CONSOL Energy Inc. Common Stock

Good morning and welcome to Consul Energy's third quarter 2023 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then 2. 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.

Good morning, everyone, and thank you for joining us. Welcome to Consol Energy's third quarter 2023 earnings conference call. Any forward-looking statements or comments we make about future events are subject to risk. 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 is also posted on our website. Additionally, we filed our quarterly report on Form 10-Q for the quarter-ended September 30, 2023, 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 Thakkar, our President and Chief Financial Officer, and Bob Braithwaite, our Senior Vice President of Marketing and Sales. In his prepared remarks, Jimmy will provide a recap of our third quarter 2023 achievements and a detailed discussion of our operations. Mitesh will then provide an update on our marketing and financial progress in our updated 2023 outlook. In his closing comments, Jimmy will lay out our key priorities as we prepare to head into 2024. There will be a Q&A session followed by our prepared remarks in which Bob will also participate. With that, let me turn it over to Jimmy.

Thank you, Nate. Good morning, everyone. I want to begin by acknowledging a major milestone that we reached during the third quarter. After retiring our term loan B in Q2 23, we made a final discretionary payment of $24 million to fully retire our second lien notes during the third quarter. In doing so, we have officially retired all of the $800 million of debt that was raised in conjunction with financing our spin-out transaction in late 2017. Through the first nine months of the year, we've generated $522 million of free cash flow, which has already eclipsed the full year 2022 total. With that free cash flow, plus deploying some cash from our balance sheet, we've returned significant value to our shareholders year to date through October. We've spent $292 million toward buying back shares of our common stock, $75 million toward dividends, and $183 million toward debt repayments. From an operations and marketing standpoint, we continued our pivot into the export market during the quarter, and as such, 71% of our total reoccurring revenues and other income has come from export sales year-to-date. As of early October, our Kansai Marine Terminal has surpassed its previous annual throughput tonnage record of 14.3 million tons and is on pace for 19 million tons this year. Let's now discuss our operational performance in more detail. On the safety front, our Bailey Preparation Plant, Ipman Preparation Plant, and Consol Marine Terminal each had zero employee recordable incidents during the third quarter of 2023. Our coal operations finished the quarter with a total recordable incident rate well below the national average for underground coal mines. Coal production at the Pennsylvania Mining Complex came in at 6.1 million tons in Q3 of 23, an improvement compared to 5.3 million tons in Q3 of 22. Additionally, we finished the third quarter of 2023 with 447,000 tons of inventory, simply due to the timing of export vessel shipments. On the cost front, Our PMC average cash cost of coal sold per ton for Q3 23 was $38.36 compared to $39.77 in Q3 of 22. The improvement was mostly due to the fixed cost leverage that came from our fifth loan law, which was not operating in the prior year quarter. As we've said before, one of the major benefits of having the fifth law is that it allows us to better smooth out weaker volume quarters due to planned shutdowns or multiple longwall moves. For Q3 23, although expected, cash costs were higher than our annual public guidance range, as the third quarter is our seasonally weakest quarter because of our planned summer maintenance shutdown. We also had a planned longwall move in the quarter. However, for the full year, we still expect to be within our average cash cost of coal so per ton guidance range. Moving on to Ipman. During the third quarter of 2023, the complex showed improved production performance, producing 91,000 tons compared to 70,000 tons in Q2 of 23. All three of the supersections mined additional height for mains development, which requires cutting some rock. This caused our mining rates to slow during the quarter versus expectations, but this is necessary to support the long-term needs of the coal mine. Furthermore, although all three continuous minor supersections are installed underground, we are currently operating two of the three as true supersections as we continue to deal with a challenging labor market in the region. Once we have completed our mains development, we will operate the three supersections in targeted blocks of our coal reserve. This is expected to lead to more efficient mining heights and improve production rates and cost. Finally, in the third quarter, the complex sold 123,000 tons of Ipman and third-party coal. And year-to-date, the complex has sold 357,000 tons of Ipman and third-party coal in aggregate. Moving to the Consolidated Marine Terminal. We achieved a throughput volume of 4.3 million tons shipped during Q3-23, compared to 2.7 million tons in the prior year quarter. The Consol Marine Terminal continues to prove its worth in executing our longer-term strategy of moving more PAMC tons into growing export markets. Terminal revenues for the quarter came in at $22.7 million, and CMT operating cash costs were $7.5 million. Accordingly, CMT adjusted EBITDA finished at $14.9 million compared to $8.3 million in the prior year period. With that, let me turn the call over to Mattes to provide the marketing and financial updates.

Thank you, Jimmy, and good morning, everyone. Let me start with an update on the marketing front and our contracting progress. During the third quarter, we continued to take advantage of our high-quality product and sold 60% of our total volumes into the export markets, where the demand for our coal remained strong in the industrial and crossover metallurgical markets. On the industrial side, while the Indian cement market is by far our largest, we continue to explore new markets for our product. We are pleased to report that, during the quarter, a cargo of our PMC coal was delivered into a country in South Asia, which was the first time for this country in the history of the PAMC. A deal for a second cargo into the same country has already been signed with an expected delivery scheduled for the fourth quarter. Traditionally, this country imports mid-CV coals from Indonesia, Russia, and Mozambique, but it is interested in further testing the high heat content of our PAMC product. Furthermore, on the crossover metallurgical front, We shipped approximately 630,000 tons during 3Q23, which, similar to the second quarter, is one of the highest quarterly levels we have achieved in recent years. With the commissioning of our fifth long wall at the Enloe Fort mine, which has lower sulfur content, we are seeing increased demand for our product. Much like the industrial market, we are focused on penetrating new crossover metallurgical customers and geographies as well. We are pleased to report that during the third quarter, we sold our first direct cargo into Indonesia to a Coke producer and are currently in negotiations for 2024 sales. We are seeing significant demand growth for our crossover product in Southeast Asia, specifically Indonesia, where Coke making capacity is expected to double by 2025. This again highlights the desirability of our high quality product on the global stage where it can be used in many different applications. Indonesia, which is the world's largest exporter of coal, still has certain applications that require high-quality imported coals, which are in short supply globally. Coal demand in the domestic power generation markets was predictably underwhelming in the third quarter, as coal stockpiles remained elevated in certain areas following a weak second quarter. However, domestic power generation overall was strong during the summer of 2023, We expect that the continued increase in LNG export demand and reduced drill rig counts will support improved natural gas price futures, which is evident in the current forward curve. This will, in turn, support increased coal demand and coal prices. During 3Q23, we sold 6.1 million tons of PAMC coal at an average realized coal revenue per ton sold of $70.34 compared to 5.3 million tons at $72.83 in the year-ago period. As Jimmy alluded to, we finished the third quarter with elevated inventory levels compared to what is typical for us. We ended 3Q23 with 447,000 tons in inventory due to the timing of export vessel loadings, which essentially reduced our sales tonnage for the third quarter. However, given that this was only timing in nature, This should be a tailwind to our fourth quarter sales. Additionally, during the third quarter, we negotiated partial buyouts of some contracted volumes in exchange for certain fees paid to us, which contributed $16.4 million to miscellaneous income. Had our customers not bought out these partial volumes, we would have recognized $2.67 higher coal revenue per ton during the quarter and would have surpassed the average realized coal revenue per ton sold. from the prior year quarter. For the third consecutive quarter and the third time in our history, sales into the export industrial market outpaced sales into the domestic power generation market. Overall, sales into the export market on a year-to-date basis accounted for 71% of our total recurring revenues and other income. Conversely, domestic power generation has accounted for less than 25%. Since our last earnings call, our sales team increased our forward sold position at the Pennsylvania Mining Complex by 5.4 million tons for delivery through 2025. Most of these tons were sold into the export market where we continue to increase our sold position. As such, we have 21.5 million tons contracted for 2024 and 10.8 million tons contracted for 2025 at attractive prices. We are currently ahead of the schedule for 2024 and 2025 compared to where we typically expect to be at this point. As we speak, we are in talks with multiple strategic partners for future contracted volumes. Now, let me provide an update on our balance sheet management progress before discussing our financial results. First, during 3Q23, we generated $120 million of free cash flow and reduced our unrestricted cash and cash equivalents and short-term investments by $42 million in aggregate, approximately 19% of which was deployed towards reducing our gross debt and 85% was deployed towards share buybacks within the quarter. As Jimmy mentioned, we fully retired our second lien notes during the quarter and have now achieved our target gross debt level of approximately $200 million. When factoring in our unrestricted cash and short-term investments, we remain in a net cash position, and as of September 30th, we had net cash of $50 million. Third, we finished the quarter with a strong liquidity position of $465 million. Now let me recap our financial results. This morning, we reported a strong third quarter 2023 financial performance, especially when you consider that the third quarter is historically our weakest quarter. We finished 3-2-23 with net income of $101 million, or $3.11 per diluted shares. Additionally, we finished the quarter with adjusted EBITDA of $186 million and generated $120 million of free cash flow. On a year-to-date basis, we have generated net income of $499 million, adjusted EBITDA of $808 million, and free cash flow of $522 million, all of which are records for our companies. Now let me provide a quick update on our outlook for 2023. On the guidance front for the Pennsylvania mining complex, we are simply tightening our sales volume range from 25 to 27 million tons to an updated range of 25.5 to 26.5 million tons. The midpoint of the range remains intact. We are also reiterating our average cash cost of coal sold per ton guidance range of 34 to 36 per ton as we expect a strong fourth quarter performance to close out the year. Additionally, due to our success in optimizing our sales portfolio so far this year and the continued strength in API2 forward prices offsetting weak domestic demand trends and partial contract buyouts, we are reiterating our full year expected average realized gold revenue per ton sold of $76 to $80 per ton. For our ITMN mine, we are adjusting our 2023 production guidance range down to 300 to 400,000 tons from the previous range of 400 to 500,000 tons due to the extended mains development timeline and persistent staffing challenges. Lastly, on the capital expenditures front for 2023, we are lowering our guidance range to 160 to 175 million from the previous range of 160 to $185 million as supply chain bottlenecks persist for sold-in pieces of equipment causing extended lead times and delayed deliveries. With that, let me turn it back to Jimmy. Thank you, Mitesh.

Let me now provide an update on our shareholder return program. We deployed approximately 77% of the free cash flow generated during the third quarter toward repurchasing shares of our outstanding common stock. In total through October, we deployed 93 million of our Q3 23 free cash flow toward repurchasing nearly one million shares of CEIX stock at a weighted average price of approximately $95 per share. This brings our year-to-date share repurchases as of the end of October to 4.1 million shares, or nearly 12% of our public float as of year-end 2022. As we close out 2023, We have a few key areas of focus to set us up for success in 2024. First, we are excited by our contracting progress today, specifically our success beyond 2024. We continue to build new long-term relationships, particularly in the export industrial and crossover met markets. And our contracting progress allows us to be patient and more opportunistic moving forward. Second, We are 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 in 2024. Our focus is on bringing consistency to the operation and eliminating some of the staffing challenges we face throughout the year. This will be crucial in achieving a consistent production profile at the mine and bringing further revenue diversification to Consol Energy. We remain very excited about the potential of this complex and the revenue diversification that our Ipman Low Ball product will bring. To date, we have seen strong interest for our Ipman product in domestic and export markets. Achieving consistent operating results is the key area of focus so we can get to the business of cultivating these potential new markets and relationships. We remain focused on returning value to our shareholders through our rigorous capital allocation framework. We've always prioritized the highest rate of return and the most advantageous use of our capital, and we will evaluate our capital deployment decisions regularly. We continue to believe that share buybacks remain the most attractive and accretive form of shareholder returns, and as such, we intend to continue that strategy. In aggregate, We are pleased with our execution in 2023 to this point and our ability to optimize our sales book throughout the year. We're also very excited about our demonstrated ability to generate the majority of our revenue from the growing seaborne coal markets and our ability to grow our market share over time as the demand for our product expands. This is made possible through the high quality characteristics of our coal, our first quartile cost structure, and our significant logistics advantage through our dual rail service and ownership of Arkansas Marine Terminal. For these reasons and many others, we remain even more excited about the future. Looking back on the success we've achieved in our roughly six-year history, we've returned well north of $1 billion to our shareholders through share repurchases, dividends, and substantial debt paydowns. We've proven we are no longer a domestic power generation driven company and that the tale of demand for our high quality assets is much longer via niche and growing export markets. Finally, let me wrap up by once again acknowledging our hardworking employees across the organization. Through their efforts and dedication, we've achieved tremendous success to date. Our balance sheet is strong. We're at a target gross debt level. We're in a net cash position. Our liabilities have been declining. We are returning capital to our shareholders, and we continue to expand our sales reach and open up new markets for our coal. I remain proud of this team, and I thank all of our team members for their commitment to our core values. With that, I will hand the call back over to Nate.

Thanks, 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.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, 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. The first question comes from Lucas Pipes with B. Reilly Securities. Please go ahead.

Thank you very much, operator. Good morning, everyone. Good morning, Lucas. Good to see you maintain the full year outlook this morning. And I wanted to touch on first pricing for 2024 and 2025. You gave us the volumes in the release, and I'm sorry if I missed it in the prepared remarks, but could you maybe share the pricing as well? What would be the kind of average locked price? And I understand there are sensitivities to power and API too, but as of today, what would the average price be And if you could maybe then also give a breakdown of what amount is fixed domestic, what is power linked, what is locked fixed price in the export market, what is floating collared in the export market, I would really appreciate additional details on your commercial book. Thank you so much.

Sure, Lucas. This is Bob. I'll take that. You know, this morning we did announce that we had new sales of 5.4 million tons of through 2025. I think very importantly there, yes, most was in the export market, but we did, in particular, conclude a two-year deal with a domestic utility in the third quarter. And just so you know, that pricing had a six handle on it. And then furthermore, this morning, we received confirmation for additional domestic business through 2027. That'd be 1.6 million tons. And the average pricing on those new tons is north of $60. So, When you look at 2024 in particular, we announced this morning 21.5 million tons, which is about a 3.9 million ton improvement quarter over quarter. When you look at the breakdown, about 3 million is linked to power. We have about 9.5 million slated for the export market, of which 6.5 million do have indices linked to them. All have ceilings and floors, and then the balance are about 9 million is domestic and fixed price. When you look at where we modeled the API2 price for 2024, it was $120. And then we also modeled in power at the floor. I will also tell you that based on where the futures are today, we certainly could see some upside to power should they remain at those levels. But the pricing we're seeing today on that 21 and a half is upper 60s to close to $70. And then for 2025, 10.8 million tons we announced this morning. The breakdown there is 2.5% the power, 3.7% is domestic and fixed, and then 4.6% is export. 100% of the 4.6% is linked indices, all have ceilings and floors. And again, based on $120 API2 price for 2025, we're looking at pricing in the upper 60s there as well.

Bob, you're saying it like you've committed this to heart. Thank you very much for all the color there. Very, very helpful. To follow up on the pricing side for 2023, I'd love to understand the delta from Q3 to Q2 a little better, right? Q2, I think the average realized price was $81.27. Q3, $70.34. I'm backing into 75 to 76 again in Q4. Can you provide a little bit of color? What caused that variance in Q3, and why do you think it's going to kind of snap back up here in the fourth quarter of this year? Thank you.

So, Lucas, we did anticipate a lower sales price in Q3. If you look at our original guidance of 78 midpoint, you know, we're certainly on pace to hit that. A couple things in Q3 that drove the lower pricing, or I should say several things. One, you know, API 2 prices were down quarter on quarter, so I think API 2 prices were down, you know, $7, $8, $9 from Q2. Second was just the mix of sales. we actually exported more volume in Q3 than we anticipated. We had some higher-priced domestic contracts that did not load in Q3. However, those will be loaded in Q4. We're starting to see a pickup in domestic demand in October, and we expect that to continue through the balance of the fourth quarter. A lot of that's due to the increase in natural gas prices. We're starting to see gas well north of $3, and the futures are are there as well, so we expect additional coal burn from our domestic customers. If we don't get those tons moved in Q4, we'll certainly continue to get the value of those into next year. And then, you know, third, I think it's just we had lower volumes, and that was anticipated. But when you have lower volumes, you just have less ability to optimize the portfolio. You know, in Q4, we're expecting to end the year strong. We had 400,000 tons of inventory carry into Q4. I can tell you pretty much all that has been loaded out of the terminal. So we're anticipating, you know, a 6.8 to 6.9 call it type of level to get to the midpoint in total sales. So that gives us a better opportunity to optimize. So again, optimization, higher price domestic business, and right now API 2 prices are certainly looking to be stronger in Q4 than in Q3.

But Lucas, in summary, I think the neighborhood that you talked about for Q4 is reasonable given what our guidance is and the fact that we have three quarters behind us.

Yeah, that's fair.

Thank you so much. I want to end with a higher level question. You mentioned you sold coal into South Asian country. for the first time. Can you provide some color as to what allows you to compete that far away from home? Indonesia is on the doorstep. Australia with high BTU coal is on the doorstep. How do you get into that market competitively? Thank you very much for your details.

That's a good question, Lucas. I think it's more tied to our relationships that we're trying to build long-term. You know, it takes a lot of travel, and Bobby and Mattes have certainly been doing that. They just visited Indonesia, and our high-quality coal allows us to get in those markets, particularly with the BTU bases and our ability to ship out of the Baltimore terminal.

And the other thing I would mention too, Lucas, is like, you know, we have been shipping coal in South Asia. India is the greatest example, right? Like, India is a country in South Asia that we have been doing business for a very long time. I think there are smaller markets around that area that can use and benefit from some of the higher calorific value coal such as ours. They are a little bit more tolerant on some of the other things such as sulfur and those, so it helps us. I think if you look at one of the traditional suppliers that I touched upon briefly, they used mid-CV coals in the past from Indonesia, Russia, and all these places. So we had an opportunity to replace some of that here with everything that we are seeing geopolitically. And I think this is one of those things that once you develop these markets, I think you tend to become a more regular supplier, which is what ended up happening in India. So if you look at the playbook that we had in India, we're going by a similar playbook here.

It's a smaller market, so it's not as big as India.

Great. Very helpful. I really appreciate all the color this morning and continue best of luck. Thank you.

Thank you.

The next question comes from Nathan Martin with the Benchmark Company. Please go ahead.

Thanks, Operator. Good morning, guys. Appreciate you taking my questions.

Good morning. Good morning, Nathan.

I also just wanted to round out with a question on four-year 23, like sales guidance in particular. I think Lucas just mentioned the implication is 6.8 million tons at the midpoint in the fourth quarter. But can you kind of talk about what gets you to the high or low end of that guidance range? It sounds like those inventory shipments have mostly moved, but that would just be great to have a little more color there. Thanks.

I think the inventory that we had being shipped is certainly going to help those numbers. And we're, you know, as long as we have the planned long wall move, we have one of those in Q4 here. But thus far, you know, things are going well for us. We do have that fifth wall. And as long as we can continue to ship that out, we're seeing some increased customer demand here domestically that Bobby talked about that will help. And I think we certainly have, you know, we do have the holidays that we have and we have that last week of shutdown. But we feel pretty good where we are from a production standpoint and And to have the opportunity to run even higher to those numbers, you know, we would have to run some of those holidays or just have the operations running really well and a quicker long haul move than we have planned. But all of those are opportunities that are in front of us.

And just to add to it, the inventory situation that we talked about, it's not about inventory lying on the ground, not sold. It's already sold cold just because of the timing of

as we speak here today.

Perfect. And then just maybe on the logistics side, how are things cooperating from a rail, a port, and maybe even thinking about labor as well from those standpoints?

Yeah, I think we're dual-served by both rails, and I think they're performing okay. We haven't had any real issues out of them. We always expect some shipments to move around a little bit, but the rail cares have been pretty good for us thus far.

Yeah. I mean, think about it, Nate. I mean, look at the shift, right? I mean, we're, we're talking about moving potentially 19 million tons through our terminal, which about 16 million of that will be from PAMC just this year.

Got it. And then maybe, maybe just a higher level, longer term question. Um, you know, it would be great to get your thoughts guys around consoles ability, kind of maintain that 26 million ton plus or minus shipment run rate over the next several years?

We use 26 million tons a night as our base. And as you well know, we've run as high as 27.4. We run to the market. So if the market's there, we certainly have the ability to run that. We don't have anything that's in the near term, certainly for the next several years, We all use that 26 as a base, and we certainly have the opportunity to flex that up or down depending upon the market.

And if you think about the cadence, like historically we are not this heavily contracted, so we are more contracted for 2024 than we typically are. So that tells you that we have enough sales already booked. And with the development of some of the newer markets and RFPs that Bobby and his team is working on in the domestic market as well, we feel very confident about getting around that base and continue to optimize that.

Very helpful, guys. And then maybe shifting to the export business. First, maybe what the netbacks look like today, kind of both based on API 2 and tech code prices. And then secondly... Congrats on entering some of those new markets you guys just talked about, both on the industrial and it sounds like crossover MET sides as well. And I know in the past you've been successful tying some of that long-term business, you know, to API 2 prices with floors and ceilings. But, you know, how should we think about some of this newer business? Is that still the way you're looking at pricing that or could there be some other mechanisms you'd entertain or working on to possibly better capture the value of your product?

Yeah, so in the quarter, you know, two of the deals under the 5.4 million tons that we did were significant export deals for 2024. When I say significant, there's a significant amount of tons. And one we did at a fixed price, and I can tell you that netted back over $70 to the mine. That is likely going to Europe. We looked at where API 2 prices were the time we did that deal. And then the other deal we did was linked to both pet coke and API two prices and had a fixed price component. So we continue to look at, you know, ways that we can price our product that makes sense into these markets, especially into the Indian market. And then the later deal I just mentioned, you know, it also had floor and ceilings tied to it where the floor is going to provide us a minimum 20 plus dollar cash margin. And then we have some significant upside. Um, we're also working on some additional term export deals. And not only for thermal, but also the crossover product. And as you know, the crossover product typically gets linked to Hyval B prices, or in some cases, if it's going into Asia, we'll look at taking a discount off of TSI prices. So, you know, we're looking at each individual opportunity based on where the ultimate destination is and the ultimate use of the coal. But, you know, we like fixed price deals better, but we certainly are looking at API2 and pet coke link deals as well. The market's been very volatile. I think the last I saw, you know, CFR India pet coke prices are in the, you know, 125, 130 range. The PAMC equivalent's about mid-60s, back to the mine at that type of level. And then API2 prices are very volatile as well. You know, they were higher than 130 recently down in, you know, call it the 120s today. And, you know, as I mentioned, we were able to get pricing netting over $70 during a time when API 2 was in the upper 120s to 130. Today, you're probably looking at somewhere, again, in the mid-60s based on $120, $125 API 2 price.

Great. Appreciate all that, Bob. I'll leave it there. Thank you guys for your time, and best of luck in the fourth quarter.

Thanks, Nate.

Again, if you have a question, please press star, then 1. The next question comes from Michael Dudas with Vertical Research Partners. Please go ahead.

Good morning, gentlemen. Good morning. Bob, how are your customers in Europe, maybe just maybe generally, how they're looking at their inventory levels and their early indications on demand and usage going into 2024, given global economic activities on one hand, but still demand? I'm shocked from what's happened with the gas over the past couple years.

Yeah, I mean, as I just mentioned to Nate, one of the deals we did last quarter was into Europe that had a seven handle on it. And I'm actually heading over to Europe here next week to meet with several of our customers at their request, which certainly is positive news. And, you know, I do think that many are concerned about actual needs and if supply will be there, even assuming a normal winter situation. I did read this morning, too, that ARA inventory levels are continuing to drop. A lot of that has to do with the Rhine River situation now getting back to normal. So I am quite bullish in Europe when it comes to their thermal cool needs in 2024, and I think you'll continue to see some strength in the API 2 prices as well.

How about your Indian customers?

Yeah, I mean, India, we're getting constant demand for our product over there. I mean, the retail market seems to be pretty strong so far this year, and then there continues to be growth in cement capacity, you know, as we move forward as well. So we are passing on some opportunities today to move some coal into India for the balance of this year as the crossover market continues to be the best market for us to sell our product in based on where our current sold position is. you know, we're taking advantage of the best market to ensure that we have the highest realizations.

And speaking on the crossover, you know, certainly there's been upside volatility in the global coking coal markets. How do you see it in positioning not only some of the crossover opportunities, and I'm assuming there's some marginal benefit to that maybe in the first half of next year, placing some of that coal, and then with it, you know, give a sense of where you are on customer interest and and for where your capacity is going to get to at the end of this year, beginning of next, and how comfortable you feel you can, you know, ramp up not only on the production side, but place those tons into the market at the reasonable pricing.

Yeah, so on the sales side, talking about our PAMC product and the crossover, if you think about where we're at so far year to date, I mean, we're on pace to do over 2.5 million tons into the crossover market this year, which I wouldn't say it's a record for us, but it's certainly much higher than what it traditionally has been. Brazil is our core market, but as Mitesh mentioned, we're in Indonesia now. We're also selling a lot of coal into China now as well. So we feel as though, and that's the reason why I brought back that fifth long wall in particular at Enloe Fork, because of the quality of that long wall, and that's certainly benefiting us in that crossover market. So again, we feel very confident in our ability to continue to expand that crossover market for our PAMC coal. Moving on to Ipman, certainly a lot of interest there. We did participate in a lot of the domestic RFPs for 2024. We were successful in concluding close to 300,000 tons under those RFPs. I will tell you, we certainly could have secured more volume, but we elected to not do so for desire to diversify, and then we also felt as though prices were likely going to be higher on the export side. We've certainly seen a nice jump in TSI prices. We saw a nice jump in U.S. East Coast lowball prices, although it's come off a bit. But again, there's certainly a lot of interest there. As soon as we get the mine fully up to full run rate, we feel that we'll be able to participate in additional markets there as well.

Excellent.

Thanks for your thoughts, Bob. Gentlemen, good luck.

Thanks, Mike. Thanks, Mike.

The next question is a follow-up from Lucas Pipes with B. Riley. Please go ahead.

Thank you very much, and thank you for taking my follow-up question. It's Ip Man related. Approximately, what is the utilization rate today? Should we think of, like, two out of the three supersections are running, so it's kind of close to, call it, 70% or so, or would you describe it differently? And what do you think it will take on the labor front to get that third super section fully mobilized. And then on the domestic contracting, you just mentioned you participated with, I think you said, 300,000 tons. Could you share the pricing that's associated with that tonnage? Thank you very much.

Well, on the production rate, I would say utilization, we are somewhere around that 70% number. We have two of the three super sections running now However, we're still in mains development, which is requiring us to cut a little bit of height, which slows our mining progress down to allow for equipment and things to get into mine for the long term. I think here before the year end, we will have one of those super sections into a panel development, which will increase production and lower our cost as well as our production. So I think we'll get more tons there. I'm pretty excited about where Itman is right now. On the labor side of it, we're still having some challenges down there of getting fully staffed. We have some turnover. We're working on all those things. We made some changes there in the last couple weeks that we feel like is going to help. And then on the equipment side of it, We still get delays. I mean, we have some new equipment coming, but we're not going to receive that this year like we had hoped to receive in the fourth quarter. So I think when I look at Ipman where it is today, you know, we have lots of room to improve there, particularly on the production side. As soon as we get this third super section up and running, get one of these three super sections in the panels, I think you'll see our productivity come up, and I'll be excited to see what type of costs we can actually run at Ipman.

Thank you. And helpful, that's helpful. On the pricing side, anything you can share?

Yeah, I mean, obviously, I think it's known that the pricing has been down year on year on the domestic contracting front. But, you know, right now, you look at where U.S. East Coast low vol prices are, you know, we typically net back about 70% of that index. So if you're looking at an index, you know, right around 260%, figure FOB mine netbacks are in the 180 to 185 range.

And would that be for the tons you would sell into the export market, or would that be the price where you could contract it domestically?

Domestically, it would be a little bit lower than that. But again, based on where, if U.S. East Coast Louisville prices hover around that 260 range, it kind of gives you a sense of where the balance of the volume we would sell at into the export market. But again, we'll provide full guidance in January or February when we announce our next earnings.

Very helpful. Thank you. And just one more follow-up on the labor front. How do you go about recruitment? Do you mostly recruit in-state or do you go out-of-state? curious what the strategy is to get the people in there. I know it's an industry-wide problem, which is why I want to dig a little deeper to understand how you might have a comment.

We rely pretty heavily on our job fairs that we have, and we try to get those somewhat locally, close to where the mine is. You have to have employees that's not going to travel too far to work or you just can't keep them. They'll go someplace else. But one of the things that we've done pretty successful is use some of our managers that we have there that knows a lot of these employees. We try to use the internal mechanisms that we have as well as the job fairs and continue to pay very attractive wages, very attractive benefits. And one of the things that we have seen some success in lately is is the job fairs that we've had down there. And I think as things tighten up a little bit here, we'll see the labor market open up a little more than it has been in the past.

Okay. Thank you, Jimmy. Last question for me, I promise. You've always been very disciplined when it comes to ranking your capital allocation priorities. You scrapped a dividend because you saw more bang for the buck on the buyback. You obviously were very diligent of paying down debt when you saw the best risk-adjusted returns there. And so I wondered if you could kind of provide an update today on how you prioritize your What's the best bang for the buck? And then maybe if you could go down the list, we would really appreciate that hierarchy. Thank you.

Yeah, and thanks for the question. That is something that we are very diligent on. You know, we have normal capital allocation reviews on where we are. We always try to return every dollar of capital to the highest rate of return. And, you know, it was critically important for us it was always a priority to pay that debt down. And we had that targeted gross $200 million of gross debt. We achieved that. We kept increasing our capital allocation for share buybacks. And as I said in the prepared remarks, when I look at it today, the highest rate of return continues to be buyback shares. So I don't think we'll change our strategy on that. In fact, as we've paid down our debt and got to these levels, we committed to 75% of our free cash flow going towards share repurchases. However, we may have opportunities to take that number up. It just depends on where we are at the quarter when we have those capital reviews. For an example, we paid the $24 million down on our second lien note. It would have created an opportunity maybe for us to buy back shares. So we certainly would take a look at that as we generate free cash flow on what we do with it.

Lucas, having the contracted base that we have gives us a unique benefit that it gives us a lot of revenue visibility. Essentially, when you're buying back your stock, you're buying an asset, and you know what the cash flows look like based on your contracted position. I think on a risk-adjusted basis, it makes a lot of sense for us compared to other opportunities which might have inherent risks in them.

That's good to hear. Really appreciate all the color and detail. Again, best of luck.

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, everyone, for your time today, and we look forward to speaking with you on our next earnings call.

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