CONSOL Energy Inc. Common Stock

Good day and welcome to the Console Energy's fourth quarter and full fiscal year 2021 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by 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, please 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 fourth quarter and full fiscal year 2021 earnings conference call. Any forward-looking statements or comments we make about future expectations are subject to some risks, certain of which we have outlined in our press release and in 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 8-K, which is also posted on our website. Additionally, we expect to file our 10-K for the year-ended December 31, 2021, with the SEC this Friday, February 11, which will include updates required under applicable SEC rules, including technical report summaries for our material reserves and resources pursuant to Regulation SK-1300. You can find additional information regarding the company on our website, www.consolinergy.com, which includes a supplemental slide deck that was posted this morning. 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 the fourth quarter and full year 2021 and specific insights on operations and sales. Mitesh will then provide an update on our liability management initiatives and financial performance and will introduce our 2022 guidance. In his closing comments, Jimmy will lay out our key priorities for 2022. After the prepared remarks, there will be a Q&A session in which Dan and Bob will also participate. With that, let me turn it over to our CEO, Jimmy Brock.

Thank you, Nate, and good morning, everyone. Consolo Energy achieved a strong financial performance for the fourth quarter and full year of 2021, despite some operational issues in the late third and early fourth quarters. We've also advanced some of our key strategic growth initiatives during the year. First and foremost, We made significant progress on our Ipman Lobar Metallurgical Project, and it remains on schedule and on budget. Second, our Pennsylvania mining complex ended the year on a high note during Q4 of 21, where we achieved the highest quarterly sales price for our coal since the first quarter of 2018. We also moved past the geological issues that impacted our performance in Q3 of 21, which extended into October before returning to a more normalized run rate with our four operating long-laws starting in November. Third, we finished full year 2021 with a cash cost of coal sold at just above $28 per ton, which was impressive considering the inflationary pressures we encountered throughout the year. Finally, we generated $186 million of free cash flow during full year 2021, added almost $100 million of unrestricted cash to our balance sheet and made payments of $101 million toward our outstanding legacy debt, while additionally raising $75 million in tax exempt bonds to fund future expenditures on our refuse disposal areas at the PAMC. We believe these strong results will create additional financial flexibility for us as we move forward. I am very excited about 2022. where we expect to see the completion of the Ipman project. There is a tremendous opportunity in front of us to expand our revenue through increased pricing in 2022 and follow that up with even more revenue growth in 2023 as the Ipman mine is expected to have its first full year of production coupled with the potential for incremental volumes out of the PAMC. Let me now discuss our Q4 21 operational performance in more detail. Coal production at the Pennsylvania mining complex came in at 5.6 million tons in Q4 of 21. October production was affected due to the lingering geological issues. Then when we started producing at full run rate pace, the railroads were not able to consistently move the increased volumes due to COVID related unavailability of crews. These delays limited our shipments in the fourth quarter, which weighed on our production output and ultimately prevented us from hitting our 24 million ton midpoint guidance target for the full year of 2021. Productivity at the PMC in 2021, measured as tons per employee hour, improved by 13% compared to 2020, and the complex ended the year with production of 23.9 million tons. Given the aforementioned transportation delays, we also ended up with 309,000 tons of coal in inventory or in transit. On the cost front, our PAMC average cash cost of coal sold per ton was elevated in Q4 of 21, finishing at $30.81 compared to $27.49 per ton in Q4 of 20. The increase in our per ton cash cost was the result of limited production as well as increased maintenance, supply, contractor, and project expenses associated with the geological issues that we encountered early in the fourth quarter. The ongoing development of the fifth long wall, which is progressing as expected and will enhance our production optionality once completed, also added to our Q4 21 cost. Despite the higher Q4 cost, The PAMC ended the year with a cash cost of coal so per ton of $28.25 compared to $29.12 in 2020, largely driven by the significant improvement in our production and increased productivity year over year. The Consol Marine Terminal had a throughput volume of 3.1 million tons during Q4 of 21. Terminal revenues for the quarter came in at 15.5 million with CMT operating cash costs of $5.4 million. For 2021, the terminal had a very strong operational performance, finishing the year with 13.8 million throughput tons, which was its second highest throughput tonnage on record. Terminal revenue for 2021 came in at $65.2 million, with CMT operating cash costs of $21.8 million. This resulted in CMT adjusted EBITDA of $43.5 million in 2021 and marks the fourth consecutive year of CMT EBITDA above $40 million. On the marketing front, the demand for our product remains strong in the fourth quarter of 2021 due to the continued improvement in electric power and industrial demand domestically and across the globe. During the quarter, We sold 5.6 million tons of coal at an average revenue per ton of $51.27 compared to 5.9 million tons at an average revenue per ton of $39.05 in the year-ago period. This brought our total PAMC tons sold in 2021 to 23.7 million with an average revenue of $45.75 per ton compared to 18.7 million tons sold with an average revenue of $41.31 per ton in 2020. This significant pricing improvement was due to the continued rise in demand for our product and the ongoing coal supply tightness compared to the prior year period. Looking at the broader coal market picture, we expect coal demand to remain robust domestically as well as internationally due to strong forward pricing and tight supply. Our sales team was successful in securing additional sales contracts in 22 and 23. In addition, we are very excited to announce that we recently entered into long-term coal supply contracts in the export market with multiple buyers for approximately 7 million tons of coal to be delivered through 2024. Approximately 73% of this was directly contracted with a large industrial customer. Longer-duration contracts are not typical in the export market, and this contract highlights the success we've been able to achieve in establishing our high-quality product as a desirable and consistent component in export industrial applications. After accounting for these recent deals, our contracted position has grown, and we are now near fully contracted for 2022 and have 11.3% 4 million tons contracted in 2023. Our Ipman project continued to progress as expected in Q421, and the relocation of the preparation plant remains on track. Disassembly of the purchase plant is mostly complete. Earthwork at the Ipman plant site is also nearing completion, and construction of foundations and structural steel are underway. We are still targeting a full production ramp-up in the second half of 22. Additionally, we have succeeded in continuing to build out our workforce in preparation for this ramp-up plan, despite ongoing challenges in the labor market. We've also initiated marketing efforts for our Ipman low-volume metallurgical product to both domestic and international customers, which has been well received. We believe there's a lot of excitement in the marketplace for this product, with high-quality low-volume MET reserves becoming increasingly scarce in the U.S. Our Ipman project produced and sold approximately 100,000 tons of low-volume metallurgical coal on a clean coal equivalent basis during 2021 and generated positive operating cash flow aided by the continued strength in the MET coal market. This is even more impressive when you consider that this product was being sold raw, which highlights the free cash flow potential of the Ipman mine once our prep plant is fully operational and we're able to reap the full value of our finished product and achieve a unit cost structure consistent with a full run rate operation. With that, I will now turn the call over to Mitesh.

Thank you, Jimmy, and good morning, everyone. Before I review the fourth quarter results, let me provide a high-level comparison of what we discussed at the end of 4Q20 regarding our 2021 outlook and where we ended up. First, we begin the year with a target to sell 22 to 24 million tons of coal in 2021. Throughout the year, we took advantage of improving coal markets and battled various operational and logistical challenges, some within and some outside our control, to deliver coal sales of 23.7 million tons, which was at the top end of our original guidance range. We not only captured the volume improvement, but we were also able to capture a meaningful pricing improvement. We were approximately 18.2 million tons sold with an expected revenue per ton of $41.56 when we reported 4 to 20 results. But we ended 2021 with a sales price of $45.75 a ton, which allowed us to significantly increase our margins and free cash flow generation. Third, We originally guided to a cash cost of coal sold of $27 to $29 a ton and ended at $28.25 a ton for 2021. Our operations team did a phenomenal job of delivering costs within the guidance range despite unprecedented inflationary pressures, difficult geology, logistics bottlenecks, and multiple COVID variants that resulted in higher absenteeism for our workforce. Fourth, on the legacy liabilities front, We now have a fully funded status on our defined benefit pension plan. We also took advantage of the funded status and strong equity markets of 2021 to de-risk our pension plan further and move to a 25-75 equity to fixed income split compared to 40-60 split at the end of 2020. Fifth, all of this helped us generate $186 million of free cash flow, which is significant for a company with current market cap of just over $800 million. This free cash flow allowed us to make significant progress on the financial priorities we laid out at the beginning of the year. Key among these were reducing our leverage to just under 1.5 times at the end of 2021 compared to 2.54 times at the end of 2020, reducing our outstanding debt by an aggregate amount of $101 million, which was partially offset by our $75 million PEDFA bond issuance, improving our available liquidity at the end of 2021 to $381 million compared to $326 million at the end of 2020. And finally, we were also able to move forward with internally funding some of our strategic growth initiatives, such as our admin project, which will allow us to diversify our revenue stream and further accelerate value creation for our shareholders. Before moving to our financial results, let me provide an update on the volatility we have seen in the API 2 markets as it relates to our financial hedges for 2022. As a reminder, we hedged 2 million metric tons in the API 2 market for calendar year 2022 at a weighted average price of $79.34 per ton. Through the third quarter, we recorded nearly $168 million in unrealized pre-tax losses on commodity derivative instruments as Cal 22 API 2 forwards were at $157 per metric ton at the end of September 2021. However, Cal 22 API 2 prices retreated significantly in 4Q21, and as such, we reversed approximately $116 million of these unrealized pre-tax losses in the fourth quarter, ending the year at an unrealized loss position of $52 million. We expect that as we go through calendar year 2022, the volatility of these hedges will decline as settlements occur, both on the physical and financial side. As a reminder, we do not have any financial hedges for 2023 volumes. With that, let me now recap our fourth quarter and full year 2021 results before moving on to our 2022 guidance. This morning, we reported a solid fourth quarter 2021 financial performance with a net income of $117.3 million, or $3.30 per diluted shares, which included the previously mentioned $115 million $.5 million unrealized pre-tax mark-to-market gain related to commodity derivatives. Net income, excluding these unrealized gains and the associated income tax effect, was $30.7 million and adjusted EBITDA came in at $120.6 million. In 4Q21, we generated $52.4 million of cash flow from operations, which included $38.2 million of negative working capital changes, largely driven by an increase in our trade and notes receivables balance. Additionally, we spent $29.4 million in capital expenditures in 4Q21. This resulted in free cash flow generation of $24.5 million in the fourth quarter. For the full year 2021, we reported a net income of $34.1 million or $73.3 million when excluding the unrealized mark-to-market losses related to commodity derivatives and the associated income tax effect. Adjusted a bid of $378.2 million and incurred capex of $132.8 million. CEIX finished the year with free cash flow of $186.4 million, marking the fourth consecutive year of positive free cash flow generation since becoming an independent public company in November 2017 and a net leverage ratio of just under 1.5 times. Now let me provide you with our outlook for 2022. For the Pennsylvania mining complex, we are expecting our 2022 sales volumes to be slightly improved at the midpoint compared to our 2021 levels. As such, we are providing a 2022 PMC coal sales volume range of 23 to 25 million tons. The upper boundary reflects our belief in our operations team's ability to efficiently meet increased spot market demand with our four long walls, as well as our optimism that the transportation delays that plague the latter part of 2021 will be mitigated by the end of 1Q 2022, as our logistics partners address their crew availability issues. The lower boundary considers the possibility of transportation issues lingering past 1Q22 and the potential for other unforeseen supply chain or operational challenges. The good news is that all our mines are currently running well and we are near fully contracted at the midpoint of our guidance range. On the pricing front, To reflect our robust contracted position and the potential for continued strength in our power price and API 2-linked volumes along with upside sales opportunities, we currently expect our average revenue per ton to be in the $55 to $57 per ton range. Our guidance is also based on Cal 22 power price expectation of $41.33 per MWh at the midpoint, and the sensitivity for every dollar per MWh change in PJM West power prices is approximately $0.17 per ton on our entire portfolio at the midpoint. We expect our 2022 PAMC cash cost of coal sold to be $29 to $31 per ton. We are expecting our cash cost to be elevated compared to 2021 to reflect the ongoing development of our fifth long wall through much of 2022, as well as continued inflationary pressures on certain goods and services. While our team has done a good job of managing inflationary pressures in the past, it is becoming more difficult. And just like in many other industries, cost pressures remain elevated for us as well. In our case, the biggest drivers of cost inflation are in the material, supplies, and power consumption categories. As always, we constantly focus on ways to reduce our costs and improve efficiencies. Additionally, we are providing a CEIX capital expenditure guidance range of $162 to $195 million. At the midpoint, 65% of this is associated with PMC maintenance capex. 25% related to the remaining development of the ITMAN project, and the remaining piece is associated with various operational and corporate initiatives, which were highlighted in the earnings release in more detail. As discussed earlier, our ITMAN preparation plan project is progressing as expected and on budget, and we are reaffirming our guidance of second half 2022 start-up as well as all operating assumptions. We also expect to produce between 300 and 500,000 tons of coal on a clean coal equivalent basis from the Itman mine this year, of which the majority will come in the back half of 2022. To put this all into perspective, the trajectory of our business has improved drastically since 2020, and we believe current indicators support its continuance. we had significant volume growth and pricing improvement at the PAMC in 2021 compared to 2020 levels. Based on our 2022 guidance, we expect a substantial increase in PAMC pricing of more than $10 per ton in 2022 at the guidance midpoint versus 2021 actuals. As Jimmy previously mentioned, we also expect our admin project to be fully operational in the back half of the year and become a cash flow generator. Additionally, with our remaining open position, continued strength in coal markets, potential for additional PAMC volumes, and full year of production at Ipman, we could see further EBITDA growth in 2023. With that, let me turn it back to Jimmy to touch on our key priorities for 2022. Thank you, Mitesh.

First, as we always do, we prioritize safety and compliance across all of our operations. We will remain good stewards of the environment, to the communities where we operate, and most importantly, to our people. Second, we will continue to focus on strengthening our balance sheet and liquidity. Due to our consistent free cash flow generation and expectations for 2022, we are optimistic moving forward that we will continue to deliver the balance sheet and reduce our absolute debt levels. Third, Due to our strong contracted position in 22, we have turned our focus toward selling in 2023 and beyond, aiming to improve the duration of revenue visibility and further seize the ongoing strength in the marketplace. We are prepared to run to the market and will focus on the highest arbitrage opportunities while simultaneously carrying out our longer-term strategic shift into the export markets. We will continue to build relationships globally to balance our domestic exposure and allow us to capitalize on growing international demand for our product. Fourth, we are fully committed to getting our Ipman project up and running as quickly as possible. This will be a major focus of our team in early 2022, as this project is the next phase of our growth and diversification strategy. There is a lot of excitement for our Ipman product. and we are anxious to start placing this high-quality, low-volume met coal into the market. Fifth, we are also continuing the development work for an additional longwall at the Enloe Fork Mine to provide ourselves with the optionality to flex up production to capture future market upside potential and also to offset any unforeseen operational issues across the rest of the mining complex. This should allow us to maintain four longwalls' worth of output more consistently which will support our strategy of running to the market, but also provide upside potential. Finally, we want to be in a strong position to return capital to our shareholders in the most attractive manner. However, we feel strongly that in the short term, we have more work to do on our debt reduction goals and deleveraging targets, as well as finishing our capital investment and developing the ITMAN project. But with continued cold market strength, and free cash flow generation, we expect to achieve those targets in the coming quarters. In summary, I'm very pleased with the accomplishments of our team in 2021. Our employees did a commendable job working through multiple operational and logistical challenges during the year, mitigating risks and seizing on upside opportunities, all while working safely and compliantly during a year that was mired in multiple COVID variants and the associated challenges to community health. We believe we've positioned ourselves well and are primed to execute our strategy in 2022. Moving forward, we are excited by the outlook of our business and the potential to continue to generate significant free cash flow. This cash flow generation will not only allow us to meet our debt reduction goals, but will also allow us to grow the intrinsic value of our equity. I expect this equity value could grow even further when the Ipman project starts generating positive free cash flow later this year.

With that, I will hand the call back over to Nate. Thank you, Jimmy. We will now move to the Q&A session of our call. At this time, I'd like to ask our operator to please provide the instructions to our callers.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time we will pause momentarily to assemble our roster. Our first question will come from Nathan Martin with The Benchmark Company. Please go ahead.

Hey, good morning guys. Thanks for taking my questions. Good morning, Nate. So maybe I'll start real quick. You mentioned transportation delays during the quarter, and I know you guys aren't the only ones that have experienced those, but how many times would you estimate slipped maybe here into the first quarter, and would you expect to be able to make up all of those service issues to kind of get better maybe towards the end of the first quarter, as you alluded to, hopefully?

Well, first, we have been working with our transportation partners and talked with them You know, it's clearly a cruise availability issue, but it's hard to put a number on. I mean, we ended the year with 310,000 tons in inventory there, but also we missed some opportunities to produce, whereas we could not get the rail service here to move those away. And, Bobby, I don't know if you have a number of tons there.

Yeah, I mean, Nate, a lot of those tons that I will say were in the silos and in transit, we have moved quite a bit of those here in the first quarter, or I should say in January. I will tell you it seems as though the railroads are improving, albeit a little bit slower than what we would have hoped. But again, you know, as Jimmy mentioned, we're hopeful by the end of the first quarter that these delays that we have experienced, you know, will subside significantly.

Got it. Thanks for that color, guys. Maybe looking ahead, essentially fully contracted for 2022, maybe you could comment on the split domestic versus exports, and then you nearly doubled your contract position for 23 to 11.4 million tons. Maybe could you give us an idea on the split of those tons as well as maybe some commentary on pricing there? That'd be great.

Sure, Nate. Last year we, or I should say 2021, we exported just over 11 million tons, which was a record for us. This year we'll probably be closer to about 9 million tons of total exports, and that's basically on the back of stronger demand here in the U.S., and the longer-term contracts we were able to secure because of it. I will say that we do have some customers, domestic customers, whose lanes are a bit challenged from a logistical perspective, and should that continue, You know, we could see additional exports this year as trains that move in and out of our terminal seem to be turning quite well. Looking ahead, you know, as we know, the growth is in the export market, particularly into Asia. So I would expect to see more of our coal continue to flow that direction in the future. But, you know, by no means am I suggesting that we're going to abandon our domestic customer base. You know, if the demand is there, we'll work with our operations and our logistic partners to ensure we maximize, you know, our productions and sales. As far as 2023 is concerned, as you mentioned, you know, we've nearly doubled our contracted position to 11.4 million tons. Although we're not providing pricing guidance, mainly due to the fact that, you know, these markets are extremely volatile and we still have, call it, 50-plus percent of our volume left to sell next year. What I can tell you is that of the 11.4 million tons, approximately a million and a half are linked to power prices. Approximately 4 million are contracted into the export market. And the balance are approximately 6 million are domestic and fixed priced. So with that being said, you know, the API 2 markets are slightly backward dated. So I would say it's safe to assume that based on the current futures that are pricing on those 11.4 million tons are slightly lower than our 2022 midpoint however you know as I just mentioned we do have over 50% of our coal left to sell and I will tell you that we are in discussions today with with additional business with domestic international customers so you know by our next call hopefully we'll be layering in additional volumes and be able to provide you a little bit more more color around that Bob that's great I appreciate the additional info there and I guess

As well, you guys talked about the long-term export contract with about 7 million tons through 2024. I'm curious. I'm guessing a chunk of that was there maybe in 2023, but also curious about how pricing works on that. Is that something you guys have to hedge as well? Maybe your thoughts there.

So I'll give you some background on that, Nate. As Jim mentioned, we're very excited to put these opportunities to bed. So they're for approximately 7 million tons. They begin in the second quarter of this year and run through 2024. Of that 7 million, approximately 1 million tons are at a fixed price, and the balance, or call it 6 million tons, are indexed linked to the API 2. I will also tell you that these deals have floor and ceiling prices incorporated into the contracts, and the floor prices are above our full year 2021 average realized price. And the ceiling prices are as such that, you know, we still have the ability to capture significant upside should the markets remain strong or even rally compared to the current forwards. So, again, I like to say that these are monumental deals for Consol, which have downside protection with plenty of upside opportunity.

And so, Nate, we don't have any hedges, as Mattesh mentioned in his remark in 2023, but This contract here with having a floor price as well as the ceiling kind of takes care of the hedge situation for us.

Great. Thank you. Just real quick as well, guys, on the fifth long wall, you mentioned everything's going as planned, start up in the fourth quarter. Given that, should we expect 23 production maybe to be up versus 22 production?

I think it's fair to state that if we do bring the fifth long wall on and the market stays where it currently is today, we do have some upside potential there. It's just a matter of how quick we can get the fourth long wall started. The operations team knows that. They're working very hard to advance those rates. But it's still going to be at the very earliest it'll be, I would think, somewhere late November, early December before we can start that wall. That's where our timing currently shows today. But if things continue to improve, we can bring that on a little bit earlier. And obviously, if we have that fifth long wall up and running and there's opportunities in the market there, we certainly would have the upside potential.

Nate, I would also say that availability of rails continues to be one of the things that we watch, too. So having the fifth long wall ready along with improved rail delivery system would be helpful.

Got it. Thank you, guys. And maybe finally, and Jimmy, I know you touched on this a little bit in your prepared remarks, but maybe just some additional thoughts on uses of cash. Obviously, you guys have done a fantastic job paying down debt, reducing leverage in 21. Is debt still priority number one? And Tess, do you think you mentioned in the past that you're trying to get to sub one time? Once you get there, when do you think you could get there, and how would you rank priorities for free cash flow at that time?

Well, paying down debt still is number one for us and protecting the balance sheet. We want to make sure we're in a good position to weather a bad storm if another one comes. And then, obviously, once we get – and Mattesh has mentioned it before – we get down to one-time leverage, I think it's time for us to start looking at some shareholder optionality, as we mentioned earlier today. But do you want to add anything to that?

I'll also add that – Remember, Nate, we are also spending on HITMAN projects right now, and that CapEx is front-end loaded. So I think from a timing perspective, I think you have the leverage ratio targets but also the spending on HITMAN that we are trying to balance here.

But if we continue to be in the markets that we're in today and Bobby and the sales team continues their work, we'd like to get in a place where we actually can do both.

Makes sense, guys. I appreciate all your thoughts. I'll leave it there. Thanks for the time, and best of luck in 22. Thanks, Nate.

Again, if you have a question, please press star then 1. Our next question will come from Lucas Pipes with B. Reilly Securities. Please go ahead.

Hey, good morning, everyone, and good job on the quarter, and appreciate the outlook. I wanted to ask a quick follow-up question on the 7 million tons. So is it right to conclude that you wouldn't hedge those volumes further from here, that kind of with the structure you have in place, the collar, you're comfortable as it stands?

Yeah, I think, Lucas, it's a fair assumption, and The way the contract is designed, it removes the need for us hedging. I think if the coal markets continue to stay strong, I think there could be significant upside here. And remember, we also have some fixed price contracts in the domestic market, and this one also has a floor that is above our 2021 realized price. So I think we are pretty protected in 2023 with that construct. So we don't need to hedge.

Very helpful. Who would be the main counterparties on those 7 million tons? Is it mostly directly to end customers, or is there a portion of this that's going through a trader or something similar?

Luke, if it's mainly direct to an end user, a large industrial customer in Asia. What percentage of that? roughly 70, I want to say 76% or 74%. 73%. Sorry about that. Very helpful.

And then, so really terrific, terrific deal. Could this be a blueprint for ITMAN? So, you know, you're about to complete a project there. My co-markets are Red Hot, is there something of this structure that you could borrow and apply to de-risking the returns on Ipman?

Well, we certainly would look at something like that as the opportunity presents itself. But, you know, for our Ipman project, it's such of high quality. We think that we're going to be domestically and internationally marking that goal and probably more on a fixed price basis. Okay.

Got it. Okay, that's helpful. Thank you. And then turning to the cost side, good job here in Q4 and in the outlook. And I wanted to get a little bit better sense for 2022 versus 2021. Admittedly, I thought there might be further upside risk given the inflationary pressures we all hear about all the time. Is part of the more muted inflation the fact that you had these geologic issues in Q3, or how would you kind of bridge 2021 versus 2022 costs? Thank you for your color on that.

Yeah, Lucas, I think it's a combination of both. When I look at 2021 costs, you know, we had some inflationary pressures there, as Mitesh mentioned in his remarks. particularly from some of the consumers and some of the products that we use to actually produce the coal. But we work closely with our suppliers and try to keep a handle on that as best we can. And then, obviously, the geological issues that we had at our Bailey mine certainly adds to that. I mean, you add additional roof support, you add additional labor, and you have things to come there. And we actually had close to four months of that on and off that we had increased costs there. But looking forward into 2022, we did raise our guidance from $29 to 31 in preparation for some of these inflationary pressures that we see. But one thing I'll tell you, and you've heard me say this before, the Pennsylvania mining complex and all of that, every employee in Consol Energy is incentivized in some way or another on unit costs. And if you want to judge how well we've done on that, this year, 2021 marked the third consecutive year that we've had a lower cash cost than the previous year. So it's something that we work very hard on, on things that we can control. But now when you get out to like steel, you know, all of our ground control support team, we work closely with them. And that was a big inflationary part of our cost this year just because of where steel prices went. You know, we use those not only for roof support, we use them for channels, we use them for a lot of other things as well. So those type things are what we'll concentrate heavily on this year as well as rubber and other products to try to stay well within the guidance of $29 to $31 a ton on cash cost.

Terrific. Well, I very much appreciate all your color and best of luck. Thank you.

Thank you, Lucas. Our next question will come from Matt Warder with Seawolf Research. Please go ahead.

Hey guys, congratulations on a great quarter. I had a couple of questions. So the production guidance kind of implies that there's not going to be a huge contribution from that fifth longwall at Enloe Fork. Could you guys update us a little bit on the timeline there? And then my other question regarding that was, as that fifth longwall ramps up, does that potentially allow for some flexibility for some of the other properties to potentially sell into the MET market as that ramps up? Does that give you basically some flexibility in terms of sales there? Thanks a lot.

Sure, Matt. So all the timing, as I said earlier, it's going to be in the fourth quarter, and it's just a matter of developing for that fifth long haul. So we think the earliest it could be is sometime in mid-November, and it could be as late as December in Q4, just depending on how the development goes for that section. The operations team is aware of it. They're working very hard at it, and things are going well, and I will tell you that we are on pace now. But as far as increased production for the fifth long wall, as Mattesh mentioned earlier, it would depend upon if all the rail and transportation issues are clear and we can now move the coal away because we do not have ground stores at the Pennsylvania Mining Complex. So we store all of our clean coal and all of our raw coal in silos So the rails have to perform to take it away. But there is upside potential there for that fifth longwall as long as we can move the coal away. And then another added feature as well is that if we do have issues such as we had in the third and fourth quarter and we have that fifth longwall set now, we certainly can pick up lost ground by running that wall. So we think the way we're currently running today with four longwalls running and with the rails performing we can certainly move the coal away and we can produce and let those operations run at full pace without having to idle any. When you put the fifth long law in there, it's a little more challenging because the rails have to perform optimally as well as we have to schedule how we run, particularly on non-scheduled shifts.

I got you. So there's more to coordinate than just the production there. You have to also coordinate the logistics there as well. I get it. One other sort of follow-up on that, I guess, provided that rail would be able to accommodate the additional tons, just to follow up on any possibility of – I think most views are that MET prices are going to hold up a little bit better than thermal over the longer term, and if there's a possibility to capture any additional pricing upside on there. And then the last question I had was, For the very forward contracts, like 2023, you know, and out to 2024, I assume that most of those were done here in the last, over the last quarter?

Yeah, Matt, this is Bob. I'll take that. As far as that fifth long well, the great part about that long well when it returns, it will be in some lower sulfur premium quality coal. So, To answer your question, yes, I think there's an opportunity for us to grow our crossover MET business out of the Pennsylvania mining complex with that production. And we'll always seek to optimize and sell that coal. We realize the best price back to the mine. And the second part of your question, yes, the majority of that was sold under this long-term export arrangement for 23 and 24. However, we did layer in some additional domestic business as well. going through 24. So it was kind of a split, but the majority of it was under this export contract that was completed in January.

Gotcha. And the comment I heard before was that, you know, some of that is indexed to API 2 going forward with the floor and ceiling price. Is that how we should think about most of those contracts going forward?

This was somewhat of a unique one. However, I will say that it works for us. In most cases, I think it works for the customer. So we are in discussions on similar type contracts, albeit they're a little different in structure from how we price it.

I think that gets me where I need to be. But, guys, great quarter, and thanks again for taking my questions. Really appreciate it.

Thank you. Thank you.

This concludes our question and answer session. I would like to turn the conference back over to Nathan Tucker for any closing remarks.

Thank you, Matt. We appreciate everyone's time this morning, and thank you for your interest in and support of CIX. We hope we addressed your questions today, and we look forward to our next quarterly call. Thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.