CONSOL Energy Inc. Common Stock

Good day and welcome to the Console Energy third quarter 2022 earnings conference call. All participants are in 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 your touch-tone phone. To withdraw your question, please press star then two. Please note today's 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, sir.

Thank you, and good morning, everyone. Welcome to Consol Energy's third quarter 2022 earnings conference call. Any forward-looking statements or comments we make about future events are subject to 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 8K, which are also posted on our website. Additionally, we followed our quarterly report on Form 10Q for the quarter ended September 30, 2022 with the SEC this morning. You can find additional information regarding the company on our website, www.consolidary.com which also 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 Senior Vice President of Marketing and Sales. In his prepared remarks, Jimmy will provide a recap of our third quarter 2022 achievements and specific insights on operations and sales. Mitesh will then provide an update on our balance sheet management, financial performance, and 2022 outlook. In his closing comments, Jimmy will lay out our key priorities as we head into 2023. 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. I want to start by highlighting a few developments for Consol that we're excited about. First, we recently announced the commissioning of our Ipman preparation plant at the end of September and our first shipment in mid-October. This plant gives us full marketing control of our Ipman product, as well as incremental upside opportunity through third-party processing. This major milestone also gives us the ability to finish ramping up to full production capacity at the Ipman mine. Second, we are nearing completion of the development of our fifth longwall at the Pennsylvania Mining Complex, located at the Enloe Fort mine. The timeline remains on track, and we continue to expect it to be up and running before the end of the fourth quarter. We are excited to bring this well back into the mix to add production stability, optionality, and improve quality to the complex. Finally, Consolo Energy achieved strong financial results during the third quarter of 2022, despite multiple production-related challenges. As such, we announced this morning our second dividend payment. which will occur later this month based on Q3 22 financial results. We also furthered our debt reduction goals by retiring a sizable portion of our gross debt during the quarter. Let's now discuss our operational performance in more detail. On the safety front, our Enloe Fork Mine, Harvey Mine, Bailey Preparation Plant, and Consol Marine Terminal each had zero employee recordable incidents during the third quarter of 2022. The Bailey Prep Plant and CMT have maintained zero employee recordable incidents so far in 2022, and our Enloe Fork Mine achieved its second consecutive quarter at zero. Our year-to-date total recordable incident rate at the PMC is 3.4 times below the national average for underground coal mines. Coal production at the Pennsylvania Mining Complex came in at 5.3 million tons in Q3-22, in line with the prior year period, but a reduction of nearly 1 million tons compared to Q2 of 22. Production suffered this quarter due to a planned maintenance shutdown and a longwall move, as well as multiple operational and geological challenges. The good news is we believe that these issues are now behind us, And after finishing a longwall move in early October, all planned moves for 2022 have been completed. As a result of these factors, our PAMC average cash cost of coal sold per ton for Q3 2022 was elevated, finishing at $39.77 compared to $34.81 in Q2 of 2022. This was mainly due to reduced fixed cost leverage resulting from the decreased production levels as well as the ongoing development costs associated with the fifth long wall and continued inflationary pressures on supplies, maintenance, and power costs at our operations. Maintenance costs were also elevated due to ongoing challenges on the supply chain front and deteriorating performance consistency by our suppliers. This brings our year-to-date cash cost of coal sold to 34.46 per ton. The Consol Marine Terminal had a throughput volume of 2.7 million tons during Q3-22, compared to 2.8 million tons in the prior year period. Terminal revenue for the quarter came in at 14.8 million, an increase compared to 14.1 million in Q3-21, driven by an improvement in the throughput rate per ton. Operating cash costs came in at $6.7 million for the quarter, compared to $5.8 million in Q3-21. DMT adjusted EBITDA finished Q3-22 at $8.3 million, compared to $7.3 million in the prior year period. Our Ipman project hit a major milestone at the end of the quarter with the commissioning of a preparation plant, which processed its first coal in late September. We loaded and shipped our first train on October 12th. While the prep plant was commissioned in the third quarter as anticipated on our last earnings call, supply chain bottlenecks have delayed the delivery of our third production section equipment, and we now expect it to be delivered in the fourth quarter. We still anticipate scaling up all three super sections by the end of 2022 and achieving full run rate production by the beginning of 2023. We are encouraged that mining conditions and coal quality are proven to be what we expected, and we will hit the ground running once all three supersections are fully operational. The Ipman mine produced 41,000 tons and sold 15,000 tons of low-volume metallurgical coal in Q3 of 22. The difference between sales and production resulted from a deliberate decision on our end to stockpile raw coal for processing in our own plant instead of selling it for third-party processing, which will allow us to capture the full economic opportunity associated with this coal. On the marketing front, the demand for our PMC product remains strong in the third quarter of 2022. We sold 5.3 million tons of PMC coal at an average realized coal revenue per ton sold of $72.83 and Q3-22 compared to 5.4 million tons at 4746 in the year-ago period. The $25.37 per ton increase in our average realized coal revenue per ton was driven by the ongoing improvement in the coal markets over the past year due to persistent coal supply shortages and increased commodity pricing. Henry Hub natural gas spot prices averaged $8.03 per million BTUs in Q3-22 compared to $4.35 per million BTU in the prior year period. BJM West's day-ahead power prices hit the highest quarterly average in over eight years, finishing Q3-22 at $90.44 per megawatt hour. In the global thermal coal markets, demand remains robust as a result of tight supply. Domestically, Coal-fired electric generation units are delaying retirements, and internationally, we're seeing countries bring back coal-fired electricity generating units, particularly in Europe. Wood Mackenzie estimates that power demand will accelerate in India as the country comes out of the monsoon season in Q4. The burden to meet this incremental demand will fall on coal due to the lack of alternative energy sources. domestic supplies in India will be prioritized for power generation, and this will increase export demand for the non-power generation sector, which we serve. As a result of this continued coal market strength, our sales team opportunistically secured additional sales contracts and increased our forward sole position by 6 million tons through 2026. We now have 21.8 million tons contracted for 2023, and 8.8 million tons contracted for 2024. For our metallurgical product coming out of the Ipman mine, we have successfully concluded multiple contracts in the domestic and export markets for a portion of our Q4-22 Ipman volumes, and discussions regarding additional new business commitments are ongoing. Finally, we are happy to report that we secured new five-year throughput agreements for third-party coal at the Consolidated Marine Terminal that will take effect in 2023 and run through 2027. This will lock in a minimum of 1.85 million tons of throughput in 2023 and a minimum of 2.75 million tons per year of throughput in 2024 through 2027. With these minimum volumes secured by take-or-pay provisions, This deal is not expected to affect our needs for shipping our own PAMC and Ipman products through CMT. And when coupled with our own shipments, it provides solid revenue visibility and a meaningful growth opportunity for CMT going forward. With that, I will now turn the call over to Mattesh to provide our financial update.