Warrior Met Coal Q2 2025 Earnings Call Transcript

Quartr
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.
AI Generated. May Contain Errors.
Earnings Conference Call
Warrior Met Coal Q2 2025
00:00 / 00:00

There are 5 speakers on the call.

Speaker 3

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 Met Coal Second Quarter 2025 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. 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 M. Chopin, Chief Accounting Officer and Controller. Please go ahead.

Speaker 2

Good afternoon and welcome everyone to Warrior Met Coal's Second Quarter 2025 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. For more information regarding forward-looking statements, please refer to the company's press releases and SEC filings.

Speaker 2

We will 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 8-K, which is also posted on our website. Additionally, we will be filing our Form 10-Q for the second quarter ended June 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. Walter J. Scheller, Chief Executive Officer, and Mr. Dale W. 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 Walter.

Speaker 1

Thanks, Brian. Hello everyone, and thank you for taking the time to join us today to discuss our second quarter 2025 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. I'm also excited to announce the acceleration of the Blue Creek Long Wall startup to early first quarter 2026. During the second quarter, we achieved the first commercial sales of steelmaking coal from Blue Creek, which was one quarter ahead of schedule.

Speaker 1

We also achieved other critical milestones in the development of the mine that allowed us to accelerate the Long Wall 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. 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.

Speaker 1

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. The continued market weakness, which I just described, resulted in average premium low-vol 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 PLV FOB Australia, stayed above the low points observed during the first quarter of 2025 and averaged $167 per short ton, which is nearly the same as the first quarter this year. Contrary to PLV FOB Australia pricing, the main second-tier indices, which are the Australian LVHCC and U.S.

Speaker 1

HVA price indices, both established their year-to-date low points in the second quarter and averaged $131 and $154 per short ton, respectively. The relative price of the LVHCC index price compared to the PLV index continues to be a major story, with values 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 and a half years, and reached a multi-year low point of 76% during the second quarter. In addition, the PLV CFR China recorded a new low price point near the end of 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 extremely low Chinese domestic pricing.

Speaker 1

This fact, combined with the retaliatory tariff by China on U.S. imports, made for sales from the U.S. into China uneconomical and therefore we have 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 trade rates. This result was lower than our annual target range of 85% to 90%, primarily due to three things. First, the LVHCC index price relative to the PLV index price has widened, as I previously mentioned. Second, we sold a higher mix of high-vol A product versus premium low-vol product. Third, the higher high-vol A volume has been sold primarily into the Pacific Basin on a CFR basis and net of freight costs.

Speaker 1

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. 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. Our second quarter sales volume was 2.2 million short tons compared to 2.1 million in last year's same quarter, representing a 6% increase.

Speaker 1

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. Our spot volume is 4% for the second quarter 2025, which is primarily sold into Europe. For the full year, our spot volume is expected to be approximately 15% or less of total sales volume.

Speaker 1

Production volume in the second quarter 2025 was 2.3 million short tons compared to 2.2 million in the same quarter of last year, representing a 6% increase. Our existing mines continued 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 remained consistent at 1.1 million tons at the end of the second quarter compared to the end of the first quarter 2025. During the second quarter, we spent $94 million on capital expenditures and mine development. Of that amount, capital expenditures spending totaled $75 million. Mine development costs for Blue Creek project were $19 million during the second quarter and continued to be below budget as we focused on cost control.

Speaker 1

As we ramp up operations toward the Blue Creek Long Wall startup, we expect our Blue Creek mine development costs to increase in the second half of 2025. Apart from the $52 million in Blue Creek capital expenditures, we tightly manage our capital expenditures at the existing mines to $23 million. 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. 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 Long Wall startup at Blue Creek to early first quarter 2026.

Speaker 1

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. The development of the first Long Wall panel during the second quarter produced 348,000 short tons of steelmaking coal and remains on track to produce 1 million 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've received the final delivery of the remaining Long Wall shields during the second quarter, which are already to be set up underground in the next few months.

Speaker 1

In addition, our recruiting and hiring efforts for this new mine continue to be on track. We also continue to make excellent progress as we completed the installation of the truck dump, rail loadout, 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. 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 million of capital expenditures in the second quarter and $107 million year to date in the Blue Creek development. That brings the total project capital expenditures to date to $823 million, which remains on budget. Our baseline total project estimate remains unchanged, ranging from $995 million to $1 billion and $75 million.

Speaker 1

I'll now ask Dale to address our second quarter results in greater detail.

Operator

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&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. For the second quarter, Warrior recorded net income on a GAAP basis of about $6 million or $0.11 per diluted share, compared to net income of $71 million or $1.35 per diluted share in the same quarter of 2024.

Operator

These decreases in quarterly results were primarily driven by 30% lower average net selling prices in 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 million in the second quarter of 2025, compared to $116 million in the same quarter of last year. Our adjusted EBITDA margin was 18% in the second quarter of 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 last year's second quarter.

Operator

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 costs, lower variable costs for transportation and royalties, and 6% higher sales volume. Total revenues were $298 million in the second quarter of this year, compared to $397 million in the second quarter of 2024. The total decrease of $99 million was primarily due to a decrease in average gross selling prices of $120 million and a higher mix of high-vol A volume sold of $12 million, partially offset by the impact of higher sales volumes of $22 million. In addition, the merger and other charges were $7 million lower compared to the second quarter of 2024.

Operator

This resulted in an average net selling price of $130 per short ton in the second quarter of 2025, compared to $186 per short ton in the same quarter of last year. Cash cost of sales in the second quarter of 2025 was $225 million, or 78% of mining revenues, compared to $260 million, or 67% of mining revenues in the second quarter of last year. Of the $35 million net decrease in cash cost of sales, $50 million of the decrease was driven primarily by the lower variable transportation and loyalty 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 a $15 million increase in cost associated with a 6% increase in sales volumes.

Operator

Cash cost of sales per short ton FOB port was approximately $101 in the second quarter of this year, compared to $124 in the second quarter of 2024. The decrease was primarily related to the lower variable transportation loyalty cost of $15 per ton on lower steelmaking coal prices, $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.

Operator

Our cash cost of production for the second quarter of 2025 was 67% of our total cash cost per short ton, compared to 61% in the same quarter last year. Overall, transportation loyalty 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. 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. FG&A expenses were $12 million in the second quarter of 2025 and were about $4 million lower than the second quarter of last year as we continued to manage our overall spending. This decrease was primarily due to lower employee-related expenses and professional fees.

Operator

Depreciation and depletion expenses were $43 million in the second quarter of 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. Turning to cash flow, during the second quarter of 2025, free cash flow was negative $57 million. This was a result of cash flows generated by operating activities of $37 million, thus cash used for capital expenditures and mine development of $94 million. Working capital increased by $14 million during the second quarter and was heavily influenced by higher inventory of Blue Creek supplies. This was partially offset by lower accounts receivable.

Operator

It is important to understand that while our total free cash flow was negative for the second quarter and year to date, the underlying business is generating positive free cash flow if you exclude the strategic investments we are making into Blue Creek. The underlying business generated approximately $40 million of free cash flow in the second quarter, excluding the Blue Creek capital expenditures spending, mine development, and working capital impact. This demonstrates the strength of the underlying business during these challenging market conditions and low pricing environments. Our total available liquidity at the end of the second quarter of 2025 was $545 million and consisted of cash and cash equivalents of $383 million, short and long-term investments of $48 million, and $114 million available under our ABL facility.

Operator

Now that I've discussed the second quarter results compared to last year, let me highlight some of the achievements compared to the first quarter of 2025. Our second quarter adjusted EBITDA of $54 million was $14 million higher than the first quarter of 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. 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 for this inherently lower cost structure. The remaining one-third of cost reductions came from lower variable transportation and loyalty cost. Let me turn to our outlook and guidance for the full year 2025.

Operator

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. 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. Finally, one last note on the One Big Beautiful Bill Act that was enacted into law on July 4, 2024.

Operator

The act contains some provisions that we expect will be beneficial to Warrior Met Coal, 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 Section 45X of the Internal Revenue Code. The 45X tax credit is based upon the 2.5% credit of defined eligible production costs from 2026 through 2029 and will vary per year depending upon variable production costs during those periods. We are currently assessing the bill's impact on our financial statements, but we do expect it to impact us positively. I'll now turn it back to Walt for his final comments.

Speaker 1

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. 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?

Speaker 3

At this time, I would like to remind everyone that to ask a question, please press star, then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Nicholas Giles with B. Riley Securities. Please go ahead.

Speaker 3

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

Operator

Hey, Nick. Thanks for the question. Yeah, it's to account for, you know, 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. We have planned for that in the back half that it may happen. We're going to continue to tightly manage all of our costs and have the mines perform at their optimal capacity. We're also just planning for things to swing the other way. You have things break and you have to repair them. We're averaging year to date about $107 a ton, which is near the bottom end of our full year guidance. Plan for just a little upside, or I'm sorry, a little downside on the rest of the year.

Operator

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

Speaker 1

This is Walter. 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. Now that's a high-vol. We still have some coal flowing there, but not what used to. 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. I think that'll pretty much continue. As we've said before, the high-vol A tons right now, especially, are moving heavily into Asia.

Speaker 1

Got it. Walt, maybe just a quick follow-up on that. What does your dialogue with Brazilian steelmakers look like to date? Has there been a need to divert those tons, or are they still willing to take them today?

Speaker 1

No, they're still taking them.

Speaker 1

I appreciate the perspective, and guys, keep up the good work.

Speaker 1

Thank you.

Speaker 1

Thanks, Nick.

Speaker 3

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

Speaker 3

Good evening, Walt, Dale, and Brian. Hope you're well. Can I ask about Blue Creek, please? Well done, firstly, on bringing this forward. That's a clear win. I have two questions here. Firstly, on costs, I'm looking back at the Blue Creek project update from February. Your cash cost of sales guidance here was $90 to $105 a short ton. Can I ask, where does that fit today in light of the pretty good Q2 cash performance as well? Is there potential for this to go lower? How much of that is dependent on the denominator getting past 6 million tons?

Operator

Thank you, George. That guidance was based on a PLV price of $250, with a price relativity that's closer to the 10-year average, which is not where we are today. That is going to be a little higher than where we are today. We are just coming out of the gate, just ramping up. I do not 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 will be seen next year when the Blue Creek Long Wall comes up. We have not, we do not have all this cost in there yet.

Operator

Right. Okay. Thanks for that. Dale, just on the volume piece though. You talked to 6 million tons, though the expanded capacity option would be dependent on market conditions. Can I ask just how you're thinking about that at today's levels? Sales into Asia are now over 50% as a group. 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, you know, it's even low $110 a short ton. How do you sort of look at that given it's a pretty weak price environment?

Speaker 1

I think what we're really doing with those tons is knowing that they're going to move into Asia. They are, as we've said, much lower cost tons. That's based on the mine reserve, the thicker coal. Our expectations and what we've seen are consistent with what we had projected. We haven't seen anything that would cause us to believe that that's not doable. On the 6 million 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. As we start 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. We're not going to flood the spot market with a bunch of tons and destroy the market.

Speaker 1

As we put those tons to bed, we're going to bring additional tons on.

Speaker 1

Okay, thanks. Can you give us sort of an idea of what pricing was like in the quarter for Blue Creek? I mean, compared to the average of $130, I'm guessing it was a bit lower. Like, was it sort of $120 we're thinking? 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. I guess, is there risk to that 85% to 90% target gross realization going forward now?

Operator

Yeah, George, this is Dale. Yes, there is, as you know, what happened in the quarter, right? Our gross price realization was 80%. 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 and a half year average of 88%. While the PLV didn't move much, the LVHCC dropped during the quarter. That right there has a big drag on our net realized prices as well as freight rates, right? We feel good about what we're doing in developing these markets in Asia that we've never sold into. Blue Creek is the perfect product to go into those markets, especially with low cost in this part of the cycle.

Operator

Okay, thanks for that, guys. All the best.

Speaker 1

Thank you. Thanks.

Speaker 3

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

Speaker 3

Hi, thank you for taking my questions. Maybe staying on Blue Creek, given that the Long Wall 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 million tons, if I'm not mistaken.

Speaker 1

Yeah, I think this is Walter. Thanks for the question. I think we can probably safely assume if we're starting a quarter earlier and we had said that the tons will go up accordingly. I, you know, 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 Long Wall comes online more quickly.

Operator

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

Operator

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?

Speaker 1

Right now, it's CFR primarily.

Speaker 1

Is it, are you planning to, or is there a probability that you're going to tie it more to FOB potentially?

Speaker 1

I think that will happen over time. 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. I think when you're looking at both the average pricing and the transportation, right now, we're kind of in the tougher part of the market from our standpoint.

Operator

Yeah, especially based over the life of a mine, you know, 40, 50 years. We do think that, you know, things will change in the next part of the cycle.

Operator

Maybe one last one, if I may. On the Section 45X tax credits, is there any preliminary estimate that you could give us how much it could impact your, how much you can get impacted by it?

Operator

Yeah, we're still looking at all the details of that build to calculate, and a lot of us, our costs are variable, so it's going to depend on net coal pricing. It could be somewhat of a larger range. It could be $30 to $40 million per year. It could be a little higher than that, just depending on where net coal prices go and our transportation and royalty costs. 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.

Operator

Perfect. Thank you.

Operator

Thank you.

Speaker 3

Again, if you have a question, please press star, then one. Your next question will come from Nathan Pierson Martin with The Benchmark Company. Please go ahead.

Speaker 3

Thanks, Operator. Good afternoon, guys. I 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, you know, $200 per metric ton average premium low-vol price for your prior guidance range. What's incorporated in that new range, please?

Operator

Yeah, Nate, good follow-up question there, because earlier I didn't factor in, as I said, there might be some additional costs that 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. We're still at about a $175 to $200 range price.

Operator

Okay, Dale, appreciate that. That's helpful. Maybe just taking a step back for a second and looking at the markets in general. You guys noted, you know, many of the challenges that we've been seeing kind of persist and are negatively impacting customer demand and pricing clearly. I guess that backtrack, just curious, you know, what's driving, you know, the increase in production and sales guidance that you guys are seeing now for the full year?

Speaker 1

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

Speaker 1

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

Speaker 1

No, I think interestingly, you know, 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. It is very good business for the rail provider, and it's very good business for us. I don't think we'll see a lot of impact from that. Also, don't forget, we also have the new barge loadout that's going in that will come online. If we see more of a struggle in terms of rail performance, we can shift to better barge performance.

Speaker 1

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

Speaker 1

Thank you.

Operator

Thanks, Nate.

Speaker 3

Your next question will come from, once again, George Eadie with UBS Investment Bank. Please go ahead.

Speaker 3

Hi, sorry, Dale, 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 as royalties, how to best think about what sort of % of the variable cost base that's averaged through cycles?

Operator

Yeah, 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. You know, we don't go into the variability. We can't get into that detail of the transportation royalties.

Operator

Okay, just one other as well. SG&A was down 34% Q1Q and sort of tracking $5 to $15 million below the guidance range. Any sort of reason that would jump in half too, or any reason you won't be below guidance, I guess?

Operator

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. That's what's built into the guidance.

Speaker 3

Hello, Mr. Eadie, any further questions?

Speaker 3

Sorry, no, I was on mute. Yeah, thanks, guys. That's all.

Speaker 3

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

Speaker 1

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

Speaker 3

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

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