Q3 2020 CONSOL Coal Resources LP Earnings Call

[music].

Good day, and welcome to the C.I.X. and TCR third quarter 2020 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 you a press star then one on a touchtone phone.

On to withdraw your question. Please press Star then two please note. This event is being recorded I would like now to turn the conference over to Nathan Tucker Director of Finance and Investor Relations. Please go ahead.

Thank you, Matt and good morning, everyone. Welcome to console energy, it's all coal resources third quarter 2020 earnings conference call any forward looking statements or comments, we make about future expectations are subject to some risks, which we have outlined in our press releases and in resi see filings and are considered forward looking statements within the meaning of section 20 Onee.

Of the Securities Exchange Act of 934, we do not undertake any obligations of updating any forward looking statements for future events or otherwise we will also be discussing certain non-GAAP financial measures, which are defined and reconciled to comparable GAAP financial measures in our press releases and furnished to the FCC on form eight K. you can also find additional information.

And regarding the company is on our website www Dot consolidated you dot com and Www Dot C.C.R.L.P. Dotcom, we also posted a supplemental slide deck to both of our website prior to this call, which we may reference this morning.

On the call with me today are Jimmy Brock, our Chief Executive Officer, Mr. Carr, our Chief Financial Officer, Dan Connolly, Our senior Vice President of strategy and Bob Bradway, Our vice President of marketing and sales in his prepared remarks, Jimmy will provide a recap of our third quarter 2020 performance and specific insights on marketing and operations, but test will then discuss.

Our liability management program and details of our recently completed transactions financial results and preliminary expectations for 2021.

After the prepared remarks, there will be acuity session in which Dan and Bob will be available to participate as well with that let me turn it over to our CEO Jimmy Brock. Thank.

Thank you Nate and good morning, everyone before I jump into the operational and marketing details. Let me provide a brief high level recap of the third quarter.

We achieved several important milestones during the quarter.

On the safety front, we delivered a very strong performance as our Enlow Fork mine Bailey preparation plant consolidating terminal and it meant project each had zero recordable incidents. Additionally, our total recordable incident rate improved significantly by 60% in Q3 of 20 versus Q3 of <unk>.

T and continued to remain well below the national average for our industry.

Managing risk from COVID-19 remains a priority at our operations, we continue to execute our enhanced sanitation social decision and several other precautionary measures at our operations. The entire Arkansas team takes these measures very seriously and places safety at the forefront of everything we do.

On the operations and marketing fronts.

After facing significant headwinds from the reduced customer demand in the second quarter, we experienced a steady pickup in demand in Q3 of 20, driven by higher natural gas prices and hot summer weather.

As such we ran four of our five longwalls for most of the quarter after wrapping up our fourth wall in early August.

We saw steady improvement in the demand for our coal throughout the third quarter compared to the second quarter.

With respect to see further improvements in the fourth quarter as forward gas prices remain healthy and most countries across the globe are reopening and many of our customers sell their stockpile levels reduced by the relatively strong summer burn.

On the financial front, we continued to remain laser focused on de leveraging our balance sheet and improving our liquidity.

To achieve that we completed multiple transactions during the quarter that not only boost income in the second half of 20, but also improve our liquidity and financial flexibility.

We also recently announced our transaction to simplify our corporate structure by emergent CCR into console energy and have one public company moving forward asthma test will discuss.

We believe having one public company will also improve our credit metrics.

Our finance and operations teams continue to focus on reducing discretionary spending as they manage to the pandemic related downturn.

Now, let me review, our third quarter operational performance.

Coal production at the Pennsylvania mining complex came in at 4.5 million tons. In Q3, we had 20 compared to 6.5 million tons in the year ago quarter.

The decline was due to a reduction in customer demand compared to the prior year period as we continued to deal with the lingering effects of the cobot not team pandemic.

However, it is worth noting that our production in Q3 of 20 was nearly double what we produced and sold in Q2 20 dumb.

The man has steadily increased since the end of the second quarter and as I mentioned earlier this allowed us to restart our fourth longwall in early August.

Well rich out of the Pennsylvania mining complex CCR produced 1.1 million tons of coal during Q3, a 20 compared to 1.6 million tons and the year ago quarter.

On the cost front, our average cash cost of coal sold per ton was $28.64. In Q3 were 20 compared to $32.78 in Q3 of not team as our operation team was successful in keeping tight control over cash expenditures in the quarter.

This performance is particularly noteworthy when you consider that we had three longwall moves in August and September, which typically increase cost.

The adjustments, we made to our operations allowed us to reduce our overall average cash cost of coal sold per ton on our producing assets and to partially mitigate the financial impact of the reduced production volume.

The improvement was primarily driven by lower mine maintenance and supply cost contractors in parts of service cost and project expenses.

Compared to the second quarter, our mine idling cash cost declined to $4 million from $32 million as all three mines were in production in the second half of the third quarter.

The consolidating terminal had a throughput volume of 2 million tons during the quarter compared to 2.4 million tons in the year ago period.

Despite a decline in shipments our terminal revenues for the quarter were actually improved 17 million compared to $16.3 million and the year ago quarter.

Additionally, cash operating costs were improved at $4.8 million versus $6.3 million in the year ago period as the total employees continued to successfully limit their cash expenditures in Q3 of 20.

I will now provide an overview of coal markets and an update on our sales performance and accomplishments.

From a market perspective demand trends turned positive in the third quarter of 2020.

After a difficult start to the year with mild winter weather low natural gas prices and an extremely challenging second quarter widespread economic shutdowns due to the cold not team pandemic.

Overall demand for our products improved in the third quarter from its low point in May.

Hot summer weather and higher natural gas process put call into money for many of our customers and we were able to ramp up a fourth longwall in the quarter.

According to the <unk> coal.

Coal share in generation fleet improved to 23% in August from 15% at its low in April even with the overall electricity generation increasing by 45%.

This means that not only did the overall pie expand but co took a bigger slice of the pie.

On the power profit from average PJM West day ahead power prices were 13% lower in Q3, a 20 compared to Q3 of not team.

However on a positive note that year over year decline was far less than the third quarter than it was in Q2, a 20, which was down roughly 28% compared to Q2 of not team.

Henry hub natural gas spot prices, followed a similar trend average in $2 per million be to you during the quarter or a 16% decline compared to Q3 of not team.

Which was improved from the 34% year over year decreasing in the second quarter 2020.

Natural gas prices started a significant upward trend in August which has continued this fall.

We sell multiple days at the end of October and Blitz, Henry hub spot prices averaged over $3 per million Btu you.

You have to go all the way back to March of 2019 define spot prices above the $3 Mark.

While these are just a few data points. The recent trend is very encouraging.

These higher natural gas prices have led to overall demand improvement and resulted in an increase in coal burn in the US which also led to decreased coal inventories for most of our customers.

On the domestic front, we continue to follow the coal and natural gas market trends very closely.

First low natural gas and crude oil prices earlier this year led to reduced capital expenditures and activities for BMP companies.

And Arthur highest levels since October of 2019.

Due to supply constraints, we have seen petco process from the U S golf increased by over 30% during the quarter, which is pushing byers, specifically submit plants across the globe to look at a ton of the fuels. Additionally, LNG prices into Japan and Korea are currently at 11 month Huh.

As of mid October of 2020.

From marketing perspective, it is encouraging to see that demand for our cole has dale improved since region. This low point in May we continue to maintain 100% of our existing customer base and continue to see improvement from a contracted perspective beyond 2020 as of September 30th we are $13.

2 million tonnes contracted in 2021.

However, we are in the middle of domestic RFP season, and we expect to secure meaningful volumes in the coming months with that I will now turn the call over to my test provide the financial update.

Thank you Jamie and good morning, everyone. Let me start by providing an update on a liability management program and color on our recently completed transactional opportunities I will then review our <unk> 20 financial results and outlook for <unk> in 2021.

Our financial priorities for 20, 2020 have been to maintain strong liquidity, introducing outstanding debt and improve the risk profile of our balance sheet in order to create long term value for our shareholders. It stops was maintaining full access to a revolving current facility, while we execute our other strategic and financial objectives.

Management has initiated several actions this year aimed at ensuring the success of the strategy. Despite a significant reduction and decor demand brought on by the COVID-19 pandemic.

Fast throughout the year, we have reduced discretionary spending this included reducing BMC capex up to 50% compared to 2019 levels and defaulting. The majority of our growth Capex at the Edmund Metallurgical coal mine and allocating those dollars to that reduction reinitiate it cost reduction efforts re-ally.

Our operations to better match output with demand.

Second in the second quarter of 2020, Resuspended Ccr's gas distribution to arguing toward us which resulted in annual cash conservation of approximately 22 million FC IX level and approximately $58 million CCR level.

So we moved early to Amanda credit agreement, which provided us with eight quarters of covenant relaxation. While also providing continued access to a $400 million revolving credit facility.

We also added additional flexibility to repurchase outstanding secondary notes with auto leverage test.

We have been strategic in our approach to buying back our second lien debt and capturing the arbitrage as the notes have created well below path.

After suspending the programming too cute 22 comes over liquidity, we bought back $2 million of our second leaned notes in the third quarter.

Year to date, we have deployed $26 million of capital to regard approximately $45 million face amok of our second lien notes at a significant discount bottom Avenue, which reduced our leverage and reduced annual interest expense by $5 million.

We continue to deploy additional capital towards our secondary indepth buyback in the month of October as well.

And the second half of 2020.

We completed multiple transaction that boost of liquidity and improved financial flexibility.

An aggregate Cif and CCR expect to record $60 to $70 million and $9 million to $10 million, respectively, miscellaneous income and gain on sale of assets in the second half of 2020.

To that extent in the third quarter of 2020, cei, except call at $26 million in income and gains related to these items.

And expects to record an additional 34% to $44 million in the fourth quarter of 2020.

CCR expects to record it's nine to 10 million portion in fourth quarter of 2020 from a cash flow perspective.

Received approximately $9 million in cash and three 220, and anticipate receiving approximately $15 million to $20 million in cash during for cute 20, and $20 million to $25 million in cash during 221.

The remainder is expected to be collected in the second half of 21 and beyond xxxx chefs CCR anticipates, receiving approximately $4 million in cash during <unk> 20, and approximately $6 million in cash during two 221.

Finally, see actually recently signed a module agreement with CCR to acquire all outstanding common units of Ccls CX does not already own and then all stock transaction. This is an extremely important transaction for both entities for a multitude of reasons.

As Jimmy mentioned, it simplifies our corporate structure with streamlines financial reporting it creates additional transparency for our investors and analysts on the financial side, we expect to see an immediate improvement.

And our credit metrics enhanced access to capital and long term benefits for auto equity holders pro forma for this transaction Cis's third quarter of 2020 Bank EBITDA will improve by approximately 46 million, resulting in stone improvement.

And on net leverage ratio.

More importantly, we expect this deal to accelerate our ability to initiate capital returns under our covenants, which are currently restricted.

Given the leverage ratio test of 2.0 times.

We also expect.

This transaction degenerate approximately $3 million in annual synergies to summarize we believe this deal and lock significant value for all all our stakeholders to improve financial flexibility and transparency.

Despite an extremely challenging year from a demand perspective in the midst of an ongoing pandemic I am extremely proud of the accomplishments of our team as it continues to identify ways to improve our financial flexibility and liquidity.

We believe that these actions have put us in a much stronger position to take advantage of the potential market recovery in 2021 as indicated by the current gas followers.

With that let me know recap our third quarter results will review Cei explore then CCI.

See I supported third quarter of 2020 attributable net loss of $7.2 million or 28 cents per diluted share compared to net income for $3 million or 16 cents per diluted share in 2019.

On a positive note <unk> 20, adjusted EBITDA 60, $813 million and organic freak Ashcroft minus three $8 million, which marks a significant improvement from two to 20 levels as our operations began to recover from the pandemic driven demand decline.

More importantly, CX generated approximately four $3 million a free cash flow and three 220, if you consider cash received from all from asset sales.

It is worth noting that on average are mine's only ran at approximately 63% capacity utilization during the third quarter. This highlights the cash generation capability of our assets when they run at 95 plus percent capacity utilization.

They have done and last two years.

We ended the third quarter with cash and cash equivalents of $22 million, a modest reduction from $33 million at the end of second quarter.

Of the $11 million reduction in cash we used approximately $15 million towards debt repayment.

At the end of three 220, we were in full compliance with our credit covenant and maintain full access to a $400 million revolving credit facility with no borrowings outstanding.

Now, let me update you on CCI.

This morning, CCR reported a net loss of $5 $5 million adjusted EBITDA, nine 4 million and distributable cash loss negative one 6 million for third quarter. This comp apps to net income of $7 million adjusted EBITDA $20 million and distributable cash dwarf nine $2 million.

And the year ago quarter.

And three 220, CCR generate a $10.8 million in net cash from operating activities, which included a $4 million improvement in working capital.

After accounting for $3 $9 million in capital expenditure and $1.6 million in finance lease payments, we were able to reduce our outstanding debt on the intercompany alone with Cif's by four 9 million in the third quarter.

Nonetheless, due to the continued reduction in the trailing 12 month EBITDA CCF finished the quarter the net leverage ratio of three four times now.

Now let me provide some preliminary color on what we expect heading into 2021.

On the operational front, we expect production to improve significantly in fourth quarter of 20 come back with per quarter 20, absent any more covid delegates shutdowns.

Shipments have been returning to more normal levels. Despite the uncertainty that still exists.

We have seen an improvement in inquiries in the domestic market on the back of rising natural gas prices and we secured 500000 tonnes during the third quarter for delivery in fourth quarter of 2020 as inventory levels at most of our customer plans are at or below normal levels for this time of the year.

Exports demand is improving as well specifically into India, where the economy is reopening.

Staying focused on cost containment and managing liquidity, while opportunistically, taking advantage of the arbitrage and the price of a publicly traded that will be our top priorities.

As we look into 2021, we currently expect a rebound and colborn and demand for Paul.

Jimmy walk through the main drivers, but let me reiterate that the tightness and the supply of natural gas is driving a pricing and the spot market and forward strip.

This should improve the competitiveness of our product and we have seen a willingness from utilities to engage in discussion for long term contracts.

We will continue to focus on the things we can control and ensure we are ready to fully capitalize on any additional improvements in the marketplace.

We currently have a 2021 contract position of 13.2 million tonnes at unexpected price of approximately 40 $43 per ton of.

Assuming an average Paula price and PJM West of 29, 83, but megawatt hour consistent with the current forward strip.

From a balance sheet leverage perspective, we expect our quarter of 2020 to Mark the peak leverage and expect further improvement in coming quarters.

With that let me turn it back to Jimmy to make some final comments.

Thank you Mantashe.

Before we move on to the Q&A session. Let me take this opportunity to provide an update on some of our other business develop initiatives that we have been working on and a recap of our accomplishments here today.

We continue to progress with development mining at our <unk> project, where we're operating a single section one shift per day at minimal cost and we continued to be encouraged by what we see in terms of cold quality and seem conditions.

We maintain that capability to ramp up this project consistent with our capital allocation process when market conditions warm.

Providing a solid pathway for organic growth and diversification.

We also are seeing meaningful progress on our technology driven growth initiatives ominous is well underway with construction of its first commercial module.

Preparation plant, which will converted portion of our thinking are under flow waste stream enter salable carbon and mineral matter of products.

That first module is on track to be operational next year.

We've seen positive R&D breakthroughs in the code of products work that we're doing with sea foam, Ohio University, and engineered profiles as well and.

And last but not least we received news in late October that the U S Department of energy has selected our coal first project to proceed into the next phase of development.

This project is evaluating the possibility of construct in advance coal based power plant of the future in the vicinity of our Pennsylvania mining complex.

The plant would be designed to utilise highly efficient pressurized fluidized bed combustion technology to fire waste call from our mining operations and would be equipped with biomass cole fine and carbon dioxide capture and stories to achieve net neutral or negative carbon dioxide emissions.

Under the newly selected project will be working on a detailed front engineering and design study during the next two and a half years with approximately 80% of the funding provided by the <unk> with a go no go decision point after that.

We are still obviously in early stages of this endeavor, but we believe it provides an exciting opportunity for us to help define the future of our industry.

I am extremely proud of the resolve of our entire team from.

From the onset of this pandemic, we decided we weren't going to set back and simply react we focused on taken tangible steps to position ourselves to benefit from the eventual recovery.

While each step was important are most recent accomplishment is the one I'm most excited about which is R announced merger agreement with CCR.

We believe this merger will set us up for success in the future as we navigate the continued uncertainty in the market and head into what is shaping up to be an improved of 2021.

This merger creates one entity that is stronger and more flexible than the two separate entities. We have today. We believe this transaction is beneficial to all stakeholders.

And CCR.

This agreement simplifies consols corporate structure and is expected to increase Cei X public flow and trading liquidity as well as enhance its access to capital markets.

All of these are crucial for success given the headwinds our sector faces.

We believe that completion of this transaction couldn't have come at a better time and this consolidated continent can take full advantage of a potential market recovery heading into 2021.

We truly believe that we are stronger together than we are apart and this is the right thing to do for both entities.

We expect that we will receive the required approval is needed from both cei stockholders and CCR unitholders.

Lastly, let me provide a brief update on our negotiations agenda Murray bankruptcy.

As we have stated before we cannot comment on ongoing litigation, but we can provide an update that we have entered into a set amount with the Moray debtors.

This settlement.

Addressed all open matters between Consol Ann Marie into bankruptcy.

Along with assuring Morris cooperation is consistent with historical practices with respect to each parties payment obligations related to workers compensation and black one client the settlement provides value to consol through the sale and transfer of certain other assets between the parties. We refer you to our 10-Q.

Two four the impact of such settlement on our financial statements with that I will hand, the call back over to night for further instructions.

Thank you Jimmy we can now move to the Q&A session of our call. Matt can you provide the instruction to our callers. Please.

We will now begin to question and answer session pass a question you May Press Star then one on your Touchtone phone, if you're using a speaker phone. Please pick up your handset before pressing the case if at any time. Your question has been addressed and you would like to withdraw. Your question. Please press star up into at this time, we will pass momentarily to assemble our roster.

Our first question comes from Mark Levine with the Benchmark company. Please go ahead.

Great. Thank you very much I appreciate you taking my questions. The first one is more of a modeling one and then I'll get then I'll go Big picture, but.

When you look at the fourth quarter versus the third quarter, maybe you can comment on long haul move how you think production will look relative.

On a sequential basis cost et cetera, just kind of thinking about what <unk> looks like the <unk>.

Okay.

Mark queue for as we said earlier in our statement here. We thank you for is going to be significantly better than Q3, we are running all for long malls now and we do not have any long haul moves in queue for we.

Are well prepared to wrap up if we need to and as we've always said will run to market conditions as far as the cost goes we don't have long long moves we think that Q for our goal is to stay sub 30 of cash cost and we think we could even see some improvements and adhere in queue for.

That's very very good news.

Let me.

Let me shift a little bit too.

Murray and I know there is some discussion of it in the.

In the in the queue, but maybe you can I know you don't want to get into too many specifics and you may be.

You may not be able to even if you want to but maybe you can just provide at least a little bit of color as to how to think about the financial impact to consult specifically in in 2021 and beyond.

Yeah, those I can't disclose mark the individual settlements, but you can look in our queue and you can kind of do the math and come out close to answer neuron question there.

Okay Fair enough turn it off let me.

Which are a little bit too.

Rose and surety bond providers in that fund discussion that is an issue obviously just been coming up a lot more.

As it relates to use coal companies, maybe you could provide some background in terms of how you guys are positioned visa.

Sure. He bought third party surety bond providers and some guideposts in terms of how to think about what are the worst case scenario might look like.

If cash collateral call started to come through the door.

Yeah, Mark or take that this in the past year. So as you know the surety on insurance markets have been increasingly challenging and particularly for coal companies, we have heard it with other companies as well.

During the third quarter, we issued about $17 million of letters of credit to our Chaudhary providers.

We keep an open and transparent dialogue with our surety provider than I have been successful and minimizing logic logic <unk> overall liquidity.

I think the key to providing comfort for our shorted abroad is to make sure that we are doing necessarily work that needs to be done and making sure. They understand that we have access to liquidity.

The business I started to turn around as you can see from our numbers and we anticipate that that's going to help us.

In this conversation's as well.

We anticipate some more letters of credit Sierra in the fourth quarter around the same number that we had in the third quarter.

<unk>.

It's an active process, we continue to have an active dialogue here with our surety providers.

And my final question has to do with liquidity, so against that backdrop, Natasha and Jamie.

What is the appropriate amount of liquidity that you think it makes sense for you guys to have in this kind of this kind of environment. I mean, how do you how will you manage sort of what that minimum liquidity number is versus maybe going into the open market and buying back second leaned.

So I think.

The answer is different depending on where you are on the market cycle right like when Youre minded are not running like what we had in the second quarter used you noticed that we suspended buyback program completely. That's when you are actually cause elven liquidity or minus generate a consistent free cash flow. When they are running so I think that gives us a lot of comfort, but you always have a plan for it.

I feel comfortable.

In terms of the access that we have to a revolving credit facility we.

We don't anticipate borrowing an auto volume credit facility on a consistent basis to run an operation that his dad as a source of liquidity for us and that has been out a game plan since day one.

To the extent of things I've started to improve I think I mentioned on my last call or the one before that going back into the market.

Goodbye back or secondhand would it be not only contingent on how much cash we have on hand, but also on how the market has been unfolding so to the extent that Jimmy said.

On the call earlier, the fourth quarter is looking really strong and we are very good indications off of 2021, I think that gives us a lot of comfort to start going back into the market and by our second lien.

But you will notice that just like in the past we are going to be market, driven we're going to make sure that.

We stay in combines with our governance and we're going to make sure that we have adequate liquidity.

That we need so we're going to be very.

We're not going to buy a lot of that at one time.

And we are going to be.

Dobie Smile on a monthly weekly basis, rather than doing a large standard offer or some something like that so.

That's perfect. Thanks, guys I appreciate your time thank.

Mark.

Our next question comes from Matthew Fields with Bank of America. Please go ahead.

[laughter].

Hey, everyone.

Few things for me.

First of all I appreciate the color in touch on the on the sort of cash proceeds from these asset sales and the schedule I just want to go over that because he went over the past.

$9 million and <unk>.

Did you say, you expect $15 million to $20 million and four Q.

$20 million to $25 million was it two Q 21.

Yes, and the new address beyond that.

Yeah, Q do 21, and the rest of the beyond that.

Okay. So that's that's $15 million to $25 million in like the second half of 21.

Not second half of 21, it could be beyond that as well and the actual proceedings might be higher math than that 15 to 20 that is leftover polyol calculation, because we discount that value back when we're booking income but.

Okay, and then do you have a timetable for that other that last piece.

I would say starting second half of 2021, it's not material in any given period. So.

It's going to it's going to be spread out a little bit.

Yes.

Okay, great. Thank you.

And then I think I think Mark asked about Elsie's and you said you're tough.

<unk> answer because it's a constant negotiation, but you increased elsie's.

I think $11 million in the quarter held against that revolver have you had the nw's elsie's in the fourth.

Yes, yes, sorry go ahead.

Yeah, I think 17 between the revolver in the facility.

Have you had to have you had to increase elsie's post any more collateral in October.

I said, we're expecting around the same number of increase in the fourth quarter as well.

Okay, so another $17 million of collateral.

Posted.

And what gives me a little bit more comfort as we haven't had dialogue with most of our surety sore I.

I feel good about where we are and like I said.

When the business starts doing well in the results started pouring in I think.

It gives us a surety companies a lot more comfort to that.

Company is started generating cash.

And then you think you have been in line of sight on when you perhaps might get to release some of that collateral.

A couple of things we are working on but too soon to announce.

Anything right now, but we are working on few things are also remember we do have access capacity.

On some of our surety provider, so if we need to most things things around.

We can move more things around.

Okay.

That's helpful. And then I think he May just mentioned this in passing but did you buyback more second lien bonds in October.

We did.

We did.

I don't have the exact number in front of me, but should be in the high single digit million dollars.

Okay and that roughly the market price.

Well, yeah, whenever we bought we bought it and open markets. So whatever the price was then but I did notice that our second lien that has traded up all last month or so so the blended average could be.

Lower than what the current market prices.

Okay.

And then.

No you sort of are more comfortable buying back bonds. When your minds are kind of more operating fulsome way like they might be in the fourth quarter.

Ultimately like what's the you have plenty of liquidity, what's the gating factor on buying back more secondly, and does it the liquidity of the bond issue itself you don't want to.

Raise the price five points by by going in for 10 million or.

What's kind of the gating factor there to buy more.

Liquidity is definitely a concern but also remember like what I said before that I don't want to do is <unk>.

Significant deployment of capital at this time minded are running great. We have a good visibility how fourth quarter looks like and potentially beyond that too, but I can't forget. The fact that we just had a record covid cases and U S. A couple of days ago like you have to keep these things in mind and be cognate.

And of how things are playing out around the world.

I hope it doesn't happen, but things could shut down again, and you don't want to be in a situation that.

You deployed audio Bullock at one goal.

That's a fair point.

And then lastly for me of the 13.2 million pounds contracted to 21 or any of those in the export market.

Hi, Matt. This is Bob we have very little contract in the export market next year at this time.

We did mentioned we do have have some carryover volume that we're working with customers. The majority of that carryover volume is is the volume that we currently have under contract with our with our partner export partner X call. We continually work with them in the first quarter, Jim Mccaffrey mentioned that we were on pace for our 10 million ton.

<unk> goal.

10 million tons of exports. This year and then we had to shut down across the globe.

So that has been we have seen some pick up here in the third quarter and into the fourth.

And we're working with X call to ensure that those those volumes move, but I will tell you in at $13.2 million zero tons of those X.

Shouldn't say I should say zero of those exco carryover tons or in that number so.

We're starting to get a little bit more clearer picture here going forward on the export market and will continue to work with at school to get those volume shipped that we have under contract. So basically the majority of those volumes next year, the $13 to our domestic.

Okay. That's very helpful. Thanks, Thanks, very much guidance and good luck next quarter.

Thanks, Matt Thank you.

As a reminder, if you have a question. Please press star then one to be joins into the question queue. Our next question comes from Lucas pipes with B Riley. Please go ahead.

Hey, good morning, everyone.

Hello this.

I wanted to follow up on.

Your presentation from a few weeks ago you.

You got a lot of questions on the 80 million free cash flow pro forma 2021.

On the heels of the consolidation.

At the time I asked.

What sort of pricing on the contracting contractor tons is underpinning.

That guidance and so I want to repeat that question today.

And any other color you may be able to share for example, the <unk>.

Oh seats from asset sales would that also be included in the $80 million a free cash flow I really appreciate your color. Thank you.

So so Lucas.

Say the income.

Expect it to be booked.

2020, so it would not have been reflected in that 80 million number from a free cash flow perspective, but the cash generation off from.

Think the $20 million to $25 million it'd effort to for the second quarter will be in that number.

Very helpful. Thank you in in terms of pricing.

What sort of pricing assumptions are baked in obviously.

Book $13 2 million tonnes. So maybe you can speak to that and then also what you're assuming on on contracted.

Rather on price tons for the balance.

Lucas This is Bob as Jim mentioned, we are right in the heart of RFP season, right. Now we have several several bids out that we expect to get some feedback and some positive feedback for that matter here over the next several weeks and as Jim mentioned, we expect to secure meaningful volumes on the pricing standpoint pricing front for compare.

Of reasons I want to be careful what I say, but I would suggest to you. If you look at the market in general.

There's a lot of contango in our market gas prices are in contango power prices are contango.

I would simply suggest to you that when you when you look at the current public public Mark marks out there, whether you're looking at IHS call desks et cetera.

We're expecting at those prices will be north of what those published marks are and I think you've heard this before.

There's no there's no one out there that can live live with these these current prices long term. So we feel very confident about our ability to to secure meaningful volumes under these current rfps in or out and our expectations are pricing will be better than once you are currently seeing in the forwards.

Look at this is.

This is Dan I might just add a little bit more color to that we are still obviously in a period of transition kind of climbing out from from the bottom that we face this year and.

I am not sure that people always appreciate the stretch that we've gone through here with gas prices I mean.

Looking at the first 10 months of the year gas is only been above $2 and three of those 10 months.

January August and October never been above 215, and define gas below $2. Prior to this stretch you got to go all the way back to.

To may of 2016, when we were at a Buck 92, Henry helps hub spot price.

And if you look at kind of the scenario then.

Yes, northern not call and in the spot market published prices at about 33, 50, PJM West power right at about $24 30.

And soon thereafter going into 2017.

We did see gas prices improve too right around $3 per million Btu, very similar to where the movement stripped.

<unk> right now for next year.

And given time to recover northern App spot prices got back up to right around $47 $48 on a spot basis published prices.

PJM West power.

Hello line at about 29.

Dollars and change per megawatt hour. So a very similar scenario setting up I would say.

When you look at the forward strips for gas and power heading into.

Into 2021, and as Bob said.

Just need the market to balance and I think many of the same fundamentals still exist.

That's that's very helpful. Thank you for that and.

Then.

Question, you you've touched on.

And prepared remarks, and some of the earlier questions, but just to make.

Make sure I'm not missing anything.

All the all the minds are are fully running years is is that right and and.

Would that be the outlook for 2021 at this point as well.

Currently Lucas we're running for long walls, typically we run five but we are currently running for.

We will have our other longwall will set and ready to go with market conditions warrant that we ramp up to that so we would love, but I would tell you today, we're running at about six to six and a half million tonnes a quarter.

As you well know we can run 27, five to 28 million tons. So I would say we're running at about 80, 590% capacity currently today and if market. Once we certainly have the ability to ramp brought back up to that 27 plus number.

That's very helpful. I appreciate that and continued best of luck.

Thanks Lucas axes.

Our next question comes from Nick <unk> with Stifel. Please go ahead.

Hi, Thanks for taking the questions. The first one on the $13 2 million tonnes for 21 Directionally can you, let us know if the contract with those replace does that pricing up or down.

When you say contracts replaced I'm not sure I'm. Following your question you mean, the new contracts Nick Yeah, the new contracts for those $13 2 million tons of the roughly 43 Bucks does that up relative to what you were receiving for those tons in 2000 and 2020.

So so 2021.

I would suggest that the.

Contracts that we're now we're currently negotiating or deals that we are currently negotiating it depends on the timing of the market. Today I would say you are probably a little bit below that $43 average number. However, one thing that I see happening right now as as many utilities are still concerned about covid, so they're not buying I'll say 100.

Per cent of their of their burn needs for next year, they're leaving a lot more open for the spot market and I think Dan just went through some good math.

Suggest should these economies reopen should people get back to working in our offices kids going back to school.

I think there'll be a strong spot demand and spot market happened in the first quarter of next year and potentially even further out and at that time I think the pricing will will improve so again for the contracts were currently talking about I'd say, they're bumped the published March, but probably somewhat somewhere below the 40.

$3 average price we currently have today.

And then.

Secondly buybacks.

I believe you have a 25 million dollar annual limit for those repurchases.

First question is that still in place and then is there anything consideration to going back to the first thing lenders to loosen up that basket.

Listen we look at.

All the tools that we have from a corporate finance perspective, I will say.

That.

We still have availability on that basket. So it's not that we need to.

Go back.

To seek relief or anything like that I think.

And the liquidity the training liquidity in the second lien bonds is like right now I don't think I can do $50 million of buyback on my second lien given the trading liquidity without running up the prices as high.

We've got that basket as a mock up is on face value as a market value. So at 50 cents on a dollar you can retire like $50 million I'm rounding depending on the market value right.

I think that's.

That limit the capacity is good for us.

Through December.

I mean next year, we're going to get a new bucket for that and hopefully our leverage is going to go down and we will have other baskets open up for us.

So I think from a strategic perspective to think about it you have the bucket. This for the rest of this year you will have new bucket next year and.

If our leverage drops below two you will have other baskets open up that will allow you to buy back. So I don't see the need to go back to the fourth Greenlanders to ask the Lord more capacity. If you will okay. And then the final question is just not working capital I should we think about that for the next couple of quarters, where the Swiss source or use of capital.

That is.

There's a little bit tough question to answer and I'll tell you why because a lot of the times of the working capital is driven by what the minds do as you know we don't have a lot of inventory space. So is mine soft review, saying, we'll collect our payments on the last month and you'll receivable balance will come down as you might have noticed that aspect.

Compared to last quarter, because we are shipping a lot more call now so that is one driver a couple other things that I mentioned that is going to help working capital is for example, the 20 to 25 million dollar payment that we are expecting and.

In the second quarter of next year that sugar that citizens working capital right now it is going to reverse next year.

Okay.

That's all I have thank you.

Thanks, Nick.

This concludes our question and answer session I would like to turn the conference back over to Nathan Tucker for any closing remarks.

Thank you Matt we appreciate everyone's time this morning, and thank you for your interest in in support of <unk> and CCR hopefully we were able to answer most of your questions today and we look forward to our next quarterly earnings call. Thank you. Thanks, everyone.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

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