Q2 2023 Arch Resources Inc Earnings Call
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Morning, and welcome to the arch resources second quarter 20, twenty-three earnings call all participants will be and listen only mode should you need assistance police Signally conference specialist by pressing the Starkey followed by zero.
After today's presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone phone. Please.
Please note. This event is being recorded I would like now to turn the conference over to deck Sloan Senior Vice President of strategy. Please go ahead.
Good morning from Saint Louis and thanks for joining us today before we begin let me remind you that certain statements made during this call including statements relating to are expected future business and financial performance may be considered forward looking statements. According to the private Securities Litigation Reform Act.
Looking statements by their nature address matters that are to different degrees uncertain. These uncertainties, which are described in more detail in the annual and quarterly reports that we filed with the S. E. C may cause our actual future results to be materially different than those expressed in our forward looking statements. We do not undertake to update our forward looking statements whether as a result of new info.
Nation future events or otherwise, except as may be required by law I'd also like to remind you that you can find the reconciliation of the non-GAAP financial measures that we plan to discuss this morning at the end of our press release, a copy of which we are posted in the investors section of our website at <unk> Dot com.
Also participating on this call will be Paul Lange R. C E O John Drexler R. C O O and that gives them are CFO .
After a formal remarks will be happy to take questions with that I will now turn the call over to Paul Paul.
Exactly I am good morning, one we appreciate your interest in art and we're glad you could join us on the call. This morning.
I'm pleased to report that the arts to continue to execute into high level and its core metallurgical business skirted too too.
Delivery to another first quartile cost performance.
At the same time, we continue to press ahead with our simple clear an actual plan for long term success and value creation.
During the quarter the arcs team showcase the significance cash generating capability company might delivered $130 million and adjusted either P, a and generating $151 million in discretionary cash flow, despite a softer market environment.
The team then drove forward with our ongoing efforts to streamline and strengthen our balance sheet producing are already modest embedded spider incremental $13 billion in maintaining a significant net cash positive position.
Finally, and perhaps most importantly, the team generated significant value for our shareholders through a robust capital return program, declaring a quarterly dividend $75.4 million or $3.97 per share payable in September and deploying 73.5 million.
Can we purchase over 623000 shares or about 3.3 per cent of the fully diluted share count.
This last point the continued generation of significant levels of discretionary cash flow.
Even in a weakened market environment is one of archer's defining attributes in fact in many ways arch was built for this type of environment, giving our high quality low cost Coca Cola portfolio, and our ability to maintain healthy margins across the market cycle.
Of course, it's ability to consistently generate substantial amounts of discretionary cash flow. There's also the T. Two are Catholic returned program, which we regard as the centerpiece of our value proposition.
So it's relaxing capsule returned program in February of 2022, just 18 months ago arches, now returned nearly $1.2 billion shareholders inclusive with just announced dividend even more noteworthy perhaps is the fact that when you include the capital returns from Phase one of this program.
In 2017, two 2019 period, we've now returned an aggregate of nearly $2 billion to shippers.
That approximates the total market capitalization of the company at present.
Importantly, in addition to paying out more than $640 million in dividends at $34.64 per share since then relaunched last year.
Use the capital return program to avoid the dilution of approximately 4.1 million shares to put it another way or diluted share count is approximately 18% lower today than it would have been otherwise absent to share buybacks and the settlement convertible securities and we fully expect the systematic reduction.
And are diluted share count to continue as we move forward.
As indicated the board believes the current cap returned program has driven and continues to drive substantial value for the shareholders and expect to continue to return 100 per cent of our discretionary cash flows to shareholders going forward at.
At the same time the board also believes that it's essential to continuously reviewed the specifics of the capital allocation model is the value. It's the optimal means for deploying discretionary cash flows in the future, including the relative weighting of dividends versus share buybacks as you might imagine the board factors changes in Sir.
Can stances, including movements in the company share price intuit's deliberations and decision, making process and will undoubtedly continue to do so in the future.
Let's switch to the coking coal markets, which is indicated have softened significantly in recent months.
The reason for their software is relatively straightforward in our view.
Global Hot Little production continues to be constrained due to a host of macroeconomic concerns and pressures as.
As evidence of that fact continental productions of the World, Excluding China was down 2.8% through may versus the already depressed levels seen in 2022. According to the World Steel Association.
Even with this week. This however, coking coal continues to trained on the seaborne marketed prices, that's still support healthy margins at our low cost metallurgical operations.
Again this is by design and how the company was built.
At present high Vale call, our principal product is trading at $210 per metric ton Oscar U S East coast.
While demand is weak the supply side of the cooking pull markets remain constructive and argue do principally to years of under investment in both new and existing coking coal capacity.
Exports from Australia, and the United States, and Canada, the principal suppliers of high quality cooking cold with global seaborne market.
Nearly 3 million tons of aggregate here today against last year's already constrained levels.
Significantly this drop in seaboard cooking call volume occurred despite generally strong pricing over the course of the past six years.
In addition, there is evidence that recent price levels are beginning to exert pressure on marginal cost producers move that to use metallurgical complexes have closed in recent weeks.
Based on this we believe the curtain netback pricing is reaching the marginal cost of production is starting to pressure metallurgical coal volumes.
In summary, we believe art is exceptionally well positioned degenerate. So that's good value in the current market environment and equally well positioned to capitalize on the global economy begins to recover and gather steam.
In recent quarters, we've expanded and strengthened our world class coking coal portfolio.
Include increased the global reach of our high quality cold products.
Reduced our indebtedness, while building and maintain a net cash positive position greatly simplified our capital structure and extended our industry, leading yes. Two practices were pressing ahead on all these fronts with the objective of enhancing our position even further.
It's really substantial and ongoing efforts, we believe we've laid a strong and durable foundation for the long term value creation with the capability to generate significant levels of discretionary cash and to return robust amounts of capital or shareholders and a broad range of market environments.
With that I'll now turn the call over to John Drexel John .
Along with a stronger than anticipated results from our legacy thermal segment.
Let's begin with a brief discussion of ongoing progress in our core metallurgical sciences.
So to begin with and a particular note Q2 represented Lear, South strongest production quarter to date as we continued to systematically drive up productivity rates at that world class asset.
We remain confident we will achieve still stronger execution in the quarters ahead.
Coking coal sales for the metallurgical segment as a whole totaled 2.3 million tons and Q2 consistent with the guidance we provided in April and.
In addition to the coking coal segment achieved an average cost of $89.94 per tonne. This.
This cost performance keeps us on track for meeting our annual coking coal cost guidance <unk>.
Inclusive of Q1, the metallurgical segment has now achieved an average per ton cost of $86.54 through the first half of the year.
Let's turn now to our legacy thermal segment, where the team continued to deliver significant cash flow in excess of capital requirements and did so even while addressing the previously discussed localized geologic challenges at west up.
During Q to the thermal operations contributed total segment level EBIT, a of $29.2 million, which was substantially higher than initially anticipated.
In short the powder River basin operations rose to the occasion.
<unk> excellent cost control and delivering solid margins, which acted to counterbalance to some degree the near term chap challenges at West Elm.
On the west upfront, we remain on pace to transition through the issues noted last quarter and expect to be back to business as usual at Leicester starting in Q4.
As indicated we continue to harvest significant levels of cash from our thermal operations in keeping with our long term strategy.
Since the fourth quarter of 2016, the legacy thermal segment is now generated a total of over $1.3 billion and adjusted EBITDA, while extending just $154 million in capital.
Now, let's spend a few minutes discussing arches marketing strategy and execution before I pass the baton to Matt for some additional color on our financial position and results.
As Paul noted coking coal demand has been relatively soft of late despite a degree of resilience and coking coal prices.
At present, we have committed more than 80% of our projected coking coal production for the second half of 2023, So our volume exposure is limited.
In fact as indicated we anticipate a 5% to 10% step up and coking coal sales volumes in Q3.
As for our thermal segment, we expect to ship approximately 60 million tons from our powder River basin operations in 2023.
Rolling about 5 million tons of are committed and priced powder River basin volumes into 2024.
While we would prefer to ship the volumes as plan. This year, we are willing to work with our customers in exchange for volume and or a price considerations on future shipments.
Finally, let me give you a quick recap of our strong ESG performance here today.
And the critically important safety arena arches subsidiary operations achieved an aggregate lost time incident rate of 0.47 for 200000 per 200000 employee hours work through the first half of 2023.
That's nearly five times better than the industry average.
At the same time, we maintained our perfect performance environmental compliance, reaching the mid point of the year with zero environmental violations and zero water quality exceedances.
In addition, we published our 20 twenty-three sustainability report in June which can be found on our website.
This report, which I recommend to everyone. On this call details are comprehensive efforts across a wide range of E. S. G metrics and also reports on the 47 per cent reduction in C. O. Two equivalent emissions, we have achieved at our operations since the base year of 2011.
Finally, I would like to highlight the fact that the blacks undermined was honored by the state of Wyoming with the 2000 twenty-three excellence and mining reclamation of war during you too.
On behalf of the entire management team I wanted to extend my congratulations to the workforce, but that's significant achievement.
Again, we are focused on setting the standard for the industry and the sustainability Arena and this award is emblematic of our success in doing just that.
With that I will now turn the call over to Mac guilty.
<unk>.
Thanks, John Good morning, everyone. We.
We are pleased to report another quarter of strong earnings and robust cash flows in the second quarter.
Darting with earnings EBITDA for the quarter totaled $130 million.
A result of his lower both sequentially and as compared to last year second quarter.
As market prices for both metallurgical and thermal coal weaken significantly over the course of the quarter.
In fact advertised all the way prices in the second quarter were approximately $75 per ton lower than the first quarter average I'm.
More than $200 per tonne lower than last year second quarter.
When comparing only to recent quarters. However, it is easy to Miss the strength of the earnings woke on a consolidated basis in in our core metallurgical segment.
Compared to the quarterly average from 2017 through 2019, a period of fairly strong metallurgical markets Q.
Q2, 2000, twenty-three consolidated EBITDA was approximately 30% higher than the historical average.
Then our metallurgical segment, specifically this quarter's EBITDA was nearly 80 per cent higher than the historical average.
Showing the impact of Lear, south as it advances towards target production levels.
During the cash flows operating cash flow in the second quarter was $197 million and while that was lower than last year second quarter.
It was an increase of over 56% sequentially.
As you recall cash flows in this year's first quarter were reduced by a substantial increase in working capital.
As expected some of that working capital was converted to cash it this quarter.
Opening and a benefit of more than $62 million.
Discretionary cash flow for the quarter totaled $151 million on our board has declared a dividend of 50 per cent of that amount.
Or $3.97 per share.
Dividend will be paid on September 15th to stockholders a record on August 31st.
Regarding the second 50 per cent of discretionary cash flow as we discussed on last quarter's call second quarter efforts, we're focused on share repurchases.
We deployed over $73 million to buy back more than 623000 shares.
We ended the quarter with cash and short term investments of $235 million in total liquidity $361 million, including availability under our credit facilities.
On the liability side of the balance sheet, we continue to reduce debt and other liabilities we.
We paid down an additional $13 million of debt during Q2.
Bringing the total outstanding to less than $138 million of June 30th.
We also completed nearly $8 million a final reclamation in the quarter with $5 million of that Black Thunder and.
And we grew the thermal mine reclamation fun by a million and a half dollars via interest earnings.
Moving onto our capital structure and share count for the first half of this year, we have reduced our fully diluted count or nearly 1 million shares <unk>.
Including share repurchases and repurchases a convertible bonds and factoring in shares issued pursuant to warrant exercises.
That reduction represents approximately 5% of the year in 2022 total.
Looking forward to the remainder of the year, we expect continued reductions in the diluted share count as we execute on the capital return program.
We currently have nearly 419000 and warrants remaining outstanding and expect those to be exercised over the next several months.
While those exercises will increase the basic share count there should be no impact on the diluted count.
Finally, while we have repurchased all of the convertible bonds to cap call that we purchased at the time of the bond issuance remains outstanding.
The cap cause not factored into our fully diluted share count or otherwise reflected in our financial statements, but its intrinsic value remains approximately $62 million.
Turning now to the remainder of 2023, we have largely maintained our operational and financial guidance in line with last quarter.
However in the thermal segment, we have reduced our expected sales volumes by 2 million tons to reflect the additional carry over into future periods.
From a timing perspective thermal segment performance will continue to be impacted in the third quarter as we transition west out to the new long haul panel.
We continue to expect a full contribution from west Elk in Q4.
Looking at the cash flows I wanted to point out several items that will impact discretionary cash flow over the remainder of the year.
First we expect a working capital benefit in the back half of the years, we continue to unwind some of the bill that occurred in the first quarter.
I'm working capital levels will be largely influenced by the direction of metallurgical prices, we would expect the benefit across Q3 and Q4, assuming current prices hold.
To be generally in line in aggregate with the benefits that we experienced in the second quarter.
Next is part of our ongoing efforts to reduce my abilities and streamline the balance sheet, we will be terminating our cash balance pinch pension plan later this year.
Plan is very well funded but we anticipate a final contribution of up to $10 million that will be made in the third quarter.
Finally, we currently expect capital spending in Q3 to be the highest quarterly spend for the year with a significant step down in the fourth quarter.
Does that we are ready to take questions operator, I will turn the call back over to you.
We will now begin the question and answer session to ask a question you May press stars N. One on your Touchtone phone, if you're using a speaker phone. Please pick up your handset before pressing the keys to withdraw your question. Please press stars into at this time, we will pause momentarily to assemble our roster.
Our first question comes from Lucas pipes of be Riley Securities. Please go ahead.
Good morning, everyone thinks operator.
My first question is on the on the cost side. So so my my my quick back of the envelope for the next segment is 80 653 year to date.
Pulling up the guidance and 84, which would suggest very very nice stepped down in the second half of the year and I wondered if you could maybe speak to that level of confidence in and and <unk> are you targeting at the midpoint or or is there may be a little bit of optimism baked into that would appreciate your thoughts on that.
Hi, Lucas this is John Drexler, Yeah, I I I guess on the mat side on the net cost.
For a year to date word that 86, plus dollar a ton range as we sit here and we look at the remainder of the year. We've kept guidance. The same we expect to see improvement in our volumes as we work through the back half of the year and we're comfortable that we're gonna be in a position to achieve to achieve our guidance I.
Can't get specific to say, we're targeting the exact midpoint of the range anything like that this is mining there can be variability obviously as we've seen in this quarter. Some of the influence of this quarter was impacted.
By a higher shipments from a continuous miner operations, obviously, they have a higher cost structure that all comes down to just timing of shipments timing of vessels within a quarter et cetera. So that did have some influence but as we sit here for the remainder of the year, we feel good about the the cost guidance that we have out there and what we're pushing towards off.
Recently for the remainder of the year.
Thank you very much that's that's helpful. I wanted to stay on the on the Mets segment for it for the second question.
Again kind of anchoring that that's a question around the midpoint of guidance at 9.3 million.
And you have 8.1 million tonnes committed.
I wanted to get a sense for what what the appetite us in the market for what was spot towns I assume that that that delta between 9.3, and 8.1 would go into the spot market, maybe maybe that's a wrong assumption, but what's what's the appetite out there and and what what sort of pricing you expect to achieve.
On on those uncommitted. Thank you very much yeah, let's get that good question I as we sit here today, we're very confident and comfortable with our <unk> and the remaining exposure that we have out there. The sales team has done a great job in managing the portfolio as as we've seen a weakening and softening in in prices.
Given our suite of products the qualities that we offer into the marketplace. The customers that we built and gotten comfortable with our production as we sit here today will continue to manage and and are comfortable with the guidance that we have out there for shipments obviously it will continue to be influenced by the market, but as we sit here too.
<unk>, we're comfortable with the T mobile will continue to operate and execute and achieve those levels of sales.
Very helpful. Thank thank you. Thank you Jonathan I'll I'll squeeze one last one in it's a it's a question I get fairly often from investors.
Look at the opposite side of your balance sheet son for acid retirement obligations $139 million and then when I look at the liability side arrow obligations.
235 million. So I'm wondering if you could comment on.
That discrepancy what is said in the P. R B and if so other additional contributions plan for the for the for the acid side, how should we think about that thank you very much for your additional color numbness.
Yeah, we'll get this is Matt the funding that you see on the asset side of the balance sheet, that's primarily directed for Black Thunder and the long term obligations. There obviously, that's the the lion's share of what's on the balance sheet in terms of the liability, but you know specifically where funding toward that longterm obligation and that has to do with you know.
A variety of factors, one obviously, because it's the largest and because a lot of that work will be spent after that mine is there's no longer generating significant cash flows you know we're trying to make sure that we're well protected for that and given uncertainties around the long term life of coal plants in the U S. We want to make sure that we have enough funding to.
To be able to make the right decisions with that regarding the reclamation for the other minds, obviously that will be something that we do on an ongoing basis and we've continued to do and expected you know those aren't things that we're gonna have to pre fund to a large degree. Although you know as you get closer to the end of the mine life, that's certainly could could change but that that that's really the <unk>.
Ending is basically for blacks under John Yeah. Lucas. In addition, I mean, obviously as we demonstrated quarter after quarter year. After year, you know, we're very focused on maintaining and and a small footprint in managing those liabilities aggressively and I think it's emblematic as we indicated.
With Black Thunder, winning the Reclamation award that it did from the state of Wyoming, you know, it's just a tremendous focus of our team along.
A R mental stewardship, along R. E S G principles and and we'll continue to manage all of that aggressively as we move forward My wife's last thing I'd mention is that with the interest rate environment that we have today, obviously much more favorable than when we put the funds in place we would expect that the interest earnings on that phone, they're gonna do most of the <unk>.
Work in terms of drawing that to the ultimate level that we need and you know we probably you know as we forecast it today need something less than $20 million of contributions from cash for it to be made sometime over the next handful of of years in order to make sure that we've got a fun that's that matches the liability when it ultimately needs to be paid.
It is.
Part I think the last bit of color I'd give you guys that you know as you look back you know the last couple of years of concerned really was the liability of Black Thunder and that's what the reclamation from it was really set out to the address you think about the other minds that make up the rest of that difference.
Those are all 20 plus years out there just isn't a concern are clamoring to do anything right now about those liabilities. So I think we feel good about where we're at I think the the Black Thunder fund is really the fees. The concerns. So you know I I think what we've done is put it over a good place.
Very very helpful. So so so.
Really like if <unk>, if I understood this right.
Tens of millions of dollars over the next couple of years. So so like maybe an incremental five move yourself cash alpha for years, that's reasonable ballpark or or what you could you comment.
Comment on that.
Yeah, I would say that that is reasonable Lucas the only thing I would say is if you know we happen to have periods, where pricing very strong and we have windfalls like we had last year. We we showed last year, we're not afraid to take care of that when times are good and so if if there were periods, where cash flows where maybe a lot stronger than what we see today, we could <unk>.
To move more aggressively to just put that behind us, but given where we stand today, we think something more modest and incremental over the next few years makes sense.
Very helpful. I appreciate the comments and answers and continued best of luck. Thank you.
Thank you Lucas.
Our next question comes from Nathan Martin of the Benchmark Company. Please go ahead.
Hey, good morning, guys. Thanks for taking my questions.
Are you, saying around 30 million. Each then to the return in three two and four Q as with the way you see today.
And then I would say, we're certainly expecting around that 60 to 65 million over the course of the back half of the year I would caution that that may end up sliding more in the queue for just the way the vessel timing shapes up here in Q3 Uhm. It does look like we may end up with shipments weighted towards the back half of the quarter, which could.
Could push some of that benefit more in the queue for the way I'm looking at it today is probably more you know call at one third in the <unk> the third quarter with the remainder in queue for but obviously changes in both pricing and vessel time, you could have a big impact on them.
Got it that makes sense, but just to confirm it's kind of an aggregate of about 60 to 65 million is what you would see in the background.
That's correct.
Okay, perfect and then may be shifting over to the side of the business.
John maybe for you any thoughts on you know, where you are and driving the cough yourself down to kind of be expected levels post rant.
Yeah. We've we've continued to see ongoing improvement at Lear, south in in productivity and managing the costs.
Culminating here in in achieving the highest quarterly volumes that Lear South has had since the longwall. His started up so the the team is very focused on continuing those efforts clearly we're expecting an improvement in shipment levels in the back half of the year that with a line with you know ongoing.
Improvements across the entirety of the portfolio met portfolio, including <unk>, so they're starting to find their groove and and really move things, along and and I'm proud of them for the efforts that they've had in taking that wallet.
And John while I have you would you kind of expect at least the way you see you know shipping schedules. Currently would you kind of expect to shift back more towards you know a normal mix of long haul cold versus the uncle into the back of the half of the year.
Yeah, as we play out the entirety of the year, Nate I would absolutely agree with that statement that we would expect just the typical back half of the year splits between the various qualities of of call that we have.
Okay, Great and then and then maybe you guys also have mentioned in a high high volt a spot price is about $210 a metric ton today did.
Did you just maybe walk us through the math to get you an indicative met back there you know what kind of <unk> should we assume you know kind of at that price that'd be very helpful.
Yeah, <unk>, Yeah, <unk>, sorry, excuse me the guy so yeah that that two Chan level you know the way you would think about that is that's a metric ton delivered and the basketball and that's a U S. East Coast assessment. So yeah $210 that takes you down you know call at $20 for the easy math to $190.
Look I rail rate has been sort of a capped out and it was capped out again and Q2 at around $60 and and the reason that is is that the railroad is and the way. The contracts work is is dictated by pricing that prevailed in Q1 and as you'll recall in Q1. The average high volume price was $307. So that that's the you know that.
At that level, we sort of cap out at the rail right that was with US again and Q2, because we're effectively one quarter in arrears would that should be beneficial to us in Q3 and going forward given that prices have come down now the counterbalances the prices have come down so you'll get lower prices, but will have less will have a lower rail right. So that's so that's useful but if you take that you know if you go.
<unk> two Tangela 190, and then you say, it's 60 Bucks that put you you know like to add the roughly 130 level is kind of where that puts you in like frankly, if you got run the math, that's kind of where we ended up for the for the quarter. It's to step down from Q1 Q2 was relatively predictable and then again, we should get some benefit.
Okay <unk>. That's that's very helpful. And then my you know kind of back of the envelope math for incremental met tongue. Since you guys price was and you know roughly the high 130, So I think I think that.
That makes sense then I appreciate that.
And remember remember.
Amber really we there's not much you can read into what we prize simply because almost everything you saw that rolled into this sort of you know from the committed but on price columnist Tibor market was really just what we shift so for the most part the seaborne market you know our seaborne volumes are going to be driven by what the price is in Q3 and Q4.
As opposed to you know any sort of fixing a price because it happens instead of a real time basis and very prompts. So you know what what you saw with the change was really just tons that we're committed but I'm priced became fixed price and the most real sense of the word they shift.
Okay, daughter appreciate appreciate that Tech and then maybe just one more to kind of slipped in on the on the thermal side you guys had called out last quarter, you potentially five per cent of purely volumes getting defer to the 2024, you put a finer point on that this go around 5 million tonnes appear be tons.
It looks like there'll be deferred into 2024.
You feel like you've fully incorporated kind of the expected deferrals you know at this point at least the way you guys through the market.
Yeah data as we look at the market today, just given the the soft thermal market. The price of gas you know kind of where we see things stockpiles et cetera.
[noise] will comfortable kind of what's the strategy that we have in place where if you know we see customers that have an issue we have conversations with if they're willing to work with us.
Will consider rolling tons over but clearly we want to make sure what preserving the value are optimizing the value of that opportunity.
Either three additional volumes are on additional price.
And and that 5 million ton range, we'd given more we see things now is kind of what we expect between now and the end of the year you know I will say as we sit here today. The team has done a great job of building out future years volumes in the book and at pricing that's very attractive. So we feel real good at it how this year's playing out how we're man.
Aging it and then how that's gonna roll and play into future years as well.
Just to expand on that I mean, you know really that's how we built out the book that we felt out is through opportunities like this so you know we don't view this as a negative we're happy to work with our customers as long as we get additional an incremental value and that's how he built out the out years and so while 60 million is where we think will shake out and you know we'd like to ship 60.
<unk> as long as the opportunity creates more value for shareholders longer term, we're willing to have those conversations and so we don't view it as a negative and quite frankly again as you look to next year, we're starting to have a really quite quite solid position for another you know significant contribution from the thermal stagnant does you know already baked in so we feel good.
Any way you want to put a number on how many times you have committed on the on the side for next year yet.
You know all I would say is that you like if we're gonna ship 60 billion times. This year, whether we can get to 60 million tons. For next year is is is you know to be determined.
But again, we are in a position where that's not an achievable. So I think that's you know that tells you that even in the market is declining we continue to have a very substantial block even for 2024 and look a good start on 2025 as well. So in fact really really solid position for 2025 as well so I'm feeling really good.
About them the visibility there and then obviously as you get into the out years, you know, we'll see where the market goes and we're ready to be nimble and react to whatever the demand picture you know in fact proves to be.
Great very helpful guys I'll leave it there I appreciate the time and the best of luck in the second half.
Thank you for sharing it.
Our next question.
Austin comes from Katya Jen sick of BMO capital markets. Please go ahead.
Hi, Thank you for taking my question.
Alright.
<unk>.
I think last quarter identification and last four west <unk> Q and then reach more normalised level in fourth place that's still true.
Yeah, I Gotcha, I think as we sit here today, the the what we're doing a west out and the challenges we've encountered well we represented last quarter and as we're communicating this quarter I think we continue to feel real good and we are on plan with with as we developed our plans to manage through the issue you know I can report you know we we.
[noise] indicated that we were going to be moving along wall from the panel that was creating the challenges that we had to an area of the reserve that was gonna be higher quality, where we wouldn't have the types of challenges that we've had the teams done a great job and I can report that were actually beginning the process of that long <unk>.
<unk> in the next couple of days that sets in play you know kind of that process to get and get wrapped up in that next panel once again, when we expect better conditions.
So as we've indicated you know Q2 Q3 would be meaningfully impacted by the the the issues and the challenges, but back to more normal conditions in and expectations normal operations in queue for.
<unk> I would just say look we did you know talk about maybe a step change in.
In the right direction in Q3, but we're just going to grind through these these two these two panels and you know Q3, probably doesn't look that depth different from Q2. When you think about the thermal segment as a whole and we'll see where that all shakes out, but you know the key P X P C or is it over 15 years of West L operating at a very high level.
We've had these two quarters, we kind of have to get it out through because of this surprise with the with the quality and his mudstone and so like I I wouldn't I wouldn't expect any significant change another modest contribution in Q3 from the thermal segment and then queue for we should be back on a horse.
Okay, and then Paul I think in your prepared remarks, debriefing 19 that relative weighting of dividend per cent share buy back.
Potentially thinking of shifting that's waiting on 50 50.
You know cut is lots of the cats drove program I think cause you know, they're really going well in kind of a film of the commitment.
<unk> management made the shareholders followed available yourself <unk>.
During Covid, which we had to do a lot of creative things to get by.
Yeah, and I think it's worth repeating that since we launched the program 18 months ago.
Just 18 Bucks would return nearly $1.2 billion shareholders, including suggested activity.
In addition to that would cut the the share count balanced 18%.
You keep that the context at the same time and return it all that cash to our shareholders, we reduced our debt by 80% cash positive position, we pretty fun at the mine reclamation liability.
And we greatly enhance liquidity.
And you know as you point out and there's our shareholder should expect capital returned program is discussed at every meeting by the board.
And we clearly challenge yourself or circumstances have changed as well as what is the best and most value driving use more discretionary capital.
You remember that phase one of our capital return program in 2017 through 2019 time period, we had a really heavy emphasis on buybacks and we repurchased about 40% of the shares outstanding over a two year period. So I think as you can tell from that will clearly comfortable with a different allocation for them.
Hello.
Standing here today, we have now returned about $2 billion to shareholders through both phase of the program, which I think is an amazing accomplishment given an approximate really our market cap today I think it also underscores why archer such good value.
So I guess you know getting around you know cause they you know they have some vital is that with all that background and color I think the message here is that the board is committed to the castle returns program, but we still expect buybacks and dividends to play a significant role in any application going forward. However.
However by the same token we could envision a scenario in which the board with logically adjust the relative waiting any of those two components the circumstances changes or shareholders preferences evolve.
You know as I've said many times in the past the relative you know.
Relative to the allocation model there is no perfect solution for all shareholders that works 100 per cent of the time and so I think we'll talk about it quarterly we need to be deliberate will review it continuously and if it makes sense I think the board will react appropriately.
Perfect. Thank you so much.
Thank you <unk>.
The next question comes from Alex Hacking from City. Please go ahead.
Yeah, I'm wanting everyone. So you mentioned.
Hey, how are you. So you mentioned that you know live south.
Had a record of course, what is the cadence of the rest of the ramp up look like they're thanks.
Alex I I think you know as we sit here today I can't get specific into that expected cadence you know, it's obviously influenced by longwall moves just ongoing ramp et cetera. So I you know once again I think we just expect ongoing improvement as we move forward.
And will continue to drive that way for the match segment as we go forward.
Okay. Thanks.
<unk>.
I I don't know if you disclose this but how much you know how much coal have you sold into Asia.
And the first half of the year.
So I also what we typically.
Do as we generally talk about the splits of our sales volumes for the for the guidance that we provide it's about 20 per cent say stays in in the North American market and the domestic volumes there about 80% goes into the seaborne market and as a general rule of thumb, what we've seen is an ongoing.
Significantly increased amount going into Asia and right now that's that's probably at around 50 50 of that export volume that's going into Asia as opposed to Europe or South America.
And Alice really we've we've <unk>, we've focused a huge amount of attention on building out that you know that Asian presence and helping the Asian market understand you have a unique qualities that we have with our high volume product and I know you know you you know I've talked about it and we've all talked about it a lot. The fact is that you know it's a R. R H b.
A product from Lear and their south is such a great fit for the Asian market, because they're looking to blend a lot of disparate products and and you know the nature of Lear in Lear, South is that it it it really promotes excellent bonding between you know political bonding. So that issue you know you end up with a much better and more homogeneous coke out the back into the Coke oven when you use.
<unk> our products because they are plastic qualities and you know all the all the things we've discussed so that's a huge focus for us and and and I would add but we also understand that's where the market is going to be right. That's where the growth is going to be when you look at what would Mckenzie is projecting in terms of growth and blast furnace.
You know capacity and in Asia. When you look at where coking coal consumption is likely to go as a result of that increase in last month's capacity now we're seeing about an 80 million times increase between now and 2030, an Asian demand for Coca Cola. So that's where the market is going to be that's and that's a huge.
Focus for Us and I've you know it seems that amazing job I think of of educating that Asian market place about the qualities of our Kohl's and why you know there's such as that can be such a great fit in their plans now Alex it wasn't all that long ago that we had minimal amounts of volumes going into the Asian markets and into for the team to achieve what they've.
Done.
Secure the customers that they've been able to secure to grow the consumption of our call. There 50 50 split of our exports.
It's a real testament once again to the entirety of the portfolio in the work they're doing is duck indicated for an area. That's gonna be very important for us as we go forward.
So I asked if we had to say I mean, you gotta be you know, it's gotta be systematic but John said of our total volumes, we would expect 40 per cent or so you know go into the Asian market.
At 45% next year 50 per cent of the year after who knows but it's gonna be that sort of you know systematic increase in all likelihood and quite frankly, that's where those incremental volume scale as as as Lear, South continues to operate at higher and higher productivity levels. Those volumes are going to go in all likelihood the end of the Asian market. So again, we feel.
Good about where that is all trendy.
Okay. Thank you I appreciate the call if that's kind of where I was going to <unk> you know track that it's acceptance and then I guess, just finally on the domestic side.
You know not the throat of the cat amongst the pigeons, but you know a large U S blessing steelmaker on the conference call suggested that you know they were looking for a significant.
Cut in the thermal coal price for next year.
You know I guess, how how old are you think about you know as you head into next year kind of a trade off between domestic.
Stick market and and see about mark in in how much flexibility.
You know do you have to put incremental tons into the siebel market. It. If you you know if if that seems like the best economic option for you. Thanks.
Hey, Paul and I'll I'll start this off your failures went away, but you know I I go back to where we left off on the other answered which is you know you back up.
Not that long ago 5678 years ago, we have 50 per cent.
North American roughly 50%.
Our Europe and South America.
And as time has evolved.
Clearly pushed our volumes heavier in Asia with a lot less reliance on the U S and Europe .
And you know and I've said this many times in the past if we ultimately have to we're ready to go 100 per cent export and.
The North American business has some advantages.
It's F O b bind generally.
It has a lot less working capital implications, but there is a cost to keep.
Keep it in North America R. Excuse me, if there's a discount to keep it in North America versus what we view the seaborne market you know, we're quite willing to go in and see more market and to sell on an index basis, rather lock in a lot of volume in North American business.
Okay. Thanks, Paul and everyone appreciate the color.
Okay.
This concludes our question and answer session I would like to turn the conference back over to C. E O Paul Lange for any closing remarks.
I want to thank you again for your interest in <unk>, while the global cooking cold market has entered a soft patch I want to reiterate once again that arch was built for just such conditions. Indeed, we see the current market weakness as an opportunity to differentiate ourselves even further highlighted a low cost position and demonstrated that we can drive.
And continue to generate substantial amounts of free cash flow across a broad spectrum of the coal market cycle.
That offer it'll conclude the call and we look forward to reporting the group at a late October stay safe and healthy everyone.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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