Release Date: August 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Record production of 900,000 tonnes in Q2, up 7% from the previous quarter.
- Cash costs declined by 8% to $108 per tonne due to stronger production and better productivity.
- Four current production growth projects are on track and on budget, expected to add significant tonnage.
- Liquidity increased by 14% year-on-year to $71 million.
- Significant progress in the development of the Brook Mine in Wyoming, focusing on rare earth elements.
Negative Points
- Global met coal pricing remains soft, with US met coal indices down 25% since the start of the year.
- Realized price per tonne decreased by 8% from $155 to $143 due to weaker market conditions.
- Production and sales guidance for the full year 2024 reduced by 200,000 tonnes at the midpoint.
- Labor market remains tight, particularly for experienced coal miners in Southern West Virginia.
- High-profile mine incidents and Chinese steel exports have negatively impacted global production and pricing.
Q & A Highlights
Q: Congrats on the progress in the quarter, especially on the met coal side. First, maybe just something I noticed in the presentation slide 9 where you guys break out your production outlook. On the medium-term production outlook, it looks like maybe an improvement regarding your expectations for low-vol production versus last quarter. Can we get additional details on that update?
A: Yeah. It's Jeremy. I'll start and then maybe turn it to Chris. So I think as Jason noted obviously in the current environment we think low-vol is extremely tight. So what we've done is we've effectively put the Maben underground expansion into our official medium-term outlook. So at the end of the day in addition to what we're producing now that's over 1 million tonnes of underground production which effectively takes us to more than 50-50 in terms of low-vol versus high-vol. And also, that includes the fourth section of Berwind that we would be putting on.
Q: When would that, remind me guys, that maybe an underground expansion likely get moving forward, I guess?
A: Yes. We've got the optionality to frankly start that next year. The main gating issue for that was the prep plant. And of course, we move forward opportunistically last summer or this summer with the purchase of an idled prep plant that we moved up to Maben and have installed it. And frankly, as I mentioned it will hopefully start operations sometime late fall. So that's really what gated us. And then, of course, we'll look at our budgeting for next year and move accordingly. But we can certainly start putting in section by section. It will ultimately probably be a four-section mine. Maybe as much as 1.5 million tonnes, but obviously market conditions will dictate that.
Q: And maybe just sticking with the Maben prep plant for a second. Just something else I noticed just broke out in your cash flow statement on a separate line item for that prep plant expense. And then I also saw a footnote in your CapEx guidance is that it excludes $3 million for the purchase of that prep plant. So I just want to make sure how we should think about all-in CapEx number for the full year for 2024.
A: Yeah. Hey, Nathan, it's Jeremy. So very good question. So we did break that out so that you all could, for transparency, see what we're spending on Maben. $3 million within the cash flow statement is for the purchase price. So when you look at our full-year guidance of $53 million to $63 million, it effectively excludes that $3 million for the purchase price, but it includes the rest of the spend on Maben a little bit more than half of which has already taken place. So if you think about our full-year CapEx outlook, call it at the $60 million range excluding the $3 million or so for the purchase price, about $40 million of that is maintenance, about $20 million of that is growth. So obviously when you look at the first half spend of, call it, $40 million less the $3 million so $37 million, frankly, that implies a lot lower spend in the second half. And the reality is that's because when you look at our three or four major growth projects this year, the vast majority of that spend has already taken place. So I do think that's something you guys can look forward to in the second half of the year especially in the fourth quarter.
Q: Okay. Perfect, Jeremy. And I saw that mention in your release to hopefully things come back down a little bit in the fourth quarter. I guess, sticking with CapEx but shifting over to the Brook Mine. Obviously, you saw the release, I guess, two days ago bringing on a couple of new partners. What kind of CapEx do you guys expect to be involved in the design and build of that refining and processing plant that you're going to be doing with Fluor? Will all that spending be responsibility? I think you mentioned the target started in middle of next year. How long could that possibly take the build as well?
A: Yeah. I mean, our spend frankly out of the Brook Mine has been really very modest. I think, we've spent since inception just a couple of $2 million out there to really get everything moved into position. And as far as the design build as I said, we're going through testing and essentially trying to get the various variables nailed down which will inform essentially how we would design the processing facility to deal with the specific minerals involved in their chemistry. I think in terms of spend for the planning for the design of that I would think of it in terms of several hundred thousand dollars. That's about where we're going to be. And in terms of what the cost for the overall demonstration facility will be, I really don't want to get over our skis now in terms of giving you a number. We'll certainly provide it as soon as we've got the design metrics around it, so we can give you really an informed concept. But remember, the demonstration facility is like an advanced pilot. It's not a pure pilot plant in the sense that we intend to frankly, start selling products from the demonstration facility. So this will be a revenue-producing plant, as soon as we open it. And we'll expect to probably start doing construction certainly site work on that sometime around the middle of part of next year, once the weather permits out Wyoming. And in terms of the timing, I probably earmark nine months to a year of normal construction, assuming no weather-related issues out there and that's the time frame. So it's probably a '25 start and a '26 completion.
Q: Very helpful, Randy. Then, maybe just one more. I appreciate you guys don't really want to call specifics on the domestic contracting season for 2025 as we're still early on there. But any initial thoughts at least directionally on what you think maybe demand from met coal could look like to domestic steel producers, next year versus this year? And I also noticed that Jeremy, maybe this is what you referenced in your prepared remarks that, your domestic tonnage committed in price for 2024 has crept down again, to I think 1.3 million tonnes now. With some of that, what was getting deferred into 2025?
A: Yes, Nate this is Randy. I'm going to just tee up one brief comment and then turn it over to Jason. But the demand side, we haven't really seen a real falloff on the demand. The US steel producers are still enjoying pretty good margins, despite the fact that the prices are down. So the demand side has not really been the problem. The problem has been, as I mentioned in my remarks, that we've really seen this sort of flood of Chinese steel hitting virtually every market and that has impacted steel companies' ability to frankly raise their prices. And when you've got low steel prices, you're going to have unfortunately low coking coal prices. So it's really more of a peculiar supply derived situation based on the Chinese peculiarities, if
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
