Arch Resources, Inc.

The conference will begin shortly. To raise your hand during Q&A, you can dial star 1 1. Good morning, and thank you for standing by. Welcome to the Arch Resources third quarter earnings conference call. At this time, all participants are in a listen-only mode. And after the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. That's star 1 1. And you will then hear an automated message advising you that your hand is raised. Please be advised that today's conference is being recorded. And I would like to now hand the conference over to your first speaker today, Dex Sloan, Senior Vice President, Strategy at Arch Resources. Please go ahead.

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

Thanks, Nick, and good morning, everyone. We appreciate your interest in ARCH and are glad you could join us on the call this morning. I'm pleased the ARCH team delivered a strong operating performance in Q3, generating a total of $454 million in operating cash flow while managing through rail disruptions in the West, isolated geologic challenges, and inflation-related cost pressures. We view this record-setting achievement as clear evidence of one of ARCH's most significant strengths, our substantial cash-generating capabilities. In addition, our record cash flow performance served to showcase yet another one of ARCH's core strengths, our powerful and value-creating capital return programs. As you know, the Board relaunched the Capital Return Program in February after a two-year hiatus during the build-out of Lear South, and it now stands as the centerpiece of our value proposition. ARCH's Capital Return Program is governed by a simple but carefully considered allocation formula that calls for the return to shareholders of 50% of the discretionary cash flow via a dividend and the deployment of the remaining 50% principally through share repurchases and or the settlement of potentially dilutive securities. With a $454 million in operating cash flow netted against just $41 million in capital spending, we generated a total of $413 million in discretionary cash flow during the quarter. That level of cash generation translates quite clearly into strong value-driving returns for our shareholders, when we run through our capital return formula. In keeping with the tenets of this formula, the Board has just declared a dividend of $206.4 million, or $10.75 per share, payable on December 15th. Complementing this dividend, we also expect to deploy a significant amount of cash associated with the other 50% of our capital return program in Q4. And while we've delineated several options for the use of this second 50%, we continue to view share repurchases as an attractive investment opportunity as well as an effective means of returning capital. In addition to the progress we've made in generating discretionary cash in Q3, we also made great progress during the quarter in deploying discretionary cash while simultaneously managing our liquidity in a prudent fashion. During the third quarter, ARCH deployed approximately $76.8 million to repurchase nearly 429,000 shares, or approximately 2.3% of our shares outstanding at June 30th. Along with this, we used cash to settle an incremental portion of our convertible debt, thus avoiding an additional 101,000 shares of dilution. In short, we've already delivered in a significant way on the value-creating potential of the capital return program that was put in place just eight months ago. As we look ahead, we expect to continue that momentum through ongoing returns, as well as our sharp focus on generating additional discretionary cash and to continually recharge the program. While the capital return program is the culmination of carefully crafted multi-year strategy, It is worthwhile to recap the team's significant efforts so far in 2022 that got us to this point. In sum, since the start of the year, we've generated more than a billion dollars in operating cash flows. We've fortified the balance sheet through the reduction of $427 million, or 71% of our total indebtedness, contributed $110 million to our industry-first thermal mine reclamation fund, which brought it up to its targeted level of $130 million and grown our net cash position by $588 million, giving us a $323 million net cash position at the end of the quarter. In turn, these efforts have afforded us the ability to deploy a total of $678 million inclusive of the December dividend under our capital return program which, again, was just rolled out in February. This is a great deal of progress in a short period of time and a strong indication that we're committed to delivering on our clear, consistent, and actionable plan for value creation. Before turning the call over to John, I'd like to spend a few minutes talking about the current market dynamics, starting with our core coking coal business. Even after the step down from historic levels achieved earlier in the year, cooking coal prices remain at constructive and profitable levels. This is impressive given the recessionary pressures that continue to build around the world, and more impressive still when you consider the knock-on effect these pressures have had on global steel production, which is down around 4%. We believe this resilience of the metallurgical markets is largely attributable to the profound underinvestment in coking coal supply in recent years. Despite strong coking coal prices for the better part of the last six years, global coking coal supply in the major producing regions continues to languish. In Australia, which is the source of over 50% of the seaborne metallurgical supply, coking coal exports are down nearly 7% year to date, even when compared to last year's already weakened levels. In the United States and Canada, exports are up modestly versus 2021, but continue to dramatically lag pre-pandemic levels. At the same time, the outlook for Russian supply continues to dim in face of import bans in many countries, logistical challenges, and an increasingly negative investment climate. While cooking coal markets have come under pressure, global thermal markets remain at near historic highs. Importantly, These strong market dynamics are helping to buttress coking coal prices while simultaneously creating attractive seaborne opportunities for Arches' legacy thermal products. The price for thermal coal out of Australia currently stands at nearly $387 per metric ton, and the price for thermal coal into northern Europe stands at nearly $269 per metric ton. Arches sold over 200,000 tons of coking coal to thermal customers, for delivery in the fourth quarter of 2022, and we're actively exploring other such opportunities where it makes sense. On the legacy thermal side of the business, ARCH has continued to deliver on its dual objectives of driving forward with an accelerated reclamation plan while simultaneously harvesting cash from these assets. By employing this logical wind-down strategy, We believe we're delivering the greatest long-term value for our shareholders, while at the same time providing an appropriate transition period for all of our stakeholders, including our employees, our customers, and the communities in which we operate. A major part of this responsible approach is our industry-first cash thermal mine reclamation fund, which ensures there'll be an appropriate level of funding on hand complete final reclamation work at these operations when the time comes to shut them down. Following this strategy, ARCH's legacy thermal operations delivered $97 million in segment level adjusted EBITDA during the third quarter, while expending less than $5 million in capital. That brings the total amount of EBITDA generated by the thermal segment over the past six years to just under $1.2 billion while investing only $123 million of capital. While that's an impressive figure, we believe the stage is set for more of the same in Q4. What's more, given our significant book of contracted domestic thermal business and continued strength in metallurgical thermal pricing, we're becoming increasingly optimistic about our ability to replicate this year's strong thermal segment contribution again in 2023. In closing, let me reiterate that 2022 has been a period of great ongoing progress at ARCH. Even with the typical mining challenges noted earlier, our expanded and upgraded coking coal portfolio continues to generate robust levels of cash. In addition, we believe the medium-term outlook for significant and complementary contributions from our de-risk legacy thermal segment continues to strengthen as well. In short, We believe the stage is set for continued success, ongoing value creation, and most significantly, substantial shareholder returns. With that, I'll now turn the call over to John Drexler for some additional comments on our Q3 operating performance. John?

Thanks, Paul, and good morning, everyone. As Paul just discussed, the ARCH team delivered record operating cash flow and drove exceptional ongoing progress on our strategic plan during the quarter, even as we navigated through logistical challenges, inflationary pressures, and localized geologic issues. Most importantly, the team executed at the highest level in the most critical areas of performance, safety, environmental stewardship, and other key ESG metrics. On behalf of the entire management team, I want to thank the ARCH workforce for their continued dedication to the highest environmental, social, and governance principles. Let's begin with the key drivers of our Q3 performance. As indicated, our core metallurgical segment generated robust levels of cash during the quarter, even as we addressed the isolated geologic challenges at Lear South that acted to suppress the segment's sales volumes and pressure its unit costs. The good news is that, as anticipated, we advanced through that area of tough cutting in early September and have been achieving much improved advance rates and productivity levels ever since. Looking ahead, we fully expect productivity levels to continue to march upward as we progress through the first five panel districts, and based on what we have experienced in our ongoing development work, believe the conditions in District 2 should be better still. Again, we're pleased with the trajectory we are achieving at Lear South. We're off to a good start in October, and we fully expect meaningful improvements in both metallurgical segment productivity levels and unit costs in Q4, followed by further improvements in 2023. Before proceeding, let's talk about what to expect for coking coal volumes in Q4. As you may have noted, we are now projecting, based on the midpoint of our revised annual guidance, an increase of around 15% in our coking coal shipments during Q4. That step up reflects the continuing progress we are making at Lear South and also underscores the fact that we expect still further improvements in productivity in 2023 as we move towards our expected normalized run rate. It's also worth noting that, again, given our full year cost guidance for the metallurgical segment, we are also anticipating a 10% or so reduction in average costs in Q4 when compared to Q3. While that represents significant progress, I want to stress here that we would expect still further improvements on the cost front in 2023. As Paul mentioned and embedded in our projected coking coal volume guidance for Q4, we anticipate shipping more than 200,000 tons of coking coal into thermal markets in Q4 at prices generally consistent with current East Coast coking coal marks. As we have stated in the past, we remain staunchly committed to serving the metallurgical needs of our longstanding steel customers, but we are also happy to redirect tons to thermal customers in the absence of more value-creating alternatives in the steel arena. In fact, we continue to work hard to identify additional crossover opportunities and believe our Q4 shipments could serve to garner further thermal market interest in our high BTU coking coal products. During the quarter, we also entered into value creating fixed price agreements with North American customers for a small percentage of our projected 2023 coking coal output. In total, we locked in approximately 1 million tons of business for delivery next year, at an average net back of nearly $190 per ton. Given our anticipated cost structure for 2023, this business should equate to a substantial contribution to next year's cash flows, despite constituting only 10% or so of our projected 2023 metallurgical output. As we have stated many times in the past, our primary focus remains the 300 million ton plus per year seaborne market, where we can compete very effectively and where we have established an expansive marketing presence and an excellent reputation. Transitioning now to the legacy thermal side of the business, I'm pleased to say that we continue to deliver on the plan for the thermal segment by generating substantial amounts of operating cash flow while managing CapEx tightly. Fortunately, we are confident we can accomplish this even while continuing to manage through significant rail service issues, specifically in the PRB. As Paul noted, the thermal segment has generated nearly 10 times more segment level EBITDA than it has invested in capital over the past six years. And the thermal team delivered more of the same in Q3. To reiterate, the thermal operations generated $97 million of EBITDA during the quarter against less than $5 million in capital. Moreover, we believe we are exceptionally well positioned to maintain that impressive ratio of cash generated to capital expended in 2023. In terms of top-line considerations, we have a very profitable book of business already in place for our thermal operations for both 2023 as well as for several years into the future, along with the logistical network and throughput agreements needed to move a limited but highly leveraging volume of thermal coal into extremely tight seaborne thermal markets. As for the PRB, we are now more than 90% committed for 2023 when measured against projected 2022 shipping levels. At average realizations, that should drive another very strong contribution to cash flow next year. In addition, our West Elk operation is essentially sold out for next year at a capacity of 4.5 million tons. Given the high percentage of our sales committed at fixed price, Fixed pricing combined with the opportunity for incremental export volumes against a very favorable 2023 futures curve, we believe that the thermal segment's prospects for replicating its projected 2022 cash generation are strong and improving. We will provide a complete update on 2023 guidance at the fourth quarter earnings call. Before turning the call over to Matt, let me conclude with a few words about our Q3 performance in the ESG arena, where we continue to build on our already industry-leading execution. Through the first nine months of 2022, ARCH's subsidiary operations have achieved an aggregate lost time incident rate of approximately three and a half times better than the industry average over the same period. In addition, our subsidiary operations recorded no environmental violations during the third quarter, while extending their string of zero water quality exceedances to 31 months. Finally, the Coal Creek Mine, where the Arch Team has completed roughly 75% of final reclamation work over the course of the past 21 months, was honored by the State of Wyoming with the 2022 Excellence in Mining Reclamation Award. In short, it was another impressive performance by the team, which remains committed to raising the bar even higher in this critical area of performance. With that, I will now turn the call over to Matt for further discussion on our financial performance and results. Matt?

Thanks, John, and good morning, everyone. I'll begin by providing additional detail about third quarter cash flows, which, as Paul noted, were highlighted by record operating cash flow of $454 million. To put that into perspective, that amount exceeds any full year total that ARCH has generated in the last 10 years. In addition to solid underlying operating earnings, We benefited from favorable changes in working capital, with the decline in our accounts receivable contributing $247 million to the quarter's total. While this trend was expected after the significant working capital increase in the second quarter, the actual amount was a good deal higher than anticipated. On the other hand, operating cash flows were adversely affected by a $30 million contribution to our thermal reclamation fund, with the accelerated payments into that fund now complete. Turning to the investing and financing cash flows, we spent $41 million for capital expenditures in the quarter while utilizing $186 million in the capital return program with nearly $110 million in dividend payments, $57 million invested for share repurchases, and $19 million used to retire additional convertible bonds. Discretionary cash flow for the third quarter was $413 million. and under our capital return formula, our board has declared a dividend of 50% of that amount, or $10.75 per share. That dividend will be paid on December 15th to stockholders of record on November 30th. We ended the quarter with cash on hand of $501 million and total liquidity of $593 million, including availability under our credit facilities. The timing of customer collections late in the quarter, including some payments that were made prior to their due date, pushed cash and liquidity to levels that were well above our target. As I stated last quarter, our goal is to end each quarter with minimum liquidity of $250 million to $300 million, supplemented by enough additional cash to cover a substantial portion of the following quarter's dividend. Before moving on, I wanted to note one additional liquidity highlight from the quarter. In August, we finalized the amendment and extension of both our accounts receivable securitization facility and our inventory credit facility. The term of both facilities now extends to August of 2025, and the size of the securitization facility was increased from $110 million to $150 million. These facilities continue to enhance our liquidity and provide necessary letter of credit capacity. We are appreciative of our long-term bank partners and their continued support of the company. Looking forward to the fourth quarter, While we expect improved operating performance, discretionary cash flow is likely to decline from third quarter levels. The favorable changes in working capital in Q3 are clearly not repeatable, and in fact, we would expect to see a working capital increase. Accounts receivable at the end of September were at much lower levels than normal as compared to our revenues, and we expect that relationship to revert to historical norms over the course of the fourth quarter. From a capital return perspective, we would expect larger cash outflows in Q4, both the dividend, as we've already discussed, and in the amounts deployed in the second 50% of the program as well. As to the latter, the amount we are able to deploy in any given quarter will likely vary greatly depending on the timing of cash flows, especially in relation to normal blackout periods. While that worked against us in the third quarter, we are starting the fourth quarter with sufficient capacity, even given our liquidity and cash targets, to nearly double Q3 spending levels on the second 50%. In terms of our priorities for that part of the capital return program, the third quarter activity provides a good roadmap. Our primary focus will likely be share buybacks, but we will continue to look for attractive opportunities to repurchase the remaining convertible bonds. At the end of September, our remaining authorization for share repurchases was more than $442 million. Regarding the bonds, we have now settled or repurchased approximately $130 million of the original principal value, leaving just $25 million outstanding. Assuming a share price of $140 and settlement using cash and shares, those bonds would represent potential dilution of approximately 625,000 shares. As a reminder, the cap call that we purchased at the time the bonds were issued remains outstanding. The cap call is deeply in the money with an intrinsic value of approximately $62 million that would be paid at its expiration in November of 2025. At that same $140 share price, the intrinsic value of the cap call represents an offset of roughly 450,000 shares, or more than two-thirds of that dilution. As a reminder, the accounting rules do not allow for the value of the cap call to be reflected in the fully diluted share count or as an asset on the company's balance sheet. Before turning the call over for questions, I wanted to address one item that will have a positive material impact on our reported income for the fourth quarter. As we have disclosed in our SEC filings, ARCH has substantial deferred tax assets, including well over $1 billion of net operating loss carry-forwards as of the beginning of this year. We have maintained a full valuation allowance against those taxed assets as a result of uncertainty about the ability to utilize them fully before they expire. Given our taxable income in 2021 and thus far in 2022, along with expectations for continued profitability, we expect to release the valuation allowance in the fourth quarter. This, along with expected adjustments to our FIN 48 reserves, will result in a one-time non-cash income tax benefit of approximately $225 million to $250 million. As a reminder, we continue to expect to pay no cash taxes in 2022. If coal market conditions remain favorable, we would expect to begin to pay cash taxes next year with an effective rate of up to 5% of pre-tax earnings. With that, we are ready to take questions. Operator, I will turn the call back over to you.

Okay, thank you very much. At this time, we will conduct a question and answer session. As a reminder, to ask a question, press star 11 on your telephone and wait for your name to be announced. Please stand by while we compile the Q&A roster. Okay, our first question comes from the line of Dave Gagliano from BMO. Dave, your line is now open.

All right, thanks for taking my questions. I have actually a number of follow-up questions, so bear with me on this. I'll try and be quick. Just, you know, first of all, on the 200,000 tons of crossover for the fourth quarter sold into the thermal market, what was the price for that 200,000?

Dave, I think, as we indicated, the price is approximating what we're seeing, kind of the net backs with the existing MAP markets that we're seeing today.

Okay, that's actually my other question. Remember, Dave?

Sorry, go ahead. Hey, David, it's Dec, and remember that some of those times were committed earlier in the quarter at times when prices were lower, so we actually got a premium on some of those volumes, but today they're fairly reflective of kind of where the marks are today.

Yeah, if you're looking at pricing today, that's an accurate comment from Dec.

Okay, well, that actually is my... I mean, we get published indices for Atlantic Basin high-volume prices, but I'm What is the market today for high vol A for your coal?

It's above 280 right now, Dave, so in that 283 sort of a range. That's FOB U.S. East Coast.

Okay. Thank you.

And then... So to get that number, to get that net back, you would simply take that and then work it back to the mine the way that we typically do, do the net back calculation.

Okay. Helpful. Thank you. And then... Let's see, switching over, thermal, it's been 17 to 19 million tons per quarter roughly. You know, is that a reasonable range on a quarterly basis for 2023?

Yeah, if you look at the midpoint of our guidance, it would kind of imply kind of in that 18 plus million ton range to achieve that. You know, we've been challenged with a lot of rail issues in the PRB. We talked about it in prepared remarks. You know, we reduced the midpoint of that thermal guidance by 2 million tons. If you remember last quarter, we dropped that by 5 million tons. Those are committed tons that are going to get carried over into next year at attractive pricing. So we haven't lost that volume, but you are correct. We're going to need that kind of that 18-plus million run rate, and we're working hard to achieve that.

You know, Dave, I think your question was also, or the way I understood it, was on 23. And I think if you look at 22, I think it's a good place to start for our 23 volumes.

Okay. And then on the domestic MET sales for 2023, I think you said $190 per ton was the average price? That's correct. I believe that's right. Okay. I just don't have it in front of me. How does that compare to the 2022 contract price, average price?

It's slightly lower. I think it's definitely, as we follow the trade rags and where everything's out there, we're very pleased with what we were able to achieve, kind of with where the forward curve in the market was, and feel real good about putting in those million tons, fixed volume, fixed commitment, steady train service. So we're very pleased to achieve that, lock those cash flows in. but still provide a lot of exposure for the remaining book and, as we described, the market that over time we feel is going to be attractive for us.

And, Dave, while it's a very small discount to kind of where the marks are today and as we just discussed, and I just looked, it's actually $286 today for high vol A, where it's a very small discount to that actually reflected the marks at the time the deals were done, in fact, a little bit of a premium. So we feel good about what we've put to bed and getting that fixed price business done.

And are there plans to do any more, or is that it for the domestic for 23?

I think here again, Dave, that if this is it, we're fine with that. Our focus is the seaborne market, and I think we're set up. If it's a parallel this year, we'll see dribs and drabs come in. We're sitting at about 10% of our coal state in North America, and that's where we could end up next year.

Okay. Two more real quick. What's the average price for the 90% of thermal that was locked in for 2023 or that is locked in for 2023? Just an average overall.

So, David, it's Dak. So, we haven't discussed that as yet. And I think we've indicated that, look, this year's realizations in the PRV were particularly strong. This is going to be, 2023 will be another, you know, very strong year relative to historic values. We may not quite be to the level we see for 2022. but it will be another strong year creating another, you know, very solid margin in the PRB. And then, you know, we do have some fixed-price business that we have done out of West Elk that, you know, is obviously at very attractive prices given current international seaborne markets. And we'll continue to explore, you know, opportunities to sort of fix additional volumes there into a still really strong futures curve. But as I said, right now, it looks like it could be a small step down relative to 2022. Having said that, there are other things that counterbalance. And one point I would certainly emphasize is that we made a $110 million contribution this year to the Thermal Mine Reclamation Fund.

Next year, that contribution will be de minimis.

So in reality, the thermal segment we would expect would generate even more cash for availability to the capital return program.

Okay, thank you. And then my last question, I heard the commentary but I didn't catch it all regarding the cash flow movements in the fourth quarter. I thought I heard at the end there during that commentary that there was the net result with the working capital changes was a cash outflow, which to me implies no variable dividend. Did I hear that correctly?

David, the working capital piece, I think, would be a reduction in the cash flow in Q4 as opposed to an increase that we saw in Q3. But overall, if you look at Quarter over quarter, we should, you know, if you work through our guidance, we're guiding to what should be a stronger operating performance in Q4 as compared to Q3. So with that as the starting point, instead of getting a working capital tailwind, we're going to get a working capital headwind. And, you know, as we sit here, generally our receivables are typically about 100% of a monthly sales amount. At the end of any quarter in September, that was, you know, down below two-thirds of the sales and We want to make sure that we acknowledge the great work that our contract admin and billing groups did in being able to get that and pull some of that cash forward. But we don't plan on that every quarter and assume we're going to see an increase. If we go back to those normal levels, our working capital increase could be as much as $100 million. That would offset those operating earnings as we look at Q4 cash flow. Still should be positive, but not nearly as robust as they were in Q3.

And, David, as Matt pointed out, though, in the fourth quarter, for the, quote, you know, other, the second 50%, you know, in terms of the capital we expect to deploy in that area, that could be as much as twice what it was in Q3. So, you know, somewhat of a counterbalance to, you know, what could be, you know, that negative move on the working capital front.

Okay, that's helpful. Thank you for answering all the questions.

Thank you, David. Bye-bye.

Okay. Our next caller is Lucas Pipes from B. Reilly. Lucas, your line is now open.

Thank you very much, operator. Good morning, everyone.

Morning, Lucas.

So I wanted to touch a little bit on the 2023 Metco outlook, and I think you mentioned you have 1 million tons contracted into the domestic market, and that's going to be about 10% of your total sales. So that implies 10 million tons of Metco next year, up pretty nicely from this year. First, if you could confirm that, but then secondly, there were these – isolated geologic incidents this year. And obviously, you can't change geology. I think you did a good job working through it, but you can anticipate it. And you mentioned the development work gives you increased visibility of what's coming. And I wondered if you could elaborate on that and if, in fact, you've maybe done a little bit more development work to have more confidence in the 10 million tons for next year. Thank you very much.

Thanks, Lucas. And, you know, we'll talk about Lear South. We talked about it last quarter. We encountered sandstone in the current panel we're in. As a reminder, we had completed mining in the ramp up of Lear South in panel one, had a successful long wall move in the May timeframe, came out of that move and actually saw a very healthy ramp in the beginning of panel two when we encountered very difficult cutting conditions related to sandstone. You know, as we indicated, as we continue to move further east in the first district, that first district has five long wall panels. As we continue to move east to each panel, all of the geology says that the conditions should improve. We should see less of the impact of those types of issues that we experienced during the quarter. And as we are developing those new panels, we have continuous miners out there developing the head gates. We are experiencing better conditions. It's what's giving us confidence as we move forward that we're going to see improved productivities. Probably more importantly, as we're now developing down into District 2, once again, where the overall geology should show improvement, we're experiencing that as well as we have continuous miners down there. So That's why as we're continuing to progress here, our confidence in the level of productivity continues to get stronger. And so we expect that improvement to continue to play itself out. As we look forward to next year, you're exactly right. And as we've indicated before, If everything is running as expected across our platform, we should see the opportunity to produce up to 10 million tons on an annual basis. So we haven't provided specific guidance on all that yet. We'll do that at the fourth quarter earnings release. However, once again, we've talked about this before, with each of our operations, as we look at all their productivities, we are comfortable that that 10 million ton arena is around where we should see the capability to produce.

That's very helpful and very good to hear. Thank you for that. My second question, and I may have missed this, but the cadence of any buyback from here, how should we think about that considering the movement of working capital, your minimum cash targets, the dividend that's payable in a little over a month. How should investors approach the level of buybacks between now and here? Thank you very much.

Yeah, Lucas, this is Matt. And really, probably the The best way to look at it, we clearly came out of Q3 with a little more cash on our balance sheet than we wanted to. Quite a strong collection performance in the last couple weeks of the quarter, which, as you know, is a blackout period around earnings. So that really limited how much of that cash we could deploy in Q3, but puts us in a very good position, as I mentioned in my remarks, as we head into Q4. So as I indicated in those remarks, we think we could as much as double what we spent in Q3 on the second 50% of the program. And as we said, that's likely going to be buybacks. Just to put that in perspective, we did buy back over 400,000 shares, nearly 450,000 shares in Q3. And so if we're able to hit that doubling level of that, depending on the share price, we could buy back as much as a million shares or maybe even slightly more as we go through Q4.

Lucas, I think one of the surprises for all of us You know, we put a lot of thought into the capital return program and the allocation method. What, you know, all the modeling we did, I think what surprised us was how lumpy cash flow can be at the end of the day. Matt was kind of generous, but I think the last day of the month we received almost $100 million of receivable. It's a great story, but it really kind of makes the numbers a little distorted. You know, we've had quarters where, you know, people didn't pay on time. This is one of those weird quarters where people paid ahead of time. So, you know, unfortunately, I think the capital return can be a little lumpy. But I think the bottom line is the intent is the same. That is 50% of discretionary cash flow is going to go to the variable dividend. And the second 50% will ultimately end up as share buybacks or the, you know, the buy down of the convertible debt.

Very interesting. Well, maybe at current inflation rates, people just can't wait to get rid of their cash. So I really appreciate the perspective and continue best of luck.

Thank you, Lucas. Thanks, Lucas.

One moment while we compile our next question. Okay.

Our next question comes from the line of Nathan Martin from the Benchmark Company. Nathan, your line is now open.

Good morning, guys. Thanks for taking my questions. Maybe I'll start off touching on 3Q Coke and Coal realizations, possibly a little lower than some had thought just based on some of my prior conversations. Obviously, we saw a lot of volatility in the price during the quarter. But maybe can you get a little more color on that result? And then I guess really what I'm trying to get at as well, just looking forward to the fourth quarter, is let's just say we assume, for example, benchmark stays flat-ish quarter over quarter in the fourth quarter, which I think it's actually averaging pretty close to that right now. But given the fact that prices have been notably more stable than they were in the third quarter, is it unreasonable to expect realizations to be up in the fourth quarter? Thanks.

So Nate, Just kind of reviewing the performance for the third quarter, if you just take the benchmark for High Ball A, I think it averaged for the quarter around 274. Convert that to short and then back out about $60 of transportation costs associated to get it from the mine to the port. And you're kind of back into that mid-180s, $185, $187 a tonne. Obviously, across our portfolio, we're shipping to a lot of different places around the world, so you're affected by a lot of different benchmarks. But at the end of the day, that's kind of the big driver, that high vol A price and kind of netting back, you know, using that kind of methodology. So I think from our perspective, we feel that we, you know, the achievement of the price was kind of where we expected it to be for the quarter as we move forward. You know, once again, kind of name where that price is going to be for the quarter, and it's going to be a big driver as far as, you know, what the final outcome will be. But as, you know, we sit here today, you know, we would expect, you know, if things were to stay relatively flat from where they are now, we would expect essentially a modest uptick, but it would be very modest, once again, depending on what you're showing is that you're coking coal price today at across our portfolio as we move into the fourth quarter.

So, Nate, just to connect that final dot, so remember that the number we reported you know, for our realization, average realization on the cocaine coal side was 189.50. So, you know, we view that as actually a premium and having outperformed where the market was through the quarter.

And then remember too, you also have some low vol volumes that were a bit lower, high vol B volumes that were a bit lower.

So actually on a realization basis, fairly strong in Q3 relative to the benchmark numbers.

Got it. Thanks for that commentary, guys. And then I guess, you know, not unsurprising to see four-year cooking coal shipment guidance come down, maybe a little bit lower than expected. So maybe can you guys talk about what gets you to, you know, the high end versus the low end of that revised guidance? Is it still mainly logistics-based? Sounds like production is improving. Just any color there would be great. Thank you.

Yeah. You know, Nate, I think the – The issue that we continue to work through is how well is that rampant Lear South post all the sandstone going to continue as we move forward. That's a big driver here as we work to the end of the year. You have to look at the flexibility of all of our operations and where they're at. The other item that kind of impacts what we're looking for in the fourth quarter, given the timing of how we're continuing to mine at our two long walls, both Lear and Lear South, We actually will have both operations. We expect both of them to be in long-wall moves prior to the end of the year. Typically, you don't see two long-wall moves falling in the same quarter, but we're going to experience that here. And so that's just giving us a little more conservatism around the number that we're looking at here. Long-wall moves are nothing of any significance for us. They're kind of part of the routine operation of a mine. We get them done very efficiently, very effectively, typically in the east in a 10- to 12-day time frame. But having two of them fall in the same quarter, it's kind of giving us a little more caution as far as what we're looking at from a guidance perspective.

And, Nate, some of those numbers in terms of guidance, like we're assuming – that logistics continues to be, you know, a bit challenging, particularly as you look at vessel shipments. And so, look, we'd expect to end the year with healthy inventories, not excessive, but healthy inventories. So, look, we could certainly outperform that midpoint number, but we think that it's prudent to sort of guide the levels we're guiding to, and we'll see where it goes. And if we don't ship in Q4, we could be shipping additional volumes in Q1. So we'll see how it all plays out.

And, Dec, that's a good question. Can you remind me, I think you guys had 1.1 million tons of inventory at the end of the first half. Kind of where does that stand today?

Yes, I think we're right at around 900,000, a million tons right in that arena right there. So essentially flattish over the course of the quarter. Got it.

Thanks, John. And then maybe kind of shifting gears to the cost side, and, John, you just alluded to, I guess, two long-run moves, Lear and Lear South, in the fourth quarter, maybe contributing to a little bit of the increase in full-year met coal segment cost guidance. How would you expect that to kind of trend heading into 23? I think maybe in the prepared remarks there was some