Q4 2024 NACCO Industries Inc Earnings Call
Speaker Change: Good morning ladies and gentlemen, and welcome to the NACCO Industries 2024 4th quarter and full year earnings conference call. At this time, all lines are in a listen only mode.
Speaker Change: Following the presentation, we will conduct a question and answer session.
Speaker Change: If at any time during this call you require made a assistance please best stop zero for the operator.
Speaker Change: This call has been recorded on Thursday, March 6, 2025. I would now like to turn the conference over to Christina Kmetko, Investor Relations. Please go ahead.
Christina Kmetko: Thank you. Good morning everyone and welcome to our 2024 quarter and four-year earning
Thank you for joining us this morning.
Speaker Change: I'm Christina Kmetko, and I'm responsible for Invest Relations at NACCO.
Speaker Change: Joining me today are J.C. Butler, President and Chief Executive Officer, and Elizabeth Loveman, Senior Vice President and Controller. Yesterday, we published our 2024-4th quarter and four-year results and filed our 10K. This information is available on our website.
Speaker Change: Our remarks to 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.
Speaker Change: These risks include, among others, matters that we've described in our earnings release, 10K and other SEC filings. We may not update these forward-looking statements until our next quarterly earnings conference call.
Speaker Change: We'll also be discussing non-GAF information that we believe is useful in evaluating the company's operating performance.
Speaker Change: Reconciliation 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. Thank you, Christie. And good morning, everyone.
JC: We delivered solid 4-quarter results, which represented a strong finish to a successful year.
JC: For those who follow us closely, we will recall that last year I noted that all of the unfavorable comparisons we experienced throughout what was a challenging 2023 should turn favorable
JC: Well, I'm pleased to say that is exactly what happened. Our company delivered robust 2020-24-4 quarter net income of $7.6 million, and full year net income of $33.7 million.
JC: 4th quarter adjusted even of $9 million increased almost 27% over 4th quarter, 2023 and full-year-adjusted of $59.4 million increased 116% year-over-year.
JC: Before I provide more color on the year, I want to recognize our outstanding employees.
JC: I'm extremely proud of the way these challenges dedicated and motivated individuals continue to deliver success.
JC: These are the folks who produced our significantly improved 2024 results. They continue to find new and innovative ways to support our customers while working to implement our grow and diversify strategies.
JC: I want to thank each of them for the hard work and many contributions that they put forth to strengthen us today and to secure new opportunities for our future. I am honored each and every day to work alongside such an amazing team.
JC: Our strong 2024 performance was led by our coal mining segment, where segment adjusted even more than quadruple from 2023.
JC: North American Mining delivered a 35% increase in segment adjusted EBITDA, and minerals management generated a 21% increase in segment adjusted EBITDA.
JC: Much of the coal mining sediments improvement occurred at Mississippi Lignite Mining Company.
JC: While this mine dealt with its customers' plant running with only one boiler from more than half a year, business interruption insurance income of $13.6 million received in the third quarter helped offset the reduction in customer demand.
JC: Despite lower revenues and specifically lignite mining company due to reduced customer demand, the Red Hills mine operated more efficiently in 2024 than a year ago when it was finalizing the move to a new mine area and contending with difficult mining conditions.
Those challenges are now behind us.
JC: Earnings at our unconsolidated coal mining operations also improve with an increase in earnings at both Kato and Falker.
JC: Specifically, Falkirk experienced increased customer demand at a higher per-ton management fee beginning in June 2024 when the temporary price concessions associated with Rainbow Energy's acquisition of Cold Creek Station ended.
JC: We're encouraged that evolving policy frameworks seem to be creating a more favorable regulatory environment for the fossil fuel industry moving forward, and demand for dependable electricity
JC: These developments are expected to further support coal as a central part of the energy to mix in the United States for the foreseeable future.
JC: Shifting the North American mining, this segment continues to benefit from progress on operational and strategic projects that have improved profitability and will continue to do so.
JC: In addition to the segment adjusted to evict.improvement, full year operating profit of $5.8 million was up 72% compared to 2023.
JC: on average North American mining experience lower profitability in the second half of 2024, compared with the first half.
JC: This decline was due in part to an overall reduction in demand, partly attributable to the ongoing effects of three hurricanes in Florida in the second half of the year.
JC: We expect North American mining to generate increasing levels of operating profit in EVA.O.R. time as benefits from new and extended contracts adds the profitability of existing contracts.
JC: During 2024, North American mining executed two new contracts and amended an existing contract, all of which are expected to deliver net-present value of after-tax cash flows of approximately $20 million over contract terms which range from 6 to 20 years.
JC: We're wrapping up my North American mining comments, let me mention such a mining, which is the exclusive contract mining miner for Lithium America's Taker Paslithium project in northern
JC: Lithium America is continues to make progress on the Backer Press project and we continue to support the project by assisting with certain construction services as they ramped up work to build the Lithium Processing Plant.
JC: In the fourth quarter of 2024, we and Lithium-America's agreed to expand the scope of our work to include transportation and play tailings once Lithium production commences.
JC: This expansion of work comes with an expected increase in our income from this long-term project. Baselone production is estimated to begin in late 2027.
JC: Adminerals Management, the 2024 adjusted EBIT dot improvement was primarily due to a $4.5 million gain on sale of assets.
JC: Excluding the game, Minerals Management's 2024 earnings were comparable to 2023.
JC: We are very pleased with the work done by the Catapult Mineral Partners team which manages this segment.
JC: They have greatly expanded our portfolio of mineral interests so that we are now more diversified in terms of our oil and gas mix.
JC: We work with a wider range of operators, we have a greater geographic footprint, and we own interest in various stages of mineral development, ranging from producing wells to undeveloped mineral interests.
JC: This expansion continued in the fourth quarter of 2024 when minerals management invested an additional $15.7 million in a company that holds not operated working interests in oil and natural gas assets in the Kansas and Oklahoma portions of the Huberton Basin.
This investment is expected to be a creative to future earnings.
JC: While we continue to budget up to $20 million annually to expand our portfolio and provide long-term stable cash flow generation
JC: Our business model allows flexibility regarding the cadence and type of investment based on available opportunities that we believe will result in significant long-term value and increasing profitability.
Bye-bye.
JC: Moving and Mitigation Resources of North America, I'm pleased to note that the business contributed positively to operating profit and evitat during the 2024-4th quarter, and is expected to achieve full-year operating profit in 2025 based on current expectations for the business.
JC: Our expectations were bolstered in January when the team secured a restoration project in Kentucky, which is expected to be a credent to earnings beginning in 2026.
JC: We believe that the aviation resources is on track to increase profitability over time.
Overall, I'm excited about our business trajectory.
JC: I'm optimistic about the future and I'm pleased with the way all of these businesses continue to advance their strategies.
JC: I believe 2025 is a pivotal year for our company as our legacy businesses stabilize and our new businesses gain traction.
JC: We are proud of what we have accomplished thus far and have confidence in our journey.
JC: We love our story and intend to increase our level of shareholder engagement in the coming year. Look for more information about that in the months to come. With that, I'll turn the call back over to Christie to cover our quarterly results at Outlook.
Thank you, J.C.
Speaker Change: and how to assess the results of our individual segments and our 2025 outlook.
Speaker Change: We reported a consolidated operating profit of $3.9 million in net income of $7.6 million or a dollar in two cents per share.
Speaker Change: Last year we reported a fourth quarter operating loss of $67.4 million and a net loss of $44 million or a loss of $5.88 per share.
Speaker Change: Adjusted EBITDA, increased to $9 million from $7.1 million in 2023.
Speaker Change: The 2023 financial results included a $65.9 million pre-tax asset impairment charge. I'd note that $60.8 million of the impairment was in the 2023 coal mining segment results and $5.1 million within the normal management results.
Speaker Change: Our coal mining segment reported the operating profit of $2 million and generated segment adjusted EBITDA of 4.2 million in the 2024-4th quarter.
Speaker Change: This comparison operating loss is $62.3 million and segment adjusted EBITDA of $3.2 million in 2023.
Speaker Change: Segment-adjusted EBITDA increased 32.6%, primarily due to higher earnings at the unconsolidated operations, as a result of increased pricing at fall clerk and improved earnings at Kato, as well as increased customer requirements at both mines.
Speaker Change: Lower Operating Expenses, also contributed to the higher coal mining results.
Speaker Change: North American Mining reported the fourth quarter of 2024 operating profit of $800,000 compared with the $600,000 operating loss in the prior year. The improvements in operating results in segment adjusted EBITDA were mainly due to reduced operating expenses, particularly outside services.
Speaker Change: The prior year results also included a $500,000 loss on sale of a drug line sold in connection with the extension of a customer contract.
Speaker Change: Mineral Management's fourth quarter 2024 operating profit improved to $7.2 million, up from $2.5 million in 2023, primarily because the prior year quarter included a $5.1 million
Speaker Change: revenues and segment adjusted EBITDA, which excludes the 2023 impairment charge, were generally comparable to the prior year.
Speaker Change: Looking forward, our businesses provide critical inputs for electricity generation, construction and development, and the production of industrial minerals and chemicals.
Speaker Change: Increasing demand for electricity, ensuring and current federal policies are creating favorable macro and economic trends within these industries.
Speaker Change: As JC mentioned, we are confident in our trajectory in business prospects as we enter 2025 and prepare for longer-term growth opportunities.
Speaker Change: Specifically in 2025, we expect to generate a modest year-to-year increase in consolidated operating profit.
Speaker Change: In 2025, the coal mining segment anticipated solid customer demand, with deliveries expected to increase modestly from 2024. In addition, the coal mining segment expects to benefit from the absence of temporary praise concessions at Fall Creek.
Speaker Change: at our Mississippi Lig Night Mining Company. They continue to recover from inefficiencies experienced while the customers' Red Hills Power Plant operated on one of two generation units for more than half of 2024.
Speaker Change: With the power plant now anticipated to operate at a level consistent with historical averages, coal deliveries are expected to return to more normal levels, resulting in modestly improved cost efficiencies.
Speaker Change: However, an anticipated reduction in the 2025 contractually determined per-time sales price compared with 24 is expected to offset these improvements, leading to lower results at Mississippi
Speaker Change: This, combined with an anticipated increase in operating expenses in the coal segment,
Speaker Change: Overall, it is expected to result in the modest year-to-year decrease in coal mining segment operating profit.
Speaker Change: North American mining is expected to deliver improved results in 2025, predominantly in the second half of the year based on expectations for comparable year-over-year customer demand.
Speaker Change: Menorah's management high quality, diverse high portfolio of oil and gas menorah interests provides a strong foundation of well-positioned assets that are expected to continue to deliver solid financial results.
Speaker Change: Mineral's management's recent investment in the Hewitton Basin is expected to be a creative to earnings in 2025. Overall, Mineral Management's 2025 operating profit is anticipated to be comparable to 24.
Speaker Change: Lower first half earnings are expected to be offset by an improvement in the second half, given forecasted trends in oil and natural gas prices and projected bonds.
Speaker Change: We started the process to terminate our defined benefit pension plan in 2024 and expect that process to be completed in 2025.
Speaker Change: This will eliminate future volatility from changes in our pension obligation. Once complete, obligations under the terminated plan will be transferred to a third-party insurance provider. Although the plan is currently overfunded, a significant non-cash settlement charge is anticipated upon termination.
Speaker Change: Excluding that anticipated charge, NACCO is expected to decrease moderately compared with 2024.
Speaker Change: Before I turn the call over to questions, let me close with some information about our liquidity and cash flow.
Speaker Change: We ended the year with Consolidated Cash for approximately $73 million and debt of $99.5 million Availability under our revolver was approximately $99 million.
Speaker Change: In 2024, we paid $6.6 million in dividends and we purchased approximately 317,000 shares of our Class A common stock at prevailing market prices for an aggregate purchase price of $9.9 million.
Speaker Change: As of December 31, 2024, we had $8.5 million for meaning under our $20 million share we purchased program that expires at the end of this year 2025.
Speaker Change: We expect significant annual cash flow generation in 2025 in future years based on our current business plans. We will now turn to any questions you may have.
Speaker Change: Thank you, ladies and gentlemen. We will now begin the question and answer session. Should you have a question, please press star followed by the one on your touch-tone phone. You will hear prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the two.
Speaker Change: If you are using a speaker phone, please lift the hand that before pressing any keys. One moment, please for your first question. Your first question comes from Doug Weiss with DS Investments. Your line is now open.
. . . .
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Yes.
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Speaker Change: Ladies and gentlemen, as a reminder, your impression, please press star 1.
Speaker Change: Oh, my guess is that was an accident done to a dial back again.
Okay.
We'll give them a minute.
Speaker Change: While we wait, I would like to write a few reminders. A replay of our call will be available online later this morning.
Speaker Change: We'll also post a transcript on the Investor Relations website when it becomes available. If you have any questions, please reach out to me. You can reach me at the phone number on the press release.
and we don't still have that
Speaker Change: I'm not certain what happened. I mean it couldn't. I don't know where this could be. Power outage could be an outage. It could be.
Battery went dead.
We have no other question.
No, did you want to wait a moment longer?
Speaker Change: I mean, if he's re-brewing, we probably ought to give him a minute to re-brew.
Yeah.
. . . . . . . . . . . . .
Dr. Edith, you might finish. Here, I'll back up.
Did you? Okay, there we go.
Your line is open, Doug.
Doug Weiss: Oh, hi, yes, sorry about that. My phone dropped just as the Q&A started. I'm
Speaker Change: So, on the coal business, I think the results are a little better than...
Speaker Change: They looked at first if I'm right because you had a $6 million inventory right down in that division. Is that accurate?
We have taken inventory right now, subscribe.
Speaker Change: I mean, yeah, so I think a lot of companies would add that back to either side, and if I do that, you know, the division did about 10 million of either sides.
Speaker Change: Would you argue that that's not a reasonable adjustment? I guess, you know, in other words, is that a reasonable, if I add that back and start with the 10 knowing, is that a reasonable baseline for next year on a kind of run rate basis?
Speaker Change: I mean, we gave some information on the whole segment, which specifically is our Red Hills mine. You know, that we think the sales price is going to be lower next year compared to this year, and it's really contractually determined sales price.
Speaker Change: You know, I don't know. I'd look at what we said about MLMC, Mississippi like my mining company and outlook.
Right. Okay.
Christina Kmetko: We haven't added a backdug because it has been recurring over the past year, each quarter we have taken a write down.
Speaker Change: So that is why we have included it within our numbers as opposed to excluding it.
Speaker Change: Right. It's called that as an individual number. I mean everybody can do their own analysis if they want to add that back.
Speaker Change: Right, right, right, okay. And then I guess on the MLMC volumes, despite having that second boiler come back online, they're still a little bit light, but I guess you're going to suggest you see that.
strengthening next year.
Speaker Change: Well, you know, the plant was down, one boiler was down for half a year, they also had an outage.
Speaker Change: Later in the year, you know, anytime there's a significant outage, outage, which this was.
Speaker Change: You know, they get inside and decide what else might they need to do that they could schedule at the same time and I think some of that took a little longer than we had expected.
Speaker Change: But anything significant into the volumes from last year compared to going forward.
Ok.
Okay.
Speaker Change: I guess I'm still struggling to kind of, and maybe I just have to wait for next quarter, but to get a handle on what?
Normal NLMC
You know, Rose Park Trap, it looks like...
Speaker Change: You know, I guess last quarter, it was kind of break-even and showing gross profit basis this quarter.
Speaker Change: It was a loss, but then that includes that inventory right down.
Speaker Change: So I don't I don't know if there's any more you could say but and then you you know you have stronger volume coming but then you have a price reduction.
Speaker Change: I know mine was looking to the pieces of that, right? Of course you got volume. You know, when we know that there's going to be any kind of
Speaker Change: As we all know, there's increasing demand for electricity across the country.
Speaker Change: And, you know, it'll vary plant by plant, power plant by power plant. We think generally that's going to be helpful with respect to electron sales, which is directly related to all deliveries at all of our plants.
Speaker Change: Error in all of our mind with respect to all of our utility customers.
Speaker Change: So then you got a price, right? At Red Hill's price is determined by a contractual formula that's based on some
indices to reflect the general cost.
Speaker Change: involved in mining. I will tell you that, you know, throughout the history of this mine, which they have 25 years.
Speaker Change: Generally, the price has gone up with inflation month after month, quarter after quarter of year after year.
Speaker Change: There's the way the formula works. It's right now producing a decrease in price, which I would review as I do that as an aberration rather as the norm.
Speaker Change: I think that will re-adjust itself into a more normal pattern going forward, although we all know it's impossible to predict exactly where inflation's headed generally as well as with respect to specific indices.
Speaker Change: Right, so you get volume, you've got price, and then the other part is our cost.
Speaker Change: Now, I would tell you when you look at our costs...
Speaker Change: You know, we've spent the last couple of years and I know you know this, we've spent the last couple of years you know opening a new mine area and spending you know quite a bit of capital and in getting all that up and running. Thank you.
Speaker Change: That's now done, but what that's done is put a significant amount of depreciation into our cost structure.
Speaker Change: and the life of the mind goes to 2032. We don't see significant additional capital requirements. There will be some that are not anywhere near the extent that we've had the last few years.
Speaker Change: So, your depreciation, you know, in a tickle manufacturing business, you would think of depreciation and maintenance cap X offsetting each other in our businesses, that's not really true, in particular here.
Speaker Change: You see, you're going to see, you know, up gross profit as you venture operating profit as we think about it.
Speaker Change: including an elevated level of depreciation that really is an end to me as an addback.
Speaker Change: because we're not in a position where we're going to have to replace that depreciation with more CapEx.
So...
Speaker Change: You know, there's just some things to think about as you're looking at MLMC in particular. That helpful.
Speaker Change: That is helpful. I think you said 13 million of CAPEX for the coal segment. Is some of that going to the young consolidated entities?
Speaker Change: So, our customers fund all of the CAPEX of VM Consolidated entities. We don't fund any of that CAPEX. Customers pay all the costs. They provide all the capital.
Okay, two.
So very, I mean...
Speaker Change: Just push back a little bit, isn't that level of CapEx above your depreciation level for NLMC?
Speaker Change: Well, remember, some of that CAP-X is money from prior years that just didn't get spent.
Okay, you know, if you look back,
Speaker Change: I don't know, let's say a year ago, although I can't be, I can't be, maybe you guys can be
Speaker Change: But if you look back, you know, we were saying 2025 was going to be, you know, lower CAP-X Web levels, but we didn't spend things in 2024.
Speaker Change: and that's pushed over into 2025. So sure, Capix looks like it's bumped up a little bit, but you know, anytime you can delay spending capital, that of course is a good thing.
Speaker Change: This capital expenditure isn't a surprise increase. It's just money that didn't get spent. It's tailing into this.
Sure. For the most part. Yeah, got it, got it. And then I'm just quickly on the price, you know, price reset.
Are you able to say sort of what it is?
Speaker Change: You know, inflation is still, I mean, inflation is still going up, are you going to say what?
Created that aberration that brought the-
you know, mining inputs.
Speaker Change: One of those is a, you know, an index with respect to labor costs. One of those is related to diesel costs.
Speaker Change: There's, you know, another, a number of other indices that are in there. And because there's period versus period comparison, so it's really looking at the change over time, not a specific individual level.
Speaker Change: That's what can cause some of these some of these swings. I will tell you that you know this this contract was executed back in the middle 90s maybe early 90s was before any of us were around.
Speaker Change: and it is not appriciate formula that any of us.
Speaker Change: would sign up today, but it's what we've been with. It also ties to the contract between the power plant and TBA with respect to the electron sales, so it kind of is what it is.
Actually, I see. Okay, got it.
Speaker Change: I'm a mineral management division. You know, obviously gas prices have come up a lot over the last month or two and I wondered if you're guidance.
Reflected some conservatism on prices, or is it that...
Speaker Change: Given the low prices last, your drilling has come down, or, you know, well, well expansion has come down and it's going to take some time to get that going again, assuming prices hold at these higher levels.
Well, I'll tell you the general.
. . .
Culturally, we don't see a lot of upside in being.
Overlay Optimistic
Speaker Change: I know there's lots of companies out there that do that, but that, to me, leads to over-promising and other under-delivering. We would rather be more on the conservative side of things, because there's just little upside to us.
You know, getting out on the edge of our projections.
Speaker Change: So there's definitely some visitors there, both with respect to pricing, I would say.
Speaker Change: as well as with respect to volume production and the timing of new development. We tend to be pretty conservative how we think about those things. And if we have some nice, you know, upsides from that, that's great for all of us.
Okay. Great. Makes sense.
Thank you. Bye.
Speaker Change: So I guess I guess first you had the weather effects at the end of last year and you had mentioned on the last call that sometimes you see a pickup as you know there's some rebuild in after hurricanes. Is that are you seeing that at this point?
Speaker Change: You know, maybe in a small way, but you know, the damage was pretty severe, especially through Central Florida.
Speaker Change: And I think, you know, we're yet to see how this really plays out with respect to pick up over and above what would be a normal level of production related to the hurricane.
Speaker Change: So, it's sort of back to normal, but you're not seeing it.
You know, elevated demands [inaudible]
I'm sorry, can you say that again?
Speaker Change: So, trends are kind of back to where they were before the hurricanes, but you haven't seen any sort of extra demand as well.
Speaker Change: Yeah, I'd say they're headed that direction. You know, are we seeing a post-the-creaking bump? Yeah, I don't think we are to any significant extent.
Speaker Change: I can't promise how it plays out in this.
Speaker Change: In this particular situation, but generally, you do see a bump, you know, six to 12 months later, you know, following the hurricanes. This, you know, this is a little different because you got three and a row.
Right. Right, yeah.
It has spent some time.
Speaker Change: I'm the North American mining website and going through your case and I guess what I've concluded and you know, let me know if I'm wrong on this is that
Speaker Change: That business is differentiated versus a lot of mining operations in both the drag line expertise and the ability to do.
Speaker Change: But I've noticed that, you know, I think the language changed a little bit in the case you released yesterday and also the website.
Speaker Change: It seems to be changing a little bit. So my impression is that as you expand that business, you're going to be doing less of that work. So I guess A is that correct. And if that's true, does that implications for the economics of the business and your ability to...
Speaker Change: Ad customers, I wonder if you could, and I'll talk to that a little bit.
Yep. So North American mining, you know, and we're good.
Speaker Change: I apologize, we're going to do a little bit of history here, right? North American mining came back in 1995 with the origin of this working with the customer that we still work for in Southern Florida. And we were, you know, they were looking for somebody that had drag line operating expertise and we.
Speaker Change: started helping them. That grew, you know, somewhat until 2015, over, you know, that 20 years and then in 2015 we really started focusing on, you know, how do we grow this business pretty substantially?
Speaker Change: That led us to really take a deep dive into what are our unique skills that give us a competitive advantage in this space.
Speaker Change: Well, one of those competitive advantages is we are told by
Speaker Change: One of the largest equipment manufacturers in the world that they believe that we operate more drag lines than any other company in the world. There may be some countries who operate more, but we operate more than anybody else.
Speaker Change: So you start fundamentally with a unique piece of equipment that requires some specialized skills in order to get the full productivity capabilities out of that piece of equipment.
Speaker Change: Now, you take that to Florida, and it's even more specialized because in Florida primarily we're mining under, you know, and quarries where the aggregates are underwater.
Speaker Change: So it's a further specialization of the skill, and we're really the only people that are doing that at any scale at all in the United States. There are some small players.
Speaker Change: out there, but they tend to have, you know, smaller equipment, they're, they're sort of.
Speaker Change: You know, it's much smaller businesses than we are. They don't have the resources to really approach this business like we do.
Speaker Change: Now, Florida is not the only place that has quarries where you're mining underwater. I will tell you one of the contracts that we have signed with an existing customer. We will be mining starting in 2026.
Speaker Change: Starting in 2026, we're going to be mining underwater in Arizona.
But I will tell you, you know,
Speaker Change: When we first heard about this, I said there's no way that they're mining underwater in Arizona because the water table must be so low. That's not actually the case. So this is an opportunity for us to do the same thing in Arizona and it can be done other places in the country as well.
Speaker Change: So, there's probably plenty of opportunities for us to continue to expand this business, which we view as operating a very specialized piece of mining equipment in a unique way.
Speaker Change: When you get beyond, you know, drag lines mining underwater, you'll note that we've also been using surface miners.
Speaker Change: Both in our coal operation, which we've been doing for a long time, for sort of surgical extraction of coal. But we've been operating a surface minor, which is like when you're driving them a road, you see those milling machines that are chewing up the pavement.
Speaker Change: putting it into a truck. It's the same kind of machine that we use, except much, much larger and obviously with much stronger extraction capability.
Speaker Change: So we have been using a piece of equipment like that to help a customer
Speaker Change: extract limestone, and the advantages of that are you don't have to, the customer doesn't have to crush it to the same extent because the machine already grinds it up, and you don't have to incur blasting.
Speaker Change: So, you think about quarries in fast-growing areas. We don't operate in Syria, but I'm just going to say there's quarries around San Antonio where you think how San Antonio has grown tremendously in the last several years.
Speaker Change: You know, they now have businesses at housing closer to these quarries and they have trouble with blasting these are dry quarries
Speaker Change: We think that this is a piece of equipment where, again, we've got very specific expertise where we think that we can go provide this service to others in a way that will be good for their business.
Speaker Change: Now, in every instance, you know, our main competition for the work that we do is the
Speaker Change: You know, I would say a majority of choreographers do their own Biden.
Speaker Change: Well, you know, as we work with more and more of these guys
Speaker Change: We see that there are a lot of opportunities to bring our expertise to the table and let them, they want to focus on what they're good at, which is reading their market, securing their reserves, processing it in the proper way, selling it all left.
Speaker Change: Their expertise doesn't necessarily lie in mining, so this is where we come in and we think that we can provide the mining services for them in a way that is more economical and effective than they can do themselves.
Speaker Change: And we can do so so we can save them money and we can make enough of margin that is attractive to us.
Speaker Change: So, that's really the, you know, the frameworks around this business. Now, you know, with respect to the aggregates...
That's
Speaker Change: You know, an aggregate quarry is a pretty simple thing, where you're extracting the aggregate, you're crushing it, you're selling it.
Speaker Change: We're doing the same thing at Sawtooth in northern Nevada for the lithium mine, except there instead of just running the extraction equipment, we're actually running the whole mine. It's much more...
Speaker Change: Right, a poll mining operation where you've got to split the top soil and, you know, do permitting and do all this, all this worked ultimately extract the resource. So it's the same kind of very specialized mining, but in a very traditional way with respect to worth even more.
It's a long answer, but I hope that's out for it.
Speaker Change: that is helpful. Are the economics or the margins similar on the...
. . . . .
Drag line work versus the surface mining work.
Speaker Change: I would say generally yes, because again, you're, you know, you're, you're
Speaker Change: You're competing. Our margins are tempered by how somebody could do it themselves.
Speaker Change: And the trick to the expansion in this business, I guess we allude to this and the earnings releases when we land a new project.
Yes.
Speaker Change: It's purely services. We're operating equipment that's the drag line or surface minor that's owned by the customer.
Speaker Change: Then, you know, there's very little cash out on our part and sort of the term of the contract we're going to earn fees based on the work that we do.
Speaker Change: If we have to put in capital, we will put in capital up front, so there's a capital which outweigh at the beginning.
Speaker Change: But, you know, that's the capital out there beginning, we're going to have to appreciate the equipment, if that's a non-tash charge, and over the life of the contract, we're going to generate very nice returns. These things have nice NPVs, they have attractive IRRs.
Speaker Change: and if you think of an annual measurement of return on capital, obviously that's lower in the beginning when you've got undecishated capital and it's much higher later in the contract and yet lower depreciated capital.
Speaker Change: But our business overall, not just at North American mining, is that we seek out long-term contracts or long-term investments with respect to mitigation resources.
Speaker Change: And every year when we sign new contracts, we get new customers, we invest in minerals
We're making a single-year investment that really...
Speaker Change: I'm going to use the word annuity, but I'm going to use the word annuity, but we sign these things up and then know that we're building in our revenue and profit streams.
Speaker Change: for years to come. And that's what we've been doing the last 10 years in this business is, you know, adding, adding more businesses, adding more projects, adding more opportunities for growth and building, building, and we're 2025 is kind of the point when all this is starting to reach a tipping point.
Speaker Change: When, you know, as we mentioned, 2025, we think it's going to be cash positive and we think that's going to continue to the future is we add more and more layers of contracts and investments in projects on top of each other.
and then on Tucker Pass.
Speaker Change: Let the prices have really come down over the last couple of years.
Speaker Change: and I'm just curious if you have any visibility or any thoughts on...
Speaker Change: The timing of, you know, I think it's moved out a little bit, but do you think that that's going to be somewhat dependent on a recovery and lithium prices or do you think it's going to go ahead?
Regardless...
Speaker Change: Well, I mean, I think this project a lot is going for it. If you look at the Lithium America's website, they've got a tremendous amount of interest.
Speaker Change: with respect to their project and their reserve and why they believe this is a compelling investment for them. Their disclosures include discussion of their costs.
and you know.
Comparatively low costs, and the processing...
Speaker Change: The process that their facility will go through in order to extract the lithium from the clay is pretty standard stuff. There's no magic in this. It's all standard processes that have been used in other applications.
Speaker Change: So they actually have a pretty low cost approach to their product that I think withstands a lot of price decrease and still leaves them with very significant profits.
Speaker Change: where they've proved out. We actually did some of this work with them. They've proved out that they are now the largest proved lithium reserve in the world.
and it's domestic, right? This is in the United States.
Speaker Change: So you think about the number of ways that this thing is highly competitive, it's low cost, even at current prices, it's in the United States, you know, it's even all the output of the shop.
Speaker Change: of this Facker Pass project in Phase 1 is a tiny brick drop in the bucket with respect to lithium demand.
Speaker Change: So, I feel pretty good about this project overall, and our position as the contract might
Speaker Change: But I wouldn't be able to go look, say, because they've got a tremendous amount of information. It's a really, really thoughtful website with a lot of, a lot of...
Speaker Change: A lot of information you can get away in the weeds in some of their details.
Okay. Okay. I'll do that.
Speaker Change: You know, you had the, you took the reserve last quarter on the phosphate customer.
Speaker Change: Is that still not operating that phosphate workers that are going to start? That is not operating. We're monitoring the situation and trying to see how that plays out.
Speaker Change: Okay. And then just on the cash flow, working capital was a significant use of cash. And I guess that was receivables and inventory.
Speaker Change: I guess a couple of questions there. I guess age, do you think we're working capital be a source of cash? Do you think in 2025?
Um, and then on the inventory itself.
Speaker Change: You can give a little detail, and it's primarily mining supplies. Is that just, um,
Speaker Change: Is that something that's going to fluctuate? Or is that sort of an upward trend as you grow North American mining? Like what are those mining supplies?
Speaker Change: Working capital for our business operates very different than a typical business that's making things and selling them and they're looking at how does all that work. For us.
Speaker Change: You know, if you look at our North American mining business
Speaker Change: We will stock parts in advance of significant outages, well, in advance of any outage, regular maintenance for the many drag lines that we operate. Some of these, we own the drag lines, and in other instances, our customer owns the drag lines.
Speaker Change: So, as we see outages coming, we will increase our level of inventory because there may be specific parts that are very long lead time in their nature.
Speaker Change: and that will show up as an increase in inventory.
Speaker Change: for a period of time, even though we know that we're ultimately going to, you know, we're going to put those into an outage of a drag line and then the inventory will come down.
Speaker Change: So that's, you know, kind of a normal ebb and flow that goes through North American mining based on what it sees coming with respect to outages. The other thing I'd add is mitigation resources.
Speaker Change: The accounting there is as we develop mitigation banking credits, whether they're stream credits or weapon credits.
Those show up as inventory.
Speaker Change: And then, you know, over the life of the mitigation bank, those will be the Army Corps of Engineers. We have agreed on a schedule.
Speaker Change: under which those can be sold over a period of time so you'll see inventory build-up in that business as well because we create a product which is a dreamer wetland credit.
Speaker Change: goes on the balance sheet as inventory and as we sell it, it comes off inventory. Let's do that then. As Jason mentioned, we do expect 20-25 to be cashable and positive. Part of that is from payable team.
working tempo.
Speaker Change: We had some timing differences and trade receivables that should kind of come back in 25. And as J.C. mentioned, we're building up inventory part of that as some critical spares as well related to, as we continue to increase the contracts in North American mining. We have a larger pool of drag lines that we need critical spares for.
Thank you.
Speaker Change: Okay, so when you talk about cash repost, if you're talking pre-cash flow, sort of operating cash from operations, less cat-backs.
Catch you on the 4th by then. Take care.
that I didn't hear you. What was that?
Yes, Cashwood Club before financing.
So, right. Okay. Yep. Yep. Got it.
Yeah, okay.
Speaker Change: All right. Well, I think that's all I have. I really, I always really appreciate the time and and congrats on, you know, this, this clue, you're clearly making progress on all your initiatives. So thanks again and look forward to talking next quarter.
Speaker Change: Yeah, well, thank you for your question. Sorry, I had a little technical glitch in the beginning, but glad we stuck around with these questions. And I'd like to thank you.
Speaker Change: We love our story and we're going to engage in a more full some way later this year in investor outreach. So we look forward to sharing information with everybody about that in months to come.
Great. Thank you.
Thank you.
Speaker Change: Ladies and gentlemen, as a reminder, should you have a question, please press star one.
Speaker Change: There are no further questions that this time I will now turn the call over to Christina for closing remarks.
Christina Kmetko: Okay, thank you so much. I believe as I mentioned earlier, if you do have any questions, please read out to me. My phone number is on the release. I hope you enjoy the rest of your day and I'll turn it back to Joel to conclude the call.
Ladies and gentlemen, replay information for this call is 1-888-660-6345
Christina Kmetko: Passcode 37905 Pound Key Again, the number is 1-888-660-6345 Passcode 37905 Pound Key
Christina Kmetko: This concludes your conference call for today. We thank you for participating in NASA. You please disconnect your lines.
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