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Edited Transcript of CTRA.N earnings conference call or presentation 7-Aug-20 2:00pm GMT

Q2 2020 Contura Energy Inc Earnings Call

BRISTOL Sep 24, 2020 (Thomson StreetEvents) -- Edited Transcript of Contura Energy Inc earnings conference call or presentation Friday, August 7, 2020 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Charles Andrew Eidson

Contura Energy, Inc. - Executive VP, CFO & Treasurer

* Daniel Horn

Contura Energy, Inc. - SVP & Head of Metallurgical Coal Sales

* David J. Stetson

Contura Energy, Inc. - Chairman, CEO & Director

* Emily O'Quinn

Contura Energy, Inc. - VP of Corporate Communications

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Conference Call Participants

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* Lucas Nathaniel Pipes

B. Riley Securities, Inc., Research Division - Senior VP & Equity Analyst

* Mark Andrew Levin

The Benchmark Company, LLC, Research Division - Senior Equity Research Analyst

* Scott Schier

Clarksons Platou Securities, Inc., Research Division - Analyst

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Presentation

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Operator [1]

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Good day, and welcome to the Contura Energy Second Quarter 2020 Earnings Call. (Operator Instructions) Please note, this event is being recorded. I would like to turn the conference over to Emily O'Quinn, Vice President in Corporate Communications. Please go ahead.

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Emily O'Quinn, Contura Energy, Inc. - VP of Corporate Communications [2]

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Thank you, Francesca. And good morning, everyone. Before we get started, let me remind you that during our prepared remarks and the Q&A period, our comments related 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 second quarter 2020 earnings release and the associated SEC filings. Please also see those documents for information about our use of non-GAAP measures and their reconciliation to GAAP measures.

Participating on the call today are Contura's Chairman and Chief Executive Officer, David Stetson; and Chief Financial Officer, Andy Eidson. Also participating on the call is Jason Whitehead, our Chief Operating Officer, who is available to answer questions on operations.

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

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David J. Stetson, Contura Energy, Inc. - Chairman, CEO & Director [3]

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Thank you, Emily. Good morning to everyone, and thank you for joining us today. Before I get into the details of our second quarter results, I want to acknowledge the unprecedented circumstances all of us have been experiencing for the last few months, which had made for a strange and difficult quarter for businesses across the world. Unprecedented is a word that has been overused to describe this pandemic, but it's an accurate descriptor. We've all been forced to continuously adapt to a rapidly shifting environment that none of us have ever seen before.

As a company, we've done well in implementing additional precautions and protocols in response to ever-changing guidelines. And I'm proud of how the Contura team continues to meet, and in most cases exceed, expectations even in such adverse circumstances. This resilience among our workforce is one of the many reasons why I'm so optimistic about Contura's future, even in the midst of challenging conditions we're facing.

Not only we have kept up our strong cost performance, but we accomplished this while maintaining consistently high standards in the areas of safety and environmental performance. Across the organization, our second quarter safety performance in the metrics of NFDL and VPID were both favorable to the national average, and we continue to perform favorably in these areas on a year-to-date basis. In environmental stewardship, our second quarter water quality compliance rate remained at 99.9%, and we achieved a 62% reduction in violations compared to the 3-year average.

These are not just numbers to us. They are a meaningful measure of success that we take very seriously on a daily basis. And they're even harder to achieve during challenging periods of external pressure and uncertainty like we've experienced this quarter. I commend our people across the organization for their good work.

As usual, after my prepared remarks, Andy will discuss our second quarter results, which include adjusted EBITDA of $17 million and an increase of cash balance quarter-over-quarter from a macro perspective. It's -- I think it's important to understand our results alongside the dramatic swings experienced this quarter which, in my view, make our accomplishments even more impressive.

April began with a widespread idling of our mining properties, with many operations being idle for as long as 4 weeks. This allowed us to normalize our inventory levels, provided us some time to analyze the various impacts of the pandemic on our business.

We continued to fulfill our customer contracts during this time. And by the first week of May, all Contura properties were back online at nearly normal staffing levels and operating capacities.

Before the close of the quarter in June, we announced some strategic decision to strengthen our company's financial performance. To briefly touch on those announcements and the thinking behind our -- behind them was our goal of not only to bolster our immediate financial capabilities in these uncertain times, but also to create a direct pathway to becoming a more streamlined and efficient pure-play metallurgical coal company.

We announced a new shorter time line with regard to our coal supply agreements at the Cumberland Mine in Pennsylvania and our decision not to invest in the new impoundment project there. We'll continue to actively market the mine for sale between now and the end of 2022 when our customer contracts expire. We believe this direction with Cumberland makes the most sense for Contura, both from a short-term cost perspective and a longer-term strategic standpoint. We've already begun reaping the benefits of our decision at Cumberland. Within the past week, we have received over $30 million in surety bond reductions due to our decision not to construct a new impoundment.

In June, we also announced a 60-day warrant notice and the decision to idle our Kielty Mine and the Delbarton Prep Plant in West Virginia due to uneconomic pricing and cost structures. Our current plan reflects cessation of active mining operations within the next 6 weeks.

While those are examples of mines that are being deemphasized or removed from our portfolio, you've heard me discuss some exciting development projects that are underway over the last couple of years that are designed to augment our business in the long run. We expect these operations to help us replace some properties that are nearing the end of their mine life or are no longer cost-effective in the near term.

And I'll quickly give you an update on where we stand on Road Fork 52, Black Eagle and Lynn Branch projects. We're pleased to report that Road Fork 52 is now a multisection production, with a second section having coming online in June and the ability to add a third section in early 2021.

Black Eagle is also working toward a multisection capability, with roughly 3/4 of the belt corridor to the main reserve body now complete and the airway development currently underway. We expect to be in a multisection production from the main reserve body at Black Eagle beginning next year.

Lastly, after completing initial cuts underground at Lynn Branch, we are installing a surface infrastructure and expect to resume production sometime in the fourth quarter of this year.

These projects demonstrate our commitment to building a leaner, more sustainable portfolio of lower-cost higher-quality mines to help us strengthen our cost structure and increase our sales capabilities over time. And we continue to make meaningful progress on all of them in the second quarter.

Additionally, in June, we completed the acquisition of the Feats Loadout in Logan County, West Virginia. With service on the CSX railroad, this property brings additional optionality to our existing transportation network, bolstering our ability to leverage low vol metallurgical coal sales opportunities through our port facility known as the DTA.

We recognize that the world is transitioning toward an economy that relies less on fossil fuels for power generation, and we therefore have accelerated our strategic exit from the thermal coal mining. To put a finer point on our strategic direction for the next couple of years, I expect our portfolio optimization initiatives, some of which I've touched on in my remarks about Kielty and Cumberland, will make us the leading pure-play met coal company by the end of 2022. Once these initiatives are completed, I expect Contura's very cost-competitive met production profile to allow for shipments of up to 14 million tons of met coal annually, with less than 1 million tons of incidental thermal coal shipments a year. This transition is well underway, and I am confident that we have the right strategy and the right team in place to execute on our plan successfully.

We discussed on our recent earnings calls the incredible work that's been done on the cost containment front. And you may recall that our first quarter cost performance in the Central APP - Met segment was at multiyear lows. I'm proud to report that despite the pressures for the last several months, we're able to match the level of performance in the second quarter when the impact of the furloughs, onetime COVID mitigation costs and a partially offsetting severance tax adjustments are backed out. Andy will discuss this in more detail, but our progress in this regard continues to be a testament to the resilience of our workforce and Jason's outstanding leadership.

I talked a lot about costs since they are part of our business that we can manage and control. But obviously, the markets are a different story. While there is no crystal ball to show us what the future looks like or if we can expect prices to climb higher, there are a few metrics and signals that we've noticed over the last few weeks that are informing our estimation of the third and fourth quarter may hold for us. There has been much discussion in the coal community about potential hints of optimism in the market landscape. While we would welcome any improved pricing structure over the coming weeks or months, we believe it is wise to continue preparing as though the depressed pricing environment we've been experiencing will continue. Even with welcome improvements that may come, we still expect the back half of 2020 to be challenging.

While there are indications that the steel industry is showing some improvement in July, the June data from the World Steel Association shows material year-over-year crude steel production declines in all of our key markets, ranging from 20% reduction in Europe to a nearly 35% decline in the United States. Among the major crude steel producing markets, the only country reporting production growth for the month of June as well as year-to-date is China. They grew 4.5% and 1.4%, respectively. The global data shows a 6% year-to-date decline in overall crude steel production, with the 2020 forecast indicating a similar trend for the second half of 2020 and total annual production estimated to decline by 6.4%. World Steel Association forecasts a 3.8% rebound in '21. Of course, the hope is that summer numbers are making -- are marking the bottom, but that remains to be seen.

While the crude steel production numbers have much room for improvement and many questions remain unanswered regarding global economic activity, we are seeing early positive signs in the manufacturing sector. China's manufacturing PMI continued to show growth, with Europe returning to growth in July. Importantly to Contura, one of the strongest improvements in the manufacturing PMI was reported in Brazil, which recorded a PMI rating of 58.2 in July, up from 51.6 in June. U.S. manufacturing PMI moved into modest expansion for the first time since February, while India's manufacturing sector remained in contraction amid coronavirus-related lockdowns.

With apologies in advance, I'd like to close my remarks by quickly getting on my soapbox. Last week marked my 1-year anniversary of returning to lead and manage Contura. In that year, we have streamlined management, exited the PRB, provided a comprehensive solution at Cumberland, accelerated our met-focused capital projects, brought efficiencies to mining operations, reduced costs across the organization, strengthened our liquidity, and managed through some of the most difficult times I've seen in my career.

These accomplishments were a result of our entire team at Contura. I asked Jason Whitehead to return to my management team less than 1 year ago, and his leadership of operations has been beyond expectations.

Dan Horn and Bill Davison have somehow managed to find homes for our products throughout the world when demand and pricing constraints created tremendous headwinds. Their efforts allow Jason to continue operations at an optimal level.

One of the additions to my team I'm most proud of is convincing Roger Nicholson to leave the comfort of his private practice and return to the grind of being general counsel. I loaded him up with not just legal challenges, but he manages the environmental, safety and HR aspects of our company, all of which I might point out have reached all-time performance since he's come on board.

I leave Andy Eidson for the last. Many of the shareholders and analysts on this call know Andy as a person they call and reach out to understand our financial performance as well as our strategy. Andy also has the unfortunate role of having an office less than 10 feet from mine. Jason and Roger hide out in Julian, West Virginia; and Dan and Bill have located themselves hundreds of miles away from the office. But we do work extremely well together regardless of geography. Andy is my sounding board on strategy. And it was due in large part to his good work that we advanced the ball on PRB and Cumberland. During these trying times, Andy manages our liquidity, provides team members with real-time data for decision making, is responsible for our M&A activity. And there hasn't been a decision I've made since returning that doesn't have his fingerprints all over it.

All this to say that the collective power of this team is why we are well positioned to continue making progress, even in such challenging days. And I couldn't pass up the opportunity to express my gratitude for all they've done. Thanks for letting me get on this moment to take and recognize what I believe is the best team in the industry.

With that, I'll turn the call over to Andy for some additional financials.

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Charles Andrew Eidson, Contura Energy, Inc. - Executive VP, CFO & Treasurer [4]

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Thanks, David. And thanks, David, very kind compliments there.

So we did expect the second quarter to be challenging, both operationally and from a planning perspective, and that certainly proved to be true on both counts. We started the second quarter with higher unit costs on production for the month of April, since we did temporarily idle most of the mines for the majority of the month. The good news is that once we returned to effectively normal operations in May and June, we were able to match the outstanding cost performance that we established in the first quarter, with average costs coming in below $70 a ton for our CAPP - Met mines.

While we're very proud of how effectively we control the costs across the organization, especially in the met segment, we're certainly not complacent. Our entire industry is still under significant pressure with so many macro issues remaining unsolved. As David mentioned, we're clearly affected by these uncertainties. But instead of dwelling on circumstances we can't control and, for the most part, can't predict, we're focused on controlling what we can control: the effective cost management; careful matching of production with demand; and most importantly, a sharp continued focus on cash flows. We ended the quarter with approximately $238 million in unrestricted cash and total liquidity of $240 million.

As David mentioned in his remarks, one of our key goals with the temporary mine idlings in April was to reduce our inventory and hence, bolster our cash balances. We successfully converted around $41 million of inventory into cash during that month, which helped us increase our cash balance in the second quarter by $11 million over the first, despite the difficult environment in our end markets.

This increase is also net of a $26 million paydown of our revolving credit facility. The facility now stands at $31 million in borrowings and $122 million of letters of credit outstanding as of June 30, with approximately $2 million of remaining availability. Naturally, ABL availability is tied to market pricing in regards to valuations of inventory and accounts receivable, so that does fluctuate. And in the current challenged market, we're seeing some pretty low tide areas, which should rebound as soon as the market does provide us some relief.

On our cash flows, we had a strong quarter relative to the market conditions, with the second quarter operating cash flow of $79 million and CapEx of $41.5 million. Since we're no longer moving ahead with the Cumberland refuse impoundment investment, we now expect our CapEx for the second half of the year to be around $45 million to $50 million compared to more than $90 million spent in the first half of the year. This would take our expected full year CapEx to a range of approximately $135 million to $140 million, which is nearly $50 million less than our original guidance for 2020.

As I mentioned earlier, we were able to reduce our inventory more than $41 million or nearly 0.5 million tons during the quarter. Accounts receivable were also a strong source of working capital during the quarter, as total receivables declined by more than $60 million. And prepaid expenses added another $20 million improvement, which was partially offset by a $24 million reduction in payables. In total, we saw around $100 million improvement in working -- net working capital position for the quarter.

Next, I want to give a brief update on the timing of the expected $66 million AMT credit monetization refund. While we had originally expected to receive the refund in the early part of this quarter, the third quarter, it now looks more likely to come in the latter part of Q3 or potentially drift into the fourth quarter. We understand this delay to be the result of slowed IRS processing time lines as a result of COVID-related shutdowns. The only change from our previous discussion of this topic is the expected timing of the refund, not our expectation of receiving it. And we're aggressively pursuing the refund in concert with our tax advisers and an IRS taxpayer advocate.

Also in connection with the CARES Act and as we've previously announced, we still expect to defer approximately $14 million in payroll taxes until 2021 and '22, with the total expected deferral amount distributed evenly across those 2 years.

As to our financial results, we reported $17 million of adjusted EBITDA in the second quarter. And again, that quarter was very challenging, included idlings and closures among not just our customers, but also our properties in April. The $17 million compares to Q1 EBITDA of $60 million.

The second quarter continued to show our strong performance on cost, with CAPP - Met segment reporting a cost of $74.41. However, it is important to highlight that when you include the impact of April furloughs, incremental costs related to COVID-19 mitigation, and the partial offset of -- with the benefit from adjustments to our annual severance tax accrual, if you exclude those from the calculation, our second quarter costs were approximately in line with Q1, averaging just below $70 a ton. It's becoming a standing comment for me on these calls, but as to kind of tag on to what David said, I can't say enough about Jason and his operations team for their continued excellence in cost management.

Overall, CAPP - Met generated $18 million of EBITDA during the quarter, with Northern APP adding another $9 million of EBITDA, and the CAPP - Thermal segment contributing more than $2 million of EBITDA. SG&A expenses are not allocated into the segment EBITDA results.

To look at our cost reduction progress in Central Appalachia a little differently, and I do want to pound on this a little bit, it may be useful to track a 3-quarter moving average starting with Q1 of 2019. Over that time, our CAPP - Met costs have declined from nearly $90 a ton to the mid-70s for the weighted -- for the moving average 3 quarters ending June 30 of 2020, with the last 2 months of the quarter averaging $70 a ton when the -- when all the previously mentioned adjustments are factored in. And a similar analysis looking at CAPP - Thermal, it's declined materially from roughly $57 per ton in Q1 of '19 to under $50 a ton in the most recent 3-quarter period, even in light of reduced production levels. So again, this just goes to point out that it's not just CAPP - Met, we're seeing cost improvements across the board, and really a testament to operations in the entire company for continuing to monitor costs and control everything that we can control.

On the revenue front, our CAPP - Met shipments remained strong in the second quarter with a total volume of 3.2 million tons shipped, down only about 100,000 tons from the prior quarter. The revenue shortfall was obviously driven by weak market conditions in the export market, with our CAPP - Met average realization down $11 a ton to just under $82 a ton in Q2. CAPP - Thermal volume was essentially flat with the first quarter, with total shipments of around 600,000 tons and realizations declining to just under $50 a ton from the mid-50s in the prior quarter. NAPP revenues declined as a result of lower volumes and lower prices, with the shipments declining by 200,000 tons to 1.3 million tons in the quarter, with price realization declining 6% to just over $40 a ton.

Another area where we've got a strong focus on cost is in SG&A which, after excluding noncash stock comp and onetime items, declined to $10 million in the second quarter compared with $13.4 million in the first quarter. For modeling purposes, we expect our SG&A for the full year 2020 to come in between $45 million and $50 million, down from $60 million for fiscal year 2019.

I'll close my prepared remarks with a comment on the Department of Labor request. As you may recall, earlier in the year, we did receive a letter from the DOL regarding collateral amounts for certain Black Lung obligations in which we could potentially see our self-insured collateral increase nearly 25-fold to approximately $66 million. We filed an appeal of this potential increase, but have not yet received a decision from the DOL. We'll provide an update once we have additional information to share.

So with that, operator, I believe we're ready to open the line for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from Scott Schier with Clarksons.

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Scott Schier, Clarksons Platou Securities, Inc., Research Division - Analyst [2]

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In the release and in your prepared remarks, you mentioned the costs would have been relatively flat quarter-on-quarter absent COVID-19 impacts and the shutdown. Does that mean that you expect costs to be closer to the low 70s in the second half of the year? Or is there still some lingering impact that we should expect?

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Charles Andrew Eidson, Contura Energy, Inc. - Executive VP, CFO & Treasurer [3]

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Scott, this is Andy. I could let Jason jump in when he feels appropriate. But I think by and large, again it's kind of hard to predict where the market is going in the next 2 quarters. Naturally, if we kind of hold things static with where they are, I do think that expectation is very much in line with what we believe is going to happen from a cost perspective. But again, fluctuations, further pressure on the market can [drop] cost response via production adjustments. Or as the market rebounds, we will see an increase, a natural increase from sales-related costs which, as a reminder, comprises about 9% to 10% of our total costs. So partial -- we're partially reflecting lower severance taxes, lower royalties, those kinds of things in our current cost base. But I think by and large, yes, I think we're pretty comfortable that these costs are sustainable for the long term.

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Scott Schier, Clarksons Platou Securities, Inc., Research Division - Analyst [4]

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Okay. That's helpful. And I mean, the cost reductions that you've made across your operations are very impressive, so congratulations on that.

Switching gears a little bit, should pricing kind of remain depressed for the rest of the year, maybe kind of even into early 2021 and we don't see a quick rebound, do you think we may see any additional mine idlings? Or are most of these kind of behind you at this point?

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David J. Stetson, Contura Energy, Inc. - Chairman, CEO & Director [5]

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I'll take that, and Jason can provide input as well. We're not anticipating any at this point in time. We think we've matched up production with sales and demand that we're seeing out in the future. Doesn't -- we designed a system, Scott, that allows us to flex, flex up, flex down. And so we do have that capability. But as I sit here today, I'm not anticipating any changes in our production outlook for the rest of the year.

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Operator [6]

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The next question is from Lucas Pipes with B. Riley FBR.

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Lucas Nathaniel Pipes, B. Riley Securities, Inc., Research Division - Senior VP & Equity Analyst [7]

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And I'd like to second the congratulations. Really, really well done, especially amidst this very difficult environment.

I wanted to kind of ask you about the outlook on the shipment side for the second half of this year, but specifically around met coal. Kind of Q3, Q4, not -- I mean the more detail you can provide the better, but I would like to get a sense for the order flow and what we could then expect with production and such.

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Charles Andrew Eidson, Contura Energy, Inc. - Executive VP, CFO & Treasurer [8]

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Lucas, it's Andy. That's a -- that is the question of the hour, a pretty sticky one. Naturally, we were still on a guidance suspension in regards to pretty much everything, except for SG&A and CapEx.

But we do have Dan Horn here available to give his view on the market. I doubt we have much to give in the way of true numerical guidance, but he can surely share some anecdotal views of the market. Dan?

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Lucas Nathaniel Pipes, B. Riley Securities, Inc., Research Division - Senior VP & Equity Analyst [9]

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Excellent.

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Daniel Horn, Contura Energy, Inc. - SVP & Head of Metallurgical Coal Sales [10]

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Sure. We're watching the steel industry obviously very closely. We see a few signs that things are improving versus where they were a few months ago. We all follow some of these announcements of okay, a blast furnace here is starting up here. We see steel pricing generally around the world starting to increase. Except here in North America, so that's a bit of a concern in North America. But we're still struggling to see that coal plants are necessarily picking up any more production.

So it is clearly a wait and see mode, but I do see a few things that give me a little bit of optimism. But I can't, as Andy said, I can't really see how it translates into increased shipments at the moment.

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Lucas Nathaniel Pipes, B. Riley Securities, Inc., Research Division - Senior VP & Equity Analyst [11]

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I appreciate that. And maybe to follow up on this, you did a really good job destocking during the second quarter. What -- is there a need to rebuild inventories? Or would you say you're kind of pretty well positioned from an inventory standpoint here?

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Charles Andrew Eidson, Contura Energy, Inc. - Executive VP, CFO & Treasurer [12]

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Yes. I think we're in pretty good shape, Lucas. Again, we've taken our inventory levels from down about 0.5 million tons across the board. I think probably 350,000 tons of the reduction was on the met side. That leaves us around 1.2 million, 1.3 million tons of inventory available, which I think is a pretty good level to allow both the operations and the sales team to do the -- do what they need to do to meet orders.

So I think we're in good shape from that perspective. And we certainly don't want to build inventory just to stock it up on the ground. So it's good that we were able to destock to a level that we're -- basically we targeted, and it worked out really well in April.

So short answer, I think we're in good shape. We don't need to build anymore nor do we really need to cut anymore. I think our inventory levels are pretty appropriate with what we're seeing in the market.

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Lucas Nathaniel Pipes, B. Riley Securities, Inc., Research Division - Senior VP & Equity Analyst [13]

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Very good to hear, thank you. And then I'll sneak one last one in. The release of $30 million on the surety side, good to see that. Could we expect more with the strategy of kind of exiting thermal by the end of 2022?

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Charles Andrew Eidson, Contura Energy, Inc. - Executive VP, CFO & Treasurer [14]

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I really wish I had an optimistic answer for you, Lucas. The surety companies -- the surety markets right now are really, really challenging. I believe all of our peers are seeing the same things. There's been ESG concerns across the board. And as usual, it's not -- there's not a good bifurcation between thermal and met coal, coal seams to B coal. And so that makes it a little bit of a challenge as far as making our -- optimizing our portfolios.

I wouldn't expect much in the way of additional release of bonding collateral in the near term. I believe now, there's probably more concerns from a credit perspective across the industry, which will keep that cash tied up for a bit longer until we see the market turn. But hopefully once we see a return to a better, more normal world that we're used to experiencing, we will see some improvements in surety portfolios and maybe a little bit more collateral to be returned.

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Lucas Nathaniel Pipes, B. Riley Securities, Inc., Research Division - Senior VP & Equity Analyst [15]

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Very good hear. Everyone, really appreciate it. And again, well done here.

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David J. Stetson, Contura Energy, Inc. - Chairman, CEO & Director [16]

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We've run out of time, so Mark can't ask any questions, right? Never mind, Mark, go ahead.

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Operator [17]

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The next question is from Mark Levin with Benchmark.

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Mark Andrew Levin, The Benchmark Company, LLC, Research Division - Senior Equity Research Analyst [18]

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Nah, you probably would have been doing everybody a favor, a big favor.

So just a couple of quick ones. So without getting into guidance because I know met prices are volatile and the market is exceedingly volatile, any feeling as to whether or not Q2 looks like the trough? It sounds like when you're thinking -- when one thinks about Q3, volumes I would think would be higher. And as a consequence, costs would be lower. I know the price is sort of the key delta. But maybe, Andy, are you thinking that Q3 just sort of naturally should be a step-up, if you were -- let's just hold met prices flat or equal to Q2?

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Charles Andrew Eidson, Contura Energy, Inc. - Executive VP, CFO & Treasurer [19]

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As far as shipments, Mark?

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Mark Andrew Levin, The Benchmark Company, LLC, Research Division - Senior Equity Research Analyst [20]

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Well, no. I'm just thinking like the EBITDA bridge from Q2 to Q3. Like you should have higher volumes. You should have lower costs just because you'll have higher volumes. And then if I were just to assume that met prices, all else being equal, were flat Q2 to Q3, is it reasonable to assume that Q2 is the EBITDA trough for the year?

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Charles Andrew Eidson, Contura Energy, Inc. - Executive VP, CFO & Treasurer [21]

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Oh, absolutely. If that -- if those particular assumptions hold true, I think that math works. I think based on -- we just -- what we just heard from Dan I think anecdotally, I'm not sure it's safe to assume that Q3 will be an improvement. It has the potential to, but it's -- the market is still pretty tough. And so -- but your math -- the math works, but everything hinges on shipments and market demand which is -- that's a sticky wicket.

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Mark Andrew Levin, The Benchmark Company, LLC, Research Division - Senior Equity Research Analyst [22]

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And it looks like from a CapEx perspective, you spent $90 million or so in the first half. So getting to your guidance, maybe another $50 million or so in the second half. So even from a cash burn perspective, you could be in better shape, particularly with the $66 million coming in, I guess, right?

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Charles Andrew Eidson, Contura Energy, Inc. - Executive VP, CFO & Treasurer [23]

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Oh, absolutely. Yes.

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Mark Andrew Levin, The Benchmark Company, LLC, Research Division - Senior Equity Research Analyst [24]

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Okay, just making sure.

Now on to less positive stuff. Domestic met, so I know it's sensitive. And Dan and others probably don't want to talk a whole lot about it, so I just want to talk a little bit about strategy. Given where netbacks are in the market and how tough it is out there as you've mentioned, what's kind of the thought process in terms of mix? Meaning domestic versus export '21 versus '20, given what you're seeing right now?

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David J. Stetson, Contura Energy, Inc. - Chairman, CEO & Director [25]

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Well, I'll start it off. We seldom like to provide our strategy on -- our sales strategy to all of our competitors, so you probably won't hear much from me on that point.

We have never really said we have a fixed target as to domestic versus export. And historically like in 2019, we were about 66% export. And this year, we're about 73. And a lot of that came to some deferrals that were coming in on the domestic side. We pushed that coal into the international markets.

But unless Dan wants to share our playbook on our coal sales strategy with everyone. Dan, would you like to share that book with Arch and everybody else?

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Daniel Horn, Contura Energy, Inc. - SVP & Head of Metallurgical Coal Sales [26]

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I'll pass on that, David. I'll just add that we're comfortable on the low end, we're comfortable on the high end. We'll wade into the season, Mark, and see what the volumes and prices look like, and we'll make our decisions. We're comfortable...

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Mark Andrew Levin, The Benchmark Company, LLC, Research Division - Senior Equity Research Analyst [27]

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I figured I might get answers like that, but I thought it was worth a try.

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David J. Stetson, Contura Energy, Inc. - Chairman, CEO & Director [28]

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Good try, Mark.

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Mark Andrew Levin, The Benchmark Company, LLC, Research Division - Senior Equity Research Analyst [29]

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Based on the -- yes, thank you. And then on the pricing side -- speaking very generally, I'm not talking domestic, I'm just talking across the board. When we look at the assessments from Platts either for A and B and U.S. low vol, I mean do you feel like those are accurate representations of what you guys are realizing in the market? Or are there discounts that you have to take in a tighter market or in a more oversupplied challenging market today? Or are those just -- are those pretty good representations of what you guys are seeing then?

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Daniel Horn, Contura Energy, Inc. - SVP & Head of Metallurgical Coal Sales [30]

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Mark, I mean they're assessments. You're right, they're assessments. And they -- I think directionally, they're correct. We sell so many products, I think I said this before, that there's no strong correlation necessarily between what -- the products we sell and the indices directly because of differences in specs, differences in volumes. But I think directionally, they're okay. But in a weak market, I said this before: in a weak market, we tend to sell at discounts. And in a rising market, we tend to sell at premiums.

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Mark Andrew Levin, The Benchmark Company, LLC, Research Division - Senior Equity Research Analyst [31]

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No. That makes sense. And Dan or anybody else, how about on the rail side? Are the eastern rails -- given that there's so much challenge in the market right now both from a price and from a demand perspective, have you seen a corresponding decrease in rates? Have they been willing to work with you and help everybody get through these tough times? Or have the rates been kind of sticky at higher levels?

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Daniel Horn, Contura Energy, Inc. - SVP & Head of Metallurgical Coal Sales [32]

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Broadly speaking, Mark, the rail rates move with the coal pricing, and they're -- they depend on the products. We have rates for different types of coal. So they move accordingly. So they're better for us at this pricing level [now of close to hundred fifty] dollars a ton.

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Mark Andrew Levin, The Benchmark Company, LLC, Research Division - Senior Equity Research Analyst [33]

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Got it. Okay. Well, great job on the costs side in particular, echoing what everybody else said before. And I look forward to chatting next quarter.

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Operator [34]

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This concludes our question-and-answer session. I would like to turn the conference back over to David Stetson for any closing remarks.

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David J. Stetson, Contura Energy, Inc. - Chairman, CEO & Director [35]

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Again, I want to thank everyone for joining us on the call today and your interest in Contura, and wish everyone a great day and a great weekend. Thank you so much.

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Operator [36]

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The conference call has now concluded. Thank you for attending today's presentation. You may now disconnect.