Alpha Metallurgical Resources, Inc.

Good day and welcome to the Contrera Energy Second Quarter 2020 Earnings Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one or a touch transform. To reply your question, please press star then two. Please note, this event is being recorded. I would like to turn the conference over to Emily O'Queen, Vice President, Incorporated Communications. Please go ahead.

Thank you, Francesca, and good morning, everyone. Before we get started, let me remind you that during our prepared remarks and the Q&A period, our comments related to expected business and financial performance contain forward-looking statements, and actual results may differ materially from those discussed. For more information regarding forward-looking statements and some of the factors that can affect them, please refer to the company's second quarter 2020 earnings release and the associated SEC filings. Please also see those documents for information about our use of non-GAAP measures and their reconciliation to GAAP measures. Participating on the call today are Contreras Chairman and Chief Executive Officer, David Stetson, and Chief Financial Officer, Andy Edson. Also participating on the call is Jason Whitehead, our Chief Operating Officer, who is available to answer questions on operations. With that, I'll turn the call over to David.

Thank you, Emily. Good morning to everyone and thank you for joining us today. Before I get into the details of our second quarter results, I want to acknowledge the unprecedented circumstances all of us have been experiencing for the last few months, which have made for a strange and difficult quarter for businesses across the world. Unprecedented is a word that has been overused to describe this pandemic, but it's an accurate descriptor. We've all been forced to continuously adapt to a rapidly shifting environment that none of us have ever seen before. As a company, we've done well in implementing additional precautions and protocols in response to ever-changing guidelines, and I'm proud of how the Contura team continues to meet and, in most cases, exceed expectations even in such adverse circumstances. This resilience among our workforce is one of the many reasons why I'm so optimistic about Contour's future, even in the midst of challenging conditions we're facing. Not only have we kept up our strong cost performance, but we accomplished this while maintaining consistently high standards in the areas of safety and environmental performance. Across the organization, our second quarter safety performance in the metrics of NFDL and VPID were both favorable to the national average, and we continue to perform favorably in these year-to-date basis. In environmental stewardship, our second quarter water quality compliance rate remained at 99.9%, and we achieved a 62% reduction in violations compared to the three-year average. These are not just numbers to us. They are a meaningful measure of success that we take very seriously on a daily basis, and they're even harder to achieve during challenging periods of external pressure and uncertainty like we've experienced this quarter. I commend our people across the organization for their good work. As usual, after my prepared remarks, Andy will discuss our second quarter results, which include adjusted EBITDA of $17 million and an increase of cash balance quarter over quarter from a macro perspective. I think it's important to understand our results alongside the dramatic swings experienced this quarter, which, in my view, make our accomplishments even more impressive. April began with the widespread idling of our mining properties, with many operations being idled for as long as four weeks. This allowed us to normalize our inventory levels, provided us some time to analyze the various impacts of the pandemic on our business. We continued to fulfill our customer contracts during this time, and by the first week of May, all of Contura Properties were back online at nearly normal staffing levels and operating capacities. Before the close of the quarter in June, we announced some strategic decisions to strengthen our company's financial performance. To briefly touch on those announcements and the thinking behind them was our goal of not only to bolster our immediate financial capabilities in these uncertain times, but also to create a direct pathway to becoming a more streamlined and efficient pure-play metallurgical coal company. We announced a new, shorter timeline with regard to our coal supply agreements at the Cumberland Mine in Pennsylvania and our decision not to invest in the new impoundment project there. We'll continue to actively market the mine for sale between now and the end of 2022 when our customer contracts expire. We believe this direction with Cumberland makes the most sense for Contura, both from a short-term cost perspective and a longer-term strategic standpoint. We've already begun reaping the benefits of our decision at Cumberland. Within the past week, we have received over $30 million in surety bond reductions due to our decision not to construct a new impoundment. In June, we also announced a 60-day warrant notice and the decision to idle our Kelty Mine and the Del Barton Prep Plant in West Virginia due to uneconomic pricing and cost structures. Our current plan reflects cessation of active mining operations within the next six weeks. While those are examples of mines that are being de-emphasized or removed from our portfolio, you've heard me discuss some exciting development projects that are underway over the last couple of years that are designed to augment our business in the long run. We expect these operations to help us replace some properties that are nearing the end of their mine life or are no longer cost-effective in the near term. And I'll quickly give you an update on where we stand on Road Fork 52, Black Eagle, and Lynn Branch projects. We're pleased to report that Road Fork 52 is now a multi-section production, with the second section having come online in June and the ability to add a third section in early 2021. Black Eagle is also working toward a multi-section capability with roughly three-quarters of the belt corridor to the main reserve body now complete and the airway development currently underway. We expect to be in a multi-section production from the main reserve body at Black Eagle beginning next year. Lastly, after completing initial cuts underground at Lynn Branch, we are installing a surface infrastructure and expect to resume production sometime in the fourth quarter of this year. These projects demonstrate our commitment to building a leaner, more sustainable portfolio of lower-cost, higher-quality mines to help us strengthen our cost structure and increase our sales capabilities over time. And we continue to make meaningful progress on all of them in the second quarter. Additionally, in June, we completed the acquisition of a feats loadout in Logan County, West Virginia. With service on the CSX Railroad, this property brings additional optionality to our existing transportation network, bolstering our ability to leverage low-vol metallurgical coal sales opportunities through our port facility known as the DTA. We recognize that the world is transitioning toward an economy that relies less on fossil fuels for power generation, and we, therefore, have accelerated our strategic exit from the thermal coal mining industry. To put a finer point on our strategic direction for the next couple years, I expect our portfolio optimization initiatives, some of which I've touched on in my remarks about Kelty and Cumberland, will make us the leading pure-play met coal company by the end of 2022. Once these initiatives are completed, I expect Contour's very cost-competitive met production profile to allow for shipments of up to 14 million tons of met coal annually, with less than 1 million tons of incidental thermal coal shipments a year. This transition is well underway, and I am confident that we have the right strategy and the right team in place to execute on our plan successfully. We discussed on our recent earnings calls the incredible work that's been done on the cost containment front, and you may recall that our first quarter cost performance in the Central Lab MET segment was at multi-year lows. I'm proud to report that despite the pressures of the last several months, we were able to match the level of performance in the second quarter when the impact of the furloughs, one-time COVID mitigation costs, and the partially offsetting severance tax adjustments are backed out. Andy will discuss this in more detail, but our progress in this regard continues to be a testament to the resilience of our workforce and Jason's outstanding leadership. I've talked a lot about costs since they are part of our business that we can manage and control, but obviously the markets are a different story. While there is no crystal ball to show us what the future looks like, or if we can expect prices to climb higher, there are a few metrics and signals that we've noticed over the last few weeks that are informing our estimation of the third and fourth quarter may hold for us. There has been much discussion in the coal community about potential hints of optimism in the market landscape. While we would welcome any improved pricing structure over the coming weeks or months, We believe it is wise to continue preparing as though the pricing environment we've been experiencing will continue. Even with welcome improvements that may come, we still expect the back half of 2020 to be challenging. While there are indications that the steel industry is showing some improvement in July, the June data from the World Steel Association shows material year-over-year crude steel production declines in all of our key markets, ranging from 20 percent reduction in Europe, to a nearly 35% decline in the United States. Among the major crude steel producing markets, the only country reporting production growth for the month of June as well as year-to-date is China. They grew 4.5% and 1.4% respectively. The global data shows a 6% year-to-date decline in overall crude steel production, with the 2020 forecast indicating a similar trend for the second half of 2020 and total annual production estimated to decline by 6.4%. World Steel Association forecast a 3.8% rebound in 21. Of course, the hope is that summer numbers are marking the bottom, but that remains to be seen. While the crude steel production numbers have much room for improvement and many questions remain unanswered regarding global economic activity, we are seeing early positive signs in the manufacturing sector. China's manufacturing PMI continued to show growth, with Europe returning to growth in July. Importantly to Contoura, one of the strongest improvements in the manufacturing PMI was reported in Brazil, which recorded a PMI reading of 58.2 in July, up from 51.6 in June. U.S. manufacturing PMI moved into modest expansion for the first time since February, while India's manufacturing sector remained in contraction amid coronavirus-related lockdowns. With apologies in advance, I'd like to close my remarks by quickly getting on my soapbox. Last week marked my one-year anniversary of returning to lead and manage Contura. In that year, we have streamlined management, exited the PRB, devised a comprehensive solution at Cumberland, accelerated our MET-focused capital projects, brought efficiencies to mining operations, reduced costs across the organization, strengthened our liquidity, and managed through some of the most difficult times I've seen in my career. These accomplishments were a result of our entire team at Contura. I asked Jason Whitehead to return to my management team less than one year ago, and his leadership of operations has been beyond expectations. Dan Horn and Bill Davidson have somehow managed to find homes for our products throughout the world, when demand and pricing constraints created tremendous headwinds. Their efforts allowed Jason to continue operations at an optimal level. One of the additions to my team I'm most proud of is convincing Roger Nicholson to leave the comfort of his private practice and return to the grind of being general counsel. I loaded him up with not just legal challenges, but he manages the environmental, safety, and HR aspects of our company, all of which I might point out have reached all-time performance since he's come on board. I'll leave Andy Edison for the last. Many of the shareholders and analysts on this call know Andy as the person they call and reach out to to understand our financial performance as well as our strategy. Andy also has the unfortunate role of having an office less than 10 feet from mine. Jason and Roger hide out in Julian, West Virginia, and Dan and Bill have located themselves hundreds of miles away from the office, but we do work extremely well together regardless of geography. Andy is my sounding board on strategy. And it was due in large part to his good work that we advanced the ball on PRB and Cumberland. During these trying times, Andy manages our liquidity, provides team members with real-time data for decision-making, is responsible for our M&A and activity, and there hasn't been a decision I've made since returning that doesn't have his fingerprints all over it. All this to say that the collective power of this team is why we are well-positioned to continue making progress, even in such challenging days. And I couldn't pass up the opportunity to express my gratitude for all they've done. Thanks for letting me get on this moment to take and recognize what I believe is the best team in the industry. With that, I'll turn the call over to Andy for some additional financials.