Alpha Metallurgical Resources, Inc.

Greetings and welcome to Alpha Metallurgical Resources Third Quarter 2023 Results Conference Call. At this time, all participants are on the listen-only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded. I would now like to turn the conference over to your host, Emily O'Quinn, Senior Vice President, Investor Relations and Communications. You may now begin. Greetings and welcome to the Alpha Metallurgical Resources Third Quarter 2023 Results Conference Call. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded. I would now like to turn the conference over to your host, Emily O'Quinn, Senior Vice President, Investor Relations and Communications. You may now begin.

Thank you, Rob, and good morning, everyone. Before we get started, let me remind you that during our prepared remarks, our comments regarding anticipated 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 third quarter 2023 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 Alpha's Chief Executive Officer, Andy Edson, and our President and Chief Operating Officer, Jason Whitehead. Also participating on the call are Todd Muncy, our Chief Financial Officer, and Dan Horn, our Chief Commercial Officer. With that, I'll turn the call over to Andy.

Thanks, Emily, and good morning, everyone. Earlier today, we announced our third quarter 2023 results with adjusted EBITDA of $154 million. As we mentioned in our pre-release a few weeks ago, our Q3 results were impacted by some challenging events, including a mechanical failure at Dominion Terminal Associates. This caused a delay in vessel loading, which in turn delayed shipments and revenue. With some additional clarity into what we believe the balance of the year will hold, as well as the understanding that there will be some tonnage that carries over into 2024, we tightened and lowered our shipment volume guidance for 2023. We're focused on finishing 2023 very strongly, and I'm seeing evidence of this throughout the organization. Operationally, across the company, our year-to-date performance against two important safety metrics, TRIR and NFDL, are both better than the national average. With the recent closure of slab camp, Alpha's years-long transition to a pure-play metallurgical company is complete, and we just opened our newest metallurgical mine in October, the Techmate Pelton Mine at the well-known Elk Run Complex. The Elk Run preparation plan and loadout are planned to come online early in 2024. Last week, we completed the refinance of our asset-based revolving credit facility, securing more favorable terms and a longer duration than the previous facility. And, as has become standard, our share buyback program continues executing, utilizing all of our free cash flow for the quarter. We have returned more than $940 million to stockholders in the form of buyback since the program's inception in March of 2022, with roughly $560 million left on the newly extended $1.5 billion board authorization. Following the most recently declared dividend payout, which will occur in December, the dividend program will cease, and our capital return efforts will be fully focused on the repurchase program, contingent upon market conditions and cash flow levels. There are good things happening all across the company. In recent weeks, we've also worked through the budgeting and preparation process for 2024, which we expect will be another year of what Alpha has become known for. Safe production, being good stewards of the environment, creating shareholder value, returning capital, delivering outstanding customer service, and challenging ourselves to raise the bar and perform better than before. Based on the midpoint of next year's total shipment guidance that we announced this morning, we have allocated roughly 25% of our overall tonnage to the domestic market on a fixed price basis. The balance will be available for export into a global met market that has demonstrated strength in recent weeks, and according to the current Australian premium, Lobol Futures is expected to retain strength well into next year. As those who have followed Alpha for some time will recall, we usually place between a quarter to a third of our overall business in the domestic market. Year to year, that can fluctuate based on several decision points, including market strength, pricing, logistics, and outlook for the coming year. We have longstanding relationships with domestic customers that we look forward to continuing to serve, and locking in the domestic contracts also serves our company well by solidifying a base of business for the year. Within our 2024 guidance, we expect to spend roughly $225 million in CapEx next year, which is divided into three parts. Sustaining or maintenance CapEx is expected to, again, measure about $10 per produced ton, or about $171 million for the year. This amount corresponds to the volume guidance midpoint of 17.1 million tons. The second portion of our CapEx is development CapEx, which we expect to be about $33 million in 2024, and is the first half of development costs for the Kingston Soil Project. Jason will have more to share on that later. Lastly, we assume $21 million in capital spending will be rolled over from this calendar year to the next due to timing and availability of certain equipment, parts, and contract labor. We also provided more information in the release on special capital needed for infrastructure and equipment upgrades at Dominion Terminal Associates, our export facility in Newport News that loads and ships the bulk of our coal to international customers. Alpha has a 65% ownership stake in DTA, and together with the terminal's leadership and our partner, we're assessing needs and building a rough timeline for recommended improvements. Importantly, we believe the necessary improvements at DTA can occur over a period of time, so the facility can still be utilized while renovations occur. In terms of cost, we will continue to supply our portion of DTA's usual operating expenditures, and Alpha expects to invest an incremental $25 million in 2024 to begin this work, with the next several years likely requiring a similar annual investment.

I'll now turn it over to Todd for discussion of our third quarter financial results. Thanks, Andy. Third quarter adjusted EBITDA was $154 million, down from our second quarter level of $258 million. We sold 4.2 million tons in the quarter, 4.1 million of which came from our MET segment, and 100,000 tons from the all-other category. Quarter-over-quarter realizations decreased for the MET segment, with an average realization of $154.73 in Q3 compared to $172.51 for the second quarter. Export met tons priced against Atlantic indices and other pricing mechanisms in the third quarter realized $136.76 per ton, while export coal priced on Australian indices realized $158.56. These are compared to last quarter's realizations of $175.69 per ton and $159.62, respectively, which reflected a stronger coal pricing environment. For our metallurgical sales in the third quarter, it was a total weighted average of $160.43 per ton down from $176.04 per ton in the prior quarter. Realizations in the incidental thermal portion of the MET segment decreased to $92.22 per ton in Q3 as compared to $115.50 per ton in Q2 due to the lower market pricing for thermal coal. In the all other category, realizations were also down as a result of the declining pricing environment for thermal coal coming in at $68.32 for the third quarter as compared to $99.66 per ton in the second quarter. Third quarter cost of coal sales for our MET segment increased to $109.95 per ton up from $106.35 per ton in the second quarter. Cost of coal sales in the all other category decreased quarter over quarter to $84.73 per ton as compared to $88.59 per ton in the second quarter of 2023. SG&A, excluding non-cash stock compensation and non-recurring items, increased to $15.1 million in the third quarter as compared to $14 million in the second quarter. Q3 CapEx was $54.7 million, roughly flat against the second quarter level of $54.9 million. Moving to the balance sheet and cash flows, as of September 30, 2023, we had $296.1 million in unrestricted cash, down from $312.4 million at the end of the second quarter. We had $94.1 million in unused availability on our ABL at the end of the quarter. Alpha had total liquidity of $390.1 million as of the end of September, which is net of $102 million in share repurchases during the quarter. By comparison, total liquidity at the end of the second quarter was $405.5 million. Cash provided by operating activities decreased quarter over quarter to $157.2 million in Q3 as compared to $317.2 million in Q2. As of September 30th, our ABL facility had no borrowings and $60.9 million of letters of credit outstanding, unchanged from the prior quarter. The company has successfully completed the refinancing of its asset-based revolving credit facility, which was previously set to expire in December 2024. On October 27th, 2023, the company terminated its then-existing ABL agreement and entered into a new facility that matures in October of 2027, with Regions Bank as the administrative agent and lead arranger, along with Service First Bank and Texas Capital Bank serving as joint lead arrangers. The new ABL facility allows the company to borrow cash or obtain letters of credit on a revolving basis, up to $155 million. Under the terms of the agreement, interest on letters of credit will be 3.25%. As part of the transition from the previous ABL facility to the new ABL facility, the company temporarily collateralized outstanding LCs with approximately $62.8 million in cash and expects to replace this cash collateral with new LCs under the new ABL facility prior to year end. We are pleased to close on the ABL refinancing and to secure more favorable terms in a longer duration than our prior facility, all of which benefits the company and further strengthens our financial position. Turning now to our committed position for the year, 88% of our metallurgical tonnage in our MET segment is committed and priced at the midpoint of guidance at an average price of $182.08. Another 12% of our 2023 MET tonnage is committed but not yet priced, meaning we are fully committed for the rest of the year at the midpoint of guidance. The thermal byproduct portion of the MET segment is 100% committed and priced at the midpoint of guidance at an average price of $102.45. And we are 95% committed in price for this year in our all other category with an average price of $92.23. Alpha's board has declared a quarterly cash dividend of 50 cents per share, which will become payable on December 15th for holders of record as of December 1st. Following this payment, the dividend program will cease in order to focus our capital return efforts on the buyback program. Pursuant to our share repurchase program, we repurchased roughly 545,000 shares at a cost of $102 million in the third quarter of 2023. Since the beginning of the program, we have spent approximately $940 million to acquire roughly 6.1 million shares of Alpha's common stock at a weighted average price of $153.90 per share. The outstanding share count has been reduced by more than 28% from the time the program began. As of October 27, 2023, the number of common stock shares outstanding was approximately 13.3 million. The Board recently increased its repurchase program authorization by $300 million to a total authorization of $1.5 billion, up from the previous level of $1.2 billion. This increase permits approximately $560 million in additional repurchases. Looking ahead to 2024, we issued guidance for the coming year, which includes the expectation of shipping between 15.5 and 16.5 million tons of metallurgical coal, as well as between 900,000 and 1.3 million tons of incidental thermal coal. Together, this brings total anticipated shipment guidance to a range of 16.4 million to 17.8 million tons. With the closure of slab camp as planned, we expect all our financial activity to be reported within the METS segment going forward, so the all other category does not appear in our 2024 guidance. In terms of cost of coal sales expectations, we are guiding to a range of $110 to $116 per ton. The 2024 guidance range for selling general and administrative costs $60 million to $66 million, excluding non-recurring expenses and non-cash stock compensation. Idle operations expense is anticipated to be between $18 and $28 million. The company expects net cash interest income of between $2 million to $8 million, and depreciation, depletion, and amortization between $140 and $160 million. Capital expenditures for 2024 are expected to be between $210 and $240 million, which includes sustaining maintenance capital, planned projects to invest in mine development, and some carryover from 2023 due to timing and availability of supplies and contract labor. In connection with expected capital investments at DTA, we are also guiding to a 2024 range of $40 to $50 million for capital contributions to equity affiliates, The cash contribution range includes both the expected cash needed for normal operations of the facility of approximately $20 million, along with the amounts expected to be spent in 2024 related to facility upgrades of approximately $25 million. Lastly, the company expects a tax rate of between 12% and 17% next year. In terms of our committed and price position for 2024, our metallurgical tonnage at the midpoint of guidance is 25% committed at an average price of $161.91, with another 49% committed and unpriced. The incidental thermal tonnage at the midpoint of guidance is already 98% committed at an average price of $76.85. The remaining 2% at the midpoint of incidental thermal guidance is uncommitted. I'll now turn the call over to Jason for some details on operations. Thanks, Todd.

Good morning, everyone. As we've spoken about in previous calls, our last remaining thermal coal mine, Slap Camp, has mined out and idled, which completed our transition to a pure-play metallurgical coal company. Much of the workforce at Slap Camp transitioned to our new rolling thunder mine, which provided a seamless transition for the workforce. and that mine is now fully staffed. Additionally, in late October, we celebrated the first development cuts at Checkmate Powhatan, our newest mine. Checkmate is located in Boone County, West Virginia, and produces high volatile coal within our Midwest Virginia underground region. We're looking forward to getting this mine up to a full run rate and completing enhancements on the elk run preparation plant which is currently undergoing renovations and will come online to service this mine likely near the end of the year or early in January of 2024. As we look ahead to 2024 with the issue of guidance today, you'll see that anticipated cost of coal sales come in between $110 to $116 per ton, which reflects the recently implemented investments we made in employee wages and benefits, as well as some lingering inflationary pressure in supplies and maintenance. We've discussed both of these areas on prior calls, and while we're no longer seeing such significant spikes in material costs, like we did in the last 18 months or so, we are still experiencing some inflation as contracts renew and we secure supplies for the coming year on materials and services such as repairs, roof support, and mine supplies. Despite the tight labor market challenging our ability to achieve planned level volumes, we have continued to perform at or above planned levels of clean tons per labor hour at our operations. We have budgeted to maintain the higher levels of investment in our workforce through wages and benefits as we navigate this extremely tight labor market and work hard to retain and attract the best and brightest miners to the alpha team. Late in August, we made wage and incentive adjustments to achieve competitive compensation packages. Since such adjustments, we've made large strides towards fully staffed levels and have seen measurable improvement in our staffing data with a reduced turnover rate and increased hiring figures. Lastly, I'm excited to provide a preview of our Kingston Sewell underground mine that is and has been in our planning stages for quite some time. We've budgeted funds in the development section of our CAPEX guidance to start laying the groundwork for this mine throughout the 2024 calendar year. Kingston Sewell will be located in Fayette County, West Virginia, as part of our Midwest Virginia surface region, and will produce a low-volatile product. With surface sites development anticipated to begin early in 2024 and slope excavation to start in late 2024, we expect to mine the first development production cuts in late 2025. We will share additional information about Sewell as the work progresses. I will turn the call over to Dan now for some additional information on the coal markets.

Thanks, Jason, and good morning, everyone. Recent months have brought about continued economic pressures in many areas of the world, as well as intensified geopolitical conflicts, all of which influence metallurgical coal markets. Continuing effects of the Russian War, recessionary pressures, and high-interest environments have resulted in muted world manufacturing output, new orders, and employment levels, and, in the case of Europe specifically, worsening conditions for regions already stalled in a significant downturn. The uncertainty around the depth of China's economic challenges and the escalating conflict and violence in the Middle East are additional challenges affecting the stability of the global economic landscape. Despite these factors, metallurgical coal indices have strengthened in recent months amid tight supply conditions globally and the expectation of slow but increasing steel demand. According to the World Steel Association's latest short-range outlook, 2024 steel demand is expected to rise by roughly 2% over 2023 levels, with developing economies projected to increase growth at a faster pace than advanced economies, especially developed nations hindered by high interest rates and geopolitical impacts. After a slight softening of metallurgical coal indices in the early part of the third quarter of 2023, each of the four indices Alpha closely monitors began moving upward in mid-August, and have continued to show strength through the rest of the quarter and through October. The Australian premium low vol index jumped from $233 per metric ton at the start of the quarter to $333 per ton on September 30th. The U.S. East Coast low vol index increased from $227 per metric ton at the beginning of July to $258 per metric ton at the end of the quarter. The U.S. East Coast high vol A index moved up from $216 per metric ton at the start of the third quarter to $288 per metric ton at the end of September. Lastly, the U.S. East Coast HyVol B index increased from $206 per metric ton on July 1 to $238 per metric ton on September 30. As of October 31, the U.S. East Coast indices of LOVOL, HyVol A, and HyVol B indices measured $260, $280, and $238 per ton, respectively. The Australian premium low-ball index has increased from its quarter close level to $350 per metric ton on the same day. The thermal coal market, the API2 index, moved from $119.05 per metric ton on July 1st to $128.05 per metric ton as of the end of the third quarter. Most recent reports show the index remaining roughly flat against third quarter close levels with the API2 at $119.80 as of October 31st. Turning to our outlook for next year, we previously announced the outcome of our successful domestic negotiations and the commitment of roughly a quarter of our 2024 business to domestic customers for delivery next year. The balance of our shipments will be available for export into international markets. Despite some signs of instability and economic weakness across the globe, metallurgical coal indices remain strong likely due to demand expectations and sustained tight supply conditions. Lastly, you've heard a lot about the capital needs at DTA, but I'm also pleased to say that it is performing very well, and October was a record month of throughput for Alpha at the facility. We are grateful to the team there for safely achieving this new record. Looking ahead, we're excited about the capital improvement plan being developed by the partners and DTA leadership. Over the coming years, we expect to invest in this strategic asset to solidify its important role in our sales and logistics framework and enhance its ability to maximize future efficiency and throughput. And with that, operator, we are now ready to open the call for questions.

Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. One moment, please, while we poll for questions. Our first question comes from Lucas Pipes with B Reilly Securities. Please proceed with your question.

Hey, thank you so much, operator. Good morning, everyone. Andy, for a different time, I want to ask you how you came up with the name Checkmate. But to turn to more serious questions to start, can you tell us a little bit, maybe Dan, this is best for you, what drives the split between Australian linked and other pricing mechanisms? Is that kind of determined at this time as you commit tons for next year, or is that something that evolves over the course of a year, and to what extent? And as your outlook for 2024 shapes up, where would you expect that split to be? Thank you.

Good morning, Lucas. Yeah, I think The short answer to your question is the demand will drive it as well as the price. We'll follow the best – we'll look for the best economic opportunities for Alpha, but we have a lot of demand from long-term customers in Asia, South Asia and East Asia markets that are linked to the PLV, and we'll continue to pursue those opportunities. And as you know, that's where a lot of the metallurgical coal demand is and is expected to be in the future. So it's – pretty obvious why we're there and where we expect the growth.

Got it. Got it. So as it relates to 2024, should that split of Australian linked indices go up relative to this year?

Yeah, at the moment, that's tough to say. But if Europe remains a little bit slower, then it's probably likely that that splits roughly a third, a third, a third. I suppose it's reasonable to think that the Aussie link price percentage would increase.

That's very helpful. Thank you, Dan, for that color. Dan, maybe to stay with you for another question, a couple cross-currents in the market today. You commented on that in your prepared remarks. If you look at your crystal ball for met coal pricing and the level of interest you're seeing, what would you say are some of the biggest puts and takes here into year end? Thank you.

Well, I think supply remains tight for a variety of reasons. You see vessel queues in Australia starting to grow slightly. You see some here in the U.S. growing, so that'll probably keep the supply side a little tight. Demand in Asia is good, particularly in India. We still see new opportunities there. I'll speak to the alpha perspective. We're still shipping our contract business into Q4 at high levels. As we mentioned, we had a strong October at DTA. We're seeing good demand and good shipping levels.

Very helpful. Thank you, Dan. My final question on the CapEx and DTA side. So first, on DTA, the simplest way to kind of think about it, correct me if I'm wrong, is $150 million in capital spent split over six years. That $150 million, that's really what's incremental. That's question one. And then question two, in terms of the capital guidance for 2024, the 210 to 240 million, should we think of that amount as a reasonable baseline going forward or is there maybe a little bit more lumpy capital in there as well? Thank you very much.

Hey, Lucas. It's Andy. I'll answer your second question first. As far as capital, unless we see some significant changes in The cost of materials, I think our $10 per ton on sustaining will probably stay in that zip code. So, you know, $170 to $180-ish for that portion over the next, in the near term. The question on any additional development capital, so we're going to have the first half, roughly the first half of Kingston Sewell at $24, the back half will be in $25. So the next couple of years probably looks relatively similar to this year, plus or minus the inclusion of any carryover capital that's not spent. But if you're looking at it in the totality of a two- or three-year view, yeah, it's probably going to be in this zip code, at least until we get through the development project there. And then getting back to DTA, yeah, I think your math is correct. And, again, let me be clear. DTA has not approved its budget yet for 2024. So there's still some movement that could happen there. This is kind of what Alpha's estimate of what's going on, what will need to be spent in concert with the DTA leadership and the engineering they've been working through. So I think quantum-wise, it's definitely that zip code. But we'll have to, you know, as we get further into the process, we'll see more specifically. And precision is not what we're going for, but I think accuracy is probably in line with that.

Thank you, Andy. And for the avoidance of doubt, that $150 million would be kind of separate from the capital needs that you just discussed.

That's right.

In addition to, rather.

Yeah, it's quote-unquote CapEx, but because it goes through our equity earnings and JV, it's a separate line item. So we try to keep guidance and actual reported numbers on a similar basis so we don't confuse buckets.

Perfect, perfect. guidance of $40 to $50 million for capital contribution to affiliates, that just really includes the OPEX that you pay year in, year out as you ship through the terminal, right?

That's correct, and that's a standard thing that's been in the numbers since we've been in DTA. It's always a challenge trying to get that presented in a way that makes it more apparent to the public, but I think we've got a pretty good handle on it now as far as how we're disclosing it.

very clear. I really appreciate all the color, and to you and the team, continued best of luck.

Thank you, Lucas.

As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. One moment while we poll for questions. Our next question comes from Nathan Martin with Benchmark Company. Please proceed with your question.

Thanks, Operator. Good morning, guys, and thanks for taking my questions. Maybe just one more on VTA. The money you guys are going to be spending over the next several years, is that mainly just to refurbish, or is there also an opportunity there to kind of improve operations or throughput capacity?

Yes. How's that for an answer, Nate? I mean, if you're – So you start with the nameplate capacity. What we're talking about wouldn't necessarily increase true capacity, but thinking of it more from capacity that's been lost by the various mechanical interruptions and issues over the past couple of years, that's how we're thinking of it because, you know, it's simply not able to run at its potential right now. So the money spent, while it's not expanding significantly, nameplate capacity, I think it will allow us to recover some capacity that has been lost over the past couple years just because of the different issues that have come up.

Can you put numbers around that, Andy? Like remind me what nameplate is and maybe kind of where you are today then.

Well, I hate to – I can't throw numbers at it again because we don't have the plans completely nailed down. We do have several processes we have to work through on how we're exactly approaching it. And also, it varies depending on how stockpiles are utilized, whether you're just pushing coal straight out of rail cars into a boat, whether you've got any kind of deviation between met or thermal coal. So there are a lot of variables that go into play as to what the true throughput capacity could be. But suffice it to say, getting all the pieces refurbed and repaired will make it run much more effectively and efficiently than it currently is.

Got it. Okay. That's fair. And maybe just one other question on the near term. I think, Andy, you mentioned your prepared remarks, you know, the expectation to carry over sometimes into 2024. So how should we think about, you know, fourth quarter MEC full shipments, maybe at least directionally from the third quarter, or maybe another way to look at it, what will kind of get you guys to the high end or the low end for your guidance?

Doggone it, Nate. You hit me with this question at least every other quarter, and I always struggle to answer it because we hate to deal with the unknown. We just saw a quarter where we ran into some issues that didn't allow us to hit our potential. Right now we're off to a really good start for the fourth quarter. I think I'll probably just have to guide you to look at our year-to-date numbers and take that off of where we landed on guidance, our revised guidance number. I think we have a pretty high confidence level in kind of hitting down the fairway of of that delta for the fourth quarter.

Okay, got it. So, I mean, kind of down the midpoint, we'll get you maybe roughly flat-ish quarter to quarter if my math is close. So, all right. Maybe then just shifting to 24 guidance, you know, starting, again, on the shipment side of things, 16 million tons in the midpoint. I think that's up about a half a million tons versus your original 23 guidance. You talked about another mine coming online right now. Maybe that's driving a little bit of that, maybe improved logistics. You know, are you guys comfortable maintaining that roughly 16 million ton level of sales, you know, kind of looking farther out, assuming market demand remains supportive? And then, you know, are you having any success entering some new markets or sending initial cargos to new customers at this point?

Yeah, I'll defer to Dan on the second part of that, Nate. But on the first part, yeah, I think we're pretty comfortable. And again, this will vacillate. We're not locked into 16 million tons or 15 million tons or 17 million tons. It'll move as the portfolio develops over time. But I think we're pretty comfortable in this area that we're in, plus or minus half a million tons, either any direction for the time being. But The second part, Dan.

Yeah, sure. And Nate, I'll just add that the increase is due. We have two new coal mines, effectively. We have the Rolling Thunder mine, which started earlier this year, and now the Checkmate. So we've added high-ball MET production, and we've eliminated that now we don't produce the slab-cam thermal. So some of that is just a switch from thermal to MET. And yeah, we're comfortable that this coal will all find markets. Primarily, the new markets would be in Europe. We're still delivering trial shipments to several new customers in Asia and expect to do more in 2024.

That's great info, Dan. Appreciate that. And maybe with those two new mines, could you talk about what your quality mix might look like, if it differs much from the chart I think you guys usually have in your deck?

Just broadly speaking, it's just a little more highball. I guess if you have to call it an A or B, it's probably more on the highball B side, so we'd be increasing the highball piece of that pie a little bit.

Yeah, and I think, Nate, as a percentage, if you're looking at the pie chart that we have in our investor deck, when it's time to get it squared away for 23-ish numbers, I don't think it's going to look very different. I think at Dan's point, it may flex up 1% or 2% in total highball, but it's going to look really similar with I don't think there will be any kind of material changes until we do get closer to 25 when Kingston Sewell brings more low vol into the mix.

Got it. Perfect, guys. And then one more, if I could. Going back to 24 guidance and specifically the MET segment cost per ton guidance, I think the implication there is up about $2.50 year-over-year just using guidance midpoints. You gave some color and prepared remarks there. I think some of it's labor with your new agreements you put in place in August. Anything else kind of driving that uptake and then maybe what net prices are you guys assuming for that $110 to $116 range? Thanks.

I'll do the second part first and then I'll let Jason give his thoughts on cost movements. As usual, when we go through the budget, we like to inform the What we plug in for cost is usually kind of an amalgam of what the market research folks show for the 2024. And we also kind of bounce that again where the futures are. This year there's a pretty sizable disconnect between where those are, at least for the back half of the year. So we've kind of – Had to use a little bit of judgment there, but we do tend a bit more toward the conservative when we set up our budget. So I would say we're closer to the market research folks' numbers than the futures as far as pre-utilization for budget purposes. But, Jason, if you've got some more thoughts on cost.

Well, you know, at the mine sites, I think you said you understood the labor, and that's just a function of shoring up our ability to make the volume As we mentioned, we've been productive with the labor we had, but it's just about loading the mines up and producing that 16 million tons. On the other side, we're still in the middle of contract negotiations with various vendors. Some are complete, some are ongoing, and there's still a few to tie up by the end of the year. You know, the escalators that we used in the budget year over year is just kind of a weighted average, you know, of all those materials' prices.

Great. Appreciate all the color and the time, guys. I'll leave it there. Best of luck in the fourth quarter.

Thank you, Nate.

Our next question is from Lucas Pipes with B. Reilly Security. Please proceed with your questions. Lucas, you're live with our speakers. Lucas, are you muted?

Sorry about that. I was muted. That's okay. Thank you very much, operator. Thank you for taking my follow-up question. So my first one is on the transportation side. I think there's typically like a one-quarter lag in terms of price adjustments, sorry, to transportation costs with the index. So I wondered if you could speak to that for Q4. And then more broadly with where prices are today, where would you expect transportation costs to be? Any other considerations to take into account for 2024, be it inflationary pressures, et cetera? Thank you.

Well, Lucas, you're correct on what you said about the transportation rates do largely move for the seaborne shipments. They move with the indices, and they do have a lag, so that's right. So as the market moves up right behind it, our rail costs move up. Going forward, we're still in negotiations for next year's rail with our rail providers, so I really don't want to comment anymore about next year at this time.

Got it. Got it. So maybe a little bit of a benefit Q4, and then with the stronger pricing today, that would then lead to higher transportation costs early 2024, and then the broader discussion with the staff to stay tuned.

Yeah, that's directionally correct, Lucas. Yes.

Okay. Thank you for that. And then a follow-up to the volume discussion. For 2025, should we expect higher volumes with the new mines coming online?

Well, Lucas, how about we table that question until this time next year, and I'll have a budget to talk to you about. If I start trying to opine on that, then Todd's going to smack me. Because we do, we've got depletion of other mines, we've got other actions we need to take into consideration, so I'd hate to give guidance to anything when it's premature.

Got it. Got it. Okay. Well, I appreciate it. I will probably try asking it again before this time next year, but I appreciate it. And again, best of luck.

Thank you, Lucas.

We have reached the end of the question and answer session. I will now turn the call back over to Andy Edson for closing remarks.

Well, thanks again for joining us today and for your interest in alpha, and we hope you have a great rest of the day, rest of the week, and everyone please take care.

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.