Q3 2022 CONSOL Energy Inc Earnings Call
Yeah.
Good day and welcome to the Consol Energy third quarter 2022 earnings Conference call.
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I would now like to turn the conference over to Nathan Tucker Director of Finance and Investor Relations. Please go ahead Sir.
Thank you and good morning, everyone welcome to Consol Energy's third quarter 2022 earnings conference call any forward looking statements or comments, we make about future events are subject to risks certain of which we have outlined in our press release and in our SEC filings and are considered forward looking statements within the meaning of section 20 <unk> of the Securities Exchange Act of 1934.
We do not undertake any obligations of updating any forward looking statements for future events or otherwise we will also be discussing certain non-GAAP financial measures, which are defined and reconciled to comparable GAAP financial measures in our press release and furnished to the SEC on form 8-K, which are also posted on our website. Additionally, we filed our quarterly report on form 10.
In Q for the quarter ended September 32022, with the SEC. This morning, you can find additional information regarding the company on our website www Dot Consol under your Dot com.
It also includes a supplemental slide deck that was posted this morning.
On the call with me today are Jimmy Brock, our Chief Executive Officer attached to Carr, Chief Financial Officer, Dan Connell, Our senior Vice President strategy, and Bob Braithwaite, Our senior Vice President of marketing and sales in his prepared remarks, Jimmy will provide a recap of our third quarter 2022 achievements and specific insights on operations and sales.
Well then provide an update on our balance sheet management financial performance in 2022 outlook in his closing comments Jimmy will lay out our key priorities as we head into 2023. After the prepared remarks, there'll be a Q&A session in which Dan and Bob will also participate with that let me turn it over to our CEO Jimmy Brock.
Thank you Nate and good morning, everyone.
Wanted to start by highlighting a few developments for Consol that we're excited about first we recently announced the commissioning of our preparation plant at the end of September and our first shipment in mid October .
This plant gives us full marketing control of our <unk> product as well as incremental upside opportunity to third party processing.
This major milestone also gives us the ability to finish ramping up to full production capacity at the mine.
Second we are nearing completion of the development of our fifth longwall at the Pennsylvania mining complex located at the Enlow Fork mine.
The timeline remains on track.
And we continue to expect it to be up and running before the end of the fourth quarter.
We are excited to bring this well back into the mix to add production stability optionality and improved quality to the complex.
Finally, Consol energy achieved strong financial results during the third quarter of 2022, despite multiple production related challenges as such we announced this morning, our second dividend payment, which will occur later this month based on Q3 'twenty two financial results.
We also furthered our debt reduction goals by retiring a sizable portion of our gross debt during the quarter.
Let's now discuss our operational performance in more detail.
On the safety front, our Enlow Fork mine Harvey mine, Bally preparation plant and Consol Marine terminal each had zero employee recordable incidents during the third quarter of 2022.
The Bally prep plant and CMT have maintained zero employee recordable incident, so far in 2022.
And our Enlow Fork mine achieved its second consecutive quarter at zero.
Our year to date total recordable incident rate at the P. M. C is 3.4 times below the national average for underground coal mines.
Coal production at the Pennsylvania mining complex came in at $5 3 million tonnes in Q3 'twenty two in line with the prior year period, but a reduction of nearly 1 million tons compared to Q2 of 'twenty two.
Production suffered this quarter due to a planned maintenance shutdown and a longwall move as well as multiple operational geological challenges.
The good news is we believe that these issues are now behind us and natural finishing a longwall move in early October all planned moves for 2022 have been completed.
As a result of these factors our P. A M. C average cash cost of coal sold per ton for Q3 22 was elevated finishing at 39 77 compared to 34 81 in Q2 of 'twenty two.
This was mainly due to reduced fixed cost leverage resulting from the decreased production levels as well as the ongoing development costs associated with the fifth long wall and continued inflationary pressures on supplies maintenance and power costs at our operations.
Maintenance costs were also elevated due to ongoing challenges on the supply chain front and deteriorating performance consistency by our suppliers. This brings our year to date cash cost of coal sold to 34 46 per ton.
The Consol Marine terminal had a throughput volume of $2 7 million tonnes. During Q3 22 compared to $2 8 million tons in the prior year period.
Terminal revenue for the quarter came in at $14 8 million, an increase compared to $14 1 million in Q3, 'twenty, one driven by an improvement in the throughput rate per ton.
DMT operating cash costs came in at $6 7 million for the quarter compared to $5 8 million in Q3 21.
CMT adjusted EBITDA finished Q3 22 at $8 3 million compared to $7 3 million in the prior year period.
Our it meant project hit a major milestone at the end of the quarter with the commissioning of our preparation plant, which process is first coal in late September we loaded and shipped our first train on October 12, while the prep plant was commissioned in the third quarter as anticipated on our last earnings call.
Supply chain bottlenecks have delayed the delivery of our third production section of equipment and we now expect it to be delivered in the fourth quarter.
We still anticipate scaling up all three super sections by the end of 2022 and achieving full run rate production by the beginning of 2023.
We are encouraged that mining conditions and coal quality are proven to be what we expected and we will hit the ground running once all three super sections are fully operational.
The <unk> mine produced 41000 tons and sold 15000 tons of low vol. Metallurgical coal in Q3 of 'twenty two.
The difference between sales and production, resulting from a deliberate decision on our end to stockpile raw coal for processing in our own plant instead of selling it for third party processing, which will allow us to capture the full economic opportunity associated with this cold.
On the marketing front.
The demand for our P. M C product remained strong in the third quarter of 2022.
We sold 5.3 million tonnes of PMC coal at an average realized coal revenue per ton sold of 70 to 83 in Q3 22 compared to $5 4 million tonnes at $47 46 in the year ago period.
The $25 37 per ton increase in our average realized coal revenue per ton was driven by the ongoing improvement in the coal markets over the past year due to persistent cold supply shortages and increased commodity pricing.
Henry hub natural gas spot prices averaged $8.03 per million Btu used in Q3, 22 compared to $4.35 per million Btu in the prior year period.
P J a M west they had power prices hit the highest quarterly average in over eight years, finishing Q3 22 at $90.44 per megawatt hour.
And the global thermal coal markets demand remains robust as a result of tight supply domestically coal fired electric generation units are delaying retirements and internationally, we are seeing countries, bringing back coal fired electricity generating units, particularly in Europe .
Wood Mackenzie estimates that power demand will accelerate in India as the country comes out of the monsoon season in Q4.
The burden to meet this incremental demand will fall on coal due to the lack of alternative energy sources domestic supplies in India will be prioritized for power generation.
And this will increase export demand for the non power generation sector, which we serve.
As a result of this continued coal market strength, our sales team opportunistically secure additional sales contracts and increased our forward so position by 6 million tons through 2026.
We now have 21.8 million tons contracted for 2023, and $8 8 million tons contracted for 2024.
For our metallurgical product coming out of the hip in mind, we have successfully concluded multiple contracts in the domestic and export markets for a portion of our Q4 'twenty two it meant volumes and discussions regarding additional new business commitments are ongoing.
Finally, we are happy to report that we secured new five year throughput agreements for third party coal at the Consol Marine terminal that will take effect in 2023 and run through 2027.
This will lock in a minimum of 1.85 million tonnes of throughput in 2023, and a minimum of 2.75 million tons per year of throughput and 2024 through 2027.
With these minimum volumes secured by take or pay provisions.
This deal is not expected to affect our needs for shaping our own P AMC and hitmen products through CMT and when coupled with their own shipments. It provides solid revenue visibility and a meaningful growth opportunity for CMT going forward.
With that I will now turn the call over to <unk> to provide a financial update.
Thank you Jimmy and good morning, everyone. Let me begin by updating you on the progress we have made on the balance sheet management front before discussing our quarterly results and 2020 to outlook. We continue to make considerable progress on our stated financial priorities due to the ongoing core market trends and our strong financial performance.
During the quarter, we generated $107 million of free cash flow, a majority of which was to block towards our near term goal of continuing to reduce our gross debt levels.
We made total debt payments of 56 million, which included $50 million towards term loan b in 6 million stores, They just finance leases.
We have now made total debt repayments of $211 million in the first three quarters of 2022 and our current gross debt level now sits at just above $450 million.
While we have more recently focused on our term loan b debt as it is first lien and interest rate sensitive.
Core price on our second lien notes, but a drop in mid November to one or $2 75 lots as one of five five currently.
This will provide us additional optionality in our capital allocation process moving forward.
As such we have submitted a redemption notice for $25 million off our second lien notes at the end of October which will be redeemed during fall 'twenty two at the stepped down call price.
Additionally, we made a discretionary payment of $25 million towards our term loan B in October that was not included in our third quarter results.
These two paydowns will bring our gross debt to approximately $400 million.
We will continue to prioritize strengthening our balance sheet through significant debt reduction and work towards achieving our goal of 300 million or less.
Forget gross debt.
Due to our continued earnings and free cash flow strength, we finished <unk> 'twenty two with a net leverage ratio of just under three.
Julian <unk> 22, due to our strong free cash flow generation. We also managed to increase our unrestricted cash balance, even while I'm, making $56 million and debt repayments and $35 million dividend payment associated with our second quarter performance.
Our unrestricted cash balance at September 30 was $269 million.
We also ended the third quarter with a significant liquidity position of 542 million.
In conjunction with our strong free cash flow generation and consistent with our two recently around shareholder return program. We are pleased to announce this morning that the board of directors elected to issue a dividend of $1.05 per share amounting to a payment of roughly $37 million or approximately 35% of our St. Jude 'twenty two free cash flow.
This payment will be made on November 23rd to all shareholders of record as of November 14th.
As mentioned previously most of our remaining free cash flow will be allocated towards our debt reduction goals. However.
However, once the target gross debt level is achieved we expect to further increase the percentage of free cash flow allocated to our shareholder returns including potential share buybacks.
We continue to diligently engaged with our shareholders each quarter and solicit feedback around their preferred method of shareholder return. This approach allows them to have a voice in the process and enables the company to best align our strategy with the interest of its shareholders.
We believe the previously announced increase in extension of our repurchase program authorization by our board of directors last quarter provides us the flexibility and wherewithal to quickly adjust our raton strategy between dividends and share repurchases are a mix of both.
Now, let me recap, our third quarter financial results and outlook for the remainder of the year.
This morning, we reported a strong Q2 financial performance.
Ended the quarter with net income of $152 million or $4.25 per diluted share.
Quarterly earnings per share level, since becoming an independent public company in 2017.
Additionally, we finished Q2 with adjusted EBITDA of 181 million and generated $107 million of free cash flow.
While our production levels came in lighter than our expectations during the quarter a strong P. M. C sales led to impressive cash margins and free cash flow generation.
On the guidance front for the P. M. C. We are pleased to announce that due to our strong tweak your 'twenty two performance and improved outlook. We are raising our expected average realized school revenue guidance to a range of 67 to 69 per tonne metal settlements of commodity derivatives. Our updated guidance assumes average because you have invested there had power forward.
Of $81 per megawatt hour at the midpoint for the fourth quarter of 2022.
For every dollar per megawatt hour change in opinion unless ball prices doing four to 'twenty two.
We estimate the weighted average utilization across our entire portfolio for the full year of 2022 will change by approximately four cents per ton at the midpoint price.
Given the tough trickier 22 operational performance at the PMC and ongoing challenges with supply and consistency.
Slightly tweaking our 2022 sales volume guidance to a range of 23 175 to $24 5 million tonnes.
Bottom of assurance producing at the average levels across the first three quarters of the year, while the top end of shields.
Possibility of accelerating the start date of the first longwall and potentially adding extra production shifts subject to labor availability and improving supply chain consistency.
As of now we expect the water starting mid December but the team is working hard to commission it as soon as possible.
To reflect the operational and geological challenges, we faced during the third quarter ongoing concerns around the supply chain bottlenecks and higher input costs, we are increasing our P. M. C cash cost of coal sold guidance to a range of 33 to $35 per ton.
We are beginning to see some relief in these cost pressures and the early parts of the fourth quarter, our supply chain team diligently managing costs as best as they can and the operations team is constantly focused on identifying ways to minimize our cash spend.
After these revisions we expect an overall improvement to our cash margins.
$1.50 per ton at the midpoint of our guidance range as compared to last quarters guidance.
Well Edwin we are reducing our tonnage guidance to a range of 200 to 300000 tonnes for the full year of 2022 down from 300 to find 1000 tonnes previously.
While the preparation plant was commissioned in the third quarter the midpoint of our guidance assumes the planned startup would've occurred slightly earlier.
Furthermore, as is the case with most industries across the world supply chain bottlenecks have caused delays for us as well.
The delivery of our daughters section of equipment, which was expected in August has been delayed until the fourth quarter.
We are optimistic that we will have all Christi I'm Super sections operational by the end of the year and we'll be prepared for full rate production starting in 2023.
Lastly on the capital expenditure front.
We're maintaining our guidance range of $160 million to $185 million.
With that let me turn it back to Jimmy to touch on our key priorities for the remainder of the year.
Thank you <unk>.
As we close out 2022, we have a few key areas of focus to set us up for the continued success heading into 2023, our major focus is on our operations.
First.
We are laser focused on bringing the fifth longwall back into operation this quarter and the P. M. C team is hard at work to have it up and running as early as possible.
Second we are also committed to ramping up the Edmund mine to full run rate production by the end of the year to ensure we hit the ground running by the start of 2023.
We are very proud of the execution and hard work from our team members and for their dedication and getting us to this exciting point in a truly short period of time.
We have relocated.
Constructed and commissioned this preparation plant and just over a year, which is not an easy feat in the current inflationary environment with significant supply chain bottlenecks.
Third our sales team remains opportunistic in its approach and we'll continue to balance revenue visibility with market Optionality.
We expect to continue to layer in additional business for 'twenty, two 'twenty three and beyond.
Our ability to lock in duration should allow us to benefit from the strong market for years to come. We are also hard at work marketing, our new Whitman product to secure new business with strategic and long term partners.
Finally, we do some of the debt on our balance sheet remains a major focus we are fast approaching our gross debt goal, which is a key pivot for accelerating returns to our shareholders.
In aggregate, we're very pleased with how 2022 has progressed to this point and our ability to optimize our sales book.
Looking ahead, we remain even more excited about the future for 'twenty to 'twenty three we expect higher sales volumes from both the P. M C and it meant which should add upside compared to this year.
With that I will hand, the call back over Tonight for further instructions.
Thank you Jimmy we will now move to the Q&A session of our call at this time I'd like to ask our operator to please provide the instructions to our callers.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your touch on telephone.
The speaker phone, we ask you. Please pickup your handset before pressing the keys to withdraw your question. Please press Star then two.
Today's first question comes from Lucas pipes with B Riley's Securities. Please go ahead.
Yeah.
Mr. Weisz Your line is open Sir.
Yes.
Oh, it looks like Mr. By phone maybe on mute here. So we'll move onto our next question.
So that comes from Nathan Martin as a benchmark. Please go ahead.
Hey, good morning, guys. Thanks for taking my questions.
Good morning.
Let's say you layered on an additional 6 million tonnes through 'twenty six Oh, it looks like 23 to 21.8 now it's going forward to page eight.
Can we please get a breakdown on maybe the totals for those two years between export and domestic tonnage and then Bob I know you mentioned committed and priced tons for 23 last quarter were in the low to mid seventies could we get an update there and then any commentary you might have a 24 at this point, which I think was previously mentioned are expected to be.
Higher than 2023 based on where the curves were at that point.
Sure Nate good morning, let.
Let me start off by answering or for answering your first question, which is about surrounding the 6 million tonnes of commitments. We we contracted through 2026 are the more majority of those tons are just over 4 million they.
They were sold to a strategic domestic utilities at fixed price the balance of 2 million tons were sold export and when pricing those tons through 'twenty. Six you know what we did was we looked at power and gas forwards at that time.
And then we calculated what the delivered price for coal would need to be to be competitive.
One thing I can tell you is that the average price of those 6 million tonnes.
Over $100 for the $6 million. So you know.
When you look at the breakdown there.
I would say the.
The three about 300000 tons were optimization tons that we did in 'twenty two.
At $1 9 million in 2023, again, not including the optimization tons, $1 6 million and 24 million and a half in 'twenty five and the balance in 'twenty six.
For 2023 that now again puts us at $21 8 million tonnes.
And based on where API two power and gas forwards are today.
Our average realized price across those $21 8 million would be in the upper seventies. What I can also tell you is that we had opportunity to lock in additional volumes for 2023 and beyond However, we decided to pass just due to pricing expectations from our customers and in our view of the market.
I would suggest that the majority of the tons. We have left to sell for 2023 will go into the export market, which is still yielding a premium over the domestic market even with the recent fall in API two prices are.
Regarding 24.
As you mentioned, we have $8 8 million tonnes contracted to an increase of 1.6 quarter on quarter and although we're not prepared to provide pricing guidance. At this time for 24 as you mentioned, we are expecting to run all five long walls throughout 'twenty, three and beyond so long as the market supportive. So I still can see an instance, where 2024.
We're pricing our average realized price is higher in 2023.
Very helpful. Bob I appreciate that and then just maybe to your last point or what are your last point there. The recent falloff if you're at your prices how has that affected business. At this point have you seen it affect business, maybe what's your outlook there for API two pricing is going to work are you guys.
Yes, so I actually just made a trip to Europe , two weeks ago and met with several customers. Obviously, there is a little bit of muted demand today, just because of high stockpiles.
But I can tell you the consensus is pending a normal winter.
Stockpiles are expected to drain quite quickly, obviously theres not rushing gas to refill the storage there so there'll be looking at coal to supply their needs going forward. So still fairly bullish on the European market API two prices today for Cal 'twenty three as Youre aware, just over $200, but even even than the netback.
Still somewhat healthy to us I would tell you $1 41, 50 is kind of what the netback looks like on a $210 API two price I still think that there's opportunity for that price to improve I just think right now the challenge or the concern is just you know when winter arrives and how long it lasts.
Great I appreciate that color there, maybe shifting to the balance sheet cowboy.
Capital return program.
Free cash flow was 107 in the quarter, obviously, 35% of the dividend are you guys paid down about 56 million debt attached went through all that because I think you also mentioned another $50 million cumulatively has already been paid down here in the fourth quarter, which you get you do totaled around 400 million I believe how soon do you guys think you can.
Kind of dipped down to that targeted debt level of $300 million.
And maybe at that point.
You can also look at are starting to utilize some of your sizeable share repurchase authorization.
Thanks, Nick that is correct we did.
We did send a redemption notice for $25 million of second lien and another $25 million paid almost all of it wont be.
Here in October so hopefully this quarter as well.
Batesville continue.
We announced the plan on the shareholder return program.
Just 35%.
Turning to shadow overdose and achieved the target debt level with the remaining 60% to 65% and that's what we have been doing.
We continue to plan to invest to achieve the target debt level and hopefully you know with the market trends continuing we'll achieve it sooner rather than later.
Okay that extra cash and then maybe just one final question.
Shifting to the logistics side of things.
I'm just curious how you know rail service and airport.
Service has been is there.
Or anything you guys can do to prepare for a potential real strike or lockout.
I've ever got it thanks.
Hi, Mike.
Uh huh.
For a long.
We stay in constant communication with the railroads, they're obviously very important to us and we have seen some improvement quarter over quarter with our rail service I know, they're working hard to replace people.
Now when I think about <unk>.
National Railroad strike, it's hard for me to imagine that the administration would allow that to happen of course it. It obviously as possible, but we're kind of in the moment that we believe will continue to get service there and they have they have improved as I said before critically important to us and I believe.
The remaining two things are at least from what we've heard that's remaining for the railroads can can be worked out, particularly if it's just wage increases or if it's scheduling or something like that I'm sure. We've heard that the major bottlenecks and they're hard at work at that so even though we have to plant the worse I.
I really don't.
Very low probability on a nationwide real strong.
Thank you and ladies and gentlemen, our next question today comes from Lucas pipes of B Riley.
Kerry. Please go ahead.
Thank you very much operator, and good morning, everyone.
Good morning.
So my first question is on the pricing side.
On my quick math.
Midpoint of your full year guidance implies about $68 per ton for the fourth quarter and realized price and that's that's down from the third quarter.
70, <unk> hundred 83 can you walk us through that that the drivers I assume it's lower PJM pricing, but would appreciate any any additional color you might be able to share on that.
Yeah. Lucas you you hit the nail on the head it was lower PJM, there is lower higher PJM west power pricing in Q3 than what is currently forecasted for Q4 also API two prices are down we do have some API two linked contracts.
As Youre aware and then also as I mentioned in my My response to Nate We had about 300000 tons that we did some optimization by where we took lower priced tons moved them into next year for one customer and then replace those with higher price, which I would call market tons. So those are the three main main factors.
That's that's that's very helpful.
In terms of.
The volume component, obviously Q3 was impacted on on some of these issues you highlighted but in Q4.
Production should be much better so to the extent you are able to place additional tons into the seaborne market is there a degree of conservatism in that and therefore your pricing guidance. Thank you.
We continue to.
To work with the railroads to get as much coal as we.
Currently contracted shipped.
Our customers are in strong demand for that call. If we do have incremental upside opportunity I will tell you that we will focus on putting that in the export market because that's where the arb is and as Jimmy mentioned are part of our transportation partners are performing quite well right now, especially to the peer so is there upside to Q4, I'd say potentially but.
We've got to get the coal produced and we got to get it shipped and and that's where our guidance. We stated our guidance based on what our thought was with what we would ship in Q4.
And Lucas just add to that on the productivity side. You know we have all of our loan loss complete as I've said in the script, we don't have any more longwall moves in Q4, and we have most of these geologic conditions behind us of course, you know those things can pop up at any time, but we certainly have the experience in dealing with those and we feel that.
Here in Q4, we're going to be at a normalized run rate. Obviously, if we bring that fifth longwall earlier than expected, which we're working hard at then there could be some upside potential tons coming from it as well.
That's that's very helpful. Thank you and then.
And another question on the pricing side for 2023.
What amount of tonnage is.
Currently.
Expose to API, two pricing and or put differently what amount of your tonnage would you expect to be exposed to API two pricing between what you have committed but not fully priced and then what is what is left is left to be price presumably.
Mostly in the export market.
Yes, we have just for 2023, we have about seven and a half to 8 million tons of exports currently contracted of which about 4 million tons of indexed API two of the $4 million I'd say about $3 million half.
Callers around them, so they have ceilings and floors.
And I can tell you that where the API two sits today, we still remain above the ceiling on on a number of those contracts are looking ahead I think we'll still place another three to 4 million tons in the export market, probably 2 million tons of those would likely be linked to API. Two the balance I would say is likely slotted for India.
So in total I'd say potentially 6 million tons would be directly linked to API. Two however, we will have ceilings and floors across the majority of those for the protection.
Okay. That's that's that's helpful. Thank you and then switching topics.
Tesh.
At quarter end, you had $320 million of cash on hand, so it. It. It appears it's really at the company's discretion when to meet that 300 million gross debt target.
Can you provide additional clarity on what might keep you from doing.
Paying off the remaining debt to get to this 3 billion gross debt target during during this current quarter.
Yeah.
Lukas just for clarification, the cash number that you referenced included restricted cash balance as well right. As you know like that is earmarked for a specific purpose.
We are just going to walk off the unrestricted cash balance here 268 ish right.
From that perspective to think about it.
We also have to take into account that.
We have certain amount of liquidity that has been a drop off here in March of next year.
With.
A portion of out of all we're not going to be extended right. So it's about 100.
$140 million of that revolving capacity there is going to fall off. So if you think about replacing that revolver capacity, we are carrying a little bit of excess liquidity right now because of the expected fall off another wallboard capacity right. So that plays into the.
Ladies into the equation, but generally speaking I think.
As we have said assuming no major changes to the cash balance.
We would like to get to that $300 million of.
And that reduction.
Up to $300 million of absolute debt right and.
The function of restricted cash as essentially when we do the project and spend that gets converted eventually into free cash flow once that restriction got smoke.
So you will see that $50 million kind of flow into unrestricted bucket as we spend money on it.
And what is the amount of cash.
Okay.
That's very very helpful. Thank you and and the.
Amount of cash that you would like to hold given the changes with the liquidity next next spring what is that amount.
I think we are comfortable with.
What we have on the balance sheet right now.
And as you noticed like this quarter. For example, there was very little if any increase on cash on the balance sheet from an unrestricted perspective.
We basically between the debt buyback and.
And the chat.
Dividend, we basically exhausted all the cash flow that we generated only a slight belt, probably $6 million belt. So we don't anticipate that number to go much higher.
Okay. Okay very helpful gentlemen, I really appreciate the color and best of luck.
Okay. Thank you.
And ladies and gentlemen, as a reminder, if you'd like to ask a question. Please press Star then the one our next question comes from Michael Dudas, whereas vertical research partners. Please go ahead.
Good morning, gentlemen.
Good morning, good morning.
You talked about your domestic customers, where inventories law and there has been maybe a little bit.
Hesitancy to burn more coal because of issues in the market two questions one.
Relative to some of the.
Coal retirement deferrals that we've seen are announced.
[noise] announced over the past few months in the U S.
Are there any in your major customer base that you can identify and do you anticipate the market being a bit more normalized and we will see some more burn and some more maybe demand for some of your uncommitted. She may see Kohl's in 2023 as you look right now.
Well, Mike what.
We have seen over the last quarter as we have seen our customers build inventory and that was by design getting prepared for winter.
So as I've mentioned on previous calls side from some transportation issues that happened earlier, this year, which did challenge utility from getting coal.
I believe many utilities were just simply under bought and therefore, they were burning gas on economically are just simply not running but looking ahead for the balance of this year, assuming a normal winter I would expect overall coal fired generation to improve and the demand for coal to remain strong throughout 2023.
In terms of the delayed retirements.
Not really many of those retirements, where in our I'll call. It our core marketplace, but we have supplied core to some of the some of the plants that are announcing delays.
We have one in South Carolina, we also have another in Indiana.
That I can recall off the top of my head but.
The consensus there is again, there will be strong demand for coal and the difference today versus before and you heard Jimmy say this many of times. There is just not a supply response. So by definition you should see again, the demand over over or be higher than the supply which should be.
Beneficial to us.
And that makes sense, turning tuner to your export markets.
The dynamics that you talked about do we are they are sustainable and are we.
That market can be poised for continued need for your types of coal in the industrial market, maybe low quality.
Our market at the.
End of 'twenty, three 'twenty, four and with the changes in Bern and countries looking to add or expand or restart capacity has there been a noticeable change in the customer inquiries or the mix of your customer base that you'll be looking to place cold in the next six to 12 months.
Yes, I mean, India, certainly as is and will remain a growth market for us.
Most recently, we placed more tons into Europe , just begin again, because thats, where the the arb is.
But there's still strong demand coming out of India.
To our customers on a daily basis and.
I still think that long term that is that is certainly where majority of our exports will end up going.
One thing that we highlighted on the call is our fifth longwall Jimmy talked about.
The quality as well our quality that fit longwall, it's going to be a lowest sulfur the entire complex and why is that important.
In Europe they.
They no longer have the low sulfur Russian coal to blend against the higher sulfur coals like northern App, and Illinois basin and others. So that low sulfur now is going to be very beneficial to us and critical to us and actually puts us as a differentiator versus a lot of our peers. Because now you are blending youre needing lower sulfur, which I'll call.
Northern App for U S coals to blend again, South African and Colombian and even central Appalachia coal. So we still feel as though we will have a good footprint in the Europe going forward with our lower sulfur product and again that will be a differentiator for us.
Yes, and Mike just to add to that when we think about it.
Meanwhile, it's not only for production that's just long haul certainly helps our quality overall for the complex and more importantly, it gives us some optionality and stability. So if you do have geological challenges on one of these other longwall. This fifth longwall that we ran in the past and certainly overcome that and you don't even notice it as much.
As far as the tonnage goes and if the opportunity is there to Bob's point to move these tons export or even domestically here and we can run all five of those loan loss.
Pretty much wide open.
We're excited to have that coming back here late in Q4 this year.
Well that's great analysis. Thank you one final question.
As you are looking to budget for next year and just looking in Europe and your operating performance well, maybe you could give any sense of those.
Peaking or relief from input costs.
Labor, where do you stand on labor cost and there may be contracted versus your own folks.
All that plays through into 2023, given certainly volume aside given the inflationary pressures.
In 2022.
Yes.
Theres no doubt that it's a very tight labor market.
As we look forward to 2023, obviously you know you have to staff. The longwall that we have staff now and I think we've been able to maintain our folks here in the Pennsylvania mining complex, because we do offer great benefits for them as much flexibility as one can get but you certainly have to look at labor a little different.
Moving forward.
Some of these younger folks, particularly with all of the media attention placed on coal in general.
They are somewhat hesitant to come out of school to come out there. So we have to do a better job of recruiting and talking to these employees, which we have but we believe that our labor will remain just fine I mean, we think we're going to be able to run to the forecast that we have in 2023 and again with this fifth longwall excited about the potential.
Just to add upside to 2023 versus 2022.
And in other costs.
I think we are starting to see a little bit of relief on some of these inflationary pressures, particularly when you look at some of the consumables we used to produce with we're starting to see thus far are you starting to see the steel markets certainly came down that helps us with our gross ROE support and things like that.
So we feel like we're seeing some relief, we're certainly not we would want to be left to maintain that but if you remember we said all along that we would like to keep iron inflationary cost and single digits across the entire cost portfolio. I mean, some of it obviously is higher than others steel prices were very high there for a while but you saw some relief on some of the other.
Things that we had so in general I think the cost numbers as we look at the budget for 2023 and beyond we don't see a lot of higher inflation than we've actually experienced this year. So we would expect that cost to get a little better as we move forward I think the one area that needs still needs. Some work is around quality control issues.
Supplier inputs, right and and just getting the deliveries in time, we highlighted on the press release that we had a minor equipment that was supposed to be delivered in the third quarter, Alex going into fourth quarter extra I'll just back there have been other areas like delays that have been caused because the suppliers are struggling with some of the same issues that have been struggling with too so.
That is a piece of the puzzle that needs to be solved.
Well, yes, and lead times now are very important for us to as we look forward for the budget, particularly next year on how long it takes to get certain pieces of this equipment. So for an example, we had to look at what our critical spares are critical elements that we need to produce with some of those have long lead days. So we're trying to put those in inventory.
And store those but my taxes right quality control the suppliers are having the same issues, we have with labor people. So that may not have the same quality control, we had a year or so ago, we're working with them, particularly on some of the failures that we've had already startups that's not typical for us. So they have the same issues.
And we're constantly working with them to improve that as well.
Julie No gentlemen, thanks for your thoughts.
Thanks, guys.
And ladies and gentlemen, this concludes our question and answer session I would like to turn the conference back over to the management team for any final remarks.
Thank you. We appreciate everyone's time this morning, and thank you for your interest and support of <unk>. We look forward to seeing you on our next quarterly earnings call. Thank you.
Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.
Okay.