Q3 2023 Warrior Met Coal Inc Earnings Call
Good afternoon, My name is Ellen and I will be your conference operator today.
At this time I would like to welcome everyone to the warrior third quarter 2023 financial results conference call.
All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will 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 you would like to withdraw your question Press Star then two this call is being recorded and will be available for replay on the company's website.
Before we begin I've been asked to note that today's discussion may contain forward looking statements and actual results may differ materially from those discussed for more information regarding forward looking statements. Please refer to the company's press releases and S. E. T. E filings Ive also been asked to note that the company has posted reconciliations of the non-GAAP.
The financial measures discussed during this call in the tables accompanying the company's earnings press release located on the investors section of the company's website at Www Dot warrior met coal dotcom and.
In addition to the earnings release the company has posted a brief supplemental slide presentation to the investors section of its website at Www Dot warrior met coal dotcom.
Here today to discuss the company's results are Mr. Walt Sheller, Chief Executive Officer, and Mr. Dale Boyles, Chief Financial Officer.
Mr. Sheller, you may begin your remarks.
Thanks, Operator, Hello, everyone and thank you for taking the time to join US today to discuss our third quarter 2023 result.
After my remarks, Dale will review our results in additional detail and then you'll have the opportunity to ask questions.
We were pleased to deliver another strong quarter in which we were able to leverage our operational excellence to achieve record sales volumes, which represented a 51% increase over last year's third quarter.
We continue to see improved performance from our transportation partners, Mcduffie terminal, which allowed us to ship more volume and reduce our excess inventory.
Our quarter over quarter growth in sales volume also deal with strong profitability as well generating a cash margin of $158 million or $70 per short ton.
Yeah.
Steel output from China, the world's largest producer was stronger than we had anticipated and it's widely publicized production cuts have not yet materialized.
In fact, we grew domestic demand has led China to export higher than normal volumes of steel, which has impacted supply and some of our customers markets.
With the exception of India, most other major steel producing regions experienced lower demand and as a result lower prices for their finished products.
We've heard of customers adjusting their production rates to match demand.
Contrast, the met coal index for premium low vol coals experienced a large upward trend during the latter part of the third quarter.
While most other industries experienced more modest gains.
These factors have put our customers margins under pressure with a diverging steel prices in relation to raw material costs.
In sharp contrast to the second quarter. This year the availability of premium hard coking coals was tight during the third quarter of <unk>.
Australia producers begin their maintenance programs.
In addition, the vulnerability of the supply chain was on display again with a slew of production issues labor related constraints and logistical issues impacting the availability of met coal.
However, we continue to see strong Mongolian met coal exports flowing into China, as well as significant Russian coal exports, finding their way into China and India.
All of the major indices closed the quarter at their highest for the period.
Our primary index, the PLD F O B, Australia experienced the largest increase of all the indices.
Getting $91 per short ton over the second quarter and closing at $302 per short ton.
In contrast, the P. L. B C F. Our China index increased by $51 per short ton with a closing price of $254.
They are between these indices swung into negative territory in mid August achieving a delta of $48 per short ton at the end of the third quarter.
According to the World Steel Association monthly report global Pig Iron production increased by approximately 1.5% during.
During the first nine months of 2023.
Compared to the same period last year.
The positive growth was mainly driven by higher Chinese steel production.
Which grew by two 8% through the first nine months.
India's steel production, although lower in absolute terms compared to China continued to grow at impressive rates, increasing by eight 2% for the same period.
Most other large steel producing regions of the world experienced production declined compared to the previous year period.
But as I noted a record setting third quarter sales volume of $2 3 million short tons with 51% higher than the comparable quarter last year.
The previous record was set in the second quarter of 2019.
The increase was driven by the improved performance by our transportation partners and the Mcduffie terminal, which enabled us to export more product and reduce our excess inventory.
In addition, better than expected production contributed to an increase in sales volume for the quarter.
Our sales by geography in the third quarter breaks down as follows 39% into Europe, 22% into South America, and 39% into Asia.
The increase in Asian sales was primarily driven by higher spot volume sold into India, and China during the third quarter.
Our spot volume of 44% and abnormally high but the excess inventory in the third quarter.
I wanted to spend a moment explaining the factors that went into the sales mix and how they impacted our average net selling price revenue and net income.
Weird has experienced the largest spot volume this year, primarily due to the end of the labor strike and to a lesser extent the quality transition of mine for.
Because we did not know when the strike would end we enter 2023, assuming that additional production would have to be directed towards the spot market.
However, our spud activity on our natural markets has been very weak. This year and then spot demand was fairly stable in countries like China, and India, We turned our focus to the Pacific markets.
With these dynamics in mind, it's important to understand that pricing in the specific markets and how it differs from our traditional spot markets depending on market conditions.
Typically the Pacific markets are priced based on a CFR basis, rather than the P. L. B F O B, Australia basis, which is more common in our traditional spot market.
The freight differentials borne by the supplier on a CFR basis whenever the buyer has market leverage.
Which was the case in the third quarter.
And the departure from historical trends. These industries have seen a dislocation which are not currently moving in tandem.
Let's see if oil prices trailing P. L. B F O b prices by approximately $80 per short ton on average.
This is occurring due to a number of factors, including the limited end markets for Russian coal and see if our China pricing that was largely based on domestic dynamics rather than on a delivered basis from Australia.
These dynamics resulted in a negative impact to our average net selling prices revenues net income during the third quarter.
With our head count and production levels, becoming more predictable over the coming quarter will be better positioned contract or a product in advance which enables us to capture the benefit of the rise in pricing.
We might not see the impact of this in the fourth quarter, but we believe we're well positioned to take advantage of higher pricing in the medium term.
Let us now returned to other key details of our third quarter performance.
Production volume in the third quarter was better than expected and totaled 2 million short tons compared to $1 6 million short tons in the same quarter of last year.
Representing a 21% increase.
This is the highest quarterly production output as the first quarter of 2021, and a record setting quarter for mindful.
Both mines operated at higher capacity levels in this quarter as a result of additional employees returning from the labor strike.
Our head count was 44% higher than the third quarter compared to the prior year's third quarter.
The higher sales over production volume in the third quarter drove our coal inventory down to 489000 short tons.
760000 at the end of the second quarter.
During the third quarter, we spent $112 million on Capex in mine development.
Capex spending was $107 million, which included $66 million on the Blue Creek project, which I'll discuss more in a moment.
Capex spending was a little lower than expected during the third quarter due to some delays in equipment deliveries and the timing of spending at Blue Creek.
However, we expect to be within our full year spending guidance range by the end of the year.
Mine development spending was $6 million during the third quarter as we completed the development of mine four.
Now that we're mining in the new area for mine four we're seeing a transition in quality from the mid vol to high vol, a which is similar to Blue Creek.
Turning to the development of a world class Blue Creek asset during the third quarter, we continued to make substantial progress on the project and I'm pleased to share that our work remains on schedule.
During the third quarter, we continued to make progress on the production slope service shaft ventilation shaft, which would be fully connected next year to allow the continuous miners district development.
In addition, we continue to develop the site for the construction of the preparation plant and the run of mine belt structure as well as building the bathhouse them warehouse.
Capital expenditures during the third quarter for the development of Blue Creek was $66 million and totaled $191 million year to date.
We spent $238 million since the beginning of the project.
I'll now ask Gail to address our third quarter results in greater detail.
Thanks, Paul.
For the third quarter of 2023, the company recorded net income on a GAAP basis of $85 million $1.64 per diluted share representing a decrease over the net income of $98 million or $1.90 per diluted share in the same quarter of last year.
non-GAAP adjusted net income to the third quarter.
Excluding the nonrecurring loss on the early extinguishment of debt business interruption and other expenses was $1 85 per diluted share.
Operator: Good afternoon.
Operator: My name is Alan and I will be your conference operator today.
This compares to adjusted net income of $2 10 per diluted share in the same quarter of 2022.
Operator: At this time I would like to welcome everyone to the Warrior's Third Quarter 2023 Financial Results Conference call. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will 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 you would like to withdraw your question, press star then two. This call is being recorded and will be available for replay on the company's website.
These decreases quarter over quarter were primarily driven by a 26% lower average net selling price combined with lower financial results from our gas business.
Each were offset partially by 51% higher sales volume.
We reported adjusted EBITDA of $146 million in the third quarter of this year compared to $172 million in the same quarter of last year.
The quarterly decrease was primarily driven by a number of factors.
Operator: Before we begin, I have been asked to note that today's discussion may contain forward-looking statements and actual results may differ materially from those discussed. For more information regarding forward-looking statements, please refer to the company's press releases and SEC filings. I have also been asked to note that the company has posted reconciliations of the non-GAP financial measures discussed during this call in the tables accompanying the company's earnings press release located on the investor section of the company's website at www.warriormetcoal.com. In addition to the earnings release, the company has posted a brief supplemental slide presentation to the investor section of its website at www.warriormetcoal.com.
First the average net selling price of our steelmaking coal was 26% lower than the prior year quarter.
Second as I mentioned, we saw lower financial results from our gas business.
However, these were partially offset by the 51% increase in sales volume and lower transportation and royalty cost.
Our adjusted EBITDA margin was 34% in the third quarter of this year compared to 44% in the same quarter of last year.
Total revenues were $423 million in the third quarter compared to $390 million in the third quarter of last year. This 9%.
<unk> increase was primarily due to the 51% increase in sales volume.
Offset by the 26% decrease in average net selling prices.
Operator: Here today to discuss the company's results are Mr. Walt Scheller, Chief Executive Officer, and Mr. Dale Boyles, Chief Financial Officer.
Other revenues from our gas businesses were 64% lower in the third quarter of this year.
Walter Scheller: Mr. Scheller, you may begin your remarks. Thanks, operator. Hello, everyone. And thank you for taking the time to join us today to discuss our third quarter of 2023 results. After my remarks, Dale will review our results in additional detail, then you'll have the opportunity to ask questions. We were pleased to deliver another stone quarter in which we were able to leverage our operational excellence to achieve record sales volume, which represented a 51% increase over last year's third quarter.
Primarily due to a 72% decrease in natural gas prices between the periods.
The Platts premium low vol. Fob Australian index price remained on a slow but steady upward trajectory for much of the third quarter rising.
Rising sharply towards the end.
It's a rapid rise do not occur until late in the third quarter, we did not significantly benefit from the increased due to its timing.
The index price averaged $13 per short ton higher than the third quarter compared to the same quarter of last year.
Walter Scheller: We continue to see improved performance from our transportation partners and at the McDuffie terminal, which allowed us to ship more volume and reduce our excess inventory. Our quarter of a quarter of growth in sales volume also yields strong profitability as well, generating a cash margin of $158 million or $70 for short time. Steel output from China, the world's largest producer, was stronger than we had anticipated, and its widely publicized production cuts have not yet materialized.
The index price averaged $240 per short ton in the third quarter.
Mortgage and other charges reduced our average net selling price to $185 per short ton in the third quarter. This year.
Compared to $248 per short ton in the same quarter of last year.
Demurrage and other charges were $6 million lower compared to last year's third quarter.
Higher demurrage and other charges in the third quarter of last year were the result of temporary delays and vessel loadings due to severe weather and port congestion.
Walter Scheller: In fact, weaker domestic demand has led China to export higher than normal volumes of steel, which has impacted supply in some of our customers' markets. With the exception of India, most other major steel producing regions experience lower demand and as a result, lower prices for their finished products. Reported customers adjusting their production rates to match demand. In contrast, the Metcule Index for premium low-volkals experience a large upward trend during the latter part of the third quarter, while most other industries experience more modest gains.
Cash cost of sales was $259 million or 62% of mining revenues in the third quarter compared to $202 million or 54% of binding revenues in the third quarter of last year.
Of the net $57 million increase in cash cost of sales.
$102 million was due to the 51% increase in sales volumes.
I'll set partially by $45 million of lower transportation and royalty cost on lower average net selling prices.
Walter Scheller: These factors have put our customers margins under pressure with a diverging steel price as in relation to raw material costs. In short, contrast to the second quarter this year, the availability of premium hard-coking coals was tight during the third quarter, as several Australian producers began their maintenance program. In addition, the vulnerability of the supply chain was on display again with the slew of production issues, labor related constraints, and logistical issues impacting the availability of Met Coal.
Our head count was 44% higher in this third quarter compared to last year due to a focus on hiring workers during the labor strike.
And the addition of employees, who returned from a labor strike in the second quarter of this year.
In addition, the inflation weeks or used in operating.
Expenses in purchasing but equipment over the last 18 months has remained steady.
Not seeing any significant changes up or down so far this year.
Cash cost of sales per short ton Fob port was approximately $115 in the third quarter compared to $135 in the third quarter of last year.
Walter Scheller: However, we continue to see strong Mongolian Met Coal exports flowing into China as well as significant Russian coal exports finding their way into China and India. All of the major indices closed the quarter at their highs for the period. Our primary index, the PLV, FOB Australia, experienced the largest increase of all the indices, getting $91 per short ton over the second quarter and closing at $302 per short ton. In contrast, the PLV CFR China index increased by $51 per short ton, with a closing price of $254.
While premium steelmaking coal prices were 6% higher in the third quarter of this year compared to last year, our average net selling prices were 26% lower.
This resulted in lower transportation, multi cost, which were 38% of our cash cost per ton in the third quarter.
Compared to 47% in the same quarter last year.
Our cash cost to production per short ton was flat in the third quarter as compared to prior year third quarter. Despite the incremental costs associated with a 44% higher head count.
Walter Scheller: The ARB between these indices swung into negative territory in mid-August, achieving a delta of $48 per short ton at the end of the third quarter. According to World Steel Association Monthly Report, the level of pig iron production increased by approximately 1.5% during the first nine months of 2023, as compared to the same period last year. The positive growth was mainly driven by higher Chinese steel production, which grew by 2.8% to the first nine months.
In other words, despite the incremental cost of the returning employees from the labor strike.
We were neutral on a cost per ton for the third quarter due.
Due to the increase in production volumes.
Cash margins were $70 per short ton in the third quarter of this year and were impacted by the higher spot volume as Bob noted earlier.
SG&A expenses were about $11 million or two 6% of total revenues in the third quarter. This year and were slightly higher than last years third quarter, primarily due to an increase in employee related expenses.
Walter Scheller: India's steel production, although lower in absolute terms compared to China, continued to grow at impressive rates, increasing by 8.2% for the same period. Most other large steel producing regions of the world experienced production declined compared to the previous year period. As I noted, our record setting third quarter sales volume of 2.3 million short tons was 51% higher than the comparable quarter last year. The previous record was set in the second quarter of 2019.
The interest income.
Earned on our cash investments well exceeded the interest expense on our outstanding notes in equipment leases during the third quarter of this year.
Primarily due to our high cash balances, earning sound investment returns.
Our third quarter income tax expense reflects expense on pre tax income and includes the income tax benefit for depletion expense and foreign derived intangible income.
Walter Scheller: The increase was driven by the improved performance by our transportation partners and the McDelphy Terminal, which enabled us to export more product and reduce our excess inventory. In addition, better than expected production contributed to an increase in sales volume for the quarter.
Also during the quarter, we successfully executed tender offers for our senior secured notes as part of our ongoing commitment to effectively manage our balance sheet.
By taking advantage of favorable market conditions, we reduced our leverage by $146 million or nearly 50%.
Walter Scheller: Our sales videography in the third quarter breaks down as follows. 39% into Europe, 22% into South America, and 39% into Asia. The increase in Asian sales was primarily driven by higher spot volumes sold into India and China during the third quarter. Our spot volume was 44% and that normally high with the excess inventory in the third quarter.
Hansen, our already strong debt to equity ratio.
In connection with this action, we recorded a loss of $12 million on the early extinguishment of debt.
The loss represents the premiums paid to retire the debt and associated fees and expenses in connection with the transaction.
In addition, the company will have the ability from time to time in the future to make one or more restricted payments in the form of special dividends or stock repurchases up to an aggregate amount of approximately $300 million.
Walter Scheller: I want to spend a moment explaining the factors that went into the sales mix and how they impacted our average net selling price, revenue and net income. We are experiencing the largest spot volume this year primarily due to the end of the labor strike and to a lesser extent the quality transition of mine for. As we did not know when the strike would end, we entered 2023 assuming that additional production would have to be directed toward the spot markets.
However, any future special dividends or stock repurchases.
Walter Scheller: However, a spot activity on our natural markets has been very weak this year and since spot demand was fairly stable in countries like China and India, we turned our focus to the Pacific markets. With these dynamics in mind, it's important to understand that pricing in the Pacific markets and how it differs from our traditional spot markets depending on market conditions, typically the Pacific markets are priced based on a CFR basis rather than the P.O.V.
Walter Scheller: FOB Australia basis, which is more common in our traditional spot markets. The freight differential is borne by the supplier on a CFR basis whenever the buyer has market leverage, which is the case in the third quarter. In a departure from historical trends, these industries have seen a dislocation which are not currently moving in tandem. The CFR price is trailing P.O.V. FOB prices by approximately $80 per short time on average. This is occurring due to a number of factors including the limited end markets for Russian calls and CFR China pricing that was largely based on domestic dynamics rather than on a delivered basis from Australia.
Increase in accounts receivable on higher sales volume.
Partially offset by lower inventories and higher payables and accrued expenses.
Walter Scheller: These dynamics resulted in a negative impact toward average net selling prices, revenues and net income during the third quarter. With our head count and production levels becoming more predictable over the coming quarters will be better positioned to contract our product in advance, which enables us to capture the benefit of the rise in pricing. We might not see the impact of this in the fourth quarter, but we believe will well position to take advantage of higher pricing in the medium term.
Despite the higher capital spending associated with a Blue Creek project here today.
We have generated free cash flow of $114 million of which $46 million has been returned to stockholders in the form of a special dividend earlier this year on top of the regular quarterly dividends.
A total available liquidity at the end of the third quarter was $810 million, representing a decrease of $141 million over the second quarter and consisted of cash and cash equivalents of $687 million and $123 million available under ABL facility.
Walter Scheller: Let us now return to other key details of our third quarter performance. Production volume in the third quarter was better than expected and total of two million short tons compared to 1.6 million short tons in the same quarter of last year, representing a 21% increase. This was the highest quarterly production output since the first quarter of 2021 and a record setting quarter for mine 4. Both mines operated at higher capacity levels in this quarter as a result of additional employees returning from the labor strike.
The decrease is related to the extinction of that and relate fees and expenses during the third quarter as previously discussed.
Finally, turning to our outlook and guidance for the full year 2023.
We update our guidance for mine development and interest income as outlined in our outlook section of our earnings release.
No other key metrics were changed from our prior earnings release.
Walter Scheller: Our head count was 44% higher in the third quarter compared to the prior year's third quarter. The higher sales of a production volume in the third quarter drove our calling to toy down the 489,000 short tons from 760,000 at the end of the second quarter. During the third quarter, we spent $112 million on CAPEX and mine development. CAPEX spending was $107 million, which included $66 million on the Blue Creek project, which all discussed more in a moment.
Since we reduced our excess inventory in the third quarter, our sales and production volume should be similar amounts and lower in the fourth quarter.
It's worth noting that the implied fourth quarter volumes between our mid point, an upper hand of our guidance range for the full year indicates the fourth quarter will be lowest volumes of the year is walk would discuss in a moment.
I will now turn it back to the wall for spinal comments.
Thanks, Dale before we move on to Q&A I'd like to make some final comments.
Walter Scheller: CAPEX spending was a little lower than expected during the third quarter due to some delays in equipment delivery and the timing of spending at Blue Creek. However, we expect to be within our full year spending guidance range by the end of the year. Mine development spending was $6 million during the third quarter as we completed their development at mine 4. Now that we're mining in a new area from mine 4, we're seeing a transition of quality from the mid-volve to a high-ball aim, which is similar to Blue Creek.
We remain cautious for the fourth quarter, especially in light of the bulb situation in the middle East and also because of the distortion in price indices.
Demand for steel is expected to remain weak, let's stable until the end of the year.
However, we do recognize the uncertainty in the global economy closely monitoring its impact on steel demand.
We expect merkel pricing to remain under pressure during the fourth quarter.
Thankfully climbed back some of the games, we saw recently made.
Walter Scheller: Turning to the development of a world-class Blue Creek gas set, during the third quarter, we continue to make substantial progress on the project, and I'm pleased to share that our work remains on schedule. During the third quarter, we continue to make progress on the production flow, service shaft, ventilation shaft, which will be fully connected next year to allow the continuous miners to start development. In addition, we continue to develop the site for the construction of the preparation and the run of mine belt structure, as well as building the bath house and where. Capital Expense is doing a third quarter for the development of Blue Creek with $66 million and total $191 million year-to-date. We've spent $238 million since the beginning of the project.
Mainly supported by expected improvements in coal availability.
For warrior now that we've reduced our excess inventory, we expect our fourth quarter volumes to be seasonally lower is implied by our year to date performance compared to our full year volume guidance.
There are a number of factors contributing to those lower fourth quarter volume expectation.
Versus a continued week customer spot demand in our natural markets.
Second is that we have fewer operating days associated with the end of the year holidays.
Third will perform some needed mind maintenance and four will take a more strategic approach to maximize market pricing and profitability for our premium hard coking coal into the spot market.
Dale Boyles: I'll now ask Dale to address our third quarter results in greater detail. Thanks, Walt. For the third quarter of 2023, the company record net income on a gap basis of $85 million, $1.64 per diluted share, referencing a decrease over the net income of $98 million or $1.90 per diluted share in the same quarter of last year. Non-gap adjusted net income to the third quarter, excluding the non-recurring loss on the early extinguishment of debt, business interruption, and other expenses, was $1.85 per diluted share.
Without we'd like to open the call for questions operator.
At this time I would like to remind everyone that to ask a question. Please press star. It then the number one on your telephone keypad, we will pause for just a moment to compile the Q&A roster.
Our first question comes from Lucas pipes from be Riley Securities. Please go ahead.
Thank you so much operator, good good afternoon, everyone Walton Dale.
Appreciate all the color in it.
<unk> remarks at my my first to questions tying to your final comments there.
Dale Boyles: This compares to adjusted net income of $2.10 per diluted share in the same quarter of 2022. These decreases quarter over quarter were primarily driven by a 26% lower average net selling price, combined with lower financial results from our gas business, which were offset partially by 51% higher sales volume. We reported the adjusted EBIDA at $146 million in the third quarter of this year, compared to $172 million in the same quarter of last year.
Well first time the production side when I when I think about the low end of guidance for the full year.
And what that implies for.
Q for I come out to about 1.1 million tons and when I looked at your historical production I'd have to go back to 2021.
But of course, you have to strike.
To see that level of output. So are you seeing anything specifically in your mind plan that would.
Uhm.
That that that could lead to this low enough to guidance for the full year on the production side or reset maybe just a degree of conservatism. Thank you.
Dale Boyles: The quarterly decrease was primarily driven by a number of factors. First, the average net selling price of our steelmaking coal was 26% lower than the prior year quarter. Second, as I mentioned, we saw lower financial results from our gas business. However, these were partially offset by the 51% increase in sales volume and lower transportation and multi-cost. Our adjusted EBIDA margin was 34% in the third quarter of this year, compared to 44% in the same quarter of last year.
No. That's that's more than one would be extraordinarily conservative our expectations are well above that I would say you can you can imply a one five ish number.
No I'm from New York.
415155, something like that but.
And that's what production Q Q for production yeah.
And I would expect that.
I would expect probably sales volume B, a similar number and I think both of those with kind of gives you right near the upper end of our guidance.
Dale Boyles: Total revenues were $423 million in the third quarter compared to $390 million in the third quarter of last year. This 9% increase was primarily due to the 51% increase in sales volume, all set by the 26% decrease in average net selling prices. Other revenues from our gas businesses were 64% lower in the third quarter of this year, primarily due to a 72% decrease in natural gas prices between the periods. The PLAT's premium low-wall FOB Australian index price remained on a slow but steady upward trajectory for much of the third quarter, rising sharply towards the end.
If you just kind of take.
Take the your date results.
Got it that's very helpful. Thank you and then I I do want to time the commercial side.
Lots to discuss their but maybe just to keep the discussion focused for now in the fourth quarter, what what percentage of your anticipated sales would be linked to the Australian F. O B P. L B index.
What percentage would be more spot exposed and and what what is the best benchmark.
Dale Boyles: Since the rapid rise did not occur until a late in the third quarter, we did not significantly benefit from the increase due to its timing. The index price averaged $13 per short time higher in the third quarter compared to the same quarter of last year. The index price averaged $240 per short time in the third quarter. The Merit and other charges reduced our average net selling price to $185 per short time in the third quarter of this year, compared to $248 per short time in the same quarter of last year.
To use is inadequate it as it might be for those spot volumes. Thank you.
This is dale.
Probably about a quarter of 25% I think is spot in the fourth quarter.
And that just depends on where that goes yeah that goes into India can be on a CFR, India or China index can be on a C 60 64.
It could be some P. L V Australia.
But the the contracts should be the contracted volumes should be at the pov.
Dale Boyles: The Merit and other charges were $6 million lower compared to last year's third quarter. The higher the marriage and other charges in the third quarter of last year were the result of temporary delays and vessel loatings due to severe weather and port congestion. Cash cost of sales with $250 million or 62% of mining revenues in the third quarter compared to $202 million or 54% of mining revenues in the third quarter of last year.
F a V Australian right index.
So there is a range of potential pricing indices.
You will be efficient.
Now hyper.
Hypothetically of of the the range of those indices that you mentioned what would be the most conservative netback price today.
Tuesday.
Dale Boyles: Of the net $57 million increase in cash cost of sales, $102 million was due to the 51% increase in sales volumes. All set partially by $45 million of lower transportation and wealthy cost on lower average net selling prices. Our headcount was 44% higher in this third quarter compared to last year due to a focus on hard workers during the labor strike and the addition of employees who returned from the labor strike in the second quarter of this year.
You know I don't know.
I really don't know what that would be today.
Lucas I'm, sorry, I didn't check on those those rates today, but you know just devices say spot volume of calls them, all and dislocation that we've talked about.
With not only the the are between the indices, but then the additional free we saw some of those differences greater than $100 a tonne.
Back during the quarter.
So if you do have the supply coming back online AD of Australia pretty strongly in the fourth quarter. I think you will see P. L V prices drop and you'll see those arbs narrowed.
Dale Boyles: In addition, the inflation we experienced in operating expenses and purchases but equipment over the last 18 months has remained steady. We had not seen any significant changes up or down support this year. Cash cost of sales per short time was approximately $115 in the third quarter compared to $135 in the third quarter of last year. While premium steel making coal prices were 6% higher in the third quarter of this year compared to last year, our average net selling prices were 26% lower.
Quite substantially so it it it it it would be a real real gas to tell you what that might be right now on.
On that spot volume.
Okay.
Okay.
This is helpful color del I I appreciate that very much.
I'll try to squeeze one.
Blue Creek question, and I I I think you're prepared remarks, you mentioned equipment delays.
Dale Boyles: This resulted in lower transportation wealthy cost which were 38% of our cash cost per ton in the third quarter compared to 47% in the same quarter last year. Our cash cost reduction per short time was flat in the third quarter as compared to prior year third quarter despite the incremental cost associated with a 44% higher headcount. In other words, despite the incremental cost of the returning employees from the labor strike, we were neutral on our cost per ton for the third quarter due to the increase in production volumes.
Mmm.
<unk> can you expand on that and then to equipment delays can often cause knock on effects.
The development doesn't go as initially planned you walk around things net.
Can lead to cost pressures is that is that reading too much into this or or or or I I still monitoring that situation from a cost perspective. Thank you actually some of the equipment delays were four months four months seven and even with Blue Creek, we have placed those orders far enough out in advance.
We are we remain comfortable with the delivery times for everything we've ordered.
Dale Boyles: Cash margins were $70 per short time in the third quarter of this year and were impacted by the higher spot volume as Walt noted earlier. SCNA expenses were about $11 million or 2.6% of total revenues in the third quarter of this year and were slightly higher than last year's third quarter, primarily due to an increase in employee related expenses. The interest income earned on our cash investments well exceeded the interest expense on our outstanding notes and equipment leases during the third quarter of this year.
Make sure we've done everything we can to lock those things in and get our slots with vendors to assure that will have the equipment when we need it.
Terrific really appreciate the color and best.
Best of luck.
Thank you Lucas.
Again, if you would like to ask a question. Please press Star then one on your telephone keypad.
At this time there are no further questions I will now turn the call back over to Mister Sheller for any comments.
Dale Boyles: Primarily due to our high cash balances earning found investment returns. A third quarter income tax expense reflects expense on pre-tax income and includes an income tax benefit for depletion expense and foreign derived intangible income. Also during the quarter, we successfully executed tender office for our senior secured notes as part of our ongoing commitment to a possibly major balance sheet. By taking advantage of favorable market conditions, we reduced our leverage by $146 million or nearly 50% enhancing our already strong debt equity ratio.
That concludes our call. This afternoon. Thank you again for joining US today, we appreciate your interest and warrior.
Thank you and that concludes today's conference. Thank you all for participating you may now disconnect.
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Dale Boyles: In connection with this action, we record a loss of $12 million on the early extreme showing the debt. The loss represents a premium pay to retire the debt and associate fees and expenses in connection with the transaction. In addition, the company will have the ability from time to time in the future to make one or more restricted payments in the form of special dividends or stock refunds, up to an aggregate amount of approximately $300 million.
Dale Boyles: However, any future special dividends or stock repurchases are at the discretion of the board in subject to a number of factors, including business and market conditions, future financial performance, and other strategic investment opportunities. During the third quarter, we incurred incremental non-recurring business interruption expenses of $347,000, which were significantly lower than last year. The decrease is primarily due to the end of the labor strike earlier this year. We expect to incur ongoing legal expenses associated with the ongoing labor negotiations.
Dale Boyles: During the cash flow, during the third quarter of 2023, free cash flow was $26 million. This was the result of cash flows generated by operating activities of $138 million, thus cash used for capital expenditures and mining development cost of $112 million. Free cash flow was significantly lower than the last year's third quarter, primarily due to less cash generate from operating activities and higher blue-creek cap expended. Free cash flow in the third quarter of this year was negatively impacted by a $9 million increase in net working capital from the second quarter of 2023.
Dale Boyles: Increase in net working capital was primarily due to an increase in accounts receivable on higher sales volume, partially all set by lower inventories and higher payables in accrued expenses. Despite the higher capital spending associated with a blue-creek project through today, we have generated free cash flow of $114 million, of which $46 million has been returned to stockholders in the form of a special dividend earlier this year on top of the regular quarterly dividends.
Dale Boyles: A total available equity at the end of the third quarter was $810 million, representing a decrease of $141 million over the second quarter, and consisted of cash and cash equivalents of $687 million, and $123 million available under a ABL facility. The decrease is related to the exchange of debt and relate fees and expenses during the third quarter as previously discussed.
Dale Boyles: Finally, turning to our outlook and guidance for the full year 2023. We update our guidance for mind development and interest income as outlined in our outlook section of our earnings release. The other key metrics were changed from our prior earnings release. Since we reduced our excess inventory in the third quarter, our sales and production volume should be similar amounts and lower in the fourth quarter. It's worth noting that the implied fourth quarter volumes between our midpoint and that variant of our guidance range for the full year indicates the fourth quarter will be our lowest volume for the year as Walt would discuss in a moment.
Walter Scheller: I'll now turn it back to Walt for a spinal comment. Thanks Dale. Before we move on to Q&A, I'd like to make some final comments. We remain cautious for the fourth quarter, especially in light of the evolving situation in the Middle East, and also because of the distortion and price indices. The man for steel is expected to remain weak, but stable until the end of the year. However, we do recognize the uncertainty in the global economy and are closely monitoring its impact on steel demand.
Walter Scheller: We expect Met Coal pricing to remain under pressure during the fourth quarter, potentially calling back some of the gains we saw recently, mainly supported by expected improvements in coal availability. For Warrior, now that we've reduced our excess inventory, we expect our fourth quarter volumes to be seasonally lower as implied by our year-to-day performance compared to our four-year volume guidance. There are a number of factors contributing to those lower fourth quarter volume expectations.
Walter Scheller: First is the continued weak customer spot demand in our natural markets. Second is that we have fewer operating days associated with the end of the year holidays. Third, we'll perform some needed mind maintenance, and fourth, we'll take a more statistical approach to maximize market pricing and profitability for our premium hard-coken coal into the spot markets.
Operator: With that, we'd like to open the call for questions. Operator? 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. We will pause for just a moment to compile the Q&A roster.
Lucas Pipes: Our first question comes from Lucas Pipes from Be Riley Securities. Please go ahead. Thank you so much, Operator. Good afternoon, everyone. Walton Dale, I appreciate all the color and the prepared remarks. My first two questions, Ty and to your final comments there. First on the production side, when I think about the low end of guidance for the full year, and what that implies for Q4, I come out to about 1.1 million tons.
Lucas Pipes: When I looked at your historical production, I'd have to go back to 2021, and of course you have the strike to see that level of output. Are you seeing anything specifically in your mind plan that could lead to this low end of the guidance for the full year on the production side, or was that maybe just a degree of conservatism? Thank you. No, that's one would be extraordinarily conservative. Our expectations are well above that.
Lucas Pipes: I would say you can imply a 1.5-ish number, that's 1.41555, something like that. That's what production Q4. Yeah. And I hope to expect, this is Dale. I would expect probably sales volume to be a similar number, and I think both of those would kind of get you right near the upper end of our guidance if you just kind of take the your date results. Got it. That's very helpful. Thank you.
Dale Boyles: And then I do want to time the commercial side. Lots to discuss there, but maybe just to keep the discussion focused for now. In the fourth quarter, what percentage of your anticipated sales would be linked to the Australian FOB PLV index? What percentage would be more spot exposed, and what is the best benchmark? to use as an adequate it as it might be for those spot volumes. Thank you. This is Dale.
Dale Boyles: Probably about a quarter or 25% I think is spot in the fourth quarter. And that just depends on where that goes. If that goes into India, it could be on a CFR India or China index. It could be an HC-664. It could be some PLB Australia. But the contract should be the contracted volume, should be at the POVF, FOV Australian rate index. So there is a range of potential pricing in the season and you will be efficient.
Dale Boyles: Now hypothetically of the range of those indices that you mentioned, what would be the most conservative net back price today? Today, I don't know. I really don't know what that would be today. Lucas, I'm sorry, didn't check on those rates today. But it's about to say this spot volume, the cause of all the dislocation that we've talked about with not only the R between the indices, but then the additional freight. We saw some of those differences greater than $100 a ton back during the quarter.
Dale Boyles: So if you do have the supply coming back online out of Australia, pretty strongly in a fourth quarter, I think you will see PLB prices drop and you'll see those ARBs narrow quite substantially. So it would be a real, real guess, to tell you what that might be right now on that spot volume. Okay, this is still a helpful color. Dale, I appreciate that very much. I'll try to squeeze one. Blue Creek question in.
Dale Boyles: I think you're prepared remarks. You mentioned equipment delays. One, can you expand on that? Then two, equipment delays can often cause knock on effects where development doesn't go as initially planned. You work around things that can lead to cost pressures. Is that reading too much into this or are you still monitoring that situation from a cost perspective? Thank you. Actually, some of the equipment delays were four months, four months, seven. And even with Blue Creek, we've placed those orders far enough out in advance that we remain comfortable with the delivery times for everything we've ordered.
Dale Boyles: We make sure we've done everything we can to lock those things in and get our slots with vendors to assure that we'll have the equipment when we need it. Terrific. Really appreciate the color and best of luck. Thank you.
Walter Scheller: Again, if you would like to ask a question, please press star then one on your telephone keypad. At this time, there are no further questions. I will now turn the call back over to Mr. Scheller for any comments. That concludes our call this afternoon. Thank you again for joining us today and we appreciate your interest in Warrior. Thank you, and that concludes today's conference. Thank you all for participating. You may now disconnect. Thank you. Thank you for joining us today.