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Contura Energy, Inc. (CTRA) Q1 2019 Earnings Call Transcript

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Contura Energy, Inc. (NYSE: CTRA)
Q1 2019 Earnings Call
May 15, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning. My name is Denise, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Contura Energy First Quarter 2019 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press *, then the number 1 on your telephone keypad. If you'd like to withdraw your question, press the # key. Thank you. Alex Rotonen, Vice President of Investor Relations, you may begin your conference.

Alex Rotonen -- Vice President of Investor Relations

Thanks, Denise, and good morning everyone. Before we begin, let me remind you that, during our prepared remarks and the Q&A period, our comments relating to expected business and financial performance contain forward-looking statements, and actual results may differ, materially, from those discussed. For more information regarding forward-looking statements and some of the factors that can affect them, please refer to the company's first quarter 2019 earnings release and associated FCC filing. Please also see those documents for information about our use of non-gap measures and non-GAAP measures and irreconciliation to GAAP measures.

Participating on the call today are Contura's Interim Co-Chief Executive Officers Andy Eidson and Mark Manno. Also participating on the call are Kevin Stanley, our Chief Commercial Officer, and Scott Kreutzer, our Chief Operating Officer, who is here to answer any specific questions on Contura's operational performance.

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

Andy Eidson -- Interim Co-Chief Executive Officer and Chief Financial Officer

Thanks, Alex. Good morning, everyone. Thanks for calling in and participating. We wanna start by briefly highlighting a few of the top-line metrics on our first quarter performance, and then we'll outline the commitments we've obtained relating to the refinancing of our term loan, spend a little time talking about a new metallurgical project that we've got on the near-term horizon as well, and then we'll cover some information on recent leadership changes at Contura, also talk about year-to-date safety environmental performance. As Alex mentioned, Kevin Stanley has some commentary to share from a market perspective, see what the dynamics are looking like. And then we'll close up things with some deeper color around first-quarter results, our updated guidance. Finally, we'll walk through the details of our newly adopted Capital Return Program.

First, for the financial highlights, the company generated $609 million in total revenues in the first quarter, with net income from continuing operations of $8 million and EBITDA of $83 million. During the quarter, we shipped nearly six million tons of coal, an increase of more than two million tons over the same period last year. Met coal sales accounted for more than half of our total shipments in the first quarter and generated an average realization of nearly $129. Now, it's worth noting that, when we say metallurgical coal, in that instance, it refers to all metallurgical coal sold, not just the cap met segment, as we do have some met coal that is sold and rolled up through the cap thermal segment and, also, as we've mentioned in the past, some met coal that comes out of Northern Appalachia.

On the refinancing front, we've obtained commitments for a new $555 million first lien term loan facility to replace our current term loan B facility. The terms of this new facility grant us much greater flexibilities to allocate capital by allowed for unlimited restricted payments while the company's total leverage is three times or less. Expected interest rate on this five-year term facility is LIBOR plus 700 basis points for the first 2 years, LIBOR plus 800 thereafter with a floor of 2%.

Looking toward the future for just a moment, the company's board of directors recently green-lighted a new metallurgical coal project in Logan County, West Virginia. We're referring to it as the Land Branch Project for what we believe is a relatively small capital investment of approximately $25 to $30 million. We'll unlock reserve consisting of over 25 million tons of high-quality, high-vol met coal and make some improvements to the Bandmill Preparation Plant to allow it to accommodate this coal. The project is expected to produce approximately 250,000 to 500,000 incremental tons and, overall, 1-1.2 million tons, annually, at its full estimated run rate with a cash cost per ton in the low $60 range.

Looking at this project, naturally, the incremental production here, additional met, will be a boost going forward, but the real value in this is the very low cash-cost nature of this mine, and it will help bring down the overall cash-cost profile of the entire met portfolio. We expect production to commence in the second quarter of 2020, and, naturally, as we continue developing the project, we'll keep you updated.

Now, I'll turn it over to Mark to cover some updates on recent leadership and board activity.

Mark Manno -- Interim Co-Chief Executive Officer, Chief Administrative & Legal Officer and Secretary

Thanks, Andy, and thanks, everyone, for joining us this morning. While it has been less than six weeks than our last call, much as transpired in that short period of time. First and foremost, our longtime CEO, Kevin Crutchfield, announced his resignation on April 22nd in order to accept another leadership position outside the coal industry. Subsequently, Contura's board of directors, who were all reelected for respective one-year terms by the shareholders on May the first, appointed Andy and me as interim co-CEOs while the company conducts a search for a permanent CEO.

Andy and I take this opportunity extremely seriously and feel fortunate to be supported by a deep bench of experience, capable, and unified leaders here at Contura. Since the board-conducted search process has just recently commenced, we don't have any material updates to share at this time, except to say that the board has hired a seasoned search firm with a lot of experience in the sector, and we feel confident in its ability to find the right candidate to lead Contura well into the future.

As we've discussed in this morning's earnings release, the board has also adopted what we believe to be a meaningful and sustainable Capital Return Program to continue Contura's focus on creating a returning value to our shareholders. Andy will discuss the details of the program in a bit.

As you have heard, and you will continue to hear from us, safety is a core value at Contura, and our focus on safe operations is linked to how we manage our business. Year to date, the total reportable incident rate at our affiliated operations is trending better than the national average with April being especially strong. The NFDL rate is also better than national average for the year-to-date period, and our violations for inspector day are tracking, roughly, at the national average. While we are proud of the continued strong safety performance by our men and women in the field, improvements can always be made, and our corporate safety personnel continues to conduct mine visits and training.

Shifting to environmental compliance, as part of our ongoing focus on responsible stewardship, we continue to work with community partners to fulfill and improve upon our reclamation obligations across our operational footprint. To better frame our commitment, I just wanna share a few points regarding the company's environmental focus. We won eight national and state reclamation and environmental awards since 2016. In that same period, we planted approximately two million trees. We currently perform at a 99.9% compliance rate on our permitted discharges. To ensure alignment between our corporate goals and employee behavior, we have an organizationwide environmental compliance metric that factors directly into the company's annual bonus plans.

In summary, we are pleased with our safety and environmental performance, but the work is obviously never done, and we remained committed to continue improvement in all aspects of our business. Thanks, again, for participating on our call. I'll now turn it over to Kevin Stanley, our Chief Commercial Officer, who will give you a market overview.

Kevin Stanley -- Chief Commercial Officer

Thanks, Mark. As has always been the case since the second half of 2016, market dynamics continued to be quite favorable for met coal, especially for the higher-grade products with demands showing modest growth globally while supply growth has been minimal. In addition, Australian met exports, year over year through March, are only up a meager 1.4% while they continue to struggle with rail, port maintenance, and labor issues further limiting the Seaborne supply. U.S. met exports are also trailing last year's pace with the East and Gulf Coast exports down 2.3% year to date through March. With the limited production growth we are seeing, however, especially in the U.S. where the met production growth has been virtually nonexistent over the past several quarters, the supply side continues to feel well-balanced with limited new production expected to come online in the near term.

With regard to global demand, Asia continues to serve as a market catalyst with strong crude steel production growth, so far, in 2019. Overall, Asia crude steel production has experienced year-to-date growth through March right at 7%. China, which accounts for approximately half of the world's steel production, has been very strong this year, growing at 9.9% through March. Conversely, India has been, essentially, flat for the first three months of 2019, while Europe has been weak with year-to-date production declining by 2%.

The South American region struggled with a 4.1% decline in crude steel production, so far, in 2019 while North America, driven by a strong U.S. production, has seen solid growth at 4% According to the World Steel Association, global steel demand, in 2019, is anticipated to increase by 1.3% before slowing to 1% in 2020 primarily due to an expected flat slowdown in China. India, on the other hand, is forecast to be the primary driver in the near term with an estimated steel demand growth at 7.1% and 7.2%, respectively, in 2019 and 2020. Europe, another one of our key markets, is estimated to experience accelerated, I'll be it modest, 1.2% growth in 2020.

What does all this mean for Contura? As we mentioned on our April third call, the pricing environment for met coal has been very strong for quite some time, and, with the supply and demand equation well balanced, we expect pricing to hold up quite nicely for the remainder of the year. In fact, y'all see low vol met futures are signaling a $196 price in December 2019, only a slight backwardation from the current plus $200 level. For reference, the Atlantic high vol. A is also maintaining a level north of $200. This should bode well for our export profession, U.S. met suppliers for the remainder of 2019.

Finally, I'll add a bit more color on a couple of important markets for us, specifically South American and Europe. The South American market, as we have stated previously, experienced aggressive pricing competition in the first quarter. Unfortunately, we continue to see fairly aggressive market behavior in that region. It is our belief that European buyers are largely contracted for the near term, limiting spot opportunities in that market and forcing traders to become more aggressive in certain geographic areas, mainly South America, as they are trying to move their long positions off the books.

Despite these challenges, we feel very good about our position in the met segment where 61% of our expected tonnage is committed and priced with another 17% committed but unpriced, together, landing at the midpoint of our 2019 guidance.

In summary, met markets are exhibiting strong fundamentals, and we expect that they will continue to do so with both the supply and demand side behaving quite well. With the exception of Turkey, where tariffs continue to negatively impact market opportunities, the end markets have performed well for us. With that, I'll turn the call back over to Andy.

Andy Eidson -- Interim Co-Chief Executive Officer and Chief Financial Officer

Thanks, Kevin. I'm gonna spend some time, now, going through the first quarter results and hit our guidance update, and then we'll get into the Capital Return Program referenced earlier. Simply stated, first quarter results were below our expectations. As we previously mentioned, lower than anticipated met coal sales volumes and also, resultantly, some higher operational costs across the cap region on both met and thermal. As we stated earlier, our adjusted EBITDA was $83 million in the quarter, compared with $99 million in the prior year first quarter. That decrease is mainly driven by lower cap met realizations at $124 a ton compared to a very strong $141 per ton in the first quarter of '18. As you recall, pricing in that quarter as a bit up and down, but, rolling into the beginning of the year, it was about $20 a ton above where we were for Q1 of '19. In addition, our cap met costs were approximately $93 a ton, up from just over $80 a ton in the year-ago period.

Really digging into the meat of what happened during the quarter, there are three primary issues I want to talk about and make sure we explain. Beginning with cap met costs, first off, those costs were up primarily due to some production issues at the Marfork complex. There were smaller issues at other places, but Marfork was really the main driver. That had an EBITDA impact of approximately $15 million. We'll get into some of the details on that in just a moment.

Secondly, our met volumes were approximately 400,000 tons below our expectations. We did have slightly higher seasonality expectation for the quarter, but, as Kevin mentioned, the pricing behaviors that we ran into, and we just elected not to compete with those behaviors in areas such as South America. Also, as we mentioned on the last earnings call, the challenge of overcoming higher tariffs in Turkey, and so that resulted in an additional impact of our $13 million.

Finally, Central App., the costs there were also pretty high. That was predominantly caused by Slabcamp, one of our mines at the Mammoth complex. It had some infrastructure challenges. That contributed another $13 million for EBITDA shortfall. Those three items -- again, which we'll get into more detail in just a moment -- those combined with where we ended up from an EBITDA perspective, that gets you to what would be considered more of a normalized EBITDA of approximately $125 million. That's really a bridge driven by three items.

More detail on the met cap situation. Several factors going on, but the primary driver was just geology at Marfork. We had mines in areas that, basically, were producing lower than anticipated clean tons per foot and some challenging cutting conditions. During the quarter, as these issues became more apparent to us, we started addressing them by slightly tweaking the mine plans and relocating mine sections to pursue higher yield areas. We think this is the appropriate approach, and we do believe that it'll be effective. We expect to see improved performance going forward.

Another factor impacting cap met cost was a non-cash coal inventory fair value adjustment related to the allocation of the alpha purchase price. This is an issue that we also discussed for the year-end earnings call because it did impact year-end cost as well. This is related to inventory on alphas books at the time of the merger. That inventory, just by purchase price accounting requirements, was marked to market. And so, as that inventory flows through the P&L, it comes with a full-market cost rather than a production cost. That did contribute about $2 a ton of additional cost during the quarter. Also, due to the production issues at Marfork, that required us to acquire more purchased coal than had been planned. We needed to fill orders at the similar quality so that further impacted our cost performance about approximately $2 a ton.

As you've seen in our guidance update, what we'll hit in just a moment, we do expect some continued cost pressure from the Marfork issue, in particular, but the plans have been implemented to get us back to original guidance cost levels by year-end. This is a temporary issue, and we are working through it, and we're confident that it will be remediated by year-end.

On the cap thermal cost side, production, as we mentioned, at Mammoth Slabcamp, was negatively impacted by some infrastructure issues. Basically, the mine was running at half of productive capacity during the majority of the first quarter. That cost impact was a little over $8 per ton during the quarter just related to that particular Slabcamp Mine. This issue is now resolved. The mine resumed full production in mid-April, so no continued impact from that.

Also elevating costs on the cap thermal segment was, similar to cap met, a fair value adjustment. That added about $3.50 a ton through the cap thermal cost structure. Just to note on that particular issue, there was about $1 million of inventory fair value adjustment impact in the cap met inventory at the end of March, so it should have only a minimal impact in the second quarter. Cap thermal inventory adjustment was fully depleted at the end of Q1, so it should have no additional impact going forward.

Clearly, we had several issues that negatively impacted our cost this quarter, but appropriate time and resources were quickly distributed to those locations in the quarter to address the issues, and we believe they've been adequately addressed, and we think we're back on track. Obviously, cost performance wasn't up to par, but be assured, as it has been and will continue to be, a significant area of focus for the management team in this and future quarters.

Despite our challenges in the cap met segment, it still generated for than $91 million of EBITDA during the quarter. Hitting our other two segments we've not spoken much about, the other met related segment, the trading, and logistics, or T&L business, generated approximately $10 million of EBITDA while our thermal operations, both cap thermal and NAP, were essentially break-even. I would note that Northern App., the Cumberland Mine, actually had a very good quarter from a cost perspective. It did have a longwall move. We will continue, for the next couple of years, to have two longwall moves a year. We had one in March. We'll have another one in the third quarter. Inclusive of the longwall move, the costs were right around expectation, and the mine was very productive during the quarter. It did very well.

Moving to liquidity, at the end of the quarter, the company had approximately $182 million in unrestricted cash, as well as $298 million in restricted cash, including deposits and long-term investments, for a total of $480 million in total cash. Our total liquidity, which is inclusive of unrestricted cash and availability under our ABL, was $378 million at quarter end. Looking at cash flows during the quarter, cash provided by operations was about $15 million in the quarter. Working capital was the main use of cash, about $56 million in total, roughly half split between accounts receivable and inventory. Naturally, the inventory increase was driven by the lower sales numbers. A lot of production was going on to the balance sheet, and the AR, naturally, is just a function of timing of receipts.

Both of these are expected to reverse back into cash as the year moves along and as we make up the sales that were not realized in Q1. We also made a quarterly debt amortization of around $7 million, and we repurchased just over $4 million of common shares. Those were related to share settlements on equity of [audio cuts out].

Based on the results, particularly from a cost perspective, we are making some changes to our 2019 guidance. We're still comfortable with our shipment ranges across the board. We still expect between 12.2 and 12.8 million tons on the cap met segment, 1-1.5 million tons of T&L met coal, 4.6 to 5.2 million tons of cap thermal, and 6.8 to 7.2 million tons in the NAP segment. From a committed sales position, we're looking at 61% of cap met has been committed at an average price of $125.68. We are fully committed at the midpoint of our productive guidance range for NAP at an average price of just over $43. We do still have some open tons in cap thermal. We're about 90% committed, priced at a little over $55 per ton. We're maintaining our NAP operating costs at $34-$37 a ton, but we are increasing cap met cost of sales from a range of $79-$83 up to a range of $83-$87.

Given the production challenge at the Marfork complex and, as we mentioned, the time required to remediate the issues and, also, the continued use of some purchase coal to bridge the gap on coal needed for blending and meeting sales orders, we believe that being conservative with our guidance is prudent at this time. Mathematically, that just makes sense. Again, the expectation is that we start gravitating back toward original guidance production cost ranges by year-end.

In the same approach, we're increasing our cap thermal guidance to be in the range of $52-$57. Mammoth Slabcamp, as mentioned earlier, is the main contributor to the higher cost there. Again, this is just reflective of the first quarter being where it was and the rest of the year, effectively, returning to original guidance levels, so it's just running through the math there.

While the Land Branch Project was mentioned earlier, that capex is expected to be approximately $10 million in 2019. We're still comfortable with our capex range of $170-$190, so we're not changing capex.

I'll finish my remarks on an item that's received, obviously, a lot of time and attention from management and the board, our Capital Return Program. Based on commitments to refinance, announced earlier today, we were able to simplify and expand the Capital Return Program compared to what we described on our last earnings call. Naturally, that program was more tied to our term loan B and the restrictions held therein. Now, we have more freedom, and, therefore, the restrictions no longer apply. We have a lot more freedom and flexibility. Our board has now adopted a Capital Return Program through which the company plans to return up to $250 million of capital to shareholders. We believe this program provides both ongoing-value to shareholders and the right amount of flexibility and discretion for the company. The returns will take place in the form of share repurchases or dividends or a combination thereof, and that will be naturally determined, when appropriate, by the board. Decisions to return the capital will continue to be the discretion of the board and, naturally, subject to applicable law and other factors.

On an investor outreach front, we will be participating at the Deutsche Bank Global Industrials and Materials Summit in Chicago in early June. I'm sure we'll run into some of you there.

Really, in closing, despite a quarter that was below our expectations, the market conditions continue to be positive. Cost challenges are being and have been addressed and appropriate actions have been taken to vastly improve our ability to return capital to shareholders. In total, we remain very confident in Contura's future performance and, really, a lot of faith in the management team currently in place during this time of a leadership transition, and we're excited about our prospects for the rest of the year.

Again, thanks, everyone, for being on the call today. Operator, we're ready to open the line for questions.

Operator

Okay. At this time, I'd like to remind everyone, in order to ask a question, please press * and the number 1 on your telephone keypad. Your first question comes from Lucas Pipes with B Riley FBR. Your line is open.

Questions and Answers:

Lucas Pipes -- B Riley FBR -- Chartered Financial Analyst, Senior Vice President, and Senior Analyst

Hey, good morning, everyone.

Andy Eidson -- Interim Co-Chief Executive Officer and Chief Financial Officer

Hey, Lucas.

Lucas Pipes -- B Riley FBR -- Chartered Financial Analyst, Senior Vice President, and Senior Analyst

A lot to go through here. I'll try to, first, focus a little bit on Q1. I think you broke down the discreet items into, Marfork, $15 million and lower sales of 400,000 tons, $13 million, then, also, Mammoth of $13 million. Maybe, to circle back on this 400,000 tons of lower sales, were those produced and not sold, or was this, across the portfolio, a performance slack behind your expectations in terms of production?

Andy Eidson -- Interim Co-Chief Executive Officer and Chief Financial Officer

Yeah, it was a little bit of both, Lucas. We did produce some inventory that wasn't able to be placed because of the sales shortfall, and that was the impact to the cash flow statements. We did book that into working capital. The production issues at Marfork did put us behind the curve because, naturally, the way we blend coal, we need access to all qualities. Though we were producing coal, some of the coal that we were producing, we weren't able to put it on orders that would be appropriate because we just didn't have access to the coal we needed out of Marfork to blend it. It was kind of a two-prong issue.

Lucas Pipes -- B Riley FBR -- Chartered Financial Analyst, Senior Vice President, and Senior Analyst

Mm-hmm, OK. Then, when I look at tons, I think, in results of operations and the attachment to your press release this morning, it breaks down met coal tons sold and then also what was included, I assume, on the purchased tons. Can you tell us what your company produced tons were during Q1? I didn't see it on there.

Andy Eidson -- Interim Co-Chief Executive Officer and Chief Financial Officer

Yeah, I don't have that number in front of me, Lucas, because that purchased coal actually-we buy the coal raw, and it blends in with our coal as it goes through the prep plant. The only part about it that isn't truly produced is it's not coming from our captive reserves, and so it rolls into our productive number, and I'm afraid I don't have that breakout in front of me at the moment. I do think --

Alex Rotonen -- Vice President of Investor Relations

I believe it's about 250,000 tons -- in that neighborhood.

Andy Eidson -- Interim Co-Chief Executive Officer and Chief Financial Officer

Yeah, that's right. Yeah.

Lucas Pipes -- B Riley FBR -- Chartered Financial Analyst, Senior Vice President, and Senior Analyst

So, about 250,000 tons were purchased.

Andy Eidson -- Interim Co-Chief Executive Officer and Chief Financial Officer

That's right.

Lucas Pipes -- B Riley FBR -- Chartered Financial Analyst, Senior Vice President, and Senior Analyst

And then what is the amount of inventory that you built during the quarter?

Andy Eidson -- Interim Co-Chief Executive Officer and Chief Financial Officer

In tons?

Lucas Pipes -- B Riley FBR -- Chartered Financial Analyst, Senior Vice President, and Senior Analyst

In tons, yeah.

Alex Rotonen -- Vice President of Investor Relations

I think we'll have to get back to you on that, Lucas. We don't have it handy.

Andy Eidson -- Interim Co-Chief Executive Officer and Chief Financial Officer

Yeah, just the dollars. Don't have the tons in front of us.

Lucas Pipes -- B Riley FBR -- Chartered Financial Analyst, Senior Vice President, and Senior Analyst

Yeah. No problem on that. Yeah, whenever you can get back, that'd be great. Just to go into the full-year guidance on the tons for Central App. on the met coal side, that 12.2 to 12.8, do you have a sense for how much purchased ton would be included in that figure?

Andy Eidson -- Interim Co-Chief Executive Officer and Chief Financial Officer

Overall, I think our internal estimates probably had us running about 150,000 tons per quarter or so -- somewhere in the 500,000-600,000-ton zip code. You can see, when we bring in 100,000 tons more than what was budgeted, it does create some cost pressure because you're paying more for the coal than it would cost to produce it from our own captive mines.

Lucas Pipes -- B Riley FBR -- Chartered Financial Analyst, Senior Vice President, and Senior Analyst

Got it. If I were to model, let's say, 10%-15% margin on the purchase tons, would I be in the right zip code?

Andy Eidson -- Interim Co-Chief Executive Officer and Chief Financial Officer

That's probably fair. I mean, it'll depend on the qualities. Sometimes you're buying the coal for more of a quality sweetener. Sometimes you're buying the coal more for the bulk, and we've got the sweetener, so your margins are gonna vary. But that's probably not a very bad guess just across the board.

Lucas Pipes -- B Riley FBR -- Chartered Financial Analyst, Senior Vice President, and Senior Analyst

Got it, got it. Okay, that's helpful. Maybe a final question on Marfork. It's a big impact to the quarter. Could you share, with us, a little bit more color as to when those issues started to show up? You mentioned you've started to revise the mine plan. When did that work commence? We'd just appreciate a little bit more color given the importance Marfork seems to have on the met coal segment.

Andy Eidson -- Interim Co-Chief Executive Officer and Chief Financial Officer

Yeah. I think we noticed, probably, mid-quarter that costs were trending higher. Obviously, we keep, basically, daily watch on production numbers coming out of the mines. Production was trending lower. When you're in room and pillar mining, you're gonna run into temporary issues, and your clean tons per foot will vacillate. Once we saw a trend of consistently low clean tons per foot, it was probably pretty close to end of the quarter where it became more of a this isn't a temporary geologic issue. This is an issue where we're mining into more consistently low clean tons per foot areas. At that point in time, it became apparent that we needed to revisit the mine plans, look at the mine mapping, and determine where the pods of thicker coal were so we could reacclimate or reorient the mine to get to those areas faster.

It's one of those issues where you know you've got a cost problem, but you don't really have enough information until you've been in that issue for a while to know that it's not a temporary geologic issue. It's more of just a coal thinness issue. Yeah, we spent a better part of a quarter digging through that. Now, the mine plans have been adjusted. It'll take a little bit of time as we reorient the mines. We will have to redeploy some equipment underground to get where we need to be, but we're very confident that, by the fourth quarter, we're back in the cost structure that we planned on, we're back in the thickness of coal that we need to be in.

Lucas Pipes -- B Riley FBR -- Chartered Financial Analyst, Senior Vice President, and Senior Analyst

Got it, OK. Well, I appreciate all the color. I'll turn it over for now. Thank you very much.

Andy Eidson -- Interim Co-Chief Executive Officer and Chief Financial Officer

Thank you, Lucas.

Operator

Your next question comes from Mark Levin with Seaport Global. Your line is open.

Mark Levin -- Seaport Global Securities -- Managing Director

Hey, Andy. How are you?

Andy Eidson -- Interim Co-Chief Executive Officer and Chief Financial Officer

Hey, Mark. How are you doing?

Mark Levin -- Seaport Global Securities -- Managing Director

Doing well, thank you. Doing well. Okay, so just a few questions. Lucas hit on a number of the issues in Q1. I wanted to focus more looking forward. We're halfway through Q2. If I understand it, there will be no longwall moves in Q2. You won't have the Mammoth issue in Q2, but it sounds like you're gonna have a little bit of Marfork to deal with in Q2. From that perspective, as you sit here in the middle of the second quarter, I would assume it's reasonable to assume EBITDA and Q2 would be meaningfully above Q1 levels or is that too much of a leap at this point?

Andy Eidson -- Interim Co-Chief Executive Officer and Chief Financial Officer

I mean, we don't wanna guide too deeply into the quarter, but I think sales have been more of an on-budget trend, so that issue is less of an issue this quarter, really not an issue this quarter thus far. From a cost perspective, Marfork will, as you mentioned, bear additional cost over the next couple of quarters, likely. Slabcamp was remediated in mid-April, so there's a little bit of cost coming into it, but, by in large, it's in good shape. And then, Cumberland, the longwall move, so it's gonna be in the zip code of where it needs to be. A lot of this is being taken care of during the second quarter. I don't wanna guide you too much, but the quarter should look pretty different relative to the first quarter.

Mark Levin -- Seaport Global Securities -- Managing Director

Okay, great. And then, just in terms of the tons that have not been priced yet on the met side, maybe what the quality of those tons looks like?

Andy Eidson -- Interim Co-Chief Executive Officer and Chief Financial Officer

I think it's still a pretty similar blend to what we've priced thus far. Typically, the vast majority of our initially guided commitments were domestic tons. They do tend to be a little bit more on the higher-quality spectrum, but it's not enough to materially make a difference between it and the mix left for international. It's not like we're pushing all the high-vol A into domestic and international's all high-vol B. It's a pretty consistent split. I think you'll see product mix remaining pretty consistent throughout the year.

Mark Levin -- Seaport Global Securities -- Managing Director

Okay, got it. And then, coming back to cost for a second -- I know, I'm skipping all over the place here. Met coal cash cost, again, you guys get full-year guidance. Is it reasonable to assume that Q1 was the high watermark for met coal cash cost and that we will, maybe, get a little bit better in Q2 and then the more meaningful improvement is in the back half of the year, just based on your preliminary comments? Just trying to get an idea of cadence so that quarterly expectations, at least, are reasonable.

Andy Eidson -- Interim Co-Chief Executive Officer and Chief Financial Officer

Yeah, that's absolutely correct. Again, if you just look at the math of it, starting off Q1 with $92-$93 cost and, now, the midpoint of our guidance is $85, obviously, that -- you can make some assumptions if we expect to be closer to original guidance by year-end. You can see the trajectory we're expecting on cost over the next few quarters.

Mark Levin -- Seaport Global Securities -- Managing Director

Got it. Okay, and then, with regard to the Capital Return Program, I know on the -- I believe it was the last call. Kevin had mentioned that the board was contemplating a strategy whereby 50% of the excess free cash would be returned either through dividends, buy-backs, or debt repurchases. This morning, you guys come out with a $200 -- you have the refinancing, and you now have $250 million. Is there, from what you can tell, a leaning either toward buy-backs or dividends, special or otherwise, at this point, in terms of the way the board would approach the $250?

Andy Eidson -- Interim Co-Chief Executive Officer and Chief Financial Officer

Yeah. I mean, naturally, we don't wanna front-run the board's decision. They'll have to evaluate as the situation dictates after we get the new facility closed and we're ready to start making some movements. I mean, we look to smart guys like yourself and Lucas, who report on us as being undervalued compared to our peers. We think that is accurate. In instances like that, it's really hard to argue there's anything more creative than repurchasing shares at these levels. Again, not saying that that's where the board's gonna end up, but I think, logically, people can see -- you can do the math and figure out where this probably should head. Now, naturally, if things change between now and when we get the deal closed, the board will have to reevaluate and look at it on a different perspective. Based on current numbers, I think that's probably what would make the most sense.

Mark Levin -- Seaport Global Securities -- Managing Director

Got it, got it, got it. My last question is related to Land Branch and any -- I think you mentioned -- obviously, there's no change to capex in 2019, but as you and I realize, we're sitting here in May. Would there be any incremental capex associated with this project in 2020? Meaning, when you're trying to think about modeling the out-years, from a capital perspective, does it have any impact on that, and, maybe, preliminarily, does modeling flattish capex in 2020 seem reasonable to you?

Andy Eidson -- Interim Co-Chief Executive Officer and Chief Financial Officer

Well, keep in mind guidance for 2019 included $60 million of additional growth capital, both for Cumberland development [interrupted] --

Mark Levin -- Seaport Global Securities -- Managing Director

That's right. That's right. Yep, that's right.

Andy Eidson -- Interim Co-Chief Executive Officer and Chief Financial Officer

Backing up the alpha mines. We're already at a pretty inflated capital number. We certainly would expect that number to come down next year, even inclusive of the remaining capital to be spent on Land Branch.

Mark Levin -- Seaport Global Securities -- Managing Director

Got it. Okay, great. Appreciate the time this morning.

Andy Eidson -- Interim Co-Chief Executive Officer and Chief Financial Officer

Thank you, Mark.

Operator

As a reminder, to ask a question, please press *1 on your telephone keypad. Your next question comes from Scott Schier with Clarksons. Your line is open.

Scott Schier -- Clarksons -- Analyst

Good morning, everyone.

Andy Eidson -- Interim Co-Chief Executive Officer and Chief Financial Officer

Hey, Scott.

Scott Schier -- Clarksons -- Analyst

If I can stay on Land Branch, can you talk a little bit about how we should think about the ramp-up here? I know you mentioned the first production in, I think, the second quarter of 2020. Can you give any color on how many tons we can expect in 2020 and then going into 2021?

Andy Eidson -- Interim Co-Chief Executive Officer and Chief Financial Officer

Yeah. I mean, as with most continuous miner mines, we'll do development, and we'll be adding sections as the mine gets developed out. I think, probably, for next year, we're looking at somewhere around 400,00-500,000 tons coming out of that mine, and then we'll be at full run-rate in 2021, so we'll be at the 1.1-ish zip code. We'll get, basically, a half year of production next year -- a little under a half year.

Scott Schier -- Clarksons -- Analyst

Okay, great. That's very helpful. Will that be domestic or export-focused, do you think?

Andy Eidson -- Interim Co-Chief Executive Officer and Chief Financial Officer

This is the kinda quality coal -- it can actually go on either. Call it a hybrid high-vol A/B. From a vol perspective, it's probably closer to a B plus, but it's very low sulfur, low ash. It's excellent quality coal. It gives us a lot of flexibility.

Scott Schier -- Clarksons -- Analyst

Okay, that's very helpful. And then one last one. Are you thinking that that will be a new product for you guys, or will that integrate with some of the other products that you have?

Andy Eidson -- Interim Co-Chief Executive Officer and Chief Financial Officer

I think we'll probably continue to do what we do best, which is a blend. Again, we don't like, necessarily, marketing a particular product. We like finding what the customer wants, and we'll blend to hit their specs, specifically, rather than making them just take what we produce. Again, this gives us a lot of flexibility to hit multiple requirements from the customers.

Scott Schier -- Clarksons -- Analyst

Okay, great. That's very helpful. Thank you for taking my questions.

Andy Eidson -- Interim Co-Chief Executive Officer and Chief Financial Officer

You're very welcome, Scott.

Operator

There are no further questions. At this time, I turn the call back over to Mark Manno, Co-CEO, for closing.

Mark Manno -- Interim Co-Chief Executive Officer, Chief Administrative & Legal Officer and Secretary

Again, thank you, everyone, for your interest in Contura and your time this morning on the call. Have a great rest of your day. Thank you.

Operator

This concludes today's conference call. you may now disconnect.

Duration: 41 minutes

Call participants:

Alex Rotonen -- Vice President of Investor Relations

Andy Eidson -- Interim Co-Chief Executive Officer and Chief Financial Officer

Kevin Stanley -- Chief Commercial Officer

Mark Manno -- Interim Co-Chief Executive Officer, Chief Administrative & Legal Officer and Secretary

Lucas Pipes -- B Riley FBR -- Chartered Financial Analyst, Senior Vice President, and Senior Analyst

Mark Levin -- Seaport Global Securities -- Managing Director

Scott Schier -- Clarksons -- Analyst

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