Arch Resources, Inc.

Good day and welcome to the ARCH Resources Incorporate fourth quarter 2021 earnings conference call. Today's conference is being recorded. I would now like to turn the call over to Dex Sloan, Senior Vice President of Strategy. Please go ahead, sir.

Good morning from St. Louis and thanks for joining us today. 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 CEO, John Drexler, our COO, and Matt Gilgham, our CFO. After our formal remarks, we'll be happy to take questions. With that, I'll now turn the call over to Paul. Paul? Paul?

Thanks, Dec, and good morning, everyone. We appreciate your interest in ARCH and glad you could join us on the call this morning. I'm pleased to report that overall, ARCH finished 2021 in a strong fashion, making tremendous progress on nearly every one of our key strategic priorities, despite some of the potential challenges we experienced in the last three months of the year. During the fourth quarter, we delivered a record gross margin in our core metallurgical segment, ramped up to near-normal production levels at Lear South, generated high levels of cash in our legacy thermal segment, drove ahead with our efforts to reduce and to fees the long-term closure liabilities at those thermal assets, and restored the balance sheet to pre-pandemic strength. In keeping with this significant progress and giving the Board's great confidence in the company's business outlook, we are today announcing the resumption of a robust, multifaceted, capital return program that we believe will drive significant incremental value for our stockholders. As you may recall, during the initial phase of our capital return program from May 2017 through March 2020, we returned more than $900 million to stockholders through recurring quarterly dividend and the repurchase of approximately 40% of our shares outstanding. We paused that program in Q1 of 2020 in the early stages of the pandemic to preserve capital and to facilitate the ongoing build out of Lear South. We viewed that decision as a relatively easy one given the transformational nature of the Lear South project and its tremendous potential to elevate our future cash generating and capital return capabilities. But we also expressed our resolute expectation that we would resume our capital return program Once Lear South was up and running, our balance sheet was restored to its pre-pandemic strength, and we mapped out a plan to address the closure liabilities of the thermal assets. With Lear South now approaching normalized production levels, the balance sheet effectively in a net debt neutral position, and the Thermal Mine Reclamation Fund established and systematically increasing, we have arrived at that moment. The board views this as an entirely appropriate time to launch the capital return program. It is employing a new allocation model that we view as balanced, durable, and well aligned with stockholder interests and preferences. This new allocation model has two complementary tracks for allocating our future discretionary cash flow, which we define as cash flow from operations minus capex and minus contributions to the newly created thermal mine reclamation fund. We plan to return the first 50% of our discretionary cash flow to stockholders through our existing fixed quarterly cash dividend, along with a new variable quarterly cash dividend. We intend to use the remaining 50% of the discretionary cash flow for possible share buybacks, special dividends, the repurchase of potentially dilutive securities, and or capital preservation. This last component, capital preservation, is worth highlighting because it not only helps ensure our ongoing financial flexibility, but also enhances the opportunity for potential buybacks at points throughout the full market cycle. As indicated, we plan to deploy this new capital return model in the second quarter of 2022 based on the first quarter's discretionary cash generation. We intend to pay our new variable quarterly cash dividend along with our continuing fixed quarterly cash dividend simultaneously, and on the same schedule, we pay our recurring quarterly cash dividend. We're confident that this new capital return model will drive significant value for our stockholders in future periods and look forward to reporting on these capital returns as we proceed through the year. Moving to ARCH's ongoing strategic pivot towards steel and metallurgical coal markets, we remain focused on our clear and unwavering strategy for achieving this objective. As previously noted, the centerpiece of this pivot, the development of a world-class coking coal portfolio, is nearing completion with the ramp towards full production at ClearSouth. But we're still moving forward with other components of this transition of becoming a pure-play coking coal producer as we harvest the remaining and still significant value of our legacy thermal assets continue to shrink their operational footprint, and drive forward with pre-funding of their final closure costs. Over the course of 2021, we reduced our asset retirement obligation in the Powder River Basin by roughly 20%, completed final reclamation work on the vast majority of the disturbed area at the Coal Creek Mine, preparing that operation for final closure, and made an additional investment in a new thermal mine reclamation fund that we believe could approach fully funded status by the end of 2022. In addition, we acted further to pare down our thermal operating exposure through the sale of our equity interest in Nighthawk Holdings for $38 million. As you know, Nighthawk is a thermal coal producer in the Illinois Basin. We believe that these complementary steps, coupled with our recent success in building out a substantial and profitable book of contract business, for our thermal assets, positions us well to either pursue the monetization of the thermal assets on the one hand, or to continue to wind them down in a value-creating and responsible manner on the other. Now I'd like to share a few thoughts on coking coal markets before passing the call to John. Coking coal markets remain tight at present, with ARCH's primary metallurgical product, high-volume coal, currently assessed at $390 per metric ton on the US East Coast. While we clearly don't expect these elevated prices to last forever, we continue to view the overall coking coal markets as well supported. Here at the outset of 2022, global steel output remains strong almost everywhere apart from China. And even there, we see indications that Chinese steel sector could be shifting back into an expansion mode in the not too distant future. In addition, Indian steel producers are reinitiating their pre-pandemic expansion projects, and India's coking coal imports have resumed their strong upward trajectory. Just as significantly, global coking coal supplies remained under pressure. Australian coal exports fell by roughly 4 million tons in 2021 when compared to a week 2020, and were down nearly 10% when compared to the pre-pandemic year of 2019. While U.S. coking coal production bounced back meaningfully after a challenging 2020, it also continues to undershoot pre-pandemic levels by a wide margin. Finally, Canadian export levels were relatively flat in 2021 on a year-over-year basis against what was quite obviously an already depressed level. In short, we believe 2022 is shaping up to be another strong year in coking coal markets. We expect countries around the world to resume and steadily accelerate efforts to build out new, fuel-intensive, low-carbon economies. With our world-class metallurgical asset base, premium high-ball A product slate, industry-leading ESG performance, and top-tier marketing and logistics expertise, we are confident in our ability to capitalize on these developments and trends. both in the near and long term, and to generate substantial value for our stockholders and other key stakeholders in the process. With that, I'll now turn the call over to John Drexler for further details on our operational and marketing performance. John?