Alpha Metallurgical Resources, Inc.

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 first quarter 2021 earnings release and the associated SEC filing. 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 Alpha's Chair and Chief Executive Officer, David Stetson, and President and Chief Financial Officer, Andy Edson. Also participating on the call are Jason Whitehead, our Chief Operating Officer, and Dan Horn, Executive Vice President of Sales. With that, I'll turn the call over to David.

Thanks, Emily. Good morning to everyone on the call, and thank you for joining us today. I'm looking forward to discussing our first quarter results today and hearing from Jason, Andy, and Dan about details of the quarter in each of their respective areas. I want to start by commending the team on another productive quarter that drove continued progress on our long-term goals and initiatives. From a financial and sales perspective, the first quarter was solid with adjusted EBITDA of $29 million and met cost of coal sales coming in roughly at the midpoint of guidance. Our sales volumes were excellent for the quarter, and our overall realizations increased in comparison to Q4 2020. Had it not been for the market effects of prolonged tensions between Australia and China, those sale realizations would likely have been higher. For example, if you set aside our tons that were sold into the quarter against the unusually low Australian indices, our average realization on the remaining was $91 per tonne. While it is unclear how long Australian coal will be unwelcome in China, we are seeking opportunities to proactively manage around the downward pressure of the Australian indices and position ourselves well for the remainder of the year. Operationally, a lot of work occurred behind the scenes in Q1 to transition crews and equipment from operations that were mining out to our newer mines that have been ramping up. Although we announced it on our last call, Alpha received word in the first quarter that our obligations under the EPA consent decree had been fulfilled, marking another positive milestone for us. A few weeks ago, our Republic Energy subsidiary received another permit approval to expand mining reserves in Raleigh County, West Virginia. Jason will go into more details about our plans for this project, which is part of our Workman Creek surface mine, and the permit name is Turkey Foot. While we don't have a firm date for this project in the books yet, permit approvals are important early steps, and we are excited about the many benefits in this project, both for our company and the local communities near the project site. From a corporate governance perspective, we held our annual meeting of stockholders at the end of April. I was very pleased to see our stockholders reelected our current directors to serve another year on Alpha's board. Additionally, stockholders approved a proposal to increase the number of shares reserved for the company's long-term incentive program, which is an important step in aligning senior management performance with the overall creation of shareholder value. Additional details and the results of the annual meeting can be found in our 8K filing. Before I hand the call over to Jason, I want to briefly touch on our outlook for the second half of 2021 and summarize our near-term focus areas. As you know, last year was transformational, moving us closer to a pure-play metallurgical company and dramatically reducing the thermal percentage of our portfolio. Our new low-cost met mines are now operational, and we are nearing completion of the transition of our workforce and equipment from the older mines to the new ones. With this work behind us, we're expecting 21 capex to be near maintenance levels, as we've outlined in our guidance. This means it's time to settle in and establish a strong baseline of performance with our new portfolio mix. Dan and his team are closely watching the market dynamics and maximizing any opportunities to shift tons away from currently depressed Australian indices into markets where pricing is much more attractive. Assuming these higher pricing levels prevail for any extended period of time, I will be seeking opportunities to strengthen Alpha's overall liquidity and, if possible, pay down debt. As Andy will explain later in the call, our financial position remains solid. We plan to continue our emphasis on cash preservation and liquidity management. However, a continued season of strong pricing against the Atlantic indices and any improvement in Australia ones should allow us to further strengthen the company's financial position. We will remain focused, as we have been, on executing the core functions of our business and look forward to strategic opportunities as market dynamics continue to unfold. With that, I will turn the call over to Jason for some additional color on operations.

Thanks, David, and good morning, everyone. Before I go into the details of our first quarter performance, I want to provide some additional information about the Turkey Foot permit that sits inside our Workman Creek operation. As David mentioned, we're pleased to receive approval for the Republic Energy Article 3 and NPVS permit for Turkey Foot. which will ultimately expand our existing mining reserve base and provide future sustainability to the Workman Creek complex. These approvals are the first two of four necessary permitting steps before mining activities could commence. Workman Creek is Alpha's largest surface mine with expected output of about two and a half million tons in 2021. It has a long history of incorporating benefits to the community into the mining process and our team there has won numerous awards for the reclamation efforts. Workman Creek was founded in 2013 on the Collins Fork Remediation Permit. Prior to our involvement, the Collins Fork land had been mined by another operator but not reclaimed. It was eventually designated by the EPA as an abandoned mine land, leaving the state of West Virginia and ultimately taxpayers responsible for the cleanup. However, as part of our mining activities with Workman Creek, we agreed to remediate the area, as the permit name suggests, which includes the eventual elimination of the legacy slurry impoundment called the Collins Fork impoundment. Workman Creek has also operated on our active Longridge permit, which I mention because of its many similarities to our Turkey Foot permit. Similar to Long Ridge, the Turkey Foot permit is drawn to eliminate roughly 86,000 feet, or 16 miles and 395 acres, of pre-law high wall. For those who may not be familiar with what this means, the term pre-law, it refers to surface mining that occurred prior to the 1977 Surface Mining Control and Reclamation Act, which is often referred to as SMACRA. Its passage provided new, stricter rules by which surface mining is governed, and the law is still in place today and includes a number of amendments that have been added over time. I'd like to briefly explain a few of the expected environmental and aesthetic benefits this project will yield for the local Raleigh County communities. Part of the land permitted in our Turkey Foot project was previously mined by another operator prior to 1977 and prior to SMCRA, and as a result, the land is not as visually appealing as post-SMCRA mined land that has been held to a much higher standard. Again, like Longridge, our proposed mining process with Turkey Foot will reclaim, revegetate, and plant native trees on approximately 395 acres of land, providing significant aesthetic environmental benefits to the land in question. While this was not a requirement involved in obtaining the permit, we saw another opportunity to improve pre-law land in connection with what we already do, and we're excited about this opportunity to do this good work. Additionally, the Turkey Foot Project is expected to provide aquatic uplift to receiving streams beyond the permitted area. Through the reclamation of pre-law highwall that I just described, approximately 8,000 tons of annualized sediment load will be removed from several local drainage areas. In addition to the economic impacts of continued mining in the region, this project will specifically provide environmental benefits to the surrounding areas. As responsible operators who take great pride in our work, we seek to go above and beyond compliance with regulatory requirements and create opportunities to give back to the local communities around our operations. We expect Turkey Foot to be another example in a long list of award-winning reclamation work at Alpha. In addition to the mining capabilities that will provide the company and the employment opportunities that will extend for over 100 miners in West Virginia, The positive tax impact of the project is anticipated to be over $5 million per year. Even though this isn't directly related to our results for the quarter, it's an important part of what we do, and in my opinion, it doesn't get enough recognition. For some commentary on the operation results for the quarter, relative to guidance, we were roughly in line with our cost of coal sales expectations. This is despite some negative factors we faced in the quarter, which included higher materials pricing for things like diesel fuel and roof support, as well as higher than expected COVID-related absenteeism. We expect some of these factors to persist into the second quarter, but largely resolve as we move into the second half of the year. Although not unexpected, another factor that influenced our calls for the quarter was the transition into our new low-cost MET mines. I mentioned in our last call we expected to move from 15 to 12 mines by the end of March, and we successfully took those remaining three mines offline as planned within the quarter. Work continues to fully transition employees and equipment into the new MET mines, but we do expect this to be complete by the end of the second quarter. Speaking to our new met mines, I've provided updates on prior calls as sections have come online and operations have ramped up. As of last week, we completed the transformation around the band mill complex with the addition of the third and final continuous miner section at Lynn Branch. With that, I'll now turn the call over to Andy for some additional details on our costs and financials. Thanks, Jason. It was another strong quarter for Alpha in terms of cost performance. with EBITDA generation improving materially from the fourth quarter last year. That said, strong sales volumes and improved pricing, as well as some evolving customer terms we'll talk about, resulted in a significant increase in receivables during the quarter, leading to a net decrease in cash balances. We'll dig into that a little bit later. Our adjusted EBITDA was $28.9 million, substantially from $7.4 million in the fourth quarter of 2020, due to stronger volumes and increased met coal realizations. Our met segment shipment volume increased 14% to 3.7 million tons, with average realization improving 9% over the fourth quarter, resulting in met segment revenue increase of 24% to $300 million. We also saw Strong improvement in our quarter-over-quarter MET segment margins, which increased 72% to $10.28 per ton. Our first quarter, 2021, cost of coal sales picked up slightly in comparison to two outstanding and record-setting quarters in the back half of 20. First quarter MET costs came in roughly in line with guidance, as Jason mentioned, compared to Q4. Our cost of coal sales were up about $2.50, $2.47 a ton, driven by increased sales-related costs, royalties, and severance taxes due to higher MET price realizations, as well as the supplies issues that Jason mentioned, diesel fuel roof support, pretty much any kind of infrastructure or mining costs related to or tied to steel pricing has been on the rise along with so many other commodities over the past few months. In the all-other segment, we saw another quarter of excellent cost performance with cost of coal sales declining nearly $1 down to $43.05 per ton. SG&A, excluding non-cash stock comp and non-recurring items, improved to $12.7 million in the first quarter, from $14.4 million in the fourth quarter of 2020. And as we are now effectively complete with new mine development work, our capex declined substantially to near-maintenance levels of $20.4 million, down from $35 million in the fourth quarter of 2020. As for the balance sheet and cash flows, we ended the first quarter with approximately $92 million in unrestricted cash and $16 million in availability on our ABL, for a total liquidity of $108 million. Cash used for operating activities for the quarter with $19 million, impacted by the aforementioned increase in accounts receivable of $62 million, and partially offset by a $37 million increase in accounts payable. Inventory levels remained basically unchanged from year end. Recently, we have seen our working capital specifically begin to normalize, which we expect to result in higher cash collections over the coming periods. However, as I mentioned earlier, When we look at customer terms, we have seen about a 25% increase in day sales outstanding. Some of that's due to customer mix. Some of it's just due to general extension of payment terms via negotiations, but that also is impacting our AR levels. The ABL facility had $131 million of letters of credit outstanding at the end of the quarter and no remaining borrowings. Before I go through our guidance, I wanted to highlight two cash-related items that will positively impact us in 2021. First one is a new item. Based on the provisions in the recent American Rescue Plan Act, we've updated our estimates for minimum required pension contributions for the next five years. And the impact of that basically for 2021 is a $14 million reduction to contributions this year down from $25 million to $11 million. and an overall reduction of $84 million in contributions through the year 2025. The second item, of course, is the NOL carryback tax refund that we've discussed for quite a while now. Things are still on track and moving according to plan, and we expect to receive this approximately $70 million refund in the back half of this year. Given the uncertainty in the global marketplace due to the continued effects of COVID in certain locations, And the strangeness of the Australian indices as related to the North American East Coast indices. I wanted to touch on our guidance again, mostly just to confirm that it does remain unchanged. I don't want to parse through the details too much, but I believe it's important to continue to talk about our expectations for the year. So the top level, we still expect to ship 14.8 to 16.2 million tons in 21. consisting of 12.5 to 13 million tons of pure MET and 1 to 1.5 million tons of incidental thermal within the MET segment. For the all-other segment, we're guiding to 1.3 to 1.7 million tons of thermal coal. Based on the midpoint of MET guidance, the MET-only portion is 64% committed and priced at $85.65 with an additional 28% committed with pricing tied to various indices. The thermal byproduct portion of the MET segment is 93% committed and priced at an average price of $51.16, and we're fully committed and priced for 21 in our all-other segment at an average price of $57.67. On the cost side, our 21 MET cost per ton is anticipated to be on the range of $68 to $74, with all-other segment expected to be between $45 and $49 per ton. SG&A, excluding non-cash stock comp and one-time items, is forecast to be in the range of $44 to $49 million. And 21 CapEx, as we said, will be near maintenance level, a range of $80 to $100 million. Idle operations expenses, we expect to be between $24 and $30 million, with cash interest at $51 to $55 million. DD&A, we expect to be between $125 and $145 million. and our cash tax rate guidance is 0% to 5%. So for some commentary on the coal markets, I'll turn it over to Dan Horn. Thanks, Andy, and good morning, everyone. As David mentioned earlier, our first quarter shipments were very strong, and we were able to improve our overall realizations against fourth quarter 2020, despite the negative effects of the Australian indices and the step down in domestic contract prices from 2020 to 2021. I will echo the positive comments from the rest of the group and commend the sales team on a job well done for the quarter. As I'm sure you're aware, coal companies are experiencing distinctly different market dynamics right now, depending on their primary market destinations, the types of coal they're selling, and how those times are priced. For example, over the last couple of weeks, pricing account of low ball against the US East Coast indices versus the Australian indices would show as much as a $60 swing between the two. An even greater disparity can be seen between Australian FOB and China CFR indices, which recently reached the largest spread on record at a difference of over $115. Obviously, the uniqueness of the circumstances surrounding China and Australia has had a ripple effect throughout the entire industry. I want to provide some additional context on the impact to Alpha, our approach in mitigating these challenges, and our broader expectations for the remainder of the year. Of course, I won't get into any customer or contract specifics, but I can provide a little bit of color around our thinking. Alpha shipments that are based on the Australian indices continue to receive much lower realizations than the rest of our book. In fact, our first quarter realizations were north of $90 for all times sold that were not priced on the Australian indices. Therefore, as David mentioned earlier, we're looking at ways to optimize our export mix to capitalize on Atlantic pricing, which is currently much more attractive. As always, we remain committed to fulfilling our contract obligations, some of which were negotiated when Australian indices were roughly in line with Atlantic Basin pricing. But we've also taken the advantage I'm sorry, we've also taken advantage of the opportunity to make a few sales into China this year. But we've also been mindful of the significant challenges certain countries around the world are experiencing with dangerously high COVID case numbers. In these situations, it's possible that economic activity in some of these locations may also be impacted. On the positive side, global and U.S. crude steel production continues to trend upward, with World Steel Association statistics in March showing growth of 15.2% in year-over-year global steel production. Unsurprisingly, China and Europe led the way over that period, with 19.1% and 17.5% growth, respectively. And in their short-range outlook, world steel projects 5.8% growth for 2021 and 2.7% growth in 2022. Europe, which is one of Alpha's primary export destinations, is expected to see more than 10% growth this year and nearly 5% next year. And the U.S. steel mill capacity utilization is approaching 80% here, which is another good sign. In the North American domestic met market, demand remains solid and supply remains tight, with growing confidence that a stimulus bill will be passed, which should further enhance the outlook for steel and for met coal. We are cautiously optimistic about the opportunities for additional tonnages as well. There's certainly no lack of market dynamics to follow, with the China-Australia tensions commanding the most attention right now. However, from our perspective, these kinds of idiosyncrasies in the market highlight the importance of diversity in our customer bases, in coal qualities, and in our sales capabilities, all of which Joppa is proud to have. As the largest and most diversified met coal supplier in the United States, we enjoy some additional optionality and the ability to adjust when necessary, which is exactly what we will continue to do. I think that wraps up our prepared remarks for the quarter operator. I think we're ready to open up the line for questions.

Okay, we will now begin the question and answer session. To ask a question, you may press star, then 1 on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then 2. Our first question comes from Nathan Martin from The Benchmark Company. Please go ahead.

Hey, good morning, guys. Congrats on the quarter. Thanks, Nate. Thanks, Nate. Dan, you just gave us some great comments, but I wanted to first dig into the export side just a little bit more, I think. Obviously, India, one of your major export customers, dealing with a pretty bad wave of COVID right now. Can you guys give us an update on what you're hearing from your customers in that market and any potential disruption there? I think I just read that one of their major steel mills has announced production cuts due to an oxygen shortage related to the pandemic. So just any thoughts there? We haven't heard of anything specific yet. I did see something this morning about a force majeure at one of the ports. We're watching it closely. We're staying in touch with our customers over there. Nothing to report at the moment, though. Got it. Thanks, Dan. And then if we shift over to China, there's another big $10 jump in the CFR China price this morning. You guys mentioned you've moved some coal into that market, higher netbacks in the Atlantic Basin or off-sea. Can you give us an idea how much coal maybe you could ship to China this year, assuming the Australian coal imports continue? And then the extent the demand does weaken from India, maybe could you place any of those tons in that CFR China market? Yeah, I think, Nate, what I would say is we can and we intend to ship tons into those markets. I would say it's not only India. It's anywhere we see prices that are indexed to the Aussie indices. There are other customers in the Atlantic Basin that we also sell indexed to the Aussie index. So as those tons roll off contracts and tenders and such, those tons, in our mind, will be your market for China. We shipped three vessels to China so far this year, so I don't have a number to give you, a specific number, but I think I can imagine shipping, you know, that many more, you know, in the future, here in the near future. Okay. So point, Dan, if, Dan, you guys do have some tons available once your contracts roll off, if you could take advantage of that. Yes. As I said, we maintain a lot of optionality in our book at all times, and we can react pretty quickly to move different coals. We've got some new mines coming on that are producing well. We've got some additional low vol from our Kepler operation that's pretty sought after these days. So we have some optionality we can play with. That's great. That's great. And then if I kind of look at the transportation side of things, guys, can you comment maybe on how rail service has been? I know it's been listening to the rails, and your service has not quite been as good as people have hoped. And maybe rates, are rails still pricing based on your ultimate export destination to help keep your school competitive? Thanks. Yeah, Nate, it's been challenging at times, the rail service. I will say some of our domestic customers are seeing some delays. They're obviously running their plants hard and are not seeing perhaps all the service they'd like to see. And at times we've had some challenges getting the cold export. By and large, we're hitting our shipments, but I'd have to say I'd like to see rail service improve with that.

Yeah, Nate, this is David Stetson. We've met with with both Norfolk and CSX over the last month and we're feeling cautiously optimistic that some of the service disruptions that you've seen in the past are going to be corrected. I know CSX has made a huge effort to bring on more crews and more staffing and allowing an increase in their side from a service perspective. So while it certainly has been somewhat challenging in the past, we're cautiously optimistic that both NS and CSX are moving in the right direction.

That's great. Great to hear, David. And then just finally maybe moving over to the cost side of things, another fantastic quarter for you guys on that front. Congratulations. I was a little surprised at how low the other thermal result came in at $43, given the four-year guidance. So is there anything one time in that quarter that kind of drove those costs lower, or is that a sign that maybe four-year costs are kind of trending down towards that number? Hey, Nate, it's Andy. I don't think there was anything one time and again since we're kind of maintaining guidance on that. It just depends on, as with all things underground, where geology and we just had a good quarter. We'd love to see that replicate itself throughout the rest of the year, but at this point we'll just hold guidance where it is. But the operations team across the board have just continued to deliver excellent performance over and over again. Got it. Thanks, Andy. That's perfect. Thank you guys for your time and all the information. Take care.

Thanks, Nate. Again, if you have a question, please press star, then one. The next question comes from Lucas Pipes from B. Reilly Securities. Please go ahead.

Hey, good morning, everyone. Good job on the quarter.

Thanks, Lucas.

I wanted to first hone in on the pricing side as well. And kind of when I think about your guidance for the year, 64% at 85, 65 per ton, and then in Q1, you sold Metco at $82 per ton. So can you help us kind of in between the higher committed tons plus what the spot market is doing? Where should we kind of think about Q2, Q3, but really kind of a bridge to Q2 would be super helpful here.

Thank you. As usual, you asked the question that I really don't even want to attempt to answer because we're dealing with such a multivariate analysis going on right now, as Dan mentioned. We've got a lot of things a lot of things going on as far as how we're thinking about participating in the markets over the next couple of quarters because of the disconnect between the indices. Trying to bridge that out, that's kind of tough to do. Well, Q2 probably isn't that much different as far as customer mix or regional mix as compared to Q1. So you can kind of take those things thoughts and apply them to how the markets have moved. Unfortunately, all the index going one direction and the East Coast going a better direction. Maybe that gets the average back to a similar outcome. But again, I don't want to guide to Q2 too early when we're not even really halfway through it. I'll stop rambling and stop my non-answer there. I just don't want to give you something that even we don't have a ton of visibility into just yet.

Okay. Okay. Now, I appreciate that. I'll ask one follow-up on this. For the, call it, 36% that are unpriced on the Metco side, what percent should we model for? off US East Coast assessments versus the lower Australian assessment?

Well, let me put it like this. I mean, historically, we've seen, call it, between 20% and 30% of our export MET tons have been priced off of the Aussie PLV index. I don't know that we can apply it just like a peanut butter spread across every breakdown, whether it's committed and priced or committed and unpriced. I'm afraid I don't have that number in front of me at the moment. But I would guess that that percentage probably does apply. So call it 25-ish percent of that that's tied to indexes in the future is probably going to be PLV indexed.

And then for the remaining 75%, we should predominantly use a high vol A, high vol B index.

Yeah, I mean, all other things being equal. But, again, things are moving, and that's the trouble with the stuff being priced in or being committed and unpriced. You know, those cargos can fall off if we do run into, you know, as Dan mentioned, a force majeure issue, a different place. here and there and shifting the tonnage around, as he discussed. But as things stand right now, again, all things being equal, I think that's probably how it will play out.

Got it. Thank you. Thank you very much for that. That's helpful. And then a follow-up on the cost side. Good job in Q1. And in the release, you mentioned inflationary pressures. I think diesel you call out. Now, when I think back, I believe this guidance was initially issued in November. So terrific job to maintain it through May. And obviously the world has changed in a very positive way, but with much, much higher commodity pricing all around. So kind of when you think about your cost position today with the pressure from the raw material side, maybe even labor, again, I'd appreciate your thoughts where you see the pressure points and to what extent you'd say there's upside risk to full-year cost expectations.

Thank you. I think we're just – I mean, we've seen the first salvo of increases in raw materials costs. I think there's no doubt there's more to come. I mean, inflationary pressure is what it is. and we'll deal with that. I do think the guys have done a really nice job. We did budget some raw materials increases into what we presented as guides to begin with, so some of that's just playing out as expected. It's probably hitting critical mass earlier than we expected, but thus far, for every penny it's up, the guys found a penny on the other side to offset it. I do think labor is a potential point of exposure, and that's just in the industry. Actually, that's across the country. All sectors are seeing labor pressures, but as far as specifics, Jason, if you have anything you'd like to add on that. No, I think that's right, Andy. Mostly diesel fuel is probably the most impact that we've seen, which is probably on the order of a dollar and a half a ton or something like that. Smaller things like steel surcharges for certain items, but those really minimal in comparison.

All right. That's very helpful. Continue best of luck. I really appreciate all the details.

Thanks, Lucas. I appreciate it. Before I turn it over to David to wrap up, I did want to make one correction of errata in my comments. I misspoke on our CapEx guidance. The range is actually 75 to 95 rather than 80 to 100, so midpoint's a little bit lower than initially stated. So with that, David.

Well, thanks, Andy. I appreciate everybody jumping on to the call today. We appreciate everyone's support of alpha, and we wish everybody a wonderful day and a wonderful week. Thank you.

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