Q3 2022 Warrior Met Coal Inc Earnings Call
Good afternoon, My name is Melanie and I'll be your conference operator today at.
At this time I would like to welcome everyone to the warrior met coal first quarter 2022 financial results conference call.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there'll be a question and answer session.
If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad.
If he would like to withdraw your question. Please press Star then two.
This call is being recorded and will be available for replay on the company's website.
Before we begin I have been asked to note that today's discussion may contain forward looking statements.
Actual results may differ.
Materially from those discussed.
For more information regarding forward looking statements. Please refer to the company's press release and SEC filings.
I am also going off to note that the company has posted reconciliations of the non G. A a P financial measures discussed during this call in the tables accompanying the company's.
Accompanying the company's earnings press release located on the investors section of the company's website at Www don't worry of met coal Dot com.
In addition to the earnings release the company has posted a brief.
Mental tides presentation at the investors section of the website at Www Dot warrior met coal dotcom.
Here today to discuss the company's results on this so wont Schalow, Chief Executive Officer, and Mr. Dale Boyles, Chief Financial Officer.
Mr. Shaw you may begin your own remarks.
Thanks, Operator, Hello, everyone.
Thank you for taking the time to join US today to discuss our third quarter 2022 result.
After my remarks, Dale will review our results in additional detail and then you'll have the opportunity to ask questions.
I'm happy to share our performance from another very strong quarter delivering results above expectations despite market headwinds.
We again demonstrated our ability to leverage our efficient business model to meet strong customer demand for our premium met coals and take advantage of strong met coal pricing to deliver those results.
The most notable ongoing headwind constraining our performance relates to shipment delays.
Which is not a new challenge.
Which became particularly problematic during the third quarter due to a variety of factors.
Combination of disappointing rail performance.
Outages from major equipment maintenance work at the Port of mobile that was eight weeks behind schedule.
And substantial vessel congestion led to higher coal inventory levels net sales and higher demurrage costs.
While the port maintenance outages should be behind US, we expect to continue to experience port congestion challenges in the upcoming quarters.
Also we remain concerned about a potential labor stoppage from the National Railroad contract negotiations.
Fortunately, we have recently started to see improvements in reducing these delays due to an increase in railcar availability and the commissioning of the new tandem card dump at the port of mobile.
We also expect to see gradual but slow improvement as our rail carrier continues to better calibrate their cycle times.
And as the Port continues to address ongoing performance issues and high traffic volume.
As you'll hear in a minute if we could ship more we could sell more.
Given our strong customer base.
So cost business model and liquidity position.
We continued to leverage our strong production capabilities to build an inventory.
Which rose to 858000 short tons at the end of the third quarter.
Shipment issues are resolved, we are well positioned to take advantage of continued demand for our high quality products.
Turning to pricing and then demand for met coal, we experienced less volatility in the third quarter than previous quarters.
Nonetheless as expected we continue to observe a general softening of steel demand across certain geographies.
In particular, Europe steel industry initiated numerous production closures of electric arc furnaces due to high electricity prices.
As well as production cuts across blast furnace capacity.
We continue to see lower steel demand high inflation and economic uncertainty in the region.
All of which impacts our customer demand.
The European ban on the import of Russian calls took effect on August 10th.
Which we expect will result in customers looking to other geographies for met coal supply.
In addition crossover coals provided some pricing support as demand for thermal coal was strong for most of the third quarter.
In Asia Chinese steel production saw a modest improvement for the first two months of the quarter, but it's still underperforming compared to the first nine months of 2021.
As China's property sector remains depressed and a strict COVID-19 policies continue to restrain economic activity.
Our primary index, the PLD F O B, Australia, which had been undergoing a correction since late may started the quarter at $274 per short ton before finding a floor at $171 per short ton in early August .
From this low point in the quarter, you index was able to partially claw back some of the pricing erosion and in the third quarter at $246 per short ton.
The CFO , China index experienced a greater decline as a result of lower demand.
And in the third quarter at $279 per short ton.
Which represented a decrease of $78 per short ton from its July 1st value of $357 per short ton.
The World Steel Association recently reported the global Pig Iron production decreased by four 4% in the first nine months of 2022.
China recorded a decrease in production of two 5% for that period, while the rest of the world Pig iron production decreased by eight 1%.
China's lower steel production is due to recent shutdowns related to their stringent COVID-19 restrictions and lower demand, especially.
Especially in the property sector.
Discussions with our customers continue to indicate that steel demand for the oil and gas aerospace and shipbuilding sector is strong.
All other sectors, including automobiles have weakened and are expected to remain weak due to the overall challenging economic environment.
Even with this backdrop, we performed quite well, increasing our third quarter sales volume compared to the third quarter last year.
And as I said, we could have sold even more volume during the quarter if not for the shipment delays.
The largest impact to our third quarter results by a wide margin with the poor performance of our rail transportation provider that delayed getting our product to the port in a timely manner.
In addition, with the high demand for seaborne thermal coal, we saw higher volumes of thermal coal move through to the port, creating some additional congestion and impacting loading dates and times.
Our sales volume in the third quarter with $1 5 million short tons compared to $1 1 million short tons in the same quarter last year.
Okay.
Our sales by geography in the third quarter were 62% into Europe .
17% into South America, and 21% into Asia.
European sales continued to be strong despite the economic headwinds facing the region.
Including the softening of steel production.
Our European customers continue to operate their coke batteries to produce gas and heat for local communities as well as lower their overall energy costs, despite lower steel production.
Production volume in the third quarter. This year was $1 6 million short tons compared to $1 1 million short tons in the same quarter of last year.
The tons produced in the third quarter resulted from running both longwall and five continuous miner units at mine seven.
And three continuous miner unit and the longwall mine four.
Our lead Daytona Longwall has continued to remain long and solid.
The mines ran well and we're very efficient in the third quarter.
Despite some downtime for skip maintenance that we previously discussed on our last earnings call.
We finished the quarter running the mines with a combination of salaried and hourly employees, representing approximately 50% of the normal workforce.
While producing more than 80% of the normal production volume.
These statistics represent another strong quarter for employee productivity compared to historical periods.
Over the past year, the mines have trended higher in clean tons produced per man hour worked due to well capitalized mining operations.
Nice work schedules and a more productive hourly workforce.
This increase in productivity has helped offset some of the inflation we've been experiencing.
We appreciate the significant efforts by our employees to drive higher production levels, while continuing to maintain a safe working environment.
During the third quarter, we spent $56 million on Capex in mine development.
Capex spending was $41 million, which included $12 million on the Blue Creek project.
Mine development spending was $15 million during the quarter.
Year to date, we have spent $120 million on capex of which $21 million was for the Blue Creek project.
We expect to spend between 75 and $80 million on sustaining capital for the existing mines for the full year.
In addition, we expect to spend between 110 and $120 million.
Special projects for Blue Creek.
New longwall shields, and the four north portal.
Based on these full year targeted spending amounts and year to date spending we expect the fourth quarter will be the highest capex spending quarter of this year.
We continue to see rising inflation and long lead times impacting our business for an indefinite period of time.
In addition to the higher cost the lead times on supplies equipment purchases, both new and rebuilt continued to be 18 to 24 months in duration.
Despite partial mitigation of these issues with our improved productivity at the mine, we're experiencing a 25% to 35% increase in cost of operating supplies and materials repairs and major equipment rebuilds.
Those price increases led to a $4 per short ton negative impact on our third quarter results.
As U S inflation in September remained near a four decade high of eight 2%. The federal reserve continued its faster pace of interest rate increases and its efforts to bring that number down.
As we look ahead, we made strong progress this quarter on the development of Blue Creek, which represents a transformational opportunity for warrior.
More specifically, we continue developing the site and constructing the slope and service shaft.
We continue to move through the preliminary stages of development on schedule both.
Activity at Blue Creek, and the spending required for that activity will increase over the remainder of this year.
We remain extremely excited about the potential to create significant stockholder value through this project.
We continue to balance investment in Blue Creek, with returning cash to stockholders, allowing them to benefit from our strong free cash flow generation in the near term and long term.
During the third quarter, we were pleased to be able to pay another special dividend of <unk> 80 per share the second special dividend this year.
I'll now ask Dale to address our third quarter results in greater detail.
Thanks, Paul for the third quarter of 2022, the company recorded net income on a GAAP basis of $98 million or $1 90 per diluted share compared to net income of $38 million or <unk> 74 per diluted share in the same quarter last year.
non-GAAP adjusted net income for the third quarter, excluding the nonrecurring business interruption expenses and idle mine expenses was $2 10 per diluted share compared to an adjusted net income was <unk> 97 per diluted share in the same quarter last year.
We achieved adjusted EBITDA of $172 million in the third quarter this year compared to $105 million in the same quarter last year.
The increase was primarily driven by a 32% increase in average net selling prices and a 42% increase in sales volumes, partially offset by higher variable transportation and royalty cost and the impact of inflation on labor materials and supplies and major equipment rebuilds.
Our adjusted EBITDA margin was 44% in the third quarter this year compared to 52% in the same quarter last year.
Okay.
Total revenues were $390 million in the third quarter compared to $202 million in the same quarter last year.
This 93% increase was primarily due to the 32% increase in average net selling prices and 42% higher sales volume.
In addition, other revenues were positively impacted in the third quarter. This year by a $6 or 145% increase in natural gas prices compared to the prior year third quarter.
The prior year third quarter. Other revenues were also lower due to a $6 million loss on natural gas hedges that were in place at that time.
The Platts premium low vol. Fob Australian index price on average was $13 per short ton lower in the third quarter of this year compared to the same quarter last year.
The index price averaged $227 per short ton for the third quarter.
Demurrage and other charges reduced our gross price realization to an average net selling price of $248 per short ton in the third quarter. This year.
Compared to a 188 $189 per short ton in the same quarter last year.
The merge and other charges of approximately $13 million higher than the third quarter. This year versus last year, primarily due to higher pricing and the shipment delays at Walt discussed a few minutes ago.
Cash cost of sales was $202 million or 54% of mining revenues in the third quarter compared to $91 million, 46% of mining revenues in the same quarter last year.
The increase of $111 million was primarily due to $73 million of higher variable costs associated with price sensitive wages transportation and royalty cost.
Including the impact of inflation iron maintenance cost and other spending.
And a $38 million impact of 42% higher sales volume.
Inflation accounted for $7 million of the higher cost of four.
$4 per short ton, resulting from higher cost for belt structure, Newbolt cable magnetite, bugged us and other materials, plus labor and parts and repairs of major equipment rebuilds.
Despite the higher variable cost inflation cash margins with $113 per short ton in the third quarter compared to $103 per short ton in the same period last year.
Demonstrating the leverage of higher met coal prices driving both profitability and free cash flow.
Cash cost of sales per short ton Fob port was approximately $135 in the third quarter compared to $86 in the same quarter last year.
Transportation and royalty cost accounted for $31 of the $49 per ton increase.
The remaining increase of $18 was due to an increase in production cost attributed to rising inflation of $4 per short ton.
Mine seven skip repairs of $4 per ton.
Q4 production cost previously treated as idle costs at $4 per ton.
And higher other spending of $4 per short ton.
As we continue to ramp up mindful production during the quarter more costs were treated as production costs versus being treated those idle costs in the prior year comparable quarter.
Variable transportation and royalty costs were 47% of the cash cost of sales per short ton of $135 in the third quarter. This year compared to only 39% in the same quarter last year.
Driven primarily by higher met coal pricing and sales volume.
As a reminder, our transportation rates are reset at the beginning of each quarter based upon the average met coal prices of the preceding quarter.
Therefore, we expect our fourth quarter transportation cost to be lower than the third quarter.
SG&A expenses were about $11 million or two 7% of total revenues in the third quarter. This year and were higher than the same quarter last year due to higher employee related expenses, primarily higher stock compensation expense.
And higher professional fees.
During the third quarter, we incurred incremental nonrecurring business interruption expenses of $7 million that will directly relate to the ongoing labor strike.
These nonrecurring expenses were primarily for incremental safety and security legal and labor negotiations and other expenses.
<unk> expenses were $5 million in the third quarter and represent expenses incurred with the operations at both mines.
At reduced capacities, such as electricity insurance maintenance labor and taxes.
These expenses decreased quarter over quarter, primarily due to the partial restart in a bind for operations this year versus the prior year comparable quarter when it was fully idle.
Turning to cash flow during the third quarter. This year, we generated $191 million of free cash flow, which.
Which resulted from cash flows provided by operating activities of $247 million.
This cash used for capital expenditures and mine development cost of $56 million.
This resulted in free cash flow conversion of 112% in this quarter versus last year's third quarter of 50%.
Free cash flow in the third quarter of this year was positively impacted by a $95 million decrease in net working capital from the second quarter of this year.
The decrease in net working capital was primarily due to a decrease in accounts receivable.
Due to lower met coal pricing and the timing of sales.
Slightly offset by higher inventories due to strong production and the shipment delays previously discussed.
Our total available liquidity at the end of the third quarter was a record $869 million.
Zing and increased $101 million or 13% over the second quarter of 2022.
And consisted of cash and cash equivalents of $746 million and $123 million available under our ABL facility.
At this point, we are well positioned to continue the development of and fund our Blue Creek project in the face of any challenging macroeconomic headwinds in the near future.
Now turning to our outlook and guidance for 2022, we have updated our guidance as we near the completion of this year and have a clear picture of overall volumes.
While we have seen gradual improvements in the shipping delays, we believe those issues will continue to impact us for the remainder of this year.
However, we believe that we will be able to meet our production and sales volumes, including the outlook section of our earnings release.
I'll now turn it back to Walt for his final comments.
Thanks, Dale before we move on to Q&A I'd like to make some final comments on our outlook for the fourth quarter and full year of 2022.
As we mentioned earlier, our inventory levels peaked again at the end of the third quarter, which will move to the result of strong production and continuing shipment delays.
We've been pleased to see the gradual improvements in the shipping delays over the last few weeks and expect those to continue throughout the fourth quarter.
Of course this is highly dependent upon the national railroad contract negotiations.
And absent any potential strike or other disruptions that could occur.
We expect to make gradual improvements in drawing down our inventory levels as a result of the improvements in rail transportation and poor performance in the fourth quarter.
Looking ahead, we cannot identify a likely catalyst strengthen the fragile demand for steel across Europe , the United States and several other developed countries.
Therefore, we expect production cuts to remain a likely reality for the time being.
In addition, we expect that recession fears stubborn and inflationary pressures.
The prolonged impact of the Russian Ukrainian war to continue to weigh on our customer markets.
We do see the possibility of an improvement in Chinese steel production in the fourth quarter, given the centralized efforts to stimulate the property sector.
So this materialize, we believe it will benefit the imported Mongolian and Russian coal to the most.
We also believe that we may continue to see met coal pricing supported by strong thermal demand as.
As well as the vulnerable met coal supply chain.
Which was recently demonstrated by production issues and weather concerns from the major producing regions.
We're pleased that despite all of these headwinds our customers have confirmed their volumes for the remainder of this year.
With excellent liquidity and significant inventory, we remain focused on what we can control.
Finishing the year with continued strong financial results.
And moving ahead with our positioning as a unique and resilient pure play medical provider for all economic environments.
With that we'd like to open the call for questions operator.
Thank you.
At this time I would like to remind everyone that to ask a question. Please press Star then the number one on your telephone keypad.
Well pause for just a moment to compile the Q&A you mentioned Scott.
Thank you. Your first question comes from Lucas pipes with B Riley Securities. Please go ahead.
Thank you very much operator, good afternoon, everyone.
Good job on the quarter.
My first question is on the on the inventory situation and I wondered if you could maybe elaborate a little bit on.
What it what it will take to move.
Inventories back into.
Our normal range, if I remember right that was about 400000 tons, but correct me if.
If that needs to be updated.
Again, like so what might be necessary to get those inventories down into lower levels and then I have a few more follow up questions on the pricing side. Thank you.
Lucas will be out with the rail transportation. They were probably the rail was probably shipping at about 50% of what we would consider to be normal. So we had upped the amount we were sending by barge.
But what we've seen in recent weeks as rail improving.
Very well beyond that type of a level.
The other things that had caused the inventory one.
Does the fact, the part of the inventory issues, where the fact that down at the port.
One of the two card dumps in fact, the most efficient car dumper dumped two cars at a time.
With taken completely out of service for a period of months, which led to lower capacity lower throughput capacity at the port.
And Thats.
Ben is up and running and running very well those cycle times are fantastic and the rail is moving better again now so I would anticipate that even though it's.
It's not going to disappear overnight I think it will be a gradual improvement of that.
In terms of.
Capacity, improving and that we will have our inventory levels in line, probably hopefully by year end, but again, that's all dependent on what happens with that.
With that rail.
Rail contract negotiation.
Very helpful really appreciate the color there.
I do want to follow up on the on the pricing side. So first.
Yes.
Great strengths in <unk>.
Seaborne met coal markets again.
If you could maybe elaborate on some of the drivers there, especially since some of the summer lows I think were about 190 <unk> nice come back there. If you could comment on what you see as the key drivers and then there are some.
Arbitrage seeming arbitrage opportunities in the market China CFR.
It is $3 30 or so.
There was a report that looks.
It looks like cargo with send to China at.
That price, but obviously they are higher netback at higher transportation cost involved there so.
If you have any view on to what extent.
Chinese market presents.
Maybe an opportunity as well.
Would appreciate your thoughts on.
The pricing dynamics, thank you very much.
And so I think the real what's going to really happen if the Chinese demand improves I think thats going to primarily goes to Mongolia is performing better and Russian coals are now flowing.
A lot of those closer flowing into China. So I think the majority of it will go in that direction or maybe some opportunity, but again if you just look at even if that opportunity.
I believe the logical place for that coal to come from is Australia, that's a natural market or even the west coast of the U S.
But from our perspective, just even that little bit of increase or pickup will help I think the drivers.
<unk> have been.
First of all thermal.
Think thermal is the fact that thermal sky rocketed in pricing.
Gives a natural base to where met coals can go because most not all but a lot of met coal can be transferred over its crossover closing the prefer more market and I think there's just overall supply constraints for the coal industry and I think <unk> had the recent.
Issues over in Australia with storms and other things that are just keeping supply really constrained. So I think those those are the things that are primary drivers for what's supporting the price.
That's that's very helpful. Really appreciate the color and May get back to a follow up question here, but I did want to ask one.
The other question on your cash position $746 million.
The amount of cash do you need to run the business so as coal prices knock on wood stay elevated.
And you have needs.
Your capital structure with some depth there and then also the funding of a Fluke Creek.
What amount of cash do you want to have on the balance sheet and then obviously investors are looking to capital returns. So.
China trying to find the number to back into there. So so thank you very much for your for your perspective on this.
Yes, we're not.
Lucas Thanks for the question, it's a deal we're not.
Targeted particular cash balanced number we're looking at kind of capital allocation as we move forward from here in light of the market conditions.
While pricing has stayed high.
Demand is has been weakening.
As we said in our prepared remarks.
So right now we're in the middle of putting together our budget for next year.
And when you think about the context of Blue Creek, we could be looking at capital spending in excess of $400 million to $450 million.
Just in capital and mine development so.
We want to put that together and see where we are but we certainly want to keep enough cash that we on the balance sheet that we're going to protect ourselves and meet all of our other obligations as well as fund Blue Creek. So.
Being at this high level, we're just early into the spending in Blue Creek about $20 million.
Obviously, we've been seeing inflation in the business. So you might be some inflation there and some some prices as we look out next year. So those things were just trying to take into context, right now with the budget as well as what's happening in the market and.
And as we move forward like I say, we don't target a particular number other than just making sure we have enough to fund all of those needs.
And to the to the extent, we feel like there is excess cash we're going to continue to return that to shareholders.
Like we've done a couple of times already this year through extra special dividends. So we're not turning those off to the extent pricing remains high we will.
Evaluate that on a periodic basis and.
Maybe declare some additional special dividends.
That's that's very helpful and I assume that's in <unk>.
One month three month T. Bill So I should probably start to model a 4% interest rate on that cash huh I appreciate your color and best of luck.
Thank you.
Thank you once again to ask a question. Please press Star then the number one on your telephone keypad.
Your next question comes from Nathan Martin with the benchmark company.
Please go ahead.
Thank you afternoon, congrats on the quarter, thanks for taking my questions.
Maybe I'll start with the revised full year shipment guidance.
<unk> tightened that up a little bit.
Guys. Thank gets you to the bottom or maybe the top end there. If my math is correct. I think you hit the high end you'd have to ship over 2 million tons in the fourth quarter. Obviously, you've had that buildup of inventories that you just alluded to hopefully you can work that down.
Firstly is that right and do you think.
Thats doable, even given logistics logistics issues, you guys and everyone else has been plagued with so far this year.
Well as Bob said this is Dale thanks Nathan.
As Walt said look it really depends on the shipment delays.
And how rail transportation improves and whether or not there is any.
Disruption.
I don't think Theres, a high likelihood of an actual rail strike but.
Never know what kind of disruptions you might have around those negotiations. So it is all to be dependent upon that and how much we can get out.
Obviously, we have enough inventory to get get to that number. So that is kind of on the high end I think the low end, we'd need to ship about one six which is pretty close to what we've done each of the last two quarters.
So.
It's achievable, it's really dependent on things that are outside of our control.
Okay.
Got it thanks for that color there.
Just curious what would you guys said it was the impact in the quarter from a logistics delays.
From a shipment standpoint.
Probably a few vessels two or three vessels at least I would say.
A couple of hundred thousand ton.
Got it.
Thanks, Paul and then maybe.
A lot of moving pieces.
<unk> costs during the quarter and you did a good job kind of laying all that out I mean, the inflation was another $4 tonne headwear and again this quarter.
Just curious I mean, do you guys expect kind of that level of headwind to persist during the fourth quarter and maybe even going forward, where do you see any signs of that abating. It really just trying to get a feeling of what costs might be sticking.
Kind of going forward into 2023, and maybe where you see that cost per ton number heading.
Okay.
Yeah, I think we're going to continue to see inflation.
Impacting us as we've said in our prepared remarks it's.
It's not only the cost but it's.
The lead times as well as getting pushed out 18 to 24 months, some some things even further out than that.
But right now.
<unk> moved in the wrong had about a $4 per ton impact on a quarterly basis I wouldn't expect that to change much.
As far as going into next year.
It all depends on what happens with the feds actions.
Right now we're not hearing.
Amy reductions or cut backs.
We're looking at.
As we continue to kind of work around these long lead times, we are trying to buy some things in advance and stick them in inventory.
But.
I don't see it abating anytime soon so we might be well into next year before you see some abatement of this inflation is going to take some time for the the fed's action to kind of work through the overall global economy I think.
Dale could you remind me kind of what portion of your costs are variable and let's just say assuming.
Do you see a little bit of a.
Deceleration in the net price of 23 versus these elevated levels receipt of 22.
Just curious how that could possibly factor, possibly lower your cost per ton next year.
Well, we don't really look at our fixed and variable component we looked at it as transportation enrolled royalties are the biggest variable there.
And at the end of this quarter they were 47% of the cash cost per ton versus last year. They were only 39%.
The cost of production remains pretty flat on a dollar basis most quarters.
The long run there'll be some quarters that are higher than others, just depending on the amount of maintenance and things like that and it gets done, but certainly transportation and royalties. So as you look into the fourth quarter as I said earlier.
Our fourth quarter will be.
Our transportation rates will be lower.
Then the third quarter because of where met coal pricing as you may have some increase just depending on where prices are you may have some increase in royalties depending on ultimate price.
For the fourth quarter, but.
You can see our cost per ton decrease.
10% to 12%.
In the fourth quarter.
Very very helpful. I appreciate that just one more if I may just would be great to maybe get a little more color on the labor situation. I know you made a couple comments there.
Guys still having some success on the hiring front I know labor remains extremely tight not just in this industry.
But throughout.
As of today based on kind of where you see labor logistics and some of your comments on the market do you have any broad thoughts around where production and shipments could look like next year.
We are having success.
In hiring it's just the issue now is.
Throughout the U S, especially in mining, there's not a lot of experienced labor unemployed. So we're having to bring in unexperienced labor.
And it takes time to train them up get them to where they can.
<unk> operate equipment safely and.
So yes, we're having we're having success hiring but.
Taken a little bit more time than we would like for all the training that has to go on.
In terms of where we see next year going we really haven't.
We're still in the budgeting process.
So we're working on that but our expectation is we continue to.
Build on where we are today so.
We definitely look for things to get.
We continue to improve.
That's great.
I appreciate the time, guys and best of luck in the fourth quarter.
Thank you. Thank you.
Thank you. Your next question is a follow up from Lake <unk> with B Riley Securities.
Please go ahead.
Thank you very much for taking my follow up question I do want to.
Yes.
On the deceleration of demand that you mentioned a few times today.
Hi.
Does that cause you to.
Shift sales to maybe what if or what are your non traditional markets be it thermal, albeit for example, with sales to China.
Things like that would appreciate how to what extent.
There is a commercial adjustment some for you. Thank you.
Interest interestingly when you look at the third quarter and what we're projecting for the fourth quarter.
The percentage of our product moving into Europe has remained really strong in fact is probably up a little bit.
So our customers in Europe continue to through through the end of the year and I don't know of any anything changing next year continue to want the.
They are committed tons.
And continue to take those tons, so while we see things slowing down.
Sure.
I really think most of these customers operate their own coke plants are going to continue to operate those coke plants.
They will buy less merchant coke.
But they'll continue to operate so I think our demand in Europe .
I wouldn't be surprised to see it remain pretty stable now you see a flip flop in Asia and South America, We can go as high as 24% to 25% and South America and then in the next quarter be at the same level going into Asia I would look for those numbers to continue in.
We will and do look at if there's opportunities to move.
Our cargo a call if we have excess coal that can move us.
Our thermal it at a higher price we will consider that.
Sure.
But right now we're pretty satisfied with where our order book is.
What amount of tons committed for 2023.
I don't have that number I can tell you that typically are our contracted tons have been running at about 80.
About 80% or so and spot tons have been running at about 20% or so I don't look for that to change, but I don't know I don't have that actual number in front of me.
That's helpful really.
Really appreciate the additional color and again best of luck.
Okay.
Thank you. Your next question comes from Alex hacking with Citi.
Please go ahead hi.
Walt and Dale.
A couple of questions. If that's okay. Firstly.
The realized price was quite strong compared to what we were modeling is.
Is that just an issue.
Associated with the timing of your specific shipments.
And then second question.
Given your current operating footprint should we assume that.
Mine production next year will be similar levels to what we've seen this year or.
Could it potentially be higher thank you.
Well I'll start with the realized prices most of that is the lag effect.
If you remember most of our contracts are vessel price on a let's call. It an average of 40 days lag.
The average of the index price 40 days prior to loading the vessels. So a lot of that came.
From the higher prices earlier on.
Can you go over what.
What the.
The remaining amount is to be spent on blue Creek to get it up and going and what sort of the cadence as I know you'd mentioned 400 to $4 50, and I thought I understood you to say that was for next year.
But please correct me or fill it in.
Yeah.
We're early in a if you're not familiar with the timing of that project I would suggest you look at the presentation on our website for Blue Creek.
That's a five year build $700 million project.
Third we've only spent $21 million so far this year next year or.
200, plus million dollar a year as we finalize our budget, we'll have a better idea.
At the end of our fourth quarter.
And then the third year, we'll be in a similar range.
So the two highest spending years are coming up.
And so of that $4 50 next year, you could be two to $2 50, just for Blue Blue Creek, we do have the remaining amounts for the shields.
That we put deposits on this year, that's about $60 million and then we need to finish the four north portal. So when you consider all of those things where in that range of somewhere between four and $450 million next year.
And what's the mine life for mine four and mindset.
When you look at the reserves and then you take into consideration any resources.
Mine seven I believe is around a little more than 20 years mindful or somewhere around 30 years.
Hello.
Just sort of.
Just.
I Wonder then.
Explain to me what the rationale is for.
For Blue Creek given that.
Your nameplate capacity is I don't know.
8 million tonnes.
<unk> seven in mine four and obviously, you've got a long mine life.
Yes, we're looking to grow the company.
Adding blue Creek or grow the company, 60% and.
You know when we look at any potential M&A opportunity you've got to look at Blue Creek.
Comparison to that and when you look at the information that we provided in our presentation on our website youll see that that projects.
An IRR of 30% or better.
And it's a high quality product that will get a premium price and when we compare that to other mines that potentially we might think about acquiring.
Don't stack up to Blue Creek.
Thats the focus right now is building out Blue Creek.
Thank you and then just going back to a question that Lucas asked.
Looks like your inventory tonnage is about 1 million tons or more is that accurate.
No.
858000.
Great.
Okay.
And just one final one who is the railroad that shoe use that's been causing these problems.
Yeah.
See effects of our primary rail provider.
So it's not like.
Somebody that's local okay. Good thanks, very much guys.
Sure.
Thank you. Our next question comes from Patrick Fitzgerald with Bob.
Please go ahead.
Yes, hi.
Could you go over your obligation with respect to.
Paying down the bonds before you pay out any additional special dividends if there are any restrictions.
Well Theres certainly a lot of restrictions within the bond.
Or for different types of payments.
But we have sufficient capacity to payout restricted payments our dividends.
Currently and the.
The bonds are a three year no call. So we cannot call the bonds for the first three years.
And but however, we can take advantage of some opportunities win.
And we did in the quarter when people offer.
On the open market to repurchase of those bonds, we repurchased a few bonds.
At a discount and took advantage of.
That discount and put some savings on the books here for the future, but there is a lot of nitty gritty details about the restrictions around the bonds, but primarily it's the three year no call right now.
Okay do you know what the RP basket is at.
Currently.
Yes, sure we track all of that all the time and it's not some of the details we get into.
Discussing.
Alright. Thanks.
Thank you at this time there are no further questions I will now turn the call back over to Mr. Shallow for any comments.
That concludes our call. This afternoon. Thank you again for joining us today and we appreciate your interest in warrior met coal.
Thank you and that does conclude our conference for today. Thank you also.
You may now disconnect.
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