CONSOL Energy Inc. Common Stock

Good morning and welcome to Consol Energy 4th Quarter 2020 Earnings Call. All participants will be in listen-only mode. If you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be the opportunity to ask questions. Please note that this event is being recorded. I'd like to turn the conference over to Mr. Nathan Tucker, Director of Finance and Investor Relations. Please go ahead.

Thank you, Nick, and good morning, everyone. Welcome to Consol Energy's fourth quarter 2020 earnings conference call. Any forward-looking statements or comments we make about future expectations are subject to some risks, which we have outlined in our press releases and our SEC filings and are considered forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. We do not undertake any obligations of updating any forward-looking statements for future events or otherwise. We will also be discussing certain non-GAAP financial measures, which are defined and reconciled to comparable GAAP financial measures in our press release and furnished to the SEC on Form 8K. You can also find additional information regarding the company on our website, www.consolenergy.com. On the call with me today are Jimmy Brock, our Chief Executive Officer, Mitesh Dakar, our Chief Financial Officer, Dan Connell, our Senior Vice President of Strategy, and Bob Braithwaite, our Vice President of Marketing and Sales. In his prepared remarks, Jimmy will provide a recap of our key achievements during 2020 and specific insights on operations and sales. Mitesh will then provide an update on our liability management program, financial results, and 2021 guidance. In his closing comments, Jimmy will lay out our key priorities for 2021. After the prepared remarks, there will be a Q&A session in which Dan and Bob will be available to participate as well. For additional information, we have posted a supplemental slide deck on our website in advance of this call. With that, let me turn it over to our CEO, Jimmy Brock.

Thank you, Nate. And good morning, everyone. Let me start by stating the obvious. 2020 was an extremely difficult year as the demand for our product was first reduced due to a warmer than normal winter. And this was then further exacerbated by the unprecedented decline in global energy demand and the disruption of international supply chains due to the COVID-19 pandemic. However, I am very pleased with our resolve as the team remained extremely proactive and we managed to achieve many milestones and advance our strategic objectives even in the midst of a very challenging situation. We moved early in 2020 to amend our credit agreement and secure covenant relaxations with our banks, implemented multiple cost and CapEx reduction targets, executed several transactional opportunities to bolster our liquidity and capped off the year by completing the CCR merger with overwhelming shareholder support. We made net payments of 67 million on our outstanding debt in 2020, despite the reduced earnings versus 2019. Finally, we generated 53 million of free cash flow in 2020, which we believe is a tremendous accomplishment in the midst of the global pandemic. I'm extremely proud of the execution of our team as we navigated through the pandemic in 2020, and we believe we've set ourself up for success as we head into 2021 and beyond. Let me now provide you with a brief recap of 2020 and how it positions us for success going forward. First, on the ESG front, I am proud to announce that the Metallurgical Coal Producers Association awarded us the 2020 Excellent in Mining Award for the best completed refuse field at one of our legacy operations. This highlights our environmental commitment to the communities we operate in. We also won the West Virginia Mountaineer Guard and Safety Award for our underground operations at the Ipman Mine. Our Bailey Preparation Plant, Consol Marine Terminal, and Ipman Project each had zero recordable incidents during the full year of 2020. Our total recordable incident rate at the PAMC continues to track significantly below the national average for underground bituminous coal mines, and finished the year 61% lower than the national average as reported through September of 2020. Furthermore, on the safety front, managing risk from COVID-19 remains a top priority for us. Consol Energy is committed to maintaining a safe and healthy work environment for the employees, their families, and the community during the COVID-19 pandemic. Consolidation mitigation efforts include, but are not limited to, following CDC and state guidance, reducing transmission among employees and the communities, and maintaining a healthy work environment while sustaining critical business operations. Now let me review our Q420 and full year 2020 operational performance in detail. Coal production at the Pennsylvania Mining Complex came in at 5.9 million tons in Q4 of 20 compared to 6.7 million tons in the year-ago quarter. The decline was due to the lingering demand effects of the COVID-19 pandemic and the rail supply chain struggle to provide enough crews. However, it is worth noting that our fourth quarter production was improved 31% from Q3 levels and 146% from Q2 levels, as demand has steadily increased since the depth of COVID-19 related shutdowns. We continued to run four long-laws for the entire fourth quarter. For Q4 of 20, productivity at the PAMC measured as tons per employee hour improved by an impressive 10.8% compared to Q4 of 19. For the full year, the PAMC ended with production of 18.8 million tons down from the 27.3 million tons in 2019. On the cost front, our average cash cost of coal sold per ton was $29.49 in Q4 of 20, compared to $30.38 in Q4 of 19, as our operations team was again successful in keeping tight control over cash expenditures in the quarter. The adjustments we made to our operations allowed us to reduce our overall average cash cost of coal sold per ton on our producing assets and to partially mitigate the financial impact of the reduced production volumes. The improvement was primarily driven by lower mine maintenance and supply costs, contractors and purchase service costs, and project expenses. Furthermore, the PMC ended 2020 with a cash cost of coal sold per ton of $29.12 compared to $30.97 in 2019 by successfully limiting our spending and right-sizing our operations. We don't envision this being a one-time benefit and continue to expect a sub-$30 per ton cash cost structure going forward. For the foreseeable future, we expect to run four out of our five longwalls as we are able to significantly lower our operating cost structure while only losing 3 to 4 million tons from our 2019 production levels. In short, we believe the margin expansions offset the volume loss given the current demand outlook in the domestic coal markets. We believe other mines and operators in Northern Alp region are also planning for lower production levels with only a modest production recover expected in 2021 from depressed 2020 levels. Accordingly, we do not expect northern out production to rebound to pre-COVID levels for the foreseeable future as operators in the region better align output with demand trends. The Kansai Marine Terminal had throughput volumes of 3.1 million tons during Q4 of 20 compared to 2.5 million tons in the year-ago period. Terminal revenues for the quarter came in at 17.4 million compared to 16.5 million in the year-ago quarter. Despite the 600,000 ton increase in throughput volumes, cash operating costs were improved at 4.6 million versus 4.9 million in the year-ago quarter. For 2020, the terminal had a very strong operational performance, especially when considering the difficult market backdrop. Due to the nature of the take-or-pay contract, 2020 total terminal revenue came in at just below its annual revenue record set in 2019, despite a 2.5 million ton decline in annual throughput volumes. The Kinsale Marine Terminal also achieved operating cash costs of $18.4 million in 2020, compared to $21.7 million in 2019, as the terminal team continued to maintain tight control over expenditures in the year. As such, our two core operations once again prove that they can adapt in any commodity market. Let me now provide an overview of the coal markets. Demand for our product further strengthened in the fourth quarter since the trough of the second quarter with economies reopening, increased power demand, and improved export demand driving the pickup in coal shipments. Henry Hub natural gas spot prices averaged $2.53 per million BTU during the quarter, or a 5% increase compared to Q4 of 19. The spot price delta on a quarter over quarter basis compared to 2019 continued to shrink throughout 2020, and this 5% increase is the first improvement on a quarter over quarter basis since the fourth quarter of 2018 compared to Q4 of 2017. While natural gas prices haven't sustained at the $3 per million BTU mark that had been projected by many industry experts, Due to the anemic start of the winter season in the U.S., we are hopeful that the year-over-year comps in natural gas prices still favor overall demand improvement and higher coal burn. On the domestic front, the fourth quarter of 2020 ended the year on a strong note from a demand perspective. The U.S. Energy Information Administration estimates that coal share of the electric generation mix will end the year at approximately 20%. which has improved from the low point of 15% in April and highlights the strength we saw in the back half of 2020. IHS market estimates that total domestic coal demand will increase by 10% in 2021 versus 2020, while supply will increase by only 5%. This development could help to further reduce domestic coal stockpiles and continue to tighten the domestic market. We continue to see tightness in supply of northern out cold, and the majority of our domestic customer stockpiles are at or below normal for this time of year. On the export front, we have seen several very encouraging trends as the seaborne thermal cold markets have steadily improved since the end of the third quarter of 2020. According to Wood Mackenzie, the La Nina weather cycle played a major role in boosting thermal cold prices in January. This cycle caused freezing temperatures for much of the northern hemisphere, where the major coal demand centers are located, as well as cyclones and wet weather in the southern hemisphere, where the major coal exporters are located. This dynamic caused very tight coal markets in early 2021. Global LNG prices surged and reached historic highs in January as gas faced similar issues. Demand surged due to frigid temperatures while storage dwindled. This led to improved dispatch economics for coal, particularly in Europe. We continue to see strength in pet coke prices resulting from reduced oil production, which is propping up demand and pricing for northern out cold and high CV markets, particularly India. API2 spot prices have also rallied and crossed the $70 per ton mark multiple times in the month of January. which is the first time this pricing level has been achieved since March of 2019, driven by recent cold weather, lack of wind generation, and increased LNG prices. As such, Europe has again became a viable option for U.S. coal exports. Additionally, resulting from a pickup in infrastructure projects and steel production as the world continues to recover from the pandemic, Recent improvements in global met coal prices are also beginning to translate to a rebound in demand and pricing for our crossover product as well. From a marketing perspective, it is encouraging to see that the demand for our coal has steadily improved since reaching its low point in Q2 of 20. We continue to maintain the vast majority of our core customer base and continue to see improvements in the contracting appetite. Since the end of Q3 20, Our sales team has successfully contracted 7.2 million tons of new business, bringing our sole position to 18.2 million tons in 2021 and 5.6 million tons in 2022. With that, I will now turn the call over to Mattes to provide the financial update.

Thank you, Jimmy, and good morning, everyone. Let me start with an update on our liability management efforts in the context of our capital allocation strategy. I will then review our financial results for 2020 and introduce our 2021 guidance. Over the past year, our financial priority has been very clear. To maintain strong liquidity, reduce outstanding debt, and improve the risk profile of our balance sheet. We have remained laser focused on the strategy and have achieved multiple milestones throughout 2020. We started the year by recognizing a need to reduce discretionary spending to help maintain strong liquidity. We reduced PMC capex by more than 50% compared to 2019 levels, deferred the majority of our growth capex at the Itman Metallurgical Coal Mine, and allocated those dollars to debt reduction. We moved early in the year to work with our banking partners to amend our credit agreement and secure eight quarters of covenant relaxation. This bought us a lot of time to execute several value-enhancing transactions throughout the year while we maintained strong liquidity levels. We also negotiated an ability to repurchase our second lien notes without a leverage test and strategically capture the discounts offered in the marketplace. For the year of 2020, we deployed $32 million of capital to retire approximately $54 million in face value of our second lien notes at a weighted average discount to par of approximately 41%. This turned out to be an excellent use of capital for us as our second lean prices have rallied back to over 89 compared to our weighted average buyback price in 2020 of approximately 59. This represents an annual return of approximately 27% if held to maturity through 2025 and an annual interest expense reduction of approximately $6 million. We believe these below-par repurchases were credit positive and liquidity enhancing in the long run. In aggregate, we spent approximately $86 million in 2020 towards our outstanding debt reduction before accounting for a net $19 million in proceeds from equipment financing. We also successfully tapped alternative sources of capital in 2020 by taking advantage of a strong equipment financing market and raised $60 million of new capital in the year at a weighted average interest rate of 6%. In the second half of 2020, We completed multiple transactions that boosted liquidity and improved financial flexibility as we recorded $68 million in pre-tax income associated with these items. For the fourth quarter of 2020, we recorded $42 million in pre-tax income in addition to the $26 million recorded in the third quarter. For the full year, we generated $53 million in free cash flow, $48 million of which was generated in the fourth quarter. which further highlights our strong finish to the year. The speed was even more impressive when you consider the economic destruction brought on by the COVID-19 pandemic in 2020. As a result, we ended 2020 with excess free cash flow of approximately $6 million as defined in our credit agreement and expect to make a payment of approximately $5 million to our term loan B holders later this month. On the legacy liabilities front, we de-risked our pension plan further by taking advantage of its well-funded status and strong performance of our equity assets in 2020 by adjusting the plan's glide path investment policy to increase our liability hedging to growth asset mix in 4Q20. In January of this year, the additional increase in our funded status triggered our liability hedging fixed income target to further de-risk the plan, putting us at a 35 to 65 equity to fixed income split versus 50-50 split in mid-2019. Under our current actuarial assumptions, we have a funded status of 99% and lower exposure to equity volatility with no funding requirements for the foreseeable future. Finally, we completed our merger with CCR with overwhelming shareholder support in late December. As expected, this transaction simplified our corporate structure, streamlined financial reporting, and immediately improved our pro forma credit metrics. As such, we ended 2020 with a net leverage ratio of 2.5 times, a significant improvement from the ratio of 3.4 times at the end of 3Q20, which included an estimated 0.6 turns improvement from the CCR transaction alone. Since the announcement of the merger, CEIX's current 30-day average trading liquidity has improved by 218%, and its market cap has increased 59%. This is a great outcome for shareholders of both legacy entities. As we move forward, we expect to continue our strategy of reducing our outstanding debt as we prepare ourselves to have a significantly lower level of absolute debt before our 2024 term loan be mature, and balancing that goal with our targeted growth strategy. With that, let me now recap the fourth quarter and full year 2020 results before moving on to our 2021 guidance. CEIX reported a solid fourth quarter 2020 financial performance with net income attributable to CEIX shareholders of 13.1 million, or 49 cents per diluted share, and adjusted EBITDA of 95.5 million. This compares to 13.9 million, 54 cents per diluted share, and 92.1 million respectively in the year-ago quarter. Our fourth Q20 earnings mark a second consecutive quarter of significantly improved earnings versus the prior quarter from our low point in 2Q20. More importantly, in 4Q20 we generated $67 million of cash flow from operations, spent $20 million in capital expenditures, and received $1.1 million in proceeds from asset sales, which resulted in free cash flow generation of $48 million. As a result, we ended the fourth quarter with cash and cash equivalents of approximately $51 million, a substantial improvement from approximately $22 million at the end of 3Q20. For 2020, We reported a net loss attributable to CEIX shareholders of $9.8 million, adjusted EBITDA of $261.5 million, and incurred capex of $86 million. CEIX finished the year with a net leverage ratio of 2.5 times. Most importantly, we now have substantial cushion against our financial covenants and ended 2020 with access to our $400 million revolving credit facility with no borrowings outstanding. Now let me provide you with our outlook for 2021. I'm very pleased to announce that with improved visibility in the marketplace, we are reinstating our historical practice of providing full year guidance to all our stakeholders. For the PAMC, we are expecting our 2021 sales volume to be improved compared to our 2020 levels. We plan to run to the market in 2021 while focusing on generating highest margins possible. As such, we are providing a 2021 coal sales volume range of 22 to 24 million tons. The upper boundary reflects our belief in a sustained improvement in the coal markets in 2021, which will allow us to run at or above our 4Q20 tonnage levels and capture spot market opportunities. The lower boundary considers the reduced ability to sell spot coal if domestic or international demand trends weaken. On the pricing front, We currently have a 2021 contracted position of 18.2 million tons at an expected average price of approximately $41.56 per ton, assuming an average PGM West power price of $24.79 per megawatt hour. It is worth mentioning that these net back power price linked contracts are essentially at the floor in our new projections and are reflective of current power markets. The price change versus our last earnings call is mainly driven by a reduction in PJ Invest power price forwards versus an expected price of $29.83 per megawatt hour at that time. We expect our 2020 average cash cost of coal sold to be $27 to $29 per ton as we expect to build upon our success in reducing our cash costs in 2022. At the midpoint, we are expecting our cash costs to be improved by nearly $3 a ton compared to 2019 levels. We will continue to focus on ways to reduce our costs and improve efficiencies. Finally, we are providing a capital expenditure guidance range of $100 to $125 million, excluding spending on the 8-minute metallurgical coal project. This range reflects a modest increase in spending on equipment-related items and structures at the PAMC as we ramp up production versus 2020 levels. We are exploring several options for our ITMN project and will continue to balance our growth needs with deleveraging needs through our capital allocation framework. With that, let me turn it back to Jimmy to make some final comments. Thank you, Mitesh.

Before we move on to the Q&A session, let me take this opportunity to lay out some of our priorities for 2021. First and foremost, our strategy has always prioritized a strong balance sheet, and 2021 will be no different. Access to capital for coal companies has been shrinking over the past several years, and we anticipate this trend will only worsen. Therefore, we will continue to prioritize our main objective of reducing our absolute debt levels by the time our Term Loan B matures in 2024. Second, despite the improving coal market dynamics, we expect a continued need to strike a balance between maintaining adequate levels of liquidity and making further progress toward our debt reduction goals. As such, we are remaining laser focused on continuing to drive down costs at our operations and corporate levels through efficiencies and a focus on reducing discretionary spending. This is also evident in our CapEx guidance range that Mattesh discussed, which is only mostly above 2020 levels and remains within our targeted $4 to $5 per ton range. We expect to continue to pursue our targeted growth and diversification strategy as we move into 2021 and beyond. We remain excited by the tremendous potential that each of our current endeavors could bring, whether it's our partnership with Seafoam, Ohio University and engineering profiles in the code of product space, where we've begun to see positive R&D breakthroughs, our partnership with Omnibus Bailey LLC on our Omnibus project, which is well underway with construction of its first commercial module to convert our Bailey Preparation Plant waste coal slurry stream into a saleable product, or our DOE selected Coal First project that is evaluating the possibility of constructing an advanced coal-based power plant of the future in the vicinity of our Pennsylvania mining complex. While we are still in the early stages of the majority of these projects, We believe they provide an exciting opportunity for us to help define the future of our industry. However, our most important growth and diversification vehicle remains our Ipman Metallurgical Coal Project in southern West Virginia. Although we pulled back spending in 2020 to focus on our liquidity and debt priorities, we remain extremely excited and committed to this project. We will continue to progress with development mining, where we're operating a single section, one shift per day at minimal cost, while at the same time continuing to evaluate all options associated with ramping the project back up. We believe this project provides a solid pathway for organic growth and diversification. Finally, I would be remiss if I didn't mention the importance of completing the CCR merger at the end of 2020. This transaction improves our financial flexibility as we move forward and will afford us the ability to fully implement our strategic goals now that our shareholders are fully aligned. We would like to thank all of our shareholders for their overwhelming support in approving the transaction. Before handing the call over, I want to end by thanking our entire workforce from our operations team to our corporate staff for their hard work and dedication over the past year. 2020 was a challenge on many fronts. Together, we navigated the COVID-19 pandemic from the unprecedented demand destruction our industry faced to the new social distancing measures to our corporate staff working remotely for much of the year, which we are continuing to do. We had to learn, grow, and adapt throughout the year. I can't thank our employees enough for their professionalism and willingness to quickly pivot as needed. With that, I will hand the call back over to Nate for further instructions.

Thank you, Jimmy. We'll now move to the Q&A session of the call. Nick, can you please provide the instruction to the callers? Well, I'll begin the question and answer session.

To ask a question, you may press star then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. This time, we'll pause momentarily to assemble the roster. First question is from Lucas Pipes, B-Rally Securities. Please go ahead.

Hey, good morning, everyone. Lucas? Morning, Lucas. Jimmy, I think you mentioned part of the answer to my question in your last comments there, and it's about optimal capital structure. Can you kind of remind everyone What's the goal? Is it by 2024, no debt at all or minimal amount of debt? Clearly, debt financing has become more challenging for coal companies. Would appreciate your thoughts on that.

Thank you. Lucas, I'll take that one. For how challenging 2020 was, we did reduce our debt by 56 million. My goal is like, you know, looking forward at least to that in 2021, if not more. I think longer term where we want to get to is we have two pieces of what I would call it as non-amortizing, significantly non-amortizing debt, which is term loan B and second lien. We would like to get that to one piece by the refinancing so we don't have much of an uphill battle. Remember, our term loan A has a mandatory amortization. So that will amortize in due course. You saw we made significant payments on our term loan A in 2020, I think about 23 million. So we are hoping by end of 2023, term loan A would be over. And on term loan B and second lien, I would get down to like probably one piece of paper when it comes to refinancing. And that too at a smaller size, hopefully.

Got it. Understood. Thank you for that. And then... On the volume side, I appreciate the guidance here for 2021. I was hoping you could maybe expand on how you think about marginal economics for Consol specifically. So when I look at the cost curve, you're at the very low end. So are you seeding market share? Are you just responding to loss of demand around you in North America? Could it maybe still make sense to ramp up production in response to strong export volumes? But really just kind of appreciate additional color on that, specifically, again, how we should think about marginal economics in the context of your volumes. Thank you.

Yeah, well, the guidance that we're given for the 22 to 24 million tons is, what we know now and what we see in the future. Obviously, if the markets come back very strong and there's a need for more tonnage, we would have the opportunity to put that fifth long wall back into operation that we have. But what we found out, and this exercise should always tell people that severely downturn in the markets, idling coal mines, it's very tough to do, but out of that comes some opportunities. So the one thing that we've seen in this is that we were able to reduce our costs significantly enough, and if we can continue to do that, you know, you don't have the capital expense of that fifth loan wall, you don't have some other OPEX expense associated with that, and you can run the other four really hard to where you only lose, I think we mentioned, three to four million tons of production volume, but at the same time, you can increase that cash margin you know, significant enough, then it should get us in the same kind of ballpark of what we were because at the end of the day, you know, it really doesn't matter about the volumes. It's all about the cash margins that we can create. So we're constantly evaluating those and trying to do it. Now, I will say that it also helps when you do bring on additional volume if it's at the right price and at the right cost structure. So those are things that we'll continue to monitor, we'll continue to look at, You know, if the marketing team comes to us with a real strong sale, we see that in Q4 or something, then we would start ramping back up if we need to. But our goal moving forward is going to be to run these four long walls as hard as we can, as cheap as we can, and create the highest margins we can for the coal we produce.

That's helpful, Collar. Thank you, Jimmy. And then last one from me for now is on the export side, encouraging comments. you shared with us. First part of the question, in your contracted volumes for 2021, are there export volumes embedded in that? And then secondly, where would you see exports in the current price environment for 2021? Thank you.

Lucas, I'll take that. You know, today we have just south about 5 million tons booked in the export market of the 18.2 that we mentioned. in our call today. You know, my expectation is with this cold weather upon us now, natural gas prices where they're at, you know, we will see a spot market for domestic coal in 2021. But I will say that so long as these export markets remain strong and pricing remain strong, you know, I see us, you know, taking majority of that coal to the export market that we have left to sell. And as you know, we are the only ones in the game here that can pivot back and forth with the ownership of our terminal in Baltimore. Again, a little foggy right now of exactly where those tons we placed, but we do feel very confident moving forward that the 24 million ton guidance that we gave at the upper end is achievable. And the prices today on the export side are slightly better than what the published marks are. for our domestic product. And I think you probably have seen that most of the publications now for our product are in the low 40s. So the export market is realizing higher prices today. And if that continues, you know, we'll continue to look to place those tons into that market.

Very helpful. Appreciate all the color, everyone, and continue. Best of luck.

Thank you. Thank you, Lucas. Thank you. The next question is from Nathan Martin of the Benchmark Company. Please go ahead.

Hey, good morning, guys. Congrats again on completing the CCR transactions and continuing to lower your costs. Lucas kind of touched on my question, so appreciate the call there, Bob, on the breakdown of your exports versus domestic and both your contracts and funds and your four-year sales guidance. I guess maybe if I can dig in a little bit more as it relates to the export business. Again, API2 prices, as you guys called out, went over that $70 mark last month. Petco prices remain high. Can you guys comment maybe, I think, Bob, you mentioned export prices are maybe a little bit higher in the low 40s than what we're seeing. I mean, can you kind of calculate or give me a comment on how you calculate the netbacks when you're looking at those export markets, both API2 versus Petco?

Yeah, I mean, we can provide that information to you. Obviously, there's a rail component and a vessel component involved in that, so some of that's confidential. But I would just simply say that a mid-$60 FOBT number basically gets you to that point. I will say that we were opportunistic when the API2 market did achieve the $70 mark here earlier in January. We took advantage of that, and we secured two cargos to Europe uh, for delivery in the second quarter. And, you know, make note that that would be the, this is the first, these are the first cargoes that we secured to Europe since November of 2019. So again, very excited about that. Um, and then as far as, uh, most of our coal going to India, you know, that goes into the retail market specifically, but also now with Petco prices at four year highs, we're now sending some coal into, uh, and to the cement market as well. And also with the improvement in pet code prices, it actually brought us new opportunities to cement plants across the globe. So we are diversifying our export business now as well outside of our traditional markets in India and Europe, which is very encouraging. But when you look at the India pricing, I will say it's higher than the number I just quoted you in the mid-60s. So again, to give you a flavor, you're looking at a low to mid-40 type number at those levels.

Got it. Thanks, Bob. I appreciate all the color there. And then just maybe kind of shifting gears real quick, going back to the project, Jimmy, you called out, you think that still kind of remains your best growth project going forward. Just curious what it would take for you guys to decide to start committing more capital to that project and move forward there.

Yeah, as we see the markets continue to improve, particularly on the MET side, one thing that we could do quickly there is we can double our production just by adding another shift on that we have there now. So we're running the one shift. We already have the equipment in place and everything else. But looking at the bigger picture, we're still evaluating several options that would get that facility up and running where we want it to be running, those production levels, that would be somewhat significant. You know, we've given, we'll be running three sections that are at full production. We think we can produce somewhere between 800 and 900,000 tons once it's ramped up. Obviously, there's some things that we got to do, and we're evaluating those right now, but stay tuned on that front. I would think, you know, possibly later this year, we'll have some clarification on that, but Ipman is a Very exciting project for us. It's a great quality of coal. We think we can put it in the marketplace, and we're just evaluating how we do that at the lowest capital cost. And there's three or four moving parts there that we should have some clarification on pretty soon.

Got it. Well, thank you guys for your time, and we'll talk again soon.

Thank you as well. Thank you. Next question is from Fitz O'Connor. Von Karp of Chiquit Capital. Please go ahead.

Yeah. Hi. Good morning, guys. Just a couple questions on the 21 guidances. And I realize, you know, there's still uncertainty out in the world that, you know, we don't know. But as I sort of wrap the numbers together and I'm looking mainly at free cash flow, it looks like it could be, you know, a little more than 2020. And that would, I mean, there's been a really strong strengthening trend in the export market. It's, as I understand, typically a high margin market for you guys when that window's open. And so, I mean, it doesn't, if that just, the high end of the guidance, as I understood you saying, is just like if that, where we are now, doesn't deteriorate, not even if it were to continue in the direction it's been going. So, I mean, my number is basically in the ballpark to say that the cash flow could be somewhat from 20 or perhaps somewhat better than that if the international market continues to strengthen.

Yeah. So, Fritz, unfortunately, we don't provide cash flow guidance, but some of the moving parts I think that you should definitely keep in mind is obviously we are guiding to a higher production level and higher sales level. Our pricing, given the comments from Bob here, could potentially be higher as well. The offset to that would be we might not have the same kind of transactional opportunities that we had in the past. But we are optimistic about our free cash flow generation capabilities. And as I mentioned earlier, we are looking forward to make sure that we continue to strengthen our balance sheet.

Okay. Thank you.

Thank you. The next question comes from Brian Kennedy at Wells Fargo. Please go ahead.

Hey, guys. Thanks for taking my question. I really appreciate the guidance on 2021 for the Pennsylvania mining complex. I was wondering if you guys would potentially provide some more color on where you see terminal revenues going and the cost structure there, and then if you potentially see opportunities for more asset sales or if that's kind of done at this point for now. Thanks in advance.

Yeah, and this is Dan. I'll take the terminal part of the question to get started. So we have had a major take or pay contract in place at the terminal for the past few years. This year we have a little bit different of a contracting structure, but fundamentally nothing has changed. Jimmy said in the past we really use our terminal for three main purposes, strategy, revenue generation, and storage space for our Pennsylvania mining operations. complex product. That's going to stay the same this year and going forward. When we look at volumes and revenues, we expect this year to have those anchored by strong exports from the Pennsylvania mining complex. I think Bob mentioned before about 5 million export tons currently contracted with probably another 3 to 4 million plus in the cards if the markets stay strong. On top of that, we do have third-party commitments for up to 5 million tons of exports in place, and more than half of those are secured by take-or-pay commitments. So a little bit different scenario this year, but I think we're seeing strong business through the terminal in Q1. We expect that to continue as long as the export markets remain robust and are expecting another solid year for the terminal.

I'll take the transactional opportunities question. Like in the past, we always look at our portfolio and see where there is a possibility of bringing a value forward. Last year was a good year for us where we were able to deliver on several items. I will tell you, we are not done yet, but it is fair to assume that it's not probably going to be as big as last year for now. But We are working on several things which could materialize over the course of the years. I think there are several things in pipeline on that aspect as well.

Awesome. Thank you both. And then just one more question, kind of shifting gears a little bit. You guys had a muni deal that was supposed to come to market late last year. Do you have any update on what is going on with that? Or just any color you can add would be greatly appreciated.

So Brian, during our regular course of business, we look at several financing opportunities at any given point in time. Our goal is to figure out what makes sense for the business, what gives us improvement on liquidity, improvement on balance sheet. So we look at several items during any given time of year. Sometimes they play out, sometimes they don't. I mean, our second lien debt throughout most of last year was trading at a very depressed level, so there were some real headwinds to any potential financing. That is not the case anymore. We could look at other things this year and see what makes sense. I think that's all I can say on that matter. We'll continue to explore other sources of financing like we always have. There are several that we can work on.

Understandable. Thank you so much, Mitesh. Appreciate it. Thank you.

Again, if you have a question, please press star, then 1. Next question is from Linqing of Haidt.

Please go ahead. Hey, good morning. Thanks for taking my question. I have two questions. First one is for your 2022 volume, of contract of $5.6 million. Can you talk a little bit about, is the price similar to 2021, or what do you see the price there?

Yeah, we don't really talk about pricing. Obviously, we didn't disclose that, but I would say it's in slight contango to what we currently are seeing for 2021.

Got it. And also, when I look at the cash cost to serve your legacy, let's say, I think for fourth quarter, the cost was about 17 million or so for a fourth quarter. Should I think that's a good run rate for 2021 annual cost?

Lin, are you talking about the legacy liabilities, like employee legacy liabilities that we typically report on?

Yeah, yeah, I think, like, in your, like, statement, you report, like, cash payment for legacy employee liability. Yeah, yeah, that's right.

Yeah, so just so you know, for the full year 2020, I mean, quarters could be lumpy, so I would give you a full year perspective. For the full year of 2020, our cash servicing cost for legacy liabilities, including asset retirement obligations, was about $65 million. It's also on the slide deck that we have posted online. We do believe that over a long time, our legacy liability cost is going to continue to come down. And as you can see, just for the employee portion of it, our actual cost for 2019 was $61 million. It was down to like $51 in 2020. We expect it to continue to decline. I think the 2024 guidance for just the employee portion of the legacy liability that is in the slide is about $49 million. Does that answer your question?

Oh, yeah. Great. Thank you. I didn't see the slides. I guess there's more detail there. Appreciate it.

Thank you. No worries. We didn't make any reference to it on the script, but that was a good question.

Thank you. Bye. This concludes our question and answer session. I'd now like to turn the conference back over to Mr. Nathan Tucker for closing remarks. Please go ahead.

Thank you, Nick. We appreciate everyone's time this morning, and thank you for your interest in and support of CEIX. Hopefully we were able to answer most of your questions today, and we look forward to our next quarterly earnings call. Thanks, everybody. The conference is now concluded.

Thank you for attending today's presentation.