Warrior Met Coal Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 2, 2023

There are 7 speakers on the call.

Operator

This call is being recorded and will be available on the company's website. Before we begin, Ivan asked to note that today's discussion may contain forward looking statements and actual results may differ materially from those discussed. For more information regarding forward looking statements, please refer to the company's press releases and SEC filings. I have also been asked to note that the company has posted reconciliations of non GAAP financial measures discussed during this call at the tables accompanying the company's earnings press release located in the Investors section of the company's website at www.warriormetcoal.com. In addition to the earnings release, the company has posted a brief supplemental slide presentation to the Investors section of its site at www.warriomet.coal ashtrics.com.

Speaker 1

Here today to discuss the

Operator

company's results are Mr. Walt Scheller, Chief Executive Officer and Mr. Dale Boyles, Chief Financial Officer. Mr. Scheller, you may begin my remarks.

Speaker 2

Thanks, operator. Hello, everyone, and thank you for taking the time to join us today to discuss our Q2 2023 results. Actions. After my remarks, Dale will review our results in additional detail and then you'll have the opportunity to ask questions. We were pleased to deliver another strong quarter in which we were able to leverage our operational excellence to grow sales and production volumes by 15% over last year's Q2, which as you may remember set record highs for several metrics, including coal pricing.

Speaker 2

The big change to note from a year ago at this time is that hard coking coal pricing is 46% lower, which resulted in a decreased average net realized selling price for our premium coal in the Q2 of 48%. In contrast to the softening during the quarter, we saw positive improvement in the performance of our logistics partners, including continued progress addressable market conditions. Most importantly, the significant overhaul to ship loader number 1 belt structure discussed last quarter, which was out of service most of the second quarter has now been completed. The result of this and other improvements to the terminal means that most of our outbound logistics metrics actions are returning to normal ranges, allowing our vessels to be loaded within schedule and delivered to our customers on time. However, the overall timing and severe weather disruptions slightly impacted our vessel loadings in the Q2.

Speaker 2

Nonetheless, The export terminal remains a long term work in progress and we remain committed to working with the Alabama State Port Authority to achieve a beneficial outcome. Looking at demand, output from the global steel producers was largely in line with our expectations for the Q2. Most steel producing regions experienced stable output, although below previous year's comparable results. Global steel prices have pulled back from their highs in April indicating softer demand emerging from certain segments. The promise of a broader economic recovery in China has yet to deliver material results as the country has struggled to find ways to stimulate its property sector and domestic consumption.

Speaker 2

As a result, despite strong production metrics during the quarter, we expect Chinese steel production to be lower in the second half of the year to be in line with China's stated goal of lower year over year output. During the second quarter, the Supply of steelmaking coal mainly coming from Australia saw a noticeable improvement as evidenced by the increased flow of seaborne coal. Favorable weather in Australia and better performing logistics in the U. S. Contributed to the improved supply of steelmaking coal.

Speaker 2

Actions. However, year to date exports from Australia continue to trail the same period last year, primarily due to a very weak Q1 this year. Mongolian exports continue to outperform expectations with significantly higher volumes than the previous year's results. Our primary pricing index, the PLV FOB Australia declined by $62 per short ton over the course of the quarter. Actual results.

Speaker 2

Most of the correction occurred in April, while the index remained range bound for the last 2 months of the quarter. The index closed the quarter at $2.11 actual short ton, which represents about a 22% correction from its high point in April and about a 40% correction from its highest point established in February. Similarly, the PLV CFR China Index corrected heavily in the 1st part of the quarter from $2.86 per short ton to approximately $203 per short ton where it remains stable for the remainder of the quarter. According to the World Steel Association monthly report, global pig iron production increased by approximately 1% in the 1st 6 months in 2023 as compared to the same period last year. The production increase was mainly driven by strong results from Chinese production, Which grew by 2.7% during the period.

Speaker 2

Additionally, India continued its higher trend by growing 6.8% during the period. Our 2nd quarter sales volume of 1,800,000 short tons was 15% higher than the comparable quarter last year. The increase was driven by the improved performance of our rail agitation provider in the McDuffie terminal, which enabled us to export more product. In addition, better than expected production drove an increase in sales volume for the quarter. Our sales by geography in the 2nd quarter breaks down as follows: 47% into Europe 19% into South America 33% into Asia and 1% into the U.

Speaker 2

S. The increase in Asian sales were primarily driven by spot volume sold into China during the Q2. Production volume in the second quarter was better than expected and totaled 1,900,000 short tons compared to 1,700,000 short actions in the same quarter of last year, representing a 15% increase. This is the highest quarterly production output since the Q1 of 2021. Both mines operated at higher capacity levels in this quarter with a 54% higher headcount compared to the prior year's comparable quarter.

Speaker 2

Actions. In addition, we began to see the impact on production of the eligible employees that return to work from the labor strike, although we expect the full impact of their return to show up over the second half of this year. This should also improve our production cost per short ton. Actual results. The higher production over sales volume in the 2nd quarter drove our coal inventory up to 760,000 short tons from 659,000 at the end of the Q1.

Speaker 2

Now that our logistics partners and the terminal are performing better than in recent past, we expect to draw down inventory over the second

Speaker 3

actions for this year.

Speaker 2

We were pleased to welcome back the approximately 250 eligible union represented workers that returned to work during the Q2, while we negotiate in good faith toward a new labor contract. This addition to our workforce should also drive incremental production and sales volumes of approximately 500,000 short tons, primarily occurring in the second half of this year as reflected in our recently revised guidance. During the Q2, we spent $147,000,000 on CapEx and mine development. CapEx spending was $136,000,000 Which included $97,000,000 on the Blue Creek project, which I'll discuss more in a moment. At the halfway point of the year, we've spent about 45 actions.

Speaker 2

Our midpoint of targeted CapEx spending for the year. Mine development spending was $11,000,000 during the 2nd quarter. Actions we expect development of Mineford will be completed in the Q3. Turning to the development of our world class Blue Creek asset. During the Q2, we continued to make substantial progress on the project and I'm pleased to share that our work remains on schedule.

Speaker 2

As you may remember, we relaunched the development of Blue Creek Mine in May 2022. At that time the company estimated total capital expenditures for the project to range from $650,000,000 to $700,000,000 over the projected 5 year development period. Actual results. This estimate was derived in late 2021 based on engineering feasibility studies and the best available information at the time. With the understanding that the company would be able to better understand the needs of the project as development continued.

Speaker 2

Since then, based on further information and changed circumstances from the initial assumptions, the company has continued to refine and de risk the project to enhance the value generating ability at Blue Creek, including making the project scope changes that should result in lower operating costs, Increased flexibility to manage risks and the availability of multichannel transportation methods. Actions. These changes will require incremental capital expenditures, a compelling investment, which we are confident will enhance the value creating potential of a completed Blue Creek. We do not believe these changes will impact the timeline of the project. Let me share some details on the new scope of work.

Speaker 2

While we originally planned to transport coal from Blue Creek Mine via an Overland Belt to a 3rd party owned and operated barge actual loadout facility. We now plan to build a belt conveyor system to our railroad loadout to transport the majority of the coal, actions which we expect will result in lower operating costs and move volumes faster to the port. We will also build and operate a barge loadout ourselves rather than utilizing a third party actual results. This change in scope is expected to increase the total capital expenditures for the Blue Creek Mine by approximately $120,000,000 to $130,000,000 over the remainder of the project development period. We believe that the potential economic benefits associated with this scope change should provide Warrior with an inherently robust and cost competitive outbound logistics model that will provide additional flexibility to manage multichannel transportation methods.

Speaker 2

In addition, the company has experienced inflationary cost increases ranging from 25% to 35% in both operating expenses and capital expenditures for address the company's also experiencing inflationary pressures at Blue Creek, especially in relation to labor, construction materials and certain equipment that is expected to continue during the remainder of the project development period. As a number of key material contracts are currently being negotiated and due to uncertainty regarding future inflation rates, The company is not providing an estimate of the impact of inflation at this time. However, as the company negotiates and enters into contracts for the larger project components, The company expects that more information will become available to allow to provide revised guidance. While cost inflation has impacted the cost side of the equation and the project actual economics. These inflationary pressures are expected to be offset by an inflationary increase in the long term price assumption for steelmaking coal.

Speaker 2

Subject to the considerations discussed above, our revised estimate of capital expenditures in 2023 for the development of Blue Creek Mine is approximately $250,000,000 to $300,000,000 and is subject to change. The increase in 20 23 capital actual expenditures estimate is primarily driven by the change in transportation scope discussed previously. The company currently expects development spending at Blue Creek actions to be the highest in 2023 2024, with 2024 being a similar amount to 2023 that is subject to change. I'll now ask Dion to address our 2nd quarter results in greater detail.

Speaker 4

Thanks, Walt. For the Q2 of 2020 actual results. The company recorded net income on a GAAP basis of $82,000,000 or $1.58 per diluted share, representing a significant decrease over the record addressable securities. Net income of $297,000,000 or $5.74 per diluted share in the same quarter of last year. Non GAAP adjusted net income for the 2nd quarter, excluding the non recurring business interruption expenses, was $1.63 per diluted share.

Speaker 4

Actions. This compares to an all time record high of adjusted net income of $5.87 per diluted share in the same quarter of 2022. Actual results. These decreases quarter over quarter were primarily driven by the softening steelmaking coal market since the record highs that we saw in the Q2 of 2022. We reported adjusted EBITDA of $130,000,000 in the Q2 of 2023 compared to an all time record setting $431,000,000 in the Q2 of last year.

Speaker 4

The quarterly decrease was primarily driven by the 48% lower average net realized selling prices of our steelmaking coal in a softening coal market. Additional employee related costs due to higher headcount and the cumulative impact of inflation on supplies and electricity. These were partially offset by the 15% increase in sales volume. Our adjusted EBITDA margin was 34% in the Q2 of 20

Speaker 3

actual

Speaker 4

Q2 of 2023 compared to $625,000,000 in the Q2 of last year. This 39% decrease was actions primarily due to the 48% lower average net realized selling prices of our steelmaking coals, offset partially by the 15% increase in sales volume. Other revenues were higher in the Q2 of 2023, primarily due to the fact that the prior year included a mark to market loss of $15,000,000 on our gas hedges. In addition, gas revenues were lower in the Q2 of this year due to a 70% decrease in natural gas prices. The Platts Premium Low Vol FOB Australian Index Price on average was $184 per short ton lower in the Q2 of 2023 compared to the same quarter of last year.

Speaker 4

The index price averaged $2.20 per short ton for the Q2. Demurrage and other charges reduced our gross price realization to an average net selling price of $209 per short ton in the Q2 of 2023 compared to $404 per short ton in the same the quarter of last year. Demurrage and other charges were $9,000,000 lower compared to last year's Q2, of which demurrage actual share repurchase

Speaker 3

was the largest decrease of $6,000,000

Speaker 4

Higher demurrage and other charges in the Q2 of last year were the result of temporary delays in vessel loadings due to severe weather and port congestion. Cash cost of sales were $229,000,000 actual results for 60 2 percent of mining revenues in the Q2 compared to $190,000,000 or 30 percent of mining revenues in the Q2 of 2020 addressable items. Of the $39,000,000 increase in cash cost of sales, dollars 29,000,000 was due to the 15% increase in sales volumes and $10,000,000 was attributed to higher production costs, primarily on higher headcount, plus 15% higher production volumes and the impact of inflation. Our headcount was 54% higher this 2nd quarter compared to the last year due to a focus on hiring workers during the labor strike and partly related to the workers that returned from the labor strike in the Q2 of this year. Production cost actions include the wages, on boarding and training costs associated with the workers that returned over the quarter and we should see an improvement in our cost per ton later this year as we get the incremental volumes.

Speaker 4

Inflation accounted for approximately $3,000,000 of the higher cost or 1.50 actions per short ton resulting from higher costs for supplies and electricity. Cash cost of sales per short ton, FOB port, actual results of the quarter was approximately $129 in the Q2 compared to $123 in the Q2 of 2022. Actual results. While premium steelmaking coal prices were 46% lower in the Q2 of this year compared to last year, Our average net realized selling prices were 48% lower. This resulted in lower transportation royalty costs on a per ton basis, which were offset by higher wages and employee benefits on 54% higher headcount that drove higher production volumes and associated production costs such as supplies, repairs and maintenance.

Speaker 4

Transportation royalty costs were 41% of our cash cost per ton in the 2nd quarter compared to 54%

Speaker 3

actions we have made in the same quarter

Speaker 4

last year. Despite the higher production costs and inflation, cash margins were $80 per short ton in the second quarter. SG and A expenses were about $13,000,000 or 3.5 percent of total revenues in the Q2 of actual results. And we're slightly higher than last year's Q2, primarily due to an increase in employee related expenses. Actual results.

Speaker 4

The interest income earned on our cash investments well exceeded the interest expense on our outstanding notes and equipment leases during the Q2 of 20 20 3, primarily due to our high cash balances earning good investment returns. Our 2nd quarter income tax expense reflects an income tax benefit for depletion expense and foreign derived intangible income. Actions. During the Q2, we incurred incremental non recurring business interruption expenses of $4,000,000 which were lower by 44% than last year. Actual results.

Speaker 4

The decrease is primarily due to the end of the labor strike. These non recurring expenses were primarily for incremental safety and security, legal and labor negotiations and other expenses. We expect to incur ongoing legal expenses associated with the ongoing labor negotiations. Actions. Turning to cash flow.

Speaker 4

During the Q2 of 2023, free cash flow was a negative $22,000,000 actions primarily due to the higher Blue Creek CapEx spending. This was the result of cash flows generated by operating activities of $125,000,000 actual cash used for capital expenditures and mine development cost of $147,000,000 Free cash flow in the Q2 of 2023 was negatively impacted by a $7,000,000 increase in net working capital from the Q1 of 2023. Increase in net working capital was primarily due to an increase in inventories as a result of higher production combined with lower accrued expenses. Despite the higher capital spending associated with the Blue Creek project actions. To date, we have generated free cash flow of $87,000,000 of which $46,000,000 was returned to stockholders actions in the form of a special dividend earlier this year on top of the regular quarterly dividends.

Speaker 4

Our total available liquidity at the end of the second quarter was $951,000,000 representing a decrease of $35,000,000 or 4% actions over the record high Q1 and consisted of cash and cash equivalents of $827,000,000

Speaker 3

actual results.

Speaker 4

As Walt described earlier, the multichannel actual transportation scope change for the new Blue Creek mine is expected to provide flexibility, optionality and to derisk a single mode of transporting our coal down the river. Actions. In addition, we expect to benefit from a reduction in total transportation costs from not using a third party to build and operate the barge loadout and move actual poll faster to the port. The incremental capital of $120,000,000 to $130,000,000 for the total scope changes did not have a material impact on the original project economics of NPV and IRR at the illustrative $150 net coal price. We have spent approximately $173,000,000 on the project to date and have sufficient liquidity on hand to cover the expected 2.50 actual $300,000,000 to be spent in 2023.

Speaker 4

While the scope changes will require additional capital expenditures, We believe our strong cash flow generation and current available liquidity as well as the ability to finance a portion of the total expenditures through equipment leases allows us to be opportunistic as we evaluate any additional funding options for Blue Creek with the goal of maintaining an efficient and low cost of capital. Actual filings. Turning to our outlook and guidance for 2023, we believe we are on track to achieve our revised targets as outlined in the outlook section of our earnings release. I'll now turn it back to Walt for his final comments.

Speaker 2

Thanks, Dale. Before we move on to Q and A, I'd like to make some final comments. Looking ahead to the second half of twenty twenty three, our expectations remain consistent with the previous quarter. We believe steel production will remain vulnerable to the risks of Contracting industrial output and we believe the world's largest producer, China, will temper its production in the second half to meet its target of lower actual production. Still making coal supply should remain relatively stable for the same period.

Speaker 2

As such, we view our markets as being largely balanced and with the ability to absorb changes in demand or supply without resulting in large price swings. We expect spot activity in our natural markets actions to remain subdued, leading us to redirect more of our spot volume towards Southeast Asia CFR based opportunities. For Warrior, we expect 2023 to be a significant turning point in the development of our world class Blue Creek mine, actions which we expect will result in the creation of significant long term stockholder value. Over the course of the rest of the year, we expect to begin groundbreaking for the larger infrastructure components such as the new coal preparation plant, a bathhouse of mine offices, an overland belt conveyor and the rail and barge loadouts. We're extremely excited about this organic growth project, which we expect to be transformational for Warrior and allow us to build upon our proven track record of creating value for our stockholders.

Speaker 2

As we've previously indicated, We expect the 1st development tons from continuous miner units at Blue Creek in the Q3 of 2024, with the longwall scheduled to start up in the Q2 2026. With that, we'd like to open the call for questions. Operator?

Operator

Yes. Thank you. At this time, we will begin the question and answer session. And the first question comes from Lucas Pipes with B. Riley Securities.

Speaker 5

Thank you very much, operator. Good afternoon, everyone. Walt and Dale, my first question is on the change of scope around Blue Creek. To just back up the envelope, I came up with a roughly $7 or so cost reduction per ton at the port, thanks to transportation savings. Is Is that the right way to think about it?

Speaker 5

And any comments on the economics? Thank you very much.

Speaker 4

I'm not sure how you got to your $7 But yes, as I said in my prepared remarks, We originally were going to use a 3rd party to own and operate as well as build the barge load out. So the cost actions associated with that really offset all the incremental CapEx pretty much to make it neutral on the overall project economics.

Speaker 5

Got it. Okay. So yes, the $7 was just backing in, taking the at midpoint of that $120,000,000 to $130,000,000 assuming rate of return similar to Blue Creek and then that was again I did this very quickly actually $7 Okay. Maybe switching topics. You built inventory during the Q2.

Speaker 5

McDuffie, you noted, has made some progress. Can you give us a status update as to where the terminal sits today, when the terminal and started to improve during the Q2 and the pace of destocking on the inventory side for the second half of the year? Thank you very much.

Speaker 2

The biggest event was the work on the number 2 or number 1 loader. And that was as soon as they completed that work, it and instantaneously improve their performance rates more than doubled their capacity to load vessels. So it was really getting Back online, on some of the other tasks, a lot of the belt availability and just improvements in the general and operation of the port have also made tremendous incremental improvements. And what we're seeing is load rates That are similar to what we have seen at our peak production level. So we're they're back to where We think they need to be.

Speaker 2

We think there's still more improvement to get there. Again, we're driving we are now driving toward the improvements necessary to bring Blue Creek Online at full production. So even though they may be at rates that are okay for now, We're driving toward better and better performance to allow Blue Creek to operate well or sell the coal.

Speaker 5

And That's helpful. Thank you. And then one last one for me before I jump back in the queue. You noted in the press release actions that you will seek to optimize your capital structure to improve returns to stockholders. Could you comment on what Optimization you may have in mind is that reducing leverage, is that increasing capital returns.

Speaker 5

Just wondered if you could elaborate on what you meant with optimizing your capital structure. Thank you.

Speaker 4

Yes. Thanks, Lucas. I mean, that's really all encompassing of the things you just mentioned, looking at potential debt pay down as we've benefited the last 1.5 years of these really high prices, we're well positioned to not only fund Blue Creek, but pay capital returns during the development as well as pay down debt. So we're just kind of looking at what makes sense at the time and make sure that we're well positioned Despite Blue Creek, the spending there. So we're trying to accomplish a little bit of all those things and actually just be really positioned for the future.

Speaker 5

All right. Dale, Walt, really appreciate the add color and best of luck. I'll jump back in queue.

Speaker 2

Thank you. Thanks.

Operator

Thank you. And the next question comes from Nathan Martin with Benchmark.

Speaker 6

Thanks, operator. Good afternoon, guys. Thank you for taking my questions.

Speaker 2

Sure.

Speaker 6

Maybe a quick one to start as it relates to the new transportation initiatives at Blue Creek. Which railroad loadout are you guys going to be building your conveyor system to?

Speaker 2

We'll be developing a rail loadout a little ways from the mine. We really haven't given any of that actual information. I haven't made any of that information public yet.

Speaker 4

A lot of it is still under negotiation. So we just haven't finalized the terms of these agreements. So it's a little premature. We have enough to know that the additional cost is going to take. This is a really good opportunity to de risk this project and to have multiple transportation modes.

Speaker 4

Rather than putting 5,000,000 actual tons on the river, we have the ability to do both

Speaker 6

now. Yes, that makes sense. I was just curious if it was going to be CSX and actions. I know they serve your minds now if there was optionality where you guys are looking to build that new load out. And the

Speaker 4

Blue Creek Mine and our existing facilities.

Speaker 6

Okay, great. Maybe looking at the quarter real quickly then, realized price per ton a little lower than anticipated, seemingly lower than your historical average utilization versus the quarterly benchmark. Any color you guys could provide there? Was it a mix thing? Was different indices, Timing to merge?

Speaker 6

Just any additional thoughts would be helpful.

Speaker 2

I think we had our spot volumes that were above what would be They're normal and the CFR sales versus FOB sales were probably a little higher. And between those two, it dropped the realization a bit.

Speaker 6

Okay, great. Thanks Walt. And then maybe along those lines, I appreciate your market comments in your prepared remarks. It will be great maybe to get your thoughts on the recent increases we've seen in the met prices, Specifically that Chinese CFR China price is up I think $30 or more in the last month. You did note some spot business to China.

Speaker 6

So it would seem that that market maybe has gotten a little more attractive, but it would just be great to get your thoughts on how you're balancing your export mix from here? Thanks.

Speaker 2

I think our export mix, I think we've shifted a bit and it will remain shifted a bit from what was traditional where we were in the mid-50s Going into Europe and I think we'll see that number down a little bit and we'll continue to see Asia actually make up a higher percentage. And part of that is due to the fact that we've just moved into a new mining area at My number 4, which in which the quality changes a little bit, so the customer mix will change a little bit with that. So for right now, we expect to be moving a little more into well Southeast Asia.

Speaker 6

Could you elaborate a little bit on the quality

Speaker 2

We've talked about it before. We've moved from the what would be the and at Southwestern or southeastern part of the coal mine up into the northwestern part of the coal mine where the ball goes up a little bit and it's Closer to a high vol A than it was previously. So the quality we've known where it was going and We've been working with customers on that, so it's just shifted a little bit. It's more like the coal quality was The mine for coal quality was in this same area back in about 2014, I believe was when we were mining up in an area similar to where we've just moved to.

Speaker 6

Got it. Very helpful. And then maybe one final one. It would be Great to get your thoughts on possible cadence of shipments here in the back half of the year in 3Q, 4Q. I mean any expectation For one quarter to outperform versus the other, you talked about probably drawing down some inventory.

Speaker 6

Do you expect that to kind of be ratable? And Also, I know you've got a couple of longwall moves, I think 2 in Q3 and 1 in Q4.

Speaker 2

I think it will be ratable. I think The only caveat there is weather. We're moving into hurricane season and it's easy to have some days or a week or so where The report struggles a bit due to adverse weather, so that can affect the quarter pretty easily, especially if it happens around at the end of the quarter, but I would expect it to be kind of consistent performance right now.

Speaker 6

Great. Very helpful, guys. I appreciate the time and best of luck in the second half.

Speaker 2

Thank you. Thanks, Nathan.

Speaker 1

Thank

Speaker 2

you.

Operator

And the next question comes from Alex Hacking with Citi.

Speaker 1

Yes. Afternoon and thanks for the time. So on Blue Creek, you talk about The CapEx and up inflation inflationary pressure that we've seen since the project was originally scoped. I mean, should we be thinking about that original budget of I think it was $650,000,000 to $700,000,000 potentially being 20% to 30% higher, like another $150,000,000 or Am I thinking about that completely wrong? Thanks.

Speaker 2

Well, that stumbled up was what our original expectations were and that's the inflation we've seen across the board in our operations and the new project is not immune to it. Now we can't I project where we'll end up with that, but today as we're looking at it, that's where our inflationary pressures have been.

Speaker 1

Okay, got it. Just wanted to make sure I was kind of interpreting correctly. And then I guess on the development tons that are going to start coming out Next year, I'm not sure if you've quantified that for 2024 and 2025 and a really basic question, what's the accounting treatment of those development tons if it's a material amount to be sold? Thanks.

Speaker 2

Well, the tons will start coming out. We should start producing the tons in the middle of next year. But you have to remember, we have to build a preparation plan and have a way to get those tons to market. And actions. And we'll be we're working on that to try to figure out are we better off to just stockpile that, Clean it, take it to market immediately, which will have a higher cost on it because transportation will be significantly different than it will be Once the transportation modes are completed.

Speaker 2

So we're still working through what is the best way to handle that coal and that will take us a little bit of time.

Speaker 1

Okay. What's the current sort of expectation for the timing of the prep plan?

Speaker 2

The timing of the prep plan, I believe, is mid-twenty 5.

Speaker 3

I

Speaker 2

think Q2, Q3 of 'twenty five, we believe the plan will somewhere it might be the 3rd. It's somewhere in 25.

Speaker 1

All right. Thanks. Very helpful.

Speaker 2

Thank you.

Operator

Thank you. And The next question is a follow-up from Lucas Pipes with B. Riley Securities.

Speaker 5

Thank you very much, operator. Thank you for taking my follow-up question. It's back to Blue Creek. So just to make sure I understand the 25%, 35% inflationary comment right. That is separate or in addition the additional scope and the transportation expenditures you filed by.

Speaker 5

Is that right?

Speaker 2

That's correct.

Speaker 5

Very helpful. So we kind of we take the original estimate. We can apply our range 25%, 35% and then we add the transportation cost kind of on top of that for a very rough ballpark.

Speaker 2

Yes. The scope changes on top of that, yes.

Speaker 5

Thank you. Thank you for that. And then I want to follow-up on the capital structure optimization. Dale, You mentioned you made reduced leverage. Are you looking at refinancing?

Speaker 5

The debt or and that is maybe a preferred way to take reduce the cash balances, just pay off some debt with cash that you have on the balance sheet. Just I'm trying to get a little bit better understanding for how you're thinking about that optimization. Thank you very much.

Speaker 4

Well, that's Certainly an option. But look, we've accumulated quite

Speaker 6

a bit of

Speaker 4

cash as we talked about the inflation, the Future of Blue Creek. We're trying to balance those things and we paid some additional capital returns this year. We definitely don't want to put ourselves in a bad position with the remainder of Blue Creek. We're just 15 months, 16 months into the project. So But at the same time, we're looking at every piece of the capital structure.

Speaker 4

We're looking at debt, how do we position ourselves better. So, should we pay some down now or pay it down later? So, it's a little of all those things. So we're not leaning toward either one too much, but That could change. We would like to keep our options open and execute the best one for the

Speaker 5

That's helpful. Thank you. Now are there call premiums to think about prepayment penalties, things like that?

Speaker 4

Yes, there are. So we have to think about all those and where we stand with total cash and total liquidity. Spending and almost $500,000,000 in capital this year is a pretty significant concern. So you have to think about that as well.

Speaker 5

That's all very helpful. And then another one on this balance sheet. Can you remind us what your actual targets are through the development of Blue Creek for minimum liquidity, minimum cash.

Speaker 4

Well, we haven't changed those. I think we set a minimum liquidity of $250,000,000 once the project started. Most to that will be cash and that's where we figured we would stay. And we've been well ahead of that, which we've been very fortunate to accumulate so much cash with high prices, especially last year in such a record setting quarter.

Speaker 5

Thank you very much, Dale, for all the additional detail. Again, best of luck, Walt and Dale.

Speaker 2

Thank you.

Operator

Thank you. And this concludes the question and answer session. I would like to return the floor to Mr. Schaller for any closing comments.

Speaker 2

That concludes our call this afternoon. Thank you again for joining us today, and we appreciate your interest in Warrior.

Operator

Thank you. As mentioned, the conference has now concluded. Thank you for attending today's presentation. You may now disconnect your

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Key Takeaways

  • Warrior delivered 15% higher Q2 sales and production volumes year-over-year (1.8 M and 1.9 M short tons, respectively), marking its highest quarterly output since Q1 2021 despite a 46% drop in hard coking coal prices.
  • Average net realized selling price fell by 48% in Q2 to $209/short ton (from $404), driving GAAP net income down to $82 M ($1.58/share) and adjusted EBITDA to $130 M, compared to record highs in Q2 2022.
  • Major overhaul of Ship Loader 1 at the McDuffie export terminal was completed, restoring loading metrics to normal ranges and improving vessel on-time performance, though severe weather caused some disruptions.
  • Blue Creek development remains on schedule, but scope changes (self-built barge load-out and new rail conveyor) and 25–35% inflation pressures are expected to add $120–130 M of incremental capex; 2023 Blue Creek spending is now guided to $250–300 M.
  • Liquidity remains strong at $951 M, and management is evaluating capital structure optimization—balancing Blue Creek funding, potential debt pay-down, and continued shareholder returns while maintaining a $250 M minimum liquidity buffer.
AI Generated. May Contain Errors.
Earnings Conference Call
Warrior Met Coal Q2 2023
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