Q1 2022 Ramaco Resources Inc Earnings Call
Ladies and gentlemen, welcome to Remy Kobe Resources, Inc. First quarter 2022 earnings conference call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time, if anyone should require assistance during the conference.
Please press Star then zero on your attach don't telephones.
I would now like to turn the conference over to your host Mr.
Mr. Jeremy Sussman, Chief Financial Officer, Sir Please go ahead.
Thank you Anna.
Behalf Aramco resources.
I'd like to welcome all of you to our first quarter 2022 earnings Conference call.
With me. This morning is Randy Atkins, our chairman and CEO , Chris Blanchard, our Chief operating officer, and Jason spanning our Chief commercial officer before we start I'd like to share our normal cautionary statement certain items discussed on today's call constitute forward looking statements within the meaning of the private.
Securities Litigation Reform Act of 1995.
These forward looking statements represent <unk> expectations concerning future events.
These statements are subject to risks uncertainties and other factors many of which are outside of <unk> control, which could cause actual results to differ materially from the results discussed in the forward looking statements any forward looking statement speaks only as of the date on which it is made and except as required by law <unk> does not.
<unk> any obligation to update or revise any forward looking statements, whether as a result of new information future events or otherwise.
I'd also like to remind you that you can find a reconciliation of the non-GAAP financial measures that we plan to discuss today in our press release Lastly, I'd encourage everyone on this call to go onto our website Amoco resources Dot com and download today's investor presentation under the events calendar with that said, let me introduce our chairman and CEO .
Randy Atkins.
Okay.
Thank you Jeremy.
As always we look forward to discussing our Q1 results and some updates with everyone.
These are indeed pleasant days to be in the met coal business as long as you can dial out the noise from the stock market.
Despite the backdrop of the immediate market turmoil are currently earnings were a record.
Indeed, we generated more net income in Q1 than for the entire year of 2021.
Do those concerned about any miss from consistent consensus estimates, we will address that head on with this call.
As of today.
We have sold 2.4 million tons or about 70, 570% of our 2022 sales.
This is sure as us.
Another record year.
We still have 30% of remaining production are over a million tons left to sell basically at index prices and into export markets.
To address results.
Q1, EBITDA of $64 million was not only a record quarter, but it was a double of our Q4 'twenty one earnings.
Every other coal producer last quarter.
Was a what a showed a CDR quality.
Based on substandard rail service.
We were only able to load about 80% of planned shipments.
The vast majority of the Miss shipments were higher priced export index priced business.
Had we been able to load on schedule as contracted that would have translated into an additional 23 million of EBITDA.
These deferred earnings so to speak will now slip into future quarters.
So far in 22 of our two 4 million tons of committed sales roughly 90% have already shipped or have priced.
These sales now translate into roughly 330 million of EBITDAR generated year to date 235 million of net income and roughly $530 of earnings per share.
For perspective.
Three months into the new year, we now have greater than four times more EBITDA and almost six times more net income than we did for the entire year of 2021.
Again, we still have roughly a third of production left to sell to add to these figures.
So looking beyond Q1, we expect to have an extremely strong and again record year on all fronts.
The next three quarters of 'twenty to promise to improve on Q1, we.
We expect to increase the cadence of both production and market based index sales in the second half.
We will also recognize additional cost savings from both that increased production and royalty and sales expense reduction, which we'll talk about in a moment.
Our remaining open sales tons shipped primarily head into export markets, which of course still are at record index pricing levels.
Spot index pricing levels for the Atlantic seaborne continue to hold well yesterday low ball was at $474 a ton.
Indeed, our last low vol shipment printed at a premium of $510 per ton with a $400 per ton mine netback.
We expect overall second half market conditions to remain strong.
The underlying rationale for this stronger for longer dynamic, we think will continue to persist for some extended period.
The factors are of course, very limited existing supply with no meaningful near term new supply.
<unk> strong demand and now we stir in some looming disruptions in Q3, when Russian coal shipments into the ear finally stop in August .
We are successfully executing on all our announced production increases and now hope to hit 3.4 million tonnes. This year. We also hope to bump this to at least 4 million tons or more in 'twenty three.
We are well along in adding our new prep plant processing capacity.
Once increases at our Elk Creek, and new Berwyn plants or complete this will push our nameplate capacity to five 5 million tons and possibly more.
As I've said before we can think of no other public coal group, which is growing as fast doubling current production.
Paying for it from internal funds and simultaneously, making meaningful shareholder returns of capital.
Indeed, this week the financial times named US as the 303rd out of 500 fastest growing companies in America.
Self serving Lee mentioned that fact, because Tesla was ranked behind us and only 314 is a very nice company to keep.
We are also of course on.
This year to generate record levels of both free cash flow and cash buildup.
This week, we announced our second regular base dividend.
We also announced that we intend to register a new class of tracking stock, which is expected to receive a dividend based on the financial performance of the recently acquired assets of <unk> coal.
We intend to refer to this new business line as core resources, signifying its focus on carbon a war and rare earth elements.
Since we will be filing a registration statement on this new security I, Unfortunately cannot discuss it in any detail beforehand.
We also send out our first annual shareholder letter last month, which you might look at for some additional color.
In it I expanded on the fact that unfortunately from the standpoint of the stock market. The coal industry has a Rodney dangerfield, we don't get much respect feel to it.
When you look at both Ramic Cohen, our peers, we all trade in an average EV multiple band of about two times consensus 22 EBITDA.
Even companies, making massive special cash dividends and buybacks are trading for a fraction of the five to 15 times EBITDA multiples of oil and gas other energy group's industrial our materials groups and please do not get me started on commenting on multiples at rare Earth element companies.
I contend one reason for the industry's valuation lethargy is that the market does not deem that there is any effective in game to our business.
What I mean is that the larger coal industry has not been able to articulate a vision of how to transition and a world, which penalizes anything that remotely looks like a greenhouse gas emitting business.
This is unfortunately true whether you say you're in the met coal business much less if you say you are a thermal producer.
Almost 10 years ago.
Before it was either fashionable or we had even heard of the term ESG.
<unk> started looking at alternative uses of coal beyond combustion.
I want to comment on this as a lead into our approach to our recent Ramic Coke coal purchase.
We've been working for years with two of the National labs to develop some fascinating advanced carbon products and materials, which use coal as a precursor.
We started to refer to coal use this way as carbon a war and we've started to build what we also call a carbon valley for coal in Wyoming.
We've developed a large body of intellectual patent and licensing rights around these concepts. These.
These advanced carbon products would basically allow for a much higher market price for coal as a base feedstock because of the higher value of the end product.
It could become a third leg of the stool, where coal our carbon or could be used for power for steel or in the future for carbon products and materials.
We've also built over the last 10 years, a sizable fee owned met coal reserve portfolio, which we now mine in the east.
It throws off annual royalty income that should grow to over 20 to 25 billion per year over the next 24 months at the forward curve and.
And it will continue for another 20 or more years.
In ceramic of resources now owns those reserves it will let us avoid that royalty cost.
Lastly for several years, we have been doing reserve assessments of our powder River basin coal in partnership with the National Energy Technology Lab.
We discovered about two years ago that we may be sitting on some very high concentrations of rare earth elements at our 500 million ton permitted brookman in Wyoming.
These are valuable medium and heavy quality R E.
They were found in both our coal seams as well as the clay over and under burdens.
As we speak we are currently doing an extensive coring analysis to determine a broader reserve assessment of both the extent and quantity of that reserve, we hope to have that assessment complete later this year.
Indeed, when you look at all of these new Ram of coal coal assets. They can produce basic royalty like income streams that are a lower risk form of passive income.
These should trade more like a royalty security and therefore at substantially higher multiples and coal companies.
We will continue to look at ways to unlock that value and provide it back to shareholders.
And speaking of dividends I realized. This is this has been a busy quarter on dividend and buyback announcements from other coal groups. Unfortunately, they have received mixed reaction from the markets.
As I said at <unk>, we are now on track to have our best year of cash generation as you can calculate from the figures that I provided earlier.
We still intend to consider an increase in our basic dividend level. Later this year, probably in the fourth quarter at that time, we will also consider possible share buybacks, especially if our stock is at a low valuation environment.
In the meantime in Q3, we expect to make a dividend of a percentage of the new tracking whore researches core resources shares.
Post the registration of that stock.
Now with that I'd like to turn the floor over to the rest of the team to dive into some more detail finances operations and the market. So Jeremy Please run down our financial and some market metrics. Thank you Randy.
I'll start by going over our first quarter 2022 financial highlights adjusted EBITDA of $64 million was our best quarter on record up 103% for Q4 of $32 million.
Our previous quarterly record Unfortunately, as Randy mentioned, the rail transportation issues that we flagged on our last earnings call persisted throughout the first quarter, causing us to build almost 85000 tons of inventory how do we shipped that coal Q1, adjusted EBITDA would have been over one third higher or up an additional $23 million.
First quarter diluted EPS of <unk> 92 cents was up 121% from Q4 EPS of <unk> 42 cents. We believed the transportation dynamics negatively impacted Q1 EPS by another 38 cents.
While our rail service has improved a bit to begin Q2, we would anticipate and service to increase meaning that meaningfully in the back half of the year.
As a result, we expect second quarter results to be modestly above first quarter results.
And second half earnings to be well above first half earnings.
Now turning to our full year 2022 outlook I would like to touch on a few of the key areas in our guidance tables.
First on production and sales we increased guidance from 3.0 to $3 3 million tonnes now up to 3.1 to 3.4 million tons. We.
We slightly beat Q1 on in terms of internal our internal budget for production. However, Q1 shipments as discussed fell short of expectations due to transportation issues, though we anticipate making these up throughout the year.
Second on costs. Despite inflationary pressures, we are maintaining our cost guidance of 82 to $90 per ton, we anticipate costs coming down throughout the year.
This is based on the on a combination of economies of scale from increased production plus the benefit of material savings in coal royalties on the back of the ramp Coke coal transaction, coupled with the Berwyn prep plant coming online to reduce trucking costs to.
To drill down in Q1, we of course saw no meaningful benefit from royalties savings because we did not own ran makoko.
Had we owned Ram a coke coal cash cost would have been around $100 per ton. Despite mining on very little fee coal compared to normal second had our Brooklyn prep plant been up and running which we anticipate the summer overall cash costs would have come down another $3 per ton.
Lastly in Q1, we also saw a meaningfully higher labor costs, and we anticipate the rest of the year up $6 per ton from Q4 based on advanced hiring simply put we made the decision that it made sense to hire a lot of qualified miners in Q1 in anticipation of higher production as we ramp.
Throughout the year, Indeed, our head count is up by over 100 since year end, while this negatively impacted Q1 cost per tonne. We wanted to put ourselves in the best possible position to hit our production growth targets throughout the year as we ramp production unit costs should come down.
Lastly, we are increasing our capital expenditure guidance from 65 to 85 million to 80 to 95 million around one third of the increase is due to general inflationary pressures, but the rest is due to the combination of pulling forward. Some planned 2023 capital into 2022.
To to buy available equipment.
And adding some incremental production at both Elk Creek and Knox Creek. The biggest new capital project is the addition of a second section at our number two gas mine at Elk Creek.
While these investments at around 100000 tons to our 2022 guidance I'd like to point you to slide number six in our investor deck, which gives our longer term production outlook specifically as it relates to 2023, we are now taking production guidance up from $3 7 million tonnes previously.
To 4 million tons largely on the back of the increase that number to gas, which should add around 250000 tons on an annualized basis.
Simply put we expect production to grow from up to $3 4 million tons. This year by almost 20% to 4 million tons next year.
Lastly, I want to comment on shareholder returns in early 2022, we hit our long standing goal of becoming a dividend payer I would remind everyone that we will meaningfully grow production in the next couple of years, we are proud to both grow and pay a meaningful dividend at the same time in the back half of this year.
We will assess the best use of cash as Randy said, if our stock continues to trade at a discount to what we and our board deemed to be fair value a meaningful share buyback program is certainly one option.
With that I'd now like to turn the call over to our Chief operating Officer, Chris Blanchard Chris.
Thank you Jeremy.
Well as Randy and Jeremy have both indicated it's been a very busy several months at <unk> since we last spoke.
During the first quarter, we hit a number of operational milestones as we ramped and as we continue to ramp and increase in production. This year by 50% over our 2022 levels for 2021 levels rather.
We completed rehabilitation and Reinstallation of all infrastructure at the Hoffmann, which was acquired as part of the amino auto transaction. This.
This mine began production in March ahead of schedule and continues to ramp production and build their workforce.
We started our MP number one powerful mine at Elk Creek ahead of schedule and did all initial mining and said all permanent belts in the mine plan.
We completed construction for Elk Creek Crucible mine and became began operation early in the second quarter.
This mine will provide a long term and consistent product for the foundry and specialty coal markets.
At our Berlin plant demolition of all obsolete components and infrastructure largely completed during the first quarter and upgrades of equipment and installation of more efficient and modern circuitry began.
The plant is still on schedule for a mid summer of 2022 startup.
Perhaps most importantly, our first production unit.
Option in development projects.
<unk> began mining at a ratable full productivity levels as we expected.
The second mining unit is fully set up and will begin mining once our triad O'connor number foreseen mine is exhausted later this year.
Despite the tightness of skilled labor, we continue to stay on track with hiring to support this growth and we did manage to do some advanced hiring last quarter in anticipation of our further production ramp up throughout the year.
Overall, <unk> increased headcount at our mines by over 15% in the first quarter in a very competitive market for central Appalachian coal miners.
There are certainly a number of challenges in the quarter as well in addition to the rail issues. We discussed we are seeing the same inflationary pressures that are impacting everyone in the industry.
Cost for steel products are up approximately 20% so far this year.
Fuels lubricants are up approximately 30%.
Labor costs are up 15%.
Contract trucking costs are up over 20% across our company.
But as Jeremy mentioned, despite these headwinds on cost, we actually expect our mining costs to improve as we move throughout the year.
The now closed remco royalty transaction will immediately lower royalty expense at our mines and this will accelerate as the year progresses as the number of our sections move into now the coal areas.
Our first quarter costs were also elevated by the expected higher startup cost of the new mines and sections that I discussed.
As these mines reach their normalized productivity lease costs will come into line with existing operations and the entire company averages will decline.
Finally, the startup of the Berlin preparation plant. This summer will eliminate a substantial amount of the trucking expense for the Burlington the triad mines.
This complex continues to increase production D C savings will become material.
As Randy mentioned the growth is not yet complete at Elk Creek, we hope to bring one additional underground mining section into operation by mid summer.
Number two gas mine as we continue to work on expanding the overall capacity of the Elk Creek plant in CSA flowed out better there.
In fact, we continue to evaluate Elk Creek to see what the optimal and ultimate annual throughput of this operation should be and will be.
At our Berlin complex, we're finalizing plans to start a mid volatile surface Howell miner operation that should also begin operation during the third quarter.
This fully permitted mine was also acquired.
Portion of the Amazon purchase in 'twenty one.
To conclude despite our share of challenges so far this year, we've been buoyed by a very favorable coal market worldwide with positive dynamics that appear to have some staying power.
I would now like to hand, the call over to Jason <unk>, Our chief commercial officer to discuss this in more detail.
Jason.
Thanks, Chris and good morning, everyone. In my remarks, I will share an overview of what we're seeing in the market and discuss our current and forward sales outlook.
The coking coal markets remain at historically high levels. The reason is persistent structural challenges on the supply side.
With continued strength in global steel demand and pricing.
On supply first quarter coking coal export volumes from the U S, Australia and Canada.
Remain below those during the same period in 2021.
They are even further below compared to pre pandemic levels.
On August 10th the real fall out on the market from Russia's invasion of Ukraine kicks in.
When the EU is outright ban on Russian coal takes effect.
That has already impacted our export business into central and Eastern Europe .
Our year to date, we have already placed about 175000 tons.
Geopolitical issues, COVID-19 impacts logistical bottlenecks weather events and labor shortages.
Have all of that to even further disruptions in trade flows and negatively impacted supply.
Indeed supply continues to fall from the simple fact of the prolonged underinvestment in coal mining transportation and trans loading facilities.
We believe the supply imbalance will sustain a stronger for longer period and pricing that in past up cycles.
Underscoring this although U S met coal index pricing has dropped less than 10% from the recent highs.
The forward curve for the back half of this year is actually increased nearly $70. Since then.
We see limited second half met coal supply growth expected from both Canada and Australia.
Future use of Russian coal in Western markets is of course problematic.
As a result, we believe the U S. Coking coal will continue to see growth in export demand in the global markets will remain tight for the foreseeable future.
On the demand side, we are seeing an increasing amount of requests and interest from longtime customers and new parties alike.
Steel market fundamentals remain strong the.
Strong rebound during 2021 continues.
And as further intensified by the tragic events in Ukraine.
This has left a large void in the global market in terms of steel pig iron and iron ore supply and of course impacted spot prices in the U S and Europe .
Today, the combination of energy cost increases and a shrinking supply and rising cost of scrap and pig iron and continued to pressure many EIF producers here and abroad.
This favors U S and Canadian integrated steelmakers, particularly those with less complicated and in some cases captive access to iron ore and coking coal.
On a related note we have recently had inquiries from domestic customers regarding supplemental 2022 volumes above their existing contracts.
Overall, we believe the protracted longer term period of elevated coking coal pricing levels bodes, particularly well for amoco.
We now have roughly 1 million tons remaining to sell at the upper end of guidance into a strong export market during the remainder of 2022.
In terms of the cadence given early transportation bottlenecks as well as our production ramp schedule.
The vast majority of those open tons for the second half our low and mid vol and are expected to be sold into export markets and.
In Q1 over 75% of our export coal will shift into Europe .
Lastly, indicative of current market strength as Randy has mentioned our most recent low vol. Export sale was booked at a premium to the current index, which nets back to roughly $400 per ton at the mine today.
With that said I would now like to return the call to the operator for the Q&A portion of the call operator.
Thank you and ladies and gentlemen, if you have a question at this time. Please press Star then the number one key on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. Please advance to turnkey one moment. Please our first question.
And your first question comes from the line of David Gagliano from BMO Capital. Your line is open.
Alright, thanks for taking my questions.
I guess I just don't know.
More about the ceramic coal transaction.
First of all you gave us a number of the royalty income stream on a forward basis of somewhere around $20 million to $25 million. I think you said it was sustainably higher at that point.
I think.
How much of that is price dependent and how much of that is just because of the location of the mining.
I'll, let I'll, let Jeremy take that David.
Thanks, David So yeah, I mean of course, it's.
No royalties.
The royalty stream is going to be price dependent.
When we let let's use 2023.
It's a clean full year of course for us. So if we think about kind of where the forward curve as it is for 'twenty, three which on one hand, it's elevated compared to historical levels on the other hand, it's well below where we are today, we'd be looking at around $5, a ton and a royalty savings, which would net out to about $20 million.
If you take spot north of $30 million, a year, which would be kind of seven to $8 a ton and so.
Again, it's price dependent but as Chris mentioned.
We are going to increase.
The amount of coal that is being mined by Aramco resources on historical ran on coal coal reserves, so that certain that that cadence is going to help as well and we will protect us from certainly any any downturn in pricing.
Okay, and I don't I apologize thanks for that answer by the way I apologize I don't have the forward curve in front of me.
But let's say $200 sort of average world let's.
Let's say the world normalizes whatever that means.
A kind of a 200 dollar Pacific basin benchmark price, what would the royalties to be in that scenario.
It's a it's a good question Avi so it would be certainly below the levels that we mentioned.
I'm not sure we want to really go through sensitivity analysis on the phone but.
Needless to say it would be meaningful it would certainly be somewhere in the mid teens give or take but we can certainly follow up and work on kind of the sensitivity offline if that helps.
Sure and then I'm just going to ask are you know kind of a.
Typical annoying question for me in terms of this particular transaction that you've mentioned, how do you address the perception of creating and giving shareholders. The tracking stock that may be frankly, illiquid and small.
And I'm, probably thinking about it the wrong way, but here's.
Here's here's the thought from me you know you bought Ram ago coal for 65 million, you've given us some numbers on royalties, maybe it's mid teens on a normalized basis.
Obviously, there is longer term potential in rare Earth, which I think is early stage from a resources perspective, perhaps and then the I think it's a carbon coal initiative, but initially that may not get as much value as.
Arguably they should so the question I'm wondering really is that as of right. Now why are this tracking stock actually happening.
And then number two how do you address that.
Shareholder concerns come up about receiving what could be an illiquid slash small tracking stock.
Sure.
So David I'll answer an annoying question with an annoying answer. So unfortunately, we cant talk very much at all about the tracking stock because of what I stated, which is that it's going to be registered and we can't get out in front of that so.
Our decision to address putting these assets into a tracking stock was principally motivated by the fact that we thought we could get more value for our shareholders in that manner, because as I alluded to I think these will be able to trade at a substantial multiple to what coal stocks typically trade simply because it's a different type of income stream.
And I'm afraid that's probably all I can really go out on the Alimta to address to you on this but certainly as soon as we filed a registration we will be in a position to to enlighten that both you and the market is much better.
Okay. That's helpful. Thanks, and I was wondering just on operations and obviously you've got prices all over the place I think we've got a number brief mention of a number kind of at current prices a minute ago for the second quarter, but.
Given where we are.
The volatility in pricing given where we are in the second quarter at this point.
We've got a decent out a visibility on.
On volumes, but can you give us a sense as to you know if the world stays where it is.
Given the mix and everything like that what's a reasonable zip code for realized pricing in the second quarter.
Yeah.
Jason I'll, let you handle that although I think David the simple suggestion as to obviously look at where the curve is that's probably the most logical place to start in terms of trying to address where prices are but Jason you want to take a stab at that.
Yes, I mean, if you think you're right if you look at the.
The forward curve and here I'm going from memory here, a little bit as well.
Forces It was backward dated here from where we're at today, although it continues to.
To have its own staying power.
And I would think you are at the mine somewhere $3 50, plus.
Through.
Through Q3, and potentially into Q4 and a portion of the curve has come up to me.
Kind of today pricing as we've gone through this year and the.
In the U S. The Atlantic indices have essentially held their own.
Throughout the entire.
First quarter here well into the second quarter, where we're seeing a lot more volatility.
Specific indices.
Basis.
It moves around some sale tenders that immediately bounce back because they have just yesterday and today, but.
What gives us some confidence as well that was just the.
The lesser volatility, we're seeing the Atlantic base, and I think Thats and Thats driven by what we're seeing going on in Europe in particular in South America through a little bit lesser degree.
In terms of supply.
David just to kind of follow up on Jason's answer.
The reasons, we said kind of Q2 will be modestly above Q1, and a much bigger second half than first half is Q2 is going to be our heaviest domestic quarter, its about 70% give or take of our shipments will go domestics, though.
That's priced at about 188 give or take so obviously take that domestic and then.
Overlay that with kind of the 30% or so in terms of the pricing that Jason just mentioned on the export side and then on the back half obviously thats when our low vol production increases come in exactly so back half call. It more like a 50 50 mix with also a lot higher production and sales.
Okay. Yeah. That's okay. That's very helpful color I appreciate it thanks.
Sure.
The next question comes from the line of Lucas pipes from B Riley <unk> Securities. Your line is open.
Thank you very much and good afternoon, everyone.
Randy I am curious where at the financial times sort of puts you in the growth ranking if they had considered spot met coal prices, but we will leave that for next year.
And now ranking lucid was basically for 2020, believing in that so I think we would've done a little better in 'twenty one.
I mean, that's if there is such a lag.
I think there is a potential you'll be in the top 10, or so next year the year after that.
So so so in.
Speaking speaking about growth Randy.
I wondered if you kind of.
Could provide a little bit of color here on the increase in the Capex guidance for this year. What is what were the main drivers for that and then as we think about the growth to $5 1 million tonnes.
Kind of what's the capital intensity for that growth from here on out.
Over the timeframe you are looking to add those volumes. Thank you very much sure any color on that thanks, Lucas I'm going to let I'm going to let Jeremy that back into the Capex granular question.
Would you kind of alluded to in his remarks, but the one thing that I guess I would highlight whenever you've got a question on Capex. The question is where is the money coming from and so as I alluded to.
Our cash generation as we projected out over the next several years.
Rather significant I think most plight way to express it and so we're basically paying for all our capex from internal funds with Jimmy wanted to drill down on Lucas's question on a more granular basis. Thanks, Randy and yeah excellent question Lucas So when I think about sort of let's call it $17 million increase at the midpoint of guidance this year.
Year.
Around a third is just general inflationary pressures equipment.
Equipment costs, a little more of that that sort of stuff, but really two thirds of that is aimed at growth roughly evenly split between and Theres. A couple of other small moving pieces, but I'll give you. The two biggest switch which are you know that.
First would be adding a second section at our number two gas mine at our Elk Creek complex.
That will add about 250000 tonnes sustainably. So if you assume $5 $6 million give or take you you asked about capex intensity I mean, that's a pretty darn good.
Capex intensity and of course, it's possible because we've got all the infrastructure in place.
The other third.
<unk> effectively.
Pulling forward some.
Equipment, frankly, because we were able to secure it that we had planned in 2023 for our new Ram three surface mine that we mentioned that on our last call as part of the kind of Elk Creek Prep plant capacity expansion that was the mine that that's going to go in next year. So simply that Thats really just frankly more of a timing thing Lucas.
Got it got it very helpful color. Thanks, Thank you for that and the.
The $5 1 million ton target.
The capital needed to get there is there a rough ballpark to think about.
So we basically pointed you to kind of.
4 million tons for next year right so that.
<unk> got the guidance for that to kind of go from four.
Two to $4 three in 2024.
Excuse me that's.
Mostly adding a couple of sections at Dara.
At our Berlin mind, frankly on the <unk> reserves, which is which of course, we now own and.
And fee. So when I think about the cadence 23 will be certainly elevated compared to just maintenance levels, but it will be below 2022 absent any new projects. So I think to get.
From let's call it <unk>.
Mid fours to five.
Got a couple of different options. The one that we've pointed out on slide seven of course is our.
Our job on mine, which is a pure high vol. A product that it would feed our Knox Creek prep plant. So we've sort of talked about that in the past, which is mostly being equipment. So it's not very capital intensive and certainly I mean well.
It is.
I think in response to Dave's question, you've kind of already addressed kind of you know cadence of domestic versus export volumes this year, but.
How should we think about you know the.
Timing of making up these last shipments thank you.
Okay, Jason why don't you handle that.
Yes, sure Yes, Lukas this is Jason.
Yes, I think again, we delineated well there what it what it did to us during the first quarter and you'll recall in the previous quarters call.
<unk> call. We mentioned, we also had some volume slip out of late 'twenty. One into Q1 of course those were made up then the the rail issues.
We dealt with there in Q1.
Got it behind on New Q1 times in Q1 contracted sales.
The performance is is certainly better today than we saw in Q1.
We do see it continuing to get better as they add the rail the rail partners, there Ed flavor, which.
Translates into more crews and of course more trained cycling in the coal fields.
But.
As we sit here today.
Slowly gaining on on.
On catching up primarily we see most of the.
Catch up.
Completed as we get into Q3 and on into Q4 as they again and continue to add crews in cycle more trains to us.
So Lucas the patient is stabilized, but we're not exactly well in terms of.
What I would call the optimal level of rail service.
Very helpful.
Thank you. Thank you so much for all the color.
Randy and team continued best of luck.
Thank you Luca Thank you Lucas.
The next question comes from the line of Nathan <unk> from the Benchmark Company. Your line is open.
Hey, good morning, guys. Thanks for taking my questions.
David and Lukas probably get a pretty good job checking checking most of my questions off My list. So maybe just a bit of clarification at this point.
I had called out <unk> results should be modestly above once you were.
We're talking about EBITDA and net income are we looking at shipments realized pricing as well just maybe some clarification there.
Thanks, Nate I'll take us, it's Jeremy so yeah shipments production and.
I'll call. It EBITDA net income what would be what we were referring to there.
Got it perfect for kind of across the board and I think Jeremy you called out two cost it should trend down sequentially as we move through the year, it's right for the reasons you mentioned other.
Bourbon clip prep plant towards the end of the year or obviously sit here on the royalty side with the ramp of coal acquisition.
Exactly so I think cost to trend down in Q2, but but they should be lower in the second half.
Certainly than the first half and even even Q2, especially as Chris said, the Berwyn plant comes online.
This summer, which saves the trucking costs and incrementally as we move throughout the year, we'll get onto more kind of ran the coke coal coal, which will which will help as well.
And Nick one other way to look at it.
We're ramping up production, obviously at both Berwyn add our Knox Creek complex is that's.
A million to roughly.
Ball in mid fall and most of that is because that increases hitting in the second half.
Yes, it makes sense Randy obviously.
Higher shipments that should do well, Turkey cost council so.
I guess, maybe just one other one other question is I'm trying to think about the sense.
A sense of shipments domestic versus export and the first quarter.
You know it was a 573000 tons shipped.
You guys have booked $1 8 million tons of domestic.
Do you have any color on the split of domestic versus export in the first quarter. I think you mentioned that <unk> should be your heaviest domestic shipment quarter, I think roughly 70% and you guys mentioned, but again just trying to get a percent. So what's left on the domestic side of the ship the rest of the year and kind of how that plays into your average realized sales price.
With the higher priced export sounds.
Good good question, Nate I'm Gonna, let Jeremy take that thanks, Nate Yeah excellent question. So in Q Q1, it was a little under 55% domestic with obviously the bulk being export.
The rest being export.
Q2 is going to be our heaviest quarter domestic coal at around 70% and then in the back half of the year we as.
As we ramp production kind of get to a nice 50 50 split so a lot of as Jason said, it's a lot of low vol and mid vol. Open tons for the second half of the year, which we expect to go into the export market. So overall that still kind of puts us in around 55 ish percent kind of domestic range for the full year.
Very helpful. Jeremy I appreciate that and then maybe just one final one.
I think Jason you know you mentioned some comments on.
The Russian you I guess, you ban on Russian coal starting up in August it sounds like you guys have already shipped some times when it was 175000 or so as you match them to Europe .
Also heard some commentary about getting more inquiries on the domestic side. So as we think about again the million tons, plus or minus left but so I'm sure in the export market is where you guys are leaning heavily towards sending those tons, but would there be any option for domestic tons needed there as well to fill some of those inquiries.
And obviously you would be looking to get a margin I would assume close to what you get on the export side just any thoughts there.
Yeah Nathan.
Just Jason.
Certainly on the domestic side some of these.
Customers that we have here are selling spot tons in the spot markets, whether it's coke or steel.
They certainly recognize where the seaborne levels are at now for the U S producers and sellers.
And I think our.
Nowhere.
The seller is gonna be opportunistic, whether it's export or domestic or they place those remaining tons.
So I'd say at the end of the day for US that's what it's going to come down to is where the margins as we build these tons out.
Got it that's helpful. Jason and then maybe just one other thought I could do it from you.
With the rail service issues, we've already touched on what your peers have had as well.
Is there any potential for slippage of any domestic or export tons.
You know maybe into 'twenty three at this point do you see or do you fully expect to be able to ship everything in the back half of the year.
Yes, I think today as we sit here, it's a bit early to worry about slippage into 'twenty three.
<unk>.
Typically for any producer Youre in Youre out youre going to have a trainer about or whatever slip over just due to normal timing issues, but again, what we're seeing out of our rail partners today is a very.
Very earnest effort on the labor side, just as we've made with our miners.
And.
Expect them to be.
Kind of back to more normal performance certainly during the second half and we're already begin seeing some improvement here actually.
Actually in April and on through this quarter.
I would say nothing material that we would we would concern ourselves about today as far as slippage into 'twenty three.
Got it great great to hear I appreciate that I'll leave it there.
Best of luck guys. Thanks.
Thanks Nate.
And we have a follow up question from David Gagliano from BMO capital. Your line is open.
Hi, Thanks, again, it's it's actually related to it and it was just asking about.
The cadence of volumes in the commentary that you just mentioned so just quick back of the envelope math it should we assume a 10% increase in second quarter volumes.
That would that would imply.
Do you get to the midpoint of your full year. It would imply a second half you'd need to move about 1 million tons, a quarter or maybe a little bit more just to hit the midpoint.
That's a pretty big jump, that's 55% increase and it would be.
I think the highest volume quarter, you've had with 680 or something like that in 'twenty one question as well.
I mean, given all the rail challenges like whats changing that is going to I know just like qualitatively, we're getting better performance and that's great.
Is it realistic to expect that that order of magnitude of increase and if so.
Why aren't we seeing it in the second quarter and why such a big jump expected in the third and fourth quarter.
Thanks.
Thanks, David Yes.
Excellent question. So part of the jump is just related to our production ramp.
Berwyn, certainly hitting its stride in the back half of the year as we've.
<unk> guided for probably the better part of a couple of years now so certainly that'll make a make a big difference.
And I mean look Jason Jason and I had had a very.
Productive in person meeting with the rail is a couple of weeks ago.
Without getting into too much detail the reality is they've got some.
Pretty pretty.
Pretty sizable planned increases for.
The specific area that route that we ship on so.
I know they've struggled this year, but.
We're confident that they are making the necessary investments in people and they've got the railcars. So certainly came away from from that meeting confident that.
The planned ramp in the back half of the year.
<unk> is certainly certainly doable, so we feel pretty good about.
Where things are at right now.
Okay understandable.
And in terms of just back on the.
The capital allocation, obviously, the focus is on buybacks.
Nice quarter.
This environment, who knows how long have your last one obviously quite a bit of free cash flow generation.
Buyback almost.
Our numbers.
More than 50% of the free float you know in.
And the next year so the question.
Hypothetically I guess is there a limit on how much stock you know remic, who would want to buyback.
And then how do you balance that with liquidity.
Well I think.
You kind of ask a couple of questions at the same time. So first of all of course, we're not going to make up our mind on what the buyback would look like if indeed, we go forward with one until we get to that point, which is going to be towards the fourth quarter and secondly that will be dictated certainly in terms of size.
By perception of where we see the stocks trading obviously, if we think it is trading at a discount.
We would probably argue to ourselves that that's a good use of our cash.
To buy an undervalued asset and.
And in terms of the amount of cash that we'd like to throw at it.
The reason why.
Suggested we'd like to get to the end of the year to see where we look is obviously see what that what that.
Amount looks like and then we can determine from there.
What percentages and how much of that we'd like to spend for an investment in our own stock. So that's that's kind of the way we look at it.
Okay.
Okay. That's helpful. Thanks, and just just to round out that question I know I asked this in the past but.
Why not.
Or what's the what's the you know.
Would you consider special dividends and in addition to buybacks to kind of help balance out liquidity question or is it still all buybacks.
Well I think at this point.
The way I'm looking at the market <unk> seen a couple of companies that did massive special dividends and massive buybacks and their stock is now trading lower than it was before they announced it so that doesn't strike me as something that is.
As a path that I want to rush into so.
You know other than the fact that we would like to return cash to shareholders. We'll consider whatever is the best route to do so.
Whether we think a gradual increase in the base dividend.
As appealing to long term investors because it implies a certain stability as well as a step.
A steadier bear.
Benchmark for them to do their own planning for <unk>.
Special dividends.
It should be a.
Perhaps regarded as indeed, what their named special.
Circumstances that don't happen very often.
We hope to be in a position as we are doubling our size over the next few years to be in a position to look at that more often than not and we will.
Again make it as an investment decision as to whether we think.
You know buying back stock makes more sense than simply giving cash out to shareholders.
We're not going to handicap that at this point.
Okay. Thanks for the answer.
Thank you Andrea.
Thank you we have reached the end of the break any session I would now like to turn the conference back to Mr. Randall Atkins for closing remarks.
Great well once again, thanks, everyone for the interest in us.
We look forward to the next quarter and.
Two as I said earlier printing a record year and we will speak speaking another few a few months take care.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.
[music].