Arch Resources, Inc.

Good day and welcome to the Arch Resources, Inc. fourth quarter 2020 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Beck Sloan, Senior Vice President of Strategy. Please go ahead.

Good morning from St. Louis and thanks for joining us today. While we are conducting this morning's call from Arch's boardroom, I want to assure you that the team is widely spaced and following CDC guidelines closely. Before we begin, let me remind you that certain statements made during this call, including statements relating to our expected future business and financial performance, may be considered forward-looking statements according to the Private Securities Litigation Reform Act. Forward-looking statements by their nature address matters that are, to different degrees, uncertain. These uncertainties, which are described in more detail in the annual and quarterly reports that we file with the SEC, may cause our actual future results to be materially different than those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements, whether as a result of new information, future events, or otherwise, except as may be required by law. I'd also like to remind you that you can find a reconciliation of the non-GAAP financial measures that we plan to discuss this morning at the end of our press release, a copy of which we have posted in the investor section of our website at archrsc.com.

Also participating on this morning's call will be Paul Lang, our CEM, John Drexler, our COO, and Matt Gilgium, our CFO.

After our formal remarks, we will be happy to take questions. With that, I'll now turn the call over to Paul Lang. Paul?

Thanks, Dick, and good morning, everyone. I appreciate you joining us on the call today. Let me begin by expressing my deep gratitude to the entire ARCH team for their ongoing dedication during what is quite obviously a complex and challenging time. Even in the face of a significant step up in infection rates over the last several weeks that mirrored the surge nationwide, the ARCH workforce remains steadfast in its commitment to taking all the recommended precautions to protect one another and their families from the virus while continuing to execute at the highest level as essential service providers. We're fortunate to have a disciplined and professional team, and I'm proud to be associated with them. That same commitment to excellence was on display in Archer's list of accomplishments during 2020 as we worked to reposition the company for future success. Despite all the requirements associated with navigating the global health crisis, our employees made tremendous progress in achieving a number of strategic objectives. Hitting on just some of the highlights, we maintained our strong momentum in the development of the world-class Lear South Growth Project, and we augmented our liquidity and funded the build-out of this transformational project through three successful financing efforts. The team maintained a first quartile cost structure in our core coking coal segment, despite significant market-driven volume reductions. We continued our strategic shift towards steel and metallurgical markets through the contribution of the Viper Thermal Mine to Nighthawk Coal Company. And our employees yet again demonstrated their leadership in the environmental, social, and governance arena by capturing many of the industry's top safety and environmental awards and leading the industry on all these critical fronts. We streamlined our organizational structure with a voluntary separation program that reduced corporate staffing levels by 25% and cut our overhead costs by $10 million per year. Finally, we moved quickly to align our thermal output with the rapidly changing market dynamic and initiated an accelerated reclamation and closure plan in our Powder River Basin operations, even as we continued to explore strategic alternatives for those lines. In summary, we demonstrated operational excellence in all the facets of our business, pushed ahead with our plan to create an even stronger platform for future cash generations, and continued our strategic pivot to a pure coking coal producer in a logical and thoughtful manner. As you know, ARCH began to shift its strategic focus towards steel and metallurgical markets nearly 10 years ago, and we've accelerated those efforts markedly in recent quarters. Most critically, we've delivered on our top priority of building a powerhouse U.S. metallurgical franchise supported by an outstanding cost structure, a premium slate of products, and a best-in-class growth project. With the addition of Lear South, we expect to cement our position as the premier producer of metallurgical coal in the United States and as the preeminent supplier of high-volume metallurgical coal globally. Just as importantly, we've built a platform geared to stand the test of time, with the Lear and Lear South longwalls projected to operate in tandem and to serve as our financial linchpins for the next generation. At the same time, We continue to drive forward with a strong sense of urgency in optimizing the remaining value of our legacy thermal assets and in systematically reducing the long-term closure liabilities associated with them. We took a significant step in this effort at year end when we contributed the Viper Thermal Mine in Illinois to NYHAWC, which will operate the mine going forward. As part of this transaction, we reduced our long-term, undiscounted mine closure obligations by about $21 million. As we move forward in 2021, we plan to accelerate our efforts to shrink the operating footprint of our Powder River Basin Mines and to reduce the inflated state calculated bonding requirements and long-term closure obligations associated with these mines. The next significant step in this effort will come at Coal Creek, where we plan to reduce the asset retirement obligation by around 80%, of $40 million over the course of the next 18 months. Significantly, we believe we can achieve this goal while still maintaining a cost structure in line with historic levels. Of course, the closure of Coal Creek will necessitate further reductions in our Wyoming workforce, but we expect to achieve that in an employee-sensitive way, principally through normal attrition. In 2021, we anticipate producing around 2 million tons of Coal Creek the final full year of operation at the site, before discontinuing mining and commencing the reclamation of the last active pit in 2022, followed by the demolition of the facilities. While Coal Creek will be our near-term focus, we're also in the process of developing an accelerated plan for the Black Thunder mine. At this point, we've not finalized the details as yet, but our plan will be to maintain strong cash flows in order to provide funding for the ultimate closure even as we seek to reduce final reclamation requirements. Balancing these dual objectives may translate into the establishment of a sinking fund or similar mechanism in order to facilitate putting free cash aside for future mine closure use. Of course, the speed of the wind down at Black Thunder will depend on a number of factors, including market dynamics and the state's willingness to consider reasonable reforms to its currently onerous bonding programs Regardless how we proceed, we're confident that the Powder River Basin segment is well positioned to continue to generate sufficient levels of cash to fund its own long-term closure obligations. Finally, I'd like to share a few thoughts on the metallurgical markets before handing the call over to John Drexler for further comments on our operating performance. As you're all well aware, the global economy has been shifting into higher gear in recent months in the wake of the virus-related lockdowns and disruptions of 2020. Nowhere is that resurgent more evident than in global steel markets, where production is now running well ahead of pre-virus levels. To give you a sense of that strength, the World Steel Association estimates that global steel production was up nearly 6% in December 2020 relative to December 2019. and 2020 as a whole finished the year down less than 1% when compared to 2019 in spite of the pandemic's impacts. Price tees up even more robustly with hot rolled coils trading at levels of 50 to 150% above last year's pandemic driven lows depending on the regional market. Moreover, blast furnace utilization rates in North America have climbed steadily and now stand at 76% versus just 51% at the low-water mark of 2020. That progress is emblematic of what we're seeing on the international stage as well. More to the point for ARCH, of course, global metallurgical markets are being supported by this resurgence of the steel industry, despite uncertainty surrounding Chinese import policies. As an indicator of this strengthening, the U.S. East Coast high-volume price assessment is up nearly 50% and compared to last summer's lows. In addition to the resurgent demand, the global supply cuts exacted since the downturn began in late 2019 are also bolstering the market. ARCH believes that more than 30 million tons of coking coal supply has been taken out of the market over that time frame. What's more, these production cuts came from not only the United States, but from Canada, Australia, Russia, and Mozambique. with a meaningful percentage of that total expected to be permanent. Moreover, global cooking coal producers continue to announce plans to delay or even cancel the relatively modest number of expansion projects currently in the pipeline. Obviously, some of these projects will continue, but the cadence of development has been disrupted, serving to further tighten the supply-demand dynamic. While it's too early to say whether the current price strengthening will persist, We are encouraged by what our customers are saying about their future plans and we're seeing strong interest in our remaining open 2021 volumes. In closing, let me reiterate that we remain highly confident in and deeply committed to our straightforward plan for long-term value creation and growth. As the world transitions to a post-pandemic future, we believe we're well positioned to continue to build on our proven track record of operational excellence and to excel with our low-cost metallurgical assets, our high-quality slate of products, our industry-leading ESG performance, and our best-in-class Lear South growth project. In short, we like our position and are committed to using our ever-strengthening platform to create long-term value for our owners and other stakeholders. With that, I'll now turn the call over to John Drexler for further details on our operating performance during the last quarter, as well as what we're expecting in 2021. Thanks Paul and good morning everyone. I'd like to echo Paul's sentiments about the great dedication and tremendous contributions of the ARCH workforce in recent months. 2020 has been a year like no other and I'm so proud of how the team has executed despite all of the challenges and distractions. As Paul noted, ARCH's single highest strategic objective remains the ongoing and successful build-out of our world-class cocaine coal platform. During 2020, we once again demonstrated the already significant capabilities of our existing portfolio, delivering a top-tier cost performance despite virus-related volume reduction, leveraging our sales and logistics expertise in a difficult market environment, and expanding the breadth and depth of our customer base. At the same time, we drove forward with the LearSouth expansion project that should deliver a step change in our portfolio's cash-generating capabilities. With the startup of that transformational asset in about six months' time, we expect to realize improvements in virtually every key metric for long-term success, including volumes, per ton costs, and average quality. For the years just ended, we achieved cash costs of $61.13 per ton, which was only slightly above the midpoint of our guidance at the start of 2020, despite a nearly one million ton pandemic-driven reduction in our cocaine coal shipments. In fact, we were on track to hit that $60 per ton target level for most of the year until the significant step-up in infection rates in the second half of the fourth quarter. We estimate that virus-related impacts reduced our output by more than 200,000 tons in Q4 and increased our metallurgical segment operating costs by approximately $3 per ton in that period. As for Lear South, we reported another strong order of progress and are now entering the stretch run. The operating team is well on its way developing the first nearly two-mile-long longwall panel. All of the 212 longwall shields have been manufactured, and we expect to have the entire system on site by the end of the first quarter. Additional significant milestones include completing modernization and upgrading of the preparation plant, completion of the new high-capacity loadout, and finishing the last ventilation shaft. One of the final major projects remaining is the cutover of the replacement to the existing slope belt with a higher capacity system that ties the underground network to the renovated and greatly expanded preparation plan. As has been anticipated, this major system change will necessitate a 30-day outage prior to the start-up of the longwall. The culmination of this build-out, of course, will come with the start-up of the longwall system and the lower detaining theme approximately six months from now. The excitement at the mine is substantial, as you might imagine. While we anticipate a period of several months during which we will be working the kinks out and steadily ramping output, we should start reaping the benefits of the Lear South mine well before 2021 is over. I'm also pleased to report that the projected capital spent for the mine remains within the guideposts that we provided approximately two years ago, although we now anticipate gravitating towards the higher end of that original range of $360 million to $390 million. due in large part to the virus-related shift losses, quarantines, and other impacts. As we had contemplated, the opportunity to ramp production at Lear South into a strengthened market environment appears to be increasingly likely. Our marketing team has been busy in recent months, locking down close to 2.6 million tons of incremental metallurgical coal sales during the fourth quarter for delivery in 2021. The vast majority of these new commitments have been at index, including our first-ever term business with a Chinese steel producer for 300,000 tons of Lear coal delivered rapidly from Q2 2021 to Q1 2022. To give our overall metallurgical position some perspective, we are 80% committed on this year's plan of 7.8 million tons at the midpoint, compared to 60% committed at this time last year on a plan of 7 million tons, another sign of the strength of the market. As I noted, the build-out of our metallurgical portfolio is our top strategic priority, but complementing that strategic pivot is our intensifying focus on environmental, social, and government leadership. During 2020, we once again set the industry standard for large, integrated producers with a lost-time incident rate across all of our operations of 0.93, which is nearly three times better than the industry average, and again, we've diversified producers in the United States. In addition, we again set the bar for environmental compliance, recording just one SMCRA violation across all of our operations for the fourth year in a row, as well as only one water quality exceedance against 168,000 parameters measured at 650 discharge points company-wide, for a compliance rate of 99.999%, a truly remarkable accomplishment. In addition, and as further evidence of our clear commitment to ESG excellence, Our operations claim two Sentinels of Safety Awards, the nation's highest distinction for mine safety, the Department of Interior's Good Neighbor Award, the nation's highest honor for community outreach and engagement, the Milestone Safety Award, the state of West Virginia's top safety honor, and the Green Lens Award, the state of West Virginia's highest reclamation honor. Leading the way were our two cornerstone operations, Lear and Lear South, which claim three of these five awards, thus laying the foundation for continued excellence in the future. Now let's discuss our plans for our thermal assets in just a bit more detail. As you know, we are currently exploring strategic alternatives for our thermal mines consistent with the recent move to contribute Viper to NYHRC. At the same time, and in the event those alternatives don't materialize, we are moving forward with purpose down a dual track with the objectives of reducing our thermal footprint in an accelerated fashion and optimizing cash generation at these assets for deployment in final reclamation and closure. Fortunately, we are well positioned to drive progress on both fronts simultaneously. That's because roughly 20% of our total ARO is tied to Coal Creek, even though that mine only produces around 2 million tons annually at present. In other words, we plan to focus our accelerated reclamation efforts at Coal Creek initially and our cash optimization efforts at Black Thunder where our margin potential is greatest. And we expect good results in both instances. At Coal Creek, we are targeting an ARO reduction of $40 million for around 80% of the mine's total in just 18 months or so. In fact, we have already made a good start on that effort after transferring around 40 people and a suite of equipment from Black Thunder to the Coal Creek mine in December to focus exclusively on final mine reclamations. For the year, we expect the PRV mines to ship about 48 million tons, the vast majority of which is already committed. We would also expect to achieve a per ton cost level generally consistent with the recent historical averages, even with the accelerated reclamation work at Coal Creek. While the primary focus of our reclamation efforts this year will be at Coal Creek, we also intend to pursue several projects at Black Thunder to reduce its surety bond requirements and shrink its operational footprint. We remain confident in the ability of our thermal assets to generate sufficient levels of cash to pay for their own ultimate closure costs. While we are enthusiastic about our outlook for full year 2021, we are cautious about the continuing impact of COVID-19 in the early part of the year. Due to virus-related impacts that have already idled over 25 continuous minor shifts at our metallurgical operations thus far in 2021, We expect only a modest sequential step-up in our Q1 coking coal shipments versus last quarter. Finally, as is typically the case, shipping rates in the PRV tend to be lower in the first half of the year versus the second. Let me conclude by restating our commitment to driving operational excellence and continuous improvement across the entire enterprise. We are focused on executing at a world-class level with our existing metallurgical portfolio finishing strong in the build-out of Lear South, expanding the breadth and depth of our market reach in advance of Lear South's startup, and intensifying our focus on industry leadership in the critical area of ESG performance. With that, I will turn the call over to Matt for thoughts on our financial performance. Matt?

Thanks, John, and good morning, everyone. Before getting into the financials, I would like to add a little to the discussion around our plans for the thermal operations with a focus on surety bonding. As Paul and John have mentioned, our initial priority is the accelerated reduction of the asset retirement obligation and related bonding requirements at Coal Creek. At the same time, John noted the opportunities of Black Thunder for more limited reclamation that will allow for bond reduction without any impact on our operational flexibility. The work we plan to perform over the next two years, along with the divestiture of VIPER should result in a reduction in bonding requirements of approximately $70 million, which represents nearly 15% of the total reclamation bonding for our legacy thermal operations. Clearly, that is a significant first step in reducing those obligations. The logical next step, as Paul alluded to in his prepared remarks, is to begin setting aside funds for future reclamation in line with the cash flows generated from the thermal segment in excess of current reclamation spending. Given the significant amount of reclamation currently underway, along with the typical seasonality and PRV shipping volumes, we would anticipate that funding to begin in the latter part of this year. Turning to the quarterly cash flows and liquidity, fourth quarter operating cash flows of $5 million were weaker than the third quarter, following the trend in operating results and reflecting the semiannual payment of production taxes for our PRV operations. Capital spending for the quarter increased $23 million from the prior quarter, with both project capital and maintenance spending up sequentially. Total capex was $80 million, including nearly $57 million of Lear South project costs and more than $4 million of capitalized interest. Maintenance capital for the quarter was $19 million, with substantially all of that related to the metallurgical segments. We finished the year with total liquidity of $315 million and unrestricted cash of $284 million. Availability under our credit facilities was constrained at year end given the divestiture of Viper and the lower than expected volumes in the quarter. The metallurgical prices remain at current levels. We would expect the borrowing base under both facilities to improve meaningfully throughout 2021. In addition, I wanted to note two other sources of liquidity for this year. First, we have approximately $18 million remaining to be received from our 2019 federal land settlement with substantially all of that expected in the first half of this year. And finally, approximately $6 million of restricted cash from this summer's tax exempt bond offering remains on our balance sheet and will be available to us for qualifying expenditures made at Lear South in 2021. Next, I would like to expand a bit on some of the financial guidance provided in this morning's release. Beginning with SG&A, we are getting to a midpoint of $79 million for total SG&A with cash spending of $62 million. Cash spend represents a reduction of nearly 7% from 2020 levels, even as we anticipate an increase in marketing activities as Lear South ramps up and COVID restrictions are eventually relaxed. When compared to our original SG&A guidance for 2020, total expense has been reduced by 15%, and the cash portion is more than 16% lower. With respect to interest, we are guiding to net interest expense on our income statement of $24 million at the midpoint, which represents an increase of more than $13 million from 2020 levels. For modeling purposes, the 2021 expense breaks down to cash interest expense of $27 million, non-cash interest amortization of $10 million, offset by capitalized interest of $13 million. The non-cash interest component has increased substantially due to the accounting treatment for the convertible notes. Finally, we are targeting capital spending at $210 million at the midpoint. Of that total, approximately $107 million relates to Lear South. Roughly $13 million represents capitalized interest and the remainder is maintenance and land expenditures, with more than 90% of that total related to our metallurgical operations. As you will recall, the Lear South spending includes $23.5 million associated with the replacement of longwall shields lost at Mountain Laurel, for which we were reimbursed in 2020. From a timing perspective, we expect the vast majority of the Lear South spending to occur in the first half of the year, while maintenance is slightly weighted toward the back half. Before moving on to Q&A, I wanted to briefly mention one ongoing financing initiative. As previously discussed, we expect to have the opportunity to complete the tax-exempt financing effort that we started in 2020. As you will recall, the $53 million that we raised last year was limited by the State of West Virginia's policies surrounding allocation of tax-exempt funds. We have worked with the state to obtain additional allocation and now we'll look to raise another $45 million for the remaining qualifying expenditures. Given the attractiveness of this financing, recall that the original tranche carried a 5% interest rate, we plan to pursue this opportunity in the first quarter. With that, we are ready to take questions. Operator, I will turn the call back over to you.

Of course, thank you. And if you would like to ask a question, please signal by pressing star 1. your telephone keypad if you're using a speakerphone please make sure mute function is turned off to allow your signal to reach our equipment again if you would like to ask a question please signal by pressing star 1 on your telephone keypad and we'll go ahead and take our first question from lucas pipes from b riley securities please go ahead hey good good morning everybody and uh

Well, you know, job well done on both a very difficult COVID year and then on the ESG fund in particular as well. I wanted to first go into CapEx a little bit more. I think you touched on it in the prepared remarks, but can you provide a breakdown on kind of growth capex with Lear versus maintenance, sustaining capital in 2021. And then as we look past 2021, what should we expect? Of course, it's early, but can you give us a sense for where you think longer-term capital spending post-Lear would shake out? Thank you.

Hey, Lucas. This is John Drexler. As we've indicated, we're still within the guidance range of $360 to $390 million at Lear South. We've indicated that we're going to be trending towards the upper end of that range, given some of the challenges of COVID and some of the inefficiencies that we've seen here late in the fourth quarter. In addition, the CAP Act includes the insurance recovery of $23.5 million for the longwall shields that we lost in 2019 at Mount Laurel. So add the upper end of the 360 to 390 plus the $24 million of that insurance recovery, and that begins to give you the total project for Lear South. Then we highlighted the maintenance capex of $13 million. I'm sorry, capitalized interest of $13 million. And then the remainder for this year would be maintenance capex. As we look forward, we've indicated that prior to Lear South starting up, our maintenance capex would generally run somewhere in the 80s to high 90s or under $100 million. I think with the startup of Lear South and then the ongoing capital needs there, that $100 million maintenance capital range or slightly above that is probably from a modeling perspective where we would see maintenance capital going forward. We're excited to get LearSouth up and running. We think it's a transformational project. It's been a big commitment for us here as we've worked through the depth and challenges of COVID and the impact on the market. But we've got great confidence as we're coming to the finish line here and bringing this online into a strengthening market and the cash-generating capability as we move forward.

And look at this, Dad, just to connect the dots really one more time clearly so that we address this. So to get to that $390 million for Lear South, that's another $84 million or so of spending that we have. We have the $24 million for the replacement shields, which effectively is what we got compensated for in 2020 with the insurance recovery. So that gets you to with rounding around $107 million. The capitalized interest at about $13 million, so that gets you to about $120 million. And then $90 million or so for maintenance capex, which gets you to that $210 million at the midpoint.

Terrific. Terrific. Very helpful.

You know, Lucas, one thing I did want to point out, and I think the team's been rather modest about this, but if you think about it, it's pretty unusual in this industry to have this big a project, this complicated a project. It's effectively being brought in on time and on budget, so just a tremendous amount of respect for the team and everything that John and the rest of his group has done.

Thank you. Yeah, that's great to hear.

My second question is on the 2021 guidance. And there's this kind of thermal bucket. And I wonder kind of, I think in your prepared remarks, you touched on PRB costs being similar to recent historical rates. But then I look at this thermal, guidance, and does the cost in there, $1,150 to $1,200, does that include, you know, some of your Western operations, for example, or what you'd say, or maybe some, you know, other thermal, or can you help us place this guidance? Is this exclusively PRB or are there other moving pieces in there as well? And this applies not just to the cost, but also to the price volumes as well.

Yeah, Lucas, I'll start off here and others can jump in as well. As you know, as we continue our transformation to be exclusively focused on metallurgical coal, we've had two additional thermal segments, the PRV and then other thermal. Other thermal included our Viper operation in Illinois and our West Elk operation, our Longwell operation in Colorado. With the contribution of Viper into Nighthawk, which kind of continues the path that we have here and focusing on that, that leaves us with the combination of both the PRB and the West Elk operation in Colorado, which we are now putting together into Thermal. The guidance that we're representing for thermal, the vast majority of that obviously is influenced by our PRV operations and specifically Black Thunder. I think if you look back to last year in the PRV segment for 2020, despite the significant adjustments we needed to make in the PRV segment, we delivered costs at around $11.50 a ton for full year 2020. As you look to the guidance in that thermal segment, we're guiding 1150 to 12. Obviously, heavily influenced, the vast majority of that influence is the performance in the PRB. Our West Elk operation contributes about 2.5 million tons on an annual basis. We've worked to reposition that asset here. There has been some opportunity here. We've not gotten into discussion on the markets, but what we've seen in the Newcastle market to get volumes placed there as well. So we feel good, obviously, about the thermal segment. The guidance there is both a combination of the PRV operations and our West Elk operation, and that's how we carry forward.

Look, as John said, we thought it made sense to roll – the legacy thermal assets together given how we're proceeding with our strategy. Additionally, West Elk would have been a segment by itself, so we didn't have comfort sharing that kind of specificity on West Elk alone.

Understood. I appreciate that clarification. Last one for me, coking coal volume outlook, quite robust. Can you share with us kind of what we should expect in terms of cadence on the volume side, Q1, Q2, Q3, Q4, second half of the year more broadly? And how would you recommend we think about that ramp up over the course of the year? Thank you.

So, Lucas, as we indicated in our prepared remarks, we're continuing to see the impact of COVID here. We think over time we'll continue to manage the COVID effectively. We're encouraged with the vaccine rollout, but that's going to influence the first quarter shipment levels. We're guiding to, we believe, you know, rates that would be similar to what we just experienced in the fourth quarter. As you know, we've got the opportunity here to bring the LearSouth operation online here in the third quarter is what we're guiding to. Obviously, once the long wall comes up and starts to run, we'll be working out kind of the nuances of starting that up. It typically takes a month or so to continue to work through that. And then over time, we'll continue to focus on ramping up and optimizing the that asset, but with that long haul coming online, you can expect to see an increase in shipments in the back half of the year. So right now from the portfolio we have, we've indicated flat shipment levels for Q1. I think you could look to some of our historical trends in modestly better quarters historically to kind of build Q2, and then it should continue to ramp up as we step through Q3 and into Q4 and ultimately to that, what we're guiding to now, that midpoint of 7.8 million tons.

Terrific. Well, really appreciate all the color. Everybody, best of luck and thanks. Thank you, Louis.

And as a reminder, if you would like to ask a question, please signal by pressing star 1 on your telephone keypad. It is star one if you would like to ask a question. And we'll go ahead and take our next question from David Gangliano from BMO Capital Markets. Please go ahead.

All right, great. Thanks for taking my questions. I just wanted to ask a little more on the Metco side, first of all. On the pricing dynamics, obviously gave us the 80% that sold committed on volumes. Can you hear? Walk us through, you know, each of those buckets in terms of how they're actually going to be priced as we go through the year as well.

So, Lucas, I'll start here. Once again, others can jump in. So, you know, we feel real good about the book that we've built. As we indicated, having 80% committed at this stage of the game with the vast majority of... That commitment being unpriced and exposed to market pricing, we feel is a very strong position. You know the portfolio of our production prior to Lear South coming online between Lear and the Sentinel, the predecessor to Lear South operation. You're running at about five million tons of coking coal with that being high vol A. Then you've got mountain laurels high vol B, which is a million tons, and you've got Beckley low vol, which is a million tons. We're real proud of that portfolio. What we've seen, and I'm very proud of the marketing team, is a very strong market environment. We put a lot of MET gold to bed over the course of the last quarter. With all of that, it indexed pricing, pricing in a market that was improving. You can take that and spread the market prices across the qualities and average back to build the rest of the model. As you look, David, obviously we've got about, if you look at the midpoint of our guidance, about 25% could be at fixed price. So that leaves about 75% of our remaining position subject to index pricing. And I think more specifically, as I understood your question, the vast majority of that's priced off East Coast indices or assessments, although there's a small percentage that has off the Australian PLDs.

So it's DAC. And so most of our Asian business is priced off of that, as Paul said, off of the Australian PLV price.

And so you will see here in the first quarter, a reflection of that fact, the fact that the PLV had lagged pretty significantly. You'll see that in our pricing in the first quarter. Having said that, with the recovery, that'll be short-lived. And so that business we've signed into Asia, you know, based on Queensland pricing, you know, should rebound significantly in reflecting what we've seen in terms of the balance in terms of PLV pricing.

Additionally, you know, we did note that we sold about 300,000 tons into China. That is CFR business, and so that would be priced based on the delivered price into China, which, as you know, is quite strong right now, well over $200. And so that's advantageous as we sit here today.

So, Dave, I mean, even if you look at the averages for Hyvalé, our primary product, U.S. East Coast, for the fourth quarter, those averages were $121 a metric ton delivered East Coast. You know, through the end of last week, high vol a's averaging at close to 150. so clearly you know over a 25 increase in in that primary market for us strength across all of the markers um so we feel good about how the book is built and how it will perform as we move forward okay that's helpful thanks so i think i got most of that down i just wanted so 75 open

And can you just break that bucket, that 75% piece, can you break that into, maybe just frame it on a percentage basis or on a times basis, how much is actually linked to that Atlantic Basin price that is significantly higher than the Pacific Rim price, Pacific Basin price, and how much is actually linked to the Pacific price?

Dave, it would be more than 75% would be that U.S. East Coast price.

Okay. Okay, thanks. That's helpful.

Of course, the vast majority of that being to the high vol A, the high vol A marker specifically given that that's, you know, that's how we're weighted pretty heavily.

Okay, perfect. Thank you. And I just want to switch gears to the surety bonding reclamation topic. And I apologize, I'm not fully up to speed on this subject. But I'm just wondering if you could help us

the potential size of this sinking fund that you flagged?

Yes, Dave, this is Matt. I'll start on that. In terms of the reclamation work that we will ultimately have to do in the PRB, I'd characterize it in really two distinct things. One is work that we can do on an ongoing fashion while production continues. and the other is work that essentially can't be done until we're done mining and no longer generating revenue. It's that second piece, kind of the end of the mine life that we think makes sense to build a sinking fund for. The remainder, and we've worked with our sureties to make sure they understand the work that we're doing and the focus we're putting on that. The remainder, we think as long as we're remaining as current as we can be, there's no need to build funding towards that. As we look at this year, just to kind of frame up what we're talking about, based on the thermal guidance, if you use roughly 50 million tons and an average price is rounded to $13, we're going to generate about $50 to $60 million in the thermal operations. The CapEx needs are going to be less than $10 million, so there's going to be, call it roughly $50 million, $40 to $50 million available. We're going to spend the majority of that on reclamation work being done today, probably $25 to $30 million at Coal Creek, and it's going to leave somewhere in the neighborhood of $15 to $20 million that would be available to put into a fund that will go for those end-of-the-mine life activities. So that's kind of the way we're thinking about it here in terms of what that fund builds up to over time. At Black Thunder, there's probably roughly half of their ARO is in that second bucket, so something in the neighborhood of $100 to $120 million over time that we would have to build to. But that's how we're thinking about it today, and as I mentioned, had good discussions with our surety partners about that concept. They're very supportive of the work we're doing today and the fact that we're meaningfully going to be reducing both the ARO and the bonding and think that's a good path forward.

And Dave, I think Matt laid that out very well. Just a couple other items maybe to comment on. We couldn't have two better examples in the portfolio that we're working on, Coal Creek and Black Thunder. Coal Creek, as we've indicated, at the end of its mine life, we're in a position now where we can make significant advances in final closure of that operation that does two things. It not only reduces the bonding requirement, but it also eliminates the ARO, the Reclamation Obligation recorded on the balance sheet. At Black Thunder, where we continue to have the opportunity given markets to generate meaningful cash, our focus is on reducing the footprint while simultaneously producing that coal, generating cash, and using that cash generated to shrink the footprint. And then also, as Matt indicated, provide for that sinking fund over time for the final mine footprint. as we look to the future. So hopefully that gives you a little more color and insight on that.

David, Jack, and just one final point on that. I know it's a question that some have had.

It's a multifaceted effort and a multifaceted engagement with the surety. Certainly we're conveying to them that strong commitment to a conservative balance sheet. You saw that with the three financings we did during 2020.

so making sure that it's clear that we have lots of cash on the balance sheet and a very strong financial position generally. We've kept them apprised of Lear South coming online, which is going to greatly expand our cash-generating capabilities. We continue to convey, as John just described, that we're well committed in the PRB, and we will continue to generate meaningful amounts of cash in the PRB. We have the aggressive reclamation and closure plan that we continue to expand upon, As announced today, the closure of Coal Creek has the next step, and this really accelerated closure of Coal Creek.

Matt laid out the thinking fund mechanism that we are contemplating. We're focusing on both reducing the bonding as well as the asset retirement obligation, and then we're going to be providing sort of ongoing progress.

So we think all those things should provide a lot of comfort to our providers and feel good about where those discussions are today.

Okay, that's Very helpful. Thank you. So when you take all of that together, is it expected that the thermal coal business, you know, the cash generated from the remaining thermal coal business will sort of be ring-fenced or whatever and isolated and that will be you know, enough for the surety bonding requirements? Or is there an expectation that some of the free cash flow associated with the MET business will also end up funding the surety bonding requirements?

Yeah, Dave, this is Matt. I think our expectation today is that, you know, given the, certainly the committed business we've got in the near term, but also the plants that we're selling to and our view for the PRB demand over the next handful of years, that there's enough cash that can be generated in the thermal business to pay for the obligations that are there.

And, Dave, that's a reflection, I think, of just once again the tier one nature of the assets that we have out there. You know, for years, despite the significant changes we've seen in volume levels, the outstanding team we have out there has continued to deliver on costs, costs that allow us to generate cash. And as we sit here today, we've got great confidence that we'll be able to continue to do that moving forward.

David, as John mentioned, I mean, you look back over the last 10 years as we've systematically reduced production, we've maintained a margin that has been pretty consistent over that timeframe. And so we have the ability to flex as we need to flex, still generate cash. And yes, over time, that 50 million tons will become 40 million tons, will become 30, but still generating meaningful amounts of cash.

We've also talked extensively about the conservatism built into some of our assumptions.

on the liability, so we feel quite good about the thermal assets being able to continue to sort of, you know, pay their own way here, pay final closure costs, you know, from those online cash flows.

You know, David, without, you know, pushing this down the road too far, you know, I think if you stand back, the way I look at this is pretty simple. First, I think what we're doing, we're taking positive control of the situation. We're controlling the things that we can steer. The other thing is, and it's, you know, just from my experience, reclamation never gets cheaper or easier. I think if we get it done and we get it done quickly, we have always tended to get it done cheaper than what we have on the liability. So that's kind of the overriding philosophy of what we're trying to do here.

Okay, great. Thank you very much.

And it appears we have no further questions. And with that, that does conclude our question and answer session. I would now like to turn the call back over to Paul Ling for any additional closing remarks.

I'd like to thank everyone again for your interest in ARCH and taking the time today to participate in our quarterly call. As you can tell, our optimism and enthusiasm continues to build as the startup in the Lear South Longwall draws closer. While we're trying to guess market timing is always fraught with peril, It appears that we could be very well positioned to take advantage of a post-pandemic era in which many countries are looking to stimulate their economies at the same time that pent-up consumer demand is starting to materialize. However that timing plays out, we intend to be prepared with a significant step-up in capabilities that we're going to recognize with our expanding Coke and Coal platform. With that, Operator, we'll conclude the call, and I look forward to reporting to the group in April. Stay safe and healthy, everyone. Thank you.

And with that, that does conclude today's call. Thank you for your participation. You may now disconnect.