Alpha Metallurgical Resources Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 2, 2023

There are 7 speakers on the call.

Operator

Greetings, and welcome to Alpha Metallurgical Resources Third Quarter 2023 Results Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded. I would now like to turn the conference over to your host, Emily O'Quinn, Senior Vice President, Investor Relations and Communications.

Operator

You may now begin. Greetings, and welcome to the Alpha Metallurgical Resources Third Quarter 2023 Results Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded.

Operator

I would now like to turn the conference over to your host, Emily O'Quinn, Senior Vice President, Investor Relations and Communications. You may now begin.

Speaker 1

Thank you, Rob, and good morning, everyone. Before we get started, let me remind you that during our prepared remarks, our comments regarding anticipated business and financial performance Contain forward looking statements and actual results may differ materially from those discussed. For more information regarding forward looking statements and some of the factors Please also see those documents for information about our use of non GAAP measures and their reconciliation to GAAP measures. Participating on the call today are Alpha's Chief Executive Officer, Andy Eidson and our President and Chief Operating Officer, Jason Whitehead. Also participating on the call are Todd Munsey, our Chief Financial Officer and Dan Horn, our Chief Commercial Officer.

Speaker 1

With that, I'll turn the call over to Andy.

Speaker 2

Thanks, Emily, and good morning, everyone. Earlier today, we announced our Q3 2023 results with adjusted EBITDA of $154,000,000 As we mentioned in our pre release a few weeks ago, our Q3 results were impacted by some challenging events, including a mechanical failure at Dominion Terminal Associates. This caused a delay in vessel loading, which in turn delayed shipments and revenue. With some additional clarity into what we believe The balance of the year will hold as well as the understanding that there will be some tonnage that carries over into 2024, we tightened and lowered our shipment volume guidance for 2023. We're focused on finishing 2023 very strongly and I'm seeing evidence of this throughout the organization.

Speaker 2

Operationally across the company, Our year to date performance against 2 important safety metrics, TRIR and NFDL, are both better than the national average. With the recent closure of Slabcamp, Alpha's years long transition to a pure play metallurgical company is complete and we just opened our newest metallurgical mine in October, the Checkmate Palton Mine at the well known Elk Run complex. The Elk Run preparation plan and load out are planned to come online early in 2024. Last week, we completed the refinance of our asset based revolving credit facility, securing more favorable terms and a longer duration than the previous facility And has become standard, our share buyback program continues executing, utilizing all of our free cash flow for the quarter. We have returned more than $940,000,000 to stockholders in the form of buybacks since the program's inception in March of 2022, With roughly $560,000,000 left on the newly extended $1,500,000,000 board authorization.

Speaker 2

Following the most recently declared dividend payout, which will occur in December, the dividend program will cease and our capital return efforts will be fully focused on the repurchase program, contingent upon market conditions and cash flow levels. There are good things happening all across the company. In recent weeks, we've also worked through the budgeting and preparation process for 2024, which we expect will be another What Alpha has become known for, safe production, being good stewards of the environment, creating shareholder value, returning capital, delivering outstanding customer service and challenging ourselves to raise the bar and perform better than before. Based on the midpoint of next year's total shipment guidance that we announced this morning, We have allocated roughly 25 percent of our overall tonnage to the domestic market on a fixed price basis. The balance will be available for export Into a global met market that has demonstrated strength in recent weeks and according to the current Australian premium low vol futures is expected to retain strength well into next year.

Speaker 2

As those who have followed Alpha for some time will recall, we usually place between a quarter to a third of our overall business in the domestic market. Year to year, that can fluctuate based on several decision points, including market strength, pricing, logistics and outlook for the coming year. We have long standing relationships with domestic customers that we look forward to continuing to serve and locking in the domestic contracts also Our company well by solidifying a base of business for the year. Within our 2024 guidance, we expect to roughly $225,000,000 in CapEx next year, which is divided into 3 parts. Sustaining or maintenance CapEx is expected to again measure about dollars per produced ton or about $171,000,000 for the year.

Speaker 2

This amount corresponds to the volume guidance midpoint of 17,100,000 tons. The second portion of our CapEx is development CapEx, which we expect to be about $33,000,000 in 2024 and is the first half of development costs for the Kingston Sewell Jason will have more to share on that later. Lastly, we assume $21,000,000 in capital spending will be rolled over from this calendar year to the next due to timing and availability of certain equipment, parts and contract labor. We also provided more information And the release on special capital needed for infrastructure and equipment upgrades at Dominion Terminal Associates, our export facility in Newport News that loads and ships the bulk of our coal to international Alpha has a 65 percent ownership stake in DTA and together with the terminal's leadership and our partner, we are assessing needs and building a rough timeline for recommended Importantly, we believe the necessary improvements of DTA cannot occur over a period of time, so the facility can still be utilized while renovations occur. In terms of cost, we will continue to supply our portion of DTA's usual operating expenditures and Alpha expects to invest an incremental $25,000,000 in 2024 to begin this work with the next several years likely requiring a similar annual investment.

Speaker 2

I'll now turn it over to Todd for a discussion of our Q3 financial results.

Speaker 3

Thanks, Andy. 3rd quarter adjusted EBITDA was $154,000,000 down from our 2nd quarter level of $258,000,000 We sold 4,200,000 tons in the quarter, 4,100,000 of which came from our met segment and 100,000 tons from the all other category. Quarter over quarter realizations decreased for the Met segment with an average realization of $154.73 in Q3 compared to $172.51 for the 2nd quarter. Export met tons priced Atlantic indices and other pricing mechanisms in the 3rd quarter realized $136.76 per ton, While export coal priced on Australian indices realized $158.56 These are compared to last realizations of $175.69 per ton $159.62 respectively, which reflected a stronger coal pricing environment. Realization for our metallurgical sales in the 3rd quarter was a total weighted average $160.43 per ton, down from $176.04 per ton in the prior quarter.

Speaker 3

Realizations in the incidental thermal portion of the Met segment decreased to $92.22 per ton in Q3 as In the all other category, realizations were also down as a result of the declining pricing environment for thermal coal coming in at $68.32 for the 3rd quarter as compared to $99.66 per ton in the 2nd quarter. 3rd quarter cost of coal sales for our met segment increased to $109.95 per ton, up from $106.35 Per ton in the second quarter. Cost of coal sales in the all other category decreased quarter over quarter to $84.73 per ton as Excluding non cash stock compensation and non recurring items increased to $15,100,000 in the 3rd quarter as compared to $14,000,000 In the Q2, Q3 CapEx was $54,700,000 roughly flat against the 2nd quarter level of $54,900,000 Moving to the balance sheet and cash flows. As of September 30, 2023, we had 290 We had $94,100,000 in unused availability on our ABL at the end of the quarter. Alpha had Total liquidity of $390,100,000 as of the end of September, which is net of $102,000,000 in share repurchases during the quarter.

Speaker 3

By comparison, total liquidity at the end of the second quarter was $405,500,000 Cash provided by operating activities decreased quarter over quarter to $157,200,000 in Q3 as compared to $317,200,000 in Q2. As of September 30, our ABL facility had no borrowings $2,900,000 of letters of credit outstanding, unchanged from the prior quarter. The company has successfully completed the refinancing of its asset based revolving credit facility, which was previously set to expire in December 2024. On October 27, 2023, the company terminated its then existing ABL agreement and entered into a new facility that matures in October of 2027, With Regions Bank as the administrative agent and lead arranger, along with Service First Bank and Texas Capital Bank serving as joint lead arrangers. The new ABL facility allows the company to borrow cash or obtain letters of credit on a revolving basis up to $155,000,000 Under the terms of the agreement, interest on letters of credit will be 3.25%.

Speaker 3

As part of the transition from the previous ABL facility to the new ABL Facility. The company temporarily collateralized outstanding LCs with approximately $62,800,000 in cash and expects to replace this cash collateral with new LCs under the new ABL facility prior to year end. We are pleased to close on the ABL refinancing and to secure more favorable terms and a longer duration than our prior facility, all of which benefits the company and further strengthens our financial position. Turning now to our committed position For the year, 88% of our metallurgical tonnage in our met segment is committed in price at the midpoint of guidance at an average price of 182 point Another 12% of our 2023 met tonnage is committed, but not yet priced, meaning we are fully committed for the rest of the year at the midpoint of guidance. The The thermal byproduct portion of the Met segment is 100% committed and priced at the midpoint of guidance at an average price of $102.45 And we are 95% committed and priced for this year in our all other category with an average price of $92.23 Alpha's Board has declared a quarterly cash dividend of $0.50 per share, which will become payable on December 15 for holders on the buyback program.

Speaker 3

Pursuant to our share repurchase program, we repurchased roughly 540 5,000 shares at a cost of $102,000,000 in the Q3 of 2023. Since the beginning of the program, we have spent approximately $940,000,000 To acquire roughly 6,100,000 shares of Alpha's common stock at a weighted average price of 153.9 The outstanding share count has been reduced by more than 28% from the As of October 27, 2023, the number of common stock shares outstanding was approximately 13,300,000. The board recently increased its repurchase program authorization by $300,000,000 to a total authorization of $1,500,000,000 up from the previous level of 1 $200,000,000 This increase permits approximately $560,000,000 in additional repurchases. Looking ahead to 2024, we issued guidance for the coming year, which includes the expectation of shipping between 15.5000000 and 16,500,000 tons of metallurgical coal as well as between 900,000 and 1,300,000 tons of incidental thermal coal. Together, this brings total anticipated shipment guidance to a range of 16,400,000 to 17,800,000 tons.

Speaker 3

With the closure of Slabcamp as planned, we expect all our financial activity to be reported within the Met segment going forward, So, the all other category does not appear in our 2024 guidance. In terms of coal sales expectations, we are guiding to a range of $110 to 1 $116 per ton. The 2024 guidance range for selling, general and administrative costs is $60,000,000 to $66,000,000 excluding non recurring expenses and non cash stock compensation. Idle operations expense is anticipated To be between $18,000,000 $28,000,000 The company expects net cash interest income of between $2,000,000 to $8,000,000 And depreciation, depletion and amortization between $140,000,000 $160,000,000 Capital expenditures for 2024 are expected to be between $210,000,000 $240,000,000 which includes sustaining maintenance capital, planned projects to invest in mine development and some carryover from 2023 due to timing and availability of supplies and contract labor. In connection with expected capital investments at We are also guiding to a 2024 range of $40,000,000 to $50,000,000 for capital contributions to equity affiliates.

Speaker 3

The cash contribution range includes both the expected cash needed for normal operations of the facility of approximately $20,000,000 along with the amounts expected to be spent in 2024 related to facility upgrades of approximately $25,000,000 Lastly, the company expects a tax rate of between 12% 17% next year. In terms of our committed and price position for 2024, our metallurgical tonnage at the midpoint of guidance is 25% committed at an average price of 100 and $1.91 with another 49% committed and unpriced. The incidental thermal tonnage at The midpoint of guidance is already 98% committed at an average price of $76.85 The remaining 2% at the midpoint of incidental thermal guidance is uncommitted. I will now turn the call over to Jason for some details

Speaker 2

Thanks, Todd. Good morning, everyone. As we've spoken about in previous calls, Our last remaining thermal coal mine Slap Camp has mined out and idled, which completed our transition to a pure play metallurgical coal company. Much of the workforce at Slabcamp transitioned to our new Roland Thunder Mine, which provided a seamless transition for the workforce And that mine is now fully staffed. Additionally, in late October, we celebrated the first development cuts At Checkmate Poulton, our newest mine.

Speaker 2

Checkmate is located in Boone County, West Virginia And produces high volatile coal within our Midwest Virginia underground region. We're looking forward to getting this mine up To a full run rate and completing enhancements on the Elk Run preparation plant, which is currently undergoing And we'll come online to service this mine likely near the end of the year or early in January of 2024. As we look ahead to 2024 with the issue of guidance today, you'll see that anticipated cost The coal sales come in between $110 to $116 per ton, which reflects the recently implemented investments we made And employee wages and benefits as well as some lingering inflationary pressure in supplies and maintenance. We've discussed both of these areas on prior calls. And while we're no longer seeing such significant spikes in material costs Like we did in the last 18 months or so, we are still experiencing some inflation as contracts renew and we secure supplies for the coming year on materials and services such as repairs, roof support and mine supplies.

Speaker 2

Despite the tight labor market challenging our ability to achieve planned level volumes, we have continued to perform at or above Plan levels of clean tons per labor hour at our operations. We have budgeted to maintain the higher levels of investment in our workforce through wages And benefits as we navigate this extremely tight labor market and work hard to retain and attract the best and brightest miners to the Alpha team. Late in August, we made wage and incentive adjustments to achieve competitive compensation packages. Since such adjustments, we've made large strides Fully staffed levels and I'm seeing measurable improvement in our staffing data with a reduced turnover rate and increased hiring figures. Lastly, I'm excited to provide a preview of our Kingston Sewell underground mine that is and has been in our planning stages for quite We've budgeted funds in the development section of our CapEx guidance to start laying the groundwork for this mine throughout the 2024 calendar year.

Speaker 2

Kingston Sewell will be located in Fayette County, West Virginia as part of our Midwest Virginia surface region and will produce a low volatile product with surface sites development anticipated to begin early in 2024 And slope excavation to start in late 2024, we expect to mine the first development production cuts in late 2025. We will share additional information about Sewell as the work progresses. I will

Speaker 3

turn the call over

Speaker 2

to Dan now for some additional information on the coal markets.

Speaker 4

Thanks, Jason, and good morning, everyone. Recent months have brought about continued economic pressures in many areas of the world as well as intensified geopolitical conflicts, all of which influence metallurgical coal markets. Continuing effects of the Russian war, recessionary pressures and high interest environments Have resulted in muted world manufacturing output, new orders and employment levels and in the case of Europe Specifically, worsening conditions for regions already stalled in a significant downturn. The uncertainty around the depth of China's economic challenges The escalating conflict and violence in the Middle East are additional challenges affecting the stability of the global economic landscape. Despite these factors, metallurgical coal indices have strengthened in recent months amid tight supply conditions globally and the expectation of slow but increasing steel demand.

Speaker 4

According to the World Steel Association's latest short range outlook, 2024 Fuel demand is expected to rise by roughly 2% over 2023 levels, with developing economies projected to increase growth at a faster pace than advanced Economies, especially developed nations hindered by high interest rates and geopolitical impacts. After a slight softening of metallurgical coal indices in the early part of Q3 2023, each of the 4 indices Alpha The Australian premium low vol index jumped from $2.33 per metric ton at the start of the quarter to $3.33 per ton On September 30, the U. S. East Coast low vol index increased from $2.27 per metric ton at the beginning of July to $2.58 per metric ton at

Speaker 2

the end of the quarter.

Speaker 4

The U. S. East Coast High Vol A Index moved up from $2.16 per metric ton At the start of the Q3 to $2.88 per metric ton at the end of September. Lastly, the US East Coast High Vol B Index increased from $2.06 per metric ton on July 1 to $2.38 per metric ton on September 30. As of October 31, the U.

Speaker 4

S. East Coast indices of Low Vol, High Vol A and High Vol B indices measured 2.60 $2.80 $2.38 per ton, respectively. The Australian premium low vol index has increased from its quarter close level to $3.50 per metric ton on the same day. In the thermal coal market, the API 2 index moved $119.05 per metric ton on July 1st to $128.05 per metric ton as of the end of the third quarter. Most recent reports show the index remaining roughly flat against 3rd quarter close levels with the API 2 at $119.80 as of October 31.

Speaker 4

Turning to our outlook for next year. We previously announced the outcome of our successful domestic negotiations and Commitment of roughly a quarter of our 2024 business to domestic customers for delivery next year. The balance of our shipments will be available for export into international markets. Despite some signs of instability and economic weakness across the globe, metallurgical coal indices remain strong likely due to demand expectations and sustained Lastly, you've heard a lot about the capital needs at DTA, I'm also pleased to say that it is performing very well and October was a record month of throughput for Alpha at the facility. We are grateful to the team there for safely achieving this new record.

Speaker 4

Looking ahead, we are excited about the capital improvement plan being developed by the partners And DTA leadership. Over the coming years, we expect to invest in this strategic asset to solidify its important role in our sales and logistics framework and enhance its ability to maximize future efficiency and throughput. And with that, operator, we are now ready to open the call for questions.

Operator

Thank you. At this time, we'll be conducting a question and answer session.

Speaker 1

With B. Riley Securities, please proceed with your question.

Speaker 5

Hey, thank you so much, operator. Good morning, everyone. Andy, for a different time, I want to ask you how you came up with the name CheckMate. But to turn to more serious questions to start, can you tell us a little bit, maybe Dan, this is best for you, what drives the split between Australian linked and other pricing mechanisms. Is that kind of At this time, as you commit tons for next year or is that something that evolves over the course of a year And to what extent?

Speaker 5

And as your outlook for 2024 shapes up, where would you expect that split to be? Thank you.

Speaker 4

Good morning, Lucas. Yes, I think the short answer to your question is the demand will drive it as well as the price. We'll follow the best We'll look for the best economic opportunities for Alpha, but we have a lot of demand from long term customers in Asia, South Asia and East Asia markets that are linked to the BLV and we'll continue to pursue those opportunities. And as you know, that's where a lot of the metallurgical coal demand is and is expected To be in the future. So it's pretty obvious why we're there and where we expect the growth.

Speaker 5

Got it. Got it. So as it relates to 2024, should that split of Australian linked Indices go up relative to this year?

Speaker 4

Yes. At the moment, that's tough to say. But if Europe remains a little bit Slower than it's probably likely that, that split's roughly a third, a third, a third. I suppose it's reasonable to think that the Aussie linked price The percentage would increase.

Speaker 5

That's very helpful. Thank you. Thank you, Dan, And Dan, maybe to stay with you for another question. A couple of crosscurrents in the market Today, you commented on that in your prepared remarks. But if you look at your crystal ball for From met coal pricing and the level of interest you're seeing, what would you say are some of the biggest puts and takes here into year end?

Speaker 5

Thank you.

Speaker 4

Well, I think supply remains tight for a variety of reasons. You'll see vessel queues in Australia starting to grow slightly. You see some here in the U. S. Growing, so that will probably keep the supply side a little tight.

Speaker 4

Demand in Asia is good, particularly in India. We still see new opportunities there. And from the I'll Speak to the Alpha perspective, we're still shipping our contract business into Q4 at high levels. And as we mentioned, we had a Strong October at DTA. We're seeing good demand and good shipping levels.

Speaker 5

Very helpful. Thank you, Dan. And then my final question on the CapEx and DTA side. So first, On DTA, the simplest way to kind of think about it, correct me if I'm wrong, is $150,000,000 in capital spend Split over 6 years, that $150,000,000 that's really what's incremental. That's Question 1.

Speaker 5

And then question 2, in terms of the capital guidance for 2024, the $210,000,000 to 240,000,000 Should we think of that amount as a kind of reasonable baseline going forward? Or is there maybe a little More lumpy capital in there as well. Thank you very much.

Speaker 2

Hey, Lucas, it's Andy. I'll ask or I'll answer your second question first. As far as capital, unless we see some significant changes in The cost of materials, I think our $10 per ton on sustaining will probably stay in that zip code. So $170 to $180 ish For that portion over the next in the near term, the question on any additional Development capital, so we're going to have the first half, roughly the first half of Kings and Sewell in 2024, the back half will be in 2025. So the next Couple of years probably looks relatively similar to this year, plus or minus the inclusion of any carryover capital that's not spent.

Speaker 2

But If you're looking at it in the totality of a 2 or 3 year view, yes, it's probably going to be in the zip code, At least until we get through the development project there. And then getting back to DTA, yes, I think your math is correct. And again, Let me be clear, the DTA has not approved its budget yet for 2024. So there's still So movement that could happen there. This is kind of what Alpha's estimate of what's going on, what will need to be spent in concert with the DTA leadership and what they have The engineering they've been working through.

Speaker 2

So I think, quantum wise, it's definitely that zip code, but we'll have As we get further into the process, we'll see more specifically. And precision is not what we're going for, but I think accuracy It's probably in line with that.

Speaker 5

Thank you, Andy. And for the avoidance of doubt, that $150,000,000 would be kind of separate from the capital needs that you just discussed.

Speaker 2

That's right.

Speaker 5

In addition to rather.

Speaker 2

Yes. It's CapEx, but because it goes through our equity earnings and JV, it's a separate line item. So we try to keep Guidance and actual reported numbers on similar basis, so we don't confuse buckets.

Speaker 5

Perfect, perfect. And that guidance of $40,000,000 to $50,000,000 for capital contribution to affiliates, That just really includes the OpEx that you pay year in, year out as you ship through the terminal, right?

Speaker 2

That's correct. And Just been that's a standard thing that's been in the numbers since we've been in DTA. It's always a challenge trying to get that presented in a way that Makes it more apparent to the public, but I think we've got a pretty good handle on it now as far as how we're disclosing it.

Speaker 5

Very clear. I really appreciate all the color and Andy to you and the team, continued best of luck.

Speaker 2

Thank you, Lucas.

Operator

Our next question comes from Nathan Martin with Benchmark Company. Please proceed with your question.

Speaker 6

Thanks, operator. Good morning, guys, and thanks for taking my questions. Maybe just One more on DTA. The money you guys are going to be spending over the next several years, is that mainly just to refurbish or is there also an opportunity there to kind of Prove operations or throughput capacity?

Speaker 2

Yes. How's that for an answer, Nate? Perfect. So you start with the nameplate Capacity, what we're talking about wouldn't necessarily increase true capacity, but thinking of it more from capacity that's been lost by the various mechanical Interruptions and issues over the past couple of years, that's how we're thinking of it. But it's simply not is not able to run At its potential right now, so the money spent, while it's not expanding nameplate capacity, I think it will allow us to recover some capacity that has been lost over The past couple of years just because of the different issues that have come up.

Speaker 6

Can you put numbers around that, Andy? Like remind me what nameplate is and maybe kind of where you are today then?

Speaker 2

Well, I hate to I can't throw numbers at it again because we don't have the plans completely nailed down. We do have several processes we have to work through on how we're Exactly approaching it. And also it varies depending on how stockpiles are utilized, whether you're just pushing Coal out straight out of railcars into a boat, whether you're yes, any whether you got any kind of deviation between met or thermal coal. There are a lot of variables going to play as to what the true throughput capacity could be. But suffice it to say, getting all the pieces Refurbed and repaired will make it run much more effectively and efficiently than it currently is.

Speaker 6

Got it. Okay. That's fair. And maybe just one other question on the near term. I think Andy, you mentioned in your prepared remarks, The expectation to carry over sometimes into 2024.

Speaker 6

So how should we think about 4th quarter met All shipments, maybe at least directionally from the Q3 or maybe another way to look at it, what would kind of get you guys to the high end or the low end of full year guidance?

Speaker 2

Doggone it, Nate. You hit me with this question at least every other quarter and always struggle to answer it because We hate to deal with the unknown. We just saw a quarter where we ran into some issues that didn't allow us to hit our potential. Right now, we're off to a really good start for the 4th quarter. I think I'll probably just have to guide you to look at our year to date numbers and take that off of where we landed on guidance, our revised guidance number.

Speaker 2

I I think we have a pretty high confidence level in kind of hitting down the fairway of that delta for the Q4.

Speaker 6

Okay, got it. So I mean, kind of down the midpoint, we'll get you maybe roughly flattish quarter over quarter, if my math is close. So All right. Maybe then just shifting to 'twenty four guidance, starting again on the Shipment side of things, 16,000,000 tons in the midpoint. I think that's up about 500,000 tons versus the original 'twenty three guidance.

Speaker 6

You talked about another mine coming online right now, maybe that's driving a little bit of that, maybe improve logistics. Are you guys comfortable maintaining that roughly 16,000,000 ton level of sales kind of looking farther out assuming market demand remains supportive? And then Are you having any success entering some new markets or sending initial cargoes to new customers at this point?

Speaker 2

Yes. I'll defer to Dan on the second part of that, Nate. But on the first part, yes,

Speaker 3

I think we're pretty comfortable.

Speaker 2

And again, this will vacillate. We're not locked into 16,000,000 tons or 15,000,000 tons or 17,000,000 tons. It will move as the portfolio develops over time. But I think we're pretty comfortable in this Area that we're in plus or minus 500,000 tons either any direction For the time being, but the second part, Dan?

Speaker 4

Yes, sure. And Nate, I'll just add that, yes, the increase Stew, we have 2 new coal mines effectively. We have the Rolling Thunder Mine, which started earlier this year and now the Checkmate. So we've added High Vol met production And we've eliminated now we don't produce the SLAPCAM thermal. So some of that is just a switch from thermal to met.

Speaker 4

And yes, we're comfortable that this call will all find markets. Primarily, the new markets would be in Europe. We're still Delivering trial shipments to several new customers in Asia and expect to do more in 2024.

Speaker 6

That's great info, Dan. Appreciate that. And maybe with those 2 new mines, could you talk about what's your Quality mix might look like if it differs much from the chart I think you guys usually have in your deck?

Speaker 4

Just broadly speaking, it's just a little more high vol. I guess, we have to call it an A or B. It's probably more on the high vol B side. So we'd be increasing the eyeball piece of that pie a little bit.

Speaker 2

Yes. And I think as Nate as a percentage, if you're looking at the pie chart that we have in our investor deck When it's time to get it squared away for 20 3 ish numbers, I don't think it's going to look very different. I think to Dan's point, it may flex up 1% or 2% in total high vol, but it's going to look really similar with no I don't think there will be any kind of material changes until we do get Closer to 25 when Kings and Sewell brings more low vol into the mix.

Speaker 6

Got it. Perfect guys. And then one more if I Going back to 'twenty four guidance and specifically the met segment cost per ton guidance, I think the implication there is up about $2.50 Year over year, just using guidance midpoints. You gave some color in prepared remarks there. I think some of it's labor with your new agreements you put in place in August.

Speaker 6

Anything else kind of driving that uptake? And then maybe what net prices are you guys assuming for that $110 to $116 range? Thanks.

Speaker 2

I'll do the second part first, and then I'll let Jason give you his thoughts on cost movements. As usual, when we go through the budget, we like to inform what we plug in For cost, it's usually kind of an amalgam of what the market research folks show for the 2024. And we like to we also kind of bounce that again where the futures are. This year, there's a pretty sizable disconnect between where those are at least for the front half Excuse me, the back half of the year. So we've kind of had to use a little bit of judgment there, but we do tend a bit more toward the conservative When we set up our budget, so I would say we're closer to the market research folks numbers than the futures as far as For utilization for budget purposes.

Speaker 2

But, Jason, if you got some more thoughts on cost. Well, at the mine sites, I think you said you understood the labor and That's just a function of shoring up our ability to make the volume. As we mentioned, we've been productive with the labor we had, But it's just about loading the mines up and producing that 16,000,000 tons. But on the other side, I mean, We're still in the middle of contract negotiations with various vendors. Some are complete, some are ongoing and there's still By the end of the year, so I think the escalators that we used in the budget year over year is just kind of a weighted average You know of all those materials, prices.

Speaker 6

Great. Appreciate all the color and the time guys. I'll be there. Best of luck in the 4th quarter.

Speaker 2

Thank you, Nate.

Speaker 1

Our next question is from Lucas Pipes with B. Riley Securities. Please proceed with your question.

Operator

Lucas, you're live with our speakers.

Speaker 1

Lucas, are you muted?

Speaker 5

Sorry about that. I was muted. That's okay. Thank you very much, operator. Thank you for taking my follow-up question.

Speaker 5

So my first one is on the transportation side. I think there's typically like a 1 quarter lag in terms of price adjustment sorry, rather cost adjustments to the to transportation costs. To transportation costs with the index, so I wondered if you could speak To that for Q4 and then more broadly with where prices are today, where would you expect transportation costs To be, any other considerations to take into account for 2024, be it inflationary pressures, etcetera. Thank you.

Speaker 4

Well, Lucas, you're correct on what you said about there's a component the transportation rates do Largely before the seaborne shipments, they move with the indices. So and they do have a lag. So that's right. So as the market moves up, Right behind it, our rail costs move up. Going forward, we're still in negotiations for next year's rail With our rail providers, so I really don't want to comment anymore about next year at this time.

Speaker 5

Got it. Got it. So maybe a little bit of a benefit Q4 and then with the stronger pricing today that would then lead to higher transportation costs early 2024 and then the broader discussion, we'll just have to stay tuned.

Speaker 4

Yes, that's directionally correct, Lucas, yes.

Speaker 5

Okay. Thank you for that. And then a follow-up To the volume discussion, for 2025, should we expect Higher volumes with the new mines coming online?

Speaker 2

Well, Lucas, How about we table that question until this time next year and I'll have a budget to talk to you about. If I start trying to opine on that, then Todd will smack me. So We'll just because we do we've got depletion of other mines, we've got other actions we need to take into consideration. So I'd hate to give guidance To anything, when it's premature.

Speaker 5

Got it. Got it. Okay. Well, I appreciate it. I will probably try asking it again before this time next year, but I appreciate it.

Operator

I will now turn the call back over to Andy Edson for closing remarks.

Speaker 2

Well, thanks again for joining us today and for your interest And Alpha, and we hope you have a great rest of the day, rest of the week, and everyone please take care.

Operator

This concludes today's conference. You may disconnect your lines at this time and we thank you for your participation.

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Key Takeaways

  • Alpha reported Q3 adjusted EBITDA of $154 million, down from Q2 after a mechanical failure at Dominion Terminal Associates delayed vessel loading and shipments, prompting a lowered 2023 shipment volume guidance.
  • The company has completed its transition to a pure-play metallurgical coal producer with the closure of Slabcamp and the October opening of the Checkmate Poulton Mine, while the Elk Run preparation plant and load-out are slated to start up in early 2024.
  • Alpha refinanced its asset-based revolving credit facility by entering a new $155 million facility maturing October 2027, securing more favorable terms and boosting total liquidity to $390 million with no outstanding borrowings on the ABL.
  • Since March 2022, the company has returned over $940 million to shareholders through share buybacks and will cease its dividend program after the December payout to focus fully on repurchases under the remaining $560 million authorization.
  • 2024 guidance calls for shipments of 16.4–17.8 million tons (25% domestic fixed-price), an average selling price of $110–$116 per ton, capital expenditures of $210–240 million (including a $25 million initial investment in DTA upgrades) and $40–50 million in capital contributions to equity affiliates.
A.I. generated. May contain errors.
Earnings Conference Call
Alpha Metallurgical Resources Q3 2023
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