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.