Core Natural Resources, Inc.

Good day and welcome to the CEIX and CCR second quarter 2020 earnings conference call. All participants will be 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 this event is being recorded. I'd now like to turn the conference over to Nathan Tucker, Manager, Finance, and Investor Relations. Please go ahead.

Thank you, Cole, and good morning, everyone. Welcome to Consol Energy and Consol Coal Resources' second quarter 2020 earnings conference call. Any forward-looking statements or comments we make about future expectations are subject to some risks, which we have outlined in our press releases and in our ICC 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 obligation 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 releases and furnished to the SEC on Form 8K. You can also find additional information regarding the companies on our websites, www.consolvenergy.com and www.ccrlp.com. On the call with me today are Jimmy Brock, our Chief Executive Officer, Mitesh Dakar, our Chief Financial Officer, and Jim McCaffrey, our Chief Commercial Officer. In his prepared remarks, Jimmy will provide a recap of our second quarter 2020 performance, specific insights on marketing and operations, and an update on our ongoing response to the COVID-19 pandemic. Mitesh will then discuss our liability management program, financial results, cash preservation efforts, and outlook for the remainder of 2020. After the prepared remarks, there will be a Q&A session in which all three executives will participate. With that, let me turn the call over to our CEO, Jimmy Brough.

Thank you, Nate, and good morning, everyone. To this point, 2020 has been an extremely challenging year for us, our industry, and the U.S. and global economies. We first dealt with the weak demand early in the year due to a warmer-than-normal winter. Then the COVID-19 pandemic hit us all. with most economies across the world essentially grinding to a halt to try to stop the spread of this disease. This led to an unprecedented destruction in energy demand, specifically in the second quarter of 2020. From a demand perspective, Q220 was the worst quarter that I've seen in my 40-plus year career and the most challenging market conditions we've experienced in the 30-plus year history of the Pennsylvania mining complex. The widespread... The government-imposed shutdowns caused by the COVID-19 pandemic created an unprecedented decline in energy demand, both domestically and abroad. In response, we outed our Enloe Fork mine early in the second quarter, ran our Bailey mine on an as-needed basis, and went into cash preservation mode. I'm proud of how our operations and corporate teams responded as we quickly pivoted and pulled back on discretionary spending in an effort to protect our liquidity The finance team moved early to secure an amendment to our credit agreement that essentially provides us with eight quarters of covenant relaxation. We'll also preserve full access to our $400 million revolving credit facility. To be able to secure this amendment in a challenging market was extremely impressive. We also want to thank our banking partners and investors for their overwhelming support and belief in us and our business. As always, we continue to place the safety of our employees and their loved ones above all else. We announced last quarter that we adopted enhanced sanitation and social distancing measures at our operations and implemented staggered shifts, reduced elevator capacities, and mandatory temperature checks at all mine entrance locations across our Pennsylvania mine complex. We continue to approve upon these practices every day. and we are proud of the buy-in from the entire CONSOL team and their dedication to safety. We will continue to monitor the risk post-COVID-19 pandemic and will take any additional steps that we deem necessary to keep our employees, their families, and their communities safe. Before I dive into operational and marketing details, let me now provide a brief recap of the quarter. Despite the significant demand decline, we achieved several important goals during the second quarter. On the safety front, we delivered a very strong performance as our Bailey Mine, Bailey Preparation Plant, Consolidated Marine Terminal, and Ipman Project each had zero recordable incidents. On the operation and marketing fronts, we faced significant headwinds from reduced customer demand. However, we were able to leverage our operational flexibility to help soften the impacts of these declining market conditions. We worked with our customers throughout the quarter to identify solutions to help navigate this extremely challenging situation. These solutions included partial contract buyouts and, in some cases, new future business. On the financial front, as I've testified already, we completed a timely credit amendment. Additionally, our finance team continued to focus on cost reduction and liquidity conservation, which resulted in limited cash burn despite a significant decline in shipment values compared to Q2 of 2019. Now let me provide our second quarter operational performance. Coal production at the Pennsylvania Mining Complex decreased to 2.4 million tons in Q2 of 2020, compared to 7.2 million tons in the year-ago quarter. The decline was due to a significant reduction in customer demand, as most global economies shut down due to the COVID-19 pandemic. We also ran at a significantly reduced operating capacity, seeking to match production with demand. For its share of the Pennsylvania mining complex, CCR produced 600,000 tons of coal during Q2 of 20, compared to 1.8 million tons in the year-ago quarter. On the cost front, our average cash cost of coal sold per ton was $25.90 in Q2 of 20, compared to $31.07 in Q2 of 19. as our operations team was successful in keeping tight control over cash expenditures in the quarter. The adjustments we made to our operations allowed us to reduce our overall average cash cost of coal sold per ton on our producing assets and to partially mitigate the financial impact of the reduced production volume. The improvement was primarily driven by lower mine maintenance and supply costs, contractors' and purchase service costs, and subsidence expense. The Consol Marine Terminal had a throughput volume of 1.6 million tons during the quarter compared to 3.7 million tons in the year-ago period. Despite a decline in shipments, our terminal revenues for the quarter were only modestly impaired at $15.9 million compared to $16.7 million in the year-ago quarter. However, cash operating costs were improved at $3.8 million versus $5 million in the year-ago period as the terminal employees also successfully limited their cash expenditures in Q2 of 2020. Let me now provide an overview of the coal markets and an update on our sales performance and accomplishments. There is no sugarcoating how difficult the second quarter of 2020 was from a demand perspective. After a tough start to the year, where coal demand was impacted by mild winter weather and low natural gas prices, We were then hit with the widespread government-imposed shutdowns of nonessential businesses due to the COVID-19 pandemic. On a year-to-date basis, these shutdowns peaked in the second quarter as most global economies essentially shut down for multiple months to curb the spread of the coronavirus. This resulted in an unprecedented decline in energy demand as an increase in residential energy consumption couldn't nearly replace the decrease in the industrial demand. On the power price front, average PJM West day ahead power prices were 28% lower in Q2 of 20 compared to Q2 of 19. Additionally, Henry Hub natural gas spot prices averaged $1.70 per million BTU during the quarter, which was down 34% compared to Q2 of 19. These low natural gas prices and the overall demand decline resulted in a substantial reduction in coal burn in the U.S., which led to increased coal inventories for our customers. Similar to the first quarter of 2020, this translated into reduced demand for our coal and led us to complete several contract buyouts in the second quarter, as we sought to help our customers manage their inventory levels. We leveraged our strong contracting position in the quarter to negotiate these buyouts. which involved the early termination of a portion of several customer contracts in exchange for payment of certain fees to us during the second quarter and contributed $30.1 million to our miscellaneous other income. These substantial buyouts were key to helping us limit our operating cash burn in the quarter. On a positive note, The EIA is estimating a significant domestic supply response in 2020 and projects a 29% decline in U.S. coal production versus 2019. Additionally, low natural gas and crude oil prices have led to reduced activity in capital expenditures for E&P companies. IHS Market reports that active U.S. gas rigs stood at 76 in early July. down from 174 a year ago and down from more than 200 active rigs in January of 2019. As a result, several industry observers now expect natural gas prices to rise above $3 per million BTU in 2021 as gas production declines due to the lack of capital spending. This is leading to forecasts of an additional 100 to 125 million tons of incremental domestic coal burn in 2021. Finally, we believe the lack of investment across the coal space will limit the coal industry's ability to quickly ramp back up to meet this demand. This could be a very advantageous situation for us, as we prioritize keeping our mines well capitalized in strong markets, which gives us the ability to scale up very quickly. On the export front, we began the year with the intent to ship 9 to 10 million tons exported in 2020, Through the first quarter, we were on pace to accomplish that, but 2.4 million tons shipped. However, in the second quarter, we shipped roughly 800,000 tons. This was entirely caused by the worldwide economic shutdown created by the COVID-19 pandemic. It is important to note that these tons were not replaced by other tons or other fuels. They were lost due to unprecedented demand destruction. As global demand begins to recover, and India's retail season restarts as monsoon season comes to an end, demand for our product remains strong. We have started receiving inquiries again, and we expect steady recovery for the second remainder of the year. From a marketing perspective, it is encouraging to see that demand for our coal has steadily improved month over month since May, which was the lowest point of demand for our coal this year. This recent demand improvement has allowed us to restart one long wall at our Enloe Fort mine after it was idle for most of the second quarter. We continue to maintain 100% of our existing customer base and have begun to see improvement from a contracting perspective beyond 2020. We announced this morning that during the second quarter of 2020, we successfully contracted 4.3 million tons for the 2021 through 2024 period. We are now 49% contracted for 2021, assuming a 26 million ton run rate and not including any potential 2020 deferrals. We're also fully contracted for 2020, but we understand the significant uncertainties that will exist in the marketplace. We will remain flexible and will continue to work closely with our customers to manage our respective contractual obligations. With that, I will now turn the call over to Mattias to provide the financial update.