CONSOL Energy Inc. Common Stock

will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Nathan Tucker, Director of Finance and Investor Relations. Please go ahead.

Thank you, and good morning, everyone. Welcome to Consol Energy's second quarter 2021 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 release and our SEC filing, 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, which is also posted on our website. Additionally, we filed our 10-Q for the quarter ended June 30th, 2021 with the SEC this morning. You can 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 an update on the recommenced development of the Ipman Metallurgical Project, a recap of our key achievements during the second quarter of 2021, and specific insights on operations and sales. Mitesh will then provide an update on our liability management initiatives, our financial performance during the quarter, and 2021 guidance. In his closing comments, Jimmy will lay out our key priorities for the remainder of 2021. After the prepared remarks, there will be a Q&A session in which Dan and Bob will join us as well. Finally, we posted a supplemental slide deck on our website this morning, which we will refer to on this call. With that, let me turn it over to our CEO, Jimmy Brock.

Thank you, Nate, and good morning, everyone. We capped off the first half of 2021 by delivering another strong quarterly performance in Q2. On the operations front, despite two long, long moves in the quarter, we delivered a solid cash cost performance. Additionally, we once again demonstrated our ability to achieve strong cash flow performance by generating north of $50 million in pre-cash flow in Q2 of 21 and increasing the unrestricted cash on our balance sheet by more than $50 million as well. We reduced the leverage on our balance sheet and reaffirmed our ability to raise a significant amount of long-term capital the recently completed tax-exempt financing on the PAMC Refuge Expansion Project. On the marketing front, we continued to execute our strategic shift into the export markets, and we also strategically layered in some financial hedges in the API2 market to secure revenue visibility and capture some of the recent export market strengths for 2022. On the safety front, our Bailey Preparation Plant, Consol Marine Terminal, and Ipman project each had zero recordable incidents during the second quarter of 2021. However, our total recordable incident rate or TRR at the PMC finished Q221 higher than what is typical for us. Although the severity level on each of these incidents was very low, we strive to perform each day at zero incidents and our year-to-date TRR at the PMC remains significantly below the national average for underground bituminous coal mines. Now, let me start with our most exciting news this quarter and provide an update on our Ipman Metallurgical Coal Project. We have been very clear that one of our major strategic goals is to diversify our revenue streams and reduce the percentage of revenues associated with power generation markets. This project is a very important step in that direction. As most of you know, in early 2019, we announced the commitments of the development of our Ipman Mine Project, which is a low-vol metallurgical coal mining operation in Wyoming County, West Virginia. However, due to the unprecedented demand and earnings decline associated with the COVID-19 pandemic in 2020, we made the capital allocation decision to pull back spending on this project in order to focus our discretionary capital towards repurchasing our second lien notes in the open market, which were trading well below par value at that time. Now, as our debt has continued to trade up to near par levels, and as our free cash flow generation has significantly improved, I am very pleased to announce our decision to recommence the Ipman project. Despite the significant pullback in project expenditures, The past 12 to 18 months were instrumental in repositioning the project. We used this time to complete initial development mining to shore up our confidence in the reserve, and we optimized plans for the preparation plan to create an additional upside potential. We evaluated several options for the preparation plan. First, build a brand new facility from scratch. Second, purchase an existing plant at a nearby location and truck the coal for processing. Or third, identify an existing preparation plant for sale that could be relocated to our ITMAN site. Based on our analysis, the third option made the most economic sense, and we are moving forward with relocating a higher capacity and state-of-the-art preparation plant to the ITMAN project site, which is expected to start up in 2022. By relocating the plant, We eliminate potentially long lead times on equipment and avoid inflationary pressures from steel and other construction materials. We expect to produce 900,000 plus tons of high-quality low-volume coke and coal annually from our Ipman No. 5 mine once we're at full run rate production. We expect this to be a low-cost operation with a long reserve life of 20 plus years of production at maintenance capital levels. While the overall project capital cost has increased slightly due to the re-optimized plans for the prep plant, we believe this can be more than offset by the expanded capacity afforded by the prep plant and improved cost structure due to the inclusion of a highly efficient rail loadout. The prep plant we are relocating will have a processing capacity that is nearly double that of the plant originally envisioned for it. opening up the opportunity for us to process up to 750,000 to 1 million product tons of third-party coal in addition to the coal from our Ipman mine. We expect this will create additional growth opportunity and higher revenue potential compared to the original project plan. With that, now let me provide an overview of the coal markets. We continue to execute... on our multi-year transition of diversifying our sales mix and increasing our exposure to non-power generation markets. Following a record export sales volume in Q1 of 21, we successfully placed a near record 3.2 million tons in the export market in Q2 of 21, representing nearly 55% of our total shipments in the quarter. 47% of our tons sold were used in the industrial or metallurgical non-power generation applications as we continue to diversify away from traditional power generations. As you can see on slide five, we have continued to steadily diversify our global customer base and end-use markets since our spin in 2017. And in the second quarter of 2021, our overall export volume as a percentage of total sales volume went up roughly 22 percentage points versus full year of 2017. This improvement was driven by a sharp increase in the portion of our tons going into the industrial markets, which has risen by 33 percentage points versus 2017. We continue to focus on our strategy of further reducing our exposure to a declining U.S. coal market for power generation with a heightened focus on increasing our industrial business. We believe that with our quality of coal and cost structure at the PMC, coupled with our ownership of the Kansai Marine Terminal, we are very well positioned to take advantage of developing and sustaining opportunities in the export market. Demand for our product continued to strengthen in the second quarter of 2021 on the back of economic recovery and improved electric power and export demand. Henry Hub natural gas spot prices averaged $2.95 per million BTU during the quarter, a 73% increase compared to Q2 of 20. Additionally, average PJM West day-ahead power prices continued to improve, ending Q2 of 21 61% above the year-ago quarter. Spot pricing trends were especially encouraging given that we were in the shoulder season. Pricing has continued to improve since the end of the second quarter. Henry Hub natural gas prices are now in the $4 per million BTU range for August deliveries, with calendar year 2022 now well above $3 per million BTU. Prior to 2021, you'd have to go back to 2018 to find the month in which Henry Hub averaged $4 or more, and prior to that, all the way back to 2014. we remain optimistic that overall market conditions will continue to improve due to accelerating global economic recovery and a relatively muted supply response. On the export front, we have seen sustained improvements in the seaborne thermal coal market since the end of the third quarter of 2020. Petcoke prices continue to remain supportive as a result of reduced oil production, propping up demand, and pricing for northern out coal and high CB markets. API 2 spot prices also continued to rise in the second quarter of 2021, largely driven by hot and dry weather, strong LNG pricing, and a limited supply response, and ended the quarter improved by 82% compared to Q2 of 20. As such, we layered in commodity derivative contracts in the API 2 market for calendar year 2022, which my test will provide more color on shortly. Additionally, We completed four term deals in the export market during the quarter with durations from one to two years in length, and we recently contracted a cargo of PAMC coal to China for the first time since 2018. From a marketing perspective, it is encouraging to see that demand for our coal has continued to improve since the low point in Q2 of 20. We continue to maintain the vast majority of our core customer base and continue to see improvement in our customers' contracting appetites. Our sales team remains opportunistic in its marketing strategy and increased our contracting position by 9.4 million tons since our last earnings release, bringing our contracting position to 24.6 million tons in 2021 and 10.9 million tons in 2022. Now, let me review our Q2 of 21 operational performance in detail. Coal production at the Pennsylvania mining complex came in at 5.9 million tons in Q2 of 21 compared to 2.4 million tons in Q2 of 20. The vast improvement, despite the aforementioned multiple longwall moves in Q2 of 21, was due to a continued increase in demand for our product since the COVID-related drop in demand that bottomed out during the year-ago quarter. As a result, productivity at the PAMC measured as tons per employee hour improved by an impressive 46.7% in Q2 of 21 compared to Q2 of 20. On the cost front, our average cash cost of coal sold per ton was $28.02 in Q2 of 21 compared to $25.90 in Q2 of 20. Although this seems impaired, keep in mind that the $25.90 per ton did not reflect the $32 million in mine idling cash costs incurred during the year-ago quarter. When adjusted for that, Q2 21 cash costs significantly outperformed the prior year period. Even without accounting for that idle cost, Our year-to-date average cash cost of coal sold per ton was improved by nearly 15% versus the first half of 2020. Our operations team continues to focus on maintaining tight control over cash expenditures as we move forward. The Consolid Marine Terminal achieved a throughput volume of 3.8 million tons during Q2 of 21, compared to 1.6 million tons in the year-ago period. The significant increase was again due to improved demand in the seaborne markets compared to the drop of the COVID-19-related decline in coal demand in Q2 of 20. The terminal throughput volumes reflects a pace of over 15 million tons per annum and marks the second consecutive quarter with an annualized run rate north of 15 million tons. Terminal revenues for the quarter came in at $17.4 million compared to $15.9 million in the year-ago quarter. Despite the major increase in throughput tonnage, the impact on revenue was somewhat lessened due to the take-or-pay contract that was in place in the prior year period. Cash operating costs came in at $5.3 million versus $3.8 million in the year-ago quarter. With that, I will now turn the call over to Mattes to provide the financial update.