were lower as our production sales and deliveries were largely in balance and closer to capacity.
In the second quarter. However, we saw cost creep upward as production was negatively impacted by the furlough and some deferrals of shipments.
Even more pronounced stark differences between April 2020, and the cost in the remainder of the quarter.
This serves to emphasize the competitive advantage that ramco has as a result and favorable geology.
Solid an experienced workforce and judicious investments in the best infrastructure and equipment to access those reserves.
When we operate our mines at or even near capacity, our cash costs will be amongst the lowest in the industry.
As we move throughout the second half of 2020 Ramco strategy is to match our production profile with our customers delivery schedule and needs, while still remaining nimble to participate in spot sales in export tenders as they arise.
At the same time management will continue to take a disciplined approach to potential spot sales.
While there is no doubt that with our cost advantages and production profile, we could usually under bid our peers with the current supply overhang in the coal space. This is one race to the bottom that we do not need to win.
We will continue to focus on prudently targeting synergistic markets and key customers, while positioning the company for the eventual return to normalcy.
Turning to Berlin and following the same principles of that were falling at El Creek, We had recently make some very difficult decisions.
In addition to the decision in early April to idle or slope construction project in June we throttled back production shifts and finally in July were forced to make permanent production reduction as a result of the state of the overall coal market and the reduced needs of our customers.
Unfortunately, these changes had to be made.
I want to formally recognized all of our Berwyn employees efforts since inception. These miners have safely mind and develop this coal mine through at times extremely challenging mining conditions.
Look forward to the future when we were able to continue our production ramp up at Berlin and bring to fruition the planning and efforts that have been exerted the past couple of years.
Our Berlin slip project remains on a hot idle status with all excavation equipment and infrastructure in place for near immediate restart.
Once restarted in excavation commences, we believe we can see daylight in the low volatile Pocahontas number for horizon within six months and can quickly move to lower cost higher productivity and higher quality production.
Within the initial six months of P. for seem coal production starting.
Or approximately 12 months following the slope construction commencement. We believe we can mine at a fully budgeted production capacity of 650 750000 annual clean tons.
The ficker coal seam conditions will result in higher Productivities higher plant recoveries less mechanical downtime and less usage of consumables related to the sandstones strata of the current Berlin mine seem conditions.
All of these will put our produced non costs substantially lower than our current experience has been with the development in the Pocahontas number three same.
While we continue to balance our liquidity customer requirements and production growth plans through this period of uncertainty.
We continue to look at other potential low volatile production options one.
Potential development area would be to access and mine a small reserve in the Pocahontas foreseen located in close proximity to the initial development in our 1.3 mine.
Access to these tons as permitted and requires only very modest capital expenditure.
These tons will be of similar quality to the long term goal that we expect to mine and deliver from our berwyn fee for reserve.
While this reserve is not contiguous with the Berlin fee for mine. It does give us another option in the short term with less uncertainty in variability than our current development mining in the thinner Pocahontas number three same.
Dependent on our targeted production right in this reserve this coal mine could provide a bridge for ramcos low volatile portfolio through 2021 until and until the main Berlin fee for mine is fully operational.
We look forward to crystallizing, our production and development strategy over the next few months as the domestic and export tenders in sales process run their course.
We remain committed to the overall growth of rain Mcos annual production from its current levels to over 4 million annual tones and believe that given the appropriate market. This could be completed within 24 months.
This now concludes managements prepared remarks, and I'll turn the program back to Randy.
Great. Thanks, Chris Thank you Mike.
So at this point, we'd be happy to take some questions for many of the analyst and Investor community on there so.
So a moderator and could proceed.
Certainly as a reminder, ladies and gentlemen to ask a question you will need to press star one on your telephone so withdraw your question press the pound key.
Please standby, while we compile the culinary roster.
And our first question comes from the lot Lucas pipes with B. Riley.
Hey, good morning, everyone.
Hi.
Randy I may have missed in the prepared remarks, but would you be able to fill us in domestic pricing in 2021.
The only by customer insight I products.
Yes.
More if we want.
Hi.
Now I said, what Lloyds seriously of course.
If I wanted just is there anything that's been able to clean.
On 2021 demand.
Based on the mountain.
Domestic tenders today.
Sure well.
I appreciate that remark Lucas because you've been basically email bombing me for the last two weeks to try to get this pricing information.
Glad you.
I have come to the realization that we're probably not going to step up again this year on your behalf, but keep trying Lucas. We appreciate it so I think as far as the 21.
Tender season is concerned as I said, it's it's.
They came out a little bit early.
I think the reality check is the steel companies are probably.
Again trying to sort of feel that way through a fog.
In terms of assessing their own demand requirements for 21.
We felt last year, they probably under part just a little bit, but I suspect in hindsight that probably proved.
Precedent on their Stan from their standpoint.
I think looking at 21.
The size tenders that they've come out with our little bit better.
Then.
20 numbers.
We're not exactly dealing in the market environment, where we have a.
Surging benchmark to to price again.
So we have to approach this was the certain realism there.
And we've got some producers that are obviously.
In various forms of continued.
Really financial distress, so that will play a role I'm sure and how some of our peers look at and bid into the market.
[music].
So I think in general.
A number of.
Commentators and some of our peers have also taken the posture that they debut maybe the second half of next year as.
Being a little brighter.
And right now I really can't.
Disagree with that notion, but I again as I mentioned in my remarks.
On a lot of humility in terms of trying to view.
Forward markets.
When you could have.
Things like resurgence of of.
The virus that my impede or even reverse any.
Positive steps that economic recovery.
By the same token you might have steps that.
Would.
Develop a vaccine quickly maybe get everybody back on their feet, a little bit quicker and that might have a very positive impact on the market. So I think.
Again for all of Us.
At least on our side of the table here.
We approach the market with a certain realism.
We we approach the market with a certain optimism.
But as I said, most importantly, we approach our market view with a lot of humility. So I hope that kind of addressed most of your issues.
Very helpful.
Just a quick follow up kind of immediately on this that domestic on the domestic market now.
In the enviable position us not having.
Substantial leverage like some of superior so.
Is there kind of a school of thought where you say luck God. This right now.
Contract in the middle of a pandemic, let's let's sold off Thats, maybe just keep more powder dry and kind of selling more Andy.
The international markets that May maybe cover.
2021 is just that kind of.
As to what extent is that.
Part of strategy and then second lien then that's it from me really intrigued by the you partnership in Asia Pacific market Wonder if you could kind of.
Give a sense of what percent of sales may go to Asia over the coming year Sam.
Your perspective on these T shirt on thanks again.
So I think.
Maybe part one we're not going to get too granular.
With you, but I think obviously.
Our.
Leverage position certainly gives us some some wind in our sales, but candidly I think our cost position equally provides us a little bit of differentiation with our peers as we approach pricing decisions.
But as Mike certainly alluded to we've got some pretty good quality coals.
And we're not we're not sort of a dual thermal producer. So I think that gives us a little bit of as I said additional wind in our sales because where we're dealing with pure met products that are of high quality and low cost. So I think that that gives us pretty good seat at the table too.
Take some realistic approaches and you kind of know what our general percentages of.
Market.
Yes, let's call it percentage penetration have been in years gone by on on domestic.
Part of Thats by design part of that sort of opportunistic I think we kind of approach with the general same philosophy, we have in years past So we'll see.
The arrangement with.
Square.
Which we are.
Viewing is a very positive development.
Came around from your colleague Mr Assessment here, who in the past life as a as an analyst had done some work in Australia and head.
Matt This group.
Who had reached out frankly to him.
Trying to find frankly, what they regard it is.
An ideal us domestic partner in which to to grow a relationship and expanding into some Asian markets that they they handle.
They are pretty decent sized.
Both trading and sales group I think thing at a little bit under 10 million tons a year of net.
Which is a pretty healthy number.
They are in in a vast array of markets over there.
Throughout the Asian patients.
Sitting here and.
In.
Kentucky, West, Virginia, or Wyoming, it's pretty tough to keep.
Your finger on the daily pulse of any markets that are very very far away and.
They have offices frankly throughout the far east.
And we will look forward to building that relationship over time, we think they're very good people and.
Very experienced knowledgeable group and we look forward to that relationship.
Very good to hear I appreciate that continued best of luck. Thank you. Okay. Lucas Thank you brands.
Thank you and our next question comes from the lot of Mark blended with benchmark.
Okay, great. Thanks very much.
Access a lot of the domestic related related questions. I know you guys. It set a high proportion or sold high proportion of your volume into the domestic market.
I recall and I can't remember when it was it might've been a conference call or two ago.
Mike Baur Saks was talking about trying to kind of keep a foothold there.
I mean is it reasonable to assume in 21 that that you would easily sell half were more than half of your volume into the domestic market or have things change. So monumentally that that that that should necessarily be the case.
I think I'm going to let Mike follow up on this and give a perhaps more expansive answer but I think just in general.
Mark.
You got to be kind of opportunistic when you're talking about a spot sales were never quite sure when that market is going to develop and what volume and certainly what pricing characteristics.
So our approach as I said, let's cover the downside and upside or kind of take care of itself. So I think we always start with pretty healthy load of domestic business and.
And then once we kind of feel we got that covered.
We are going to kind of trips and dry powder for for the export business. So.
What that number looks like percentage wise, probably can bounce around but Mike why don't you pick up on that remark and talk about maybe some of the the new export opportunities whether we're looking at and also the ones we've kind of.
Started an execution on.
Yes, I think first of all.
Mark I mean, we continue to we continue to make our domestic or North American sales.
Key priority for us and.
I have.
Contract sales that have kind of a 12 month kind of look ahead is really important it helps us. It helps us think about what capital, we can deploy and and have some certainty in it and I think I think you'll see us continue to have.
And outsized amount of our coal sales that are domestic and.
I mentioned some of the quality differential things that we're looking at this year I mean, we really think they're a number of our customers that are really going to going to like some of the stuff that we put in front of them because it's important.
For many of our customers and especially with the with the low sulfur products, we've got at Elk Creek.
Internationally I mean, we continue and we've got we've got the internal coal sales guys that are very experienced internationally and.
While the.
Atlantic Basin continues to slow recovery I think it's it's going to continue to be difficult.
To do large amounts in the Atlantic Basin, which is one of the reasons why we continue to focus on Asia.
And of course of set a successful test shipment.
The Korea and.
One of the challenges of course with Asia is just the distance from.
From the eastern ports and.
While we think that.
Growth mode is is good.
And that part of the World and that's where the growth that is going to be just have to you have to build a presence.
But I think that probably the market, where maybe the most optimistic about really is as Brazil and South America.
We take our coals that are great fit.
For those for those for many of those customers down there and I think you'll see us.
Really focused on on on trying to grow market share that we have down there.
With basically being.
At up to.
Participate in virtually all of the tenders and that part of the world sales. So hopefully that helps a little bit no that is that was very helpful. Q2 quick questions, we aren't going to where we go to your next question. Let me just to add one sort of coded to that so as we talked about frankly, I think in last quarter's call.
And I alluded to in my my earlier remarks today, we've got a couple of pretty interesting development projects, they're all local.
That could potentially add.
A little bit under a million tons for us, which is a very meaningful percentage of new production.
Particularly against the sort of where we're coming out this year, which is.
Somewhere where I think we'd give a bandwidth about.
Somewhere south of 2 million tons. This year. So if we were able to add that kind of tonnage for next year that gives us a pretty good delta.
In terms of exploring some some other export opportunities, which we might want to not lock in necessarily.
Today.
And since we can bring those things on somewhere in a.
Six to 12 month timeframe, depending upon course, which specific project it is I.
I think that gives us a lot more runway.
As we sit here and.
August of 20.
As to where we think we could perhaps end up by.
Even August 21, much less to full year, so that doesn't really I think help you too much on modeling but.
From a a general perspective.
A market does start to look.
Stronger and we think it's got some some real legs under it.
We were probably going to be in that position to take some serious looks starting up.
One or more.
New projects I.
I guess, the Berwyn really wouldn't call of new project.
Certainly ready to.
Pull the trigger on a couple of things that could certainly change that perspective for 21 again, if we're looking at us good market.
That's very helpful up two quick ones, and then I'm going to get off unless someone else ask a question Adam.
The first is the reference to 12% sales potentially being at risk due to force majeure letters, maybe Jeremy or are you Randy can give you some ideas and thoughts about how do your model the back half of the year with that kind of out there I mean, what's the best way for us to approach modeling your your shipments.
In the back half given that kind of spot.
Footnote that you have in your release, yes, well I'm going to I'm going to let Jeremy take that but I mean, that's a perfect example of why.
Sitting here as a producer.
Looking to.
You will who are trying to.
Constructively create models for.
With as much accuracies, you can and you're dealing with matters that are pretty much certainly beyond the control of the producer and frankly in some respects, perhaps beyond the control of even the customer so Jeremy take a stab at that from a from a number standpoint, yes, I mean thats at is one of the reasons why we've elected to.
Still not give any official guidance mark.
So the reality is we've given you the committed tons as the contracts were signed and certainly we're going to work with our customers given that I think both sides valuable long term relationships and.
Hopefully preserve as much if not all of that.
As we can whether it's in calendar 2020 into 21, we'll just have to say.
And my final one was was in a previous Tom you guys had gone through we talked about I think Chris was talking about doubling production or be positioned to double production over the next I can't remember it was 18 or 24 months you see what's the total incremental capital that would be required to double your production from this point onward, if you had to.
Approximated.
Well I think I'll certainly let Chris.
Sort of target to general part of your question, but I think.
We're moving numbers around we would certainly to find that with with high specificity at such point as we were going to pull the trigger but I think in our previous calls we've said that that number depending upon which number of mines and of course, which mines, we would bring on.
That could.
Look somewhere in that $10 million to $15 million capital.
New capital, rather expenditure and that probably as I said gets as the certainly the tonnage it if or when that.
That Chris alluded to which is kind of a max out of.
750, plus thousand tons and then.
We've got a couple other.
Smaller properties, we could develop so maybe Chris just just.
Rolled back to the time machine on our last call to just give a couple of.
Hi level comments on on these production opportunities.
Yes, thanks, Randy so.
Those numbers are roughly in line, and obviously depends which which projects we would tackle but on on the low vol side.
Somewhere between 10 and 15.
Get you all the way there for all the projects and then looking at the high Vol side Theres a number of expansion minds, we could do at Elk Creek that or are little bit lower and then we have a little bit larger capital expenditure, if we choose to do the plant upgrade.
But.
Depending on how quickly and how many of those we put in place all within that 24 month period.
Probably.
15 on the low side up to 20 slightly over 20, if we were to do everything all at once.
If that answers your question generally.
Yes, so so essentially it's I mean, you get to 4 million only only.
Only another 20 million a capital incremental capital on the high side.
Yes.
Go ahead, Chris.
Now just can say a lot of the reason the the capital spend is a little bit lower than you'd expect as we transition a lot of our mobile equipment fleet from our development mining at Burger went into our thicker Pocahontas four so you get a lot of a lot of Bang for your capital book at that.
Correct.
Yes, thank you very much.
Mark also this is Randy.
As we look at the market in general we've had periods.
It's still sort of remember with a certain sense of fondest algea, the 2016 market, where the the benchmark ran from about 60 to 80 Bucks and early part of the year to touching 300 toward the end of the year and I can assure you if we find ourselves and another.
Uplift like that perhaps not even as dramatic a proportion but.
You would find that we would be in a position to kind of move with pretty.
Real dispatch to to ramp up some more permanent production, which I think would get us to the four to four and a half.
Less incrementally.
Than we would if we are kind of.
Getting a couple singles and doubles as we go along and just kind of sort of a flatter market like we are experiencing today.
Perfect. Thanks very much.
Thank you Mark.
Thank you and your next question comes from the line of Scotch year Clarksons.
Hi, good morning, everyone.
On the restart of development activities. Once we start seeing market recovery, how quickly inflexible will you be and this restart will be more media. Once you see demand starting to return or will there be a little bit of a lag effects dose for getting workers back and then kind of just to make sure the pricing recovery holds.
Yeah. Thanks, Scott, So I think again I'm going to sort of maybe make up sort of a brief remark and then turn it back over to Chris So I think from an ability to react.
One of our hallmarks as we think we're pretty nimble and opportunistic we have of course discussed with our board pretty much all of these development projects in reasonable detail.
So they're very familiar with and.
We've got.
Dry powder in the sense of our liquidity that we could we could spend some money pretty quickly needless to say because we haven't bard much money are our banks are pretty comfortable with with where we are.
From our own liquidity, we probably have.
Additional resources, we could draw upon if necessary to expand the spend but with that Chris why don't you again kind of reiterate some of the more operational detail as it would relate to some of these.
Production increases.
So I think once we have a little bit of clarity.
Both on.
Market direction, and the the the demand and the needs of our customers.
It would be we could.
Deploy capital and deploy.
The dollars for the development projects as fast or slowly as we needed from the from the workforce standpoint.
We're doing everything we can at this point to protect the workforce in place and.
Unfortunately, we've had two.
Make the reductions we did at berland however.
At least as it stands right now we believe that we could grow the workforce as needed.
To staff the mines that are part of the expansion.
In large part because of the the development time on the bar, one slope and some of the other developments running between six month and 12 month.
Okay, Great that's helpful.
And then moving onto costs.
Without the impact of some of the higher costs come from Berlin.
At least in the third quarter do you think it's reasonable to assume the cash cost could be lower into the mid sixtys side now that they're really just kind of being driven by out Creek, obviously, assuming that sales remained relatively stable and there aren't any additional color that 19 impacts.
Sure. Thanks, Scott I'm going to let both Mike and Chris comment on that so Mike why don't you start.
On the cost, yes, sure I mean, not having that that impact with that development mining does absolutely.
Impact our our entire sort of cost structure. When you look at the average number and and you know it when we look at the when we look at our coal mines at El Creek, we continue to be in really good conditions and I'll, let Chris kind of kind of add on top of that but yell at me I think we feel it's very helpful to have a cost structure like that when you're in this kind of.
Environment.
Chris.
No I think we would see we would expect our costs to return to that range out I would remind everybody on the call that fourth quarter historically is.
One of the weaker quarters because of the two holiday periods that are in in that quarter already but accepting.
At normal shutdown period.
We expect we can run out Craig and with them sort of minimal impact from the Berlin development project that they should be in that range absent the external corona virus coated type impact.
Okay. That's that's going to here I think I don't know made thanks for taking my questions and best of luck.
Thanks Scott.
Thank you.
I'll now turn the conference back over to executive Chairman, Randy Keys for closing remarks.
Thank you moderator well as again as always we appreciate everybody participating in this call for Q2 as I said. These are these are pretty strange times and.
Like all of US, we're doing our best to to cope with the with kind of sailing through some pretty uncharted waters.
We knock on wood hope, we were being pretty good stewards for our investors, we hope to be able to certainly improve on that as the market conditions. We all hope improve and most importantly, I would say to everybody on the call.
Please stay safe stay well and we'll look forward to speaking with you here in a few months. Thank you very much.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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