Q3 2020 Alliance Resource Partners LP Earnings Call
Good day and welcome to the Alliance Resource Partners LP third quarter 2020, <unk> earnings Conference call. All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing Star then zero after todays presentation, there will be an opportunity to ask questions to ask a question.
Press Star then one on a touchtone phone to withdraw your question. Please press Star then two please note. This event is being recorded.
I'd like now turn the conference over to Brian Cantrell, Senior Vice President and CFO. Please go ahead.
Thank you, Matt and welcome everyone.
Earlier. This morning Alliance resource partners released its third quarter 2020 financial and operating results and we will now discuss these results as well as our perspective on market conditions and outlook Paul.
Following our prepared remarks, we'll open the call to your questions before beginning a reminder, that some of our remarks today may include forward looking statements.
That are subject to a variety of risks uncertainties and assumptions are contained in our filings from time to time with the Securities and Exchange Commission and are also reflect this mornings press release.
While these forward looking statements are based on information currently available to us if.
In one or more of these risks or uncertainties materialize or if our underlying assumptions prove incorrect.
Actual results may vary materially from those we projected or expected.
In providing these remarks the partnership has no obligation to publicly update or revise any forward looking statement.
Whether as a result of new information future events or otherwise unless required by law to do so.
Finally, we'll also be discussing certain non-GAAP financial measures.
Definitions and reconciliations of the differences between these non-GAAP financial measures.
The most directly comparable GAAP [noise] pardon.
Pardon me GAAP financial measures are contained at the end of Aero piece press release, which has been posted on our website and furnished to the FCC on form 8-K.
What's the required preliminaries out of the way I'll begin with a review of our results and then turn the call over to Joe craft, Our chairman President and Chief Executive Officer for his perspective.
Encouraging trends and economic activity coal demand and oil and gas production and prices are beginning to emerge as we entered the 2020 quarter.
And we were cautiously optimistic that Aero piece financial and operating results were poised to improve.
Errol piece strong performance this quarter, certainly justified our optimism.
During the 2020 quarter Alliance delivered significant increases to all major operating and financial metrics compared to the sequential quarter.
Reflecting improved performance from both our coal operations and our medical segment.
Total revenues increased by 39.4% to $355.7 million.
Net income attributable to A.O.L.P. climbed to 158.3% to $27.2 million.
And EBIT job, just jumped 146.4% to $118.8 million.
These increases and Aero piece continued focus on reducing costs expenses working capital and capital expenditures.
Resulted in free cash flow of $103 million for the 2020 quarter, 79% improvement over the sequential quarter.
Increased free cash flow allowed air LP to expand liquidity by 41.4%.
$422.2 million.
Reduced total debt by $100.8 million and lower total leverage to 1.69 times at the end of the 2020 quarter.
Shipping us comfortably in compliance with all debt covenants.
Turning to our consolidated results, let's take a closer look at the strong performance delivered by each of the Aero piece business segments.
Starting with our coal segment improved coal demand on the resumption of production at all a barrel piece mining complexes.
Let coal sales and production volumes higher by 48.5% and 66.6% respectively compared to the sequential quarter.
Increased sales volumes more than offset lower price realizations, driving coal sales revenue higher by 42.1% to $335.8 million and.
Contributing to 124.4% increase in segment adjusted EBITDA of $123.8 million.
Segment adjusted EBITDA also benefited from lower cost per pound during the 2020 corridor.
Segment, adjusted EBITDA expense per ton decreased 22% and the 2020 quarter, the 20 $28.03 per ton compared to $35 or 95 cents per ton in the sequential quarter.
The decrease reflects the impact of ongoing expense control initiatives at all operations.
Higher coal volumes.
Favorable sales mix from our lower cost mines, and lower coal inventory costs.
The performance of our mineral segment also rebounded in the 2020 quarter astray.
Stronger commodity prices led to oil and gas operators to bring previously shut in wells back online.
And slowly resumed drilling and completion of wells on our mineral mineral acreage.
Compared to the sequential quarter oil and gas production on our acreage increased 13.9% to 468000 barrels of oil equivalent.
And our realized price per BOE, we increased by 9.5%.
Increased volumes and pricing led total revenues from oil and gas royalties on lease bonuses up by 23.9%.
$9.7 million and segment adjusted EBITDA higher by 29.3% to $8.9 billion.
That completes our review of results for the 2020 quarter and I'll now turn the call over to Joe Joe.
Thank you, Brian and good morning, everyone.
And before I get started this morning, I'd like to express my condolences.
So the family by Marie.
<unk> in the coal industry.
I'm sure you all have heard is passed away yesterday.
Bob just touch the lives of everyone associated with the coal industry for more than 40 years.
It is important to our country cannot be overstated.
[noise]. So please join me in a moment of silence to reflect on the many contributions Bob made during his lifetime for the good of America.
Thank you all.
As as Brian mentioned this morning, we had some very encouraging signs.
And that we're beginning to take shape in June and continue to develop as the 2020 quarter progressed.
After falling by 7% year over year during the first half of 2020.
Increased economic activity and favorable weather patterns during the 2020, and all that and overall power demand.
In the eastern United States, increasing by 23% over the sequential quarter.
With peak electricity loads, increasing in July and August so just to support cooling demand coal fire generation.
Rebounded even stronger in the third quarter jumping, 71% compared to the second quarter.
After experiencing experiencing historically low oil prices and the subsequent sequential quarter oil and gas commodity prices also rebounded during the 2020 quarter.
Resulting in oil and gas operators, bringing shut in wells back into production and slowly resuming drilling and completion activity.
In the lower 48.
While these improving macro trends certainly contributed to the LP strong performance in the 2020 quarter.
Solid results were delivered we delivered could not have been accomplished without the dedication and resiliency of our people.
Our coal mines worked through the disruptions created by the pandemic, reducing inventories and ramping up production to successfully meet the increased requirements of our customers during the 2020 quarter.
The entire alliance organization worked aggressively to maximize the cash flow of our businesses reduce working capital and control capital expenditures and expenses.
All of which has enhanced our financial position and liquidity.
I am proud that through their efforts here LP was able to post significant improvements to all of our operating and financial metrics during the 2020 quarter.
To close out 2020.
Customers remain committed to taking delivery of all contracted tons. This year.
We continue to anticipate full year 2020 coal production and sales volumes.
Approximately 27 million times, and 28 million times, respectively.
Looking ahead to next year utility inventories.
Tended to move lower and several utilities have recently issued solicitation seeking significant coal supply commitments for multi year terms.
Hey LP currently has priced contract commitments for approximately 20 million times and 2021.
With expectations for higher natural gas prices and increased energy demand.
As the economy recovers post pandemic, we are currently targeting total coal sales volume.
In 2021 to be approximately 10% by 2020 levels.
We also anticipate the results from our mineral segment will continue to modestly improve over the remainder of this year and throughout 2021.
Our expectations reflect the recent rebound in commodity prices and production volumes as well as the uptick in activity by the MP companies.
Global and domestic inventories continue to draw down and return to a more normal historical balance supply demand fundamentals will again incentivized CMP companies to increase their pace of development.
Due to this due to the strategic location of our minerals, coupled with the quality of operators with physicians on our acreage we feel Lps minerals segment. She.
Should see increased drilling and completion activity next year.
In conclusion.
We keep we will keep our focus on maximizing cash flow.
From MLP strategically located on gas minerals, and our low cost long lived fully capitalize coal operations to provide us with the ability to return cash to unit holders main.
Main access to the capital markets and generate attractive long term total returns for our stakeholders.
With that I'll ask the operator to open the call for questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys. If at any time you question has been addressed and you would like to withdraw. Your question. Please press Star then two at this time, we will pause momentarily to assemble.
Blair roster.
Our first question comes from Mark Levin from Benchmark Company. Please go ahead.
Okay. Thanks, very much and congratulations, particularly on the cost side that was something we have not seen a while which which leads me to this so when you're when you're thinking you know near term now for a second on Q4.
Kind of a same 28 million tons of sales it looks like you would be up modestly quarter over quarter.
Does that mean that the cost performance that you saw in Q3 should be comparable in Q4 or would there be reasons why it wouldn't.
Some of the how are you. Thanks.
Doing well thanks for the question I'm sure some of the increase in the volume of sales will be coming out of inventory we started.
The quarter.
Well, we targeted 750000 tons reduction last quarter, we ended up with 500000.
And we probably would hit our 750, but we had some transportation delays.
We do believe those.
Yes, the railroads are operating more efficiently.
I think they've been able to get their workers back.
More of the last.
This month of the quarter and running into the fourth quarter. So we do believe those tons and tons that we had slated to be sold in the third quarter will be picked up in the fourth quarter.
So from a production standpoint, we'll we're still targeting to produce something similar.
In the quarter and there will be some holidays.
Our costs might trend up a little bit, but I'm hopeful we can stay on pace with what we've been doing in the third quarter probably won't be.
As low.
Because we had an outstanding quarter.
But I think that we were back operating at near full capacity.
As much as you can be in a go bit impacted world.
That oh.
We should see.
Our cost be at a pretty predictable level quarter in quarter out for the next.
On a year or so.
Great that's very good news.
And let me just kind of turned to 21 for a second I think you mentioned you had 20 million tons priced and shooting for maybe 31 million tons.
Roughly next year.
Yes at this point, Joe what what can you tell us kind of about those 20 million tons, where they've been priced either you know.
Up or down relative to what you've done so far this year or you know if you look at it year over year 21 versus 20 anything that you can do to help us with where those tons have been priced for 21.
Yeah, I think that that pricing for that 20 million tons is little over north of $41 a ton.
As a.
Yes, yes.
When you look to the balance.
The unsettled times I.
I think it's about 60%, Illinois basin, and 40% Appalachia as to where the on so tons are.
We've got a lot of solicitations out right now.
And natural gas prices are.
Right at three Bucks today so.
So we targeted that 20, 30.8 or that 10% up really off of what we've been able to do.
The third quarter and what we plan to do in the fourth quarter were running at a $7.7 million.
Run rate.
And so thats, just maintaining that pace, we're hopeful that gas prices go up a lot of people believe they will and where the strip is.
That we can see increased volumes, but we're not planning for that.
Based on.
Yeah.
Some of the uncertainty with the economy.
Trying to understand what's going to happen with co bid.
It's going to have the election in this economy get shut down does it continue to operate the planes fly all those good things that are going to affect what our final analysis is but.
Bottom line is we're comfortable that we ought to be able to maintain.
You know at least 7.7 million.
Quarter demand for our production.
And Joe on the on the tons that have not been priced we you know we look at obviously different coal rags and they put out numbers and you guys tend to price above that when I when I look at it historically, but are you starting to see prices for calendar 21 calendar 20 to Illinois Basin prices you know are they moving.
Now with gas or they go into the upper Thirtys now are they still kind of in the mid Thirtys, where where would you characterize pricing now and how it's moved with gas moving higher.
I think what you see in the publications are all dealing with the spot market there not be a short term mark.
And I think theres, probably nine different major solicitations that are have either happened or are going to happen.
Within this quarter.
The first part of next quarter.
In all of those are longer term.
So the minimum two years, there's two of them that are taken the adds up to 10 years.
We can't we as an industry can't sell coal on a multiyear basis at the prices that you see.
That are in those indexes are in the publications that they're just not sustainable no base cost me for the large market that we have of 150 million today.
In the Illinois basin, Northern App that cost structure doesn't support those prices.
So I would expect that.
The pricing will come in quite a bit higher than what you're seeing in those publications I can't get into the details with Ashford we're right in the middle of solicitations.
As to what a fair prices for customers now that's very helpful. And then my final question and I'll, let someone else have it has to do with cash allocation. So you guys have done a super job paying down debt, you've got your leverage ratio down to sub.
Sub 1.7 times. So I guess my question is from here, where where do we go up is it continue what are their prior is priority number one still balance sheet or de leveraging.
Do you want to you know is there kind of a target you know either absolute or or or net number how does the distribution kind of play into it in terms of your.
Priorities and then and then finally, you know oil and gas investments are those just on hold now so maybe just some general thoughts on capital allocation balance sheet distributions versus additional investment. Thanks.
Okay.
Again on the well we'd like to see.
Is some stability on.
Going forward what is normal what's the new norm is there a new normal or is there the old normal.
So when we have the vaccines when we have.
Or the headlines talking about things other than how many cases.
Despite the day before.
And whether people are going back to work whether.
Economy is going to stay open on those type of things, we've got to get through this to be able to no.
What are what is a stable run rate will be.
So until that happens our boards made the decision to do this.
To suspend distributions. So we did make the decision.
Not to pay a distribution this quarter, we announced that we will not make a distribution for the fourth quarter Prime.
Primarily believing that we're not going to have an answer by January as to.
What the predictability of cash flows are.
So weve delayed that decision until or April board meeting.
We are hopeful by that time, we'll have better clarity.
Yes with vaccines.
The.
The election with how the economy is either open or is not open whether airplanes are flying all those different issues that are going on.
Help provide us the answer to the future. The other major thing we will have now we will know by then is the outcome of these solicitations that I mentioned earlier.
So, we believe and feel comfortable and confident that our cash flow generation.
Will stabilize and it will put us in a position to where we'll be in a position to consider distributions again right. Now we're focused on as I mentioned in my opening comments focused on maximizing cash flow keeping our cost as low as possible being as efficient as we can be and that too.
Trying to do.
And be as prudent as we can be to.
Be a low cost producer and a very challenging industry.
So today, yes, what we'll continue to do is focus on pay down of debt.
As we determine what our earnings are then that will give us more clarity on.
The other options, but everything is on the table like we've talked about before whether its debt bad.
By down our debt reduction or.
I'm back units or paying distributions and in making acquisitions, we'd love to make acquisitions, we want to grow our company we.
I feel like we've been able to do that.
For 20 years for the entire history of our company and encoded comes in yes.
It gives us.
Setback that we're going to have to rebound from.
And thats not only the coal industry, but the oil and gas industry. So do we want to make investments in minerals, yes, we do exist.
Exactly.
How we underwrite those is harder this year than it has been in the past because.
Theres been a lot of disruptions and there is lot of.
Questions on the mineral side, we're seeing a lot of acquisitions.
On the mineral side.
That can be a really good thing, but it also.
Gives us we need to understand how these companies that have merged are going to deploy capital and where they're going to deploy it.
Given the position where minerals are we think we're in good shape for what were bought now we've got to figure out.
What do we go by on the in the future and so there is.
What's the commodity price whats the timing of the drilling once government policy is going to be relative to granting permits are not granting permits.
Yes.
We will be in that market.
But it's hard to know how.
The values.
Are going to.
What the value proposition will be between the buyer and seller and whether we will be able to transact on that.
So hopefully that answered most of your question.
Absolutely it did and again congratulations on a super costs core thanks, Greg.
Great.
Our next question comes from Lucas pipes with B. Riley Securities. Please go ahead.
Hey, good morning, everyone and I'd like to add my congratulations to at very strong quarter on the cost side well done.
Thanks.
I wanted to touch a little bit further on the cost side with my first question I wondered is it possible you mentioned, it's predominantly driven by mix, but I wondered could you maybe provide a rich either.
Year on year or quarter over quarter that breaks down the cost improvement into into various buckets. So besides mix.
Maybe maybe lower input factors at what would really appreciate any additional color you may be able to provide.
Wow, thats getting under quite a bit of detail.
Lucas.
I mean, I think it's just been a.
Hey, Ben.
Very strong focus by our operations to critically evaluate.
All costs.
Line item by line item.
Uh huh.
I haven't really looked at it that's not fair I have looked at it at that level of detail, but to try to give a.
A cohesive response in this forum will be a bit challenging clearly, bringing down inventories as health.
Inputs on.
Materials and supplies has helped.
I mean, it is does multifaceted across the board focus.
Lucas.
Yes, just a couple of things I mean back to the mix side of it if you're comparing to 2019 versus 2020.
You can recall that we.
We did have Dotiki operating yes, pardon 2019, which has a higher cost we ended up closing down our Gibson north operation.
So there have been some closing costs it has sort of burden.
Some of the 2019.
Cost numbers of course cobot impacted the second quarter of 2020.
So when we came back from that.
Yes.
[music].
Basically we are able to bring people back in in an efficient manner.
Everybody was very focused.
Yeah.
Back to.
The challenges we've had in the urgency to pay attention to every detail that you can pay attention to another factor year over year as.
In East Kentucky.
We added high cost mine, we are transitioning to a lower cost mine those haven't even really been benefited yet not yet in these numbers because we just got that operation Rolling in September so that helped a little bit.
And the third quarter relative to the second quarter as well as last year.
Sure.
Feeling it will be a lower cost.
Driver some of our numbers on a.
Relative basis year over year. So thank you.
I'd say those are the major things.
And it really just gets down a productivity bottom line right and and volume I mean, obviously our volumes were.
Impacted significantly in the second quarter.
And they ramp back up nicely.
Wonder.
When you're producing more tons selling more tons and accrue.
Across those fixed costs on a per ton basis, it's obviously very meaningful.
Yes, very very helpful.
I may have some follow up question on on that but but for my second question I wanted to.
Switch topics fairly quickly at with the election next week.
As it relates to the coal industry in your opinion, what's on what's on the ballot.
Thank you.
Okay.
Well they.
It's hard to know I mean, Joe Biden says eat against fracking and he says he sport or is not against it I'm not sure what is positioning us.
He has stated that.
By 2035, he wants all utility generation to be all fossil fuels.
And so we know what his campaign promises are we pad.
Meetings with some of his.
I wouldn't call him serve Thats, there has policy advisors and in the energy space, we being the industry not we as a company.
They've given us assurance that.
Biden gap would.
Understands the importance of low cost energy and that they understand the importance of coal but.
They do look for a transition over that 20 to 2035 to 2015 timeframe.
On fossil fuels.
It is yes I think.
To me what's on the ballot specific the goal is really not on the profit I mean, nobody is really making a decision based on.
What this election means to go industry.
But specifically to coal.
I think all their focus is really on the oil and gas sector.
Yeah.
Yes, it does it make sense to me in one respect you can say.
That you want to.
Convert to electric vehicles, and then yet you don't want to build another power plant other than a wind and solar that we don't have battery technology that can supply the increased demand of electricity that they anticipate so.
How the.
Squarely circles I don't know I don't know how this works because what they say and what the physics and what.
The infrastructure is to.
Being able to achieve those objectives.
Maybe with two trillion dollars you can get there.
I don't know.
From my perspective is look at it more micro and macro.
We're very comfortable and confident that there are suffer.
Sufficient power plants that are that we sell to that are in our footprint that want to.
That are fully capitalize they have all the.
Bells and whistles for.
Compliant environmental compliance as well as written today.
Indeed utilities want to operate.
Those facilities because they know they are the lowest cost.
Plants in their footprint so they want to operate until 2035 to 20.
In some cases 2048.
And so we're focused to try to keep those plants open.
And we've been working with those utilities with the state governments with the federal government to protect your lowest cost assets and the jobs they create.
Through manufacturing et cetera.
And were.
We feel that.
We'd like to believe that the Biden policy adviser that says that they understand the important contribution that gold makes to these communities.
And hopefully.
If he were to get affected that that they would have policies that would be more measured.
Instead of what their campaign rhetoric.
He is on a given day, depending on what state you're in.
Uh huh.
So.
Okay.
I think that.
In my view Theres no question that coal was damaged under the Obama Biden years.
More so they have been under the Trump, which if you read the New York Times, you wouldn't believe that but.
But I believe that's the case.
So I think our future would be better chemical industry perspective, the drop one.
Well if he doesn't.
Hi, Dan.
Yes.
Biden in his closing remarks at the debate was either.
President for all the people he is a uniter he's not a divider. These he wants jobs.
So we'll see we'll see if the if you were to win weather.
That part in his closing comments, whether he governs that way or whether he wants it to be a divider, whether he wants to be a hater, whether he wants to destroy jobs or does he want to do what he said he would do that is to be a uniter and.
Be a job provider and.
Who.
Yeah.
Pardon me, it's hard to say more net I guess.
I'm sure I could but yes.
Yes, yes.
How many people are listening to go.
Yes.
We remain undecided John.
[laughter].
So I really appreciate your perspective, it's a question that comes up frequently among investors and its.
Very helpful to hear your Youre taken I wish you and your team and company all the best especially during these times.
But again I think just in summary.
We shouldn't panic I mean, there's definitely opportunity here for.
Or sorry.
Company, where a low cost producer.
Again, I'm convinced that the states need.
Low cost power.
To support their industrial base.
And.
I'd like to think that.
Our elected officials.
I would do the right thing and.
If they feel like they've got to transition they do it in a respectful and over.
Sufficient amount of time.
That theres no unintended consequences that are going to be bad for American bad for the people that they represent.
Yes, yes.
Yes.
Thank you very much.
Well.
Our next question comes from Matthew Fields from Bank of America. Please go ahead.
Oh hi, everyone.
First I just wanted to follow up on a comment I think Brian might have made earlier, where you're talking about the 2021.
Preliminary guidance about that 30.8 million ton level.
It might have been just a comment in passing but did you say at current kind of natural gas strip, which is a little above $3 for 2021, there could be upside to that 31 million tonne number.
Ill add to that.
This is yeah. This is Joe craft on the what it said that and so that's.
That's okay. I mean, we're seeing the demand now how much of the demand is driven I mean, we haven't seen $3 gas until.
In actuality.
Until like today over the last week or so.
So weve been trading in the third quarter, it quite a bit lower gas and yet we've still seen a run rate.
It's pushing us our company at a seven and half to 7.7 million ton demand.
Great.
So I don't know.
I personally don't believe that when we look at 2020.
What the demand has been has been driven by natural gas price.
Prices above $3 coming because we have been experiencing that yes.
So we've looked at if the natural gas.
Prices go to 350 and $4 like some people were projecting.
What would be.
The behavior of the market.
So would we see more gas to coal switching.
And the numbers if its pure pure economics would suggest that there is sizable upside.
Two gas to coal switching.
In our numbers when we are projecting a 10% increase.
For 21, we've ignored that.
So we just looked at our current run rate.
Say that.
In the current economy that we see even co bid related.
Even not assuming that we get back to normal January one of 2021, which is looking less and less likely.
That we can still.
No airplanes flying the economy working it.
Whatever 90% whatever that number is.
We can still maintain.
Demand for our product at that at that run rate of $30.8 million for 2021.
And that assumes that we don't have a major.
Setback shut down of the economy like we had in the second quarter I mean, if we had us.
Biden were to win and come in and try to shut down the economy like it was in April.
May then that would obviously impact demand like it did in April and May of this year.
But.
Assuming that no matter, who wins that we're not going to go back to the shutdown of the economy.
Biden.
Again has repeated after the debate that east shutting down the vibrancy of neglect shutdown economy.
But I don't know okay.
So just to be about 31 million tonne assumes kind of no major economic disruptions again, and but it also assumes no kind of.
Switching back to coal because of strong natural gas prices correct.
Okay.
Thank you for that for that clarification and then.
I appreciate the clarity on the capital allocation I think I think Mark asked about your capital allocation, you said kind of we want to wait to see what happens with the pandemic with the economy and maybe kind of no changes to the distribution policy until your April Board meeting so.
With the December and the March quarter, presumably reasonably cash flow positive, we're assuming that that goes to.
Debt repayment.
You know like like September was my question really is.
Your bonds are trading at such.
Distressed levels 60, 65 cents on the dollar.
I appreciate that liquidity is paramount and you want to maintain revolver availability, but at some point you kind of can't ignore that.
Value in buying back bonds that 60 cents on the dollar versus paying back revolver. It.
100 cents on the dollar.
That's fair.
And what we will be doing in the interim.
It is.
Going back to the banks would do have restrictions under the revolver on some.
Ability to buyback bonds, but we'll be busy.
Visiting with our banks to try to get as much flexibility as we can.
To potentially take advantage of that.
So that if we do choose to go in that direction.
We can.
You also have to recognize that our our bonds are fairly closely held they are publicly traded but the level of volume on a.
At any given point in time is fairly limited some of the.
The ability to go in and transact in the open market.
At any type of scale as a bit of an unknown at this point in time.
But I believe in answer to your question, we'll be working to get as much flexibility as we can and assessing our ability to actually participate in the market to take advantage of what is clearly.
Very strong math in terms of where the bonds are trading today and on our.
Cost of otherwise available capital.
So so today your revolver limits Rps via this available cash concept right. So can you just give us a.
An estimate of how much kind of capacity you have to buy back bonds well, we'll just need to go back to the banks and work through that.
See how much flexibility we can get.
Okay, all right, thanks, very much and good luck.
Thank you.
Our next question comes from Nick Jarmoszuk with Stifel. Please go ahead.
Hi, good morning.
Maybe a little additional color on 21, but I appreciate the commentary earlier.
How can we think about <unk> of the total tons that are contracted or any of those multiyear terms, how many of those tons carried over from the current 2020 contracts as well.
There's not too many that have carried over from 2020.
I mean, the only reason they would carry over our shipment delays.
That average that I remember that's right.
So as we think of 21 and going into 22, I don't do you have that.
Brian I don't I can't recall off the top my head how many times, we've got committed in 2000 to yeah, I think we've got UBS.
About eight and a half million committed and 22.
At this point in time, we've got some volumes come at it out into the 24 time frame.
As well.
What's the longest term that you would.
The company would entertain.
We would entertain 10 year contracts at an appropriate price.
Oil at a structure that Weve had reopeners.
I think that I understood.
We believe there needs to be we've always believed that.
Hi, good contracts once close to market if it gets too far out of market, it's not good for either party because they're so.
So we would want some mechanism and they would once a mechanism that keeps it close to market, but they.
They want security of supply and so do we so I think that.
I think it's encouraging that we've got several customers that are.
Tailing the markets, whether it be our lenders.
Or bondholders or.
Our investors that.
Listen we need you here for the next 10 to 15 to 20 years. So.
Yes, we need security of supply so.
I think thats positive, we would definitely enter into those type agreements.
If we get and they're going to they're going to want protection that we want protections that whatever the.
Pricing is allows us to.
Yes, the responsible operator, so yes.
And the topic on return.
Sorry, the type of cost struck that Joe just described where you have periodic reopeners and the ability for pricing to move.
Plus or minus within a band overtime to keep.
Both sides as close to market as possible.
What weve, because what we've seen historically.
Okay.
And then in terms of the power plant mix can you describe just how that's been if there's any changes in terms of where the shipments have been going historically are you, adding any new powerplay customers or is it pretty stable.
It's pretty stable I mean, I think that you're.
You're seeing because there's fewer suppliers and you're saying our market share go up.
But it's basically.
Sure that there's some people weve got targeted that we havent shipped to before but.
Trying to go through each of our customers that I think to answer. Your question is that no. It's the same customers the same plants.
Yes, just as a higher cost guidance.
Go out in the market.
That.
That we pick up some market share.
Yeah, and then what's the.
What's the market like or what sort of assumption you got four power plants you have not historically sold so is it difficult to get the coal stocks or what are the hurdles that you see.
Yeah, So where we are targeting there are some plants that.
Have historically only only take that river basin coal.
And we've got a lower sulfur profit in Illinois basin, and our gifts and operation that we are marketing to and we've been.
Picked up some volume into that area.
But.
All the customers that have coal fired generation get generation.
Definitely want us to talk to us because they look at us as being.
Someone committed to the industry for the long term.
They see the strength of our balance sheet and Kate.
Capabilities are.
Operators.
Have reliable we are how we do what we say.
So that reception is good I think one thing we haven't talked about is the export market and we really do.
I don't have any volume built into the plan in 2021 for any thermal tons sold.
Next year, we are looking.
At.
600000 tons going into the metallurgical market.
Adam Mettiki and our AMC product does data Pcs.
Mold.
We're looking at around 300000 may or so.
There could be a million tons 900000, a million times going in the export market, but its all met related.
That we got built into our 2021 plan.
Okay, and then on the subject of balance sheet and your competitors, who are either potentially impact from say post reorg.
Does your balance sheet give you an advantage when you're going in for RSP is.
And.
Every solicitation says that it does.
Whether it does or not.
At this our customers.
Yes.
Alright I appreciate it thank you.
Our next question comes from Lin hand, with Hite. Please go ahead.
Hi, Good morning, Thanks for taking my question just wanted to clarify the cost for 2021.
I think you mentioned that.
You expect a cost to be predictable for next year and assuming you are producing 31 million or so next year.
Sure we think about their cost for company, one is going to be lower than 2019, given what.
The major yard to date.
Yeah, I mean, we believe that right now.
I think that we would be slightly lower than 2019.
Got it.
And.
Also you know.
I think back to a couple of years ago. I think you guys also the industry talk about to the.
Coal to gas parity or.
Coal demand like state to to gas price I'm just.
So now that even we see $3 or above gas price.
I don't see Youre very bullish.
Published by the co demand next year I understand there has already been called me 90, and also demand it but or should we think about what does the new like parity for coal to gas given you know it is our policy change or a given there.
Yes, she pressure of other utility part.
Well I don't think I would characterize it that were not bullish.
I would just say we're cautious.
All I'm, saying is that what we've assumed in the guidance on what.
We're not actually giving guidance other than we're just telling you.
That we believe that we can maintain sales at 7.7.
And I said earlier I have not factored in natural gas and so I did offer an opinion, one way or the other on that in fact, I am suggesting to you.
That there will be upside if gas stays at three and goes higher like most people think we just haven't built into that number.
Uh huh.
It starts with power demand.
It is.
Reflective of economic activity.
So.
We the economy does recover gets back to pre cobot levels or close to it and with natural gas pricing, where it is you will likely see a gas.
Yes, the coal switching and that environment.
It is just very difficult to predict at this point in time, so I I.
I agree with Joe I don't think.
We characterize that that were not.
Hopeful that we'll see stronger coal demand next year, but it.
It gets back to where the economy is what overall power demand looks like.
Yes, I just want to clarify I guess, when you talk to your utility clients or do you feel that they.
They are talking about the same mass late before okay, if cost $3, we need to increase our coal consumption because there.
Energy already our prosperity, but no worse. This last couple of years ago, They've Italia, yes on top of that we also need to consider about the U.S.G. pressure, so probably we need a little bit higher gas a copay hi, guys tries to do the same kind of a conversion.
Do you feel that way or you feel the same sales that couple of years ago.
I'd say that what we're seeing from our customers, they're not willing to make a commitment on a gas curve. They do not want to be put in a position where they have overbought, so where the gas curve does not prove to be.
It proves to be volatile and therefore, they don't be call it lower.
Long.
On the coal side, so what they've asked for is more flexibility and optionality.
So we have seen that to where customers are saying well.
I'm not going to commit to a higher gas price.
Price, but I want to prepare for it it will you be there for us and can you give us optionality.
That if it happens.
We can be covered.
So that kind of conversation is occurring but.
But no we're not seeing customers say that I'm willing to commit to that.
That's one of the reasons that we're cautious because I can't predict exactly whats going to happen with gas prices.
But I can give you some insurance based on conversations with customers that we're we're comfortable and confident.
That they're going to want to take 7.7 million tons a quarter from us.
Pretty much no matter what happens in 2021 absent the economy just collapse, yes not.
Going backwards I mean, the economy goes backwards back to Brian's comment.
Energy generation is going to be dependent on the economy and if biden.
Biden comes in chunks economy down then it's a different story.
But absent that.
Lead our customers.
Based on the solicitations, they've made are giving us comfort and confidence.
That we should be in a position to sale.
Yes.
With high degree of confidence that 31 million tons that were.
That have indicated that were trying to target higher production around.
As a base case.
Great last question, if I can squeeze one more.
If you see higher demand next year, let's see you or can you do you need to have some percentage higher demand next year.
Do you seeing you can still produce a.
A 10% low production at a similar cost or you.
You probably have to start some high cost production.
Oh I think it's the former I think we could generate another 10% ahead.
Equal to or lower cost because it's incremental I mean, we've got excess capacity.
I think the challenge to.
Go beyond that.
As we would need some term to try to make sure that it's not just a quarter to quarter.
To try to go much above another 10%.
Great. Thank you very much appreciate it.
Okay.
Our next question comes from Tim Nowak with advent. Please go ahead.
Hi, Good morning, Tom No I got that.
Do you guys have a gross debt target you would like to get to.
I'd say, we typically target one times EBITDA and total total leverage.
Yeah.
But again, we can go higher than that.
If we see a path.
Well.
So I think you've done 180 million of free cash flow year to date.
At a pretty disastrous year.
Just you know just out of curiosity, what do you think if you didn't know assuming no March April may shutdowns again.
And assuming you don't pay any distribution how many years do you think you would take you to just entirely and your gross debt balance.
Oh, God, I mean, I think Tom and that type of a scenario we'd have.
Sufficient cash flow to completely pay down.
All of our debt within their maturity schedules.
Yes, I I've been I guess, what I'm getting at is you generate a lot of free cash flow and it's not unreasonable to think the coal companies are permanently shut out of the high yield market right. So in that scenario why run really with any material debt levels.
All right and why not just use the free cash flow.
Take that down to a de minimis level, maybe a little bit of secured bank debt.
And then just pay out the rest to equity holders over the life of these assets.
Well, we'd like to grow.
So we're not a trust.
So we would like you to is that do you grow using debt from our CLO.
Well I don't know that we're using debt financing or if we're using the cash flow that we're generating I'd like to think it's generating the cash flow, we're generating and that the growth that taking that cash flow and putting it in and growing.
Our cash flow from those investments on top of the growth already embedded in the investments we've made in the mineral segment.
I believe that our cash flow would support debt levels at one times EBITDA.
That we could we do have a future beyond 2035.
And that.
To try to zero back to zero debt in the next two years when you got a 15 year runway.
It seems to be very very conservative appreciate that we may not be in the high yield bond market, but there is other.
Ways to finance the growth.
Of investments that we would make and that we.
We don't have to use 100% of the cash flow I mean, I think we have committed.
Forever.
That we're going to have a strong balance sheet.
I think your question was leading towards what is a reasonable.
No.
To have a strong balance sheet and the.
As we look to the future of our company.
And I believe today that we can carry one time debt load and Thats, a very conservative balance sheet.
Its strong that will allow us to use any cash above that to.
To grow our business and or reward shareholders in some way.
Uh huh.
That's.
My focus today.
We'll be.
For today going forward.
Okay got it. Thank you very much that's helpful.
Yeah.
Our next question comes from Mark Levin with Benchmark Company. Please go ahead.
Yeah.
Yes, Thanks, again for allowing me a follow up question around liquidity and surety bonds, Our third party party surety bonds right.
Right is there well two questions. One is there a minimum amount of liquidity that you want to maintain and I ask that against the backdrop of what we've heard from several other coal companies like arch and more recently and then Peabody before them regarding collateral cash collateral calls on profit.
Weighted to surety bonds I guess my question is a around you know is your comfort minimum liquidity level and then B how have you been.
Asked or are you corresponding with third party surety bond providers about having to potentially provide more cash collateral. Thanks, Yeah. Let me take the second part of that question first Mark.
I think at year end.
Between our.
Separate tyerman obligation bonds worker.
Workers comp the mountain co Coos as.
Other performance bombed total surety bonds in place were roughly $280 million or so okay.
It's obviously, a very fluid market not not just with our space, but across the board.
In many industries as charities are really reassessing.
What is an appropriate level of collateral.
We've seen some increase.
It's been relatively modest.
I think our total collateral outstanding at this point in time is still less than 10% of our.
Total bonds in place.
But it does remain very fluid and we're.
Talking not only with our surety providers, but with our.
Insurance companies et cetera on how to best manage that.
In terms of overall liquidity.
I think probably at a minimum we've generally been focused and somewhere around the $250 million range or so and clearly.
Increasing collateral requirements.
Eats into what your overall capacity availability looks like and we'll be trying to manage through that as that market continues to evolve.
Yeah, that's a great answer I appreciate all the clarity there. Thank you.
Sure.
Our next question comes from private Investor Sam Johnson. Please go ahead.
Yes. Thank you for taking my call and congratulations on a good quarter.
Two questions first have you folks considered a reverse stock split and if not why not.
And also EW.
You touched on acquisition strategy earlier, what role or what's your thinking with respect to a renewables obviously a lot of oil.
Oil companies BP total show than others are moving into.
The renewables area, what how do you what do you see for Rob.
Your company in that regard.
Yeah for the first question I have thought of the stock split.
And we're continuing to.
Find ways to try to understand how we can unlock the value.
And our company, particularly our minerals segment, where.
We feel like that we're not getting.
Proper valuation and understanding of the cash flows that those assets.
Bring and.
What they are.
What the prospects are for the future.
No that is one of the areas and we just.
Yeah.
As we continue to evaluate.
It's so hard right now because.
The way the market is treated the energy sector in total.
That haven't felt that just going out and doing a stock split today is going to matter I mean, I can't get any assurance that any of the tools that were talking about that might be traditional tools that could enhance value for the long term would be appreciated and recognized in the short term <unk>. So that is tool and.
But that's why it hasn't happened today.
But could it happen in the future. It's on the list of things that we should consider.
As being a shareholder enhancing.
Relative to.
Your question on.
M&A.
Yeah.
Yes, I think that the.
There is again a need for consolidation may have made that statement many times.
And I continue to believe that our industry is it would be beneficial.
To all.
Ah yes, we.
Again, I think that given the climate.
What happened with.
Arch Peabody merger.
Trying to understand what that means.
Trying to understand the timing relative to the election.
It makes a.
A decision.
Really more from a sellers perspective, not from a buyer's perspective.
Difficult so.
We're starting to see on the SMB side producers coming together.
Driven largely by their leverage and where the leverage thats occurring in that industry. So.
You got to assume that.
The management and the boards of those industries have been influenced by what the lenders are saying and.
NAND investors and you've seen a lot of.
Investment money, both private and public right away from that space. When you look at the investment funds et cetera, and I think as we think about what is going to taking the co industry is probably going to have to be driven by the lenders and door.
The investing community as to whether that money is going to come to the industry or not.
Eventually will the owners.
Of.
The other players that have to participate I mean, if we're going to have a consolidation you had to add more than one party willing to do it.
Then it's going to take some won some catalyst.
To encourage those type communications and.
We'll see.
I think that.
The election, so close that everybody's going to wait and see what happens and then.
Uh huh.
The average Luca.
Lucas question I believe earlier on.
Whatever the coal industry and are buying administration.
Mhm.
Yes, that'll have to be evaluated bowel stakeholders.
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We'll have to come together somehow some way to.
Determine whats best what's in the best interest.
Uh huh.
We have the owners of these companies.
Okay. Thank you.
This concludes our question and answer session I would like to turn the conference back over to Brian Cantrell, Senior Vice President and Chief Financial Officer for any closing remarks.
Thank you, Matt and thanks to everyone for the robust discussion this morning.
As well as your time and continued support of Alliant, Our next call to discuss our fourth quarter financial and operating results is currently expected to occur in late January we hope you'll rejoin us again at that time. This concludes our call for today, thanks to all for your participation.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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