Q1 2024 NACCO Industries Inc Earnings Call

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Operator: Welcome to the NACCO Industry First Quarter 2024 Earnings Conference Call. Our host for today is Christina Kmetko, Investor Relations. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. I would now like to turn the call over to your host, Christina Kmetko. You may begin.

Welcome to the Nacco industries first quarter 2024 earnings conference call. Our hosts for today is Christina <unk> Investor Relations at this time, all participants are in a listen only mode.

Later, we will conduct a question and answer session.

Christina: I would now like to turn the call over to your host Christine I cannot tell you may begin.

Christina Kmetko: Good morning, everyone, and welcome to our first quarter 2024 earnings call. Thank you for joining us this morning. I'm Christina Kmetko.

Christina: Good morning, everyone and welcome to our first quarter 2024 earnings call. Thank you for joining US. This morning, I'm Christina can I call I'm responsible for Investor Relations at Nacco. Joining me today are J C Butler, President and Chief Executive Officer, and Elizabeth Clubman, Senior Vice President and controller.

Christina Kmetko: I'm responsible for investor relations at NACCO. Joining me today are JC Butler, President and Chief Executive Officer, and Elizabeth Loveman, Senior Vice President and Controller. Yesterday, we published our 2024 first quarter results and followed our 10-Q. This information is available on our website. Today's call is also being webcast. The webcast will be available on our website later this afternoon and available for approximately 12 months.

Christina: Yesterday, we published our 'twenty 'twenty four our first quarter results and filed our 10-Q. This information is available on our website. Today's call is also being webcast. The webcast will be on our website. Later this afternoon and available for approximately 12 months, our remarks that follow including answers to your questions contain forward looking statements. These statements are.

Christina Kmetko: Our remarks that follow, including answers to your questions, contain forward-looking statements. These statements are subject to several risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements made here today. These risks include, among others, matters that we've described in our earnings release, 10-Q, and other SEC filings. We may not update these forward-looking statements until our next quarterly earnings conference. We will also be discussing non-GAAP information that we believe is useful in evaluating the company's operating performance. Reconciliations for these non-GAAP measures can be found in our earnings release and on our website. With the formalities out of the way, I'll turn the call over to JC for some opening remarks. JC

Christina: Checked to several risks and uncertainties that could cause actual results to differ materially from those expressed in the forward looking statements made here today. These risks include among others matters that we've described in our earnings release 10-Q, and other SEC filings. We may not update these forward looking statements until our next quarterly earnings conference call.

Christina: We will also be will also be discussing non-GAAP information that we believe is useful in evaluating the company's operating performance reconciliations for these non-GAAP measures can be found in our earnings release and on our website with the formalities out of the way I'll turn the call over to JC for some opening remarks Stacey.

John C. Butler: Thank you, Christine. Good morning, everyone.

John C. Butler: I'm glad to be on the call this morning since we have a lot of good news to report. I mentioned during our year-end call that I am optimistic about our 2024 outlook as we move past a tough 2023. We expected unfavorable 2023 comparisons to turn favorable in 2024.

JC: Thank you Christy and good morning, everyone.

JC: I'm glad to be on the call. This morning, since we have a lot of good news to report.

JC: During our year end call that I am optimistic about our 2024 outlook as we move past a tough 2023.

JC: We expected unfavorable 2023 comparisons would turned favorable in 2024. So I'm pleased to report that our first quarter operating results were in line with those expectations.

John C. Butler: So I'm pleased to report that our first quarter operating results were in line with those expectations. Our consolidated operating profit increased 162% over the prior year, driven by significantly improved earnings in our minerals management and North American mining segments. Christie will go into more detail about our first quarter earnings and provide an overview of our outlook in a minute, but first, let me give you an update on our operations.

JC: Our consolidated operating profit increased to 162% over the prior year driven by significantly improved earnings at our minerals management, North American mining segments.

JC: Christie will go into more detail about our first quarter earnings.

Christie: Provide an overview of our outlook in a minute, but first let me give you an update on our operations.

John C. Butler: I'll start with some positive operational news about our coal mining sector. I'm pleased to report that repairs to the damaged boiler at the Red Hills Power Plant are expected to be completed during the second half of 2024. As you can see from our financials, the coal mining segment's revenues decreased primarily due to fewer coal deliveries as a result of this issue.

Christie: I'll start with some positive operational news about our coal mining segment I'm pleased to report that repairs to the damaged boiler at the Redhill was power plant are expected to be completed during the second half of 2024.

Christie: As you can see from our financials the coal mining segments revenues decreased primarily due to fewer coal deliveries as a result of this issue.

John C. Butler: While the Red Hills power plant is still only operating on one boiler, it is helpful to have greater visibility on our customers' timeline for resolution. As we've discussed for several quarters, Mississippi Lignite Mining Company's Red Hills Mine completed the move to a new mine area in 2023. This move sets us up nicely for the future, and we expect production costs at MLMC to decline significantly in 2024-2023. These costs, however, are expected to remain above historical levels through 2024 until the boiler issue at the power plant is resolved, deliveries return to normal, and a pit extension is completed later this year.

Christie: While the Red Hills power plant is still only operating on one boiler.

Christie: It is helpful to have greater visibility on our customers' timeline for resolution.

Christie: As we've discussed for several quarters, Mississippi lignite mining company's Red Hills mine completed the move to a new mine area in 2023.

Christie: This move sets us up nicely for the future and we expect production costs at MMC to decline significantly in 2020 for 2023 levels.

Christie: These costs. However are expected to remain above historical levels through 2024 until the boiler issue at the power plant is resolved deliveries returned to normal in a pit extension is completed later this year.

John C. Butler: Before I move to our next segment, I want to comment on the Environmental Protection Agency's recent announcement of new rules for coal-fired power plants. On April 25th, the EPA issued a pre-publication version of the final rules for mercury air toxics standards and greenhouse gas emissions, which require compliance as early as 2027 and 2030.

Speaker Change: Before I move to our other segments I want to comment on the environmental protection agency's recent announcements of new rules for coal fired power plants on.

Speaker Change: On April 25th EPA issued a prepublication version of the final rules for Mercury Air Toxics standards, and greenhouse gas emissions, which require compliance as early as 2027 and 2030.

John C. Butler: These rules will ultimately be enforced as drafted, and they will be applicable to the power plants that we serve. While we are still in the process of analyzing these new rules, I'd like to note that similar previous efforts by the EPA were met with extensive litigation, and we're anticipating a similar response to these rules. As you can imagine, this is a very high priority for us. It's worth noting that the United States is experiencing strong overall growth in the demand for electricity.

Speaker Change: These rules are ultimately enforced as drafted.

Speaker Change: We will be applicable to the power plants that we serve.

Speaker Change: We are still in the process of analyzing these new rules I'd like to note that similar previous efforts by the EPA were met with extensive litigation and we're anticipating a similar response to these rules.

Speaker Change: As you can imagine this is a very high priority for us it's worth noting that the United States is experiencing strong overall growth in the demand for electricity.

John C. Butler: MLMC supplies coal to the Red Hills Power Plant, which supplies electricity to TVA. TVA just announced in their 10Q filing earlier this week that they experienced an all-time record high peak power demand during Q1. These EPA rules go into effect as written. It's hard to see how the country adequately replaces the energy generated by these power plants.

Speaker Change: MLM see supplies coal to the Red Hills power plant, which supplies electricity to TVA.

Speaker Change: TVA just announced in their 10-Q filing earlier this week that they experienced an all time record high peak power demand during Q1.

Speaker Change: These EPA rules go into effect is written it's hard to see how the country adequately replaces the energy generated by these power plants.

John C. Butler: Shifting to our other segments, I mentioned earlier that our Minerals Management and North American Mining segments generated improved operating results in the first quarter. For Minerals Management, the higher first quarter income was the result of higher production volumes and included earnings from the large acquisition of mineral interests that closed in December. The Catapult Mineral Partners team, which oversees this segment, has done a great job of growing and diversifying our portfolio of mineral interests over the last few years.

Speaker Change: Shifting to our other segments I mentioned earlier that our minerals management and North American mining segments generated improved operating results in the first quarter at.

Speaker Change: At minerals management to higher first quarter income was the result of higher production volumes and included earnings from the large acquisition of mineral interests that closed in December.

Speaker Change: The catapult mineral partners team, which oversees this segment has done a great job of growing and diversifying our mineral our portfolio of mineral interest over the last few years, we now own a larger portfolio of mineral mineral interests and we are more diversified in terms of operations geographic footprint and stages of mineral development.

John C. Butler: We now own a larger portfolio of mineral interests, and we are more diversified in terms of operations, geographic footprint, and stages of mineral development, ranging from producing wells to undeveloped mineral interests. The Catapult team is again targeting mineral interests of up to $20 million in 2024. Our North American Mining segment also delivered strong year-over-year earnings improvement. North American Mining's operating profit improved 184%, and segment-adjusted EBITDA increased 70% compared with 2023. I am proud of the significant progress the North American Mining team has made on operational and strategic projects that contributed to the improved 2024 first quarter results.

Speaker Change: Ranging from producing wells to undeveloped mineral interests catapult team is again entirety being mineral interest of up to $20 million in 2024.

Speaker Change: Our North American mining segment also delivered strong year over year earnings improvement North American Mining's operating profit improved 184% and segment adjusted EBITDA increased 70% compared with 2023.

Speaker Change: I'm proud of the significant progress to North American mining team has made on operational and strategic projects that contributed to the improved 2024 first quarter results.

John C. Butler: Our sawtooth mining operation is the exclusive miner for the Packer Pass Lithium Project owned by Lithium Americas Corporation. Sawtooth Mining is contributing moderate income to North American Mining segment during the current construction phase of that contract and is expected to continue to do so until we enter the production phase, which is expected to occur in the 2027-2028 timeframe. More information about this project is available on the Lithium Americas Corporation website.

Speaker Change: Our saw tooth mining operation as the exclusive minor for the Packer pass lithium project owned by lithium Americas Corporation such.

Speaker Change: <unk> mining is contributing moderate income to North American mining segment. During the current construction phase of that contract and is expected to continue to do so until we enter the production phase which is expected to occur in the 2027 2028 timeframe Maureen.

Speaker Change: More information about this project is available on the lithium Americas words website.

John C. Butler: The North American mining team continues to evaluate and pursue new business opportunities, including diversification into additional minerals, as we did in 2023 with a new contract to mine phosphate for a customer in Florida. Overall, I believe we're making meaningful progress towards building this segment into a very successful business platform. Finally, moving to our mitigation resources in North America, this team continues to advance existing mitigation projects and build on the substantial foundation it has established over the past several years. Mitigation Resources added a new project in the first quarter by acquiring an attractive piece of land near a high-growth area in Central Florida.

Speaker Change: The North American mining team continues to evaluate and pursue new business opportunities, including diversification into additional minerals as we did in 2023 with a new contract to mind phosphate for a customer in Florida.

Speaker Change: Overall, I believe we are making meaningful progress towards building this segment.

Speaker Change: Successful business platform.

Speaker Change: Finally, moving to our mitigation resources on North America business. This team continues to advance existing mitigation projects and build on the substantial foundation. It has established over the past several years.

Speaker Change: Mitigation resources added a new project in the first quarter by acquiring an attractive piece of land near a high growth area in Central Florida.

John C. Butler: We anticipate that Mitigation Resources will further expand its business model in 2024 with a focus on generating a modest operating profit in 2025 and achieving sustainable profitability in future years. Overall, I continue to be very optimistic about our outlook for 2024 and beyond. I have a lot of confidence in our team, and I'm pleased with the way all of these businesses continue to advance their strategies, including efforts to protect our coal mining business. With that, I'll turn the call back over to Christy to cover our results for the quarter and our outlook in more detail. Christy? Thank you.

Speaker Change: We anticipate that mitigation resources will further expand its business model in 2024 with a focus on generating a modest operating profit in 2025, and achieving sustainable profitability in future years.

Speaker Change: Overall I continue to be very optimistic about our outlook in 2024 and beyond have a lot of confidence in our team and I'm pleased with the way all of these businesses continue to advance their strategies, including efforts to protect our coal mining business with that I'll turn the call back over to Christie to cover our results for the quarter and our outlook in more detail Christi.

Christie: Thank you Casey.

Elizabeth I. Loveman: Let me begin with high-level comments about our consolidated first quarter financial results. Then I'll provide some detail on our individual segments.

Christie: Let me begin with high level comments about our consolidated first quarter financial results, then I'll provide some detail on our individual segments.

Elizabeth I. Loveman: We reported consolidated income before taxes of $5.6 million compared with $4.4 million last year, a 28% increase. A shift in our mix of earnings led to an effective income tax rate of 18% this quarter versus a negative rate of 30% in first quarter 2023, which resulted in a $2.3 million year-over-year increase in income tax expense. Due to the higher income tax expense, our first quarter 2024 consolidated net income decreased to $4.6 million, or $0.61 per share, compared with $5.7 million, or $0.76 per share last year.

Christie: Reported consolidated income before taxes of $5 $6 million compared with $4 $4 million last year at 28% increase.

Christie: A shift in our mix of earnings led to an effective income tax rate of 18% this quarter versus a negative rate of 70% in first quarter 2023, which resulted in a $2 $3 million a year over year increase in income tax expense.

Christie: Is it a higher income tax expense, our first quarter 2020 for our consolidated net income decreased to $4 $6 million or 61 per share compared with $5 $7 million by 76 per share last year, we generated EBITDA of $11 $2 million. This was modestly higher.

Elizabeth I. Loveman: We generated EBITDA of $11.2 million. This is modestly higher than the prior year EBITDA of $10.8 million. The operating profit and EBITDA growth was primarily due to significant improvements in earnings at our Minerals Management and North American Mining Segments. Minerals Management generated operating profit of $7.9 million and segment adjusted EBITDA of $8.9 million, an over 30% increase in both metrics compared with the prior year quarter. The improved earnings were due to higher production volumes, including contributions from a large acquisition of mineral interest near the end of last year. And North American Mining's operating profit of $2.4 million and EBITDA of $4.6 million increased significantly compared with last year. The first quarter improvements were primarily due to favorable pricing and delivery mix.

Christie: And then the prior year EBITDA of $10 $8 million.

Christie: The operating profit and EBITDA growth was primarily due to significant improvements in earnings at our minerals management and North American mining segments.

Christie: Minerals management generated operating profit of $7 $9 million and segment adjusted EBITDA of $8 9 million and over 30% increase in both metrics compared with the prior year quarter.

Christie: The improved earnings were due to higher production volumes, including contributions from the large acquisition of mineral interests near the end of last year.

Christie: And North American mining operating profit of $2 4 million and EBITDA of $4 $6 million increased significantly compared with last year. The first quarter improvements were primarily due to favorable pricing and delivery mix improved margins at the limestone quarry as a result of recent contract amendment.

Elizabeth I. Loveman: Improved margins at the Limestone Quarry as a result of recent contract amendments also contributed to North American Mining's favorable results. However, the improvement in operating profit at both Minerals Management and North American Mining was partly offset by lower coal mining results. Our coal mining segment reported an operating loss of $417,000 and generated segment-adjusted EBITDA of $1.8 million. This compares to operating profit of $313,000 and segment-adjusted EBITDA of $4.6 million in 2023. JC noted that the coal mining segment's revenues decreased primarily due to the boiler issue at Mississippi Lignite Mining Company. However, the revenue decrease was offset by a reduction in cost of sales, resulting in comparable quarter-over-quarter results.

Christie: Also contributed to North American mining favorable results.

Christie: The improvement in operating profit at both minerals management and North American mining were partly offset by lower coal mining results.

Christie: Coal mining segment reported an operating loss of $417000 and generated segment adjusted EBITDA of $1 $8 million. This compares to operating profit of $313000 and segment adjusted EBITDA of $4 $6 million in 2023.

Christie: JC noted that the coal mining segments revenues decreased primarily due to the boiler issue at Mississippi Lignite mining company. However, the revenue decrease was offset by a reduction in cost of sales, resulting in comparable quarter over quarter results lower earnings at our unconsolidated operations, primarily due to reduced customer requirements.

Elizabeth I. Loveman: Lower earnings at our unconsolidated operations, primarily due to reduced customer requirements at Cateau, contributed to the decrease in the coal mining segment's results. Looking forward, we expect a strong 2024 operating profit compared with a significant 2023 loss, which included a $60.8 million impairment charge. Higher segment adjusted EBITDA, which excludes the impairment charge, is also projected. These anticipated increases are primarily due to an improvement in the results at Mississippi Lignite Mining Company and higher earnings at Falkirk and Cateau in the second half of 2024.

Christie: Can tell.

Christie: Contributed to the decrease in the coal mining segments results bookings.

Christie: Looking forward at our coal mining segment, we expect strong 2020 for operating profit compared with the significant 2023 life, which included a $68 million impairment charge.

Christie: Higher segment, adjusted EBITDA, which excludes the impairment charge is also protected.

Christie: Anticipated increases are primarily due to an improvement in the results at Mississippi Lignite mining company and higher earnings at Falkirk and can tell in the second half of 2024 well <unk>.

Elizabeth I. Loveman: While MOMC is expected to incur a loss in 2024, largely attributable to reduced coal deliveries while the power plant is operating with only one boiler, the loss is projected to be significantly less than 2000 in 2023, excluding the impairment charge. This is primarily because production costs are expected to decrease compared with last year.

Christie: <unk> is expected to incur a loss in 2024, largely attributable to reduced coal delivery, while the power plant is operating with only one boiler.

Christie: The loss is projected to be significantly less in 2000 2023, excluding the impairment charge. This is primarily because production costs are expected to decrease compared with last year. In addition, the effect of the impairment charge taken last year will result in lower depreciation and amortization expense and contributed to lower production costs in 'twenty.

Elizabeth I. Loveman: In addition, the effect of the impairment charge taken last year will result in lower depreciation and amortization expense and contribute to lower production costs in 2024 and beyond. The projected increase in full year 2024 earnings at the unconsolidated mining operations is driven primarily by an expectation of increased customer requirements at Cattell and Falkirk, as well as a higher per ton management fee at Falkirk beginning in June 2024, when temporary price concessions end.

Christie: 24 and beyond.

Christie: The projected increase in full year 2024 earnings at the unconsolidated mining operations is driven primarily by an expectation for increased customer requirements that could tell them fall Kirk.

Christie: As well as the higher per ton management fee at Falkirk beginning in June 2024, when temporary price concessions and.

Elizabeth I. Loveman: Turning to North American mining, we expect substantial quarterly growth in operating profit and segment adjusted EBITDA in each remaining 2024 quarter, leading to significantly improved full-year results over 2023. Improvements at existing operations, as well as contributions from new and modified contracts, will all contribute to the improvement and results. Finally, at Minerals Management, we expect 2024 Operating Profit and Segment Adjusted EBITDA to decrease moderately compared with the prior year, excluding the 2023 impairment charge.

Christie: Turning to North American mining, we expect substantial quarterly growth in operating profit and segment adjusted EBITDA in each remaining 2024 quarter, leading to significantly improved full year results over 2023 and.

Christie: Improvements at existing operations as well as contributions from new and modified contracts will all contribute to the improvement in results.

Christie: Finally at minerals management, we expect 2020 for operating profit and segment adjusted EBITDA.

Christie: To decrease moderately compared with prior year, excluding the 2020 impairment charge to forecast a reduction in profitability is primarily driven by current market expectations for natural gas and oil prices as the bachman.

Elizabeth I. Loveman: The forecast of reduction in profitability is primarily driven by current market expectations for natural gas and oil prices, as well as development and production assumptions on currently owned reserves. Overall, at a consolidated level, we expect to generate net income in 2024 compared with a substantial 2023 net loss. Adjusted EBITDA, which excludes any impact from the prior year impairment, is also projected to increase significantly over 2020. These improvements are mainly due to increased profitability at the coal mining segment. Growth in North American mining is also expected to contribute to the higher 2024 net income.

Christie: Bachmann and production assumptions on currently owned reserves.

Christie: Overall at a consolidated level, we expect to generate net income in 2024 compared with a substantial 2023 net lives.

Christie: Adjusted EBITDA, which excludes any impact from the prior year impairment is also projected to increase significantly over 2023.

Christie: These improvements are mainly due to increased profitability at the coal mining segment.

Christie: Growth in North American mining is also expected to contribute to the higher 2024 and net income.

Elizabeth I. Loveman: Before I turn the call over to questions, let me close with some information about our balance sheet and cash flow. We ended the quarter with consolidated cash of approximately $62 million and debt of $50 million. We had availability of $100 million under our revolving credit facility. During the first quarter, we repurchased approximately 128,000 shares for $4.3 million under an existing share repurchase program. In 2024, we expect cash flow before financing activities to be a moderate use of cash. Now, we will turn to any questions you may have.

Speaker Change: Before I turn the call over to questions. Let me close with some information about our balance sheet and cash flow. We ended the quarter with consolidated cash of approximately $62 million and debt of $50 million, we had availability of $100 million under our revolving credit facility. During the first quarter, we repurchased approximately 120.

Christie: 8000 shares for $4 $3 million under an existing share repurchase program in 2024, we expect cash flow before financing activities to be a moderate use of cash we will now turn to any questions you may have.

Operator: If you would like to ask a question, please press star 1 on your telephone keypad now. You will be placed in the queue in the order received. Please be prepared to ask your question when prompted. Once again, if you have a question, please press star 1 on your phone now, and we will take our first question from Douglas Weiss with DSW Investments.

Christie: If you would like to ask a question. Please press star one on your telephone keypad now you'll be placed into the queue in the order received.

Christie: Please be prepared to ask your question when prompted.

Christie: Once again, if you have a question. Please press star one on your phone now.

Douglas Weiss: And we will take our first question from Douglas suites with DSW investments.

Douglas Weiss: Douglas Your line is open.

Douglas Weiss: Hey, good morning.

Douglas Weiss: Good morning, Brian.

Douglas Weiss: A question on the mining business, once you've started a project, what is the ongoing capital expense on those projects on an annual basis?

Douglas Weiss: A question on the mining business once once you started a project.

Douglas Weiss: How much is the ongoing capital expense from those projects.

Douglas Weiss: On an annual basis.

Elizabeth I. Loveman: Are you talking about a coal mine, or are you talking about a North American mining project?

Brian: Are you talking about a coal mine are you talking about North American mining project North American mining.

Douglas Weiss: North American Mining

Elizabeth I. Loveman: Yep, it entirely depends on the project. In some instances, we own the equipment and will maintain that equipment over the life of the contract, and you know that's all included in the fee structure that we receive. In other instances, the customer, you know, is responsible for funding those things, so it's really very contract specific. I guess I would add that, you know, most of the operations that we do inside North American mining. I'll just use an example, right?

Brian: Yep it entirely depends on the project in some instances, we own the equipment and will.

Douglas Weiss: Maintain that equipment over the life of the contract and that's all included in the fee structure that we receive in other instances the customer.

Douglas Weiss: Is responsible for funding those things.

Douglas Weiss: It is really very contracts specific I guess I would add that.

Douglas Weiss: Most of the of the operations that we do inside North American mining.

Elizabeth I. Loveman: We might acquire a drag line that will operate at a quarry or a phosphate mine or, you know, somewhere else for somebody. And, you know, the upfront capital is the most significant piece, typically, of that project. Over time, you're going to have repairs to the drag line. You're going to have planned outages where, you know, you need to do periodic upgrades and improvements. But for the most part, I think you could think of the North American Mining Project as having a majority of its capex up front, although there will be some over time.

Douglas Weiss: I'll just use an example, right.

Douglas Weiss: We might acquire a drag line that will operate at a core for a phosphate mine or somewhere else where somebody.

Douglas Weiss: And.

Douglas Weiss: The upfront capital is the most significant piece typically of that project.

Douglas Weiss: Over time, Youre going to have repairs to the drag line youre going to have.

Douglas Weiss: Planned outages, where you need to do periodic.

Douglas Weiss: Upgrades and improvements.

Douglas Weiss: But for the most part I think you could think of the North American mining project to having a majority of its capex upfront.

Douglas Weiss: Although there will be some overtime.

Speaker Change: Okay. So.

Douglas Weiss: Okay, so... You know, to the extent you're not bringing on new projects, is it fair to say that a proportion of the EBITDA in that division will convert to cash flow?

Speaker Change: To the extent, you're not bringing on new projects is it fair to say that.

Speaker Change: The fairly high proportion of the EBITDA and.

Speaker Change: In that division will convert to cash flow.

Speaker Change: It just sounds like there yes.

Elizabeth I. Loveman: I think that's the safest option, as opposed to a, you know, I'll compare that to a manufacturing business where you're constantly replacing things on your manufacturing line. This is, the mining business is typically not like that. But you will go through, as we saw in our Red Hills mine, you go through periods of time when you do have to reinvest, but generally EBITDA is true EBITDA; you can think of it as cash flow.

Speaker Change: I think I think that's a safe assumption as opposed to us.

Douglas Weiss: Compare that to.

Douglas Weiss: Yes.

Douglas Weiss: Our manufacturing business, where you're constantly.

Douglas Weiss: Replacing things on your on your manufacturing line.

Douglas Weiss: This is this is the mining business is typically not like that but you will go through.

Douglas Weiss: As we saw at our Red Hills mine you go through periods of time, when you do have to reinvest but it's generally EBITDA is true EBITDA you can think of it as cash flow.

Douglas Weiss: Okay, and would you be able to say what sort of returns you're looking for on that sort of upfront investment in terms of... You know, you get a new project and you buy, you know, you spend $20 million or whatever on the drag line. You know, what sort of evidence do you hope to earn on that in the years that follow? Well, I mean, I think...

Speaker Change: Okay and would you be able to say what sort of returns you're looking on looking for on that sort of upfront investment in terms of.

Speaker Change: You get a new project and you buy you spent $20 million or whatever on the dragline, what sort of EBITDA do you hope to earn on that in the in the years that follow.

Elizabeth I. Loveman: Well, I mean, given the fact that these are, you know, multi-year projects with investment up front, I'd point you to, like, an IRR calculation, and I, you know, we target things that are in the, you know, mid-high teens.

Speaker Change: Well I mean I think.

Speaker Change: Given the fact that these are multi year projects with investment upfront.

Speaker Change: <unk> pointed to like an IRR calculation.

Douglas Weiss: We target things that are in the <unk>.

Douglas Weiss: Mid to high teens.

Douglas Weiss: In general.

Douglas Weiss: Okay, great. And when you refer to quarterly growth for that business, do you mean sequential growth? Like the second quarter will be better than the first quarter and so on?

Douglas Weiss: Great.

Douglas Weiss: And when you guide to quarterly growth for that business do you mean sequential growth like the second quarter will be better than the first quarter.

Elizabeth I. Loveman: General, yes. Yeah, okay. But, you know, like any business, you can't draw a straight line through all those points and have it look like a nice neat graph.

Douglas Weiss: Generally yes.

Douglas Weiss: Okay.

Douglas Weiss: But.

Douglas Weiss: Like any business you can't draw a straight line through all those points and have it looks like a nice neat graph.

Douglas Weiss: Right, sure, sure. I guess, moving on to your royalty businesses. On the, um... You give disclosures in the K on your reserves, but, you know, I found with other royalty businesses, those reserves aren't really that communicative in terms of the real reserve life of those assets, and I wondered if you could just speak generally about what you think the sort of economic life is, particularly for your gas assets. I guess Appalachia would be the largest one.

Speaker Change: Sure sure.

Douglas Weiss: I guess moving onto your.

Douglas Weiss: Your royalty businesses.

Douglas Weiss: On the.

Douglas Weiss: Yeah.

Douglas Weiss: You give you give disclosures in the K on your reserves, but I found with other royalty businesses those reserves aren't really that.

Douglas Weiss: Communicative in terms of the real reserve life of those assets and I wondered if you could just speak generally about what you think the sort of economic life as particularly for your gas assets.

Douglas Weiss: I guess Appalachia would be the largest one.

Elizabeth I. Loveman: Yeah, go ahead. Yeah, the Appalachian assets, you know, are our legacy assets. I mean, we've acquired them over decades and decades. I wouldn't be surprised if some of those had been acquired in the early part of the 1900s, as we were establishing our underground coal mining business in that part of the country. That's where the company started.

Douglas Weiss: Yes.

Speaker Change: Got it.

Speaker Change: Yes, the Appalachia assets are legacy assets, we've acquired those over decades and decades.

Douglas Weiss: I wouldn't be surprised if some of those had been acquired in the early part of the 19 hundreds as.

Douglas Weiss: As we are establishing our underground coal mining business in that part of the country.

Douglas Weiss: It's where the company started.

Douglas Weiss: Yes.

Elizabeth I. Loveman: From a gas standpoint, you know, the wells, so let's just go through history, right? We acquired these; we acquired the natural gas reserves as part of acquiring all minerals, historically. In many instances, we mined the coal or somebody else ended up mining the coal. We sold the surface at some point if we, if that was owned, it was mined. And we've owned these natural gas assets for a very, very long time. You get, you know, sort of, I guess, probably 10 years at most ago.

Douglas Weiss: From a gas standpoint.

Douglas Weiss: Wells.

Douglas Weiss: So let's just go through history right. We acquired these we acquired the natural gas reserves as part of acquiring are all minerals historically.

Douglas Weiss: In many instances, we mined the coal or somebody else ended up mining the coal we sold the surface, but some point if we if that was owned.

Douglas Weiss: And we've owned these natural gas assets for very very long time.

Douglas Weiss: You get.

Douglas Weiss: Sort of I guess, probably 10 years at most to go.

Elizabeth I. Loveman: And, you know, fracking became kind of the prevalent way of producing minerals in Appalachia, and then pipelines came in, sort of, in the 2017-2018 timeframe, which is when we said this thing's about to get supersized. So we made a conscious decision to, you know, let's go hire people that are experts in this area and develop our catapult minerals partners business.

Douglas Weiss: And fracking became.

Douglas Weiss: Kind of the prevalent horizontal fracking became.

Douglas Weiss: Kind of a prevalent way of producing the minerals in Appalachia.

Douglas Weiss: And then pipelines came in sort of in the.

Douglas Weiss: In the 2017 2018 timeframe, which is when we said this things about to get Super sized.

Douglas Weiss: So we made a conscious decision to.

Douglas Weiss: Let's go hire people that are experts in this area and develop our catapult minerals partners business.

Elizabeth I. Loveman: So they oversee those assets. As those have been, I mean, a lot of it's been developed, but there's a lot of wells yet to be developed. If you look at the typical decline curve on a well, and it varies, but on average, these things can last for decades. You know, they have a large, any kind of horizontal fracking well has large production up front, and it tails off pretty quickly, but then it can run for a very, very long time. It can run for decades.

Douglas Weiss: So they oversee those assets as those have been a lot of that's been developed but there is a lot of wells yet to be developed if you look at the typical <expletive>.

Douglas Weiss: Decline curves on a well.

Douglas Weiss: It varies but on average.

Douglas Weiss: These things can last for decades they have.

Douglas Weiss: A large.

Douglas Weiss: Any kind of horizontal fracking.

Douglas Weiss: <unk> has large production upfront and it tails off pretty quickly, but then it can run for a very very long time at Corinne for decades.

Elizabeth I. Loveman: In fact, I mean, I know there are royalty companies out there that focus on just buying the tails of wells from people. So, you know, you take the natural gas assets in Appalachia and you translate that to what we're buying elsewhere, and we're targeting a broad portfolio of mineral interest. Uh, meaning... When we buy a package, it typically has got producing wells, it's got wells that have been drilled but not completed, so they're not producing, it's got wells that have been permitted but nobody's taken any action on the permits, and there are undeveloped reserves. So.

Douglas Weiss: I mean, I know there are royalty companies out there that focus on just buying the tails of wells from people.

Douglas Weiss: So you take the the.

Douglas Weiss: The natural gas assets in Appalachia, and you translate that to what we're buying.

Douglas Weiss: <unk>.

Douglas Weiss: And we are targeting.

Douglas Weiss: Broad portfolio of mineral interests.

Douglas Weiss: Meetings.

Douglas Weiss: When we buy a package typically has got producing wells, it's got wells had been.

Douglas Weiss: <unk> drilled but not completed so theyre not producing Scott wells that have been permitted but nobody has taken any action on the permits and there are undeveloped reserves.

Douglas Weiss: So.

Elizabeth I. Loveman: You know, one of the things I love about this business is that a majority of the value we're paying for these assets is focused on the producing wells because that's, you know, what a lot of people are paying for. A lot of people are interested in it. You know, what are the cash flows I'm going to get out of this right, right away. And we, of course, look at that, we appreciate that.

Douglas Weiss: One of the things I Love about this business is a majority of the value. We're paying for these assets is focused on the producing wells because thats what.

Douglas Weiss: A lot of people are paying for a lot of people are interested in.

Douglas Weiss: Whats the cash flows I'm going to get out of this right right away and we of course look at that and we appreciate that but we're also acquiring a lot of reserve interests that are going to start be developed and produce in years to come. So I see this business is.

Elizabeth I. Loveman: But we're also acquiring a lot of reserve interests that are going to start being developed and produced in years to come. So I see this business as, you know, accumulating more and more and more of that, which just provides a much stronger and longer runway for profitability to come out of this part of the business. It's kind of a wide-ranging answer. Does that address your question?

Douglas Weiss: Accumulating more and more and more of that which just provides.

Douglas Weiss: Much stronger.

Douglas Weiss: And longer runway for profitability to come out of this part of the business.

Speaker Change: Kind of a wide ranging answer does that answer your does that address your question.

Douglas Weiss: Yeah, I think so. As you look at opportunities to acquire, are you seeing better value on the oil side or on the gas side?

Speaker Change: Yes, I think so.

Speaker Change: You look at opportunities to acquire or are you seeing better value on the oil side or on the gas side.

Elizabeth I. Loveman: You know, it varies. In really, in many instances, it gets to specific dynamics around the transaction. Like, really, why is somebody selling? Has somebody had a fund for the last 20 years, and they're closing out the fund, and they need to sell? Has somebody been getting their funding from a private equity firm, and that goes away, and so they need to raise some capital by selling some wells? I mean, what's their motivation?

Speaker Change: It varies.

Speaker Change: It really is.

Speaker Change: In many instances.

Speaker Change: It gets to specific dynamics around the transaction like really why is somebody selling as somebody who had a fund for the last 20 years that they are closing out the fund and they need to sell as somebody had been getting their funding from a private equity firm and that goes away and so they need to raise some capital.

Speaker Change: By selling some wells I mean, what what's their motivation.

Elizabeth I. Loveman: That's really probably the greatest driver of swings in value, from my experience. Okay. Do prices affect the value of mineral interest? They do on the margin, but it doesn't swing as much as you would think it might based on, you know, monthly, quarterly changes in oil and gas prices, right?

Speaker Change: Really probably the greatest driver of.

Speaker Change: Swings in value from my experience.

Speaker Change: Okay.

Speaker Change: I mean do prices affect.

Speaker Change: The value of mineral interests, they do on the margin.

Speaker Change: But it doesn't swing as much as you would think it might based on.

Speaker Change: Monthly quarterly changes in oil and gas prices.

Speaker Change: Right.

Speaker Change: Okay makes sense.

Speaker Change: Yeah.

Douglas Weiss: On MLMC, once you finish the, you know, you're all done with the moving locations and so on, what's a good normalized cost of goods sold there?

Speaker Change: Ml.

Speaker Change: See once once you finish.

Speaker Change: You're all done with the move in locations and so on what is it what's a good normalized cost of goods sold there.

Elizabeth I. Loveman: We don't disclose that. And your point about, you know, we're moved, and we're done. We're moved, and we're almost done. You'll note in our disclosures that we talk about a pit extension. So we went over, we established the new pit, we're operating over there, it's going very well, we're very pleased with the way that's playing out. We did, part of the plan, we knew when we got there we were going to make the initial pit longer. As you can imagine, right, a longer pit is going to be a more efficient way to mine. It's like anything, right?

Speaker Change: Okay.

Speaker Change: We don't disclose that.

Speaker Change: And your point about were moved and were done were moved we're almost done Youll note in our disclosures that we talk about a pit extension.

Speaker Change: So we went over we established the new pit.

Speaker Change: Operating over there.

Speaker Change: Going very well, we're very pleased with the way that's playing out.

Speaker Change: We did and part of the plan we knew when we got there we were going to make the initial pit.

Speaker Change: Longer.

Speaker Change: As you can imagine right a longer pit is going to be a more efficient way to mine. It's like any segregates larger scale, you can make it to make it a bigger pit.

Elizabeth I. Loveman: It's on a larger scale. You make it a bigger pit. So we're still extending that pit this year. It'll be done later this year, at which point the costs will really drop to where they think they should be, which is much more in line with historical levels. We're getting, you know, we're getting a double punch right now because we're, you know, self-inflicted wounds. It's the smart thing to do to extend the length of this pit, which adds to our cost.

Speaker Change: So.

Speaker Change: We're still extend extending that pit this year it'll be done later this year at which point the cost will really dropped to where they think they should be which is much more in line with historical levels.

Speaker Change: And we're getting we're getting a double punch right now because we're <unk>.

Speaker Change: Self inflicted wound.

Speaker Change: The smart thing to do to extend the length of this pit.

Speaker Change: Which adds to our costs.

Elizabeth I. Loveman: The other thing you've got is the power plant that's just operating on one of the two boilers. So our production is only at about half what it would normally be, which puts, you know, it's not efficient, and it makes it a higher cost operation. So I think we're headed back to historical levels that we feel quite good about. We just have to get a couple more quarters behind us. Right, okay.

Speaker Change: The other thing you've got as the power plants, which just operating on one of the two boilers. So our production is only at about half what it would normally be which puts.

Speaker Change: It's not efficient makes you it makes it a higher cost operation. So I think we're headed back to historical levels that we feel quite good about which is that to get a couple more quarters behind us.

Douglas Weiss: Right, okay. And then, just touching on North American mining again, you had a really nice step up in your EBITDA margin this quarter. Is that... sustainable, or are those margins going to move around quarter to quarter?

Speaker Change: Right Okay.

Speaker Change: And then just touching on North American mining again, you had a really nice step up in your peer EBITDA margin this quarter.

Speaker Change: Is that.

Speaker Change: The sustainable or are those going to are those margins going to move around on a quarter to quarter.

Speaker Change: Well.

Elizabeth I. Loveman: everybody's margins move around quarter to quarter. So, with that qualifier, I think there have been some fundamental shifts in the business, some of which are strategic in nature and others are tactical in nature. We've been working on some things over the last few years, and you've seen in prior quarters, we've disclosed that even last year, we put a pause on new business development while we're straightening out some operational matters. We feel good about where we are.

Speaker Change: Everybody's margins move around quarter to quarter, so with that qualifier.

Speaker Change: I think there had been some fundamental.

Speaker Change: Shifts in the business.

Speaker Change: Some of which are strategic in nature tactical in nature, we've been working on some things over the last few years.

Speaker Change: You have seen in prior quarters, we've disclosed that even last year.

Speaker Change: We put a pause on.

Speaker Change: New business development, while we're straightening out some operational matters, we feel good about where those are.

Douglas Weiss: One of the other things we've done is sign up some new contracts. We're always tweaking our contract structure because these contracts run for a bunch of years. We're always tweaking the contract structure to think about how we best serve our customers while thinking about the economics of our business. I think you've got a combination of some new contracts, some amended contracts, as well as some operational and strategic improvements we put in place that are paying dividends.

Speaker Change: One of the other things we've done is sign up some new contracts. We're always we're always tweaking our contract structure.

Speaker Change: Because of these contracts will run for a bunch of years. So we're always tweaking the contract structure to think about how do we best serve our customers while.

Speaker Change: Thinking about our own the economics of our business.

Speaker Change: <unk>.

Speaker Change: I think you've got a combination of some new contracts.

Some amended contracts as well as some operational and strategic improvements we've put in place that are that are paying dividends.

Douglas Weiss: And I think that we are headed towards a, you know, stronger performance in that business going forward because of those things. Is it going to be, you know, consistent every single quarter? Probably not, but I feel good about where we're headed.

Speaker Change: I think that we are headed towards a.

Douglas Weiss: Stronger performance in that business going forward because of those things is it going to be.

Douglas Weiss: Insistent every single quarter, probably not.

Douglas Weiss: But I feel good about where we're headed.

Douglas Weiss: Ok, makes sense. And you have an unconsolidated income line in that division. Can you say what that is? Which asset or line is it?

Speaker Change: Okay makes sense.

You have an unconsolidated income line in that division is that when you say, what that is which assets or what that is.

Elizabeth I. Loveman: It's just some smaller, you know, historical mines that are locations that we account for as a variable interest entity, and so under the equity method.

Speaker Change: It's just some smaller historical mines that are locations that.

Elizabeth I. Loveman: We account for as a variable interest entity and under.

Elizabeth I. Loveman: Under the equity method.

Okay.

Operator: And then, let me know if there's anyone in queue. I don't want to, uh... I don't want to stop anyone else from asking questions.

Elizabeth I. Loveman: And then.

Speaker Change: And let me know.

Operator: Yes.

Speaker Change: There is anyone in queue because.

Operator: I don't want to.

Speaker Change: I don't want to dump anyone else from asking questions.

Douglas Weiss: You have great questions. We're more than happy to ask. I appreciate your interest. We're happy to answer your questions. Okay, great.

Speaker Change: You'll have a great questions, we're more than happy to ask I. Appreciate your interest we're happy to answer your question, Okay, great well. Thank you.

Douglas Weiss: Okay, great. Well, thank you.

Douglas Weiss: So, on the coal segment, I'm curious. You know, using the Sabine mine as sort of a case study, where you received several years of payments after the mine closed. Could you just talk a little bit about how good the economics are of those sort of... You know, closure payments relative to the prior operating earnings of the mines?

Douglas Weiss: So.

Douglas Weiss: On the coal segment.

Speaker Change: I am curious.

Douglas Weiss: Using the Sabine the Sabine mine as sort of a case study.

Douglas Weiss: Where you got where you receive several years after several years of payments after the mine closed.

Douglas Weiss: Could you just talk a little bit about how.

Douglas Weiss: Good the economics of those sort of.

Douglas Weiss: Closure payments relative to the prior operating earnings of the mines.

Elizabeth I. Loveman: So I'll speak generally. Right, generally during production, you know, in our management fee contract, which in the coal mining segment are Coteau, Falkirk, Coyote Creek, and Sabine. So generally, during production, that's when you're doing a lot of work, you've got a lot of people, a lot going on, so the fee is higher in the initial years, the first few years after you go into final mine reclamation. There's still a lot of work to be done. There's a lot of dirt moving going on. There are a lot of regulatory things that we're dealing with. A lot of land issues, or I shouldn't call them problems.

Speaker Change: So I'll speak.

Elizabeth I. Loveman: Generally.

Elizabeth I. Loveman: Great generally during production.

Elizabeth I. Loveman: And in our management fee.

Elizabeth I. Loveman: Contracts.

Elizabeth I. Loveman: Which in the coal mining segment, our Catone fall Kirk Coyote Creek and Sabine.

Elizabeth I. Loveman: So generally during production.

Elizabeth I. Loveman: When youre doing.

Elizabeth I. Loveman: A lot of work you've got a lot of people a lot going on so the fee is higher.

Elizabeth I. Loveman: In the in the initial years the first few years after.

Elizabeth I. Loveman: You go into final mine reclamation.

Elizabeth I. Loveman: There's still a lot of work to be done and there's a lot of dirt moving going on there's a lot of regulatory things that we're dealing with a lot of land issues or I shouldnt call them issues, it's really just land matters related to ramp to mud.

Elizabeth I. Loveman: It's really just land matters related to closing up the mine. And so, you know, the fee is still pretty robust, although generally not what it was during production. And then after a few years, we'll go into a period that is, you know, the tail end of final mine reclamation, which is really more, you know, the dirt work is done, it's monitoring water, it's looking for erosion, it's making sure that the things that were planted are growing as they should.

Elizabeth I. Loveman: And so the fee is still pretty robust, although generally not what it was during production.

Elizabeth I. Loveman: So the fee steps down, generally, in the later years of a contract. Now, you know, every contract's different with respect to how that works and what we're responsible for and what the customer's responsible for. But in each instance, the customer still continues to pay 100% of the cost, and this is really just related to the fee that we receive. But that's, you know, it's a kind of a step-down structure as the amount of work that's required decreases. Mm-hmm.

Elizabeth I. Loveman: And then after a few years.

Elizabeth I. Loveman: We'll go into a period that is the tail end of final mine reclamation, which is really more.

Elizabeth I. Loveman: The dirt work is done that's monitoring water, it's looking for erosion, it's making sure that the things that were planted are growing as they should so the fee steps down.

Elizabeth I. Loveman: Generally.

Elizabeth I. Loveman: In the later years of our contract now every contract is different with respect to how that works and what we're responsible for and what the customer is responsible for but in each instance, the customer still continues to pay 100% of the cost.

Elizabeth I. Loveman: And this is really just related to the fee that we receive.

Elizabeth I. Loveman: But thats kind of a step down the structure is the amount of work that's required decreases.

Elizabeth I. Loveman: Yes.

Elizabeth I. Loveman: Okay.

Douglas Weiss: And then I guess just a couple quickly on your new projects. So on the remediation business, how big a business do you think that could be in three to five years?

Elizabeth I. Loveman: And then I guess, just a couple quickly on your new projects.

Douglas Weiss: So on the remediation business.

Douglas Weiss: How big a business do you think that could be looking out.

Douglas Weiss: Three to five years.

Elizabeth I. Loveman: Well, um... I mean, we've not said how big we think it can be. We haven't disclosed that. But I will tell you that the business, which we started, you know, five, six years ago, is on a much faster growth trajectory than we anticipated when we started. We've been very pleased with our ability to leverage sort of the North American coal environmental reputation as a way to propel that business into business.

Douglas Weiss: Well.

Speaker Change: I mean, we've not said how big we think it can be we haven't disclosed that.

Elizabeth I. Loveman: I'll tell you that the business, which we started.

Elizabeth I. Loveman: Five six.

Elizabeth I. Loveman: Years ago.

Elizabeth I. Loveman: Yeah.

Elizabeth I. Loveman: <unk>.

Elizabeth I. Loveman: Is on a much faster growth trajectory than we anticipated when we started.

Elizabeth I. Loveman: We've been very pleased with our ability to leverage sort of the north American coal environmental reputation.

Elizabeth I. Loveman: As a way to propel that business into.

Elizabeth I. Loveman: You know, having a lot of credibility, even though it was essentially a start-up. A number of the people that are in that business came from our coal mining operations, and it's really been helpful as we get going. We also have a great relationship with the Army Corps of Engineers in the areas where we operate, which has been helpful to us.

Elizabeth I. Loveman: Having a lot of credibility, even though it was essentially a startup.

Elizabeth I. Loveman: Number of the people that are in that business came from our coal mining operations.

Elizabeth I. Loveman: It's really been helpful. As we've got going.

Elizabeth I. Loveman: We've also got a great relationship with the Army Corps of engineers in the areas, where we operate which has been helpful to us.

Elizabeth I. Loveman: So, I guess I'd add to the fact that the mitigation part of the business is growing faster than we thought it would. You know, we've branched out now to also start doing abandoned mine land reclamation. You saw our disclosures that we are the preferred provider of abandoned mine land services in the state of Texas, which is a big deal. And we've been doing some other remediation projects as well that are neither mitigation banks nor abandoned land reclamation.

Elizabeth I. Loveman: So.

Elizabeth I. Loveman: I guess I'd add to the fact that the mitigation part of the business is growing faster than we thought it would.

Elizabeth I. Loveman: Branched out now to also start doing a band in mind land reclamation, you saw that our disclosures that we are the preferred provider of abandoned mine lines and services in the state of Texas, which is a big deal.

Elizabeth I. Loveman: And we've been doing some other remediation projects as well that are neither mitigation banks, nor abandoned mines land reclamation.

Elizabeth I. Loveman: So we're seeing growth opportunities in a number of areas, kind of organically grown. And it's on a great growth trajectory. The question we always kick around is, at what point does this thing become a segment? And I don't know.

Elizabeth I. Loveman: So we're seeing growth opportunities in a number of areas kind of organically grown.

Elizabeth I. Loveman: And.

Elizabeth I. Loveman: It's a great growth trajectory. The question, we always kick around is at what point does this thing become a segment.

Elizabeth I. Loveman: <unk>.

Elizabeth I. Loveman: Don't know.

Elizabeth I. Loveman: It's.

Douglas Weiss: I would say, hopefully, sooner or later. I think the people in the business would say they hope later rather than sooner because you get a lot more attention when you're a segment. But it's, this is a business that's growing very nicely, very rapidly. And you know, the disclosure we put out is that we think they're going to be profitable at an operating profit level in 2025. It'll be sustainable for future years. One of the reasons is that, particularly on the mitigation banking side, you know, you acquire a piece of property, and then it takes a year or so to get your mitigation banking instrument with the Army Corps of Engineers.

Speaker Change: I would say hopefully sooner or later I think the people in the business would say they hope later rather than sooner because it's you get a lot more attention when your segment.

Douglas Weiss: But it's.

Douglas Weiss: This is a business that's growing.

Douglas Weiss: Very nicely very rapidly and <unk>.

Douglas Weiss: Disclosure, we put out is we think theyre going to be profitable on an operating profit level in 2025, it will be sustainable future years, one of the reasons is because.

Douglas Weiss: Particularly on the mitigation banking side.

Douglas Weiss: Acquire a piece of property and then it takes a year or so to get your mitigation bank.

Douglas Weiss: Banking instrument with the Army Corps of Engineers, and then you sell the credits over.

Douglas Weiss: And then you sell the credits over, you know, an extended period of time, which can be 10 years. So the initial years of this business on the mitigation banking side were planting a lot of seeds by, you know, initiating projects. We're now getting into the period where we're going to start seeing, uh... you know, very attractive income from the credit sales out of those banks. So not a direct answer to your question, but I hope that was helpful. Yeah,

Douglas Weiss: Extended period of time can be 10 years.

Douglas Weiss: So the initial years of this business on the mitigation banking side was planting a lot of seeds by initiating projects. We're now getting into the period, we're going to start seeing.

Douglas Weiss: Very attractive.

Douglas Weiss: Income from the credit sales out of those bags.

Douglas Weiss: So not a direct answer to your question, but I hope that was helpful.

Douglas Weiss: Yeah, yeah, that's great. And then I think last question, just on the... You gave some additional detail on the K for your solar project. Can you talk a little bit about how large an investment you're contemplating there and do you continue to think it's going to be a very high ROI?

Speaker Change: Yes, yes, that's great.

Douglas Weiss: And then I think last question just on the.

Douglas Weiss: You gave some additional detail on the K on your solar.

Douglas Weiss: Project.

Douglas Weiss: Can you talk a little bit about how large an investment youre contemplating there and do you continue to think it's going to be a very high ROI.

Elizabeth I. Loveman: Yeah, I mean, the returns are pretty attractive on the projects we're viewing. I think our approach is primarily, although not entirely, but our approach is primarily that we're going to serve as developers.

Douglas Weiss: Yes.

Douglas Weiss: The returns are pretty attractive.

Elizabeth I. Loveman: On.

Elizabeth I. Loveman: The projects as we're viewing them.

Elizabeth I. Loveman: I think our approach is primarily although not entirely but our approach is primarily.

Elizabeth I. Loveman: That we're going to serve as developers.

Douglas Weiss: Um, you know, we have knowledge that I think is somewhat unique with respect to properties that would be attractive for a solar farm, uh... including reclaimed mine land, whether that's ours or others. A lot of people are scared off that stuff. We understand, you know, what the risk and opportunities are with respect to those properties. And so our investments are really going to be in the development phase, which is, you know, acquiring the land or securing the land through a lease or other means, and then working on interconnection studies and, you know, finding EPC contractors and getting, you know, the whole thing put together into a package.

Elizabeth I. Loveman: We.

Douglas Weiss: We have knowledge that I think somewhat unique with respect to properties that would be attractive for solar farms.

Douglas Weiss: Including reclaimed mine land, whether thats ours or others a lot of people are scared off net stuff we understand.

Douglas Weiss: What's the risk and opportunities are with respect to those properties.

Douglas Weiss: And so our investments are really going to be in the development phase which is.

Douglas Weiss: <unk>, the land or securing the land lease or other means.

Douglas Weiss: And then working on interconnect studies.

Douglas Weiss: Yes.

Douglas Weiss: Finding EPC contractors and getting.

Douglas Weiss: The whole thing put together into a package.

Douglas Weiss: I think it's very possible that we will end up right as the thing's ready to go, you know, it's all got a, it's in a nice box with a bow on it, you sell it to somebody who's in the business of owning and operating these things over the long term, including constructing them. Do we keep an ownership interest in some way in those? We could. It could be a ownership interest in the solar farm itself.

Douglas Weiss: It's very possible that we will end up right as the things ready to go.

Douglas Weiss: Got it so in a nice box with a bow on it you sell it to somebody who is in the business of owning and operating these things over the over the long term, including constructing them.

Douglas Weiss: Do we keep two we'd keep it ownership interest in some way and those we could.

Douglas Weiss: It could be an ownership interest in the solar farm itself it could be.

Douglas Weiss: It could be, you know, we retain the land and collect a lease payment. I mean, there's a whole bunch of ways we could think about this. I do know that when you get into big solar farms, the capital can be very, very substantial. And given our desire to protect the daylights out of our balance sheet... You know, we're not going to bite off something that's bigger than we're comfortable.

Douglas Weiss: We retain the land and collect lease payment I mean, there's a whole bunch of ways. We could we can think about this.

Douglas Weiss: Do know when you get into big solar farms that capital can be very very substantial.

Douglas Weiss: And given our desire to protect the daylights out of our balance sheet.

Douglas Weiss: We're not going to we're not going to bite off something thats bigger than 10 more comfortable.

Douglas Weiss: Dealing with.

Douglas Weiss: Right, now that makes a lot of sense. Okay, well actually, one last quick one is just on the boiler. I think in your filing you said that in the second half you think it'll be repaired.

Speaker Change: Great that makes a lot of sense.

Douglas Weiss: Okay, well actually one last quick one is just on the boiler.

Douglas Weiss: I think in your filing you said second half do you think youll be repaired.

Douglas Weiss: Do you have pretty good visibility, or are you just kind of.., watching along with everyone else?

Douglas Weiss: Do you have a pretty good visibility or are you just kind of.

Douglas Weiss: Watching along with everyone else.

Elizabeth I. Loveman: Well, I mean, you know, we're next door, right? The mine is next door to a power plant. So we have a great relationship with the folks over at the power plant. Because of the nature of the operation, you know, 100 percent of their fuel comes from our mine, uh... there are only customers, so it makes uh... it makes it very important to have a close, transparent relationship so you know, our folks on the scene, uh... you know stay in close touch with the people over at the power plant, and I think everybody feels good about the progress that's being made.

Douglas Weiss: Well I mean, we're next door right.

Elizabeth I. Loveman: The mine is next door to the power plant so.

Elizabeth I. Loveman: We have great relationship with the folks over the power plant.

Elizabeth I. Loveman: Because of the nature of the operation 100% of their fuel comes from our mine.

Elizabeth I. Loveman: There are only customer so it makes it makes it very important to have a close transparent relationship. So.

Elizabeth I. Loveman: Our folks on.

Elizabeth I. Loveman: On the scene.

Elizabeth I. Loveman: Stay in close touch with the people over at the power plant.

Elizabeth I. Loveman: I think everybody feels good about the progress thats being made it's really our customers' projects. So I don't want to say that much about it because it's their disclosure not ours.

Elizabeth I. Loveman: It's really our customer's project, so I don't want to say that much about it because it's their disclosure, not ours, but it's progressing nicely, and we feel good about it. I think they feel good about it, too.

Elizabeth I. Loveman: But its progressing nicely and we feel good about that.

Elizabeth I. Loveman: I think they feel good about it.

Elizabeth I. Loveman: Thanks again for all the answers, and we'll talk to you next quarter. Yeah, once again, we appreciate it.

Elizabeth I. Loveman: Great.

Speaker Change: Well, thanks again for all the answers and talk to you next quarter.

Elizabeth I. Loveman: Yeah, once again, we appreciate your interest. Thanks, Deb.

Elizabeth I. Loveman: Once again, we appreciate your interest thanks, Dan Thanks.

Operator: And your next question comes from Nachi Concey on Thyssen. Your line is open.

Speaker Change: And your next question comes from <unk> <unk>.

Nachi Concey: With bison.

Nachi Concey: Your line is open.

Nachi Concey: Hey, great quarter. Thanks.

Nachi Concey: Hey, great quarter. Thanks.

Elizabeth I. Loveman: Thank you.

Nachi Concey: Okay. Thank you.

Nachi Concey: Picking up where that last question left off, just a few questions on Mississippi. Can you provide an update on the financial health of your customer over there? Have they emerged from whatever restructuring they were in? What's the strength of their balance sheet?

Nachi Concey: Good morning, picking up where that last question left off just a few questions on Mississippi can you.

Nachi Concey: Can you provide an update on the financial health of your customer over there have they emerged from whatever restructuring they were in.

Nachi Concey: With the strength of their balance sheet.

Elizabeth I. Loveman: And from what I understand from Southern's disclosures, that's all been settled. What you're talking about is the restructuring with the bondholders. Right, correct. Yeah, and that's that's been resolved. I think Southern disclosed that a couple quarters ago, maybe. 3 quarters, 4 quarters.

Nachi Concey: From what I understand from.

Elizabeth I. Loveman: Southern's disclosures thats all been settled.

Elizabeth I. Loveman: If you were talking about is the restructuring with the bondholders.

Speaker Change: Right correct.

Elizabeth I. Loveman: So that's been something that's been resolved I think southern disclosed that a couple of quarters ago maybe.

Elizabeth I. Loveman: Three quarters four quarters ago.

Nachi Concey: Yeah, I mean, what I've seen with Southern's disclosures is that they're not putting any additional capital into it, and there was certainly no cash reserve in the business prior to restructuring. So what I'm trying to understand is how strong is your counterparty in its ability to maintain a position of buying the amount of lignite you guys want them to buy for the next several years.

Speaker Change: Yes, I mean.

Elizabeth I. Loveman: What I would say southern's disclosures is that.

Nachi Concey: They are not putting any additional capital into it and there was certainly no cash.

Nachi Concey: Reserve and the business prior to restructuring so what I'm trying to understand is how.

Nachi Concey: How strong is your counterparty and its ability.

Nachi Concey: To maintain our position of buying the amount of like that you guys want that projected to buy for the next several years.

Elizabeth I. Loveman: Well, I think the ultimate, I mean, the real question is, does TVA need the electrons? And if you look at TVA's, you know, latest Q, which was just recently filed, they've had record demand for electrons because that ultimately is how this plays out, and, you know, TVA has. There is a tremendous need, and we see that through the operation of the power plant, and ultimately, if TVA needs the electrons, they're going to buy them from the plant, and that means that the plant needs coal in order to fuel it.

Nachi Concey: But I think the ultimate so if you think I think the real question is does TVA need the electrons.

Elizabeth I. Loveman: And if you look at TVA is latest Q, which was just recently filed they've had record demand for electrodes.

Elizabeth I. Loveman: Because that ultimately is how this plays out.

Elizabeth I. Loveman: And.

Elizabeth I. Loveman: TBA has.

Elizabeth I. Loveman: Tremendous need we see that through the operation of the of the power plant.

Elizabeth I. Loveman: And ultimately if TBA needs the electrons theyre going to buy them from the plant and that means that the plant needs coal in order to fuel the plant.

Elizabeth I. Loveman: So sure.

Nachi Concey: Well, someone's going to have to put in capital, right? I mean, are you saying that the TVA might actually put in capital for repairs or for ongoing capital?

Elizabeth I. Loveman: Wireless someone's going to have to put in capital right.

Nachi Concey: Okay.

Nachi Concey: Are you, saying that the TVA might actually put in capital for repairs or for ongoing capex.

Elizabeth I. Loveman: I mean, I'm not really thinking about it. I'm not privy to the details, but my understanding is there's a provision in the waterfall with respect to, you know, the mechanics of the bond, that provides for capital that's needed for maintenance and repairs.

Nachi Concey: No I really think about.

Elizabeth I. Loveman: I am not privy to the details, but my understanding is there is a provision in the waterfall with respect to.

Elizabeth I. Loveman: The mechanics of the.

Elizabeth I. Loveman: The bonds that provides for.

Elizabeth I. Loveman: Capital that's needed for maintenance and repairs.

Nachi Concey: Yeah, the old bonds, right. I'm trying to understand whatever the new bond structure is, which I am not privy to.

Elizabeth I. Loveman: And if that holds on right.

Nachi Concey: And I'm trying to understand the whatever whatever the new bond structure, which I am not privy to I'm trying to understand yes.

Elizabeth I. Loveman: We don't have it; we're not privy to the terms of that agreement.

Speaker Change: Yes, we do.

Nachi Concey: Don't have we're not privy to the terms of that agreement.

Nachi Concey: Okay. All right. Thanks. And then I appreciated your comments at the beginning about the mercury standard. My understanding from some of the technical documents that EPA put out, and as you stated, it's pre-publication, is that EPA was actually predicting a relatively low additional OPEX requirement at Red Hills, with under a million a year. Your comment suggested actually, you know, sort of judicial relief of some sort, you know, a pretty pessimistic outlook on compliance across the board. Just trying to square those two.

Speaker Change: Okay alright. Thanks.

Nachi Concey: And then I appreciate your comments at the beginning about the.

Nachi Concey: Mercury standard.

Nachi Concey: My understanding from some of the technical documents that EPA put out and as you as you stated its pre publication.

Nachi Concey: Is that he was actually predicting a relatively low additional opex requirement at Red Hills was under $1 million a year.

Elizabeth I. Loveman: And is the truth somewhere in the middle? Or how should I think about that?

Nachi Concey: Your comment suggested actually.

Elizabeth I. Loveman: Sort of judicial relief of some sort of pretty pessimistic outlook on compliance cost, but just trying to square those two and is that true somewhere in the middle or how should I think about that.

Elizabeth I. Loveman: I think the whole thing is subject to massive litigation. I mean, one, the rules aren't final yet, and two, I think, you know, this is going to be litigated just like, prior EPA rules have been litigated. There's an interesting piece in the journal yesterday about, or at least I read it online last night. I assume it was a yesterday article about the challenges that the rules face. There's no question.

Elizabeth I. Loveman: I think the whole thing is subject to massive litigation.

Elizabeth I. Loveman: I think it's.

Elizabeth I. Loveman: Maybe what the rules are final yet.

Elizabeth I. Loveman: I think.

Elizabeth I. Loveman: This is this is going to be litigated just like.

Elizabeth I. Loveman: Prior EPA rules have been litigated.

Elizabeth I. Loveman: The interesting piece in the journal yesterday about.

Elizabeth I. Loveman: Or at least I read it online last night it I assume it was it yesterday article.

Elizabeth I. Loveman: About the challenges to the rule space.

Nachi Concey: There's no question of litigation. I agree with you, but the mercury standards that are in effect for non-lignite coal-fired power plants are in effect. I mean, they have survived. That was a decade ago. Correct. So, I guess what I'm trying to understand is... What there is tons of uncertainty, of course, on how the courts will look at this, and future administrations, of course, might look at this very differently as well. But I'm trying to try to understand what the actual cost of compliance might be at your customer, even a ballpark order of magnitude, like, is it tens of thousands, tens of millions, somewhere in between?

Elizabeth I. Loveman: There is no question of litigation.

Nachi Concey: I agree with you that the Mercury standards that are in effect for non lignite coal fired power plants are are in fact, I mean, they have they have survived.

Nachi Concey: That was a decade ago.

Nachi Concey: Correct.

Nachi Concey: Yes.

Nachi Concey: So I guess, what I'm trying to understand is.

Nachi Concey: What is.

Nachi Concey: Tons of uncertainty of course on how the quarters will look at this and future administrations of course might look at this very differently as well but.

Nachi Concey: Trying to trying to understand.

Nachi Concey: What the actual cost of compliance might be at your customer even like ballpark order of magnitude like is it tens of thousands or tens of million somewhere in between.

Elizabeth I. Loveman: I think it would be inappropriate for me to publicly speculate on information that I don't know. Sure. I mean, it's their power plant. I'm not, we don't operate any power plants, I'm not privy to that kind of information.

Speaker Change: I think it would be inappropriate for me to.

Elizabeth I. Loveman: Spec publicly speculate on it.

Elizabeth I. Loveman: Information that I don't know.

Nachi Concey: Sure, that makes sense. Last question.

Elizabeth I. Loveman: Sure.

Speaker Change: Yes, Sir.

Nachi Concey: We don't operate in a power plants I'm not privy to that kind of information.

Speaker Change: Sure makes sense.

Nachi Concey: So there was the $60 million dollar impairment charge in the last quarter. Can you help me understand the Mississippi business and, you know, the core asset, which is this long-term sales agreement? How much of the book value of that asset went away with that $60 million dollar impairment? Does that question make sense? Like, is the asset half the size that I used to think it was? Is it 90% of the size that I used to think it was?

Nachi Concey: Last last question. So there was the $6 million impairment charge in the last quarter.

Nachi Concey: Can you help me understand thinking of the Miss.

Nachi Concey: <unk> business and this.

Nachi Concey: The core asset, which is the long term sales agreement.

Nachi Concey: How much of the book value of that asset.

Nachi Concey: Went away with that $60 million impairment charge does that question make sense like how.

Nachi Concey: As the asset half the size that I used to think it was at that 90% of the fact that you used to think it was.

Elizabeth I. Loveman: I don't know. Liz and I are looking at each other trying to think about that.

Speaker Change: Liz and I are looking at each other trying to think about that.

Elizabeth I. Loveman: So I think you could see the coal supply agreement. You're talking about the intangibles related to the coal supply agreement? Oh, you're talking about all of that, sir? I'm talking about the enterprise value of the Mississippi business. How much smaller is it than it was in the third quarter?

Elizabeth I. Loveman: So I think you could see the coal supply agreement I think you were talking about that the intangible related to the coal supply agreement. So.

Elizabeth I. Loveman: So youre talking about all the asset I'm talking about the enterprise value of the Missy business basically how much smaller is it that it was an okay quarter.

Elizabeth I. Loveman: I don't think we've ever, or we have never disclosed, the asset value related to a specific...

Elizabeth I. Loveman: I don't think we've never disclosed.

Elizabeth I. Loveman: The asset value related to a specific.

Elizabeth I. Loveman: In our risk factor in the $10K previously, we said our assets at risk were around $130 million, and we took $5 million. We took half of that.

Elizabeth I. Loveman: And our and our risk factor in the 10-K previously we set our asset set revpar around $130 million.

Elizabeth I. Loveman: And we took okay.

Elizabeth I. Loveman: Yes.

Nachi Concey: Okay, that's really helpful. Thank you. And so when you were determining the, this is going back a quarter, I'm sorry, but when you were looking into financials and deciding how much to write off, was it primarily the relatively short-term decrease in sales that factored into that overall 60.8 million figure? Or was it also additional thinking around the life of that agreement?

Speaker Change: Okay. That's really helpful. Thank you and so when you were determining.

Nachi Concey: This is going back a quarter im sorry, but when you. When you were when you were looking into financials and deciding how much to write off.

Nachi Concey: Was it primarily the relatively short term decrease in sales that factored into that overall 68.

Nachi Concey: Figure or was it also additional thinking around the life of that agreement.

Nachi Concey: Well the trigger.

Elizabeth I. Loveman: was the December, I think it was the 15th, issue at the power plant. And, you know, as we're sitting there at year-end.

Nachi Concey: Was the December I think it was 15.

Elizabeth I. Loveman: Issue at the power plant.

Elizabeth I. Loveman: And as we're sitting there.

Elizabeth I. Loveman: Year ends.

Elizabeth I. Loveman: You know, you have this big event at the plant where nobody, at that moment in time, can assess exactly the extent of the damage or what it's going to take to repair it. It of course calls into question, What are our, what are we going to, what will our near-term deliveries be? They pretty quickly figured out that they could operate the plant they believed in on one boiler. We know they can, but they didn't see any other reasons related to this incident to prevent that.

Elizabeth I. Loveman: You have this big event at the plant, which nobody.

Elizabeth I. Loveman: At that moment in time can assess exactly the extent of the damage or what it's going to take to repair it.

Elizabeth I. Loveman: And of course calls into question.

Elizabeth I. Loveman: What are what are you going to well our near term deliveries be.

Elizabeth I. Loveman: That's pretty quickly figured out that they could operate the plant they believed on one boiler.

Elizabeth I. Loveman: We know that it can but they didn't they didn't see any reason any other reasons related to this incident.

Elizabeth I. Loveman: Pat.

Elizabeth I. Loveman: So as we looked at the situation where we could have an extended period of time where there's reduced deliveries to the plant. Given the fact that a mining operation is largely a fixed cost operation, that affects our economics pretty significantly, as we're seeing. So it's really that trigger with respect to the near term. When you think about, you know, the NPV of an asset, its near-term dollars count more than, far out, future dollars. And then, of course, you had to go through all the gap-required exercises to figure out your impairment. But it was the short-term effect of that that really triggered this assessment.

Elizabeth I. Loveman: So as we looked at the situation, where we could have an extended.

Nachi Concey: Okay, that makes sense. And I think I have one last question. How should I think about the match rule with respect to your other unconsolidated operations? Is there a different way I should think about that compared to the Mississippi situation?

Elizabeth I. Loveman: The period of time, where there is.

Nachi Concey: Reduced deliveries.

Speaker Change: To the plant.

Nachi Concey: Given the fact that our mining operation is largely a fixed cost operation that affects our economics pretty pretty significantly as well.

Speaker Change: Yes, yes.

Nachi Concey: So it's really that trigger with respect to the near term when you think about NPV of an asset near term dollar scalp or then.

Nachi Concey: Far out in the future dollars.

Nachi Concey: And then of course, you had to go through them, all but GAAP required exercise to figure out your impairment.

Nachi Concey: But it was the short term.

Nachi Concey: Effect of that that really triggered this assessment.

Nachi Concey: Okay.

Speaker Change: That makes sense and I think I think last question.

Speaker Change: How should I think about.

Nachi Concey: The macro with respect to your other unconsolidated operations is there a different way I should think about that.

Speaker Change: Compared to the situation.

Elizabeth I. Loveman: Let me explain what I mean. Matt's rule doesn't apply to our minds. It applies to our customers' power plants, and those are all lignite-powered power plants. So each of them, of course, has their own technologies with respect to their boilers and their environmental controls, and I think each of them will be assessing these independently.

Speaker Change: Let me.

Speaker Change: If you.

Elizabeth I. Loveman: I mean, there are ads mats rule doesn't apply to our minds. It applies to our customers' power plants and those are all lignite powered power plants. So each of them of course have their own technologies.

Elizabeth I. Loveman: With respect to their boilers and their environmental controls and I think each of them will be assessing these independently.

Elizabeth I. Loveman: Okay.

Nachi Concey: I appreciate your time with me this morning.

Speaker Change: Appreciate your time with me this morning.

Speaker Change: Yes, thanks for your questions.

Operator: And your next question comes from John Huber with Sabre Capital. John, your line is open.

Nachi Concey: And your next question comes from John Hubert with Saba Capital John Your line is open.

John C. Butler: Yeah, thanks for The thoughtful replies have been a great call, a lot of good education, and I appreciate the history and some of the... Some of the minerals.

John C. Butler: Yes, thanks for.

John C. Butler: The thoughtful reply that had been a great call a lot of a lot of good education.

John C. Butler: I appreciate the history yet.

John C. Butler: Some of the minerals.

John C. Butler: The management history there was quite interesting. My question is about that business. You know, I follow a few of the royalty companies, and I think the market for minerals has been quite competitive over the last few years, and I'm just wondering if you guys share that view and, if so, why. I'm wondering what kind of advantage you guys have, what kind of networks you have, what advantage you think gives you guys the ability to earn the returns that you're generating, which, according to this, I'm looking at like $68 million of investment capital over the last few years.

John C. Butler: Management history, there was quite interesting.

John C. Butler: My question is on that business.

John C. Butler: I follow a few of the royalty companies and I think the market for the minerals has been quite.

John C. Butler: It's been it's been quite competitive over the last few years and I'm. Just wondering if you guys share that view.

John C. Butler: And if so.

John C. Butler: I am wondering what.

John C. Butler: Kind of what advantage you guys have like what kind of networks do you have what advantage do you think gives you guys the ability to earn the returns that youre generating which according to what I'm.

John C. Butler: Im looking at them I'm looking at like $68 million.

John C. Butler: Investment capital over the last few years and.

John C. Butler: I think you made around $19 million in profit, so that looks like a pretty good return. So, I'm just kind of wondering what your... You know, how you guys are viewing your advantage in what I think is a pretty competitive market right now. Yeah.

John C. Butler: I think you did around $19 million of profit so it looks like a pretty good return.

John C. Butler: I'm just kind of wondering what you are.

John C. Butler: How you guys are viewing your advantage in what I think is a pretty competitive market right now.

Elizabeth I. Loveman: Yep, so... Let's go back to history. And look, I would, I would love to say that we're earning that kind of return on the investment of $68 million. But, All right.

Speaker Change: Yeah. So.

Speaker Change: So let's go back to the history.

Elizabeth I. Loveman: Look I wish I would love to say.

Elizabeth I. Loveman: That we're earning that kind of return on the investment is $6 million to $8 million, but.

Elizabeth I. Loveman: Hi.

Elizabeth I. Loveman: I went through the history lesson of where we got the Appalachian minerals, which are the biggest income producers for us, and our cost basis in those things is like zero because they were acquired eons ago, so there's a bunch of that Appalachian stuff that has no meaningful asset on the ballot sheet. So, when we look internally at our numbers, our returns right now are astronomical. We believe over time, as we make investments, that we think this business is going to be a, you know, ultimately, as we get more and more and more new money invested, we think we're going to earn high profits. I'd like to think in the low 20s, but high teens, on our investment.

Elizabeth I. Loveman: I went through the history lesson of where we got the Appalachian minerals, which are the biggest income producers for us.

Elizabeth I. Loveman: And our cost basis in those things is zero.

Elizabeth I. Loveman: Because they were acquired.

Elizabeth I. Loveman: To go so there's a bunch of that Appalachian stuff that has no meaningful asset on the balance sheet.

Elizabeth I. Loveman: So when we look internally at our numbers our returns right now are astronomical.

Elizabeth I. Loveman: We believe over time as we make investments that we think this business is going to be.

Elizabeth I. Loveman: Ultimately as we.

Elizabeth I. Loveman: Get more and more and more new money invested we think we're going to earn high teens I'd like to thank low twenties, but high Thai teams.

Elizabeth I. Loveman: On our investments.

Elizabeth I. Loveman: And it's this interesting point where we're investing in a business that's got extraordinarily high returns, and it's going to blend down to something in the high five, as you've noted. But what's our advantage? I think our big advantage is that we have assembled a great team of people that are very thoughtful about their analysis, and one of the things that makes them a great fit for us is they take a very long-term If you've spent time looking at the company, we're perfectly happy to take decades-long views of investment. Um, when we acquire minerals, we're perfectly happy to acquire minerals that won't be developed for 10 or 15 years.

Elizabeth I. Loveman: And.

Elizabeth I. Loveman: Or at this interesting point, we're investing in a business Thats got extraordinarily high returns and it is going to blend down to something in the high teens.

Elizabeth I. Loveman: As you've noted.

Elizabeth I. Loveman: <unk>.

Elizabeth I. Loveman: But what's our what's our advantage I think our big advantage. One is I think we have assembled a great team of people.

Elizabeth I. Loveman: That are very thoughtful about their analysis.

Elizabeth I. Loveman: And one of the things that makes him a great fit for us.

Elizabeth I. Loveman: Is they take a very long term view of investing in this space.

Elizabeth I. Loveman: Which is partly how they're wired, it's 100% how we're wired.

Elizabeth I. Loveman: Spent time looking at the company.

Elizabeth I. Loveman: We are perfectly happy to take decades long views of investments.

Elizabeth I. Loveman: So when we acquire minerals, we can we're perfectly happy to require minerals that won't be developed for 10 or 15 years.

Elizabeth I. Loveman: Because we're building that base that's going to deliver dividends way out into the future. And you don't have to, you don't have to pay a lot for them, but we're willing to look at those packages. I think a number of the competitors, certainly not all, but a number of the other people that play in this space are either doing so with money that's coming out of private equity firms, or they're borrowing money, or they're operating a yield co, which means they've got to constantly be feeding the yield co-model, which means their primary interest is in producing wealth.

Elizabeth I. Loveman: Because we're building that base, that's going to deliver.

Elizabeth I. Loveman: Dividends way out into the future and you don't have you don't have to pay a lot for those but we're willing to look at those packages.

Elizabeth I. Loveman: Thank.

Elizabeth I. Loveman: Have the competitors certainly not all but a number of the other people to play in this space.

Elizabeth I. Loveman: Are either doing so with money, that's coming out of private equity firms or they are borrowing money or.

Elizabeth I. Loveman: They're operating a yieldco.

Elizabeth I. Loveman: Which means they've got to constantly be feeding.

Elizabeth I. Loveman: The Yieldco model, which means their primary interest is in producing wells and that's what they want to buy and that's what they that's what they bid up.

Elizabeth I. Loveman: And that's what they want to buy, and that's what they bid on. But if you start diluting that with things that aren't going to get developed for two years, five years, 10 years, 15 years, they're less interested in that. So it's less frothy in that part of the market, at least. Generally speaking, you know, in every kind of market, there are exceptions to the rule. But generally, that's kind of what we see, and it's the long-term view that we think gives us an advantage.

Elizabeth I. Loveman: You start diluting that with things that are going to get developed for two years five years 10 years 15 years theyre less interested in that so it's less frothy.

Elizabeth I. Loveman: In that part of the market at least.

Elizabeth I. Loveman: Generally speaking.

Elizabeth I. Loveman: I mean every card kind of market theres exceptions to the rule, but generally that's kind of what we see and it's the long term view that we think gives us gives.

Elizabeth I. Loveman: <unk> gives us an advantage.

Speaker Change: Interesting helpful.

John C. Butler: Interesting. Helpful. Yeah, very helpful. What I noticed you have a few in some undeveloped acreage in the Williston Basin. How much do you think, I don't know if you guys have a way to break this down, but of the $68 million that you've spent since 2020, how much of that is undeveloped, or how much of that is untapped potential for future production?

Speaker Change: Yes very helpful.

John C. Butler: I noticed you have a few in.

John C. Butler: Some undeveloped acreage in the Williston basin, how much do you think.

John C. Butler: I don't know if you guys have a way to break this down but of the $60 million that you spent in 2020.

John C. Butler: How much of that is undeveloped or how.

John C. Butler: How much of that is sort of untapped potential for future.

John C. Butler: Production.

John C. Butler: I don't know. I will give you a very honest answer and say, I don't know. I mean, Liz is flipping. Liz is flipping in the air

Speaker Change: I don't know.

Speaker Change: I'll give you a very honest answer and say I don't know.

John C. Butler: Sure.

John C. Butler: Okay.

John C. Butler: This is slipping deliveries is flipping in the K around I mean, we have <unk>.

Elizabeth I. Loveman: We have provided some of that data in our 10-K, so I don't know if you've looked through that, but that would provide you with some additional information. Start on page 157 of the 10K.

Elizabeth I. Loveman: Did some of that data in our 10-K. So I don't know if you look through that that would provide you some additional information.

Elizabeth I. Loveman: Is that list.

Elizabeth I. Loveman: Yes.

Speaker Change: Fair enough.

Elizabeth I. Loveman: After 10-K.

Elizabeth I. Loveman: Okay.

John C. Butler: What? Um, yeah, I see that there's I see the amount of acreage I was just trying to get a sense for for how much. You know, maybe if you had a view of what I'm really trying to do holistically, to get a sense for, from a strategic level. How are you guys thinking about the capital that you're investing in this? So you've touched on that, you gave me a nice background. That was super helpful.

Elizabeth I. Loveman: What.

Speaker Change: Yes, I see that there is I see the amount of acreage I was just trying to get a sense for.

John C. Butler: Or how much.

John C. Butler: Maybe if you had a view of what.

John C. Butler: What I'm really trying to do holistically to get a sense for.

John C. Butler: A strategic level, how are you guys thinking about the capital that you're investing in that you've touched that you gave me a nice background that was.

John C. Butler: Super helpful.

John C. Butler: You mentioned, I think you mentioned, high teens returns. Obviously, you have this sort of legacy assets, these legacy assets that have been part of the company for decades and decades, but when you look at a project, I'm sure you're coming up with some sort of IRR calculation, but I'm trying to get a sense for how you compare that to perhaps other uses of capital within the business. Um, including, you know, perhaps buying your own stock back, which you've done some of. So just wanted to get a sense for what types of return hurdle rates you're looking at for this minerals business.

John C. Butler: You mentioned I think you mentioned like high teens returns.

John C. Butler: Obviously, you have this sort of legacy assets. These legacy assets that had been part of the company for for decades and decades.

John C. Butler: What.

John C. Butler: How are you when you look at a project are you.

John C. Butler: I mean I am sure you are coming up with some sort of IRR calculation, but I am trying to get a sense for how you compare that to perhaps other other uses of capital within the business.

John C. Butler: Including perhaps buying your own stock back, which you've done some up so just wanted to get a sense for what types of return hurdle rates, you're looking at for the.

John C. Butler: For this minerals business.

Elizabeth I. Loveman: So when we look at investments in this business, you're right. I mean, we're looking at, you know, IRR kind of metrics as well as other metrics. But, you know, IRR is certainly a piece of it. And all of IRR's cousins, you know, like NPV and ROTC calculations, things like that.

John C. Butler: So when we look at investments in this business you are right I mean, we're looking at.

Elizabeth I. Loveman: <unk> kind of kind of metrics as well as other metrics.

Elizabeth I. Loveman: Certainly a piece of it.

Elizabeth I. Loveman: And all of the IRS cousins, like NPV and ROTC calculations things like that.

Elizabeth I. Loveman: Um, when we're looking at projects, I mean, we look at the projects as stand-alone projects. We're, you know, thinking about them in the context of what it costs to add this to the portfolio, and, you know, there's an overhead component, certainly. But when we look at stuff, we're trying to buy things that we think are going to deliver IRRs in the high teens, understanding that the undeveloped, anything that's not producing or discounting, you know, what its value might be in the future, because you just don't know.

Elizabeth I. Loveman: When we're looking at projects I mean, we're looking at the projects as Standalone projects, where.

Elizabeth I. Loveman: I'm thinking about them in the context of what does it cost to add this to the portfolio.

Elizabeth I. Loveman: There is an there is an overhead components certainly, but when we look at stuff. We're trying to buy things that we think are going to deliver.

Elizabeth I. Loveman: IRR is in the high teens understanding that the undeveloped anything thats not producing we're discounting.

Elizabeth I. Loveman: What its value might be sure.

Elizabeth I. Loveman: Because you just don't know.

Elizabeth I. Loveman: We've got high confidence that it's going to get developed, but we don't know exactly when and we certainly don't know what the prevailing oil and gas prices will be at the time. So, you know, we attribute. We're shooting for the high teens based on what we have a reasonable sense of achieving.

Elizabeth I. Loveman: We've got high confidence that it's going to it's going to get developed.

Speaker Change: We don't.

Elizabeth I. Loveman: No exactly when and we certainly don't know what prevailing oil and gas prices will be at the time.

Elizabeth I. Loveman: So we attribute.

Elizabeth I. Loveman: We're shooting for high teens based on what we have a reasonable sense of achieving.

Elizabeth I. Loveman: And the other stuff is, you know, over and above, it can outperform; it can underperform, too. But we think by buying lots of, you know, highly diversified packages of mineral interest. We're getting a lot of exposure to a lot of acres and a lot of basins, and we're getting oilier. We used to be very gas-heavy, and that's creating the right dynamic that we're looking for. And I will tell you, over time... A lot of Appalachian natural gas has been developed, and so we're going to be way out on the decline curve, you know, eventually. And so it won't be as meaningful to the portfolio at that point.

Elizabeth I. Loveman: And the other stuff is.

Elizabeth I. Loveman: Over and above can outperform it looked at December picking underperformed too, but we think by buying lots of.

Elizabeth I. Loveman: Highly diversified packages of mineral interests.

Elizabeth I. Loveman: We're getting a lot of exposure to a lot of acres at a lot of basins and we're getting oily or we used to be very gas heavy.

Elizabeth I. Loveman: And Thats.

Elizabeth I. Loveman: Thats, creating the right dynamic that were looking for.

Elizabeth I. Loveman: I will tell you over time.

Elizabeth I. Loveman: A lot of the Appalachian natural gas has been developed and so we're going to be way out onto the decline curve.

Elizabeth I. Loveman: Eventually and so it won't be as meaningful to the to the portfolio at that point.

John C. Butler: So it sounds like you may be interested more in acquiring oil assets than gas. I know a lot of the legacy stuff, the Appalachian, and a lot of the stuff on the Gulf Coast is more gas related, but some of the Permian and Rockies are more oily. Is that kind of where you'd like to go?

Speaker Change: So it sounds like is it is it is what youre, saying it sounds like you may be interested more in acquiring oil assets, yet and a lot of the legacy stuff the Appalachia.

John C. Butler: Set in the Gulf Coast is more gas related but some of the Permian and Rockies is more oily or is that gotta wear where you'd like to.

Elizabeth I. Loveman: Yeah, I mean, you know, if you go back to 2018, all of our eggs were in Appalachian natural gas. Right, that's what we had. And so, if you think about diversifying, we want to be in other basins, we want to have more oil, we want to have more operators, we want to, we think it's, we like the asset, we like the space, we like this asset category a lot, and so, you know, we want to diversify that position into other things in the United States.

Speaker Change: Yes, I mean, if you go back to 2018.

Elizabeth I. Loveman: All of our eggs were in Appalachian natural gas.

Elizabeth I. Loveman: Right, that's what we had and so if you think about diversify we want to be in other basins. We want to have more oil we want to have more operators.

Elizabeth I. Loveman: We want to we think it's we like the asset we like the space, we like this asset category.

Elizabeth I. Loveman: <unk>.

Elizabeth I. Loveman: And so we wanted to we wanted to diversify that position into other things in the United States.

John C. Butler: Yeah, that's great. The Catapult team, this $20 million, I had a question on maybe, I don't know what you can share with us, like how they're incentivized, but what happens if you can't find assets that meet your hurdle rate? Is it something where, hey, if we don't get to the $20 million, that's OK, or not?

Speaker Change: Yes, that's great.

Elizabeth I. Loveman: The accountable team.

John C. Butler: This $20 million I had a question on maybe I don't know what you can share with us like how theyre incentivized, but.

John C. Butler: What happens if you can't find assets that meet your hurdle rate.

John C. Butler: Is it is it something where hey, if we don't get to the $20 million, it's okay or.

Elizabeth I. Loveman: Without getting into the nitty-gritty details of our incentive plans, we take a one-team approach to incentives. Everybody that participates in incentive plans is operating so that we're all incentivized to help each other. Watch sports; you're going to always know who wins. So you know, if they invest, that's great. If they don't invest, that's okay, too, because everybody participates in the same incentive programs that are tied to the overall company.

John C. Butler: Without getting into the.

John C. Butler: Nitty gritty details of our incentive plans.

Elizabeth I. Loveman: Take a one team approach to incentives.

Elizabeth I. Loveman: Everybody that participates incentive plans.

Elizabeth I. Loveman: All operate.

Elizabeth I. Loveman: We're all incentivized to help each other make it a team sport.

Elizabeth I. Loveman: Watch sports, you're going to always know that wins.

Elizabeth I. Loveman: So.

Elizabeth I. Loveman: If they if they invest thats great. If they don't invest that's okay too because everybody participates in the same incentive programs that are tied to total company performance.

Elizabeth I. Loveman: Okay.

John C. Butler: Yeah, that's great. Okay, let's think about your heart. We think if you carve people off into individual groups, they're going to start focusing on what they're interested in. It's true of me, it's true of everybody, right? Everybody will start just focusing on what they're interested in. And that's not how you build, you know, a company for the next 100 years. No, well, well said. That's exactly what I would completely agree with, and that's music to my ears.

Speaker Change: Yeah, that's great Okay, let's think of here.

John C. Butler: We think of your card people off into individual groups theyre going to start.

John C. Butler: People by their very nature, it's true of me, it's true of everybody right everybody will start just focusing on what they are interested in.

Speaker Change: That's not how you build.

Speaker Change: Company for the next 100 years.

Speaker Change: No well said that's exactly.

Speaker Change: I would completely agree and it's it's.

Speaker Change: That's music to meters.

John C. Butler: So you don't want to have, I've seen too many situations where you have incentive structures where, hey, we're going to allocate up to 20 million, and that typically means we're going to allocate 20 million, come hell or high water. And that's not necessarily the best use of capital if there's some other source of, you know, returns that you can generate elsewhere within the business.

Speaker Change: You don't want to have.

John C. Butler: Too many situations, where you have incentive structures, where.

John C. Butler: We're going to allocate up to $20 million and that typically means we're going to allocate $20 million.

John C. Butler: Come Hell or high water.

John C. Butler: It's not necessarily the best use of capital there is some other sources.

John C. Butler: Return that you can generate elsewhere within the business.

John C. Butler: So that's great. I had a quick question on, and thank you for that, again, that's really helpful on the minerals. On CAPEX in North American mining, I was reading the filings this morning, so I may have missed this or misunderstood this, but I believe that the $23 million of CAPEX that you spent at the Nevada project is reimbursed by the mine owner, is that correct?

Speaker Change: That's great I had a quick question on and thank you for that again Thats really helpful on the minerals.

John C. Butler: On the Capex in North American mining.

John C. Butler: I was reading the.

John C. Butler: The filings this morning said EMEA.

John C. Butler: This or misunderstood this but I believe that the $23 million of Capex that you spent.

John C. Butler: At the Nevada project is.

John C. Butler: Reimbursed by the.

John C. Butler: The mine owner is that correct.

Elizabeth I. Loveman: Yes, from a cash standpoint, we'll be reimbursed over five years. From a GAP standpoint,

Speaker Change: Yes from a cash standpoint will be reimbursed over five years from a GAAP standpoint.

Elizabeth I. Loveman: The revenue is recognized over the useful life of the app. Okay, that's great.

Elizabeth I. Loveman: Revenue is recognized over the life of asset.

Elizabeth I. Loveman: Although GAAP and cash.

Elizabeth I. Loveman: Great.

John C. Butler: Right, okay, so you get paid back over five years in cash. And then, of that 33 million that I think you've guided to in that business, is that, what percentage of that is reimbursable, if any? The majority of that is for the remaining North American mining business, not for the rest of it.

Elizabeth I. Loveman: Right. Okay. So you get paid back over five years in cash.

John C. Butler: And then of that $33 million that I think you've guided to in that business is that is there.

John C. Butler: What percentage of that is reimbursable if any.

John C. Butler: It's a small amount and majority of that is funded a small remaining north American mining business not for Satya.

Elizabeth I. Loveman: I'm sorry to say this, but Christy's telling me that we have like one minute left on this call before we get cut off. You're the first third-party caller we've ever had, so we're super excited about the call today.

John C. Butler: Gotcha Okay.

Speaker Change: Sorry, Chris.

Elizabeth I. Loveman: Christy is telling me that we've got like one minute left on this call before we get cut off Youre. The first third caller we've ever had.

Speaker Change: We're super excited no problem at all.

Elizabeth I. Loveman: No problem. My questions are answered. Yeah, I appreciate the thoughtful replies. I can follow up later with a couple other quick questions, but no, great call. I appreciate the answer.

Speaker Change: My questions are answered, yes, I appreciate the thoughtful replies and yes I can follow up later with a couple of other quick questions.

Elizabeth I. Loveman: Great color I appreciate the answers.

Speaker Change: Great. Thank you.

Elizabeth I. Loveman: Yeah.

Christina Kmetko: Great. Well, thank you so much, everyone. At this time, I'll turn it back over to Christina Kmetko for closing remarks.

Elizabeth I. Loveman: Great well.

Elizabeth I. Loveman: Well. Thank you so much everyone. At this time I will turn it back over to Christina <unk> for closing remarks.

Christina Kmetko: Okay, well, with that, we will conclude our very robust Q&A session. As JC said, that was very informative for everybody. Before we conclude, I would like to provide a few reminders. A replay of the call will be available later this morning. We'll also post a transcript on the website when it becomes available, and if you do have any follow-up questions, please reach out to me. My phone number is in the release. So, I hope everyone has a great day and I'll turn it back over to Bailey to conclude the call.

Christina Kmetko: Okay, well with that we will conclude our very robust Q&A session as J P said.

Operator: This concludes today's conference call. A replay of the conference will be available for seven days ending May 9th, 2024. To access the replay, please dial 1-800-645-7964 or 1-757-849-6722, then enter the playback ID 9435, followed by the pound key. Thank you for attending. The host has ended this call. Goodbye.

Christina Kmetko: Very informative for everybody before we conclude I would like to provide a few reminders a replay of the call will be available.

Operator: Later this morning, well also post the transcript on the website when it becomes available and if you do have any follow up questions. Please reach out to me my phone numbers are on the release. So I hope everyone has a great day and I'll turn it back over to Bailey to conclude the call.

Operator: This concludes today's conference call a replay of the conference will be available for seven days ending may nine 2024 to access the replay. Please dial one 806 457 96 four.

Operator: 17578496722.

Operator: And entered the playback IV 90, 435, followed by the pound key.

Operator: For attending.

Operator: The host has ended this call goodbye.