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spk01: Good morning. My name is Richard, and I'll be your conference operator today. I would like to welcome everyone to the RIMACO Resources quarterly conference call. At this time, all participants are in a listen-only mode. After the speakers' remarks, there will be a question-and-answer period, and instructions will follow at that time. I will now turn the conference to your host, Jeremy Suffman, Chief Financial Officer. Please go ahead.
spk08: Thank you. On behalf of Gramico Resources, I'd like to welcome all of you to our third quarter 2021 earnings conference call. With me this morning is Randy Atkins, our Chairman and CEO, Chris Blanchard, our Chief Operating Officer, and Jason Fannin, our Chief Commercial Officer. Before we start, I'd like to share our normal cautionary statement. Certain items discussed on today's call constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent Ramico's expectations concerning future events. These statements are subject to risks, uncertainties, and other factors, many of which are outside of Ramico's control, which could cause actual results to differ materially from the results discussed in the forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and except as required by law, Ramico does not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Lastly, I'd encourage everyone on this call to go onto our website, ramicoresources.com, and download today's investor presentation under the events calendar. With that said, let me introduce our Chairman and CEO, Randy Atkins.
spk07: Thank you, Jeremy. As always, we welcome everybody joining us today. The past few weeks have been a very good run for Ramico. We want to discuss today not only our third quarter results, but also some significant post-quarter results and events. When we last spoke after the second quarter, we felt we were on the verge of a very special positive transition in our overall business. Basically, since the end of the second quarter, our stock price has climbed from 550 a share to roughly $17. Our market cap has similarly grown from about $240 million in June to over $700 million today. We take great pride in what we've accomplished, and we've done this in less than five years starting from scratch. As a commentary of where we currently find ourselves, I'm reminded of that line which goes, who says Christmas can't come a little early? We are now three-quarters through having our best year of financial and operational performance since we went public. As impressive as that is, what it fails to convey is the transformational period we now find ourselves in. Over the past few months, and indeed especially over the past few weeks, a combination of factors have come together almost at once to move us forward into a different dimension as a public company. I realize most of the recent news is already in front of you, but many points bear noting again. We will print our strongest year of financial results. I won't handicap our full year 21 projections now, but Q4 will undoubtedly be the highest quarter we have had since we went public. It is an understatement to say that full year 21, we will show a multiple of of our 2020 results of only $19 million of EBITDA. What is more impressive is that I can tell you that 2022 will also show a significant multiple of EBITDA from what we will do in 2021. We feel comfortable that our 2022 announced domestic sales on about only half of our production. will translate into roughly $325 million in sales and about $190 million of EBITDA. Analysts can do their own math on what the other half of our sales will generate, but it clearly positions us into a different and much larger financial category as a public company. We have already disclosed 2022 domestic sales of basically 1.7 million tons, priced at an average of $196 per short-ton FOB mine. Our cash mining costs are today in the first quartile of the industry, and our main Elk Creek complex has produced cash mining costs averaging $63 per ton through September. We expect to show consistent low mine costs carrying into next year. In commenting on 2022, we feel that both the domestic and international markets have continuing underlying strength and some distance left to run. There may be occasional gyrations in price, but there is a fundamental demand for steel and met coal, which does not match available supply. Essentially, the lack of capital availability and overall ESG pressures have created an inelastic dynamic, which will continue to put an artificial damper on any meaningful new long-term supply creation. Looking short-term on the market, we are also one of the few coal groups that has maintained dry powder of unsold production for Q4. We started the quarter with roughly 180,000 tons left to sell and have about 100,000 left. Some tons might slip into 22 because of export logistics. But all of our new Q4 sales will be indexed export sales into a market which is showing current low vol Atlantic benchmark pricing north of $430 per ton. These sales will match against our low cost of production, and Jason Fannin will talk more about our sales in a moment. Speaking of sales, our sales for 22 and the balance of 21 provide the financial foundation for moving us over 200% up from the 1.7 million ton production level we showed at the end of 2020. We will be at least at 3.7 million tons or more by the end of 2023. Ultimately, we hope to turn this to over 5 million tons in the next few years. As part of the planning for execution of that production ramp, Earlier in Q3, we engineered a creative $35 million unsecured baby bond issuance. This provided us liquidity to capture what we hoped might be a strong near-term opportunity to acquire the Aminati assets from our neighbors at Coronado. This transaction, announced last week, had our two companies circling each other, frankly, for years. The industrial logic of using the contiguous idled Amanati prep plant to wash our Berwyn coal has always been compelling. Frankly, you can see the plant from the face of the Berwyn mine. As much as the avoided trucking costs were a draw, we were closer to full production, and until, rather, we were closer to full production at Berwyn, we frankly did not feel we had the liquidity to make the purchase. The baby bond solved the liquidity issue, and then the management at Coronado very professionally negotiated to allow us to move forward to acquire what was for them a non-core asset. The combination of Berwyn and Aminati operating together now creates a very formidable mine complex. It has a base production level of 1.5 million tons a year of low-cost, high-quality low-vol coal, as well as a long-life 100 million ton reserve base. We also believe the combined mine has some further production upside above the 1.5 million ton level. Our basic economics at Berwyn change overnight from the trucking savings alone. Combining that with the ability to double production makes this a highly compelling deal for us, which somewhat now brings me to the where do we go from here moment. First, we start returning capital back to our shareholders. We hope our shareholders have already noticed that this has been a very good year for them already in that we have over a 500% increase in our stock price. But we hope to make things even a bit better in the years ahead. For a long time, we have advertised that we wanted to be a dividend-paying company. However, beginning life is essentially a startup. We needed to reach a point of being comfortable we had achieved a critical mass in terms of both size and liquidity, as well as sustainable free cash flow generation. Basically, we wanted to ensure that once we started paying a dividend, we would continue on that path and indeed grow it over the years. Our board has now approved the payment of the regular dividend, and we will announce details of that before year end and after our next board meeting. Next, we wanted to look forward to make sure we were securely on track to reach our overall production threshold of approximately 5 million tons. Reviewing our portfolio of organic growth projects, we can easily add incremental new tons to get there. First, there is the 500,000 ton expansion of our Elk Creek Prep Plant. Then we add another 500,000 tons from our Jawbone mine near Knox Creek. as well as 250,000 tons from the newly acquired Laurel Fork mine, which came with the Aminati purchase. These projects, along with the 3.7 million tons from our current Elk Creek and Berwyn mines, push us to roughly 5 million tons. If we were able to complete the permitting of the Ram mine in Pennsylvania, that will push us over 5 million tons. As important as the tonnage, we can complete the expenditure to complete all these projects from internally generated free cash. We may look to equipment lines where appropriate, but we are essentially now in the position of being self-financed to achieve all of our overall future production goals. We will always continue to be opportunistic, but we do not feel the need to look at the purchase of the existing operation of other companies to get where we would like to be. So where does that put Gramico? My answer would be to expect we will continue to meaningfully grow and return capital to our shareholders at the same time. As for growth, for 2022, we are already looking at a 10x of our 2020 EBITDA, and that counts only half of our production. We expect to grow using a Fortress balance sheet with little to no debt, little to no ARO or other liabilities, and to end up bluntly with a lot of cash. Ramico becomes a very formidable cash generation machine, which will continue to throw off increasingly larger amounts of free cash flow from adding low-cost production. We hope to continue to be somewhat insulated from market pressures because of that low-cost production, as well as our strong financial condition. We also look forward to hopefully soon sharing with you what we regard as a future transition for Ramico that is both in addition to and beyond its core business as a supplier of metallurgic coal to our steel customers. Many in the financial community have commented that one of the headwinds for coal-related equities, even in the strong market conditions, is the lack of a credible vision for what comes next. We live in a world faced with the declining use of the commodity as a thermal coal feedstock. Looking further in the future, there is concern that perhaps hydrogen might one day supplant met coal as one of the base ingredients in blast furnace steel production. Although with respect to met coal, that expensive possibility may probably be almost two decades away, we are still starting to look ahead. I will leave you that in the months ahead, we will be describing what our version of the concept of the future for Ramico may look like and what comes next. Now, with that, I would like to turn the floor over to the rest of the Ramico team to dive into more detail on finances, operations, and market. So, Jeremy, please run down our financial metrics. Thank you, Randy.
spk08: I'll start by going over our third quarter 2021 financial highlights. This quarter was both our highest overall third quarter of adjusted EBITDA in our history and, indeed, our third highest quarter overall. Earnings per share of 16 cents was up more than 240% from a year ago, while third quarter adjusted EBITDA of $17.8 million was up over $17 million from a year ago. I would note that revenue for this past quarter was negatively impacted by a sales mix, whereby 75% of our coal was previously contracted at lower legacy 2020 domestic price contracts versus only 48% in the first half of 2021. Turning to our forward outlook, for the third time this year, we are increasing our 2021 production and sales guidance. We now anticipate overall 2021 production of 2.2 to 2.4 million tons, up from 2.175 to 2.4 million tons previously, and compared to 1.7 million tons in 2020. We have increased our 2021 sales guidance from 2.2 to 2.4 million tons to now 2.3 to 2.4 million tons. We now anticipate 2021 cash costs of $63 to $65 per ton at our Elk Creek complex, up from $61 to $65 per ton previously, but down from $70 per ton in 2020. The increase is due to higher sales-related costs as spot pricing continues to both move higher and hit new records each month. We now expect total year-end 2021 capital expenditures of $26 to $28 million, up from $23 to $26 million previously, simply due to incorporating our newly planned spend at the Emanati complex. Chris will discuss the Emanati acquisition in more detail. In terms of our booked 2022 sales, we now have roughly 1.7 million tons secured with North American customers at $196 per ton. Our year-to-date 2021 cash costs are $67 per ton overall. If we adjust upward for higher sales-related costs on these booked tons and keep everything else constant, we would be looking at margins of over $115 per ton or over $190 million in adjusted EBITDA. Now, moving to our balance sheet, I am pleased to announce that our principal lender, KeyBank, has increased our revolver from $30 million to $40 million on the back of our anticipated production and earnings growth. We have also extended the maturity date of our revolver to year-end 2024. I am also happy to note that we continue to be the only publicly traded U.S. coal company with virtually no net debt. Furthermore, we ended the quarter with another record liquidity figure of $74 million. These liquidity metrics, of course, do not reflect the payment of the Amanati acquisition, which we expect to close later on this month. Importantly, however, we anticipate that the fourth quarter of 2021 will produce the strongest quarter of EBITDA on record for Ramico. This year, we started with an $89 per ton average price for our domestic contracts. For 2022, we start with half of our production now priced at $196 per ton for our domestic contract. For 2022, we expect to produce more EBITDA, frankly, by a wide margin than Ramico has cumulatively generated since inception. While we will be internally refining our 2022 budget over the next month or so, At this time, we expect 2022 production of approximately 3.1 million tons. This incorporates roughly 200,000 tons of production from the Laurel Fork Mine from our new Aminata reserves. When the additional production from the rest of the acquired Aminata reserves reaches full production capacity of 700,000 tons by year-end 2023, we anticipate that we will be producing at an overall 3.7 million ton per annum run rate. We now have fully permitted growth to hit what we are now calling a medium-term goal of 5 million tons per year of production. We show this progression on slide six and slide seven. We expect the capital expenditures for achieving all new production to be internally financed from free cash flow. With that said, I would now like to turn the call over to our Chief Operating Officer, Chris Blanchard.
spk05: Thanks a lot, Jeremy. As mentioned, we certainly have a lot of exciting activity moving forward. However, before discussing that, I want to highlight some of the operational milestones that have been reached since our last call. First, we completed a very solid quarter at our Elk Creek complex. Despite the welcome increase in our sales-related costs from higher pricing, there has been some less welcome inflationary pressures on our raw material pricing. Nevertheless, cost controls remained firm and overall cash costs for the company remained low at roughly $71 overall, but at 67 for our main Elk Creek complex. Our third quarter performance also saw some impact from an unfortunate surge in COVID-19 cases amongst our workforce and their families. which widely tracked with similar cases throughout Appalachia and the nation. In response to this, we rolled out a vaccine incentive program throughout the entire company for the workforce. I'm happy to report that it was well received. The percentage of our workforce that is fully vaccinated now is well over double where it was prior to the program rollout just two months ago. We hope these steps leave us much better insulated from any possible future surges in the virus. We have also reached a number of operational milestones in the past several months. At Big Creek, our surface mine reached full production levels during September. Our high wall miner on that job was delayed slightly by logistics issues related to COVID-19, but reached full production in October. The mid-volatile quality from this mine has met expectations, and we look forward to shipment on our first sales later this month into the strong pricing environment. At our Berlin mine, slope construction activities increased pace during the third quarter, and we reached the Pocahontas number four seam and that horizon in October. Work continues there on infrastructure-related tasks, but nominal coal production has started and will ramp throughout the fourth quarter as we transition from construction to production. Looking ahead at Berwyn, this first operating section will be developing the main line entries and setting up the start areas for the second and future mining sections. As previously noted, we expect to reach full base level production from the Berwyn mine in the second quarter of 2022 when we transition equipment and crews from our adjacent triad Pocahontas 4 mine as it exhausts its reserves. By year end 22, we will be at full 750,000 annual tons of low vol production from the Berwyn mine. Turning to the future, the Aminata acquisition. When this transaction is closed in a few weeks, we will have acquired advantaged lowball reserves and five primary seams, the existing idle preparation plant, and several active mining permits. We will immediately start on mine development and rehab construction projects to make this acquisition accretive as quickly as possible. The first of the two most critical projects will be the restart of an adjacent underground mine in the low-volatile, mid-volatile Pocahontas III seam, referred to as Laurel Fork. This mine has been on care and maintenance while controlled by Coronado and can be brought into production quickly, within, we hope, six months. Our second priority project, while underground teams are working at the mine, is simultaneously to refurbish and modernize the existing Amanata preparation plant. Our current plans are to bring the plant into production at less than full capacity as quickly as possible with 50% utilization expected by early summer. This will allow us to begin use of the plant to capture our avoided trucking cash cost savings earlier. We expect the full refurbishment of the preparation plant to continue throughout 2022, reaching full nameplate processing by the end of the year. This will coincide with the full ramp up of the Berwyn complex beginning. We expect to continue some work at the plant into 2023 with a rail and loadout upgrade to be more efficient loading trains for our customers. Additional operational and cost synergies will be realized as additional mining units are deployed in our Berwyn mine to mine the adjacent Amanada reserves. These reserves were all but stranded without access as they are located well below drainage and miles from any processing facilities. However, we are able to access them underground by simply mining across the property line from our existing Berwyn P4 mine. We expect this additional production to start coming online when the plant reaches full production, with expected upper productivity levels of up to 1.4 to 1.5 million tons per annum of high-quality, low-volatile coal. Also, while not part of our current planning, we believe there are multiple other opportunities in other reserves and seams acquired with Amanata to further extend our Big Creek operation and provide additional production to our Knox Creek preparation plan. That largely hits the high points of what we've been doing in the field the past quarter and what we plan to accomplish in 22. It's been a productive year thus far, and it seems we will only step on the gas as the year changes. With that, I'd like to yield the floor to our Chief Commercial Officer, Jason Fannin, to give some color on the market supporting our growth plans.
spk06: Thanks, Chris, and good morning, everyone. In my remarks, I will share an overview of what we are seeing in the market and our current and forward sales outlook. We see the current supply-demand imbalance remaining well into 2022 and likely beyond. There remains a severe global shortage of hard coking coal relative to the amount required to make coke to support pig iron production going forward. The market is very exposed to any sort of supply disruption or demand increase. On the supply side, year-to-date 2021 U.S. met coal production is down 15% from 2019 levels, according to IHS, suggesting much of the production that was idle due to COVID-19 demand destruction never returned, despite current record prices. On the demand side, with steel pricing and production remaining strong, we believe the coking coal supply deficit and historically strong price momentum will last longer than past market upswings. providing strong tailwinds for Ramico. Turning to our sales book, during the third quarter, we continued to fulfill domestic commitments booked during the low point of the market during August last year, with our sales mix split around 75% domestic and 25% seaborne. However, we were also able to add three new customers to our customer base during the quarter. Looking ahead to the fourth quarter, With the addition of volumes from our Berwyn low-vol mine and Big Creek mid-vol mine, which will largely move seaborne, our domestic seaborne split will move closer to 60% seaborne. Anecdotally, we have been getting way more inbound calls from customers asking for spot trains than we have availability for, thus allowing us to be very selective in pushing for pricing above prevailing indices. Moving on to 2022, we have recently concluded our most successful domestic cooking coal sales efforts since inception, having placed 1.67 million tons into the North American market for 2022 at an average price of about $196 per net ton at the mine. Based on our projected 2022 production of roughly 3.1 million tons, this leaves roughly 1.5 million tons remaining to be sold next year. Thus, we expect our 2022 sales mix closer to 50-50 domestic versus export. In terms of 2022 exports, we are similarly seeing more demand for our coal than what we will have available supply for, at least for the early part of the year. As a result, Q1 prices being discussed are in excess of our 2022 book domestic pricing. With that said, I would now like to return the call to the operator for the Q&A portion of the call. Operator.
spk01: Thank you. At this time, to ask a question, you will need to press bar one on your telephone. If you would wish to withdraw your question, just press the pound key. Please stand by while we compile the Q&A roster. Our first question is from the line of Lucas Pives from B Reilly Securities. Please ask your question.
spk02: Good morning, everyone, and congratulations on the terrific job across multiple fronts. My first question is in regards to Amanati. It sounds like there's some really terrific synergistic opportunities with this acquisition. I wondered, is there a way to put a value on that? How would you frame up the savings between you know, crossing the boundary line, you know, unlocking the additional reserves, et cetera. I would really appreciate that perspective.
spk08: Well, Lucas, I mean, I think first and foremost, obviously, we've been developing our Berwyn mine since 2017. So, obviously, we're, you know, basically at the, you know, at the advantage of Pocahontas, you know, number four team now, which we hit a few weeks ago. You know, so we're trucking that coal right now to our Knox Creek prep plant. You know, let's call it, on a clean-ton basis, kind of low double digits per ton. You know, when we hit full Berwyn capacity, you know, that's 750,000 tons a year. So, you know, just on the trucking savings alone, you know, I think when we say millions of dollars, it's significant. You know, the second thing to note that is, you know, the aminotic hole is owned in fee. So, you know, effectively, you know, there's no royalties, no meaningful royalties that need to get paid, you know, on the mining of those tons. So clearly, you know, take your upper single-digit royalty rate and put it on spot pricing today and you come up with a pretty big cost savings on top of that. So, you know, when we say on our slide deck that, you know, we think this is a one and a half year, you know, payback or less, you know, we're incredibly excited about this opportunity and certainly thank the Coronado team for their hard work on this transaction as well.
spk07: Yeah, and I would just echo what Jeremy said, but to add to that, obviously, we're picking up 700,000 tons of additional production. It's low-cost production. It's going to be very accretive to us. It ties in operationally with what we've already got started at Berwyn. So in most cases, we'll be mining, frankly, just through our own existing Berwyn mines to get to some of the seams that we're calling in the Aminati area. So there's just a host of synergies across the board, Lucas. So it's a very meaningful acquisition.
spk02: Terrific. No, really, really helpful. And congrats on, on, on seeing that value and being able to transact on it. Um, uh, but my second question, uh, Randy, in, in your prepared remarks, you mentioned on kind of what, what might come next and, and, and kind of preparing the company, uh, for, for, for, for the future longer term. Uh, it sounds like we, we, we should stay tuned. Um, for more details, but I wondered if you could share just a little bit more color, uh, specifically around, um, the potential capital intensity. Are we talking tens of millions of dollars on an annual basis, more or less than that? Um, and, and, and any additional color with what, uh, what, what direction you may take on that would very much appreciate.
spk07: We don't want to sort of open the kimono too soon. Um, but it will be something that, uh, I think will be a very logical transition for us, and it will not be capital intensive from the standpoint of what we're talking about at the moment.
spk02: Okay. Okay, that's helpful. And then my last question, I'll turn it over. Randy, you touched on kind of walking and chewing gum at the same time in terms of pursuing growth and also capital returns. And I wondered if you are able to shed a little bit more light on what you envision from a capital return perspective, kind of beyond what's been announced so far and how you think about that over the course of what will be a very strong 2022.
spk07: Sure, Lucas. And I'm sure as you can appreciate, as I've said in the remarks, we have a board meeting in early December. The way it was teed up is that the board recommended we go ahead and proceed with the dividend and beginning in the first quarter of next year. They wanted to sort of see how we finished up the year, which I think by December we'll have a pretty good sense of. And so I don't want to handicap what the board's decision will be, but as I said, we hope to start with a highly competitive dividend in our space and continue to grow it over the years.
spk02: Okay. Thank you very much, Randy, Jeremy, and team, and continue best of luck. Great job.
spk07: Thank you.
spk01: Our next question is from the line of David Gigliano of BMO Capital Markets. Your line is open.
spk04: Hi, and congratulations as well on a very impressive operational turnaround over the last few years. Just in terms of the capital spending plans for 2022, can you give us – and actually into 2023, what are the overall expectations for CapEx given everything going on at the company?
spk08: So, David, it's Jeremy here, and thanks again. So, you know, from a maintenance perspective, you know, that's unchanged at let's call it $6 to $7, you know, $6 to $7 a ton. You know, in the – you know, maybe talking about it in context of the overall Aminata acquisition. You know, we've earmarked about, you know, call it $22, $23 million worth of capital. The majority of that is going to be in 2022. So, you know, I think, you know, call it $15, $15, $17 million, somewhere in that, you know, somewhere in that range. You know, and then, you know, obviously we – you know, we're going through the budgeting process as we speak right now. You know, clearly, you know, kind of Randy went through the slate of kind of potential growth, which, you know, again, we kind of lay out for you guys on slide six and seven. So, you know, I would say that the kind of last component of that mix is kind of dependent on the budgeting process, which we're going through as we speak.
spk04: Okay. All right. That's helpful. And then just On the cash cost commentary, obviously the contracts in North America are already done, fabulous price, implied cash cost of $82 a ton for that piece of the pie, if we can sort of slice it up that way. So implicitly, $1.67 million tons at $82. Can you talk about the costs of the remaining $1.5 million tons? and, and, or in association with that, is there, you know, additional costs that we should be thinking about, you know, on top of the $82 number. Now I think that $82 number was basically, um, you know, price driven or the inflationary costs that we should be adding as well. Thanks.
spk07: Yeah. David, I'll, I'll tee it up and then let Chris chime in. So I think you're a little heavy on the $82. Uh, you know, we're at $63 right now at Elk Creek. I don't see us jumping 20 bucks. Um, But as far as 22 is concerned, you know, there is going to be some pressure. Obviously, we've got sales-related costs increased. We'll probably have modest increase in terms of inflationary costs for parts and equipment. There may even be labor cost increases in there. But I don't think we're going to be near the number that you've cited. Chris, you want to chime in here on a more granular basis?
spk05: Yeah, I mean, whatever number you choose to use for your model for those costs on the first 1.6, 1.7 million, frankly, the cost basis for the additional production will be largely the same as that, just however you would factor sales-related costs, whether you're currently higher, the spot prices are currently higher than what we booked. So depending on how you want to model that, but the base cost of producing the coal, and that's the additional one and a half million tons, will be the same. And then, you know, I'm not sure that we have put a lot of color on it, but at full production, we expect the mining cost at Berwyn to basically be in line with our Elk Creek cost. Within a few dollars of the Elk Creek cost, productivities will be a little bit lower due to the low vol seam and some of the geology there. But as we get into the full production there, we expect, uh, we expect that to be much less of a drag on our overall cash costs as it has been historically.
spk04: Okay. Just to come back to that $82 number I referenced, it was just, uh, cause I glanced over it and I think perhaps what we're doing is adding, including SG&A in there, but, uh, It's basically $196 realized price, and then the expected EBITDA coming from the overall 1.67 million tons. So if you back into it, you back into an $82 implied cost. That's what I was referencing. It's just the math on the numbers that were provided. So I guess the question is, you know, does that implied $82 number include SG&A and how much?
spk08: Yeah, I mean, so basically, David, we're taking the, you know, so I think, you know, Randy was talking about Elk Creek mostly. So when we look at the 1.67 million tons, that does include some portion of SG&A. of low vol. So yeah, I would get basically to just above $80 on an all-in basis, certainly below 80 from Elk Creek cash cost. So yeah, it does not include SG&A, but there's a little bit of a mix in that to think about.
spk04: Okay, understood. So overall for the company, cash cost, $82 is a reasonable number for next year. for the times that have been committed. That's the assumption that's embedded in the numbers provided. Is that correct overall for the company?
spk08: Yes, that also includes low vol. And remember, you're not going to have the trucking savings from the Berwyn mine until the plant is up and running, which we've earmarked sometime in Q2. So the first portion of the year, you will see higher costs than the back half of the year because, again, the back half of the year, of course, will – We'll include the trucking savings.
spk04: Okay, that's helpful. Thank you. And then just to switch back to the capital allocation question from Lucas earlier, obviously even with all the numbers that we just talked about, quite a bit of free cash flow, as Lucas referred to. So does the capital allocation plan beyond the regular dividend include special dividends? And how would you think about that relative to buybacks, if that's something that's on the cards as well, given the ownership structure?
spk07: Yeah, I think, David, you know, of course, all cards are on the table. But I think the reality check here is we're going to walk before we run. And, you know, we just talked about creating a regular dividend. dividend, we will certainly decide what we want to do in terms of capital allocation once we get beyond our first steps and take a look, of course, at whatever other capital requirements we might need for purposes of build-out of the remaining production slate, et cetera. But I'm not going to game ahead what our plans are for dividends beyond payment of a regular dividend at this point.
spk04: Okay, and then just the last question for me, sorry, on the capital allocation piece. You mentioned, obviously, the vision of the future, and then you mentioned logical and not capital-intensive. Does it include M&A activity acquisitions?
spk07: No, it does not. No, it does not. So when we get to that point, which I hope to be able to talk about hopefully before the end of the year, we'll sketch that out in enough detail so that you'll understand what we're talking about.
spk04: Okay, sounds good. Thanks very much.
spk07: Thanks, Dave.
spk01: Our next question is from the line of Nathan Martin from the Benchmark. Please ask your question.
spk03: Hey, good morning, guys. And I'd also like to echo my congratulations on the acquisition as well as the successful 22 domestic contract. Great. Thanks, Nate. I think most of my questions have been addressed today. but maybe drilling down on costs a little bit more. Can you guys quantify any of those inflationary pressures you're seeing? Obviously, labor seems to be pretty tight too. Do you foresee any issues hiring for your plans for the M&A assets? And then maybe if you could give us an idea of kind of what portion of your costs are sales price sensitive or transportation related. Thanks.
spk08: So, Nate, I'll just start. So in terms of the costs that we've discussed over the last 10 minutes or so, Just to be clear, all we're doing is taking our year-to-date cash costs company-wide, adding sort of the sales-related component increase. So that's everything from royalties to severance taxes. So let's call that about 13%, 14%. And that's how we get to the number where we back into kind of the 190 of EBITDA. So we're not making any assumptions in terms of you know, other cost increases, decreases. As we said in our prepared remarks, the other portion is sort of keeping costs constant from the year to date. But I'll let Chris talk about kind of the hiring or inflationary pressures or anything of that nature.
spk05: So, I mean, obviously, we're enjoying MET prices where they are, and that translates into the steel prices where they are. And so we've already seen increases and steel surcharges on a lot of our raw materials that have carried through already in the costs this year. So while we don't necessarily expect those to drop off, I'm not sure we expect them to go too much higher either. And then the other pressure is just on the labor side, and labor is tight throughout all the areas that we work. We are maintaining our workforce. I think we have a compelling wage and benefit package that we've we're enhancing as we roll into 22. And if we need to make changes there to remain the employer of choice, we'll do that, of course. But right now, don't see any issues with staffing our growth plans. And the way that it rolls in next year with the build out at Aminata, it's not a, it is a meaningful growth year over year, but it doesn't happen immediately January 1 of 2022, if that somewhat answers your question.
spk03: Yeah, that's very helpful, guys. Appreciate that color. Maybe back to transportation just for a second. How has service been there? I think, Randy, you mentioned in a pair of remarks that some transportation delays might have affected things or could affect things here in the fourth quarter. Any more color there? Maybe what kind of pricing are you guys seeing from the rails at this point? Thanks.
spk07: I'm going to let Jason pick that up on transportation.
spk06: Yeah, hi, Nate. Yeah, as Randy did mention in his prepared remarks, some of our Q4 open times could potentially slip into 22, even though they'll likely be earmarked for sales this quarter, just based on some of the slowdown we've seen on the logistics side. As your question on rates, you know, they're – Our seaborne rates are largely driven by indices, so certainly they've moved up as the seaborne pricing has moved up as well, but not unexpectedly.
spk03: And are those rates still kind of on a quarter lag almost for the rails?
spk06: We have a mixed basket of rates. Some are and some are more month lags.
spk03: Got it, Jason. Thanks for that. And then maybe just finally, you guys, I think, mentioned updating the loadout at Amenadie. Which rail would those tons be shipping on?
spk05: That's currently a Norfolk Southern loadout, and it would remain there. Just go from a single-car type situation to more of a batchway loadout.
spk03: Got it. Thanks for that, Chris. Yeah, I appreciate your thoughts, guys, and I'll leave it there. Thanks again for your time. Best of luck in the fourth quarter.
spk07: Thanks, Dave.
spk01: Our next question is from the line of Tom Bishop from Biotech Research. Your line is open.
spk09: Good morning, and congratulations on your good fortune here going forward.
spk07: Great. Thank you, Tom. We like your stuff. Yeah.
spk09: um notwithstanding the very bright future we had a pretty big miss in q3 um where as far as analysts are concerned at the 16 cents versus the consensus of 33 cents and but looking ahead analysts are out there at 52 cents for q4 which makes me a little nervous giving the 16 cents in q3 And at 390 for 2022, which includes 97 cents in Q1, which makes me a little nervous. And I was just wondering what would you say they should keep in mind in their estimates that they might not be?
spk08: Thanks, Tom. So, yeah, I mean, not commenting on estimates specifically, but I think One thing in Q3 that we tried to highlight in this release was 75% of our coal went domestic this quarter. And yeah, at basically $80 a ton. Remember, this is coal that we contracted, you know, the worst part of COVID, you know, in summer of 2020. In the fourth quarter, we will have a higher export percentage than we had in the third quarter. I would put it sort of somewhere between first half of the year and third quarter, so let's call it about 60% domestic, about 40% export, somewhere in that range. So that means about 60% of our coal, again, will be on these low-priced legacy contracts, which is better than 75%, which was the case in March. the third quarter. Now, as it relates to next year, those $80... And 40% is indexed? I'm sorry? And the other 40% that's exported, that's indexed? Either indexed or indexed linked, yeah. That's correct. So that's more based on where the pricing is today. The 60% that goes domestic is based on pricing that was signed well over a year ago. And so as it relates to next year... you know, that $80, you know, contract gets replaced by $196 a ton contract. And that's a clean slate. You know, basically when the calendar turns over, those legacy contracts go from $80 to $196. So, you know, all I can say is, you know, that the fact that we've, you know, booked what we believe is about $190 million of EBITDA on, you know, basically just half of our tons next year, you know, we're incredibly excited about that. If Spot holds where it's at. Clearly, spot pricing is actually well above where that $196 level is contracted. We'll let you all make your own assumptions on kind of where pricing goes on the unpriced portion for next year. But needless to say, we're excited to get the heaviest quarter of these domestic contracts behind us.
spk09: Yeah, me too. I just wanted to ask about the tax situation. The amount of income tax in the current quarter was $1.6 million, and there was basically nothing in the first half. I believe you said it was going to go back to minimal going forward. One, is that true? Two, is the One point, what happened with this unusual 1.6 million then in Q3?
spk08: I'll take that as well. So just, you know, when we give our effective tax rate guidance, you know, remember this is all non-cash. So, I mean, we're paying virtually no cash taxes in 2000. We're guiding to virtually no cash taxes being paid in 2021. You know, I think it was sort of a confluence of factors. I'd say the first half of the year was unusually low. It came in around, I think, 9% or so, excluding discrete items. And we've always been guiding to, you know, tax rates in the kind of low to mid double digits. So inherently Q3, Q4 was going to be higher. And, you know, Q3 I think was unusually high in part based on sort of how we forecast our, you know, our taxes quarterly. The reality is we had a good problem, which is spot prices continued to go up. You know, our forecasts went up, and therefore our expected tax rates sort of had to get trued up a little bit in Q3. So, you know, again, though, this is all non-cash, which is, I think, the biggest thing I'd just like to emphasize.
spk09: Okay. But, you know, as far as models or in 2010, Well, Q4 and 2022, kind of what should we be thinking?
spk08: So with 2022, I'd say we'll, you know, we're going through the budgeting process right now. So we'll, you know, when we kind of give 2022 cost guidance, et cetera, that's when we'll come out with a tax rate. For the fourth quarter, I'd say it'd be closer to the third. The guidance of 10% to 15%, you know, implies sort of, you know, closer to, you know, somewhere in between, lower than the third quarter, higher than the first half of the year. So somewhere in between that 9 to kind of 20% range.
spk09: Okay. And you have mentioned several times sales-related cost increases, and then you said something about royalties and another thing that I didn't catch. And I was just wondering if you could just tell us how that works and the percentages roughly. Okay.
spk08: Yeah, I mean, without getting too specific, you know, basically within the sales-related cost component, probably a little over half is just direct royalties. The majority of the rest is things like severance taxes, and then there's kind of a small other bucket. I mean, I think that's about as good a breakdown as we'll give.
spk09: Okay, that's what I thought you said, severance taxes. That's a new one for me, sorry.
spk08: Yeah, I mean, it's basically just taxes on mining the coal that ultimately goes to the state.
spk09: All right. Okay. Well, thank you. Thank you.
spk01: We have another question from David Gigliano of BMO Capital Markets. Please ask your question.
spk04: Hi, just a really quick clarification on the fourth quarter. I think you said, Jeremy, can you just go through the volumes again that are actual tons that are open for pricing at this point and the mix between domestic and export?
spk08: Yeah, so I think, David, we're looking at about 60%, call it domestic, 40% export, give or take. And that will get you about the 1.4 million tons for the full year of fixed-price business that, of course, we have at $89 a ton. As Jason mentioned, you know, we do have about 100,000 tons open. We've got, you know, another sort of 100,000 tons that are committed, but committed at index or, again, index-linked. You know, the hope is, of course, all the trains show up on time and we're able to get everything out by December 31st. You know, the reality is, I mean, it doesn't matter what industry you're in. You know, labor's tight. Supply chains are tight. So, you know, of that, you know, 100,000 tons that are open, I certainly wouldn't be surprised if some of that flipped into 22.
spk04: Okay. And so somewhere between 100 and 200,000, that's kind of open to pricing.
spk08: No, but it's open on pricing, yeah.
spk04: Open on pricing, sorry. Depending on when it ships, right? And then 40% of that is export and 60% of that is domestic. Is that what you were saying?
spk08: No, so almost all of that is going to be export. So if you take our overall Q4 number, you know, Whatever number you back into, I think we kind of give the full year guidance so you can back into the Q4 number. That total number, what we're saying is about 60% of that will be domestic. About 40% of that will be export.
spk04: Okay, and then just the last question for me. Given prices are all over the place, as you know, given all the different mixes, all different ultimate destinations, can you give us some color on just like a reasonable – I asked this question on other calls too. So it's just a consistent question, a reasonable realized price for the fourth quarter, given everything that we've talked about, um, with the open times.
spk08: I mean, I, you know, again, I think at least with the 60%, you basically know what that, what that number is. Um, the open tons, um, you know, I, I'd say what's, what's committed and indexed is, uh, is more on the high ball side, David. Um, What's open, so that 100,000 tons that's left to be sold, the majority of that is kind of low vol and mid vol, which I think is what you would expect given, you know, that's coming from, of course, our minds that are ramping up. Hence, you know, we're one of the probably only players that actually has open tons for Q4. Okay.
spk07: Bottom line, David, is that open tons are all going to be indexed. We're looking at low vol numbers of over $400, obviously, at the moment.
spk04: Right, just to kind of manage expectations appropriately. You know, when we see those $400 per ton numbers, should we be lagging our assumptions? Should we be applying discounts? And if so, what kind of discounts?
spk07: That's really where I'm going with this. I just want to make sure everyone's kind of – I think we're going to turn the table on you here, Jason. Tell them about our non-discounts.
spk06: Yeah, yeah, no discounts. I mean, again, just getting back to the – just the global – imbalance on supply, and then looking, I think when you drill down into the U.S. supply into the seaborne market in Q4, I think Ramico is one of the few companies that has available volume still to place in Q4. We're not entertaining any talk of discounts. And essentially pricing at index basis is right around the time of shipment or just before some sort of period average. So we're effectively capturing all or more than all of the current numbers.
spk04: Okay, that's helpful. Thanks very much.
spk01: This concludes our question and answer session. I would like to turn the conference over back to Mr. Randy Atkins, Chairman and CEO.
spk07: Great. Again, thanks, everybody, for being on the call. We will look forward to our next one, which I guess will be next year, but we also look forward to a very strong fourth quarter. Again, thanks very much.
spk01: That concludes today's call. Thank you for participating. You may now disconnect.
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