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Edited Transcript of FELP earnings conference call or presentation 7-Nov-18 9:15pm GMT

Q3 2018 Foresight Energy LP Earnings Call

Saint Louis, Mo Dec 4, 2018 (Thomson StreetEvents) -- Edited Transcript of Foresight Energy LP earnings conference call or presentation Wednesday, November 7, 2018 at 9:15:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jeremy J. Harrison

Foresight Energy LP - Principal Financial Officer & CAO of Foresight Energy GP LLC

* Robert D. Moore

Foresight Energy LP - Chairman, CEO & President of Foresight Energy GP LLC

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Conference Call Participants

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* David Howard Windley

Jefferies LLC, Research Division - Equity Analyst

* Lucas Nathaniel Pipes

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

* Mayur Kenia

* Nicholas Jarmoszuk

Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by. Welcome to the Third Quarter 2018 Earnings Call. (Operator Instructions) As a reminder, the conference is being recorded.

And I'll now turn the conference over to our host, Chief Accounting Officer, Mr. Jeremy Harrison. Please go ahead, sir.

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Jeremy J. Harrison, Foresight Energy LP - Principal Financial Officer & CAO of Foresight Energy GP LLC [2]

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Thank you, Lori, and welcome to Foresight Energy's Earnings Call for the Third Quarter of 2018. With me today is Rob Moore, our President and Chief Executive Officer.

Today, we will discuss Foresight Energy's operating and financial results for the third quarter of 2018, and update you on the current operations at our coal mines. Following our prepared remarks, we will open your call to -- open the call to your questions.

Please note that this call contains forward-looking statements that are based upon our current expectations and beliefs concerning future developments and their potential effect on us, and there can be no assurance that the future developments affecting us will be those that we anticipate. Our business and our financial results involve risks and uncertainties that could cause actual results to differ materially from our current expectations. For additional information regarding such risks, please see our annual and quarterly reports filed with the SEC and posted on our website.

During the call today, we will also discuss non-GAAP financial measures, including guidance with respect to adjusted EBITDA. Please refer to our earnings release for reconciliations to the most comparable generally accepted accounting principles for historical periods.

Also, this call includes only information that is available to us at this time. To the extent you are listening to this call at a later date, please note that the information may be outdated or incomplete.

We undertake no obligation to publicly update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise, except as required by law.

Now I'd like to turn the call over to Rob Moore. Rob?

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Robert D. Moore, Foresight Energy LP - Chairman, CEO & President of Foresight Energy GP LLC [3]

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Thank you, Jeremy. Good afternoon, everyone, and thank you for being with us today. This morning, Foresight Energy announced its very strong financial results for the third quarter of 2018.

During the quarter, Foresight sold over 6.1 million tons of thermal coal and generated total revenue of approximately $294 million. That resulted in adjusted EBITDA of nearly $58 million, including the $25 million settlement paid to Natural Resource Partners. Absent this settlement charge adjusted EBITDA for the quarter would have been approximately $83 million.

With the record export sales of 2.4 million tons in the third quarter, we realized significant year-over-year improvements in our sales volumes, sales realizations per ton sold and sales revenue. With total sales volumes up 17%, total sales realizations up 8.5% and total sales revenues up 27%.

During the third quarter, we safely and efficiently produced 6.2 million tons compared to approximately 5.3 million tons in the third quarter of 2017.

The increased production resulted primarily from no longwall moves occurring during the third quarter of 2018, as well as our operating mines continuing to maintain their position among the most productive underground mines in the country as measured on a clean ton per man-hour worked basis.

For the third quarter, our 2 operating longwall complexes Williamson and Sugar Camp ranked as the first and second most productive underground mines in the United States, generating 19.8 tons and 17.6 tons per employee man-hour worked respectively. On a combined basis, the Foresight operations produced over 16.5 tons per man-hour worked during the third quarter. A truly remarkable number. This compares to the national average for underground mines of 4.6 tons per man-hour worked. These high levels of productivity which drive our industry-leading cost structure allow us to achieve a very low cost of $22.28 per ton. As I mentioned earlier, we exported 2.4 million tons or 39% of our total sales volumes during the third quarter.

Through the third quarter of 2018, we have placed over 6 million tons into the export market, and we have 2.5 million additional tons contracted and priced for export this calendar year.

With our unique access to the export markets including our logistics chain from our Illinois Basin operations through Convent Marine Terminal, and the ability to rapidly load vessels of all sizes, we have a program to deliver more than 9 million tons into the international market this year with pricing of incremental volumes to be set at the time of delivery to the export terminal. The export demand for our product remains strong, and we believe that the export market will continue to provide an economical outlet for a significant portion of our production in 2019.

We have proven ourselves to be a reliable supplier, and the fundamentals across the globe remain favorable as it relates to demand for thermal coal with high Btu content. Additionally, the strong export demand has created opportunities in the domestic spot market. And we've been selectively placing our tons to capitalize on solid margins.

Last week we issued an 8-K relative to our Hillsboro Energy's Deer Run Mine. As noted in that 8-K, we have reached a settlement with Natural Resource Partners of the litigations regarding our Hillsboro Energy, Deer Run Mine, and our Macoupin Energy Shay mine. The settlement represents a mutually beneficial resolution to these complex lawsuits and provides us with future operational flexibility at our Hillsboro complex.

Per the terms of the settlement, we have paid $25 million to Natural Resource Partners, in consideration of all disputed amounts through calendar year 2018. In addition, the parties have amended the Hillsboro, coal mining lease to reduce the annual minimum non-recoupable royalty payments from $30 million to $11 million. And to provide for a tonnage royalty of 6% for the gross selling price of coal mined and sold from a leased premises in the future.

Foresight Energy as parent of Hillsboro Energy is also providing a guarantee to Natural Resource Partners of up to $50 million of the annual minimum royalty payments. All other claims between Foresight Energy and Natural Resource Partners in both the Hillsboro and Macoupin matters have been dismissed with prejudice. As a result of the settlement, a charge of $25 million is included in adjusted EBITDA for the third quarter of 2018.

With respect to our Hillsboro insurance coverage, we continue to pursue all available remedies under our insurance policies related to the combustion event.

Due to the ongoing litigations with the insurers, that would be the extent of any public comment related to the Hillsboro insurance matters at this time.

At this point, I'll turn the call over to Jeremy for further discussion of our third quarter financial results. Jeremy?

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Jeremy J. Harrison, Foresight Energy LP - Principal Financial Officer & CAO of Foresight Energy GP LLC [4]

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Thank you, Rob. During the third quarter, we recognized coal sales revenue of nearly $292 million on sales volumes of 6.1 million tons, which generated adjusted EBITDA of $57.6 million. This compares to $230 million of coal sales revenue on 5.2 million tons, and adjusted EBITDA of $66.8 million during the prior year third quarter.

As Rob mentioned, the third quarter 2018 results reflect a $25 million charge related to the settlement of the NRP matters.

Our coal sales revenue increase was primarily driven by a $3.72 per ton or 8.5% increase in coal sales realization and an overall increase in our sales volumes. The improvement in our coal sales volumes in realizations was primarily due to the year-over-year improvement in market conditions.

Our operating mines continued to be among the most productive underground mines in the country, safely and efficiently producing 6.2 million tons during the quarter.

Our cash cost per ton sold was $22.28 in the current quarter, compared to our cash cost per ton sold of $23.43 for the third quarter of 2017. The decrease in our cash cost per ton sold was due to no longwall moves in the current quarter compared to 1 move during the third quarter of 2017 and the overall impact of increased production in sales volumes. Additionally, in the third quarter of 2017, we did include a $4.3 million charge for noncash items arising from the effects of the pushdown accounting 2017.

Compared to third quarter of 2017, transportation cost during the third quarter of 2018 increased by $21.8 million to $61.2 million. This increase is largely driven by a higher proportion of sales volumes shipped into the export market during the current year period as our export sales incur higher transportation due to longer distance to the port facilities.

Finally, from a cash flow perspective, the third quarter of 2018 was another strong cash generating quarter where we recognized operating cash flows of $51.3 million and ended the quarter with a cash balance of $43.1 million with total liquidity of approximately $173 million.

For the third quarter of 2018, capital expenditures totaled $18.6 million. We paid down $23.8 million on our revolver long-term debt and other capital lease obligations, and we paid $4.6 million distribution to our common unitholders. These cash flow and liquidity figures do not reflect the $25 million payment associated with the settlement with NRP which was paid subsequent to quarter end.

With that, I'll turn the call back over to Rob before we take your questions.

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Robert D. Moore, Foresight Energy LP - Chairman, CEO & President of Foresight Energy GP LLC [5]

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On the strength of our third quarter financial performance and our outlook on liquidity and operations for the remainder of 2018 and beyond, the Board of Directors of our general partner has elected to declare a quarterly distribution from the retained portion of excess cash flow generated in 2017 of $0.0565 per unit, payable exclusively to holders of the Foresight Energy LP common units.

The distribution will be paid on December 21 to common unitholders of record as of December 11. As we have mentioned on previous calls, future distributions will be subject to board approval, and will be based on a number of factors including our leverage levels, market conditions, excess cash flow remaining after required excess cash flow sweeps and our projected future financial and operating performance.

As we approach year-end, we are updating our guidance for sales volumes, adjusted EBITDA and capital expenditures. Based on our current contracted position and outlook for the domestic and export coal markets, we expect 2018 sales volumes to total between 22.4 million tons and 23 million tons, with approximately 9 million tons being sold to the export market.

At these volumes, we are adjusting our guidance for adjusted EBITDA to $305 million to $325 million, which represents a $25 million increase to prior guidance considering the $25 million settlement paid to Natural Resource Partners was not included in previous guidance.

Based on our current operating plans and recent capital spending, we expect 2018 annual capital expenditures to total between $70 million and $77 million.

Assuming our guided adjusted EBITDA levels for 2018 and our scheduled debt repayments, we are currently projecting the partnership to be less than 4x levered at the end of calendar year 2018, which would provide for the distribution of up to 50% of the partnership's 2018 excess cash flow in calendar year 2019.

With that, Lori, I will open the line up to questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question from the line of Nick Jarmoszuk with Stifel.

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Nicholas Jarmoszuk, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [2]

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First one on the guidance, given that it was increased by $25 million, is there any -- is that all from price and volume? Or is there any cost benefit from the NRP settlement?

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Robert D. Moore, Foresight Energy LP - Chairman, CEO & President of Foresight Energy GP LLC [3]

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It's all driven by price and volume and just the level of operating performance that we're seeing at the mines, Nick.

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Nicholas Jarmoszuk, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [4]

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And then with the pricing increase that we saw from 2Q '18, can you give us a little color as to what pricing looked like for your domestic book versus the net backs you are seeing going into the API2 market?

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Robert D. Moore, Foresight Energy LP - Chairman, CEO & President of Foresight Energy GP LLC [5]

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So as it relates to -- I don't want to get into exactly where pricing is for competitive purposes, but I can tell you that given where we have seen the domestic spot market move, the pricing levels that we're realizing are better than the Q3 numbers in terms of the spot placements that were -- that we saw in Q3, and what we're seeing in Q4. And those numbers are equal to what we are seeing out of the export markets that we're hitting. So we're seeing strong, strong numbers there. I'll tell you just to give you a range, above 40 at the mine.

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Nicholas Jarmoszuk, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [6]

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So is it fair to say -- if I'm interpreting it correctly, you're seeing strength in both the domestic portion of the business and with the export net backs?

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Robert D. Moore, Foresight Energy LP - Chairman, CEO & President of Foresight Energy GP LLC [7]

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Yes.

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Nicholas Jarmoszuk, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [8]

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And then regarding the contracting environment, one of your ILB competitors increasing production 6% to 10%. Can you talk about any competition you're seeing from them with the RFPs that are out there? And how they're looking to place those tons, if they are leading with price and just what -- how the contracting environment is looking?

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Robert D. Moore, Foresight Energy LP - Chairman, CEO & President of Foresight Energy GP LLC [9]

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I don't think it's much different than what we've seen historically. I think that as we talk about our competition, at least the 1 competitor that I believe that you're talking about, they've always been very disciplined. I expect them to continue to be that way. We have seen some that have been lacking discipline. But for the most part, I see pretty consistent pricing across the RFPs in terms of just where I would expect people to be from a disciplinary standpoint. I don't see anyone that's getting overly aggressive in that regard.

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Nicholas Jarmoszuk, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [10]

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And then back to API2, are you able to share what your net backs are on your API2 tons? Or your export tons?

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Robert D. Moore, Foresight Energy LP - Chairman, CEO & President of Foresight Energy GP LLC [11]

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That's a complex calculation, Nick, because we enjoy some proprietary rebates at certain of the touch points. And I don't want to share what those numbers look like just for competitive purposes, sorry.

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Nicholas Jarmoszuk, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [12]

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Okay, no problem. And then with your 2019 contract book, can you give us a sense for how much of the book is contracted? And then where those contracts are pricing relative to the ones that they're replacing? More just a sense for is 2019 pacing up relative to the contracts that are expiring?

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Robert D. Moore, Foresight Energy LP - Chairman, CEO & President of Foresight Energy GP LLC [13]

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They are pricing up compared to those that are expiring, and as I've said, historically, with respect to the Foresight contract position. I don't want to be any more than probably 75% contracted before -- going into 2019. I think that strategy has worked well for us. We were able to again take advantage of some real nice spot price opportunities in Q3 and Q4 this year as a result of that strategy. And I'm going to continue to be thoughtful about just how we are putting books -- or putting tons in the book. And I'm going to continue to follow that strategy that we've outlined over the last couple of years.

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Operator [14]

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(Operator Instructions) We'll go to Mayur Kenia with Iwd Capital.

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Mayur Kenia, [15]

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First off, I just wanted to tell you a good -- great job on the increased and efficient production, and then also on getting the -- getting to a mutually beneficial resolution to the litigation.

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Robert D. Moore, Foresight Energy LP - Chairman, CEO & President of Foresight Energy GP LLC [16]

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Thank you.

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Mayur Kenia, [17]

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The questions I have, so the first set of questions I have were around the secured leverage ratio and the cash flow sweep given, kind of, what happened with the litigation resolution. So the first question was the $50 million guarantee that you guys have to NRP, does that get included in any way into that secured debt leverage calculation?

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Robert D. Moore, Foresight Energy LP - Chairman, CEO & President of Foresight Energy GP LLC [18]

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No, it does not.

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Mayur Kenia, [19]

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Okay, great. And then the $25 million charge that you guys are going to pay out to NRP, is that included or excluded in the secured leverage cash flow sweep calculation?

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Robert D. Moore, Foresight Energy LP - Chairman, CEO & President of Foresight Energy GP LLC [20]

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A percentage of that, a portion of that is included.

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Mayur Kenia, [21]

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Okay. And then in addition, sort of following onto that, the story of ongoing $11 million minimum payment that you guys have now, does that get included in -- while Hillsboro is still a unrestricted sub?

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Robert D. Moore, Foresight Energy LP - Chairman, CEO & President of Foresight Energy GP LLC [22]

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It would not be included.

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Mayur Kenia, [23]

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Okay, great. And then -- so to kind of move on to the next area. Around Hillsboro, is there any way you can expand on sort of your commentary around like the future operational flexibility around Hillsboro? Whether that be like a -- would you guys pursue like a different mining technique? Or restarting soon? Any kind of extra color that you might be able to share?

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Robert D. Moore, Foresight Energy LP - Chairman, CEO & President of Foresight Energy GP LLC [24]

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With this settlement, it definitely gives us the opportunity to begin to really assess our options as it relates to resuming production at that operation. If you recall, we really haven't had an opportunity to assess what we have in a meaningful way since March of 2015. We're now able to start that process and begin to evaluate our options as it relates to resuming the production there at Deer Run. We're going to be thoughtful about that. It's a complex situation. There's a lot of analysis that has to be done, and we also want to be thoughtful as it relates to markets and being able to capitalize on market opportunities that are there. While we see the market as being strong at this time and in good balance, we also realize that a significant amount of additional volume could be considered something that could move markets in the direction that we don't want to see them go. So we're going to be thoughtful about it. It's a -- it has the potential to be a really good property. I think when the prior operators were running that mine, they demonstrated that it had the capability of producing at a very low cost, one of the lowest cost. It could possibly be the lowest cost asset in our fleet. If we can mine it, and we're going to figure that out. We're coal miners. That's what we do.

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Mayur Kenia, [25]

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Okay, okay, that's helpful. I appreciate that. And then in regard to sort of the ongoing $11 million annual payment. Does that start next quarter, or does that start next year?

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Robert D. Moore, Foresight Energy LP - Chairman, CEO & President of Foresight Energy GP LLC [26]

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It starts in 2019. The first payment would be in April.

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Mayur Kenia, [27]

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Okay, great. And the next, sort of, question has -- which I've been asking in previous calls. Can you guys give us a sense of what the sort of cost per ton in the quarter was for Hillsboro excluding that $25 million charge?

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Robert D. Moore, Foresight Energy LP - Chairman, CEO & President of Foresight Energy GP LLC [28]

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It was about $0.25 a ton.

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Mayur Kenia, [29]

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Okay, great. And then sort of the last question I have is around productivity. So when I looked at the underground mine productivity for both Sugar Camp and Hillsboro, it was -- sorry Sugar Camp and Williamson, they were really low. The productivity was really high and I know you guys mentioned that in Q3 of last year, you only had 1 longwall move. And I -- but when I look at both those mines, they were both really low -- really high productivity. Was there -- was it just the longwall move? Or are you guys starting to do something different to get that improved productivity?

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Robert D. Moore, Foresight Energy LP - Chairman, CEO & President of Foresight Energy GP LLC [30]

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As we do every day, we try to dial things in and be better than we were yesterday. And we continue to do that, and we're going to continue to do that.

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Operator [31]

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And our next question from the line of David Win with Jefferies.

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David Howard Windley, Jefferies LLC, Research Division - Equity Analyst [32]

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I guess my first question was where if anywhere are you seeing the most constraints in terms of getting coal into the export market?

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Robert D. Moore, Foresight Energy LP - Chairman, CEO & President of Foresight Energy GP LLC [33]

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So for us, I really don't see a lot of constraints between here and the port. Vessels have been a little problematic over the last couple of weeks. There were some weather disruption causing some delays in arrival of vessels, but we have cleared that. So really don't see anything as it relates to the Foresight volumes moving to the export. The Canadian national railroad has done a good job for us. We spent a lot of time with our operating personnel. And we have really improved the turn times of those trains, that we have going down to Convent Marine Terminal. I can say that sitting where I also sit on the Murray Energy side, we have seen some struggles with the railroad providers there getting coal to the export terminals.

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David Howard Windley, Jefferies LLC, Research Division - Equity Analyst [34]

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And what about capacity at the actual terminals? Are you -- is it getting tight there, or if you want...

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Robert D. Moore, Foresight Energy LP - Chairman, CEO & President of Foresight Energy GP LLC [35]

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No, just -- I was just down at Convent Marine Terminal 3 weeks ago. And we have no issues whatsoever with capacity through that terminal facility. And that's not an issue for us whatsoever.

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David Howard Windley, Jefferies LLC, Research Division - Equity Analyst [36]

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As thermal and met coal prices continue to go up, what kind of inflationary pressures do you expect to see longer-term, call it the next 6 to 9 months?

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Robert D. Moore, Foresight Energy LP - Chairman, CEO & President of Foresight Energy GP LLC [37]

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Well we have started to see certain of our steel products move up as a result of some of the trade issues and the tariffs, but I don't see any more than a couple of percent. And as I think about, just how our operations look next year, I would expect our overall cost structure to be equal to what we're going to deliver this year and slightly better.

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David Howard Windley, Jefferies LLC, Research Division - Equity Analyst [38]

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Specific to Foresight's coal. When you guys hit the export market. Where is it primarily going? And I -- kind of what I'm trying to get at is, have you seen delays from the Diwali holiday in India?

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Robert D. Moore, Foresight Energy LP - Chairman, CEO & President of Foresight Energy GP LLC [39]

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So our primary market is to European countries. We have not been moving a huge amount of volumes into India over the last month or 2. With our Javelin partnership, I think we've got a pretty good handle on where our markets are, and when they're open, when they're not happen. And we try to plan for those things. So we've not seen any real disruption to our stream. I mean last quarter was a record quarter for us. I mean 2.4 million tons in the export market, that's pretty significant, and we're seeing continued strong performance as I sit here today.

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Operator [40]

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And we go back to the line of Nick Jarmoszuk with Stifel.

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Nicholas Jarmoszuk, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [41]

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First one on API2. I was hoping you can talk about what you're seeing in the international markets and what your outlook for pricing is in 2019?

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Robert D. Moore, Foresight Energy LP - Chairman, CEO & President of Foresight Energy GP LLC [42]

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So when you look at API2, we've obviously seen it fall off $8 to $10 a ton I guess in the last 3, 4 weeks. And we believe that a lot of that is as the result of some put and call options that are out there, and traders trying to triangulate around, kind of, that $90 mark, whether I'm right or wrong about that, who knows. But that's what we believe to be driving some of that activity. We saw price is pretty much flat again today. I think we were up maybe $0.50 on the cal '19 and the prompt was about flat. The Chinese markets and the Indian markets have not been all that strong in the last couple of months. We do expect those groups to be back in to the market in early December. And I think you're going to see prices recover up to the levels that we saw a couple of months ago. And I think when I -- when you ask me about 2019, I think we're going to see levels that push back up to the mid-90s and start to test again that $100 mark.

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Nicholas Jarmoszuk, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [43]

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And then with the move from let's say $100 to $90 for example, what's the leverage that you see in the net back price?

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Robert D. Moore, Foresight Energy LP - Chairman, CEO & President of Foresight Energy GP LLC [44]

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So in terms of what we see, there's typically reduction and -- if I'm answering your question correctly. If I'm not, tell me. But there is typically a reduction in the sulfur discounts that we see that helps us maintain acceptable margin. The freight typically comes off as well when you see that kind of reduction, that's something that would drive it. So we are able to capture some additional margin as a result of that or preserve some margin I should say as a result of that, Nick.

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Nicholas Jarmoszuk, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [45]

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That's exactly what I was thinking, okay. And then last one with the recent move in natural gas. Can you talk about what you're seeing in the dispatch rates for some of your utility customers?

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Robert D. Moore, Foresight Energy LP - Chairman, CEO & President of Foresight Energy GP LLC [46]

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So we've been seeing pretty good dispatch rates even before that big jump that we saw couple of days ago, Nick. But the dispatch has been pretty strong across the utilities that we are serving. And I expect that with the jump that we saw here recently, it's going to continue to be strong. When I take a look at the inventory positions of certain of our utility customers, I'll tell you, we've been scrambling to keep people in coal. And if there is a hard long winter, I'm not sure that our electric utility customers are prepared for that. And with the unreliability of natural gas, this may be a year where we see something significant. Because we've got some folks out there with less than 10 days of coal on the ground, and I'll tell you phones constantly ringing about getting coal over to the plants. It's a serious situation.

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Nicholas Jarmoszuk, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [47]

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And then back to -- with some of the tight inventory commentary coming out of the industry. Are you seeing a willingness with any of your utility customers to enter into longer-term contracts?

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Robert D. Moore, Foresight Energy LP - Chairman, CEO & President of Foresight Energy GP LLC [48]

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We have seen certain of our utility customers start to entertain durations of 2, 3, 4, 5 years.

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Nicholas Jarmoszuk, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [49]

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And relative to your overall production, how much of your book could that actually tie up?

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Robert D. Moore, Foresight Energy LP - Chairman, CEO & President of Foresight Energy GP LLC [50]

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In terms of long-term production?

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Nicholas Jarmoszuk, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [51]

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Yes.

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Robert D. Moore, Foresight Energy LP - Chairman, CEO & President of Foresight Energy GP LLC [52]

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It could tie up a significant percentage, Nick.

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Nicholas Jarmoszuk, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [53]

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Is that something that you guys would be interested in doing, or do you prefer having year-to-year where you can mark the book to where the pricing is on a year-to-year basis?

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Robert D. Moore, Foresight Energy LP - Chairman, CEO & President of Foresight Energy GP LLC [54]

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That depends on price. The price is right then obviously, that's something that we will consider, have considered and executed on. If the price isn't right then that's something that we're not going to do.

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Operator [55]

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And we have a question from Lucas Pipes with B. Riley FBR.

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Lucas Nathaniel Pipes, B. Riley FBR, Inc., Research Division - Senior VP & Equity Analyst [56]

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I wanted to follow up a little bit on Hillsboro and really appreciated your comments there in regards to prior question. I just wanted to follow up a little bit in terms of how long do you plan on assessing the opportunities set there? And from there, can you give us a rough sense in terms of capital intensity of going back into this operation?

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Robert D. Moore, Foresight Energy LP - Chairman, CEO & President of Foresight Energy GP LLC [57]

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So for those that follow us, I think people know we typically don't sit around too long. So we are actively assessing what opportunities we have there, and we'll do that in short order. In terms of the capital, it doesn't take a whole lot to get that operation back up and going. The thing that we lack is the longwall system, and that's something that we've got to figure out. That's the biggest piece of the puzzle in terms of the capital outlay. All the other capital is relatively minor. And that is something that we've got to put a lot of consideration into. That the face of equipment is -- as much as a $125 million, and we've got to look at what we have available within our own inventory of equipment, or what options we might have relative to the manufacturing of new shields.

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Lucas Nathaniel Pipes, B. Riley FBR, Inc., Research Division - Senior VP & Equity Analyst [58]

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Interesting. That's very, very helpful. I appreciate that. Maybe turning to your capital structure, Rob. And everyone, I think you've done a great job in terms of finding the right solution for the balance sheet here over a very difficult period of time into coal markets. But as you look at the balance sheet today, with the term loan, the second liens, you have the common and the subunits. Is there maybe a structure or capital structure that maybe makes more sense, if you could comment on opportunities in the market to maybe reprice some of that, I would appreciate your thoughts?

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Robert D. Moore, Foresight Energy LP - Chairman, CEO & President of Foresight Energy GP LLC [59]

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Sure, we're always looking at how we could improve the capital structure of Foresight. And I think there's definitely an opportunity to at least right now, reprice the term loan, where we're constantly evaluating those types of opportunities. And we're going to continue to do that. But I think that when you look at what we've demonstrated, we're able to do quarter after quarter after quarter. And you compare where our first lien is priced relative to our peers. There's no reason we should be at the level that we're at. We all know why we're at that level given what we went through. But I think that repricing of that is definitely something that we're going to be considering further. I can't figure out why our second liens trade where they trade at 88, 89 it just doesn't make any sense to me, but they trade where they trade. I don't know why again, but we're working on that.

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Lucas Nathaniel Pipes, B. Riley FBR, Inc., Research Division - Senior VP & Equity Analyst [60]

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Rob, I appreciate that commentary. And then last one for me. When I look at your -- and it actually ties in with this comment you just made in terms of your operational consistency. When I look at your updated full year guidance which includes the $25 million impact from the settlement. You raised your full year guidance. If I look at the numbers correctly, so if you could maybe share your thoughts as to what was driving the increase in the underlying businesses? Was it more on the pricing side volume costs? And what is that bridge? And then a quick one for my model, I back into about $88 million of EBITDA for the fourth quarter, is that the right level to look at?

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Robert D. Moore, Foresight Energy LP - Chairman, CEO & President of Foresight Energy GP LLC [61]

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So I'll answer your last question first. That's about the right level to be looking at. And as I said earlier, in terms of what drove the improved performance, sales volumes, sales price and the operating results from the mines are the primary drivers there. And we expect that to continue through this fourth quarter period. Those are really our 3 big drivers. We've been fortunate. Our operations have been running extremely well as I advised that they would over the rest of this calendar year, but it's coal mining. And on any given day, things can change. So we are cautiously optimistic that we'll continue to see the level of performance that we demonstrated we are capable of in the third quarter, and continue that on through the fourth quarter and beyond.

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Operator [62]

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(Operator Instructions) And we'll go to [Stephan Marriane], a private investor.

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Unidentified Participant, [63]

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One quick question regarding your $11 million minimum royalty, that has a clawback, right?

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Robert D. Moore, Foresight Energy LP - Chairman, CEO & President of Foresight Energy GP LLC [64]

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That is a non-recoupable royalty, sir.

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Unidentified Participant, [65]

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That's non-recoupable. But I thought it was -- you could clawback it based on future production. That's what I thought.

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Robert D. Moore, Foresight Energy LP - Chairman, CEO & President of Foresight Energy GP LLC [66]

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No the $11 million is non recoupable.

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Operator [67]

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And I'll now turn the meeting back to Rob Moore for any final remarks.

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Robert D. Moore, Foresight Energy LP - Chairman, CEO & President of Foresight Energy GP LLC [68]

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Thank you, Lori. I appreciate everyone being on the call today and look forward to talking with you when we deliver our full year performance results. Have a good evening.

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Operator [69]

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Ladies and gentlemen, this will conclude our teleconference for today. We thank you for your participation and for using AT&T Executive TeleConference service. You may now disconnect.