Q4 2020 Arch Resources Inc Earnings Call
Thank you for standing by and we will begin momentarily again, thank you for standing by.
[music].
Please standby we're about to begin.
Good day and well.
And to the arch resources, Inc, fourth quarter, 'twenty and 'twenty earnings Conference call.
Today's conference is being recorded.
At this time I would like to turn the conference over to deck Slone Senior Vice President of strategy. Please go ahead.
Good morning from St. Louis and thanks for joining us today, while we were conducting this morning's call from march's boardroom I want to assure you that the team is widely spaced and following CDC guidelines closely.
Before we begin and let me remind you that certain statements made during this call including statements relating to our expected future business and financial performance may be considered forward looking statements. According to the private Securities Litigation Reform Act forward looking statements by their nature address matters that are to different degrees uncertain.
These uncertainties, which are described in more detail and the annual and quarterly reports that we filed with the SEC may cause our actual future results to be materially different than those expressed and our forward looking statements. We do not undertake to update our forward looking statements whether as a result of new information future events or otherwise, except as may be required by law.
I'd also like to remind you that you can find a reconciliation of the non-GAAP financial measures that we plan to discuss this morning at the end of our press release, a copy of which we have posted and the investors section of our website at arch arch.
Arch RSC dot com.
Also participating on this morning's call will be Paul Lang our CEO.
John Drexler, our CLO and that Gil Jim our CFO. After our formal remarks, we will be happy to take questions with that I'll now turn the call over to Paul Lang, Paul Thanks, Dick and good morning, everyone. I appreciate you joining us on the call today.
Let me begin by expressing my deep gratitude to the entire arch team and their ongoing dedication during what is quite obviously, a complex and challenging time.
Even in the face of a significant step up and infection rates over the last several weeks and mirrored with surge nationwide.
Art work force remains steadfast in its commitment and taking all the recommended precautions to protect one another and their families from the virus will continue to execute at the highest level and <unk>.
Service providers.
We're fortunate to have a disciplined and professional team and I'm proud to be associated with them.
And that same commitment to excellence was on display and arches list of accomplishments during 2020 as we work to reposition the company for future success.
Despite all the requirements associated with the average age of the global Health crisis, our employees made tremendous progress and achieving a number of strategic objectives.
And just some of the highlights we've maintained our strong momentum and the development of the World Class Leer, South growth project, and we augment and our liquidity and funding the build out of this transformational project.
True three successful financing efforts.
The three and they've maintained a first quartile cost structure and our core coke and coal.
Despite significant market driven volume reductions.
We continued our strategic shift towards steel and metallurgical markets through the contribution of the bite for thermal mine Tonight have coal company and.
And to our employees, yet again and demonstrated their leadership and the environmental social and governance arena, but capturing many of the industry's top safety and environmental awards and leading the industry on all of these critical fronts.
We've streamlined our organizational structure with a voluntary separation program that reduced corporate staffing levels by 25% and cut our overhead costs by $10 million per year.
And finally, we moved quickly to align our thermal output with the rapidly changing market dynamic and initiated and accelerated reclamation and closure plan and our powder River basin operations.
And if we continue to explore strategic alternatives for them.
In summary, we demonstrated operational excellence and all the facets of our business.
Pushed ahead with our plan to create an even stronger platform for future cash generation and.
And continued our strategic pivot to a pure coking coal producer and a logical and thoughtful manner.
And as you know arch began to shift and strategic focus towards steel and metallurgical markets nearly 10 years ago, and we've accelerated those efforts markedly in recent quarters.
And most critically we've delivered on our top priority and building a powerhouse U S. Metallurgical franchise supported by an outstanding cost structure, our premium slate of products and our best in class growth projects.
And with the addition of Leer, South we expect to cement our position as the premier producer and metallurgical coal and the United States and as the preeminent supplier of high vol, and metallurgical coal globally.
Just as importantly, we built a platform geared to stand the test and time with the Lear and Leer, South longwall projected to operate in tandem and to serve as our financial plans for the next generation.
And at the same time, we continue to drive forward with a strong sense of urgency and optimizing the remaining value of our legacy thermal assets and and systematically reducing the long term closure liabilities associated with them.
We took a significant step and this effort at year and when we contributed the Viper thermal mine and Illinois Tonight, and work, which will operate the mine going forward.
And as part of this transaction, we reduced our long term and discounted mine closure obligations by about $21 million as.
As we move forward in 2021, and we plan to accelerate our efforts to shrink the operating footprint of our powder River basin mines and to reduce the inflated state calculated bonding requirements and long term closure obligations associated with these lines. The Mexico's can step from this effort will come at coal Creek.
Well the plan to reduce the asset retirement obligation, but around 80% of $40 million over the course of the next 18 months significantly. We believe we can achieve this goal while still maintaining our cost structure in line with historic levels.
Of course, the closure of coal Creek will necessitate further reductions and are wildly and workforce, but we expect to achieve that and employee sensitive way principally through normal attrition and.
And 2021, we anticipate producing around 2 million tons of coal Creek. The final full year of operations at the site before discontinuing mining and commencing and reclamation and last act and 2022, followed by the demolition of the facilities.
While coal Creek will be our near term focus will also and the process of developing and accelerating planned for the Black Thunder mine.
At this point, we've not finalized the details as yet, but our plan will be to maintain strong cash flows and order to provide funding to the ultimate closure, even as we seek to reduce the final reclamation requirements balance.
Balancing these dual objectives may translate into the establishment of a sinking fund or similar mechanism in order to facilitate putting free cash aside for future mine closure use.
Of course, the speed of the wind down and Black Thunder will depend on a number of factors, including market dynamics and the state's willingness to consider reasonable reforms to its currently own are responding program.
Carlos how we proceed well we're confident that the powder River basin segment is well positioned to continue to generate sufficient levels of cash to fund its own long term closure obligations.
Finally, I'd like to share a few thoughts on the metallurgical markets beforehand, and Niccolo John Drexler for further comments on our operating performance.
Yeah.
And as you're all well aware the global economy has been shifting into higher gear in recent months and the way to the virus related lockdowns and disruptions in 2020.
Nowhere is that research it more evident than and global steel markets, where production is now running well ahead of pre virus levels.
To give you a sense of that strength the World Steel Association estimates that global steel production was up nearly 6% and December 2020 relative to December 2019.
And 2020 and as a whole finished the year down less than 1% when compared to 2019 inspite of the pandemic impacts.
Pricing is up even more robustly with hot rolled coil trading and levels of 50% to 150% above last year's pandemic driven loans, depending on the regional market.
Moreover, blast furnace utilization rates and North America have climbed steadily and now stand at 76% versus just 51% at the low watermark of 2020 that progress is emblematic of what we're seeing and on the international stage as well.
More of a point for arch of course global metallurgical markets are being supported by this resurgence and the steel industry, despite uncertainty surrounding Chinese import policies and.
And as an indicator of the strengthening the U S East Coast High Vol. A price assessments is up nearly 50% of price when compared to last summer's lows.
In addition to the resurgent demand the global supply cuts exacted since the downturn began in late 2019 are also bolstering the market.
Arch breeze at more than 30 million tons of coking coal supply has been taken out of the market over that timeframe whats more of these production cuts came from not only the United States.
Canada, Australia, Russia, and Mozambique, with a meaningful percentage of that total expected to be permanent.
Moreover, global Coke and coal producers continue to announce plans to delay.
Or even cancel the relatively modest number of expansion projects currently in the pipeline.
Obviously some of these projects will continue the potatoes, and development has been disrupted serving to further tightening the supply demand dynamic while it's too early to say, where the current price strengthening and will persist. We are encouraged by what our customers are saying about their future plans and we're seeing strong interest and our remaining open 2002.
And one volumes.
In closing, let me reiterate that we remain highly confident in and deeply committed to our straightforward plan for long term value creation and growth as the world transitions to a post pandemic future. We believe we're well positioned to continue to build on our proven track record of operational excellence and to excel with.
Our low cost metallurgical assets are high quality slate of products, our industry, leading ESG performance and our best in class Leer South growth project.
In short, we like our position and are committed to using our ever strengthening platform to create long term value for our owners and other stakeholders.
With that I'll now turn the call over to John Drexler for further details and our operating performance during last quarter as well as what we're expecting in 2021 John.
Thanks, Paul and good morning, everyone I'd like to Echo <unk> sentiments about the great dedication and tremendous contributions of the arch workforce in recent months.
2020 has been a year like no other and I'm. So proud of how the team has executed despite all of the challenges and distractions.
And as Paul noted arch is single highest strategic objective remains the ongoing and successful build out of our world class Coke and coal platform.
During 2020, we once again and demonstrated the already significant capabilities of our existing portfolio.
Liver and the top tier cost performance despite virus related volume reductions.
Leveraging our sales and logistics expertise and a difficult market environment, and expanding the breadth and depth of our customer base.
And at the same time, we drove forward with the Leer South expansion project that should deliver a step change and our portfolio's cash generating capabilities.
With the startup of debt transformational asset and about six months time, we expect to realize improvements and virtually every key metric for long term success, including volumes per ton cost and average quality.
For the year just ended we achieved cash costs of $61 13 per tonne, which was only slightly above the midpoint of our guidance at the start of 2020, despite a nearly 1 million ton pandemic, driven reduction and our coking coal shipments.
In fact, we were on track to hit that $60 per ton target level for most of the year until the significant step up and infection rates and the second half of the fourth quarter.
We estimate that virus related impacts reduced our output by more than 200000 tons and Q4 and increased our metallurgical segment operating costs by approximately $3 per ton and that period.
Absolutely yourself, we reported another strong quarter of progress and are now area and the stretch from.
The operating team is well on its way developing the first nearly two mile long longwall panel.
All of the 212 longwall shields and manufactured and we expect to have the entire system on site by the end of the first quarter.
Additional significant milestones include completing modernization and upgrading of the preparation plant <unk>.
Completion of the new high capacity load out and finishing the last ventilation shaft.
One of the final major projects remaining and the cutover of the replacement to the existing slow growth with a higher capacity system that ties the underground network to the renovated and greatly expanded preparation plan.
And that has been anticipated. This major system change will necessitate a 30 day outage prior to the startup of the longwall.
The culmination of this buildout of course will come with the startup of the longwall system and the Lord mechanics theme approximately six months from now.
The excitement at the mine as substantial as you might imagine.
While we anticipate a period of several months during which we will be working the kinks out and steadily ramping output, we should start reaping the benefits of the Leer South line well before 2021 is over.
I'm also pleased to report that the projected capital spend for the mine remains within the guideposts that we provided approximately two years ago. Although we now anticipate gravitating towards the higher end of that original range of $360 million to $390 million due in large part to the virus related shift losses quarantine and other index.
As we had contemplated the opportunity to ramp production at Leer, South and to our strengthened market environment appears to be increasingly likely.
Our marketing team has been busy in recent months locking down close to $2 6 million tons of incremental metallurgical coal sales during the fourth quarter for delivery in 2021.
The vast majority of these new commitments have been and index, including our first ever term business with the Chinese steel producer for 300000 tons of Leer coal delivered Ratably from Q2, 2021 to Q1 and 2022.
To give our overall metallurgical positions and perspective, we are 80% committed on this year's plan of $7 8 million tons at the midpoint compared to 60% committed at this time last year on a plan of 7 million tonnes. Another sign of the strength of the markets.
And as I noted the build out of our metallurgical portfolio is our top strategic priority, we're complementing that strategic debt as our intensifying focus on environmental social and governance leadership.
During 2020, we once again set the industry standard for large integrated producers with a lost time incident rate across all of our operations of <unk> 93, which is nearly three times better than the industry average and again leads the diversified producers and the United States.
In addition, we again set the bar for environmental compliance recording just one snap pro violation across all of our operations for the fourth year and a row as well as only one water quality and competing against 168000 parameters measured at 650 discharge points companywide for a compliance rate of 99.
99, 9% a truly remarkable accomplishment.
In addition, and as further evidence of our clear commitment to ESG excellence. Our operations claimed two sentinels of safety award as the nation's highest distinction for line safety.
The Department of Interior is good neighbor award the nation's highest honor for community outreach and engagement.
And the milestone and safety award the state of West, Virginia Top safety honor and.
And the Green lines award the state of West, Virginia, its highest reclamation honor.
Leading the way, where our two cornerstone operations leader and Leer, South which claimed three of these five awards, thus laying the foundation for continued excellence in the future.
Now, let's discuss our plans for our thermal assets and just a bit more detail.
As you know we are currently exploring strategic alternatives for our thermal lines consistent with the recent move to contribute Viper to nighthawk.
And at the same time and in the event those alternatives don't materialize. We are moving forward with purpose down a dual track with the objectives of reducing our thermal footprint and and accelerated fashion and optimizing cash generation at these assets for deployment and final reclamation and closure.
Fortunately, we are well positioned to drive progress on both fronts simultaneously.
That's because roughly 20% of our total Aero is tied to coal Creek, even though that might only produces around 2 million tons annually at present and all.
Other words, we plan to focus our accelerated reclamation efforts at coal Creek initially.
And our cash optimization efforts and black Thunder, where our margin potential is greatest.
And we expect good results in both instances.
Net coal Creek, we are targeting and a reduction of $40 million or around 80% of the <unk> total and just 18 months or so.
In fact, we have already made good a good start on that effort after transferring around 40 people and a suite of equipment from Black Thunder Coal Creek mine in December to focus exclusively on final mine reclamation.
For the year, we expect that the army minds to ship about 48 million tons. The vast majority of which is already committed.
We would also expect to achieve our per ton cost level generally consistent with recent historical averages even with the accelerated reclamation work at coal Creek.
While the primary focus of our reclamation efforts. This year will vehicles. We also intend to pursue several projects that blackstone or to reduce it and surety bond requirements and shrink this operational footprint.
We remain confident and the ability of our thermal assets to generate sufficient levels of cash to pay for their ultimate closure costs.
While we are enthusiastic about our outlook for full year 2021, we are cautious about the continuing impacts of COVID-19, and the early part of the year.
And due to virus related impacts that have already idled over 25 continuous minor shifts at our metallurgical operations, thus far and 2021, we expect only a modest sequential step up and our Q1 coking coal shipments versus last quarter.
Finally, as is typically the case shipping rates and the <unk> tend to be lower and the first half of the year versus the second.
Let me conclude by restating, our commitment to driving operational excellence and continuous improvement across the entire enterprise.
We are focused on executing at a world class level with our existing metallurgical portfolio, finishing strong and the build out of Leer, south and expanding the breadth and depth of our market reach and advance of Leer, South startup and intensifying our focus on industry leadership and the critical area of ESG performance.
With that I will turn the call over to Matt for thoughts on our financial performance.
Net.
Thanks, John and good morning, everyone.
And we're getting into the financials I would like to add a little to the discussing and around our plans for thermal operations with a focus on surety bonding.
As Paul and John have mentioned, our initial priority is the accelerated reduction of the asset retirement obligation.
And related bonding requirements and coal Creek.
At the same time, John noted the opportunities at Black Thunder from more limited reclamation.
We'll allow for bond reduction without any impact on our operational flexibility.
The work we plan to perform over the next two years along with the divestiture of Viper should result in a reduction and bonding requirements of approximately $70 million, which represents nearly 15% of the total reclamation bonding for our legacy thermal operations.
Clearly that is a significant first step and reducing those obligations.
And what's going back step as Paul alluded to in his prepared remarks, just to begin setting aside funds for future reclamation.
In line with the cash flows generated from the thermal segment and excess of current reclamation spending.
Given the significant amount of reclamation and currently underway along with the typical seasonality and CRB shipping volumes, we would anticipate debt funding to begin in the latter part of this year.
And.
Turning to the quarterly cash flow from liquidity for.
Quarter operating cash flows of $5 million were weaker than the third quarter following the trend and operating results and reflecting the semiannual payment of production taxes for our <unk> operations.
Capital spending for the quarter increased $23 million from the prior quarter with both project capital and maintenance spending up sequentially.
And where capex was $80 million, including nearly $57 million of Leer, South project costs and more than $4 million of capitalized interest.
Maintenance capital for the quarter was $19 million with substantially all of that related to the metallurgical segment.
We finished the year with total liquidity of $315 million and unrestricted cash of $284 million.
Availability under our credit facilities was constrained at year and given the divestiture of Viper and the lower than expected volumes and the quarter.
The metallurgical prices remain at current levels, we would expect the borrowing base under both facilities to improve meaningfully throughout 2021.
In addition, I wanted to note two other sources of liquidity for this year.
First we have approximately $18 million remaining to be received from our 2019 federal land settlement with substantially all of that expected and the first half of this year.
And finally, approximately $6 million of restricted cash from the summer tax exempt bond offering remains on our balance sheet and will be available to us for qualifying expenditures made at Leer, South and 2021.
Next I would like to expand a bit on some of the financial guidance provided in this morning's release.
Beginning with SG&A, where guidance to a midpoint of $79 million for total SG&A with cash spending of $62 million.
Cash spend represents a reduction of nearly 7% from 2020 levels, even as we anticipate an increase and marketing activities as leer, south and ramps up and Covid restrictions are eventually relaxed.
When compared to our original SG&A guidance for 2020 total expense has been reduced by 15% and the cash portion is more than 16% lower.
With respect to interest we our guidance of net interest expense on our income statement of $24 million of Covid points, which represents an increase of more than $13 million from 2020 levels.
For modeling purposes, the 2021 expense breaks down to cash interest expense of $27 million.
Non cash interest amortization of $10 million offset by capitalized interest of $13 million.
The non cash interest component has increased substantially due to the accounting treatment for the convertible notes.
Finally, we are targeting capital spending of $210 million at the midpoint.
Of that total approximately $107 million relates to yourself.
Roughly $13 million represents capitalized interest and the remainder is maintenance and land expenditures with more than 90% of that total related to our metallurgical operations.
As Youll recall, the Leer South spending includes 23 and a half million dollars associated with the replacement of longwall shields loss at mountain Laurel.
Which were reimbursed in 2020.
From a timing perspective, we expect the vast majority of the Leer south spending to occur and the first half of the year, while maintenance was slightly weighted towards the back half.
Before moving on to Q&A I wanted to briefly mention one ongoing financing initiatives.
As previously discussed we expect to have the opportunity to complete the tax exempt financing effort and we started in 2020.
As you will recall the $53 million that we raised last year was limited by the state of West Virginia as policies surrounding allocation of tax exempt funds.
We have worked with the state to obtain additional allocation and now we'll look to raise and another $45 million for the remaining qualifying expenditures.
Given the attractiveness of this financing recall that the original tranche carried a 5% interest rate and we plan to pursue this opportunity and the first quarter.
With that we're ready to take questions and operator, I will turn the call back over to you.
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I'll go ahead and take our first question from Lucas pipes from B Riley Securities. Please go ahead.
Hey, good morning, everybody and.
Well John.
And while bottom both are very difficult COVID-19 year, and Dan on the ESG from in particular as well.
Thank you guidance.
And I wanted to.
First go into Capex, a little bit more.
I think you touched on it and the prepared remarks, but.
But can you provide a breakdown on.
Kind of growth Capex with Leah versus maintenance and sustaining capital in 2021, and then as well.
Look past 2021, what should we expect that.
Of course, it's early but can you give us a sense for where you think longer term capital spending post.
And I would shake out thank you.
Hey, Lucas this is John Drexler.
And as we've indicated we're still within the guidance range of $360 million to $390 million at Leer, South we've indicated that we're going to be trending towards the upper end of that range given some of the challenges of COVID-19 and some of the inefficiencies that we've seen here.
Late in the fourth quarter.
In addition, the.
And the Capex includes the insurance recovery of 23, and a $5 million for the longwall Shields that we lost in 2019 at mountain Laurel. So at the upper end of the $3 60 to 390, plus the $24 million of that insurance recovery and that begins to give you the total.
Yes.
Earlier SaaS.
And then we highlighted the maintenance capex of $13 million, I'm, sorry, and capitalized interest and $13 million and and the remainder for this year would be maintenance capex as we look forward we've indicated prior to leer, south starting up our maintenance Capex, we generally run somewhere.
And that 80%.
Hi, <unk> are under $100 million I think with the startup of Leer, South and then the ongoing capital needs, there and that $100 million maintenance capital range or slightly above that is probably from a modeling perspective, where we would see maintenance capital going forward.
We're excited to get yourself.
Up and running we think it's a transformational projects.
It's been a big commitment for US here as we've worked through this the depth and challenges of Covid and the impact on the market.
But we've got great confidence as we're coming to the finish line here and bringing this online into a strengthening market and the cash generating capability as we move forward and look at this debt just to connect the dots really one more time clearly so that we address debt so to get to that 390 $390 million for Leer South.
Another $84 million or so of spending that we have we have the $24 million from the replacement shield, which effectively is what we got compensated for in 2020 with the insurance recovery. So it gets you to with rounding around $107 million, the capitalized interest and about $13 million and that gets you to about 120, and then $90 million or <unk>.
So for maintenance Capex, which gets you to that $210 million at the midpoint.
Terrific terrific very helpful.
One thing I did want to point out and I think.
The team has been rather modest about this but if you think about it.
Yeah, it's pretty unusual this industry to have this bigger project this complicated project.
Effectively be and brought in on time and on budget and so yeah, just tremendous amount and respect for the team and everything that John and the rest of Us group disability.
Yes.
Thank you yes.
John.
That's great to hear.
And second question is on the 2021 guidance and and there thats kind of more bucket and.
And I.
And that's kind of I think in your prepared remarks, you touched on CRB cough and similar to recent historical rates and I look at this.
From a mall.
And.
Debt cost.
And they are 11, 50% to <unk> does that include.
Some of your Western operations for example, or what you would say or maybe somewhat equal.
And all other other thermal or can you help us place. This guidance is exclusively pier b or are there other moving pieces in there as well and it's a plasma adjusted the costs, but also to the to the price volumes as well.
Yes, Lucas I'll start off here and others can jump in and as well as you know as we continue our transformation to be exclusively focused on on metallurgical coal. We've had two additional thermal segments. The CRB and then other thermal other thermal included.
And our Viper operation, and Illinois, and our West Elk operation and our longwall operations in Colorado.
With the contribution of Viper, and the Nighthawk, which kind of continues the path that we have here and focusing on net.
It leaves us with the combination of both the PRP and.
And the West Elk operation, and Colorado, which we are now putting together and that thermo.
The guidance that we're representing for thermal and the vast majority of that obviously is influenced.
By our <unk> operations, and specifically Black Thunder.
I think if you look back to last year and the <unk> segment for 2020, despite the significant adjustments we needed to make and the CRB segment, we delivered costs at around $11 50, a ton for full year 2020.
And as you look to the guidance and that thermal segment. We're guiding 11, 50% to 12, obviously heavily influenced the vast majority of that influence is the performance and the CRB, our west Elk operations.
<unk> contributes about two 5 million tons on an annual basis, we've worked to reposition that asset here. There has been some opportunity here, we've not gotten into the discussion on the markets, but what we've seen and the new cast and market to get volume placed there as well. So we feel good obviously about the thermal segment.
The guidance there is both the combination of the <unk> operations and our west Elk operation and that's how we came from.
Lucas as John said, we thought it made sense to roll.
And the legacy thermal assets together, given how the strategy and how we are.
And we're proceeding with our strategy. Additionally, west out would have been a segment by itself. So we didn't have comfort sharing that kind of specificity on west Elk alone.
Understood I appreciate that clarification, and then last one from me.
Coking coal volume outlook.
Robust can you share with us kind of what what we should expect in terms of cadence and on the volume side Q1 Q2.
For the second half of the more broadly.
How would you reckon.
We recommend we think about that debt.
GAAP up over the course of the year. Thank you.
So Lucas as we indicated in our prepared remarks, we are continuing to see the impact of Covid here and we think over time, we'll continue to manage the COVID-19.
Actively we're encouraged with the vaccine rollout, but thats going to influence the first quarter shipment levels, where we're guiding to and we believe.
Rates it would be similar to what we just experienced in the fourth quarter and you know we've got the opportunity here to bring the Leer South operation and online here in the third quarter is what we're guiding to.
And obviously once the longwall comes up and starts to run.
We will be working out guidance.
And the nuances of starting that up and typically takes a month or so and to continue to work through that and then over time, we'll continue to focus on ramping up and optimizing that asset with that long haul coming online you can expect to see and increase in shipments in the back half of the year. So.
Right now from the portfolio, we have we've indicated flat shipment levels for Q1, I think you could look to some of our historical trends and modestly better quarters historically to kind of build Q2, and then it should continue to ramp up as we.
Step through Q3 and into Q4, and ultimately to that guidance, you know that mid point of $7 8 million tonnes.
Terrific well really appreciate all the color.
And everybody best of luck and.
Thanks.
Thank you Luca.
And as a reminder, if you would like to ask a question. Please signal by pressing star one on your telephone keypad and theirs.
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Go ahead and take our next question from David Gagliano from BMO capital markets. Please go ahead.
Alright, great. Thanks for taking my questions.
Just wanted to ask a little more on the met coal side first of all.
On the pricing dynamics.
Obviously, you gave us the 80% that sold committed on volume.
Walk us through.
Each of those buckets in terms of how they're actually going to be price.
As we go through the year as well.
So Lucas I'll start here and once again, others can jump in so.
We feel real good about the book that we've built and.
We indicated having 80% committed at this stage of the game.
With the vast majority of.
That commitment being.
On price and exposed to market pricing.
And we feel is a very strong position you know the portfolio of our oil production.
Prior to Leer, south coming online between Leer, and Sentinel and the predecessor to Leer South operation.
You are running at about 5 million tons of coking coal was that being high vol. A and you got mountain Laurel High Vol, B, which is 1 million tons and you've got Beckley low vol, which is 1 million tons. So we're real proud of that portfolio, what we've seen and I'm very proud of the marketing team and were very strong marketing.
And on it and we put a lot of met coal to bet over the course of the last quarter.
And with all of that and index pricing pricing and a market that was improving.
You can you can kind of take that and spread spread the market prices across the qualities and and average back.
To build the rest of the model.
As you look David obviously, we've got about if you look at the midpoint of our guidance about 25% could be a fixed price.
And so that leaves about 75% of our remaining position subject index pricing and.
And I think more specifically as I understood. Your question the vast majority of that price to us East Coast index indices or assessments.
Although there is a small percentage that has off the Australia and PLD.
So it's deck and so most of our Asian business is.
Is price off of that as Paul said, often Australia and.
<unk> price and so you will see here in the first quarter, a reflection of that fact, and fact that the <unk> had lagged pretty significantly and you'll see that and our pricing and the first quarter, having said that with the recovery that will be short lived and so that business, we've signed into Asia based on Queensland price.
<unk> should rebound significantly and reflect reflecting what we've seen in terms of the balance in terms of PLD PLD pricing. Additionally, we did note that we sold about 300000 tons into China that is CFR business and so that would be price based on the delivered price of the China, which as you know is quite strong right now well over.
$200 and so that's advantageous as we sit here today, so Dave I mean, even if you look at the average is for high vol. A our primary product USB East coast for the fourth quarter. Those averages were $121 a metric ton delivered east coast.
Through the end of last week, and the high volume <unk>, averaging close to 150, so clearly over $25 increase and that primary market for us strength across all of the markers. So we feel good about how the book is built and how it will performance and as we move forward.
Okay. That's helpful. Thanks, So I think I got most of that down and I. Just wanted so 75% open and can you just break that bucket that 75% piece can you break that into.
Maybe just frame and on a percentage basis and on tons basis, and how much is actually linked to that Atlantic basin price and that is significantly higher than the Pacific RIN price.
And based on price and how much is actually line.
And the Pacific.
And would be it would be more than 75% would be that U S East coast price.
Okay. Okay. Thanks Thats helpful.
And of course, and the vast majority of that day and to the high vol. A the high vol. A marker specifically given that thats.
That's how we're weighted pretty heavily.
Yeah.
Okay perfect. Thank you and then I just wanted to switch gears to the.
The surety bonding and reclamation topic.
And I apologize I'm not fully up to speed on this subject.
But I'm just wondering if you can help us.
And the size and has the potential size of the sinking fund right.
And that you flagged.
Yes. So day this is Matt and I'll start on that and in terms of the reclamation work that we will ultimately have to do and the PRP.
I'd characterize it and really two distinct things one is work that we can do on an ongoing fashion while production continues and.
And the other is work that essentially can't be done until we're done mining and no longer generating revenue and it's that second piece.
And of the mine life that we think.
Makes sense to build a sinking fund for the remainder and we've worked with our charities to make.
And make sure they understand the work that we're doing and the focus we're putting on that the remainder we think as long as we're remaining as current as we can be where there is no need to build funding towards that so.
As we look at this year just to kind of frame up what we're talking about base.
And based on the thermal guidance, if you use roughly 50 million tons and.
And average price.
And to $13, we're going to generate about $50 million to $60 million and and the thermal operations and capex needs are going to be less and $10 million, so theres going to be call.
Call, it roughly $50 million and $40 million to $50 million available we're.
And we're going to spend the majority of that on reclamation work being done today, and probably $25 million to $30 million of coal Creek, and it's going to leave.
And we're in the neighborhood of $15 million to $20 million that would be available to put into a fund that will go for those those and of the mine life activities. So that's kind of the way we're thinking about it here in terms of what that fund builds up to over time.
And black Thunder, there's probably roughly half of their arrow.
As in that second bucket, so something in the neighborhood of $100 million to $120 million over time that we would have to build to.
But that's how we're thinking about it today and as I mentioned.
And good discussions with our charity partners about debt concepts. They are very supportive of the work we're doing today and the fact that were meaningfully going to be reducing both the arrow and the bonding and think Thats a good path forward and.
And Dave I think <unk> laid that out very well just a couple of other items maybe to comment on we couldnt have few better examples and.
And the portfolio and that we're working on coal Creek and Black Thunder Coal Creek as we indicated at the end of its mine life for and a position now and we can make significant advances in final closure of that operation that does two things it not only reduces the bonding requirement, but it also eliminates the a O.
Oh, the reclamation obligation recorded on the balance sheet.
At Black Thunder.
We continue to have the opportunity given markets to generate meaningful cash our focus is on reducing the footprint while simultaneously from.
Do you think that coal generating cash and using that cash generated to shrink the footprint.
And then also as Matt indicated.
And for that thinking on over time.
The final mine footprint.
As we look to the future. So hopefully that gives you a little more color and insight on that David stack and just one final point on that just and I know, it's a question that some of that.
A multifaceted effort and a multifaceted engagement with the surety and certainly we're conveying to them that that strong commitment to a conservative balance sheet and you saw that with the three financings. We did during 2020, so making sure that it's clear that we that we have lots of cash on the balance sheet and a very strong financial position generally we've kept them apprised of.
South coming online, which is going to greatly expand our cash generating capabilities.
We continue to convey as John just described that we're well committed and the pier B and we will continue to generate meaningful amounts of cash and the <unk>. We have the aggressive reclamation and closure plan, we continue to expand upon.
And as announced today the closure of coal Creek is the next step and Thats really accelerated closure of coal Creek.
Matt laid out we're thinking fund mechanism that we that we are contemplating we're focusing on both.
And reducing the bombing as well as the asset retirement obligation.
And then we're going to be providing sort of ongoing progress and we thank all of those things should provide a lot of comfort to our providers and <unk>.
Good about where those discussions are today.
Okay.
Very helpful. Thank you so when you take all of that.
Together is it.
Expected debt.
Thermal coal business.
The cash generated from the remaining thermal coal business.
We will sort of be ring, fenced and or whatever and and isolated and and that will be.
Enough for the surety bonding requirements or is there and expectation that some of the free cash flow associated with it and that business will also end up funding and surety bonding requirements.
And Dave This is Matt I think our expectation today is that given the.
Certainly the committed business, we've got in the near term, but also the plants that were selling to and our view for the <unk> demand over the next handful of years that theres enough cash that can be generated and the thermal business to pay for the obligations that are there and Dave that's a reflection I think of just once again the tier one nature of the asset and we have out there.
And for years, despite the significant changes, we've seen and volume levels.
And the outstanding team, we have out there has continued to deliver on cost cost and allow us to generate cash and as we.
We sit here today, we've got great confidence that we'll be able to continue to do that moving forward.
And then David as John mentioned, I mean, if you look back over the last 10 years as we've systematically reduced production. We have maintained the margin that has been pretty consistent over that timeframe and so we have the ability to flex as we need to flag still generate cash and yes over time that 50 million tons and will become 40 million tons will become 30, but still generating meaningful.
Amounts of cash we've also talked extensively about the conservatism built into some of our assumptions on the liability. So we feel quite good about the thermal assets being able to continue to sort of pay their own way here pay final closure costs from those online cash flows.
Without.
Pushing this down the road to Florida.
I think as you stand back the way I look at this is pretty simple first.
I think what we're doing we're taking positive control in those situations, we're controlling the things that we can share.
The other thing is and it's.
Just from my experience reclamation, and never gets cheaper or easier I think if we get it done and get it done quickly we have always tended to get it done cheaper than what we have and reliability.
And that's kind of the overriding philosophy and what we're trying to do here.
Okay, great. Thank you very much.
And it appears we have no further questions and with that that does conclude our question and answer session and I'd now like to turn the call back over to Paul Lang for any additional or closing remarks.
I'd like to thank everyone again for your interest and arch and takes the Tiger day to participate and our quarterly call and as you can tell our optimism and enthusiasm and continues to build and the startup and the Leer South longwall draws closer we.
And while we're trying to get the market, while trying to guess market timing is always strong apparel. It appears that we could be very well positioned to take advantage of a post pandemic era and which many countries are looking to stimulate their economies at the same time that pent up consumer demand starting to materialize. However that timing plays out we intend to be.
Paired with a significant step up and capabilities and we're going to recognize with our expanding and coke and coal platform.
With that operator, we'll conclude the call and I look forward to reported into the group and April stay safe and healthy everyone and thank you.
And with that that does conclude today's call. Thank you for your participation you may now disconnect.
Okay.
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And.
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