Q4 2023 Alliance Resource Partners LP Earnings Call
Greetings and welcome to Alliance Resource Partners L. P fourth quarter 2023 earnings conference call.
At this time, all participants are in listen only mode.
A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero from your telephone keypad.
Please note this conference is being recorded.
Speaker Change: At this time, it's my pleasure to turn the conference over to carry P. Marshall Senior Vice President and Chief Financial Officer. Mr. Marshall You May now begin.
Speaker Change: Thank you operator and welcome everyone.
Speaker Change: Earlier. This morning Alliance resource partners released its fourth quarter and full year 2023 financial and operating results and we will now discuss those results as well as our perspective on current market conditions and outlook for 2024.
Following our prepared remarks, we will open the call to answer your questions.
Speaker Change: Before beginning a reminder, that some of our remarks today may include forward looking statements subject to a variety of risks uncertainties and assumptions contained in our filings from time to time with the Securities and Exchange Commission and are also reflected in this morning's press release.
Speaker Change: While these forward looking statements are based on information currently available to us if one or more of these risks or uncertainties materialize or if our underlying assumptions prove incorrect actual results may vary materially from those we projected or expected.
In providing these remarks the partnership has no obligation to publicly update or revise any forward looking statement, whether as a result of new information future events or otherwise unless required by law to do so.
Speaker Change: Finally, we will also be discussing certain non-GAAP financial measures definitions and reconciliations of the differences between these non-GAAP financial measures and the most directly comparable GAAP financial measures are contained at the end of Arlp's press release, which has been posted on our website and furnished to the SEC on form 8-K.
Speaker Change: With the required preliminaries out of the way I will begin with a review of our results for the fourth quarter and full year give an overview of our 2024 guidance then turn the call over to Joe craft, Our chairman President and Chief Executive Officer for his comments.
Joseph W. Craft III: During 2023 we delivered another record full year in terms of revenues coal sales price per ton oil and gas royalty volumes and net income.
Joseph W. Craft III: We accomplished these records and a challenging year for the global economy pressured by high interest rates global geopolitical unrest and continued volatility in commodity prices.
Joseph W. Craft III: Operationally, we had to contend with reduced volumes across the Appalachia region, primarily caused by lower recoveries fewer operating units at M. C mining and challenging geologic conditions that delayed development of the new district at our Med cheeky longwall operation.
Joseph W. Craft III: Notwithstanding these obstacles we achieved our outstanding results through a combination of our well contracted order book tight focus on operating efficiencies and investments for longer term strategic positioning with our customers.
Joseph W. Craft III: Full year revenues were $2 6 billion, an increase from $2 4 billion in 2022.
Joseph W. Craft III: Net income was $630 1 million up from $586 2 million and earnings per unit increased nearly 10% from $4.39 in 2022 to $4.81 in 2023.
Joseph W. Craft III: Looking more closely at the fourth quarter comparisons total revenues were $625 4 million in the 2023 quarter compared to $704 2 million in the 2022 quarter.
Joseph W. Craft III: The year over year decline was driven primarily by lower coal prices lower oil and gas prices and reduced coal sales volumes in Appalachia.
Joseph W. Craft III: Which more than offset record oil and gas royalty volumes and higher transportation and other revenues.
Joseph W. Craft III: Total coal sales price per ton was $60.60 for the 2023 quarter, a decrease of 10, 7% versus the 2022 quarter.
Joseph W. Craft III: Softer demand in both domestic and international markets, resulting from a mild start to winter and lower natural gas prices negatively impacting coal pricing.
Joseph W. Craft III: This was partially offset by the positive impacts of our contracted order book.
Joseph W. Craft III: On a sequential basis coal sales price per ton was six 7% lower.
Joseph W. Craft III: As it relates to volumes total coal production of $7 9 million tons was six 6% lower compared to the 2022 quarter coal sales volumes decreased seven 5% to $8 6 million tons compared to the 2022 quarter.
Illinois Basin coal sales volumes increased by 2.1, and six 1% compared to the 2022 and sequential quarters respectively.
Joseph W. Craft III: The increase is a result of higher volumes from our Hamilton and warrior mines compared to the 2022 quarter and from our Gibson South operations sequentially.
Joseph W. Craft III: Coal sales volumes in Appalachia were down 27.4, and eight 8%, respectively compared to the 2022 and sequential quarters.
Joseph W. Craft III: The reduced volumes across the region was primarily caused by lower recoveries reduced the operating units at M. C mining scheduled longwall move at our tunnel Ridge mine and challenging geologic conditions at our med Tiki longwall operation that delayed the development of a new Longwall district.
Joseph W. Craft III: Additionally, 2023 quarter coal inventory and tons sold were negatively impacted by approximately 0.6 million tons due to an unexpected temporary outage at a third party Gulf Coast export terminal, we used for export market sales.
Joseph W. Craft III: And our royalty segment's total revenues were 53 million in the 2023 quarter down one 9% year over year, but essentially unchanged sequentially.
Joseph W. Craft III: The year over year decrease in revenues reflects lower realized oil and gas commodity pricing that more than offset record oil and gas volumes and increases in coal royalty revenue per ton.
Joseph W. Craft III: Specifically coal royalty revenue per ton was up 24, 3% compared to the 2022 quarter, while lower commodity prices led to oil and gas royalties average realized sales prices being down 19.7% per Boe versus the 2022 quarter.
Joseph W. Craft III: Sequentially coal royalty revenue per ton was 0.9% lower in oil and gas royalties average sales prices were up 0.9% per Boe.
Joseph W. Craft III: Oil and gas royalty volumes increased 13.1% on a Boe basis to a new record while coal royalty tons sold declined five 4% year over year.
Joseph W. Craft III: The record volumes from oil and gas resulted from increased drilling and completion activities on our interest and acquisitions of additional oil and gas mineral interests.
Joseph W. Craft III: Turning to cost segment adjusted EBITDA expense per ton sold for our coal operations was $42.91 an increase of 7.9, and four 2% versus the 2022 and sequential quarters respectively.
Joseph W. Craft III: The impact of lower volumes I, just discussed in Appalachia, and higher cost purchase call more than offset improvements in the Illinois basin specifically.
Joseph W. Craft III: Specifically, the Illinois basin saw higher volumes and lower expenses at the Hamilton mine as compared to the 2022 quarter when the facility experienced an unexpected outage that lasted four weeks.
Joseph W. Craft III: Last quarter, we gave additional color to our Appalachia longwall operation at Med Tiki.
Joseph W. Craft III: It was in it was idle for the entire third quarter and ended the fourth quarter, but returned to production in late December.
Joseph W. Craft III: In 'twenty 'twenty four we expect to move the longwall again skipping over a region of adverse geology and resumed production under much more favorable mining conditions in March.
Joseph W. Craft III: This is expected to benefit overall production volumes and costs in Appalachia in 2024, when compared to the back half of 2023, which is reflected in the guidance I will discuss in a moment.
Joseph W. Craft III: Our net income in the 2023 quarter was $115 4 million.
Joseph W. Craft III: <unk> 46, 8% lower as compared to the 2022 quarter.
Joseph W. Craft III: The decrease reflects the previously discussed lower coal sales volumes and realized prices higher production expenses, and lower realized prices and oil and gas royalties, partially offset by higher coal royalty sales price per ton realizations and record volumes in oil and gas royalties.
Joseph W. Craft III: EBITDA for the quarter was $185 4 million down 37, 6% as compared to the 2022 quarter.
Joseph W. Craft III: Now turning to our balance sheet and uses of cash alliance generated free cash flow for the full year 2023, $421 6 million.
Joseph W. Craft III: During the 2023 quarter, we completed two acquisitions of mineral interest totaling $24 8 million for 3236 net royalty acres in the Permian Anadarko and Williston basins.
Joseph W. Craft III: Additionally, during the 2023 quarter, we paid a quarterly distribution of <unk> 70 cents per unit equating to an annualized rate of $2.80 per unit.
Joseph W. Craft III: This distribution level is unchanged sequentially and as compared to the 2022 corner.
Joseph W. Craft III: Lastly, we reduced our debt outstanding by $22 9 million, resulting in total and net leverage ratios of 0.37, and 0.31 times, respectively total debt to trailing 12 months adjusted EBITDA.
Joseph W. Craft III: Total liquidity was $492 1 million at year end, which included $59 8 million of cash on the balance sheet.
Turning to our initial guidance detailed in this morning's release 'twenty 'twenty four is shaping up to be a solid year for ARLP with a well contracted order book and the opportunity to flex additional export tons should market conditions warrant the move.
Joseph W. Craft III: As you'll notice we have provided some additional color to our outlook by detailing both estimated realized pricing and cost per ton by region.
Joseph W. Craft III: Our expected realized full year 'twenty 'twenty four price is based on a combination of our contracted order book and our expectations for additional contracting both domestic and export for the open position.
Joseph W. Craft III: We expect the logistic issues that pressured the second half of 2023, including low river system water levels and an extended outage at the third party export terminal, we utilize in the Gulf of Mexico to no longer impact 'twenty 'twenty four results.
Joseph W. Craft III: We anticipate arlp's overall coal sales volumes in 2024 to be in a range of 34 to $35 8 million tonnes with over 90% of these volumes committed and priced at attractive levels similar to the 2023 averaged realized pricing.
Joseph W. Craft III: Specifically, our committed tonnage for 'twenty 'twenty, four is $32 5 million tons, including $28 4 million domestically and $4 1 million to the export markets.
Coal sales prices and the Illinois basin are expected to range between 50, 450, and $56 per ton compared to $55.21 per ton in 2023.
Joseph W. Craft III: And in Appalachia in the range of 80, 15 to $83 50 per ton compared to $86 98 per ton sold in 2023.
Joseph W. Craft III: On the cost side, we expect full year 2024 segment adjusted EBITDA expense per ton in the Illinois basin to be in a range of $35 25 to $37 25 per ton as compared to 34 84 in 2023.
Joseph W. Craft III: And in Appalachia, 50, 425 to $57 25 per ton as compared to $53 15 per ton in 2023.
Joseph W. Craft III: During the full year 2024, we have three scheduled longwall moves at Hamilton three at tunnel Ridge Intuit met cheeky with one of the moves at Med Tiki and wanted Hamilton scheduled in March.
Joseph W. Craft III: In our oil and gas royalty segment, we expect sales of one four to $1 5 million barrels of oil five six to 6 million Mcf of natural gas and 675 to 725000 barrels of liquid.
Joseph W. Craft III: Segment adjusted EBITDA expense is expected to be approximately 12% of oil and gas royalties revenues for the year.
Joseph W. Craft III: In 2024, we are anticipating $450 million to $500 million in total capital expenditures consistent with messaging in recent quarters 2023 and 'twenty 'twenty four our years of elevated capital expenditures as we make long term strategic investments and our river view Warrior Hamilton.
Joseph W. Craft III: And tunnel ridge mines to ensure they remain reliable low cost operations for many years to come.
Joseph W. Craft III: Starting in 2025, we anticipate our capital expenditures to return to more normalized levels of $6.75 to $7.75 per ton produced.
Joseph W. Craft III: Additionally, we remain committed to investing in our oil and gas minerals business, the amount of which will be dependent upon the opportunities available that meet our underwriting standards.
Joseph W. Craft III: Next we remain focused on continuing to improve our balance sheet, maintaining flexibility and strong liquidity.
Joseph W. Craft III: We expect to retire the $285 million outstanding on our senior notes periodically throughout the balance of 'twenty 'twenty four using a combination of operating cash flows in a number of attractive financing options currently available to us including increases to our existing facilities equipment financings.
Joseph W. Craft III: And utilizing the collateral value of our high quality and unencumbered royalty assets all of which are at various stages of execution today.
Joseph W. Craft III: Thereafter, we will continue to evaluate the highest return and best use of excess cash flow.
This includes returning capital to our unit holders in the form of cash distributions or unit repurchases and accretive growth opportunities that extend beyond our base business.
Joseph W. Craft III: With that I will turn the call over to Joe for comments on the market and his outlook for Air L. P. Joe.
Joseph W. Craft III: Thank you Carrie and good morning, everyone.
Joseph W. Craft III: I want to begin my comments by thanking and congratulating the entire alliance organization for their resilience continued hard work and dedication.
Joseph W. Craft III: We're delivering another record year for total revenue realized pricing per ton sold oil.
Joseph W. Craft III: Oil and gas royalty volumes and net income.
Joseph W. Craft III: Kerry you did an excellent job summarizing our 2023 results and outlining our guidance for the upcoming year as well as explaining the factors that contributed to our success in 2023.
Joseph W. Craft III: As we looked at 2020 for our coal sales book is expected to be equally as strong as last year and be the anchor to deliver another solid year of revenue.
Joseph W. Craft III: Our dependability and reliability of our coal quality are highly valued by our customers evidenced by the premium pricing. We have received relative to the spot market on recent commitments with domestic customers for multi year contracts.
Joseph W. Craft III: We are entering 2024 with over 90% of our coal sales volumes committed and priced at similar levels relative to 2023.
Joseph W. Craft III: We are expecting our production to be more consistent than 2023, believing we have moved beyond the several negative geologic areas that we faced this past year.
Joseph W. Craft III: As we think about the outlook for the coal industry and the markets. We serve several key themes emerge underscoring the critical need for reliable affordable baseload fuel for electric generation.
Joseph W. Craft III: The first relates to increasing market expectations for nationwide energy demand.
Joseph W. Craft III: Over the past year, we should all take notice the grid planners have nearly doubled five year load growth forecast in support of ongoing investment in U S industrial and manufacturing sectors as well as exciting rising energy needs associated with data centers and artificial.
Joseph W. Craft III: <unk> intelligence.
Joseph W. Craft III: While the speed of electrifying the transportation sector may have slowed.
Joseph W. Craft III: <unk> Z azzam for AI has accelerated.
Joseph W. Craft III: Power demand requirements for data center cannot be understated highlighted by recent estimates that electric demand from operational and announced data centers in the U S will reach over 30 gigawatts in the coming years with some individual sites needing upwards of 600 megawatts of power.
Joseph W. Craft III: Sure.
Joseph W. Craft III: These increase revisions are not temporary fluctuations, but represent fundamental changes to energy consumption patterns.
Joseph W. Craft III: Just last week, the governor of Indiana announced Facebook parent matter, we'll build an $800 million data center on a 600 acre site in Jeffersonville, Indiana across the river from Louisville, Kentucky.
Speaker Change: And our Governor said his state aims to be the AI capital of the Midwest.
Speaker Change: While Kentucky's governor for several years has declared Kentucky as the undisputed electric battery production capital of the United States of America.
Speaker Change: Most of these messages suggest more to come.
Speaker Change: More proof to support our belief that load growth in our key markets will be exceptionally strong over this decade.
Speaker Change: Furthermore, we are observing a renewed emphasis and urgency about regulatory bodies, such as FERC and Newark.
To ensure power grid reliability.
Speaker Change: One day mental attribute coal fired generation provides.
Speaker Change: And the markets, we serve regulators elected officials and leaders focused on economic development.
Speaker Change: We're evaluating actions needed to ensure reliable electricity capacity is available to meet this growing electric demand, especially in peak times.
Impacts from weather time, and time again displayed the weakness of the grid domestically and unfortunately at times the danger to consumers.
Two weeks ago. After what was a relatively mild start to this winter the U S experienced a cold snap in which over three quarters of the country was exposed to below freezing temperatures and hundreds of thousands were without power.
Speaker Change: From Texas to the eastern United States Winter demand approached record levels and the state's grid operators ask for consumers to curb consumption due to a capacity shortage.
It is times like that when wind turbines are often unable to turn in natural gas pipelines can be constrained in their ability to deliver that the grid is tested and failure can have catastrophic consequences.
Speaker Change: Having the strategic flexibility of coal on the ground elevates the service and reliability, we provide to unmatched levels.
Speaker Change: It was for reasons similar to these that we believe the U S. We will continue to see delays and extensions and a premature closure of critical coal plants and why we are committed to serve these markets for many years to come.
Speaker Change: Over the past year utilities have extended the plant operating life of approximately 10 gigawatts of coal generating capacity.
Speaker Change: As a result of increasing electricity demand and delays in the construction and replacement generation, particularly renewables.
Speaker Change: We acknowledge the U S grid will evolve with time, the policy decision makers must be responsible and practical and doing so.
Currency policy needs to reflect the realities of exploding demand and have the laws of physics that dictate how electricity is generated transmitted and delivered.
Speaker Change: We believe we are well positioned to be part of a long term solution supplying reliable affordable baseload energy for consumers and creating long term value for our unit holders.
Speaker Change: Now turning to strategic updates related to our business in 2024, we expect to complete the major infrastructure projects at tunnel Ridge Hamilton Warrior and the Riverview complex is.
Speaker Change: As Carey mentioned ARLP will start to recognize the benefits from these strategic investments in 2025 as capital expenditures will be significantly lower in our minds will be more productive ensuring we maintain our position as the most reliable low cost producer in the United States and the.
Speaker Change: Eastern United States over the next decade.
Speaker Change: Turning to our royalty segment, we remain committed to growing our oil and gas royalties business, which delivered record volumes in 2023.
Speaker Change: Over the past year, we acquired $111 million in additional oil and gas minerals, primarily concentrated in the Permian basin.
Speaker Change: This marks our largest investment year since 2019.
We love the cash flow potential. This segment offers to be a hedge free exposure to commodity price and organic growth.
Speaker Change: As we look to 2024 hours.
Speaker Change: Comment that during periods of commodity price volatility.
Speaker Change: Size and timing of acquisitions can be difficult to predict as our growth strategy relies on strict underwriting standards for investment that we will not compromise in tight markets.
Speaker Change: We also remain committed to pursuing growth opportunities beyond coal and oil and gas royalties as.
Speaker Change: As we advance these initiatives our investment decisions will be selective aligned with our core competencies and focus on areas, where we can add significant strategic value.
Speaker Change: To be clear, we are not interested in building a portfolio of passive venture.
Speaker Change: Capital style investments initial position should be thought of as potential platforms for future lines of business with long term growth and cash flow generation.
Speaker Change: To that end two weeks ago, we announced that our wholly owned subsidiary matrix design group entered into an agreement with infant item to develop and distribute high efficiency reliable motors and advanced motor controllers designed specifically for the mining industry.
This collaboration represents a natural progression and extension of our initial investment in infant item back in 2022.
Speaker Change: We believe their groundbreaking motor technology will bring much needed innovation to the mining industry by delivering more efficient and high higher performing production equipment.
Speaker Change: Specific to alliance, we believe their technology will improve our mining processes reduce capital and operating costs and help extend the life of certain mining equipment.
Additionally, while we are unable to quantify any potential revenue impacts at this time, we believe the relationship could lead to new revenue streams for matrix by selling additional products to third party, our mining customers and Oems around the world.
Speaker Change: Like matrix is currently doing as a technology leader for underground proximity detection systems.
Speaker Change: In closing our business continues to be a generator of strong cash flows that positions us to continue improving our balance sheet by simultaneously pursuing the highest and best uses for our capital.
Speaker Change: I am proud of Arlp's performance in 2023, and encouraged by the opportunities in front of us as we gear up for what should be another successful year in 2024.
Speaker Change: That concludes our prepared comments and I'll now now ask the operator to open the call for questions.
Speaker Change: Yeah.
Speaker Change: Thank you operator thank.
Speaker Change: Thank you well now be conducting a question and answer session.
To ask a question today. Please press star one from your telephone keypad.
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One moment. Please so we poll for questions. Thank you.
Speaker Change: Thank you and our first question will be coming from the line of Nathan Martin with the Benchmark Company. Please proceed with your questions.
Nathan Martin: Yeah. Thanks, operator, good morning, Joe Good morning, Kary, Thanks for taking my questions.
Nathan Martin: Morning.
Nathan Martin: I wanted to start with the distribution this quarter our coverage ratio was one eight times it looks like for the full year 'twenty three.
Nathan Martin: Did dip to a one three times in the fourth quarter. I know you guys have said, you're okay with the distribution dipping down temporarily but it seems like keeping a closer two times. This is where you would prefer to be obviously, but it'd be great to get your thoughts there on the distribution and the coverage that I think you mentioned last quarter that your board meeting will be behind you by the time its called came around.
Speaker Change: So it would be any takeaway from those conversations as well. Thank you.
Speaker Change: Yeah. Thank you for the question. So the way we did finish the year as you mentioned with those coverage ratios that are included in our press release as we look to 2024.
Speaker Change: As we've indicated we believe 24 has the potential to be just as good as 2023.
Speaker Change: So there are opportunities as we go looking towards 25, we're also optimistic about our opportunities in 'twenty five we just talked about the.
The capital will be coming down substantially in 2005 versus 24, we believe our operating costs will be lower and primarily because of the efficiency projects. We've talked about we believe natural gas should be a higher price in 2025 because of the LNG terminals that are coming online and back.
Speaker Change: Half of 2024 in the United States.
Speaker Change: So theres a lot to be optimistic about we've signed some long term contracts that give us some stability through 2028.
Speaker Change: Yet at the same time, yeah, we do have not as much contracted and twenty-five as as we have in 'twenty four where we've got over 90%. So I think as we move through the year you know the board will make a decision on a quarter by quarter basis as to whether to maintain the distribution at the 70% level.
Speaker Change: I believe we're in a position to do so and that would be my expectation.
And the other factor that will have to consider it as just the market.
[noise] react to two of her continued growth and our continued opportunities that we have in front of us.
Yeah.
Mentioned in the past we've been disappointed.
Speaker Change: Are you getting it priced at and track the distribution increase that we gave and in 2023.
Speaker Change: So it'll be a quarter by quarter decision, but we're as Carey mentioned in his prepared remarks, we're very focused on.
Speaker Change: Growing our company, maintaining and growing our cash flow and returning that to shareholders is similar to what we've been doing over the last 25 years.
Speaker Change: I appreciate that color there Joe maybe next just a bit of a multipronged question.
Joseph W. Craft III: And you just mentioned some of the contracts and got it looks like an additional 12 million tonnes over that 2024 to 2028 period.
Joseph W. Craft III: First is it possible to get a breakdown of how those tons were spread throughout that time period, and then maybe some more color on what the pricing looked like and then second for for this year specifically in 'twenty four.
What portion of those committed tons are fixed price and what portion are open to market pricing still at this point I would assume the domestic tonnes are largely fixed but are your export tongue tied to an index.
Joseph W. Craft III: Two or something.
Joseph W. Craft III: Where you can have some volatility there are there any floors or ceilings that when those contracts maybe like some of your peers.
Joseph W. Craft III: Scott.
Scott: So as far as the actual volume beyond 2024.
Speaker Change: I'm not I don't have those numbers right now.
Got those carry but back to the pricing the pricing in 24 of our contract book is comparable to what our 2023 average revenues are.
Speaker Change: Our domestic contracts do have escalators and then.
Speaker Change: Some are fixed some are actually indices are there.
Speaker Change: Our export volumes believe is just goes through 'twenty 'twenty four I don't think we have any in the out years and those are fixed prices some of them do have indeed.
Speaker Change: I do tied to indices specifically here.
Speaker Change: Metallurgical contracts are tied to some indices that will.
Speaker Change: It will fluctuate based on what the market is.
Speaker Change:
What else did I Miss from your questions, Yes, I think I'm, saying they just in a follow up in terms of the out years I think if you go back and look at where we were guiding last quarter I'm just in terms of commitments. If you look in the out years of those 12 million tons. They do go yeah, as we mentioned out to 2028.
Speaker Change: Most of those volumes that go out for that period of time or in the one and a half million ton range. Once you get beyond 2024 period. So if you look at 2025 to 2028, you know that would give you an indication of the level of contracts some of them will scale up and scale down but you know.
Speaker Change: They may be 2 million, one year, and then kind of scale down to you know.
Speaker Change: Closer to $1 million in the quarter as you get towards the tail end of it but generally speaking it's fairly significant volume yeah. As you go over that 2025 through 2028 time period.
Speaker Change: The message is you know they understand that they need to start layering in some volume and they're basically giving us confidence that those plants are.
Speaker Change: Needed.
Speaker Change: Not only 3% to 28 time period, but beyond so we are hearing from our customers that are the.
Speaker Change: The expectations are that with grid reliability with the growth in electrification.
Speaker Change: That the existing fleet of coal plants need to stay open longer.
Speaker Change: And.
Speaker Change: Yeah, we will see that play out.
Speaker Change: The buy in administration continues to.
Speaker Change: I suggest that they don't need to keep the plants open.
Speaker Change: There is.
Speaker Change: Republican candidates of all suggested that we do so.
Speaker Change: Yeah, I think that we believe that the law of physics is going to require.
Speaker Change: And the growth in demand that these plants will stay open and that are.
You know, we're very confident there.
Speaker Change: Our production volumes will be sustained for the next five years to six to seven years.
Speaker Change: That's very helpful guys, and then maybe just kind of trying to wrap that up I mean really I guess my question is kind of revolve around maybe what gets you to the low or the high end of your full year 'twenty four price per ton guidance moved up 32, and a half million tons. It looks like a committed and priced.
Speaker Change: Maybe what's your assumption there in API two price if that's what your export volumes are tied to and we're seeing some pressure. There. Obviously you mentioned the domestic contracts where pricing goes it's been above the spot rates. So that's that's a positive.
Speaker Change: Trying to get a sense of maybe what gets too low or high end of that range and a whole range is going to be dependent on the export market.
Speaker Change: So we've seen the export pricing on the index has dropped.
Speaker Change: Probably 10.
Speaker Change: $12 in the last month.
Speaker Change: We don't believe that sustainable.
Speaker Change: We believe that the pricing we will get back in the API two level, that's greater than a 110 to $120 range and because we believe that.
Speaker Change: That's what the world.
Supply will demand for that.
Speaker Change: For those products, we do believe that demand is stable.
Speaker Change: However, the pricing right now is a little soft.
Speaker Change: And so the whole swaine will be how we place those export tons.
Speaker Change: Throughout 2024 that will.
Speaker Change: Be the determining factor as to the the ranges that you spoke to.
But when you look at the total compared to our U I position it doesn't move.
Speaker Change: The needle that much because we have so little towns that are needed to be placed.
Speaker Change: For 2024.
Okay. I appreciate those comments guys I'll pass it along to the next caller. Thanks for your time and best of luck here in 2004.
Speaker Change: Thank you.
Our next question is from the line of Mark Reichman with Noble capital markets. Please proceed with your question.
Mark La France Reichman: Thank you and good morning.
Mark La France Reichman: Good morning.
Mark La France Reichman: So going into the fourth quarter.
Mark La France Reichman: You know that the delta between what was committed and priced in 2023.
Mark La France Reichman: And.
Mark La France Reichman: The your guidance.
That was kind of expected.
Mark La France Reichman: Expect it to be kind of what happened in the export.
Mark La France Reichman: Market.
Mark La France Reichman: So.
Mark La France Reichman: The tons sold came in kind of at the low end.
Mark La France Reichman: Compared to them.
Mark La France Reichman: Guidance. So when do you expect that delta between committed and priced and what was sold.
Mark La France Reichman: The carryover into 2024 will that mainly be in the first quarter or.
Mark La France Reichman: And I assume that's kind of already kind of baked into the 2020 for guidance.
Speaker Change: Yes, that's right that's right Mark we would expect those tonnages to rollover into the end of the first quarter and it is baked into the guidance that we provided.
Speaker Change: Okay, and then you know.
Mark: During the last conference call you you didn't expect much in the way of fourth quarter outside coal purchases, but sequentially. The number increased over $20 million from 11, and a half million. So did the adverse conditions that T. He did those just extend beyond your expectations and do you think we're done with it.
Mark: Side coal purchases.
Mark: So yes, so we in the last.
Mark: Our earnings call, we felt like the longwall would be up and running by the end of November and it was actually delayed until the end of December.
Mark: So we did have some shipments that we needed to buy some coal that we thought we would be able to produce that.
Mark: When we came up little short and we may have to actually buy some.
Mark: In the first quarter, a longwall did come up the last week of December It is operating.
Mark: As expected.
Mark: But depending on whether the timing of shipments it's possible. We may have some purchases in the fourth and the first quarter.
Mark: We don't believe we are anticipating anything beyond that.
Speaker Change: Okay cause that that was a at least when I compared to what our estimates look like and I think we were at the low end, but that was kind of a difference and then just lastly, you know I know it's too early to talk about revenues, but this is an agreement between infant item and matrix M. Brown.
Speaker Change: Other than you know revenue numbers can you just kind of maybe higher.
Speaker Change: Highlights are the economics of becoming a global distributor for infant item and are there any sharing arrangements on the development of new mining products. So I mean, well they just get the margin you know from the sale of Kimpton items projects products or are there. Some other like when they go in and install you know our.
Speaker Change: Checked for a mining customer are there other sources of revenue what is kind of the revenue sub stack in revenue staff looked like for matrix. When they entered an arrangement like that with infant item.
Speaker Change: Well the initial.
<unk> that we're working on yeah.
Speaker Change: So you're making.
Speaker Change: Our equipment the effective we were going to be testing in our operations in 2024.
Speaker Change: That will start I believe in the second quarter of this year.
Speaker Change: Carey do you have those more specifics and then that will roll in and then we will start hoping hopefully be marketing those in 2025.
Carey: Yeah, that's right that's right Joe.
Carey: Are the products it kind of goes back to similar to what we did with the intelligent home, where we're providing proof of concept.
Carey: For these underground and so we have been.
Carey: In discussions with with the regulatory agencies here for underground mining and do you anticipate those going underground here certainly by the second quarter, we're hoping to push it even a little bit quicker than that.
Carey: Got another motor.
Carey: Acknowledging that we're also working on that would also medium XI approval.
Carey: And that's to we would think that that would be manufactured and then sold into 2025.
Carey: Our initial focus will be domestically, but then it had two we'd be rolling out similar to our proximity device and Intel is AUM that is currently being marketed.
Carey: In South Africa and Australia.
Carey: Yeah.
Speaker Change: Well, that's very helpful. I think when we look at that to try to give you. Some idea. So I think we've got invested around $67 million in infant items.
Speaker Change: And we believe that the cash flow that we will receive just from.
Speaker Change: These two announcements are going to give us an attractive double digit return on that investment.
Speaker Change:
Speaker Change: As a byproduct of that relationship and that doesn't even anticipate what we would get on that actual investment in F&I.
Speaker Change: So thats sort of gives you an idea of the scale of the opportunity just from this one are of these two products if we.
Speaker Change: Our topic.
Speaker Change: Our ready to design build and in sale.
Speaker Change: The marketplace.
Speaker Change: Well, that's really helpful and I appreciate that I really didn't have too many questions on the guidance I thought that was pretty straightforward and look pretty good. So thank you very much.
Speaker Change: Thank you Mark.
Our next question's from the line of David Marsh with singular research. Please proceed with your question.
Hi, guys. Thank you for taking my questions appreciate it and congrats on a really great year.
David Marsh: Just as we start to look forward into 'twenty four.
David Marsh: There's something like questions kind of echo a little bit some of the questions previously I mean.
David Marsh: Particularly in Appalachia, It looks like you guys had some margin compression.
In part or largely due to your your your production shortfall there.
David Marsh: And and your need to purchase.
David Marsh: Externally produced coal.
Yeah, I mean, yeah, that's that's right Dave I mean that there was margin compression in Appalachia, and primarily driven by the items that we talked about with the production issues, particularly in the back half of the year that we experienced within the region.
Speaker Change: Yeah. So we had a long while it may take you didn't operate.
Speaker Change: The second half of the year. So that now is operating so you're going to see.
Speaker Change: So yeah that volume to come back into the market at M. C. We went from four units to three units starting I believe in September or October. So we're planning to operate at three units at AMC.
Speaker Change: Yeah, we do have some new equipment there so.
Speaker Change: We think that our call.
Speaker Change: <unk> should be relatively stable.
Speaker Change: Yeah, and then 24, there, but and then David as you look into 2024 in terms of the compression that you see on the margins on on that side of it that's primarily on the top line driven as we had some higher price.
Speaker Change: Contracts that were.
Speaker Change: That we shipped on in 2023 that that expired and.
Speaker Change: The market environment is a little bit lower as we look at where we are contracted in 2024 are related to the Appalachia region.
Speaker Change: Right understood.
Speaker Change: Just pulling that threat forward.
Speaker Change: Appalachian EBITA.
Speaker Change: <unk> per ton.
Speaker Change: We should naturally expect that to decline from the fourth quarter level correct and then what would the trajectory would be of that I mean do you think you can get back down into the.
Speaker Change: Into the Forty's or is that are we you know living in our fifties kind of world in terms of expense per ton there.
Oh go ahead, I'd say, you're looking at the <unk>.
Speaker Change: Not the forties.
Speaker Change: The industry is.
Yeah experienced inflation like all others are but so all of our costs have gone up somewhat just because of inflation.
But then you have.
Speaker Change: Factor and go on for four years, three another factor in Appalachia and two.
Speaker Change: 2024 as well.
Speaker Change: We are in the process of moving to the new reserves, we bought at tunnel Ridge.
Speaker Change: And so we do have shorter panels in 2024 compared to historic as well as projected and 25 four or.
Speaker Change: So we're probably going to have some.
Speaker Change: Reduction in volume at tunnel ridge that enters into into that mix, but.
Speaker Change: Yeah Youre looking at.
Speaker Change: No.
Speaker Change: Probably mid fifties.
Speaker Change: In Appalachia for the year.
Speaker Change: Uh huh.
Speaker Change: Would be the estimate right now.
Speaker Change: Sure.
Speaker Change: Uh huh.
Speaker Change: Which is what.
What we've sort of guided to a wrong way back to 50 725.
Speaker Change: Yep.
Speaker Change: I mean are we.
Speaker Change: Okay, I'm, just trying to get an understanding of trajectory on it it will it start.
So kind of closer to the well.
Speaker Change: Q4 level.
Speaker Change: Gradually decline throughout the year or is it going to just you know.
Speaker Change: Is it going to be a pop down and then a flat.
Speaker Change: Throughout the year right now our quarter, our first quarter appears to.
Speaker Change: It looks like it will be in the low low end of the range, if not lower than the range.
Speaker Change: So if we can get the volume out of med peaky that we're anticipating.
Speaker Change: Our first quarter should be a good quarter.
Speaker Change: And then when you look at the projected beyond 2024, and 25, we should start seeing the benefits of us.
Speaker Change: Getting into the new reserves at tunnel Ridge, So we should see some decline.
Speaker Change: In the 2025 time period.
Speaker Change: Depending on it.
Speaker Change: I mean inflation good let's take some of that way yes.
Speaker Change: Sure absolutely absolutely well that's excellent that's very very helpful. And then just lastly for me in terms of as you look at your cash flow and your you know your opportunity set with that cash flow could you just kind of ranking in terms of priorities.
Speaker Change: Expansion capex into like the new lines of business that you've been pursuing parcels debt reduction and.
Speaker Change: Potential increase for distribution.
Speaker Change: So I think our priority as Kerry mentioned will be pay down the debt and we will be paying down the senior notes and 24.
Speaker Change: And potentially in the first quarter of next year.
Speaker Change: However, he is also looking at.
Speaker Change: Yeah.
Speaker Change: Financing or refinancing.
Speaker Change: Entering into an inducing facilities it will give us capacity to grow.
Some of them will be funded but most hopefully some of them will be unfunded b revolver type arrangements.
Speaker Change: So then you know that.
Speaker Change: As far as growth, we've talked about oil and gas will continue to invest there we still have opportunities to invest in.
Speaker Change: And other items, yeah, there's nothing on the horizon.
Speaker Change: Yeah.
Speaker Change: I can give you any specifics on how we would allocate that capital.
Speaker Change: But we are continuing to look at multiple areas of investment.
Speaker Change: And so are we.
Speaker Change: Got a capital allocation process it will.
Speaker Change: <unk>.
Speaker Change: Our investments and future cash flow growth, which.
Speaker Change: We do put as a priority.
Speaker Change: And then Alternatively, we will look at.
Speaker Change:
Speaker Change: You know whether there are other uses for that capital I mean, I think the distributions that continue to be high on our priority list.
Speaker Change: So when I go that.
Speaker Change: The distributions will be consistent.
Speaker Change: But we got to evaluate.
Speaker Change: The future is now on a quarter by quarter basis, as we've talked about so.
Speaker Change: That will include not only just.
Speaker Change: You know that the future markets, but just as important the opportunities in front of us to make investments.
Speaker Change: Okay.
Got it. Thank you very much that's all I had.
Speaker Change: Okay.
Speaker Change: Our next question is from the line of Dave storms with Stonegate capital. Please proceed with your questions.
Dave Storms: Good morning.
Dave Storms: Hello, Good morning.
Dave Storms: Good morning, just a couple of quick ones from me.
Dave Storms: Curious as to how Youre thinking about the labor outlook now that were through the holidays and maybe labor might start picking up I know you mentioned that you might be sticking with just three units at Mickey I believe it was but there was.
Dave Storms: Some of these capital improvement projects expected to be completed this year or is that going to require.
Dave Storms: Increased hiring.
Dave Storms: So we have seen an improvement.
Dave Storms: In our <unk> and our retention.
Dave Storms: And our availability of labor.
Dave Storms: Specifically in the Illinois Basin as an example, so.
Dave Storms: So we do have.
Dave Storms: Henderson County mine that we are developing.
Dave Storms: That should become operational and well it is operational as we're ramping but it should get to.
Dave Storms: Where we will be increasing staffing at that mine.
Dave Storms: By the end of 2020 forward during 2024 as that ramps up we expect it.
Dave Storms: That plant and where that mine will be will have.
Dave Storms: [noise] more production starting in 'twenty five yeah.
That effectively.
Dave Storms: Affectively, what we're doing at river view is with basically having two portals instead of one and.
Dave Storms: And then second portal it will be at Henderson County, So there will be some hiring there.
Dave Storms: There still is need of some hiring at.
Dave Storms: In our minds just back to normal.
Dave Storms: Attrition.
What we've been experiencing in the last two or three years, but what we would consider to be normal.
Dave Storms: So I think on a labor front, where.
Dave Storms: Better position than we have been.
Dave Storms: Historically Ah at M. C mining, we still see challenges so we're.
Dave Storms: We are currently not anticipating increasing that.
Dave Storms: Mine back to four units.
Dave Storms: It's possible, but that's.
Dave Storms: That's the one area that we're continuing to see challenges of being able to attract sufficient numbers to two.
Dave Storms: To commit to bringing back that unit, but I think everywhere else.
Dave Storms: And we've been encouraged by.
Dave Storms: The recent activity people wanting to come work for us.
Dave Storms: Very helpful. Thank you and then just on the inventory.
Dave Storms: How comfortable are you with your current inventory levels are expected to continue to find those off I know what they were.
Dave Storms: Impacted by the temporary outage now that hopefully things are starting to normalize would you expect your inventory levels to continue to track down slightly.
Speaker Change: I think you know our goal is to maintain it.
Speaker Change: More than likely just as a working inventory level.
Given the amount of times, we're putting in the export market right.
Speaker Change: Right at a million tons a month.
Speaker Change: But it will fluctuate.
Speaker Change: Just on timing of vessels and because you know the vessels.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: It may be on the 30th it may be on the second so there could be 60 to 100000 times right there.
Speaker Change: Put us in a position that we can be a little higher than that but.
Speaker Change: Our goal would be to maintain inventory.
Speaker Change: Right at that million tonne a month level.
Speaker Change: Now I think it's around three.
Speaker Change: Three something of that nature, but.
Speaker Change: So it's going to be a net.
Speaker Change: Wing area I would say.
Speaker Change: Understood and then last one for me.
On a macro level I thought I saw that LNG export terminal constructions have been paused.
Speaker Change: And in the U S. Do you anticipate that if this becomes a prolonged.
Speaker Change: Pause that it will increase demand for <unk>.
Speaker Change: International coal as consumers need to switch from LNG to Koehler.
That's not something that's really have on our radar at this point.
Speaker Change: Pause is not in construction.
Speaker Change: It's on.
Speaker Change: It's all new permits and it may be permits it would be under currently under <unk>.
Regulatory review.
Speaker Change: But as far as the.
Speaker Change: Terminals that are under construction there continuing.
Speaker Change: To be completed and the permits that have been issued that are not under construct construction. It's our understanding that those two are allowed to proceed. So we don't anticipate any interruption.
Speaker Change: In the.
Speaker Change:
Speaker Change: The demand indoor supply for LNG.
Speaker Change: Yeah, you know until the end of the decade as a result of these permits so we believe that.
These permits these plants that have been permitted will in fact be.
Speaker Change: <unk> developed and that the.
Speaker Change: The demand for LNG will continue to be strong.
Speaker Change: For the remaining a decade.
That's very helpful. Thank you.
Speaker Change: Thank you.
Speaker Change: At this time. This concludes our question and answer session I'll hand, the call back to Mr. Carry Marshall for closing remarks.
Carry Marshall: Thank you operator and to everyone on the call. We appreciate your time. This morning, and also your continued support and interest in alliance or.
Carry Marshall: Our next call to discuss our first quarter 2024 financial and operating results is currently expected to occur in April and we hope everyone will join US again at that time this.
Speaker Change: This concludes our call for the day. Thank you.
Speaker Change: Thank you you may now disconnect your lines at this time and thank you for your participation.
Speaker Change: Okay.