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.

Thank you, Jimmy, and good morning, everyone. Let me begin by updating you on the progress that we have made on the balance sheet management front before discussing our quarterly results and 2022 outlook. We continue to make considerable progress on our stated financial priorities due to the ongoing coal market strength and our strong financial performance. During the quarter, we generated $107 million of free cash flow, a majority of which was deployed towards our near-term goal of continuing to reduce our gross debt levels. We made total debt payments of $56 million, which included $50 million towards Term Loan B and $6 million towards various finance leases. We have now made total debt repayments of $211 million in the first three quarters of 2022, and our current gross debt level now sits at just above $450 million. While we have more recently focused on our Term Loan B debt as it is first lien and interest rate sensitive, the call price on our second lien notes will drop in mid-November to 102.75 versus 105.5 currently. This will provide us additional optionality in our capital allocation process moving forward. As such, we have submitted a redemption notice for $25 million of our second lien notes at the end of October, which will be redeemed during 4Q22 at the step-down call price. Additionally, we made a discretionary payment of $25 million towards our term loan B in October that was not included in our third quarter results. These two paydowns will bring our gross debt to approximately $400 million. We'll continue to prioritize strengthening our balance sheet through significant debt reduction and work towards achieving our goal of $300 million or less of aggregate gross debt. Due to our continued earnings and free cash flow strength, we finished 3Q22 with a net leverage ratio of just under 0.3. During 3-22, due to our strong free cash flow generation, we also managed to increase our unrestricted cash balance even while making $56 million in debt repayments and $35 million dividend payment associated with our second quarter performance. Our unrestricted cash balance at September 30 was $269 million. We also ended the third quarter with a significant liquidity position of $542 million. In conjunction with our strong free cash flow generation and consistent with our recently announced shareholder return program, we are pleased to announce this morning that the Board of Directors elected to issue a dividend of $1.05 per share amounting to a payment of roughly $37 million or approximately 35% of our 3Q22 free cash flow. This payment will be made on November 23rd to all shareholders of record as of November 14th. As mentioned previously, Most of our remaining free cash flow will be allocated towards our debt reduction goals. However, once the target gross debt level is achieved, we expect to further increase the percentage of free cash flow allocated to our shareholder returns, including potential share buybacks. We continue to diligently engage with our shareholders each quarter and solicit feedback around their preferred method of shareholder return. This approach allows them to have a voice in the process and enables the company to best align its strategy with the interest of its shareholders. We believe the previously announced increase and extension of our repurchase program authorization by our Board of Directors last quarter provides us the flexibility and wherewithal to quickly adjust our return strategy between dividends and share repurchases or a mix of both. Now let me recap our third quarter financial results and outlook for the remainder of the year. This morning, we reported a strong 3Q22 financial performance. We ended the quarter with net income of $152 million, or $4.25 per diluted share, our highest quarterly earnings per share level since becoming an independent public company in 2017. Additionally, we finished 3-22 with adjusted EBITDA of $181 million and generated $107 million of free cash flow. While our production levels came in lighter than our expectations during the quarter, our strong PAMC sales book led to impressive cash margins and free cash flow generation. On the guidance front, For the PAMC, we are pleased to announce that due to a strong 3Q22 performance and improved outlook, we are raising our expected average realized coal revenue guidance to a range of 67 to 69 per ton, net of settlements of commodity derivatives. Our updated guidance assumes average PJM West stay ahead power forwards of $81 per megawatt hour at the midpoint for the fourth quarter of 2022. For every dollar per megawatt hour change in PJM West power prices during 4Q22, we estimate the weighted average realization across our entire portfolio for the full year of 2022 would change by approximately $0.04 per ton at the midpoint price. Given the tough 3Q22 operational performance at the PMC and ongoing challenges with supplier inconsistencies, we are slightly tweaking our 2022 sales volume guidance to a range of 23.75 to 24.5 million tons. The bottom end assumes producing at the average levels across the first three quarters of the year, while the top end assumes the possibility of accelerating the start date of the fifth long-vault and potentially adding extra production shifts subject to labor availability and improving supply chain consistency. As of now, we expect the vault to start in mid-December, but the team is working hard to commission it as soon as possible. To reflect the operational and geological challenges We faced during the third quarter ongoing concerns around the supply chain bottlenecks and higher input costs. We are increasing our PMC cash cost of coal sold guidance to a range of $33 to $35 per ton. We are beginning to see some relief in these cost pressures in the early parts of the fourth quarter. Our supply chain team diligently manages costs as best as they can, and the operations team is constantly focused on identifying ways to minimize our cash spent. After these revisions, we expect an overall net improvement to our cash margins of $1.50 per ton at the midpoint of our guidance range as compared to last quarter's guidance. For ITMIN, we are reducing our tonnage guidance to a range of 200,000 to 300,000 tons for the full year of 2022, down from 300,000 to 500,000 tons previously. While the preparation plan was commissioned in the third quarter, the midpoint of our guidance assumed that planned startup would occur slightly earlier. Furthermore, as is the case with most industries across the world, supply chain bottlenecks have caused delays for us as well. The delivery of our third section of equipment, which was expected in August, has been delayed until the fourth quarter. We are optimistic that we will have all three CM supersections operational by the end of the year and will be prepared for full run rate production starting in 2023. Lastly, on the capital expenditure front, we are maintaining our guidance range of $160 to $185 million. With that, let me turn it back to Jimmy to touch on our key priorities for the remainder of the year.

Thank you, Mitesh. As we close out 2022, we have a few key areas of focus to set us up for the continued success heading into 2023. Our major focus is on our operations. First, We are laser focused on bringing the 5th Longwall back into operation this quarter and the PMC team is hard at work to have it up and running as early as possible. Second, we are also committed to ramping up the Ipman mine to full run rate production by the end of the year to ensure we hit the ground running by the start of 2023. We are very proud of the execution and hard work from our Ipman team members and for their dedication in getting us to this exciting point in a truly short period of time. We have relocated, constructed, and commissioned this preparation plant in just over a year, which is not an easy feat in the current inflationary environment with significant supply chain bottlenecks. Third, our sales team remains opportunistic in its approach and will continue to balance revenue visibility with market optionality. We expect to continue to layer in additional business for 2023 and beyond. Our ability to lock in duration should allow us to benefit from this strong market for years to come. We are also hard at work marketing our new Ipman product to secure new business with strategic and long-term partners. Finally, reducing the debt on our balance sheet remains a major focus. We are fast approaching our gross debt goal. which is a key pivot for accelerating returns to our shareholders. In aggregate, we are very pleased with how 2022 has progressed to this point and our ability to optimize our sales book. Looking ahead, we remain even more excited about the future. For 2023, we expect higher sales volumes from both the PMC and Ipman, which should add upside compared to this year. With that, I will hand the call back over to Nate for further instructions.

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 telephone. If you are using a speakerphone, we ask that you please pick up your handset before pressing the keys. To withdraw your question, please press star then 2.

Today's first question comes from Lucas Pipes with B Reilly Securities. Please go ahead. Mr. Pipes, your line is open, sir.

Obviously, Mr. Pipes may be on mute here, so we'll move on to our next question. And our next question today comes from Nathan Martin at The Benchmark. Please go ahead.

Hey, good morning, guys. Thanks for taking my questions. Good morning. Let's see. You layered on additional 6 million tons through 26. Looks like 23 is at 21.8 now. 24 is at 8.8. Could we please get a breakdown, maybe the totals for those two years between export and domestic tonnage? And then, Bob, I know you mentioned committed and priced tons for 23. Last quarter, we're in the low to mid-70s. Could we get an update there? And then any commentary you might have on 24 at this point, which I think was previously mentioned, expected to be higher than 2023 based on where the curves were at that point. Thanks.

Sure, Nate. Good morning. Let me start off by answering your first question, which is about surrounding the 6 million tons of commitments we contracted through 2026. The majority of those tons are just over 4 million. They were sold to strategic domestic utilities at fixed price. The balance or 2 million tons were sold export. And when pricing those tons through 26, you know, what we did was we looked at power and gas forwards at that time. And then we calculated what the delivered price for coal would need to be to be competitive. You know, one thing I can tell you is that the average price of those 6 million tons was over $100 for the 6 million. So, you know, when you look at the breakdown there, I would say the – The three, about 300,000 tons were optimization tons that we did in 22, about 1.9 million in 2023. Again, not including the optimization tons, 1.6 million in 24, a million and a half in 25, and the balance in 26. For 2023, that now again puts us at 21.8 million tons. And based on where API 2 power and gas boards are today, You know, we're expecting our average realized price across those 21.8 million will be in the upper 70s. What I can also tell you is that we had opportunity to lock in additional volumes for 2023 and beyond. However, we decided to pass just due to pricing expectations from our customers and then our view of the market. I would suggest that the majority of the tons we have left to sell for 2023 will go into the export market, which is still yielding a premium over the domestic market, even with the recent fall and API 2 prices. Regarding 24, as you mentioned, we have 8.8 million tons contracted. It's an increase of 1.6 quarter on quarter. And although we're not prepared to provide, you know, pricing guidance at this time for 24, as you mentioned, you know, we are expecting to run all five long walls throughout 23 and beyond, so long as the market's supportive. So I still can see an instance where 2024 pricing or average realized price is higher than 2023.

Very helpful, Bob. I appreciate that.

And then just maybe to your last point or one of your last points there, the recent fall off in API 2 prices, how has that affected business at this point? Have you seen it affect business? And maybe what's the outlook for API 2 prices going forward for you guys?

Yeah, so I actually just made a trip to Europe two weeks ago and met with several customers. Obviously, there's a little bit of muted demand today just because of high stockpiles. But I can tell you the consensus is pending a normal winter. Those stockpiles are expected to drain quite quickly. Obviously, there's not rushing gas to refill the storage there. So they'll be looking at coal to supply their needs going forward. So still fairly bullish on the European market. API2 prices today for Cal 23, as you're aware, are just over $200. But even then, the net back is still somewhat healthy to us. I would tell you $140 to $150 is kind of what the net back looks like on a $210 API 2 price. I still think that there's opportunity for that price to improve. I just think right now the challenge or the concern is just when winter arrives and how long it lasts.

Great. Appreciate that color there.

Maybe shifting to the balance sheet. capital return program, free cash flows 107 in the quarter, obviously 35% of the dividend. You guys paid down about 56 million in debt. Mitesh went through all that. Mitesh, I think you also mentioned another $50 million cumulatively has already been paid down here in the fourth quarter, which would get you to a total debt around $400 million, I believe. How soon do you guys think you can kind of get down to that target debt level of $300 million? And then I think you mentioned that maybe at that point, You could also look at starting to utilize some of your sizable share repurchase authorization. Thanks.

Thanks, Nate. That is correct. We did send a redemption notice for $25 million of second lien and another $25 million pay down of term loan B here in October. So hopefully this quarter as well, our debt reduction pace will continue. We announced a plan on the shareholder return program. which is 35% returning to shareholders and achieve the target debt level with the remaining 60%, 65%. And that's what we have been doing. We continue to plan doing that till we achieve the target debt level. And hopefully, you know, with the market strength continuing, we'll achieve it sooner rather than later.

Okay. Thanks, Mitesh. And then maybe just one final question.

you know, shifting to the logistics side of things. Just curious how, you know, rail service, you know, port service has been. You know, is there anything you guys can do to prepare for, you know, potential rail strike or lockout come November 19th? Thanks.

Hi, Nate. For one, you know, we stay in constant communication with the railroads. They're obviously very important to us, and we have seen some improvement, you know, quarter over quarter. with our rail service. I know they're working hard to replace people to get that. But when I think about a national railroad strike, it's hard for me to imagine that the administration would allow that to happen. Of course, it obviously is possible. But we're kind of in the mode that we believe will continue to get service there. And they have improved, as I said before, critically important to us. And I believe that you know, the remaining few things, or at least from what we've heard, that's remaining for the railroads can be worked out, particularly if it's just wage increases or if it's scheduling or something like that. I'm sure we've heard that's the major bottlenecks, and they're hard at work at that. So even though we have to plan for the worst, I really don't. I put a very low probability on a nationwide rail strike.

Thank you. And ladies and gentlemen, our next question today comes from Lucas Pipes at B-Raleigh Securities. Please go ahead.

Thank you very much, operator, and good morning, everyone. Morning. So my first question is on the pricing side. On my quick math, the midpoint of your full-year guidance implies about $68 per ton for the fourth quarter in realized price, and that's down from the third quarter of 7283. Can you walk us through the drivers? I assume it's lower PJM pricing, but I would appreciate any additional call that you might be able to share on that.

Yeah, Lucas, you hit the nail on the head. It was lower PJM, or there is higher PJM West power pricing in Q3 than what is currently forecasted for Q4. Also, API 2 prices are down. We do have some API 2 link contracts. as you're aware. And then also, as I mentioned in my response to Nate, we had about 300,000 tons that we did some optimization by where we took lower-priced tons, moved them in the next year for one customer, and then replaced those with higher-priced, which I'll call market tons. So those are the three main factors.

That's very helpful. And in terms of the volume component, obviously Q3 was impacted on some of these issues you highlighted. But in Q4, production should be much better. So to the extent you're able to place additional tons in the seaboard market, is there a degree of conservatism in that full-year pricing guidance?

Thank you. You know, we continue to work with the railroads to get as much coal as we have currently contracted shipped Our customers are in strong demand of that coal. If we do have incremental upside opportunity, I will tell you that we will focus on putting that in the export market because that's where the ARB is. As Jimmy mentioned, our transportation partners are performing quite well right now, especially to the peers. Is there upside to Q4? I'd say potentially, but we've got to get the coal produced and we've got to get it shipped. We state our guidance based on what our thought was with what we would ship in Q4.

Lucas, just to add to that, on the productivity side, we have all of our long walls complete, as I said, in the script. We don't have any more long wall moves in Q4. We have most of these geological conditions behind us. Of course, those things can pop up at any time. but we certainly have the experience in dealing with those, and we feel like here in Q4 we're going to be at a normalized run rate. Obviously, if we bring that fifth long wall on earlier than expected, which we're working hard at, then there could be some upside potential tons coming from it as well.

That's very helpful. Thank you. And then another question on the pricing side. For 2023, what amount of tonnage is currently – exposed to API 2 pricing? Or put differently, what amount of your tonnage would you expect to be exposed to API 2 pricing between what you have committed but not fully priced and then what is left to be priced, presumably, mostly in the export market?

For 2023, we have about seven and a half to eight million tons of exports currently contracted, of which about four million tons are indexed to API 2. Of the 4 million, I'd say about 3 million have collars around them, so they have ceilings and floors. I can tell you that where the API 2 sits today, we still remain above the ceiling on a number of those contracts. Looking ahead, I think we'll still place another 3 to 4 million tons in the export market. Probably 2 million tons of those would likely be linked to API 2. The balance, I would say, is likely slotted for India. potentially 6 million tons would be directly linked to API 2. However, we will have ceilings and floors across the majority of those for the protection.

Okay. That's helpful. Thank you. And then switching topics, Mitesh, at quarter-end, you had $320 million of cash on hand. So it appears it's really – company's discretion when to meet that $300 million gross debt target. Can you provide additional clarity on what might keep you from paying off the remaining debt to get to this $300 million gross debt target during this current quarter?

Lucas, just for clarification, the cash number that you referenced included restricted cash balance as well, right? As you know, that is your mark for a specific purpose. We're just going to work off of the unrestricted cash balance here of 268-ish. From that perspective, if you think about it, we also have to take into account that we have a certain amount of our liquidity that is going to drop off here in March of next year with a portion of our revolver not going to be extended. $140 million of that revolving capacity that is going to fall off. So if you think about replacing that revolver capacity, we are carrying a little bit excess liquidity right now because of that expected fall off in the revolver capacity. So that plays into the equation. But generally speaking, I think, as we have said, assuming no major changes to the cash balance, we would like to get to that $300 million of net reduction, up to $300 million of absolute debt, right? And the function of restricted cash is essentially when we do the project and spend it, that gets converted eventually into free cash flow once that restriction gets removed. So you would see that $50 million kind of flow into unrestricted bucket as we spend money on it.

And what is the amount of cash you... That's very, very helpful. Thank you. And the amount of cash that you would like to hold given the changes with the liquidity next spring, what is that amount?

I think we are comfortable with what we have on the balance sheet right now. And as you notice, like this quarter, for example, there was very little, if any, increase on cash on the balance sheet from an unrestricted perspective. We basically, between the debt buyback and the dividend, we basically exhausted all the cash flow that we generated. It was only a slight build, probably a $6 million build. So we don't anticipate that number to go much higher.

Very helpful. Gentlemen, really appreciate the color, and best of luck. Thank you.

And ladies and gentlemen, as a reminder, if you'd like to ask a question, please press star then 1. Our next question comes from Michael Dudas with Vertical Research Partners. Please go ahead.

Good morning, gentlemen. Good morning. Good morning. You talked about your domestic customers where inventories are and there's been maybe a little bit of hesitancy to burn more coal because of the issues in the market. Two questions. One, relative to some of the coal retirement deferrals that we've seen or announced over the past few months in the U.S., Are there any in their major customer base that you can identify? And do you anticipate the market being a bit more normalized and we'll see some more burn and some more maybe demand for some of your uncommitted PMAC calls in 2023 as you look right now?

Well, Mike, you know, what we have seen over the last quarter is we have seen our customers build inventory, and that was by design, getting prepared for winter and As I mentioned on previous calls, aside from some transportation issues that happened earlier this year, which did challenge utilities from getting coal, I believe many utilities were just simply underbought, and therefore they were burning gas uneconomically or just simply not running. But looking ahead for the balance of this year, assuming a normal winter, I would expect overall coal-fired generation to improve and the demand for coal to remain strong throughout 2023. In terms of the delayed retirements, not really many of those retirements were in our, I'll call it our core marketplace, but we have supplied coal to some of the plants that are announcing delays. We have one in South Carolina. We also have another in Indiana that I can recall off the top of my head. But the consensus there is, again, there will be strong demand for coal. And the difference today versus before, and you heard Jimmy say this many of times, is there is just not a supply response. So, by definition, you should see, again, the demand be higher than the supply, which should be beneficial to us.

That makes sense. Turning to your export markets. The dynamics in India that you talked about, are they sustainable? And is that market going to be poised for continued need for your types of coal in the industrial market or maybe the quality into the power market in the end of 2023-2024? And with the changes in burn and countries looking to add or expand or restart capacity, has there been a noticeable change in the customer inquiries or the mix of your customer base that you'll be looking to place coal over the next six to 12 months?

Yeah, I mean, India certainly is and will remain a growth market for us. Most recently, we placed more tons into Europe, just again, because that's where the ARB is. But there's still strong demand coming out of India. We talk to our customers on a daily basis, and I still think that long-term, that is certainly where majority of our exports will end up going. You know, one thing that we highlighted on the call is our fifth long wall. Jimmy talked about the quality as well. You know, our quality of that fifth long wall is going to be the lowest sulfur of the entire complex. And why is that important? You know, in Europe, they no longer have the low sulfur Russian coal to blend against the higher sulfur coals like Northern App, Illinois Basin, and others. So that low sulfur now is going to be very beneficial to us and critical to us and actually puts us as a differentiator versus a lot of our peers, because now you're blending, you're needing lower sulfur, which I'll call Northern Africa or U.S. coals, to blend against South African and Colombian and even Central Appalachia coals. So we still feel as though we will have a good footprint into Europe going forward with our lower sulfur product, and again, that will be a differentiator for us.

Yeah, and Mike, just to add to that, When we think about the fifth longwall, you know, it's not only for production. That fifth longwall certainly helps our quality overall for the complex. And more importantly, it gives us some optionality and stability. So if you do have geological challenges on one of these other longwalls, this fifth longwall that we've ran in the past can certainly overcome that, and you don't even notice it as much as far as the tonnage goes. And then if the opportunity is there, to Bobby's point, to move these tons export or even domestically here, then we could run all five of those long loss pretty much wide open. So we're very excited to have that coming back here late in Q4 of this year.

That's great analysis. Thank you. One final question. As you're looking to budget for next year and just looking in your operating performance, maybe get any sense of Speaking or relief on some input costs, labor, where do you stand on labor costs and maybe contractor versus your own folks and how that plays through into 2023, given certainly volume aside, given the inflationary pressures or the markets witnessed in 2022?

Yeah, well, there's no doubt that it's a very top labor market. I think as we look forward to 2023, obviously, you know, you have to staff this fifth long wall that we have staffed now. And I think we've been able to maintain, you know, our folks here in the Pennsylvania mining complex because we do offer great benefits for them, as much flexibility as one can give. But you certainly have to look at labor a little differently moving forward. I think some of these younger folks, particularly with all of the media attention, you know, that's placed on coal in general, You know, they're somewhat hesitant to come out of school to come right there, so we have to do a better job of recruiting and talking to these employees, which we have. But we believe that our labor will remain just fine. I mean, we think we're going to be able to run to the forecast that we have in 2023. And, again, with this fifth long wall, excited about the potential to add upside, you know, to 2023 versus 2022.

and other costs?

I think we are starting to see a little bit of relief on some of these inflationary pressures, particularly when you look at some of the consumables we used to produce with. We're starting to see those fall. You're starting to see the steel markets have certainly came down. That helps us with our roof support and things like that. So we feel like we're seeing some relief. We're certainly not We would want to be, we have to maintain that. But if you remember, we said all along that we would like to keep our inflationary costs in single digits across the entire cost portfolio. I mean, some of it obviously is higher than others. You know, steel prices were very high there for a while, but you saw some relief on some of the other things that we had. So in general, I think the cost numbers, as we look at the budget for 2023 and beyond, we don't see a lot of higher inflation than we've actually experienced this year. So we would expect that cost to get a little better as we move forward.

I think the one area that still needs some work is around quality control issues with supplier inputs, right? And just getting the deliveries in time. We highlighted in our press release that we had a minor equipment that was supposed to be delivered in the third quarter. Now it's going in the fourth quarter. It's not just that. There have been other areas where delays have been caused. Because the suppliers are struggling with some of the same issues that they have been struggling with too. So that is a piece of the puzzle that needs to be solved as well.

Yeah, and lead times now are very important for us too. As we look forward for the budget, particularly next year, on how long it takes to get certain pieces of this equipment. So for an example, we had to look at what our critical spares are, the critical elements that we need to produce with. Some of those have long lead days, so we're trying to put those in inventory and store those. But Mattesh is right. I mean, quality control, you know, the suppliers are having the same issues we have with labor and people, so they may not have the same quality control we had a year or so ago. We're working with them, particularly on some of the failures that we've had on early startups that's not typical for us. So they have the same issues, and we're constantly working with them to improve that as well.

Duly noted, gentlemen. Thanks for your thoughts. Thank you, Mike.

And, ladies and gentlemen, this concludes our question and answer session. I'd like to turn the conference back over to the management team for any final remarks.

Thank you. We appreciate everyone's time this morning, and thank you for your interest and support of CIX. We look forward to seeing you on our next quarter earnings call. Thank you.

Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.