Q3 2024 Warrior Met Coal Inc Earnings Call
Cole: Good afternoon, my name is Cole and I will be a conference operator today. At this time I would like to welcome everyone to the Warriors at Quarter 2,024 financial results conference call.
Cole: At this time, our lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session.
Speaker Change: This call is being recorded and will be available for the replay on the company's website. I would now like to turn the call over to D. Andre Wright, Vice President of External Affairs and Communications. Please go ahead sir.
Speaker Change: Good afternoon and welcome everyone to Warrior's 3rd quarter 2024, our name's conference call.
Speaker Change: Before we begin, let me remind you that certain statements made during this call, including statements relating to our expected future business and financial performance, may be considered for looking statements, according to the private securities litigation reform act.
Speaker Change: Board-looking statements by their nature, a dress matters that are two different degrees uncertain.
Speaker Change: These on Thurne Seas, which are described in more detail in the company's annual and quarterly reports, filed with the SDC may cause our actual future results to be materially different from those expected in our forward-looking statement.
Speaker Change: We do not undertake to update our forward-looking statements, whether as a result of new information, future events, or otherwise, except as maybe required by law.
Speaker Change: For more information regarding Ford-looking statements, please refer to the company's personally and FEC violence.
Speaker Change: We will also be discussing certain non-gap financial measures which are defined and reconciled to comparable gap financial measures in our 2024 third quarter press release furnished to the FEC on form 8K which is also posted on our website.
Speaker Change: Additionally, we will be filing our form same cue for the quarter-ended September 30, 2024 with the SEC this afternoon.
Speaker Change: You can find additional information regarding the company on our website at www.wariermetcold.com which also includes a third quarter supplemental slide deck that was posted this afternoon.
Speaker Change: On the call of me today, our Mr. Walt Scheller, Chief Executive Officer and Mr. Dale Boyles, Chief Financial Officer.
Speaker Change: After our formal remarks, we'll be happy to take any questions.
Speaker Change: With that, I will now turn the call over to Walt.
Walt Scheller: Thanks to the Andre, hello everyone and thank you for taking the time to join us today to discuss our third quarter of 2024 results.
Walt Scheller: and I'm from my remarks. Dale will review our results in a dismal detail. Then you'll have the opportunity to ask questions.
Walt Scheller: We are pleased with our third quarter results despite week global demand and high quality steel making coal prices reaching a three year low.
While we wait for market conditions to improve, we are carefully managing spot opportunities and our strategically exercising patients with certain geographies.
Walt Scheller: The Spidey External Market Factors impacting our results, the third quarter represented a significant and positive milestone for us as we produced the first development tons from our World Class Blue Creek Growth Project. On time and within budget.
Walt Scheller: with our high quality asset base, high-inflatable cost structure, and a high-performing workforce where well-positioned capitalized on improved global-spield demand when the market turns.
Walt Scheller: In that same time, we're advancing the Blue Creek Project completion with a rigorous focus on cost and execution.
The third quarter turned out to be weaker than we expected for our markets. Primarily driven by a conference of weaker demand, excess Chinese steel export into our customers' markets and ample supplies to making calls.
Walt Scheller: The reality of higher export volumes of lower cost Chinese steel has been a growing concern for some time.
Walt Scheller: Impacting all steel producing reasons across the world.
Assaults, global steel prices have either extended their downward trend or remained at low values, challenging our customers' margins.
Walt Scheller: The consequences of the vexers, Chinese steel, also in pack our own markets.
Walt Scheller: This is because Chinese skill production predominantly relies on domestic calls and land lost Mongolian calls. It was typically the United Impact and Global Seabornment and Met Call Bally.
A Lowest Table Production from Australia, the USA and Canada, these factors have created the lowest pricing environment for still making coal since June of 2021.
Our primary index, the PLV FOB Australia, end in the third quarter at $186 per short time.
Walt Scheller: which was twenty-six dollars lower than the end of the second quarter at two hundred and twelve dollars per short time.
Walt Scheller: During the month of September, the PLV FB Australian Index established a low point for the year of $163 per short time.
Likewise in September, the PLV CFR China Index also established its low point of the year at $177 per short time.
Walt Scheller: Similar declines will observe with the second tier in the season, although both in the season display different levels of volatility in relation to the PLC FOB Australia Index.
We achieved the consolidated gross price realization of 93% in the third quarter.
Walt Scheller: This was the function of product mix, geography and trade rate.
Walt Scheller: At these low prices, we believe that several producers of steel making coal have not only experienced significant margin erosion, but may also have experienced realizations below their total cash cost.
suggesting that the current pricing environment is not sustainable for extended periods of time.
Walt Scheller: While we expect steel making coal prices to improve slightly in the fourth quarter, we believe the pricing environment will remain under pressure, during the persistent weakness and the global steel markets, and the late infrastructure spending in India.
Speaker Change: According to the World Steel Association Monthly Report, Global Pig Iron Production decreased by 3.3% in the first nine months of 2024.
Speaker Change: has compared to the prior year period.
Speaker Change: and the World's largest production region, fell by 4.6% for the same period.
Speaker Change: The rest of the world's pig iron production experienced a more modest decline of 0.5% for the first nine months of the year.
Speaker Change: India remains a bright spot with a growth rate of 3% and is expected to continue growing with new blast furnace capacity coming online later this year.
There have a lot of reasons also experienced positive growth for the period, such as Brazil and certain European countries.
and I will ever go against with largely offset by declining production from Japan and South Korea.
Speaker Change: Now let me turn back to our third quarter results.
A third quarter sales volume of 1.9 million short tons of 17.5% lower than the comparable quarter last year.
Speaker Change: As I said earlier, we're carefully managing spot opportunities and strategically exercising patients with certain geography until the market improves.
Speaker Change: Our South-Bod Geography in the third quarter break down as follows.
44% in the Europe, 41% in Asia, and 15% in the South America.
Speaker Change: The majority of the sales in Asia in the third quarter were the customers in Japan, China, and India.
Speaker Change: As we've previously noted, demand from the Asian steel producers has been growing, resulting in higher sales to that geography.
Speaker Change: Well, sounds from our traditional markets in Europe and South America remain lower primarily due to weak spot market opportunities.
Speaker Change: Our spot volume was 23% in the third quarter of 2024, which was primarily sold into the Asian market.
This percentage was significantly lower than the most part of the amounts for the first and second quarters of this year as we carefully manage spot opportunities during this period of low steel making coal prices.
For the full year, we expect our spot volume to range between 25 to 30% of total sales volume.
Production Boyle in the third quarter was 1.9 million short tons compared to 2 million short tons in the same quarter of 2023. Representing a 3.8% decrease.
During the third quarter, we commence continuous minor development of the first long-wall panel at a world-class Blue Creek Growth Project.
Producing the first development tons of 39,000 short tons.
Our Collin's inventory increased slightly to 915,000 short tons, which includes the blue creek development tons from 895,000 short tons at the end of the second quarter.
Speaker Change: During the third quarter, we spent $123 million on cat backs in mind development.
of that amount, CapEx spending total $116 million, which included $94 million on the development of Blue Creek.
My development spending on the Blue Creek Project was $7 million during the 3rd quarter 2024.
Speaker Change: Now that we've started developing the first loan wall panel at Blue Creek, our mind development costs will continue to grow during the remainder of the year and until the loan wall starts production.
Speaker Change: with WSWC in the second quarter of 2020.
Speaker Change: A Blue Creek Growth Project continues to make excellent progress. During the third quarter, we completed the installation and commissioning of the service gauge, slope belt, slope car, and raw coal belt.
and the completion of these major components allow us to begin development of the initial moment of panel with the first continuous minor unit.
On the surface infrastructure components, we continue to make significant progress on the construction of the preparation plant, which is expected to be online in the middle of 2025.
On the Cold Transportation Components, Good Progress is made on the construction of the approximately 10-mile-long Clean Cold Belt Structure.
Speaker Change: with the first mile on the air that completed.
Snetty Progress continued during the third quarter on the Ray Allen Barrel Roadouts as well.
All of these components remain on schedule.
Speaker Change: In the near term, we're focusing on increasing our head count of blue creek in order to start two additional continuous minor units in the fourth quarter.
Currently we're on track to meet those goals.
We're very pleased that the development for the first law model panel started on schedule in the third quarter as a originally expected. And we're on track to produce approximately 200,000 short tons of high-volage steel making coal in the second half of 2024.
As we've said before, the development tunnel is produced from the second half of this year to the first half of 2025, are expected to be sold in the second half of 2025 after the preparation plane comes online.
including the 90-cool million dollars we invested during the third quarter of 2024. Year-to-date development, standing on Blueprint, totaled $246 million.
We expect to invest approximately 325 to 375 million dollars in 2024 on the project.
and the first one is the first one.
With the entire project to date through the end of 34,000 24, even best at a total of 612 million dollars.
We remain focused on tight capital spending discipline to ensure the project will be completed with on our reset baseline cost estimate on the original schedule.
Speaker Change: including the Long Wall startup in the second quarter of 2021.
The currently have sufficiently liquidity on hand to complete the project within the baseline cost estimate.
Luke Creek represents one of the last remaining untapped premium high quality high ball-a co-reserves in the U.S. and we anticipate our co-valuete premium prices.
We expect incremental annualized production of 4.8 million short tons of premium high-volage steel making coal after the start-up of the law wall. We will enhance and strengthen our already strong, global cost-curt positioning and deliver incremental profit and cash flows.
I'll now ask Dale to address what third quarter results in greater detail.
Thanks for watching.
Speaker Change: The spite of the weaker global demand for steel making coal in the third quarter of 2024. We continue to deliver strong operational and financial performance by leveraging a high-quality asset strong operational competency.
For the first quarter of 2024, Warrior recorded net income on a gap basis of $42 million or $80 per diluted share compared to net income of $85 million or $1.64 per diluted share in the same quarter of 2023.
Now I'm Gapajessa Net Encomp for the third quarter, explaining the non-recurring business and eruption expenses, was unchanged at 80 cents per diluted chair.
Speaker Change: This compares to a just-in-net income of $1.85 per diluted chair in the same quarter of 2023.
These decreases quarter of a quarter will primarily driven by the 17-2% lower cell volume and a 7% lower average net selling price.
This reduced our cash margin per ton to $48 per short ton in the third quarter of 2024 from $70 per short ton in the same quarter of last year.
Speaker Change: We reported a just an EBITDA of $79 million in the third quarter of 2024 compared to $146 million in the same quarter of last year.
Speaker Change: Our Justice EBITDA margin was 24% in the third quarter of 2024 compared to 34% in the same quarter of last year.
Our Justin E. But a margin per ton on was 42 dollars per short ton from 3rd quarter of 2024 As compared to 65 dollars per short ton in the same quarter of last year.
Speaker Change: As I previously mentioned, these decreases, quarter over quarter, were primarily driven by the 17-1.5% lower sales volume, a 7% lower average net selling price, and slightly higher cost.
Speaker Change: Total revenues were $328 million in the third quarter of this year compared to $423 million in the third quarter of 2023.
This overall decrease of $96 million was primarily due to a $73 million decrease in sales volume, combined with a $23 million decrease due to the lower average net selling prices.
Speaker Change: plus lower-to-merage and other charges.
As Walt noted earlier in his comments, the decrease in sales volume was primarily driven by our selectivity with spot sales, and our patients in waiting for market conditions to improve in the near-term.
The Merge and other charges were $3 million, so the work compared to the third quarter of 2023, and resulted in an average net selling price of $172 per short ton in the third quarter of 2024. Compared to $185 per short ton in the same quarter of last year.
Cash cost of sales in the third quarter of 2024 was $230 million, or 72% of mining revenues compared to $250 million or 62% of mining revenues in the third quarter of 2023.
of the $29 million decrease in cash cost of sales, $45 million of the decrease was primarily driven by the 17 1.5% decrease in sales volumes and lower variable transportation and multi-cost.
These decreases were partially offset by $16 million of higher production costs for employee wages and incentives, associated with a higher hit count and higher supply and maintenance cost.
Cash Cost of Sales for Short Time, F.O.B.Port, was approximately $123 in the third quarter of this year, compared to $115.3 in the third quarter of 2023.
Although higher than last year's third quarter, our fourth quarter cash cost per time this year will similar to the second quarter of this year and is running slightly below the midpoint of our four-year guidance.
Cash calls for time remains on track for the full year and in line with our average net selling price here today.
Speaker Change: As a reminder, when we established guidance for the full year of 2024, back in February, we included additional calls for hiring approximately 250 people and offering the minds at a higher capacity rate after the labor strike ended in the first half of 2022.
Our cash cost of production from the third quarter of 2020, for over 66% of our total cash cost per short time compared to 62% in the same quarter last year.
Overall, Transportation Wolti calls with 34% of our cash calls to sales for short-time in the third quarter of this year on lower average net selling prices.
Compared to 38% in the same quarter last year.
As a result of the lower average net selling price and changes in our cash call, our cash bargering for short time with 48 dollars in the third quarter of this year compared to $70 in the same quarter of last year.
FGNA expenses were about $11 million, or 3.5% of total revenues in the third quarter of 2024, and were slightly higher than the third quarter of last year of 2.6%.
Speaker Change: This is primarily due to an increase in employee-related compensation expenses.
It's interesting to come earned on our cash investments with lower in the third quarter of this year, primarily due to lower average cash balances and lower rates return.
Our Interest Expenses Lower primarily due to the early retirement of death in September of 2023, and the capitalization of interest relate to the development of Blue Creek.
Our low effective tax rate continues to reflect any come tax benefit for the police and expand some foreign derived interchangeable income.
Speaker Change: Turning to cash flow, during the third quarter of 2024, free cash flow was a negative $61 million. This was a result of cash flows generated by operating activities of $62 million, thus cash used for capital expenditures and mine development of $123 million.
During the third quarter, we invested approximately $50 million of cash into longer-duration fixed income securities, but the Terties greater than 12 months in advance of the Federal Reserve following interest rates.
Speaker Change: These amounts are reflected in the balance sheet as long-term investments and are considered a part of our total liquidity.
Speaker Change: Our total available quid at the end of the third quarter was of 2024, was $746 million, and consisted of cash and cash equivalent of $583 million. Walter Investment is $15 million, and a $14 million available under a B.L. facility.
Now let's turn to our outlook and guidance for the full year 2024.
After another strong quarter of operational financial performance despite weak demand and pricing in the global markets.
We have reaffirmed our outlook and guidance for the full year as outlined in our earnings release.
While we are trending toward the midpoint and higher end of our guidance ranges on volumes, we remain cautious, especially on spot opportunities.
and Till Market Conditions and Proof.
Also as a reminder, the fourth quarter contains more holidays and fewer available production days.
Walt Scheller: on the Altering Back to Walt Course Final comments.
Thanks, Dale
Walt Scheller: and continue to expect our market to improve over the next quarter or two.
Speaker Change: Hopefully above Coscarve Economics.
Although we believe in the question may remain below averages.
and seen in recent years.
Improvements in the manner expected to come mainly from India and a few select countries.
Speaker Change: Trying to recently announce stimulus package and actions are notable, but we're cautious in judging our potential to boost demand in our markets and will need time to analyze the total impact.
Overall, we expect to do making cool supply to be somewhat tighter in the last quarter this year. As the market feels the full impact of losing the growth of supply, and as Australia enters its typical wet season.
In conclusion, despite near-term challenges, we're on track to continue to deliver strong operational and financial performance by leveraging our high quality assets, strong balance sheet, and best in class operations.
With that, we'd like to open the call of questions. Operator.
and at this time I would like to remind everyone that to ask a question please press start and the number one on your cell phone keypad. If you would like to remove yourself from your cell phone keypad, you may start and the number one on your cell phone keypad.
We will pause for just a moment to compile the Q&A roster.
and our first question today will come from Lucas Pipe with Beardy's Curities. Please go ahead.
Thank you very much operator, good afternoon everyone, and good to hear about all the progress of Blue Creek and also the solid the Lization's during the quarter.
Lucas Pipe: My first question is on the commercial side and Walter Dale, I heard you write a spot exposure with 23% in Q3 and you're still looking at 25% to 30%.
and in 2024 and I wondered first could you comment on the Q4 outlook in terms of spot pricing and then more broadly as you compete in Asia for business.
with Europe, Latin America, still on the softer side. What are some of the competitive dynamics, as you kind of price or look to put in place term business?
is it against the base of the Australian PLV, High Ballet, discounts to that of any swords would appreciate any thoughts you might be able to share. Thank you.
Speaker Change: Alright, thanks, Lucas. Look at what we look at in the Q4.
Speaker Change: and our spot expectations.
What we're doing is, as we said, you know, a couple times, is that we're really...
Speaker Change: Carefully watching exactly where the market is and what type of market is whether it's CFRFOB.
and the vast majority of Asian.
and Spotsails are CFR, so we're monitoring that very carefully and while we could move more tons.
We're going to be pretty careful about when and where we decide to move them because I think that turn business.
and Asia outside of the term business. We have term business in Japan, but in, as you look into China and others, term businesses
Speaker Change: I'm kind of difficult to come by at reasonable pricing. So right now we're just being very careful about what we commit to and making sure that we're protecting what we think are outstanding assets and outstanding coal qualities until the market.
Speaker Change: is able to recognize that value.
Well, this is super helpful. So on my numbers, you came in at about 90% realization in Q3 versus PLV. Set a reasonable assumption for Q4, given your discipline on the score.
I think you have to be really careful with it. You know, as we said before, we've projected to be in the mid-80s to 90. And I think when you see us up in the 90s where we were, it's a reflection of a falling market.
and I think we have to keep that in mind. If the Market Stage flat, I would expect the number to be a little lower than that 93, I could be wrong, hopefully. And if the Market goes up, I would expect that number to drop more considerably because remember that all.
that all trails by about a month. So it's kind of...
Speaker Change: It's kind of difficult to predict exactly where that'll end up but be careful with that 93 because it was a following market.
Speaker Change: That's helpful. I'll turn over to the cost side.
and his preparement marks he mentioned kind of variable cost on the transportation side.
One could you speak to the sensitivity and transportation to changes in the price?
and it has all of that benefit kind of flown through at this point or could there be more variable cost investments on transportation in Q4? Would appreciate your thought from that thing.
Speaker Change: Well, take out. It's so, yep, we, you know, transportation now reset one at one month lag. Lucas, not at three months like, you know, we used to have.
Speaker Change: So there is a little bit to begin maybe possibly in the fourth quarter, but I don't see it as significant depending on the volumes, but there could be a little upside on transportation in the fourth quarter.
Speaker Change: and more broadly on the cost side for Q4, any major moving besides that transportation. Thank you for that color. Any other moving pieces to keep in mind for Q4 on the cost side?
Good evening, we've had a couple of long long ludes in the third quarter. Again, we managed to get those moves down to zero-day or minimal moves and also the mouth of those sections. Conditions get a little tougher.
So we're out of that. I don't see any major cough impacts in the fourth quarter positive or negative.
I appreciate all your color and keep up the good work.
Thank you. Thank you. Thanks for this.
Speaker Change: and our next question will come from Nathan Martin with the benchmark company. Please go ahead.
Thanks for your time.
Nathan Martin: I'm going to just follow one of Lucas's questions clearly like you guys said, Mark, it's kind of remaining depressed.
and Exercising some patients with sales, I think it's prudent. But how should we think about this impacting your opportunity to ship coal here in the fourth quarter? Could you anticipate maybe fourth quarter shipments actually be down? So, quenchably if the man doesn't improve?
I think we should be, you know, for where we expected for the fourth quarter you have to remember again, we said we have, uh...
and the fewer operating days. And I think, you know, as we looked for, our expectations, the land right in the heart of our full year guidance.
Okay, well I appreciate that so if I say right in the middle of a full year guidance the sales right that will be 7.8 million tons is that what you're talking about for the full year.
Speaker Change: Yes, that would put a safe force quarter to be very similar, maybe slightly, slightly below the third quarter.
Yeah, that's what I was thinking, Dale, yeah, so it looks like if you're flat, we get about seven times. Okay, that's very helpful. Appreciate that guys. And maybe just come back to the three cue gross price realization in the 93. You know, I know I asked about that last quarter obviously Lucas just cuts on that as well. But maybe from just the pure math of it, you know, another several investors out there that maybe appreciate a walk through there. So when people are trying to calculate
and the average net price for any given for a, what's the best time here to use so that we can get to that 93% number you got to talk about.
Well, we just take the averages of the, you know, what our realization is of the POV during that period.
and that's really the simple math about it. You have to take out some demerge in all those things in our average net selling price. That's really...
and you're really looking at, for instance, for the fourth quarter, you're really looking at pole pricing from September off to over November.
Yes, not October November December because of the one month lag so you really need to go back to September pricing. October pricing November pricing to figure out where we're likely to be.
Okay, now I think that might be some of the issues, because if I looked at again the one month lag I say, Walt, for three to two, right? So we're looking at it.
and set up the normal calendar for looking at June's July August, kind of with the FOB Australian Premium Local price of about 230 and it's difficult to get to that 93% realization. Maybe some of it is backing out that the merge pieces. I don't know if there's anything you want to add right now or we can just take it off one.
Speaker Change: Alright, yeah, that's a big rough line.
Okay, appreciate that. And then maybe just one final question on the call side. You guys have said previously that four year 24 costs return guidance range of 145 to 135 assumes.
Roughly a $250-260 per metric ton off-season premium mobile price. You're giving where markets are today's $200-244. Could you give us an idea of what cost return might look like at that price?
Well, I think we would be in the lower end of that range. If you look on the year to date bases, we're at 127.
and if you look at the average filling price, 198.
to convert that to metric in your looking at an 88% net realization of that versus the 250. So that's why I'm saying we're writing line today, but it's core pricing is lower, you know, a cost of legal.
being lower in the fourth quarter and that depends on the volumes, right, volume and pack. So, but we should be, you know, if pricing is stays lower and we don't have any uptick from here, we should be in that lower end of the range.
Speaker Change: Okay, so you still think it's probably an allure of the end of the range, Dale, not possibly below, it's probably from David Werdeth.
Speaker Change: It's possible it depends in because you know you're going to have your volume impact right so if we can cut that volume significantly that can have an impact on it.
Speaker Change: Yeah, make sense, Lord and Honour. Okay, perfect. Guys appreciate the time. Best luck in the fourth quarter.
Speaker Change: Thank you.
Speaker Change: and once again if you would like to ask a question, please press star then one. Our next question will come from Katiaogenic with BMO Capital Markets. Please go ahead.
Hi, thank you for taking my questions.
I know next year, second half of next year you're going to start chipping or selling the Blue Creek volume. Are you over the conversations with customers about that volume?
Speaker Change: Yes, we are.
Speaker Change: [inaudible]
and what are the conversations? Are you going to be contracting that that's already or it's going to be more on the spotlight?
Speaker Change: I think it will be the expectation of contract. I mean, these are going to be, again, a new coal mine, everyone's going to want to see how it works in their coke ovens.
So, you know, we're going to be shipping that off to customers to try a couple of holes or a full cargo of, but we'll be placing that code with various customers to give them a first try at it.
and then this year I think you mentioned you're going to be hiring about 250 people or you're on track to hire 250. Looking to next year, how many more people do you need to hire?
I think next year for Blue Creek we're probably going to be in a, we're still doing a bugging process, but the 100 range out of taste, something like that, I don't know for sure. But for some reason, I just feel like that's going to be.
I'm going to be around the number but again we're in the bugging process right now so I don't really don't have that's just a
Speaker Change: Yeah, this flag right there. Yeah, I mean.
Yeah, it may be a little more than that but we need to finalize the budget for next year.
and then is it fair to assume that some of that will put some pressure on the cost side at least in the first half of the year?
No, no, until you see off in their call, all that will go the mind development.
Okay, perfect, thank you so much.
Speaker Change: [inaudible]
Thank you, please recall this afternoon. Thank you again for joining us today. We appreciate your interest in Warrior.
Thank you and that does conclude today's conference. Thank you all for participating and at this time you may now disconnect your lines.