CONSOL Energy Announces Results for the Fourth Quarter and Full Year 2021 - CEIX - Transcript Full

Nate Tucker: Thank you. And good morning, everyone. Welcome to CONSOL Energy’s Fourth Quarter and Full Fiscal Year 2021 Earnings Conference Call. Any forward-looking statements or comments we make about future expectations are subject to some risks, certain of which we have outlined in our press release and in our SEC filings and are considered forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934.

 

We do not undertake any obligations of updating any forward-looking statements for future events or otherwise. We will also be discussing certain non-GAAP financial measures, which are defined and reconciled to comparable GAAP financial measures in our press release and furnished to the SEC on Form 8-K, which is also posted on our website.

 

Additionally, we expect to file our 10-K for the year ended December 31^st, 2021 with the SEC this Friday, February 11^th, which will include updates required under applicable SEC rules, including technical report summaries for material, reserves and resources pursuant to Regulation S-K 1300. You can find additional information regarding the company on our website, www.consolenergy.com., which includes a supplemental slide deck that was posted this morning.

 

On the call with me today our Jimmy Brock, our Chief Executive Officer. Mitesh Thakkar, our Chief Financial Officer, Dan Connell, our Senior Vice President of Strategy and Bob Braithwaite, our Vice President of Marketing and Sales.

 

In his prepared remarks, Jimmy will provide a recap of our key achievements during the fourth quarter and full year 2021 and specific insights on operations and sales, Mitesh will then provide an update on our liability management initiatives and financial performance and will introduce our 2022 guidance. In his closing comments, Jimmy will lay out our key priorities for 2022. After the prepared remarks, there will be a Q&A session in which Dan and Bob will also participate.

 

With that, let me turn it over to our CEO, Jimmy Brock.

 

Jimmy Brock: Thank you, Nate. And good morning, everyone. CONSOL Energy achieved a strong financial performance for the fourth quarter and full year of 2021. Despite some operational issues in the late third and early fourth quarters. We've also advanced some of our key strategic growth initiatives during the year.

 

First and foremost, we made significant progress on our Itmann low-vol metallurgical project and it remained on schedule and on budget.

 

Second, our Pennsylvania Mining Complex ended the year on a high note during Q4 of 2021, where we achieved the highest quarterly sales price for our coal since the first quarter of 2018. We also moved past the geological issues that impacted our performance in Q3 of 2021, which extended into October, before returning to a more normalized run rate with our four operating longwalls starting in November.

 

Third, we finished full year 2021, with a cash cost of coal sold at just above $28 per ton, which was impressive considering the inflationary pressures we encountered throughout the year. Finally, we generated $186 million of free cash flow during fiscal year 2021, added almost $100 million of unrestricted cash to our balance sheet and made payments of $101 million toward our outstanding legacy debt, while additionally raising $75 million in tax-exempt bonds to fund future expenditures on our refuse disposal areas at the PAMC.

 

We believe, these strong results will create additional financial flexibility for us as we move forward. I am very excited about 2022, where we expect to see the completion of the Itmann project. There is a tremendous opportunity in front of us to expand our revenues through increased pricing in 2022. And follow that up with even more revenue growth in 2023 as the Itmann mine is expected to have its first full year of production coupled with the potential for incremental volumes out of the PAMC.

 

Let me now discuss our Q4 2021 operational performance in more detail. Coal production at the Pennsylvania Mining Complex came in at 5.6 million tons in Q4 of 2021. October production was affected due to the lingering geological issues Then when we started producing at full run rate pace, the railroads were not able to consistently move the increased volumes due to COVID related unavailability of crews. These delays limited our shipments in the fourth quarter, which weighed on our production output and ultimately prevented us from hitting our 24 million-ton midpoint guidance target for the full year of 2021.

 

Productivity at the PAMC in 2021, measured as tons per employee hour improved by 13% compared to 2020 and the Complex ended the year with production of 23.9 million tons. Given the aforementioned transportation delays, we also ended up with 309,000 tons of coal in inventory or in transit.

 

On the cost front. Our PAMC average cash cost of coal sold per ton was elevated in Q4 of 2021, finishing at $30.81, compared to $27.49 per ton in Q4 of 2020. The increase in our per ton cash cost was the result of limited production as well as increased maintenance, supply, contractor and project expenses associated with the geological issues that we encountered early in the fourth quarter. The ongoing development of the fifth longwall, which is progressing as expected and will enhance our production optionality once completed, also added to our Q4 2021 costs.

 

Despite the higher Q4 costs, the PAMC ended the year with a cash cost of coal sold per ton of $28.25 compared to $29.12 in 2020, largely driven by the significant improvement in our production and increased productivity year-over-year.

 

The CONSOL Marine Terminal had a throughput volume of 3.1 million tons during Q4 of 2021. Terminal revenues for the quarter came in at $15.5 million with CMT operating cash cost of $5.4 million. For 2021, the terminal had very strong operational performance, finishing the year with 13.8 million throughput tons, which was its second highest throughput tonnage on record.

 

Terminal revenue for 2021 came in at $65.2 million with CMT operating cash cost of $21.8 million. This resulted in CMT, adjusting EBITDA of $43.5 million in 2021, and marks the fourth consecutive year of CMT EBITDA above $40 million.

 

On the marketing front. The demand for our product remained strong in the fourth quarter of 2021, due to the continued improvement in electric power and industrial demand domestically and across the globe.

 

During the quarter, we sold 5.6 million tons of coal at an average revenue per ton of $51.27 compared to 5.9 million tons at an average revenue per ton of $39.05 in the year ago period. This brought our total PAMC tons sold in 2021 to 23.7 million, with an average revenue of $45.75 per ton compared to 18.7 million tons sold with an average revenue of $41.31 per ton in 2020. This significant pricing improvement was due to the continued rise in demand for our product and the ongoing coal supply tightness compared to the prior year period.

 

Looking at the broader coal market picture, we expect coal demand to remain robust domestically as well as internationally due to strong forward pricing and tight supply. Our sales team was successful in securing additional sales contracts in 2022 and 2023. In addition, we are very excited to announce that we recently entered into long-term coal supply contracts in the export market, with multiple buyers for approximately 7 million tons of coal to be delivered through 2024. Approximately 73% of this was directly contracted with a large industrial customer.

 

Longer duration contracts are not typical in the export market and this contract highlights the success we've been able to achieve in establishing our high quality product as a desirable and consistent component in export industrial applications. After accounting for these recent deals, our contracted position has grown and we are now near fully contracted for 2022 and have 11.4 million tons contracted in 2023.

 

Our Itmann project continued to progress as expected in Q4 2021, and the relocation of the preparation plant remains on track. Disassembly of the purchased plant is mostly complete, earthwork at the Itmann plant site is also nearing completion and construction of foundations and structural steel are underway. We are still targeting a full production ramp up in the second half of 2022. Additionally, we have succeeded and continuing to build out our workforce in preparation for this ramp up plan, despite ongoing challenges in the labor market.

 

We've also initiated marketing efforts for our Itmann low-vol metallurgical product to both, domestic and international customers, which has been well received. We believe there is a lot of excitement in the marketplace for this product. With high quality low vol-met reserves becoming increasingly scarce in the US.

 

Our Itmann project produced and sold approximately 100,000 tons of low-vol metallurgical coal on a clean coal equivalent basis during 2021 and generated positive operating cash flow aided by the continued strength in the met coal market. This is even more impressive when you consider that this product was being sold raw, which highlights the free cash flow potential of the Itmann mine once our prep plant is fully operational and we are able to reap the full value of our finished product and achieve a unit cost structure consistent with a full run rate operation.

 

With that, I will now turn the call over to Mitesh.

 

Mitesh Thakkar: Thank you, Jimmy. And good morning, everyone. Before I review the fourth quarter results, let me provide a high level comparison of what we discussed at the end of 4Q 2020 regarding our 2021 outlook, and where we ended up.

 

First, we began the year with a target to sell 22 million tons to 24 million tons of coal in 2021. Throughout the year, we took advantage of improving coal markets and battled various operational and logistical challenges, some within and some outside our control to deliver coal sales of 23.7 million tons, which was at the top end of our original guidance range.

 

Second. We not only captured the volume improvement, but we were also able to capture meaningful pricing improvement. We were approximately 18.2 million tons sold with an expected revenue per ton of $41.56 when we reported 4Q 2020 results, but we ended 2021 with a sales price of $45.75 a ton, which allowed us to significantly increase our margins and free cash flow generation.

 

Third. We originally guided to a cash cost of coal sold of $27 to $29 a ton and ended at $28.25 a ton for 2021. Our operations team did a phenomenal job of delivering costs within the guidance range despite unprecedented inflationary pressures, difficulty geology, logistics bottlenecks and multiple COVID variants that resulted in higher absenteeism for our workforce.

 

Forth. On the legacy liabilities front, we now have a fully funded status on our defined benefit pension plan. We also took advantage of the funded status and strong equity markets of 2021 to de-risk our pension plan further and move to a 25/75 equity to fixed income split compared to 40/60 split at the end of 2020.

 

Fifth. All of this helped us generate $186 million of free cash flow, which is significant for a company with current market cap of just over $800 million. This free cash flow allowed us to make significant progress on the financial priorities we laid out at the beginning of the year. Key among these were reducing our leverage to just under 1.5 times at the end of 2021 compared to 2.54 times at the end of 2020, reducing our outstanding debt by an aggregate amount of $101 million, which was partially offset by our $75 million PEDFA bond issuance, improving our available liquidity at the end of 2021 to $381 million compared to $326 million at the end of 2020. And, finally, we were also able to move forward with internally funding some of our strategic growth initiatives, such as our Itmann project, which will allow us to diversify our revenue stream and further accelerate value creation for our shareholders.

 

Before moving to our financial results, let me provide an update on the volatility we have seen in the API 2 market as it relates to our financial hedges for 2022. As a reminder, we hedged 2 million metric tons in API 2 market for calendar year 2022 at a weighted average price of $79.34 per ton. Through the third quarter, we recorded nearly $168 million in unrealized pre-tax losses on commodity derivative instruments as [cal 2022] API 2 forwards were at $157 per metric ton at the end of September 2021. However, [cal 2022] API 2 prices retreated significantly in 4Q 2021. And as such, we reversed approximately $116 million of these unrealized pre-tax losses in the fourth quarter, ending the year and an unrealized loss position of $52 million.

 

We expect that as we go through calendar year 2022, the volatility of these hedges will decline as settlements occur, both on the physical and financial side. As a reminder, we do not have any financial hedges for 2023 volumes.

 

With that, let me now recap our fourth quarter and full year 2021 results before moving on to our 2022 guidance. This morning, we reported a solid fourth quarter 2021 financial performance with a net income of $117.3 million or $3.30 per diluted shares, which included previously mentioned $115.5 million unrealized pre-tax mark-to-market gain related to commodity derivatives.

 

Net income, excluding these unrealized gains and associated income tax effect was $30.7 million and adjusted EBITDA came in at $120.6 million. In 4Q 2021, we generated $52.4 million of cash flow from operations, which included $38.2 million of negative working capital changes largely driven by an increase in our trade and notes receivables balance. Additionally, we spent $29.4 million in capital expenditures in 4Q 2021. This resulted in free cash flow generation of $24.5 million in the fourth quarter.

 

For the full year 2021, we reported a net income of $34.1 million or $73.3 million when excluding the unrealized mark-to-market losses related to commodity derivatives and the associated income tax effect, adjusted EBITDA of $378.2 million and incurred CapEx of $132.8 million.

 

CEIX finished the year with free cash flow of $186.4 million, marking the fourth consecutive year of positive free cash flow generation since becoming an independent public company in November 2017, and a net leverage ratio of just under 1.5 times.

 

Now, let me provide you with our outlook for 2022. For the Pennsylvania Mining Complex, we are expecting our 2022 sales volumes to be slightly improved at the midpoint compared to our 2021 levels. As such, we are providing a 2022 PAMC coal sales volume range of 23 million to 25 million tons. The upper boundary reflects our belief in our operations team's ability to efficiently meet increased spot market demand with our four longwalls as well as our optimism that the transportation delays that plagued the latter part of 2021 will be mitigated by the end of 1Q 2022, as our logistics partners address their crew availability issues.

 

The lower boundary considers the possibility of transportation issues lingering past 1Q 2022, and the potential for other unforeseen supply chain or operational challenges. The good news is that all our minds are currently running well. And we are near fully contracted at the midpoint of our guidance range.

 

On the pricing front, to reflect our robust contracted position and the potential for continued strength in our power price and API 2-linked volumes along with upside sales opportunities, we currently expect our average revenue per ton to be in the $55 to $57 per ton range. Our guidance is also based on [cal 2022] Power Price expectation of $41.33 per megawatt hour at the midpoint and the sensitivity for every dollar per megawatt hour change in PJM West power prices is approximately $0.17 per ton on our entire portfolio at the midpoint.

 

We expect our 2022 PAMC cash cost of coal sold to be $29 to $31 per ton. We are expecting our cash cost to be elevated compared to 2021 to reflect the ongoing development of our fifth longwall through much of 2022 as well as continued inflationary pressures on certain goods and services.

 

While our team has done a good job of managing inflationary pressures in the past, it is becoming more difficult. And just like in many other industries, cost pressures remain elevated for us as well. In our case, the biggest drivers of cost inflation are the material, supplies and power consumption categories. As always, we constantly focus on ways to reduce our costs and improve efficiencies.

 

Additionally, we are providing a CEIX capital expenditure guidance range of $162 million to $195 million. At the midpoint, 65% of this is associated with PAMC maintenance CapEx. 25% related to the to the remaining development of the Itmann project and the remaining piece is associated with various operational and corporate initiatives, which were highlighted in the earnings release in more detail. As discussed earlier, our Itmann preparation plant project is progressing as expected and on budget and we are reaffirming our guidance of second half 2022 startup, as well as all operating assumptions.

 

We also expect to produce between 300,000 and 500,000 tons of coal on a clean coal equivalent basis from the Itmann mine this year, of which the majority will come in the back half of 2020. To put this all into perspective, the trajectory of our business has improved drastically since 2020. And we believe current indicators support its continuance.

 

We had significant volume growth and pricing improvement at the PAMC in 2021 compared to 2020 levels. Based on our 2022 guidance, we expect a substantial increase in PAMC pricing of more than $10 per ton in 2022, at the guidance midpoint versus 2021 actuals.

 

As Jimmy previously mentioned, we also expect our Itmann project to be fully operational in the back half of the year and become a cash flow generator. Additionally, with our remaining open position, continued strength in core markets, potential for additional PAMC volumes and full year of production at Itmann, we could see further EBITDA growth in 2023.

 

With that, let me turn it back to, Jimmy, to touch on our key priorities for 2022.

 

Jimmy Brock: Thank you, Mitesh. First, as we always do, we prioritize safety and compliance across all of our operations. We will remain good stewards of the environment, to the communities where we operate, and most importantly, to our people.

 

Second, we will continue to focus on strengthening our balance sheet and liquidity. Due to our consistent free cash flow generation and expectations for 2022, we are optimistic moving forward that we will continue to de-lever the balance sheet and reduce our absolute debt levels.

 

Third. Due to our strong contracted position in 2022, we have turned our focus towards selling in 2023 and beyond, aiming to improve the duration of revenue visibility and further seize the ongoing strength in the marketplace. We are prepared to run to the market and will focus on the highest arbitrage opportunities, while simultaneously carrying out our longer term strategic shift into the export markets. We will continue to build relationships globally to balance our domestic exposure and allow us to capitalize on growing international demand for our product.

 

Fourth, we are fully committed to getting our Itmann project up and running as quickly as possible. This will be a major focus of our team in early 2022, as this project is the next phase of our growth and diversification strategy. There's a lot of excitement for Itmann product and we are anxious to start placing this high quality low-vol met coal into the market.

 

Fifth, we're also continuing the development work for an additional longwall at the Enlow Fork Mine to provide ourselves with the optionality to flex [up] production to capture future market upside potential and also to offset any unforeseen operational issues across the rest of the mining complex. This should allow us to maintain four longwalls worth of output more consistently, which will support our strategy of running to the market, but also provide upside potential.

 

Finally, we want to be in a strong position to return capital to our shareholders in the most attractive manner. However, we feel strongly that in the short-term, we have more work to do on our debt reduction goals and de-leveraging targets, as well as finishing our capital investment and developing the Itmann project. But with continued coal market strength and free cash flow generation, we expect to achieve those targets in the coming quarters.

 

In summary, I'm very pleased with the accomplishments of our team in 2021. Our employees did a commendable job working through multiple operational and logistical challenges during the year, mitigating risks and seizing on upside opportunities, all while working safely and compliantly during the year that was mired in multiple COVID variants and the associated challenges to community health. We believe, we've positioned ourselves well and are primed to execute our strategy in 2022.

 

Moving forward, we're excited by the outlook of our business and the potential to continue to generate significant free cash flow. This cash flow generation will not only allow us to meet our debt reduction goals, but will also allow us to grow the intrinsic value of our equity. I expect this equity value could go even further when the Itmann project starts generating positive free cash flow later this year.

 

With that I will hand the call back over to Nate.

 

Nate Tucker: Thank you, Jimmy, we will now move to the Q&A session of our call. At this time, I'd like to ask our operator to please provide the instructions to our callers.

 

Q&A

 

Operator: Thank you, we will now begin the question and answer session. Our first question will come from Nathan Martin with The Benchmark Company. Please go ahead.

 

Nate Martin: Hey, good morning, guys. Thanks for taking my questions.

 

Jimmy Brock: Good morning, Nate.

 

Nate Martin: So, maybe I'll start real quick. You mentioned transportation delays during the quarter. And I know you guys aren't the only ones that have experienced those, but how many tons would you estimate slipped maybe here into the first quarter? And would you expect to be able to make up all those service issues to kind of get better maybe towards the end of the first quarter as you alluded to hopefully?

 

Jimmy Brock: Well, first, we have been working with our transportation partners and talked with them. It’s clearly a crews’ availability issue, but it’s hard to put a number on. I mean, we ended the year with 310,000 tons in inventory there, but also we missed some opportunities to produce whereas we could not get the rail service here to move those away. And, Bobby, I don’t know if you have a number of tons?

 

Bob Braithwaite: Yeah. I mean, Nate, a lot of those tons that I will say were in the silos and in transit, we have moved quite a bit of those here in the first quarter or I should say in January. I will tell you it seems as though the railroads are improving, albeit little bit slower than what we would have hoped. But, again, as Jimmy mentioned, we are hopeful by the end of the first quarter that these delays that we have experienced will subside significantly.

 

Nate Martin: Got it. Thanks for that color, guys. You may be looking ahead, essentially, fully contracted for 2022. And maybe you could comment on the split domestic versus exports. And then you nearly doubled your contracted position for 2030 to what 11.4 million tons. Maybe could you give us an idea on the split of those funds as well as well as maybe some commentary on pricing there, that'd be great.

 

Bob Braithwaite: Sure, Nate. So, last year, we – or I should say 2021, we exported just over 11 million tons, which was a record for us. This year, we’ll probably be closer to about 9 million tons of total exports. And that's basically on the back of stronger demand here in the US. And the longer term contracts we were able to secure because of it.

 

I will say that we do have some customers, domestic customers whose lanes are a bit challenged from a logistical perspective. And should that continue? No, we could see additional exports this year as trains that move in and out of our terminal seem to be turning quite well.

 

Looking ahead, as we know the growth is in the export market, particularly into Asia. So, I would expect to see more of our coal continue to flow that direction in the future. But by no means am I suggesting that we're going to abandon our domestic customer base. If the demand is there, we'll work with our operations and our logistic partners to ensure we maximize our productions and sales.

 

As far as 2023 is concerned, as you mentioned, we've nearly doubled our contracted position to 11.4 million tons. Although, we're not providing pricing guidance mainly due to the fact that these markets are extremely volatile and we still have, call it, 50-plus-percent of our volume left to sell next year. What I can tell you is that of the 11.4 million tons, approximately 1.5 million tons are linked to power prices, approximately 4 million tons are contracted into the export market and the balance of approximately 6 million tons are domestic and fixed price.

 

So, that being said, the API 2 markets are slightly backward dated, so I would say it's safe to assume that based on the current futures that are our pricing on those 11.4 million tons are slightly lower than our 2022 midpoint. However, as I just mentioned, we do have over 50% of our coal left to sell and I will tell you that we are in discussions today with additional business with domestic, international customers. So, by our next call, hopefully we'll be layering in additional volumes and be able to provide you a little bit more color around that.

 

Nate Martin: Bob, that’s great. I appreciate the additional info there. And I guess as well you guys talked about the long-term export contract was about 7 million tons through 2024. Curious, I'm guessing a chunk of that was there maybe in 2030, but also curious about how pricing works on that? Is that something you guys have to hedge as well, maybe just your thoughts there?

 

Bob Braithwaite: So, I'll give you some background on that, Nate. As Jim mentioned, we're very excited to put these opportunities to bed. So, therefore approximately 7 million tons that begin in the second quarter of this year and run through 2024, of that 7 million tons, approximately 1 million tons are at a fixed price. And the balance or call it 6 million tons are index-linked to the API 2.

 

I will also tell you that these deals have floor and ceiling prices incorporated into the contracts. And the floor prices are above our full year 2021 average realized price. And the ceiling prices are such that, we still have the ability to capture significant upside, should the markets remain strong or even rally compared to the current forwards. So, again, I like to say that these are monumental deals for CONSOL, which have downside protection, with plenty of upside opportunity.

 

Jimmy Brock: And so, Nate, we don't have any hedges as Mitesh mentioned in his remark in 2023, but this contract here [would have] a floor process as well as the ceiling kind of takes care of the hedge situation for us.

 

Nate Martin: Great. Thank you. Just real quick as well, guys, on the fifth longwall, you mentioned everything's going as planned sort of in the fourth quarter. Given that, should we expect 2023 production maybe to be up versus 2022 production?

 

Jimmy Brock: I think it's fair to state that if we if we do bring the fifth longwall on and the market stays where it currently is today, we do have some upside potential there. It's just a matter of how quick we can get the fourth longwall started. The operations teams know that. They're working very hard to advance those rates, but it's still going to be at the very earliest, it'll be, I would think somewhere late November, early December, before we can start that wall, it’s what our timing currently shows today.

 

But if things continue to improve, we could bring that on a little bit earlier. And, obviously, if we had that fifth longwall up and running and there's opportunities in the market there, we certainly would – we would have the upside potential.

 

Mitesh Thakkar: Nate, I would also say that availability of rails continues to be one of the things that we watch too. So, having the fifth longwall ready along with improved rail delivery system would be helpful.

 

Nate Martin: Got it. Thank you, guys. And maybe finally and Jimmy, I know you touched on this a little bit in your prepared remarks, but maybe just some additional thoughts on usage of cash. Obviously, you guys have done a fantastic job paying down debt, reducing leverage in 2021. Is debt still priority number one? Mitesh, I think you mentioned in the past that you’re trying to get to sub one-time. Once you get there, when do you think you could get there? And how would you rank priorities for free cash flow at that time?

 

Jimmy Brock: Well, paying down debt still is number one for us and protecting the balance sheet. We want to make sure we're in a good position to weather a bad storm if another one comes. And then, obviously, once we get and Mitesh has mentioned it before, we get down to 1-time leverage, I think, it's time for us to start looking at some shareholder [indecipherable] as we mentioned earlier today, but you want to add anything to that?

 

Mitesh Thakkar: I’ll also add that remember, Nate, we are also spending on Itmann project right now and that CapEx is front-end loaded. So I think from a timing perspective, I think you have the leverage ratio targets, but also the spending on Itmann that we are trying to balance here.

 

Jimmy Brock: But if we continue to be in the markets that we're in today, and Bobby and the sales team continues to work, we'd like to get in a place where we actually can do both.

 

Nate Martin: Makes sense, guys, I appreciate all your thoughts. I'll leave it there. Thanks for the time and best of luck in 2022.

 

Jimmy Brock: Thanks, Nate.

 

Mitesh Thakkar: Thanks, Nate.

 

Operator: Our next question will come from Lucas Pipes with B. Riley Securities. Please go ahead.

 

Lucas Pipes: Hey, good morning, everyone. And good job on the quarter and appreciate the outlook. I wanted to ask a quick follow-up question on the 7 million tons. So, is it right to conclude that you wouldn't hedge those volumes further from here that kind of with the structure you have in place the collar you're comfortable as it stands?

 

Mitesh Thakkar: Yeah. I think Lucas, it's a fair assumption. And the way that contract is designed, it removes the need for us hedging. I think, if the core markets continue to stay strong, I think there could be significant upside here. And remember, we also have some fixed price contracts in the domestic market and this one also has a floor that is above our 2021 realized price. So, I think, we are pretty protected in 2023, with that construct, so we don't need to…

 

Lucas Pipes: Very helpful. Who would be the main counterparties on the 7 million tons? Is it mostly directly to end customers or is there portion of this that's going through trader or something similar?

 

Bob Braithwaite: Lucas, it's mainly direct to an end user, a large industrial customer in Asia.

 

Lucas Pipes: What percentage of that?

 

Bob Braithwaite: Roughly 70 – almost a 76% or 74%, something…

 

Jimmy Brock: 73%.

 

Bob Braithwaite: 73%. Sorry about that.

 

Lucas Pipes: Very helpful. And then. So really terrific, terrific deal. Could this be a blueprint for Itmann? So, you're about to complete a project there? Coal markets are red hot, it's there's something of this structure that you could borrow and apply to de-risking the returns on Itmann?

 

Jimmy Brock: Well, we certainly would look at something like that as the opportunity presents itself. But, for Itmann project, it’s such a high quality, we think that we're going to be domestically and internationally, marking that [coal] and probably more than a fixed price basis.

 

Lucas Pipes: Got it. Okay. That's helpful. Thank you. And then turning to the cost side. Good job here in Q4, and in the outlook and I wanted to get a little bit better sense for 2022 versus 2021. Admittedly, I thought there might be further upside risks, given the inflationary pressures we all hear about all the time. Is part of the more muted inflation that the fact that you had these geologic issues in Q3 or how would you, kind of bridge 2021 versus 2022 costs? All right. Thank you for your color on that.

 

Jimmy Brock: Yeah. Lucas, I think it's a combination of both. When I look at 2021 cost, we had some inflationary pressures there, as Mitesh mentioned in his remarks, particularly from some of the consumers and some of the products that we use to actually produce the coal, but we work closely with our suppliers and try to keep a handle on that as best we can. And then, obviously, the geological issues that we had at our Bailey Mine certainly adds that I mean, you add additional [real] support, you add additional labor and you have things to come there and we actually had close to four months of that on and off that we had increased costs there.

 

But looking forward into 2022, we did raise our guidance from $29 to $31 in preparation for some of these inflationary pressures that we see. But one thing I'll tell you, and you've heard me say this before, the Pennsylvania Mining Complex, and all of that every employee in CONSOL Energy is incentivized in some way or another on unit cost. And if you want to judge and how well we've done on that, this year, 2021 marked the third consecutive year that we've had a lower cash cost than the previous year. So, it's something that we work very hard on, on things that we can control.

 

But now when you get out to like steel, all of our ground control support team, we work closely with them. And that was a big inflationary part of our cost this year, just because of where steel prices went. We used those not only for [real] support, we used them for channels, we use them for a lot of other things as well. So those type things are what we'll concentrate heavily on this year as well as rubber and other products to try to stay well within the guides of $29 to $31 a ton on cash cost.

 

Lucas Pipes: Terrific. Well, I very much appreciate all your color and best of luck. Thank you.

 

Jimmy Brock: Thank you, Lucas.

 

Operator: Our next question will come from [Matt Warder with Wolfe Research]. Please go ahead.

 

Matt Warder: Hey, guys, congratulations on a great quarter. I had a couple of questions. Yeah. So the production guidance kind of implies that there's not going to be a huge contribution from that fifth longwall at Enlow Fork. Could you guys update us a little bit on the timeline there?

 

And then, my other question regarding that was, as that as that fifth longwall ramps up, does that potentially allow for some flexibility for some of the some of the other properties to potentially sell into the met market as that ramps up does that give you some, basically some flexibility in terms of sales there. Thanks a lot.

 

Jimmy Brock: Sure, Matt. So, on the timing, as I said earlier, it’s going to be in the fourth quarter and it's just a matter of development for that fifth longwall. So we think the earliest it could be is sometime in mid-November, and it could be as late as December in Q4, just depending on how the development goes for that section. The operations team is aware of it, they're working very hard at it, and things are going well. And I would tell you that we are on pace now.

 

But as far as increased production for the fifth longwall, as Mitesh mentioned earlier, it will depend upon if all the rail and transportation issues are clear and we can now move the coal away, because we do not have ground stores at the Pennsylvania Mining Complex. So, we store all of our clean coal and all of our raw oil coal in silos. So, the rails have to perform to take it away. But there is upside potential there for that fifth longwall as long as we can move the coal away.

 

And then, another added feature as well, is that if we do have issues such as we had in the third and fourth quarter, and we have that fifth longwall set now we certainly can pick up lost ground by running that wall. So, we think the way we're currently running today with four longwalls run, and with the rails performance, we can certainly move the coal away and we can produce and let those operations run at full pace without having to idle any. When you put the fifth longwall in there, it's a little more challenging, because the rails have to perform optimally. And as well as we have to schedule how we run particularly on non-scheduled shifts.

 

Matt Warder: I got you. So it’s there’s more to coordinate than adjusted production there, but also coordinate the logistics there as well. I get it. One other sort of follow-up on that, I guess, if provided that rail would be able to accommodate the additional tons. Just to follow-up on any possibility of I think most views are that met prices are going to hold up a little bit better than thermal over the longer term. And if there's possibility to capture any additional pricing upside on there. And then, the last question I had was for the for the very forward contracts like 2023 and out to 2024, I assume most of these were done here over the last quarter?

 

Bob Braithwaite: Yeah, Matt. This is Bob, I'll take that. As far as the fifth longwall, the great part about that, that longwall, when it returns, it will be in some lower sulfur premium quality coal. So, to answer your question, yes, I think there's an opportunity for us to grow our crossover met business out of the Pennsylvania Mining Complex with that production and will always seek to optimize and sell that coal, we realize the best price back to the mine.

 

And the second part of your question, yes, the majority of that was sold under this long-term export arrangement for 2023 and 2024. However, we did layer in some additional domestic business as well going through 2024. So it was kind of a split, but the majority of it was under this export contract that was completed in January.

 

Matt Warder: Got you. And in the comment I heard before was that, some of that is indexed to API 2 going forward with the floor and ceiling price. Is that how we should think about most of those contracts going forward?

 

Bob Braithwaite: This was somewhat of a unique one. However, I will say that it works for us and in most cases I think it works for the customer. So, we are in discussions on similar type contracts, albeit they're a little different in structure from how we how we price it.

 

Matt Warder: Perfect. I think that that gets me where I need to be. But, guys, great quarter and thanks again for taking my question. Really appreciate it.

 

Bob Braithwaite: Thank you.

 

Jimmy Brock: Thank you.

 

Operator: This concludes the question and answer session. I would like to turn the call back to Nathan Tucker for any closing remarks.

 

Nate Tucker: Thank you, Matt. We appreciate everyone’s time this morning and thank you for your interest and support of CEIX. We hope we addressed your questions today, and we look forward to our next quarterly call. Thank you.

 

Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.

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