Warrior Met Coal Q2 2025 Earnings Call Transcript

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Provided by Quartr
August 6, 2025

Key Takeaways

  • Positive Sentiment: Operational resilience: Delivered strong operational results with positive cash margins and operating cash flows in Q2 despite volatile market conditions.
  • Positive Sentiment: Blue Creek acceleration: First commercial sales of 239,000 short tons occurred one quarter ahead of schedule and longwall startup has been advanced to early Q1 2026, on budget.
  • Negative Sentiment: Market headwinds: Seaborne steelmaking coal prices declined 24% year-over-year amid excess Chinese exports, weak global demand and high inventories, leading to an 80% gross price realization below target.
  • Negative Sentiment: Earnings decline: GAAP net income fell to $6 million ($0.11/share) from $71 million ($1.35/share) and adjusted EBITDA dropped to $54 million from $116 million, driven by 30% lower prices.
  • Neutral Sentiment: 2025 guidance and liquidity: Updated cost guidance of $110–$120 per ton, reported negative free cash flow of $57 million due to strategic Blue Creek investments, and ended Q2 with $545 million of available liquidity.
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Earnings Conference Call
Warrior Met Coal Q2 2025
00:00 / 00:00

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Operator

Good afternoon. My name is Wyatt, and I will be your conference call operator today. At this time, I would like to welcome everyone to the Warrior Second Quarter twenty twenty five Financial Results Conference Call. At this time, all lines are in listen only mode. Following the presentation, we will conduct a question and answer session.

Operator

This call is being recorded and will be available for replay on the company's website. I would like to turn the call over to Brian Chopin, Chief Accounting Officer and Controller. Please go ahead.

Brian Chopin
Brian Chopin
SVP, Chief Accounting Officer & Controller at Warrior Met Coal

Good afternoon, and welcome, everyone, to Warrior's second quarter twenty twenty five earnings conference call. Before we begin, let me remind you that certain statements made during this call, including statements relating to our expected future business and financial performance, may be considered forward looking statements according to the Private Securities Litigation Reform Act. Forward looking statements, by their nature, address matters that are, to different degrees, uncertain. These uncertainties, which are described in more detail in the company's annual and quarterly reports filed with the SEC, may cause our actual future results to be materially different from those expected in our forward looking statements. We do not undertake to update our forward looking statements whether as a result of new information, future events or otherwise, except as may be required by law.

Brian Chopin
Brian Chopin
SVP, Chief Accounting Officer & Controller at Warrior Met Coal

For more information regarding forward looking statements, please refer to the company's press releases and SEC filings. We'll also be discussing certain non GAAP financial measures, which are defined and reconciled to comparable GAAP financial measures in our second quarter press release furnished to the SEC on Form eight ks, which is also posted on our website. Additionally, we will be filing our Form 10 Q for the second quarter ended 06/30/2025, with the SEC this afternoon. You can find additional information regarding the company on our website at www.warriormetcoal.com, which also includes a second quarter supplemental slide deck that was posted this afternoon. Today on the call with me are Mr. Walt Scheller, Chief Executive Officer and Mr. Dale Boyles, Chief Financial Officer. After our formal remarks, we will be happy to answer any questions. With that, I will now turn the call over to Walt.

Walter Scheller
Walter Scheller
CEO & Director at Warrior Met Coal

Thanks, Brian. Hello, everyone, and thank you for taking the time to join us today to discuss our second quarter twenty twenty five results. After my remarks, Dale will review our results in additional detail, and then you'll have the opportunity to ask questions. I'm pleased that we delivered strong operational results, maintained positive cash margins and generated positive operating cash flows during the second quarter. These outcomes reflect the strength of our cost discipline, the flexibility of our variable cost structure and the resilience of our team in managing volatile market conditions.

Walter Scheller
Walter Scheller
CEO & Director at Warrior Met Coal

I'm also excited to announce the acceleration of the Blue Creek longwall startup to early first quarter twenty twenty six. During the second quarter, we achieved the first commercial sales of steelmaking coal from Blue Creek, which was one quarter ahead of schedule. We also achieved other critical milestones in the development of the mine that allowed us to accelerate the Longwall startup. More about this in a few moments. Our markets remained under significant pressure this quarter, extending the weakness that has been firmly set for the past several quarters.

Walter Scheller
Walter Scheller
CEO & Director at Warrior Met Coal

The drivers underlying the weakness are the same, excess Chinese steel exports, lackluster global steel demand and a well supplied steelmaking coal market. First, exports of low priced Chinese steel are up over 9% for the first five months of the year compared to 2024, which was already a record year for Chinese steel exports. Second, with the exception of India, forecasted global demand for steel has been revised downwards as a result of trade uncertainty and tepid global economic activity. And third, the seaborne steelmaking coal markets remained under pressure due to strong supply, especially in the second tier segment as demonstrated by strong Chinese domestic steelmaking coal production and a slowdown in Chinese imports. Pricing for our segment was also impacted by the continued resale of previously sold cargoes as well as healthy inventory levels across most of the global supply chain.

Walter Scheller
Walter Scheller
CEO & Director at Warrior Met Coal

The continued market weakness, which I just described resulted in average premium lowball steelmaking coal index prices declining 24% compared to the second quarter last year and declining 33% year over year through June. Our primary index, the PLB FOB Australia stayed above the low points observed during the 2025 and averaged $167 per short ton, which is nearly the same as the first quarter this year. Contrary to PLB FOB Australia pricing, the main second tier indices, which are the Australian LVHCC and U. S. HVA price indices, both established their year to date low points in the second quarter and averaged $131 and $154 per short ton respectively.

Walter Scheller
Walter Scheller
CEO & Director at Warrior Met Coal

The relative price of the LVHCC index price compared to the PLD index continues to be a major story with value significantly lower than historical values. The relative price for the second quarter averaged 78%, which was well below the 88% average for the past three point five years and reached a multi year low point of 76% during the second quarter. In addition, the POB CFR China recorded a new low price point near the June of $143 per short ton, while averaging $151 per short ton for the second quarter. The arbitrage between the Australian FOB and China CFR indices remained closed for almost the entire quarter on the backdrop of an extremely low Chinese domestic pricing. This fact combined with the retaliatory tariff by China on U.

Walter Scheller
Walter Scheller
CEO & Director at Warrior Met Coal

S. Imports made for sales from The U. S. Into China uneconomical and therefore we've not sold any volume into China this year. We achieved a gross price realization of 80% for the second quarter, which was a function of relative index pricing, product mix, geography, tariffs and freight rates.

Walter Scheller
Walter Scheller
CEO & Director at Warrior Met Coal

This result was lower than our annual target range of 85% to 90%, primarily due to three things. First, the LDHCC index price relative to the PLD index price has widened as I previously mentioned. Second, we sold a higher mix of High Vol A product versus premium Low Vol product. And third, the higher High Vol A volume has been sold primarily into the Pacific Basin on a CFR basis and net of freight costs. According to the World Steel Association monthly report, global pig iron production decreased by 1.3% for the first six months of 2025 as compared to the prior year period.

Walter Scheller
Walter Scheller
CEO & Director at Warrior Met Coal

Pig iron production in China, which is the world's largest production region decreased by 0.8% for the same period. The rest of the world's pig iron production experienced a decline of 2.3% for the first six months of 2025. India remains a bright spot with a growth rate of 7.1% and is expected to continue growing with new blast furnace capacity expected to come online this year. Now let me turn to our second quarter results in detail. Our strong sales volume was driven by the first commercial sales from our Blue Creek mine occurring earlier than anticipated.

Walter Scheller
Walter Scheller
CEO & Director at Warrior Met Coal

Our second quarter sales volume was 2,200,000 short tons compared to 2,100,000 in last year's same quarter, representing a 6% increase. We sold 239,000 tons of Blue Creek development steelmaking coal during the second quarter, which is a quarter earlier than anticipated and already included in our annual volume guidance. The Blue Creek tons were contractual volumes sold primarily into Asia. Our sales by geography for the second quarter breakdown as follows: 52% into Asia, 37% into Europe and 11% into South America. The second quarter marks the first time in our history where sales into Asia were greater than 50% of total sales volume and did not include any sales into China.

Walter Scheller
Walter Scheller
CEO & Director at Warrior Met Coal

Our spot volume was 4% for the second quarter twenty twenty five, which was primarily sold into Europe. For the full year, our spot volume is expected to be approximately 15% or less of total sales volume. Production volume in the second quarter twenty twenty five was 2,300,000 short tons compared to 2,200,000 in the same quarter of last year, representing a 6% increase. Our existing mines continue to perform well and the continuous miner units at our Blue Creek mine produced 348,000 short tons during the second quarter and drove the overall increase in production volume. Our coal inventory levels remain consistent at 1,100,000 tons at the end of the second quarter compared to the end of the first quarter twenty twenty five.

Walter Scheller
Walter Scheller
CEO & Director at Warrior Met Coal

During the second quarter, we spent $94,000,000 on CapEx and mine development. Of that amount, CapEx spending totaled $75,000,000 Mine development costs for Blue Creek project were $19,000,000 during the second quarter and continued to be below budget as we focused on cost control. As we ramp up operations toward the Longwall start up, we expect our Blue Creek mine development cost to increase in the 2025. Apart from the $52,000,000 in Blue Creek capital expenditures, we tightly manage our capital expenditures at the existing mines to $23,000,000 Now, let me provide you with an exciting update on our transformational Blue Creek growth project, which is ahead of schedule and on budget. The project team continued to make excellent progress during the second quarter with overall development and achieved certain milestones earlier than planned.

Walter Scheller
Walter Scheller
CEO & Director at Warrior Met Coal

If you allow me a moment to give our team credit, that is unheard of with large scale projects in this industry. As a result of those achievements, we've accelerated the longwall startup at Blue Creek to early first quarter twenty twenty six. As previously mentioned, we achieved another milestone in the development of Blue Creek by selling 239,000 tons of steelmaking coal during the second quarter. These were the first commercial sales from this project and were also ahead of schedule. This marks a critical inflection point in the development of this premier asset, representing the beginning of a transition from capital investment to revenue generation.

Walter Scheller
Walter Scheller
CEO & Director at Warrior Met Coal

The development of the first longwall panel during the second quarter produced 348,000 short tons of steelmaking coal and remain on track to produce 1,000,000 short tons for the full year 2025. We are pleased with the progress thus far in the development and our effective management of costs. We received the final delivery of the remaining longwall shields during the second quarter, which were already to be set up underground in the next few months. In addition, our recruiting and hiring efforts for this new mine continue to be on track. We also continued to make excellent progress as we completed the installation of the truck dump, rail load out and module A of the preparation plant, which allowed us the ability to send the first train of loads of steelmaking coal to the Port Of Mobile for our first shipments to customers.

Walter Scheller
Walter Scheller
CEO & Director at Warrior Met Coal

We continue to ramp modules B and C at the preparation plant with the full commissioning expected in the fourth quarter of this year. We strategically invested another $52,000,000 of capital expenditures in the second quarter and $107,000,000 year to date in the Blue Creek development. That brings the total project capital expenditures to date to $823,000,000 which remains on budget. Our baseline total project estimate remains unchanged ranging from $995,000,000 to $1,075,000,000 dollars I'll now ask Dale to address our second quarter results in greater detail.

Dale Boyles
Dale Boyles
CFO at Warrior Met Coal

Thanks Walt. As Walt noted earlier, our second quarter results demonstrate the strength of our business model, especially during adverse market conditions. We have high quality assets, strong customer demand and a variable cost structure that allows us to navigate volatile market conditions. In addition to a variable cost structure, especially for transportation and royalty cost, we have a strong and disciplined approach to managing all costs, including our SG and A and capital spending. We continue to make efforts to control what we could control despite adverse market conditions to generate positive financial results and outperform expectations.

Dale Boyles
Dale Boyles
CFO at Warrior Met Coal

For the second quarter, Warrior recorded net income on a GAAP basis of about $6,000,000 or $0.11 per diluted share compared to net income of $71,000,000 or $1.35 per diluted share in the same quarter of 2024. These decreases in quarterly results were primarily driven by 30% lower average net selling prices and a weak market price environment, partially offset by higher sales volume and a strong focus on controlling our costs as evidenced by our ability to drive down our cash cost of sales per ton by 18% from last year. We reported adjusted EBITDA of $54,000,000 in the 2025 compared to $116,000,000 in the same quarter of last year. Adjusted EBITDA margin was 18% in the 2025 compared to 29% in the same quarter of last year. On a per ton basis, our adjusted EBITDA margin was $24 per short ton for the second quarter of this year compared to $55 in the last year's second quarter.

Dale Boyles
Dale Boyles
CFO at Warrior Met Coal

The decrease in quarterly results was primarily driven by 30% lower average net selling prices and a 13% higher mix of high vol A coal sold versus premium low vol coal. This was partially offset by lower production cost, lower variable cost for transportation and royalties and 6% higher sales volume. Total revenues were $298,000,000 in the second quarter of this year compared to $397,000,000 in the 2024. The total decrease of $99,000,000 was primarily due to a decrease in average gross selling prices of $120,000,000 and a higher mix of high vol A volume sold of $12,000,000 partially offset by the impact of higher sales volumes of $22,000,000 In addition, demurrage and other charges were $7,000,000 lower compared to the 2024. This resulted in an average net selling price of $130 per short ton in the 2025 compared to $186 per short ton in the same quarter of last year.

Dale Boyles
Dale Boyles
CFO at Warrior Met Coal

Cash cost of sales in the 2025 was $225,000,000 or 78% of mining revenues compared to $260,000,000 or 67% of mining revenues in the second quarter of last year. Of the $35,000,000 net decrease in cash cost of sales, dollars 50,000,000 of the decrease was driven primarily by the lower variable transportation royalty cost on 24% lower average steelmaking coal price indices. In addition, we rationalized and tightly managed our spending on supplies, repairs and maintenance expenses. These decreases were partially offset by $15,000,000 increase in cost associated with a 6% increase in sales volumes. Cash cost of sales per short ton FOB port was approximately $101 in the second quarter of this year compared to $124 in the 2024.

Dale Boyles
Dale Boyles
CFO at Warrior Met Coal

The decrease was primarily related to the lower variable transportation royalty cost of $15 per ton on lower steelmaking coal prices, dollars 5 per ton of tightly managing our overall spending at the legacy mines and a further $3 per ton from the initial sales of low cost Blue Creek tons. While we were able to tightly manage our spending during the second quarter, some costs such as repairs and maintenance may be higher in the second half of the year. Underground mining places a significant strain on machinery and equipment, often resulting in unexpected breakdowns that require investment in repairs and maintenance to restore their operational status. Our cash cost of production for the 2025 was 67% of our total cash cost per short ton compared to 61% in the same quarter last year. Overall, transportation and royalty costs were 33% of our cash cost of sales per short ton in the second quarter of this year on lower average net selling prices compared to 39 in the same quarter last year.

Dale Boyles
Dale Boyles
CFO at Warrior Met Coal

As a result of the lower average net selling price, our cash margin per short ton was $29 in the second quarter of this year compared to $62 in the same quarter of last year. SG and A expenses were $12,000,000 in the 2025 and were about $4,000,000 lower than the second quarter of last year as we continue to manage our overall spending. This decrease was primarily due to lower employee related expenses and professional fees. Depreciation and depletion expenses were $43,000,000 in the 2025 and were higher than the same quarter last year, primarily due to the additional assets placed into service at Blue Creek. Our net interest income earned from cash investments was lower in the second quarter of this year due to lower average cash balances and lower rates of return combined with higher interest expense on newly leased equipment.

Dale Boyles
Dale Boyles
CFO at Warrior Met Coal

Turning to cash flow. During the 2025, free cash flow was negative $57,000,000 This was a result of cash flows generated by operating activities of $37,000,000 less cash used for capital expenditures and mine development of $94,000,000 Working capital increased by $14,000,000 during the second quarter and was heavily influenced by higher inventory of Blue Creek supplies. This was partially offset by lower accounts receivable. It's important to understand that while our total free cash flow was negative for the second quarter and year to date, the underlying business has generated positive free cash flow if you exclude the strategic investments we are making into Blue Creek. The underlying business generated approximately $40,000,000 of free cash flow in the second quarter, excluding the Blue Creek CapEx spending, mine development and working capital impact.

Dale Boyles
Dale Boyles
CFO at Warrior Met Coal

This demonstrates the strength of the underlying business during these challenging market conditions and low pricing environment. Our total available liquidity at the end of the 2025 was $545,000,000 and consisted of cash and cash equivalents of $383,000,000 short and long term investments of $48,000,000 and $114,000,000 available under our ABL facility. Now that I've discussed the second quarter results compared to last year, let me highlight some of the achievements compared to the 2025. Our second quarter adjusted EBITDA of $54,000,000 was $14,000,000 higher than the 2025, primarily due to 2% higher sales and production volumes and $11 per ton lower cash cost. This improvement was partially offset by $5 per ton of lower average net selling prices, which I addressed in my earlier comments.

Dale Boyles
Dale Boyles
CFO at Warrior Met Coal

Approximately two thirds of the cost reductions came from our highly focused and disciplined approach to cost control, operational efficiencies and the sales mix of Blue Creek coal with its inherently lower cost structure. The remaining one third of cost reductions came from lower variable transportation and royalty cost. Let me turn to our outlook and guidance for the full year 2025. As outlined in our earnings release, we have updated our guidance for the full year 2025 to better reflect the challenging market conditions and pricing environment we expect for the remainder of this year. We believe our customers' markets will continue to be challenged from a demand standpoint over the next several quarters.

Dale Boyles
Dale Boyles
CFO at Warrior Met Coal

From a supply standpoint, we believe that current pricing levels are making a substantial portion of global supply uneconomical and that supply rationalization is needed to better balance the overall market. In addition, there continues to be uncertainty surrounding global trade and tariffs that could put additional pressure on seaborne pricing. And finally, one last note on the One Big Beautifully Bill Act that was enacted into law on July 4. The act contains some provisions that we expect will be beneficial to Warrior, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act and making a permanent deduction of approximately 33% on our foreign derived income. In addition, the act classifies metallurgical coal as a critical mineral eligible for the tax credit under the Section 45X of the Internal Revenue Code.

Dale Boyles
Dale Boyles
CFO at Warrior Met Coal

The 45X tax credit is based upon a 2.5% credit a defined eligible production cost from 2026 through 2029 and will vary per year depending upon variable production costs during those periods. We are currently assessing the build's impact on our financial statements, but we do expect it to impact us positively. I'll now turn it back to Walford's final comments.

Walter Scheller
Walter Scheller
CEO & Director at Warrior Met Coal

Thanks, Dale. Our forward looking view remains intact. We believe our customers' markets will continue to face headwinds due to the persistence of excess Chinese steel exports amid a backdrop of weaker global economic activity. Although we're watching closely for the potential of capacity rationalization in Chinese steel production, it is not clear how and when that will occur. We're optimistic about the possibility of new trade agreements with key global partners, yet we'll proceed with caution until these agreements are officially secured.

Walter Scheller
Walter Scheller
CEO & Director at Warrior Met Coal

While we recognize that we're operating in an uncertain environment, we're confident that our world class asset base, highly flexible cost structure and a high performing workforce will allow us to navigate successfully through the remainder of this year and beyond. With that, we would like to open the call for questions. Operator?

Operator

And your first question comes from the line of Nick Giles with B. Riley Securities. Please go ahead.

Nick Giles
Senior Research Analyst at B.Riley Securities

Thank you, operator. Good afternoon, everyone, guys. Congratulations on such a strong quarter and for the pull forward of Blue Creek. My first question, your updated cost guidance of $110 to $120 per ton, despite a downward revision, think still implies that costs would be towards the higher end of that range in the second half to reach the midpoint. To me, this seems somewhat unlikely based on the strong performance year to date.

Nick Giles
Senior Research Analyst at B.Riley Securities

So my question is, how should we think about cost cadence between here and the end of the year? Thank you very much.

Dale Boyles
Dale Boyles
CFO at Warrior Met Coal

Hey, Nick. Thanks for the question. Yes, it's to account for, we had a strong quarter where we really managed our costs. But as I said in my prepared remarks, look, things happen and you got to plan for those. So we have planned for that in the back half that it may happen.

Dale Boyles
Dale Boyles
CFO at Warrior Met Coal

But we're going to continue to tightly manage all of our costs and have the mines perform at their optimal capacity. But we're also just planning for things to swing the other way. We have things breaking, you have to repair them. So we're averaging year to date about $107 a ton, which is near the bottom end of our year full year guidance. So, plan for just a little upside I'm sorry, a little downside on the rest of the year.

Nick Giles
Senior Research Analyst at B.Riley Securities

Got it. Okay. Thanks for that, Dale. My second question was, with Brazilian tariffs being implemented, I believe that market has historically been around 20% of volumes. How should we think about the potential for diversion?

Nick Giles
Senior Research Analyst at B.Riley Securities

And which markets would you favor if there was a need for diversion? And how could that impact realizations?

Walter Scheller
Walter Scheller
CEO & Director at Warrior Met Coal

This is Walt. I think what's really going on is it's the additional high vol A tons that are coming into the market that typically do not flow into South America. South America was a larger part of our market when we were moving more of a mid vol product out of Mine 4 down into South America. And now that's a high vol. So we saw some coal flowing there, but not what used to.

Walter Scheller
Walter Scheller
CEO & Director at Warrior Met Coal

And if you back out the Blue Creek tons, we're probably at about the same level in terms of the number of tons going to South America. It's just on a percentage basis, the number has dropped down. And I think that'll pretty much continue. And as we've said before, the High Vol A tons right now especially are moving heavily into Asia.

Nick Giles
Senior Research Analyst at B.Riley Securities

Got it. So Walt maybe just a quick follow-up on that. I mean is what is your dialogue with Brazilian steelmakers look like to date? I mean has there been a need to divert those tons? Or are they still willing to take them today?

Walter Scheller
Walter Scheller
CEO & Director at Warrior Met Coal

Well, they're still taking them.

Nick Giles
Senior Research Analyst at B.Riley Securities

All right. Well, appreciate the perspectives and guys keep up the good work.

Dale Boyles
Dale Boyles
CFO at Warrior Met Coal

Thank you.

Walter Scheller
Walter Scheller
CEO & Director at Warrior Met Coal

Thanks, Nick.

Operator

Your next question will come from George Eadie with UBS. Please go ahead.

George Eadie
George Eadie
Equity Analyst at UBS Group

Yes. Good evening, Walt, Dale and Brian. Hope you're well. Can I ask about Blue Creek, please? So well done firstly on bringing this forward.

George Eadie
George Eadie
Equity Analyst at UBS Group

That's a clear win. I have two questions here. Just firstly on costs. I'm looking back at the Blue Creek project update from February. Your cash cost of sales guidance here was 90,000,000 to 105,000,000 a short ton.

George Eadie
George Eadie
Equity Analyst at UBS Group

Can I ask where does that fit firstly today in light of the pretty good Q2 cash performance as well? And is there potential for this to go lower? And how much of that is dependent on the denominator getting to 6,000,000 tonnes?

Dale Boyles
Dale Boyles
CFO at Warrior Met Coal

Yes. Well, George. That guidance was based on a PLV price of $2.5 with a price relativity too that's closer to the ten year average, which is not where we are today. So that's going to be a little higher than where we are today. And we're just coming out of the gate, just ramping up.

Dale Boyles
Dale Boyles
CFO at Warrior Met Coal

So I don't want to really give you a separate number for Blue Creek other than it positively impacted the quarter as we start to ramp. The full benefit of that we've seen next year when the longwall comes up and we haven't we don't have all those costs in there yet.

George Eadie
George Eadie
Equity Analyst at UBS Group

Right. Okay. For that. Dow, just on the volume piece though, so you talked to 6,000,000 tonnes though, but the expanded capacity option would be dependent on market conditions. Can I ask just how you're thinking about that today at these levels?

George Eadie
George Eadie
Equity Analyst at UBS Group

I mean, into Asia are now over half as a group. Well, I think I said before, selling into the Pacific Basin is a drag. On my calcs at the moment, spotless freight into India is sort of like it didn't low 110s a short ton. How do you sort of looking at that given it's a pretty weak price environment?

Walter Scheller
Walter Scheller
CEO & Director at Warrior Met Coal

Well, I think what we're really doing with those tons is knowing that they're going to move into Asia. And they are as we've said, they're much lower cost tons and that's based on the mine reserve, the thicker coal. And our expectations and what we've seen are consistent with what we had projected. So we haven't seen anything that would cause us to believe that that's not doable. On the 6,000,000 tons and when will we do that, what we've said is that that's going to be dependent on our placement of those tons into contractual agreements.

Walter Scheller
Walter Scheller
CEO & Director at Warrior Met Coal

And as we to get ourselves to the point where we're contracted to the same as we are at the other mines, let's say up to 80%, then we'll expand volume. What we're not going to do is flood the spot market with a bunch of tons and destroy the market. But as we put those tons to bed, we're going to bring additional tons on.

George Eadie
George Eadie
Equity Analyst at UBS Group

Yes. Okay. Thanks. Well, so can you give us some idea of what pricing was like in the quarter for Blue Creek? I mean, compared to the average of 130, I'm guessing was a bit lower like was it sort of 120 we're thinking.

George Eadie
George Eadie
Equity Analyst at UBS Group

I guess my sort of questioning is you called out three drags for gross realization and there's going to be more High Vol A going forward and more sales into the Pacific Basin. So I guess is there risk to that 85% to 90% target gross realization going forward now?

Dale Boyles
Dale Boyles
CFO at Warrior Met Coal

Yes, George, this is Dale. Yes, there is. You know, what happened in the quarter, Our gross price realization was 80%. But the biggest driver of those three factors was the price relativity. That spread widened and got as low as 76% during the quarter, which is significantly lower than the last three point five year average of 88.

Dale Boyles
Dale Boyles
CFO at Warrior Met Coal

So while the PLB didn't move much, the LVHCC dropped during the quarter. So that right there has a big drag on our net realized prices as well as freight rates, right? So we feel good about what we're doing in helping these markets in Asia that we've never sold into. And Blue Creek is the perfect product to go into those markets, especially with low cost in this part of the cycle.

George Eadie
George Eadie
Equity Analyst at UBS Group

Okay. Thanks for that guys. All the best.

Dale Boyles
Dale Boyles
CFO at Warrior Met Coal

Thank you.

Walter Scheller
Walter Scheller
CEO & Director at Warrior Met Coal

Thanks.

Operator

Your next question will come from Katja Yancic with BMO Capital Markets. Please go ahead.

Katja Jancic
Katja Jancic
Metals & Mining Analyst at BMO Capital Markets

Hi, thank you for taking my questions. Maybe staying on Blue Creek, given that the longwall is ahead of schedule, how should we think about overall production and sales volume next year? I think in the past it was around 3,000,000 tons if I'm not mistaken.

Walter Scheller
Walter Scheller
CEO & Director at Warrior Met Coal

Yes. I think this is Walt. Thanks for the question. I think we can probably safely assume before starting a quarter earlier than we had said that the tons will go up accordingly. And we haven't put a number out there, but I think we're approaching four next year given what we're looking at and the fact that that longwall comes online more quickly.

Dale Boyles
Dale Boyles
CFO at Warrior Met Coal

Yes. And depending on the timing, Katya, when it comes on next year, we said early first quarter, which could be anywhere from January 1 to the February, kind of our thought process there. So really going to be dependent on that timing. So when we do release guidance for 2026, we'll hopefully have a little more accurate number.

Katja Jancic
Katja Jancic
Metals & Mining Analyst at BMO Capital Markets

And I think you mentioned most of the at least right now Blue Creek volume goes to Asia and I'm assuming that's going to be the same trend going forward. Are those contracts more tied to CFR or FOB basis?

Walter Scheller
Walter Scheller
CEO & Director at Warrior Met Coal

Right now, it's CFR primarily.

Katja Jancic
Katja Jancic
Metals & Mining Analyst at BMO Capital Markets

And longer term, is it are you planning to or is there a probability that you're going to tie it more to FOB essentially?

Walter Scheller
Walter Scheller
CEO & Director at Warrior Met Coal

I think that will happen over time. Just when we look at where we are in the market right now, I think we're at the low point and where the customer has quite a bit of leverage. So I think when you're looking at both the average pricing and the transportation, right now, we're kind of the, I would say, tougher part of the market from our standpoint.

Dale Boyles
Dale Boyles
CFO at Warrior Met Coal

Yes. Especially based over the life of a mine, forty, fifty years, we do think that things will change in the next part of the cycle.

Katja Jancic
Katja Jancic
Metals & Mining Analyst at BMO Capital Markets

And maybe one more last one if I may. On the 45X, is there any preliminary estimates that you could give us how much it could impact your how much you can get impacted by it?

Dale Boyles
Dale Boyles
CFO at Warrior Met Coal

Yes. We're still looking at all the details of that build and to calculate. And a lot of us our costs are variable, so it's going to depend on met coal pricing. It could be a somewhat of a larger range. It could be 30,000,000 to $40,000,000 per year.

Dale Boyles
Dale Boyles
CFO at Warrior Met Coal

It could be a little higher than that just depending on where met coal prices go and our transportation and multi cost. So that's just a rough, rough estimate, but we'll be digging into the details and have a better idea as we get into 2026.

Katja Jancic
Katja Jancic
Metals & Mining Analyst at BMO Capital Markets

Perfect. Thank you.

Walter Scheller
Walter Scheller
CEO & Director at Warrior Met Coal

Thank you.

Operator

Your next question will come from Nathan Martin with The Benchmark Company. Please go ahead.

Nathan Martin
Equity Research Analyst at The Benchmark Company LLC

Thanks, operator. Good afternoon, guys. Just want to touch on the updated cash cost guidance real quick, down to $110 to $120 per ton. Dale, I think you previously assumed $200 per metric ton average premium low vol price for your prior guidance range. What's incorporated in that new range please?

Dale Boyles
Dale Boyles
CFO at Warrior Met Coal

Nate, good follow-up question there because earlier I didn't factor in as I said there might be some additional cost to come back later in the second half. If prices do average a little bit higher in the second half, it's kind of factored into that range. So we're still at about 175,000,000 to 200,000,000 range price.

Nathan Martin
Equity Research Analyst at The Benchmark Company LLC

Okay, Dale. Appreciate that. That's helpful. And then maybe just taking a step back for a second and looking at the markets in general, you guys noted many of the challenges that we've been seeing kind of persist and are negatively impacting customer demand and pricing clearly. So against that backdrop, just curious, what's driving the increase in production and sales guidance that you guys are sitting down for the full year?

Walter Scheller
Walter Scheller
CEO & Director at Warrior Met Coal

Our increased sales volume and production? Yes. Well, what's driving those numbers is our mines are running very, very well. And for us, the best way to maintain a low cost structure is to maintain a high volume number. And Blue Creek is has a lot of inventory and we have high contracted volumes and we're going to push.

Nathan Martin
Equity Research Analyst at The Benchmark Company LLC

Okay. Got it. Well, and then maybe just one final question. It'd be great maybe to get your thoughts on the recently announced Union Pacific Norfolk Southern merger. Just given you're now shipping with Norfolk Southern and Blue Creek, just curious if you guys have any thoughts about that combination, how it could impact your business?

Walter Scheller
Walter Scheller
CEO & Director at Warrior Met Coal

I think interestingly, the area where we'll be shipping from and to is, I'm not going to say it's a closed loop, but it's a relatively closed loop where the railroad is able to dedicate a certain number of sets and they just basically run on a circle and there's not a lot of interference for them from spot to spot. So, it's very good business for the rail provider and it's very good business for us. So I don't think we'll see a lot of impact from that. But also don't forget, we also have the new barge load out that's going in that will come online. And if we see more of a struggle in terms of rail performance, we can shift to better barge performance.

Nathan Martin
Equity Research Analyst at The Benchmark Company LLC

Got it. I'll leave it there. Appreciate the time guys and best of luck in the second half.

Walter Scheller
Walter Scheller
CEO & Director at Warrior Met Coal

Thank you. Thanks Dave.

Operator

Your next question will come from once again George Eby with UBS. Please go ahead.

George Eadie
George Eadie
Equity Analyst at UBS Group

So, Dow, just a quick on the cost. Can you just remind us the cost base roughly how much is variable versus fixed and also maybe as well royalties? How to best think about what sort of percent of the variable cost averaged through cycles?

Dale Boyles
Dale Boyles
CFO at Warrior Met Coal

Yes, George, I would just suggest looking at the percentages we provide in our press release, cost of production 67% year to date, transportation royalties a third of our cash cost. We don't go into the variability. We can't get into that detail of the transportation royalties.

George Eadie
George Eadie
Equity Analyst at UBS Group

Okay. Just one other as well. SG and A was down 35% Q on Q and sort of tracking 5,000,000 to $15,000,000 below the guidance range. Any sort of reason that would jump in half two or any reason you won't be below guidance, I guess?

Dale Boyles
Dale Boyles
CFO at Warrior Met Coal

Well, as we ramp up Blue Creek, we do have some additional needs there that may come online later this year to kind of get to that higher end of that range. So that's what's built into the guidance.

Operator

Hello, Mr. Eddy. Any further questions?

George Eadie
George Eadie
Equity Analyst at UBS Group

Fine. I was on mute. Yes. Thanks, guys. That's all.

Operator

All right. Perfect. At this time, there are no further questions. I will now turn the call over to Mr. Scheller for any comments.

Walter Scheller
Walter Scheller
CEO & Director at Warrior Met Coal

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

Operator

Thank you. And that concludes today's conference. Thank you all for participating. You may now disconnect.

Executives
Analysts
    • Nick Giles
      Senior Research Analyst at B.Riley Securities
    • George Eadie
      Equity Analyst at UBS Group
    • Katja Jancic
      Metals & Mining Analyst at BMO Capital Markets
    • Nathan Martin
      Equity Research Analyst at The Benchmark Company LLC
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