Q3 2023 CONSOL Energy Inc Earnings Call
Good morning, and welcome to control Energy's third quarter 'twenty twenty-three earnings conference call.
All participants will be in listen only mode should you need assistance. Please take the only conference specialist by pressing Star then zero on your telephone keypad.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please note. This event is being recorded.
I would now like to turn the conference over to Nathan Tucker Director of Finance and Investor Relations. Please go ahead.
Good morning, everyone and thank you for joining us and welcome to Consol Energy's third quarter 2023 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.
Inject 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 is also posted on our website. Additionally.
We filed our quarterly report on Form 10-Q for the quarter ended September 32023, with the SEC. This morning, you can find additional information regarding the company on our website Www Dot Consol energy Dot Com, which 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 car, President and Chief Financial Officer, and Bob Braithwaite, Our senior Vice President of marketing and sales in.
In his prepared remarks, Jimmy will provide a recap of our third quarter 2023 achievements and a detailed discussion of our operations Natasha.
Natasha will then provide an update on our marketing and financial progress and our updated 2023 outlook.
And his closing comments, Jimmy will lay out our key priorities as we prepare to head into 'twenty 'twenty four there will be a Q&A session, followed by our prepared remarks, and which Bob will also participate with that let me turn it over to Jim.
Thank you Nate.
Good morning, everyone.
Want to begin by acknowledging a major milestone that we reached during the third quarter.
After retiring our term loan b in Q2, 'twenty three we made a final discretionary payment of $24 million to fully retire our second lien notes during the third quarter and doing so we have officially retired all of the $800 million of debt that was raised in conjunction with financing or spin out.
Action in late 2017.
Through the first nine months of the year, we've generated 522 million of free cash flow, which has already eclipsed the full year 2022 told well.
With that free cash flow plus deploying some cash from our balance sheet, we've returned significant value to our shareholders year to date through October.
We spent $292 million towards buying back shares of our common stock $75 million toward dividend and $183 million towards debt repayment.
From an operations and marketing standpoint, we continued our pivot into the export market during the quarter and as such 71% of our total reoccurring revenues and other income has come from export sales year to date.
As of early October our Consol Marine terminal has surpassed its previous annual throughput tonnage record of $14 3 million tons and is on pace for 19 million tonnes. This year.
Let's now discuss our operational performance in more detail.
On the safety front, our Bailey preparation plant at mine preparation plant and Consol Marine terminal each had zero employee recordable incidents in terms of third quarter of 2023.
Our coal operations finished the quarter with a total recordable incident rate well below the national average for underground coal mines coal.
Coal production at the Pennsylvania mining complex came in at $6 1 million tonnes in Q3 of 'twenty, three an improvement compared to $5 3 million tonnes in Q3 of 'twenty two.
Additionally, we finished the third quarter of 2023 with 447000 tons of inventory simply due to the timing of export vessel shipments.
On the cost front, our PMC average cash cost of coal sold per ton for Q3, 23 was $38.36 compared to $39 77 in Q3 of 'twenty two.
The improvement was mostly due to the fixed cost leverage that came from our faith long haul, which was not operating in the prior year quarter.
As we've said before one of the major benefits of having the fifth wall is that is it allows us to better smooth out weaker volume quarters due to plant shutdowns or multiple longwall moves.
For Q3, 'twenty three although expected cash costs were higher than our annual public guidance range as the third quarter is our seasonally weakest quarter because of our planned summer maintenance shutdown.
We also had a planned longwall move in the quarter. However for the full year, we still expect to be within our average cash cost of coal sell per ton guidance range.
Moving on to it.
During the third quarter of 2023. The complex showed improved production performance produced a 91000 tons compared to 70000 tonnes in Q2 of 'twenty three.
All three of the Super sections mined additional high for mains development, which requires cutting some rock.
This caused our mining rates to slow during the quarter versus expectations, but this is necessary to support the long term needs of the coal mine.
Rather more although all three continuous miner super sections are installed underground. We are currently operating two of the three as true Super sections as we continue to deal with a challenging labor market in the region.
Once we have completed our mains development, we will operate the three super sections and targeted blocks of our colleagues.
This is expected to lead to more efficient mining hearts and improve production rates and cost.
Finally in the third quarter the complex. So the 123000 tons of Beckman and third party coal and year to date. The complex has sold 357000 tons of admin and third party coal in aggregate.
Moving to the Consol Marine terminal, we achieved a throughput volume of $4 3 million tons shipped during Q3 23 compared to $2 7 million tons in the prior year quarter.
The Consol Marine terminal continues to prove its worth and executing our longer term strategy of moving more P. A M C tons into growing export markets.
Terminal revenues for the quarter came in at $22 7 million and CMT operating cash costs were $7 5 million accordingly.
M T. Adjusted EBITDA finished at $14 9 million compared to $8 3 million in the prior year period.
With that let me turn the call over to test to provide the marketing and financial updates.
Thank you Jimmy and good morning, everyone let.
Let me start with an update on the marketing front and our contracting progress.
During the third quarter, we continued to take advantage of our high quality product and sold 60% of our total volumes into the export market, where the demand for our core remains strong and the industrial and crossover metallurgical markets.
On the industrial side, while the Indian cement market is by far our largest we continue to explore new markets for our product.
We are pleased to report that during the quarter, our cargo off our P. M. C call was delivered into our country in South Asia, which was the first time for this country in the history of the P. M C.
A beautiful second pago into the same country has already been signed with an expected delivery scheduled for the fourth quarter.
Traditionally this country imports Mitsui calls from Indonesia, Russia, and Mozambique, but it is interested in further testing the high heat content of our PMC product.
Furthermore, on the crossover metallurgical front, we shipped approximately 630000 tonnes during Q 'twenty, three which similar to the second quarter is one of the highest quality levels. We have achieved in recent years.
With the commissioning of our fifth longwall.
Mine, which has lower sulfur content.
We're seeing increased demand for our product.
Much like the industrial market, we are focused on penetrating new crossover metallurgical customers and geographies as well.
We are pleased to report that during the third quarter resold, our first direct cargo into Indonesia to a co producer.
Currently in negotiations for 2024 sales.
We are seeing significant demand growth for our crossover product in South East Asia, specifically, Indonesia, where coke, making capacity is expected to double by 2025.
This again highlights the desirability of our high quality product on a global stage, where it can be used in many different applications.
Indonesia, which is the world's largest exporter of coal still has showed an application sort of quad high quality imported coals, which are in short supply globally.
Core demand in the domestic power generation market was predictably underwhelming in the third quarter.
Coal stockpiles remained elevated in certain areas following a weak second quarter.
However, domestic power generation overall was strong during the summer of 2023, we.
We expect that the continued increase in LNG export demand and reduced total debt comps.
It will support improved natural gas price futures, which is evident in the current forward curve.
This will in turn support increased Goldman and coal prices.
Julian <unk> 'twenty three resource six more than 1 million tons of P. M. C. Coal at an average realized revenue per ton sold of $70 34, compared to $5 3 million tonnes at $72 83 in the year ago period.
As Jimmy alluded to we finished the third quarter with elevated inventory levels compared to what is typical for us.
We ended at <unk> 23, with 447000 tons in inventory due to the timing of export vessel loadings, which essentially reduced our sales tonnage for the third quarter.
However, given that this was only timing in nature.
This should be a tailwind to our fourth quarter sales.
Additionally, during the third quarter, we negotiated postured buyouts of some contracted volumes in exchange for certain fees paid to us.
Which contributed $16 4 million miscellaneous income.
How about customers not bought out these partial volumes.
We would have recognized $2 67.
Revenue per ton during the quarter and would have surpassed the average realized school revenue per tonne sold from the prior year quarter.
For the third consecutive quarter and the third time in our history sales into the export industrial market outpace sales into the domestic power generation market.
Overall sales into the export market on a year to date basis accounted for 71% of our total recurring revenues and other income.
Conversely, domestic power generation has accounted for less than 25%.
Since our last earnings call our sales team increased our forward short position at the Pennsylvania mining complex by $5 4 million tons for delivery through 2025. Most of these tons were sold into the export market, but we continue to increase our sold position.
As such we have 21 5 million tons contracted for 2024, and 10.8 million tons contracted for 2025 at attractive prices.
Currently I heard off the schedule for 2024, and 2025 compared to where we typically expect to be at this point.
As we speak we are in talks with multiple strategic partners for future contracted volumes.
Now, let me provide an update on our balance sheet management progress before discussing our financial results.
First during tweak your 'twenty, three we generated $120 million of free cash flow and reduced our risk unrestricted cash and cash equivalence and short term investments by $42 million in aggregate.
Approximately 19% of which was deployed towards reducing our gross debt and 85% was deployed towards share buybacks within the quarter.
As Jimmy mentioned, we fully retire our second lien notes during the quarter and have now achieved our target gross debt level of approximately $200 million.
Second when factoring in our unrestricted cash and short term investments we remain in a net cash position and as of September 30th we had net cash of $50 million.
Doug.
Finished the quarter with a strong liquidity position of $465 million.
Now, let me recap our financial results.
This morning, we reported a strong third quarter 2022 financial performance, especially when you consider that the third quarter is historically, our weakest quarter.
Finished <unk> to 'twenty, three with net income of $101 million or $3 11 shirts, but dilutive shares.
Additionally, we finished the quarter with adjusted EBITDA of $186 million and generated $120 million of free cash flow.
On a year to date basis, we have generated net income of $499 million adjusted EBITDA of $808 million and free cash flow of 522 million all of which are records for our company.
Now let me provide a quick update on our outlook for 2023.
On the guidance front before the Pennsylvania mining complex <unk>.
Simply tightening our sales volume range from 25 to 27 million tons to an updated range of 25, 5% to $26 5 million tonnes.
The midpoint of the range remains intact there at all.
So reiterating our average cash cost of coal sold per ton guidance range of 34 to 36 per ton.
As we expect a strong fourth quarter performance to close out the year.
Additionally, due to our success and optimizing our sales portfolio. So far this year and the continued strength in the API two forward prices offsetting weak domestic demand trends and partial contract buyout.
We are reiterating our full year expected average realized core revenue potential of 76 to $80 per ton.
But it's been mined we are adjusting our 2023 production guidance range.
The 300 400000 tons from the previous range of 400 to 500000 tons due to the extended mains development timeline and persistent staffing challenges.
Lastly.
Capital expenditures for 2023.
Lowering our guidance range to $160 million to $175 million.
From the.
The previous range of 160.
The $185 million as supply chain bottlenecks persist for soda and pieces of equipment, causing extended lead times and delayed deliveries.
With that let me turn it back to Jimmy.
Thank you my Tesh.
Let me now provide an update on our shareholder return program.
We deployed approximately 77% of the free cash flow generated during the third quarter towards repurchasing shares of our outstanding common stock.
In total through October we deployed $93 million of our Q3 23 free cash flow toward repurchasing nearly 1 million shares of <unk> stock at a weighted average price of approximately $95 per share.
This brings our year to date share repurchases as of the end of October to $4 1 million shares or nearly 12% of our public float as of year end 2022.
As we close out 2023, we have a few key areas of focus to set us up for success in 2024.
First we are excited by our contracting progress today, specifically our success beyond 2024, we continue to be a new long term relationships, particularly in the exports industrial and crossover met markets.
And our contracting progress allows us to be patient and more opportunistic moving forward.
Second we are committed to ramping up the mine to full run rate production by the end of the year to ensure we hit the ground running in 2024.
Our focus is on bringing consistency to the operation and eliminating some of the staffing challenges we faced throughout the year.
This will be crucial in achieving a consistent production profile at the mine and bringing further revenue diversification to consol energy.
We remain very excited about the potential of this complex and the revenue diversification that our admin low vol product what brain too.
To date, we have seen strong interest for our <unk> product and domestic and export markets achieving consistent operating results is the key area of focus so we can get to the business of cultivating these potential new markets and relationships.
Third we remain focused on returning value to our shareholders through a rigorous capital allocation framework, we've always prioritized the highest rate of return and the most advantageous use of our capital and we will evaluate our capital deployment decisions regularly.
We continue to believe that share buybacks remain the most attractive and accretive form of shareholder returns and as such we intend to continue that strategy.
In aggregate, we are pleased with our execution in 2023 to this point and our ability to optimize ourselves but throughout the year.
We're also very excited about our demonstrated ability to generate the majority of our revenue from the growing seaborne coal markets and our ability to grow our market share over time as the demand for our product expands.
This is made possible through the high quality characteristics of our coal our first quartile cost structure and our significant logistics advantage through our dual rail service and ownership of our Consol Marine terminal.
For these reasons and many others, we remain even more excited about the future.
Looking back on the success, we've achieved in a roughly six year history.
We've returned well north of $1 billion to our shareholders through share repurchases dividends and substantial debt pay down.
We've proven we are no longer a domestic power generation driven company and that the tail of demand for our high quality assets is much longer via niche and growing export markets.
Finally, let me wrap up by once again acknowledging our hard working employees across the organization.
Through their efforts and dedication we have achieved tremendous success to date.
Our balance sheet is strong we're at our target gross debt level. We're in a net cash position our liabilities have been declining we are returning capital to our shareholders and we continue to expand our sales reach and open up new markets for our coal.
I remain proud of this team and I. Thank all of our team members for their commitment to our core values with that I will hand, the call back over Tonight. Thanks, 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.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad. If you are using a speakerphone. Please pick up your handset before pressing the keys.
Time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Yeah.
The first question comes from Lucas pipes with B Riley Securities. Please go ahead.
Thank you very much operator, good morning, everyone.
Part of what we see.
Good to see you maintain the full year outlook. This morning, and I I wanted to touch on.
First our pricing for 2024 and 2025, you gave us the.
The volumes in the release and I'm, sorry, if I missed it in the prepared remarks, but could you maybe I'm sure the pricing as well.
It would be the kind of average locked price and I understand they are.
Our sensitivities to power and an API to but as of today, what what was the average price B and if you could maybe then also give a break down off of.
What amount of fixed domestic what is power linked.
It's locked fixed price in the export market, what it's floating colored in the export market would really appreciate the additional details on on your commercial book. Thank you so much.
Sure Lucas this is Bob I'll take that you know this.
We did announce that we had new sales of $5 4 million tons through 2025, I think very importantly, there yes. Most was in the export market, but we did in.
In particular concluded two year deal with a domestic utility.
In the third quarter and just so you know that pricing had a six handle on it and then Furthermore, this morning.
See confirmation.
For additional domestic business through 2027, that'd be $1 6 million tons and the average pricing on those new tons.
It's north of $60. So when you look at 2024 in particular, we announced this morning, 21 5 million tons, which is about a $3 9 million ton improvement quarter over quarter.
When you look at the breakdown about $3 million is linked to power we have.
$9 5 million.
Slated for the export market of which $6 5 million do have.
Indices linked to them.
I'll have ceilings and floors, and then the balance or about $9 million as domestic and fixed price. When you look at where we modeled the API two price for 'twenty 'twenty four it was $120 and then we also modeled in power at the floor. I will also tell you that based on where the futures are today, we certainly could see some ups.
The power should they remain at those levels, but the pricing we're seeing today on that 'twenty, one and a half is upper <unk> close to $70.
And then for 2025.
$10 8 million tonnes, we announced this morning.
The break down there is two and a half the power three.
Three seven is domestic and fixed at four six as export 100% of the $4. Six is linked to indices, all have ceilings and floors and again based on $120 API two price for 2025, we're looking at pricing in the upper 60, there as well.
Bob you're saying like you've committed to heart.
Thank you very much for all the color there very very helpful.
Hum.
To follow up on the pricing side.
More more.
For 2023.
I'd love to understand that.
Yes.
Delta from Q.
So Q3 to Q2, a little better right.
Q2, I think the average realized price was $81.27 Q.
Q3, $70 34.
I'm backing into 75% to 76 again in and in Q4.
Can you provide a little bit of color of what what caused that variance in Q3 and why do you think it's going to kind of snap back up here in the in the fourth quarter of this year. Thank you.
Sure. So so Lucas we did anticipate a lower sales price in Q3, if you look at our original guidance of 78 midpoint. We're certainly on pace to hit that a couple of things in Q3 that drove the lower pricing or I should say several things one you know.
<unk> prices were down quarter on quarter. So I think API two prices were down $709 from Q2 second was this was just the mix of sales, we actually export and more volume in Q3 than we anticipated we had some higher price domestic contracts.
Not loaded in Q3, however, those will be loaded in Q4, we're starting to see a pickup in domestic demand.
In October and we expect that to continue through the balance of the fourth quarter of law. That's due to the increase in natural gas prices were starting to see gas well north of $3 in the futures or are there as well. So we expect additional coal burn from our domestic customers. If we don't get those tons moved in Q4, we will certainly continue to get.
The value of those into next year and then.
Third I think it's just we had lower volumes and that was anticipated, but when you have lower volumes you just have less ability to optimize the portfolio. So in Q4, we're expecting to end the year strong we had 400000 tons of inventory carry into Q4 I can tell you pretty much all of that has been loaded out of the terminal. So we're anticipating a six eight.
The $6 nine call it type of level to get to the midpoint and total sales. So that gives us a better opportunity to optimize so again optimization higher price domestic business and right now API two prices are certainly looking to be stronger in Q4 than in Q3.
Lucas and somebody I think.
The neighborhood that you've talked about for Q4 is reasonable given that.
What our guidance is the fact.
We have three months three quarters behind us.
Yeah, that's fair.
Thank you so much.
I wanted to.
And with a higher level question.
You mentioned, you're you sold coal into South Asian country for the first time and.
Can you just can you provide some color as to what it allows you to compete that that far away from home Indonesia on the doorstep.
Australia was high Btu coal this on the doorstep, how do you get into that market competitively. Thank you very much for for your details.
That's a good question Lucas I think it's more tied to our relationships that we're trying to build long term.
Makes a lot of travel and Bobby and but tests have certainly been doing that and just vision visited Indonesia, and our high quality coal allows us to get in those markets, particularly with the btu basis, and our ability to ship out of the Baltimore terminal.
Yes.
The other thing I would mention too Lucas is like we have been shipping coal in South Asia, India has the greatest example, right like India as a country in South Asia than we have been doing business for a very long time, I think that our smaller markets around.
The Bay area that they can use and benefit from some of the hot calorific value for such as ours that a little bit more thought around on some of the other things such as software and those so it helps us I think.
If you look at what are the traditional suppliers as I touched upon briefly they used with CV calls in the past from Indonesia, Russia and all these places I think so we had an opportunity to replace all of that together everything.
Everything that we have seen geopolitical again I think this is one of those things that once you develop these markets I think.
Then to become a more regular supplier, which is what ended up happening in India. So if you look at the playbook that we had in India.
By some of our playbook here.
Smaller markets, so it's not as big as India.
Okay very helpful.
Well really appreciate all the color this morning.
Continued best of luck. Thank you.
Thank you. Thank you.
The next question comes from Nathan Martin with the Benchmark Company. Please go ahead.
Thanks, Operator, good morning, guys. Appreciate you taking my questions good.
Good morning, good morning wanting it.
I also just wanted to round out.
Question on full year, 'twenty, three but sales guidance in particular, I think Lucas just mentioned deprecation is $6 8 million tons at the midpoint.
In the fourth quarter.
But can you kind of talk about what gets you to the high or low end of that guidance range. It sounds like the inventory shipments of mostly move but that would just be great to have a little more color there. Thanks.
Well I think the inventory that we had been shipped is certainly going to help those numbers.
As long as we have the planned longwall move we have one of those in Q4 here, but thus far things are going well for us we do have that fifth wall and as long as we can continue to ship that out we're seeing some increased customer demand here domestically that Bobby talked about that will help and I think we certainly have.
We do have the holidays that we have and we have that last week of shutdown, but we feel pretty good where we are from a production standpoint and to have the opportunity to run even higher to those numbers.
Have to run some of those holidays or just have the operation is running really well and a quicker longwall move them well planned but all of those are opportunities that are in front of us.
And just to add good.
Inventory situation that we talked about it's not about inventory lying on the ground in OXXO or it's already stored.
Or is that just because of the timing of the vessels and shipments are just moved from third quarter to the fourth quarter that inventory as long as we speak yet.
Perfect and then just maybe on the logistics side, how were things cooperating from our rail and port and maybe you've been thinking about labor as well most airports.
Yeah, I think we're dual served by both rail and I think.
They're performing okay, we havent had any real issues out of them, we always expect some shipments to move around a little bit, but the rail carriers have been pretty good for us thus far.
Think about it needs I mean look at the shift right I mean, we're going to we're talking about moving potentially 19 million tons through our terminal of which about $16 million of that will be from PMC. Just this year.
Got it and then maybe maybe just a higher level longer term question.
It would be great to get your thoughts guys around consoles ability.
To maintain that 26 million tons, plus or minus shipment run rate over the next several years.
We used 26 million tons of Knight as our base and as you well know we've run you know it has 27 four.
Run to the market. So if the markets. There, we certainly have the ability to run that.
We don't have anything that's.
In the near term certainly for the next several years, we all use that 26 as a base and we certainly have the opportunity to flex that up or down dependent upon the market.
And if you think about the cadence like historically, we are not 70 contracted so we have more contracted for 2024. Then we typically are so that tells you that we have enough.
Sales already booked and with the development of some of the newer markets and Rfps that Bob and his team is working on in the domestic market as well, we feel very confident about.
Getting around that base.
Continuing to optimize that.
Very helpful guys, and then maybe shifting to the export business first maybe what the net backs look like today kind of both based on API too and in pet Coke prices have been.
Secondly.
Congrats on entering some of those new markets you guys have talked about both on the industrial and it sounds like crossover met sides as well and I know in the past you've been successful tying some of that long term business. The API two prices with floors and ceilings, but how should we think about some of this newer business is that still the way youre looking at pricing matter.
Could there be some other mechanisms you'd entertain or working on could possibly better capture the value of your product.
Yes, so in the quarter.
Two of the deals out of the $5 4 million tons that we did were significant export deals for 2024, when I say significant theres significant amount of tons in one we did at a fixed price and I can tell you that netted back over $70 to the mine.
That is likely going to Europe.
Looked at where API two prices for the time, we did that deal and then the other deal. We did was linked to both pet Coke in API two prices and had a fixed price components. So we continue to look at.
Ways that we can price our product it makes sense into these markets, especially into the Indian market and then the later deal I just mentioned it also had Florida ceilings tied to it where the floor is going to provide us a minimum 20, plus dollar cash margin and then we have some significant upside.
Also working on some additional term export deals.
And not only for thermal but also the crossover product and as you know the crossover productively gets gets linked to <unk>.
Hi, bulb prices or in some cases, if it's going into Asia, we'll look at.
We will look at taking a discount off of tsi prices. So.
Coke prices.
125, $1 30 range.
<unk> equivalents about mid sixties back to the mine at that type of level and then API two prices are very volatile as well you know they were higher than 130 recently down in call. It the 100 twenty's today.
And as I mentioned, we were able to get pricing netting over $70. During a time when <unk> was in the upper 120 to $1 30 today, you're probably looking at somewhere again in the mid sixties based on 120 $125 API two price.
Great I appreciate all that Bob I'll leave it there. Thank you guys for the time best of luck in the fourth quarter.
Thanks, guys.
Again, if you have a question. Please press Star then one.
Our next question comes from Michael Dudas with vertical Research partners. Please go ahead.
Good morning, gentlemen.
Alright. Thanks.
Bob how are your customers in Europe, but maybe just maybe generally how they're looking at their inventory levels.
They're early indications on demand and usage going into 2024 given.
Global economic activities on one hand, but still some shock from what's happened with the gas over the past couple of years.
Yes.
As I just mentioned one of the deals we did last quarter was into Europe.
And that had a seven handle on it and I'm actually heading over to Europe here next week to meet with several of our customers at their request, which certainly is positive news and I do think that many are concerned about not actual needs and if supply will be there even assuming a normal winter I did read this morning to the DRA prices or I'm, sorry <unk>.
Inventory levels are continuing to drop a lot of that has to do with the Rhine River situation now getting back to normal so I am quite bullish in Europe and when it comes to the third.
Called needs in 2024, and I think Youll continue to see some strength in the API two prices as well.
How about your Indian customers.
Yes, I mean, India, we're getting constant demand for our products over there I mean, the retail market seems to be pretty strong. So far this year and then there continues to be growth in cement capacity.
As we move forward as well so we are passing on some opportunities today to move some coal into India for the balance of this year is the crossover market continues to be the best market for us to sell our product and based on where our call carton sold position is.
Taking advantage of the best market to ensure that we had the highest realizations.
And speaking on the crossover is certainly there's some upside volatility in the global coking coal market, how do you see it more in positioning not only some of the crossover opportunities.
I'm, assuming there's some marginal benefit to that maybe in the first half of next year, placing some of that coal and then with it then.
Do you have a sense of where you are on customer interest in <unk>.
For where you are.
He is going to get to at the end of this year beginning of next and how comfortable you feel you can.
It will ramp up not only on the production side put place those tons into the market.
The reasonable pricing.
Yes, so on the on the sales side talking about.
Our <unk> product in the crossover if you think about where we're at so far year to date I mean, we're on pace to do over $2 5 million tons into the crossover market. This year, which I wouldn't say, it's a record for us, but it's certainly much higher than what it traditionally has been.
Brazil is our core market, but as <unk> mentioned.
Indonesia now we're also selling a lot of coal into China now as well so we feel as though and that's the reason why I brought back that fifth longwall in particular at Enlow Fork because of the quality of that of that longwall, and that's certainly benefiting us in that crossover markets. So again, we feel very confident in our ability to continue to expand that.
Ross silver market for our PMC Cole.
Moving on to it.
Certainly a lot of interest there we did participate in a lot of the domestic rfps for 2024, we were successful in concluding close to 300000 tons under the under those Rfps I will tell you we certainly could have.
Secured more volume.
But we elected to not do so for.
Desire to diversify and then we also felt as though prices were likely going to be higher on the export side. We've certainly seen a nice jump in tsi prices, we saw a nice jump in U S East coast low vol prices, although it's come off a bit.
But again Theres certainly a lot of interest there as soon as we get the mine fully fully up to full run rate we.
We feel we feel that we'll be able to participate in additional markets there as well.
Excellent. Thanks for your thoughts gentlemen, good luck.
Okay. Thanks, Mike Thanks, Mike.
The next question is a follow up from Lucas pipes with B Riley. Please go ahead.
Thank you very much and thank you for taking my follow up question.
And then related.
Approximately what is the utilization rate today.
Should we think of like two out of the three Super sections are running so it's kind of close to call. It.
70%, or so or or or or would you describe it differently and what do you think it will take on the labor front to get that third Super section fully fully mobilized and then on the domestic contract can you just mentioned you participated.
I think you said 300000 tonnes.
But could you share the pricing that's associated with that tonnage. Thank you very much.
Well on the on the production rate I would say utilization, we are somewhere around that 70% number.
Two of the three Super sections running now however, we're still in mains development, which is requiring us to cut a little bit of high which slows our modern progress down to allow for equipment and thanks to get into demand for the long term.
Thank you your before the year end, we will have one of those.
Super sections and to a panel development, which will increase production and lower.
Our cost as well as our.
Our.
Yield our yield so I think we will get more tons there.
I'm pretty excited about where it is right now on the labor side of it we're still having some challenges down there.
Getting fully staffed well have some turnover we're working on all of those things. We've made some changes there in the last couple of weeks that we feel like is going to help and then on the equipment side of it we still get delays I mean, we have some new equipment comment, but we're not going to receive that this year like we had hoped to receive in the fourth quarter.
I think when I look at it where it is today.
Have lots of room to improve there, particularly on the production side.
As soon as we get this third Super section up and running get one of these three super sections in the panels I think youll see our productivity come up and I'll be excited to see what type of cost we can actually run at it.
Thank you.
That's helpful on the pricing side anything you can share.
Yes, I mean, obviously I think it is.
Known that the <unk>.
Pricing has been down year on year on the domestic contracting front, but right now you look at where our U S. East Coast low vol prices are we typically net back about 70% of that index. So if you're looking at an index right around $2 60 figure Fob mine net backs are now 180 to 185.
Range.
And would that be for.
The tons, you would sell into the export market or would that be the price.
Contracted domestically.
<unk> would be a little bit lower than that but again based on where.
U S East coast Lube oil prices hover around that $2 60 range. It kind of gives you a sense of where the balance of the volume we would sell out into the export market, but again, we'll provide.
Full guidance in <unk>.
In January or February when we when we announce our next earnings.
Very helpful. Thank you.
Just one more follow up on the labor front.
How do you go about recruitment do you mostly recruit in state or do you go out of state.
I'm curious, how how you kind of what the strategy is to.
Get the people in there I know, it's an industry wide problem.
Which is which is why I wanted to dig a little deeper to understand how you might have a comment.
We rely pretty heavily on our job fairs that we have and we try to get those somewhat locally or close to where the money is because I mean.
You have to have employees, that's not going to travel to Florida work or you just can't keep them they'll go someplace else, but one of the things that we've done pretty successful is use some of our managers that we have there that knows a lot of these employees, we try to use the internal mechanisms that we have as well as the job fairs and continue.
To pay.
Attractive wages very attractive benefits and one of the things that we have seen.
Success in lately, if the job fairs that we've had down here and I think as things tightened up a little bit here, we'll see the labor market.
Been up a little more than it has been in the past.
Okay.
Thank you Jimmy.
Yeah.
Last last question Uh Huh.
For me I promise.
You've always been very disciplined.
When it comes to.
Ranking.
Your.
Your capital allocation priorities.
Thank you scrap the dividend because you saw more more bang for Buck on on the buyback you obviously.
Diligent of paying down debt when you saw the best ROI.
Risk adjusted returns there and so I wonder if you could kind of provide.
Provide an update today on.
How do you prioritize.
What's the what's the.
Best Bang for the Bakken and then maybe if you could go down the list.
Would really appreciate that hierarchy.
Yes, and thanks for the question that is something that we are very diligent.
We have normal capital allocation reviews on where we are we always try to return on every dollar of capital to the highest rate of return and you know it was critically important for US. It was always a priority to pay that debt down and we had that targeted gross $200 million of gross debt we achieved that.
Cap increase in our capital allocation for share buybacks and as I said in the prepared remarks, when I look at it today the highest rate of return continues to be buying back shares. So I don't think we'll change our strategy on that in fact, as we've paid down our debt and got to these levels, we committed to 75% of our free.
Cash flow going towards share repurchases. However, we might have opportunities to take that number up it just depends on where we are at the quarter. When we have those capital reviews for an example, we paid the $24 million down on our second lien note. It would have created an opportunity maybe for us to buy back shares. So we certainly would take a look at that.
As as we generate free cash flow on what we do with it.
And Lucas having the contractor base that we have it gives us a unique benefit that it gives us a lot of revenue visibility and essentially when you are buying back stock you're buying an asset and you know what the cash flows look like based on your contracted position. So I think on a risk adjusted basis. It makes a lot of sense for us compared to other opportunities which might.
<unk> had interest in that.
Flat.
Thanks Lucas Oscar.
This concludes our question and answer session I would like to turn the conference back over to Nathan Tucker for any closing remarks.
Thank you everyone for your time today, and we look forward to speaking with you on our next earnings call.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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