Q1 2022 Hallador Energy Co Earnings Call
[music].
Good afternoon, and thank you for attending today's hollow door energy first quarter 2022 earnings call. My name is Jason and I'll be the moderator for todays call all lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end if you'd like to ask a question. Please press star one.
One on your telephone keypad.
I'd now like to pass the conference over to our host Rebecca Palumbo with Investor Relations.
Thank you Jason.
Everyone. We appreciate that you took the time to join us today.
Yesterday afternoon, we released our first quarter 2020, chief financial and operating results on Form 10-Q, which is now posted on our website.
On today's call, we have Brent Bill Flynn, our president and CEO and Larry Martin our CFO .
After the prepared remarks, our management team will be available to answer your questions. Before we begin. Please note that the discussion today may contain forward looking statements that are statements related to future not past due that in this context forward looking statements often address our.
<unk> future business and financial performance. While these forward looking statements are based on information currently available to us if one or more of these risks or uncertainties materialize or if our underlying assumptions provided.
Correct.
Actual results may vary differently from those we projected or expected.
For example, our estimates of mining costs future sale legislation and regulation.
In providing these remarks, we have no obligation to publicly update or revise any forward looking statement, whether as a result of new information future events or otherwise as such may be required by law.
Session of some of those risks and uncertainties that may affect our future results you should see the risk factors described from time to time in the reports we file with the SEC.
As a reminder, this conference call is being recorded in addition, a live and archived webcast of this.
<unk> call conference.
We'll also be available on <unk> website.
We encourage you to ask questions during our Q&A, if you're on the webcast and would like to ask a question you need to dial into the conference that toll number is 184 for Q 006205 acts.
Access code 643811.
With the preliminaries out of the way Larry you can start.
Good afternoon, everyone and thank you Becky.
So I'm going to review our operating results before I start I'd like to define adjusted EBITDA as operating cash flows plus current income tax expense less the effects of certain subsidiaries and equity method investments.
Plus bank interest less the effects of working capital changes plus other amortization.
Our net loss for the quarter was $10 1 million or 33 cents a share our adjusted EBITDA was $2 6 million and we borrowed an additional $8 $3 million of bank debt.
Our bank debt at $3 31 was $121 million, our net debt was $115 8 million and our debt to EBITDA leverage ratio was three three times.
I would like to now turn the call over to Brent <unk>, our CEO for his comments on the quarter.
Okay.
Thanks, Larry.
The World is in the middle of an energy crisis, which has increased prices in most everything related to energy.
In Q1, how it or was in the unfortunate position of having a sales price hedged.
So we cannot take advantage of significantly higher market prices.
While our input costs significantly increase year over year due to supply disruptions and inflationary pressure.
Additionally, our productivity was low as we integrated and expanded.
Newer workforce.
One 4 million tonnes were shipped at an average price of $41 40 during the quarter.
Q1 production costs were $39 54 per ton, which represented a $4 42.
<unk> per ton increase over Q4 of 'twenty one.
During Q1, we generated.
<unk> 3 million in operating cash flow and increased our debt bank debt by $8 3 million.
As of the end of March our bank debt as Larry said was $120 1 million.
Liquidity was $26 million and our leverage ratio came in at three point out three which was a violation of our covenant of three times.
The company was successful in executing an amendment with our banks loosening our debt to EBITDA covenant for Q1 and Q2.
In May we issued two tranches of 5 million a piece a total of $10 million in convertible notes to add to our March <unk>.
31 liquidity of $20 6 million again this was $10 million in addition to that number.
The notes were purchased by parties affiliated with four of our board members and one unrelated party.
We modified our existing sales contract during the quarter, resulting in our average sale price increasing for the balance of 2022 through 2025.
As the sales market is the strongest it has been in many many years, we anticipate negotiating additional price increases for 'twenty, two and 'twenty. Three later in this year.
Yeah.
On the production front, we improve mining productivity by 20% in April and May which is leading to significant.
Our production cost improvements.
These production cost improvements coupled with our anticipated sales price increases.
I expect it to increase our margins from Q1 and returned them to our historical greater than $10 per ton margins.
As early as June .
Looking at the third quarter, we anticipate closing on the acquisition of the Marin Powerplant in Q3 subject to certain regulatory and financial approvals.
Maryland is expected to significantly add to the profitability of our company in 'twenty two and beyond.
In the event, we are unsuccessful in securing additional price increases later in the year and or production cost improvements do not continue.
And Additionally, we are unable to close on the minimum transaction.
We may seek an additional covenant waiver for Q3.
Our current 2023 looking at next year, our current 2023 average sale price is already $4 a ton higher than.
2022, we improved that by $2.
Both by $2 during the quarter.
Additionally, we reopened on price for about 20 or excuse me we have available.
Available for sale about 25% of our coal production in 2023.
Now we assume will be shipping these tons to our newly acquired bearing plant in 2023. As this is currently our highest value use of these tons.
However, the fallback position these tons could be sold on the open market at prices today that would produce margins. We currently expect will exceed $50 per ton.
So in summary, though.
Though we are disappointed with our first quarter results we.
We have never been more optimistic about the growth potential of our company.
We have made material improvements on our sales price and cost structure in Q2.
Additionally, we are making progress towards our goal of completing the Marin purchase in Q3 with a backdrop of extremely robust coal and power market in 'twenty, two and 'twenty three.
Traditionally how it or has generated $50 million of adjusted EBITDA annually.
In 2023 with current coal prices.
It was the expectation we will close on mirror in 2022.
We expect our 2023 adjusted EBITDA to grow to over $150 million.
So with that I'll open up the call to questions.
Thank you if you'd like to ask a question. Please press star followed by one on your telephone keypad if for any reason you'd like to remove that question. Please press star followed by two again to ask a question press Star one.
As a reminder, if you're using a speaker phone. Please remember to pick up your handset before asking a question.
Cause you briefly ask questions registered.
Our first question comes from Neil ROE as a private investor. Please proceed.
Hi, Brian .
My question relates to on May 2nd in this.
Information was released on May six.
The write up on the $5 million in notes.
Two the related.
Board of director parties.
And then subsequent to that over the last three weeks some time.
An additional $5 million has been.
Provided by somebody not related.
Cause the company or.
Are the terms identical or are they different from what the board got.
Well just to clarify.
The first tranche was exclusively board members the second tranche.
It was three board members plus an unrelated party.
All of those terms are materially identical.
Okay.
And.
You talked about the.
Sales going forward.
Getting more per ton.
Great.
And the prospects look good.
I was somewhat surprised.
On the 10-Q.
See the news about how much of the sales in the first quarter had been hedged here for the higher prices won't taken advantage of but that's probably maybe my bad on that.
Knowing the details of that but how much of the forward sales are already hedged.
Versus being able to garner what the market is.
Yeah. So.
There's a couple of different things at play here.
On the coal side.
We've got.
I said, 25% of our sales position.
Which is about one 7 million tons.
Bailable for sale next year.
If we were to sell that on the open market.
Uh huh.
You know those prices will be at margins today is.
$50 a ton or more.
Which we've just not.
Historically seen margin to that level right.
Hmm.
However, we think were most likely to.
Acquire the mayor and power plant.
In the third quarter.
So the best use of those tonnes as did not sell them on the open market.
But to deliver to them to the mayor and power plant and convert those into electrons.
Power markets and capacity markets, which is the two main revenue streams.
For power plant are extremely strong as well.
As we saw at the end of the day.
It makes us more money.
Hmm.
So you know.
That's why we haven't been out aggressively marketing those tons because we are.
Holding them back for ourselves and we have no reason to believe.
Hey.
But we won't close on the power plant in the third quarter.
So we will.
We'll be trying to do.
No.
Modify some of our existing sales contracts.
With customers that we think will lead to price increases.
In the back half of 2022.
And you know the equity raise was to make sure that we have ample liquidity on our balance sheet.
To.
Make sure we kind of.
Get to the promised land.
We think that the power plant.
In prior calls we said it would not be profitable in 2022, we're reversing that statement to say it would be profitable in 2022.
And this could be as early as.
July so.
We're down to.
35, 40 days something like that it would be the earliest we could close on the planet.
Again, we are waiting for.
Financial and regulatory approvals, which.
We've made a lot of progress on it I don't want to get into the details on that but.
But sitting here today, we're pretty happy.
So we think that.
Both the existing business will be much more profitable in the second half this year and it would be extremely profitable.
Next year.
And that with.
The power plant is likely to add to profitability starting in the third quarter.
Good I have.
If I may another question.
On the.
Maryland plant.
Good.
As I understand it can be.
Palo doors.
Responsibility on any environmental liabilities some problems I mean, what does that look like this is sort of like getting into new territory isn't it.
What are the risks and how was that been evaluated and what do you think might be the outcome.
Well just to clarify we're not take those press releases.
Pleased to say.
We are assuming certain environmental responsibilities.
Assuming liabilities.
That's a key word.
We think that.
We have done a good job of.
Drawing a line in the sand as to assets that we are taking.
And assets that we are not taking.
We are purchasing a power plant.
Our rail facility.
And CCR certified landfill.
We think all of those individually and together our assets.
And so I think from that perspective.
We've worked very hard.
To make sure that we have not.
Then two huge exposures.
On the environmental front.
And that we have paas too.
Great value out of all three of those assets.
Very good I've got I've got one last question, if I may sorry to keep running here.
When when.
The longer things go as they are and if it if you get them era plant and it goes on and on a lot of things are going out of the country, where the prospects of maybe things being as they are.
With the need for energy could go on a lot longer than some of the talk has been in recent years.
Having said all of that.
At the end game, where you convert to solar power and your understanding of how that would work or who the exports going to help with that what I'm gonna be the Clos. It's my understanding that goes from day, one it isn't that way and then suddenly it's smaller.
What how do you view that out in the future and again, it seems like more and more out there in time, but eventually how that would all work.
Yeah. So.
Our goal today is to acquire the coal fired power plant and to run it as a coal fired power plants as long as the market signals are telling us that's what should be done.
And the thing Thats kind of raise its ugly head here.
The Commissioner Commissioner FERC Commissioner last week out saying.
That the transition to renewables.
Has happened too fast it is defined.
The laws of physics of what is possible.
And I think what everyone is realizing is.
The country has been at a tremendous pace two.
To shut off generation.
For clothes generation.
That has an on switch.
You can turn on a coal fired power plant at a gas fired power plant.
Nuclear power plant.
Our solar panel.
And windmill don't have an on switch you can't turn them on they come on.
When the wind blows and Sunshine Solar goes home every night.
Batteries are what the world is looking to two.
Kind of.
Move electrons from times of.
Scarcity to demand.
But the scale of that.
And there as you know.
Secrecy as to the technology of that.
Is not fully ready to be realized.
Yes.
And so in the meantime, the grid operators are all struggling to keep the lights on and you've seen MISO come out.
Which is the area. It's 15 states one Canadian Providence that the mayor and Powerplant happens to sit and as do our minds.
And say that there.
They have to shed load this summer.
They declared an emergency alert January 1st second third.
They've had some other events of warnings.
Since the grid operators.
It's PJM MISO ERCOT cassio.
Our all warning that there.
We've kind of gone through our reserve capacity right.
Renewables.
Worked pretty well.
I'm not making the argument that we're not transitioning there as a country because I think we are.
But today, they need something to back it up.
And.
Eventually transmission lines will get better in batteries got better and this will work out but.
Is that 10 years is it 20 years.
Our president.
It says that.
We're gonna be 80% renewables in six years.
I don't think thats possible or.
Grid operators say, we might hit 80% and 28 years.
I think thats realistic.
Where will the Marin power plant ceased.
He has to make economic sense, none of us know the answer to that today.
I think it's longer than.
Most people think.
And we just saw the capacity markets.
No.
For the March auction.
Capacity markets in MISO.
Hit the maximum legal limit.
And not everyone got filled at the maximum legal limit. So there is a capacity crisis.
Going on in MISO in my opinion.
So what that does is it helps the economics.
Of all generation that has an on switch.
Eventually that will not be the case, we can't say today, what your that is so we have designed a structure.
With our counterparty.
That.
When Howard or decides.
There is no longer economic to run the plant.
Then we have a PPA in place with Hoosier energy.
To convert the interconnection.
Two renewable power.
And they have rights to purchase.
Certain percentage of.
That energy.
So you know there is some proprietary things there. So we don't I can't I can't speak to all of it.
But at that point in time, we will look to redevelop that asset.
I think the great value is.
If you look at the transition today every time.
Power plant is retired.
Regardless of what form that power plant is.
All the renewable developers race to acquire a property or lease property.
Around that asset because.
They want to reuse the substations.
And they want to utilize the existing transmission lines of the grid.
Well as time goes on when you when you transition to renewables.
Takes.
Roughly three to four times.
It's much renewable to create the same about of.
Of electrons as base load power.
But there are today.
Three to four times as many transmission lines and Substations.
So that means once the existing infrastructure gets filled up which.
I think we're flirting with that limit today.
Does that means new interconnections, new transmission lines, new Substations, all have to be built and that's at a much higher cost. So one of the advantages.
That we have a mirror of them is.
We have the right so to speak to reuse.
The existing substation.
And have access to those transmission lines.
So that creates.
Considerable cost advantage in it.
Adds a lot of certainty.
Because those rights already exist and those assets already exist.
So we think we've found a way.
Two.
Basically have a very valuable asset.
Our interconnection right.
At the end of.
The plant life wherever whenever that they may be.
I hope that answered the question a lot.
Great answer Ed that's a great answer thanks, thanks very much.
Thank you Neil.
Well it looks like we had another.
Okay.
Investor in the queue.
Our next question comes from Eric Wagoner.
Please proceed.
Yes, hi, guys.
You guys are doing a great job keep up the good work guys two quick questions.
<unk>.
With the acquisition now utility plant had.
Dilutive will that be to the existing stockholders.
And the other question was when.
You've been doing your hedging.
Is that.
That amount or level of hedging determined by the bank loan or how do you come up with the amount of hedging if you need to do.
You know keep the business growing.
Well.
Under our current PPA.
With <unk> they are acquiring all of the energy and capacity.
From the date that we close which again, that's not an exact known date.
Until the end of May of 'twenty three.
So.
We're not really heads we have set the price and terms.
Although the electrons.
With our with a counterparty, which is hoosier the seller of the asset.
Okay and you have.
Ppas with them that extend from June <unk> to 'twenty three.
Through the end of 'twenty five.
For certain amounts of energy and capacity.
Well, but they they rely on the plant. They just don't relies heavily on the planet.
So it's roughly like a third of the capacity.
20, some odd percent of the energy.
So okay beyond that.
And it's something we're evaluating now as to how much.
Hedging, we want to do or not do.
As long as we have bank debt, we like having sort of about the forward sales that being said.
One thing that.
Is happening here is.
We are converting.
Fuel coal.
We produced today in two electrons and I would say that the electronic market.
Because we can sell day ahead that MISO is a much more liquid market.
Then the coal market so from that perspective, I think the liquidity of our sales opportunities has improved dramatically with the acquisition of the power plant.
Okay. Thank you.
Thank you Eric.
Our next question comes from Robert Baker. Please proceed.
Oh, hi, Thank you for taking my call can you hear me okay.
Yes. Thank you.
The first question I had is regarding the operating costs for the most recent quarter and actually over the last several quarters.
I know from previous quarterly calls.
A portion of that is attributed to just hiring new.
Our increasing head count and getting productivity up.
But how much of the increasing costs over the last.
Four quarters from roughly $30 up to about.
39, and a half this quarter can be attributed to productivity.
You've also mentioned some issues with the supply chain.
I am presuming that means supplies equipment.
And so forth if you could just speak to somewhat of that.
The individual factors that have driven the increase in costs.
Yes so.
A couple of different things going on there from an endpoint perspective.
You know, we're seeing inflationary pressure and Thats, where our existing supplier says hey, this widget.
Now costs, 20% more right.
And we expect that.
Cost increase.
To be.
I don't know if permanent is the right word, but I expect that to last for another couple of years just because.
We're seeing inflation everywhere right at the gas pump to food to everything.
Labor.
Another tight.
Of input pressure, we're seeing is a supplier will come to us and say.
I can only fill 80% of your order right. So do you want.
Rueful Blue I can only get you X amount of roof beaucoup.
Or.
Metal plate or what.
Idaho right and so then that forces US then to go out to a non traditional supplier.
Who knows these items are in short supply.
And that person will say all right I can get it for you, but it's going to cost three times, what you normally pay.
And so we expect that type of inflationary pressure to dissipate.
As the supply chains.
Kind of get caught up.
But <unk> got a lot of different factors at play here.
We've seen disruption from the invasion of Ukraine to the Lockdowns in Shanghai.
Which it's always surprising to see.
Some some.
Some vendors, saying well gosh, we can't get a material out of Shanghai that we normally rely on so we're going other places so all of this.
From.
Freight surcharges.
All of this has led to cost pressure on the inputs.
The.
To answer your question I would say the input price increases we've seen as a bit about half of our cost increases.
The other half is up but on the labor side. So.
We've had.
In September of 2021.
Started hiring a lot more workforce.
As we responded to the increased demand.
For coal so.
I would say.
The increased demand for coal was happening.
Late in the third quarter early in the first quarter of last year due to the reopening.
<unk>.
Every market from the Covid.
And a slowdown.
And then we saw the invasion of Ukraine in February that really just.
Set at already tight energy market on fire right I mean last night I think the forward strip on natural gas was $8 for the next for the year for.
For the forward 12 month $8.
It's been decades.
Since we can say we saw gas prices.
That high which means coal plants are dispatched.
In front of gas everywhere at much much much higher coal prices right.
Plus.
We're seeing so much coal exports so come back to the labor front.
We've hired.
120, new people right, so roughly 20% of our workforce.
And we've seen a lot of turnover.
In those new 120 people our existing workforce.
We've not seen as much turnover at those people were more ingrained to our way.
So it's one thing just to train a 120 people. It's another thing to train 120 people Thats probably turned over once in the last six months.
And so it takes us a while to get those people in grain doorway.
And see the productivity increases.
We saw a 20% productivity increase in.
April .
And I've seen those financial so.
No.
The cost there improvement was significant.
Arguably better than I was expecting.
Oh without released with that is yet because we want to make sure. We want to look at it may and make sure that that.
B.
The improvement that we think we see and so.
As we talk about what is our business look like for the balance of this year.
It's kind of it.
It's kind of three fronts right.
Get our keep our cost structure in line.
Increase our average sale price for the coal that we're getting.
And then closed on the mayoral plant those are the three buckets.
That all lead to much better profitability and so on one hand, we've got this very unusual.
Time in our company where our.
Our first quarter results were poor.
And yet we feel we are.
Possibly a month away from having significantly better results.
And we have even more confidence.
That come 2023.
That our company looks to be three times more profitable than it's historically been.
So our game plan is to make sure we pack enough.
Liquidity around our company to make sure that we make it.
To the promised land and.
That's the game plan I think we have in place. So that's what we're working on it.
Again, even when you look at cost increases.
That.
It may be permanently.
$5 four $4 a ton higher than they were a year ago.
We're looking at sales prices.
That are.
80, 90 over $100 to tell me your timeframe right.
But we're talking about dramatically higher prices, so as we reopen and reprice our existing.
The production.
The results are going to be dramatic to the profitability of the company.
And.
So then if you look at it.
What does that do to the stock price a year from now if we are at $150 of EBITDA.
Right I mean look at the multiples Coke companies typically trade at.
Less the debt and you have a dramatically dramatically higher valuation for this company. So.
So some folks from that perspective.
I think we're on the cusp.
A dramatically better things.
Right. Okay. Thank you.
A couple of follow ups to that if I understood. It correctly has the turnover of the new hires improves.
I think youre, saying the first hundred roughly 120, new people and there was.
A fair amount of turnover there has.
As you replace the turnover has has that.
Canada attrition that comes from people joining and then moving on for whatever reason has that improved over the last six months or so.
I think it's marginally better.
I think that higher interest rates.
And higher.
Inflationary prices will eventually slow this economy down.
And.
That's why our turnover at our.
Growth in people.
We will improve when exactly will that happen, it's hard to put an exact number on it I think.
It happens gradually.
Between now and the end of the year.
Okay.
And then in terms of supply chains, and obtaining equipment or consumables.
However, there are for.
Is there is there anything that concerns you about being able.
To obtain everything you need where it's not just.
You have to pay a price that's two or three times more than you normally would but it's just not available at any price.
Well I think we worry about that every day, that's our job, but worry about that every day.
And then we have we're in a period of time, where you have to fight and.
And work at getting.
Getting your inputs and because of that I mean, we are.
No.
We are trying to carry higher inventory levels to make sure. We don't run out of anything and so far the industry has done a good job of.
Making sure nobody has run out of anything but.
I wouldn't say, we've stopped worrying about it.
Okay Fair enough and you haven't experienced anything like that directly at being unable to obtain equipment needed or anything.
So far we've been able to obtain everything I wouldn't say it wasn't without a struggle.
And we definitely are paid premium prices.
And Thats the part that we think that again, we think higher interest rates higher inflationary costs.
Eventually slows economy down right, that's why they're raising right is to try to.
Get that and check the problem is.
Walling off Russia.
Is a.
I don't know once in a lifetime event I mean, you are talking about.
The world's largest exporter of natural gas the second largest exporter of oil the third largest exporter of coal.
So in Europe says, we're no longer going to use these fee to us.
We're going to source that from somewhere else. So they're looking at the Middle East. We're looking at Africa, and then looking at the United States. Those are the three closest markets too.
To Europe to replace Russia.
And so for that matter and we've seen an underinvestment.
And fossil fuels for the last five years in the United States.
So now we're at a period of time.
Where.
All of that industry is being asked to.
Ramp up.
And ship every last Btu.
That you can't I don't care, if it's coal I don't care, if it's gas or oil right. In Europe is saying we are willing to pay a premium price to make sure. We don't freeze this winter.
Even if we have to do that with government money.
So it's created this bonanza.
That for the industry for the fossil fuel energy industry.
And.
The good news is.
Our margins.
Are going up.
Bad news is it.
It's hard you have to fight harder to get all the inputs.
To make to make that.
<unk> ability happen.
So we're up to the task.
It is something we work on every day.
And.
And quite frankly, it's been going on for a little while which is why you've seen it.
Can put prices kind of.
Our cost structure creep up.
We were not expecting it to creep up as much as it is.
In the first quarter.
But we are very focused on that now and I think we have a good plan to widen those margins back out.
Hey that widening out now I'll just due to our April results and what we see as price increases starting in June .
And beyond.
Okay. Thank you and then.
One last question I, just wanted to make sure I understood that correctly.
Okay.
When you were speaking earlier about using the tonnage through the Barron plant instead of selling it into the market.
And you had mentioned $50 ton margin.
Is that the.
Just say that selling the coal for $50 a ton or the margin would be $50. So you'd sell it for X and after cost.
It would be $50 per ton.
I'm talking about the margin not the sales price.
And I want to clarify something.
Those are the prices.
That we would receive if we didn't take it to the plant.
And we sold it on the open market.
We wanted to take it to the plant.
Because we think it's a higher value at the plant.
Right now though.
This change every day.
We may sit here three months from now and say no. It makes more sense to sell those tons, but.
That's one of the things that the plant gives us is that kind of ops Audi it looks to me.
Is this the plant.
We'll.
99 times out of 100 be the best use of those tonnes just from a freight perspective.
But that may not always be the case, but again, we have that optionality.
And we think we're taking into the plant because it's.
A greater value than selling them on the open market, we just wanted to.
Clarify that we have that option.
Right Okay. So.
Given that this instance at $50 a ton margin currently.
What would the equivalent margin b for the tonnes going to the plant instead of being sold in the open market.
That's not something we've disclosed.
And quite frankly.
It gets a little complex.
Because we're talking about.
Power prices that we've agreed to sell to.
Our bylaws through our bilateral contracts or are we talking about spot prices on the market. So.
Right from that perspective, because the plant acquisition is not closed.
We have not.
Discuss that I think our point is.
It's better used to take them to the plant, we think thats more profitable.
At $50 per ton margin so from that perspective.
That's our plan.
And I think at a high level, we've talked about we expect EBITDA next year to grow over $150 million.
Adjusted EBITDA so.
Do the math I think it's a unique opportunity.
Two.
Profit in a very short order when we're talking about.
What.
Seven seven months from now will be on a pace if not before.
Not before we really think before because we really think we're getting we're gonna be closing on this plant.
In the third quarter.
Okay.
Alright, great. Thank you I appreciate your answering.
Questions for me.
Alright, Thank you for your time.
As a reminder to ask a question it is star one.
Our next question is from John Moran with Robo, Woody and co.
Hi, Brian I, just had a question about your liquidity and whether or not the $10 million you raised is sufficient.
<unk>.
It seems like all that would do is replace.
What you've sort of would have generated typically in the last couple of quarters.
And.
It's also seems only logical that the banks are going to want more liquidity.
If you're bearing marrow them into the.
Into the mix.
That's the first question and second is just around that negotiation with your banks.
Because if you say that you can make a $50 margin on the $1 7 million tonnes that are not sold next year, if I'm the bank.
And you could do that today.
Is that not a difficult negotiation.
I mean, it seems like they could be in a position where.
They really don't have much less risk left them alone.
If you simply sit and sell those tons today and I don't.
They don't care about the company beyond the loan I wouldn't assume so anyway.
Those two questions.
Okay.
So from a liquidity perspective.
<unk>.
We may add more liquidity.
I think we are a value again, we think that the closing of the plant.
Materially improves our company, we think that we could be as close as 35 days away from that again subject to regulatory.
<unk> approvals and financial approval so we're in conversations.
With our banks about what that looks like today.
And those conversations are positive.
So we have a game plan for that.
As far as is the bank kind of force us to sell coal in the open market.
Thanks.
Thank you.
All of US would we will always support what's the highest value position.
For those tons.
And so from that perspective, no I think they are encouraging us.
Two.
Yes.
Use our assets to the most profitable position.
Banks don't want to tell you how to run your company.
Okay, maybe just one.
Maybe just one more you kind of referenced this optionality that you would have.
If you succeed with Meryl do.
Do you really have optionality or do you have to run Mira met 100% once you own it.
And if so I think we can do you can you buy coal from third parties or.
Could you by profitably from third parties to run Merrell.
So the majority.
The tons going to that play out this year once we own it we will not be from al Dor.
Next year.
It'd be a mix between <unk> and another suppliers tons.
Do we have to run that plant wide open we have obligations.
Two our counterparty.
To produce so many electrons.
Under our PPA and so we have to have enough fuel to do that and to meet our.
Capacity requirements in MISO.
But after that point.
It was more profitable than sell the tons, we could do so if it was more profitable to run the plant we can do that.
So.
All we're trying to say is the plant does being us flexibility.
And.
Yes.
The thing we have people call us and say well you don't have your.
All your approvals yet so you don't know you can close on the plant they say well in the unlikely event.
We didn't close on the plan.
Then as a fallback position, we could sell these tons and still be.
Much more profitable than we have historically been.
Next year, so what we're trying to say.
Maybe I'm doing a poor job of it is we have.
Multiple tracks to profitability.
Later this year next year.
And that's something that.
I think the banks look at that and say well gosh this amount of profitability coming down the pipe.
Yes.
Could we be debt free.
Late next year.
Or early in 2024.
Those things are possible.
So from that perspective.
The banks are happy about we are right on the cusp of.
Yeah.
Profitability.
Pruning.
For the 2023.
For the 2023 tons that Youre renegotiating.
Are you, giving away anything are you trading volumes in out years to do that or are you, giving up anything for that or what is your leverage.
However, your customers for these renegotiated tons, mostly.
Blend and extend.
Where we will sell them.
More tons in outer years.
Okay.
You don't forget.
At most half of our production will be going to barrel.
The other half will be sold on the open market. So.
As we go out into 'twenty, three and 24% and 25, we dramatically open up.
Well not dramatic we open up on some of those tonnage and so we have customers now who are saying Oh my gosh.
Look at the gas forward curve for.
For the next three years.
Flirting, it's over $5 flirting with six.
So if your utility who is struggling to get tonnage now and you see all of these.
Gas curve.
It just it just Keith.
Improving.
So we are seeing utilities start to talk about totally flipped where they've gone from we want to stay.
Really short contracted to now.
Now they want to go longer contracts.
And so we're seeing quite a bit we're seeing some business getting repriced.
At.
Prices I've never seen in my career and I've been doing this 18 years.
No.
We've got people in our sales department has been doing this for.
35, plus this is the highest prices we've ever seen.
And so.
<unk>.
When you enter those negotiations when a customer comes to you and said look I need more tons for 'twenty three I need more tons for 'twenty for that offers us an opportunity to say all right.
Can we blend and extend these prices I'll tell you more tonnes in the outer years, but I want some of that price increase in 'twenty three.
Or maybe I have got to sell a few tons.
At various windows to make that work. So those are the type deals that we're I don't think we're giving up anything I think we're just.
Doing new business at much higher prices.
Is everybody else I mean, there is an energy crisis going on at the state the country of Russia.
Has been shut off from Europe or restricted from Europe .
And those markets, which have for decades.
Gone to Russia, or looking for new suppliers, the United States is on that shortlist.
Thanks Brent.
Thank you.
Our next question comes from Ted waters, another private Investor. Please proceed.
Hi, Brian I had a question about your 2023.
Adjusted EBITDA as you can hit $150 million well, what's your free.
Free cash flow look like basically looking at what would your ability to pay down debt and 23. If you can hit those numbers. Thank you.
Larry we probably have a more accurate.
Opinion of that so ill, let him answer this one.
So yes, so I don't have our free cash flow calculated but with our current projections in branch numbers that he was talking about with EBITDA, our bank that would pay down our net we would be net debt free in the fourth quarter next year.
And would you be start to be able to hedge some of those electrons once you close the plant for 23.
Yes, we would be we would be able to do that.
Can't do that today until we acquire the plant.
Great. Thank you.
So we have interested parties.
For sure.
Correct.
There are no more questions waiting at this time, so I'll pass the call back over to the management team for any closing remarks.
Yeah.
Well I want to thank everyone for their interest in how it or again just reiterate how excited we are about the future.
Not going to say this is not going to be a bumpy path to get there but.
It's just we see so much opportunity and I think we're positioning ourselves.
Take advantage of that opportunity in very short order. So I, thank everyone for their interest.
And look forward to talking to you on our next call. Thank you.
Okay.
That concludes the <unk> energy first quarter 2022 earnings call. Thank you for your participation you may now disconnect your lines.
Hi, there.