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spk00: Good afternoon, my name is Melanie and I'll be your conference operator today. At this time, I would like to welcome everyone to the Warrior Met Collins third quarter 2022 financial results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, please press star then two. This call is being recorded and will be available for replay on the company's website. Before we begin, I have been asked to note that today's discussion may contain forward-looking statements, and actual results may differ materially from those discussed. For more information regarding forward-looking statements, please refer to the company's press release and the SEC filings. I have also been asked to note that the company has posted reconciliations of the non-GAAP financial measures discussed during this call and the tables accompanying the company's earnings press release located on the investor section of the company's website at www.warriormetcoal.com. In addition to the earnings release, the company has posted a brief supplemental side presentation at the investor section of the website at www.warriormetcoal.com. Here today to discuss the company's results are Mr. Walt Scheller, Chief Executive Officer, and Mr. Dale Boyle, Chief Financial Officer. Mr. Scheller, you may begin your remarks.
spk06: Thanks, Operator. Hello, everyone. And thank you for taking the time to join us today to discuss our third quarter 2022 results. After my remarks, Dale will review our results in additional detail, and then you'll have the opportunity to ask questions. I'm happy to share our performance from another very strong quarter, delivering results above expectations despite market headwinds. We again demonstrated our ability to leverage our efficient business model to meet strong customer demand for our premium metcoals and take advantage of strong metcoal pricing to deliver those results. The most notable ongoing headwind constraining our performance relates to shipment delays, which is not a new challenge, but which became particularly problematic during the third quarter due to a variety of factors. Combination of disappointing rail performance Outages from major equipment maintenance work at the port of Mobile that was eight weeks behind schedule and substantial vessel congestion led to higher coal inventory levels, missed sales, and higher demurrage costs. While the port maintenance outages should be behind us, we expect to continue to experience port congestion challenges in the upcoming quarters. Also, we remain concerned about a potential labor stoppage from the National Railroad contract negotiations. Fortunately, we've recently started to see improvements in reducing these delays due to an increase in rail crew availability and the commissioning of the new tandem car dump at the port of Mobile. We also expect to see gradual but slow improvement as our rail carrier continues to better calibrate their cycle times and as the port continues to address ongoing performance issues and high traffic volume. As you will hear in a minute, if we could ship more, we could sell more. Given our strong customer base, low-cost business model, and liquidity position, we continued to leverage our strong production capabilities to build our inventory, which rose to 858,000 short tons at the end of the third quarter. As shipment issues are resolved, we are well positioned to take advantage of continued demand for our high-quality products. Turning to pricing and the demand for met coal, we experienced less volatility in the third quarter than previous quarters. Nonetheless, as expected, we continue to observe a general softening of steel demand across certain geographies. In particular, Europe's steel industry initiated numerous production closures of electric arc furnaces due to high electricity prices, as well as production cuts across blast furnace capacity. We continue to see lower steel demand, high inflation, and economic uncertainty in the region, all of which impacts our customer demand. The European ban on the import of Russian coals took effect on August 10th, which we expect will result in customers looking to other geographies for met coal supply. In addition, crossover coals provided some pricing support as demand for thermal coals was strong for most of the third quarter. In Asia, Chinese steel production saw modest improvements for the first two months of the quarter, but is still underperforming compared to the first nine months of 2021. As China's property sector remains depressed and its strict COVID policies continue to restrain economic activity. Our primary index, the PLV FOB Australia, which had been undergoing a correction since late May, started the quarter at $274 per short-ton before finding a floor at $171 per short-ton in early August. From this low point in the quarter, the index was able to partially claw back some of the pricing erosion, ending the third quarter at $246 per short-ton. The CFR China index experienced a greater decline as a result of lower demand. ending the third quarter at $279 per short ton, which represented a decrease of $78 per short ton from its July 1st value of $357 per short ton. The World Steel Association recently reported the global pig iron production decreased by 4.4 percent in the first nine months of 2022. China recorded a decrease in production of 2.5 percent for that period. while the rest of the world's pig iron production decreased by 8.1 percent. China's lower steel production is due to recent shutdowns related to their stringent COVID restrictions and lower demand, especially in the property sector. Discussions with our customers continue to indicate that steel demand for the oil and gas, aerospace, and shipbuilding sectors is strong. All other sectors, including automobiles, have weakened and are expected to remain weak due to the overall challenging economic environment. Even with this backdrop, we performed quite well, increasing our third quarter sales volume compared to the third quarter last year. And as I said, we could have sold even more volume during the quarter if not for the shipment delays. The largest impact to our third quarter results by a wide margin was the poor performance of our rail transportation provider that delayed getting our product to the port in a timely manner. In addition, with the high demand for seaborne thermal coal, we saw higher volumes of thermal coal move through the port, creating some additional congestion and impacting loading dates and times. Our sales volume in the third quarter was 1.5 million short tons compared to 1.1 million short tons in the same quarter last year. Our sales by geography in the third quarter were 62% into Europe, 17% into South America, and 21% into Asia. European sales continue to be strong despite the economic headwinds facing the region, including the softening of steel production. Our European customers continue to operate their Coke batteries to produce gas and heat for local communities, as well as lower their overall energy costs. despite lower steel production. Production volume in the third quarter this year was 1.6 million short tons compared to 1.1 million short tons in the same quarter of last year. The tons produced in the third quarter resulted from running both long walls and five continuous minor units at mine seven and three continuous minor units in the long wall at mine four. Our lead days on the long walls continue to remain long and solid. The mines ran well and were very efficient in the third quarter, despite some downtime for skip maintenance that we previously discussed on our last earnings call. We finished the quarter running the mines with a combination of salaried and hourly employees, representing approximately 50% of the normal workforce, while producing more than 80% of the normal production volume. These statistics represent another strong quarter for employee productivity compared to historical periods. Over the past year, the mines have trended higher in clean tons produced per man-hour work due to well-capitalized mining operations, revised work schedules, and a more productive hourly workforce. This increase in productivity has helped offset some of the inflation we've been experiencing. We appreciate the significant efforts by our employees to drive higher production levels while continuing to maintain a safe working environment. During the third quarter, we spent $56 million on CapEx and mine development. CapEx spending was $41 million, which included $12 million on the Blue Creek project. Mine development spending was $15 million during the quarter. Year to date, we have spent $120 million on CapEx, of which $21 million was for the Blue Creek project. We expect to spend between $75 and $80 million on sustaining capital for the existing mines for the full year. In addition, we expect to spend between $110 and $120 million on special projects for Blue Creek, new longwall shields, and the Four North Portal. Based on these full-year targeted spending amounts and year-to-date spending, we expect the fourth quarter will be the highest capex spending quarter this year. We continue to see rising inflation and long lead times impacting our business for an indefinite period of time. In addition to the higher cost, the lead times on supplies, equipment purchases, both new and rebuilt, continue to be 18 to 24 months in duration. Despite partial mitigation of these issues with our improved productivity at the mines, we're experiencing a 25 to 35 percent increase in cost of operating supplies and materials. repairs, and major equipment rebuilds. Those price increases led to a $4 per short-time negative impact on our third quarter results. As U.S. inflation in September remained near a four-decade high of 8.2 percent, the Federal Reserve continued its faster pace of interest rate increases in its efforts to bring that number down. As we look ahead, we made strong progress this quarter on the development of Blue Creek. which represents a transformational opportunity for Warrior. More specifically, we continue developing the site and constructing the slope and service shaft. As we continue to move through the preliminary stages of development on schedule, both activity at Blue Creek and the spending required for that activity will increase over the remainder of this year. We remain extremely excited about the potential to create significant stockholder value through this project. We continue to balance investment in Blue Creek with returning cash to stockholders, allowing them to benefit from our strong free cash flow generation in the near term and long term. During the third quarter, we were pleased to be able to pay another special dividend of 80 cents per share, the second special dividend this year. I'll now ask Dale to address our third quarter results in greater detail.
spk05: Thanks, Walt. For the third quarter of 2022, the company recorded net income on a GAAP basis of $98 million, or $1.90 per diluted share, compared to net income of $38 million, or 74 cents per diluted share, in the same quarter last year. Non-GAAP adjusted net income for the third quarter, excluding the non-recurring business interruption expenses and idle mine expenses, was $2.10 per diluted share, compared to an adjusted net income of $0.97 per diluted share in the same quarter last year. We achieved adjusted EBITDA of $172 million in the third quarter this year, compared to $105 million in the same quarter last year. The quarterly increase was primarily driven by a 32 percent increase in average net selling prices and a 42 percent increase in sales volumes, partially offset by higher variable transportation and royalty costs and the impact of inflation on labor, materials, supplies, and major equipment rebuilds. Our adjusted EBITDA margin was 44 percent in the third quarter this year compared to 52 percent in the same quarter last year. Total revenues were $390 million in the third quarter compared to $202 million in the same quarter last year. This 93 percent increase was primarily due to the 32% increase in average net selling prices and 42% higher sales volume. In addition, other revenues were positively impacted in the third quarter this year by a $6 or 145% increase in natural gas prices compared to the prior year third quarter. The prior year third quarter other revenues were also lower due to a $6 million loss on natural gas hedges that were in place at that time. The Platts Premium Logall FOB Australian Index price on average was $13 per short-time lower in the third quarter of this year compared to the same quarter last year. The index price averaged $227 per short-time to the third quarter. The MERGE and other charges reduced our gross price realization to an average net selling price of $248 per short-time in the third quarter this year. compared to $189 per short time in the same quarter last year. The merge and other charges were approximately $13 million higher in the third quarter this year versus last year, primarily due to higher pricing and the shipment delays that Walt discussed a few minutes ago. Cash cost of sales was $202 million, or 54% of mining revenues in the third quarter, compared to $91 million or 46 percent of mining revenues in the same quarter last year. The increase of $111 million was primarily due to $73 million of higher variable costs associated with price-sensitive wages, transportation, and royalty costs, including the impact of inflation, higher maintenance costs, and other spending, and a $38 million impact of 42 percent higher sales volume. Inflation accounted for $7 million of the higher cost and $4 per short-ton, resulting from higher costs for belt structure, new bolts, cable, magnetite, log dust, and other materials, plus labor and parcel repairs and major equipment rebuilds. Despite the higher variable costs and inflation, cash margins were $113 per short-ton in the third quarter, compared to $103 per short-ton in the same period last year. demonstrating the leverage to higher met coal prices, driving both profitability and free cash flow. Past cost of sales per short-ton FOB port was approximately $135 in the third quarter, compared to $86 in the same quarter last year. Transportation and royalty costs accounted for $31 of the $49 per ton increase. The remaining increase of $18 was due to an increase in production costs attributed to rising inflation of $4 per short-ton, Mine 7 skip repairs of $4 per ton, Mine 4 production cost, previously treated as idle cost of $4 per ton, and higher other spending of $4 per short-ton. As we continued to ramp up Mine 4 production during the quarter, more costs were treated as production costs versus being treated as idle costs in the prior year comparable quarter. Variable transportation royalty costs were 47% of the cash cost of sales per short time of $135 in the third quarter this year, compared to only 39% in the same quarter last year, driven primarily by higher met coal pricing and sales volume. As a reminder, our transportation rates are reset at the beginning of each quarter based upon the average met coal prices of the preceding quarter. Therefore, we expect our fourth quarter transportation costs to be lower than the third quarter. SD&A expenses were about $11 million, or 2.7% of total revenues in the third quarter this year, and were higher than the same quarter last year due to higher employee-related expenses, primarily higher stock compensation expense, and higher professional fees. During the third quarter, we incurred incremental non-recurring business interruption expenses of $7 million that were directly related to the ongoing labor strike. These non-recurring expenses were primarily for incremental safety and security, legal and labor negotiations, and other expenses. Idle mine expenses were $5 million in the third quarter and represent expenses incurred with the operations at both mines running at reduced capacities, such as electricity, insurance, maintenance, labor, and taxes. These expenses decreased quarter over quarter, primarily due to the partial restart of mine floor operations this year. versus the prior year comprehensive order when it was fully idle. Turning to cash flow, during the third quarter of this year, we generated $191 million of free cash flow, which resulted from cash flows provided by operating activities of $247 million, less cash used for capital expenditures and mine development costs of $56 million. This resulted in free cash flow conversion of 112 percent this quarter, versus last year's third quarter of 50 percent. Free cash flow in the third quarter of this year was positively impacted by a $95 million decrease in net working capital from the second quarter of this year. The decrease in net working capital was primarily due to a decrease in accounts receivable due to lower net coal pricing and the timing of sales, slightly offset by higher inventories due to strong production and the shipment delays previously discussed. Our total available liquidity at the end of the third quarter was a record $869 million, representing an increase of $101 million, or 13% over the second quarter of 2022, and consisted of cash and cash equivalents of $746 million and $123 million available under our ABL facility. At this point, we are well positioned to continue the development and fund our Blue Creek project in the face of any challenging macroeconomic headwinds in the near future. Now turning to our outlook and guidance for 2022. We have updated our guidance as we near the completion of this year and have a clear picture of overall volumes. While we have seen gradual improvements in the shipping delays, we believe those issues will continue to impact us the remainder of this year. However, we believe that we will be able to meet our production and sales volumes, including the outlook section, of our earnings release. I'll now turn it back to Walt for his final comments.
spk06: Thanks, Dale. Before we move on to Q&A, I'd like to make some final comments on our outlook for the fourth quarter and full year of 2022. As we mentioned earlier, our inventory levels peaked again at the end of the third quarter, which was the result of strong production and continuing shipment delays. We've been pleased to see the gradual improvements in the shipping delays over the last few weeks and expect those to continue throughout the fourth quarter. Of course, this is highly dependent upon the national railroad contract negotiations and absent any potential strike or other disruptions that could occur. We expect to make gradual improvements in drawing down our inventory levels as a result of the improvements in rail transportation and port performance in the fourth quarter. Looking ahead, we cannot identify a likely catalyst to strengthen the fragile demand for steel across Europe, the United States, and several other developed countries. Therefore, we expect production cuts to remain a likely reality for the time being. In addition, we expect that recession fears, stubborn inflationary pressures, and the prolonged impact of the Russian-Ukrainian war to continue to weigh on our customer markets. We do see the possibility of an improvement in Chinese steel production in the fourth quarter, given the centralized efforts to stimulate the property sector. So this materialized, we believe it will benefit the import of Mongolian and Russian coals the most. We also believe that we may continue to see met coal pricing supported by strong thermal demand, as well as the vulnerable met coal supply chain, which was recently demonstrated by production issues and weather concerns from the major producing regions. We're pleased that despite all of these headwinds, our customers have confirmed their volumes for the remainder of this year. With excellent liquidity and significant inventory, we remain focused on what we can control, finishing the year with continued strong financial results and moving ahead with our positioning as a unique and resilient pure-play MECCO provider for all economic environments. With that, we'd like to open the call for questions. Operator?
spk00: Thank you. At this time, I would like to remind everyone that to ask a question, please press star then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A register. Thank you. Your first question comes from Lucas Pipes with B Reilly Securities. Please go ahead.
spk01: Thank you very much, operator. Good afternoon, everyone, and good job on the quarter. My first question is on the inventory situation, and I wondered if you could maybe elaborate a little bit on what it will take to move those inventories back into a normal range. I think, if I remember right, that was about 400,000 tons, but correct me if that needs to be updated. And again, like, so what might be necessary to get those inventories down into lower levels? And then I have a few more follow-up questions on the pricing side. Thank you.
spk06: Well, Lucas, with the rail transportation, they were probably – the rail was probably shipping at about 50% of what we would consider to be normal. So we had upped the amount we were sending by barge. But what we've seen in recent weeks is rail improving – very well beyond that type of a level. The other things that caused the inventory was the fact that down at the port, one of the two car dumps, in fact, the most efficient car dump that dumps two cars at a time, was taken completely out of service for a period of months, which led to lower capacities, lower throughput capacities at the port. And that is up and running, running very well. The cycle times are fantastic, and the rail is moving better again now. So I would anticipate that even though it's not going to disappear overnight, I think there will be a gradual improvement of that in terms of the capacity improving and that we'll have our inventory levels in line probably hopefully by year end. But again, that's all dependent on what happens with that potential rail contract negotiation.
spk01: Very helpful. Really appreciate the color there. And then I do want to follow up on the pricing side. So first, great strength in seaborne medical markets. Again, if you could maybe elaborate on some of the drivers there. especially since some of the summer lows, I think, were around 190. So it's nice to come back there if you could comment on what you see as the key drivers. And then there are some arbitrage, seeming arbitrage opportunities in the market. China CFR, I think, is 330 or so, and there was a report that Blue Creek Cargo was sent to China at that price, but obviously there are higher transportation costs involved there. So If you have any view on to what extent the Chinese market presents maybe an opportunity as well, we would appreciate your thoughts on the pricing dynamics. Thank you very much.
spk06: I think what's going to really happen if the Chinese demand improves, I think that's going to primarily go to Mongolia is performing better and Russian coals are now flowing better. a lot of those calls are flowing into China. So I think the majority of it will go in that direction for maybe some opportunity. But again, if you just look at even at that opportunity, I believe the logical place for that call to come from is Australia as a natural market or even the West Coast of the US. But from our perspective, just even that little bit of increase or pick up will help. I think the drivers of pricing have been First of all, thermal. I think thermal, the fact that thermal skyrocketed in pricing gives a natural base to where MEC coals can go because most, not all, but a lot of MEC coals can be transferred over as crossover coals into the thermal market. And I think there's, you know, just overall supply constraints for the coal industry that And I think you've had the recent issues over in Australia with storms and other things that are just keeping supply really constrained. So I think those are the things that are primary drivers for what's supporting the price.
spk01: That's very helpful. Really appreciate the call. I may get back to a follow-up question there. But I do want to ask one other question. On your cash position, $746 million, what amount of cash do you need to run the business so as coal prices knock on wood stay elevated and you have needs from your capital structure with some debt there and then also the funding of Blue Creek, what amount of cash do you want to have on the balance sheet? And then obviously investors are looking to capital returns, so trying to find a number to back into there. So thank you very much for your perspective on this.
spk05: Yeah, we're not. Lucas, thanks for the question. This is Dale. We're not targeting a particular cash balance number. You know, we're looking at kind of capital allocation as we move forward from here in light of the market conditions. While pricing has stayed high, demand has been weakening, as we've said in our prepared remarks. So, you know, right now we're in the middle of putting together our budget And when you think about the context of Blue Creek, you know, we could be looking at capital spending in excess of $400 million to $450 million just in capital and mine development. So we want to put that together and see where we are, but we certainly want to keep enough cash on the balance sheet that we're going to protect ourselves, meet all of our other obligations, as well as fund Blue Creek. You know, being at this high level, we're just early into the spending of Blue Creek, about $20 million. Obviously, we've been seeing inflation in the business, so there might be some inflation there and some prices as we look out next year. So those things we're just trying to take into context right now with the budget as well as what's happening in the market and And as we move forward, like I said, we don't target a particular number other than just making sure we have enough to fund all those needs. And to the extent we feel like there is excess cash, we're going to continue to return that to shareholders, like we've done a couple times already this year through extra special dividends. So we're not turning those off to the extent pricing remains high. We'll evaluate that on a periodic basis and maybe declare some additional special dividends.
spk01: That's very helpful. I assume that's in one month and three month T-bills, so I should probably start to model a 4% interest rate on that cash. Appreciate your color and best of luck. Thank you.
spk00: Thank you. Once again, to ask a question, please press star then the number one on your telephone keypad. Your next question comes from Nathan Martin with the Benchmark Company. Please go ahead.
spk07: Thank you. Afternoon, Walt. Dale, congrats on the quarter. Thanks for taking my questions. Maybe I'll start with the revised four-year shipment guidance, tighten that up a little bit. What do you guys think gets you to, you know, the bottom or maybe the top end there? If my math is correct, I think at the high end you'd have to ship, you know, over 2 million tons in the fourth quarter. Obviously, you've had that build up in inventories that you just alluded to. Hopefully, you can work that down. First, is that right? Do you think that's doable even given the logistics issues you guys and everyone else has been plagued with so far this year?
spk05: As Walt said, this is Dale. Thanks, Nathan. As Walt said, it really depends on the shipment delays and how rail transportation improves and whether or not there is any Disruption, I don't think there's a high likelihood of an actual rail strike, but, you know, you never know what kind of disruptions you might have around those negotiations. So it's all going to be dependent upon that and how much we can get out. Obviously, we have enough inventory to get to that number. So that is kind of on the high end. I think the low end, we'd need to ship about 1.6, which is pretty close to what we've done each of the last two quarters. So, you know, it's achievable. It's really dependent on things that are outside of our control.
spk07: Got it. Thanks for that color there, Dale. Just curious, what would you guys say was the impact in the quarter from the logistics delays from a shipment standpoint?
spk06: Probably a few vessels, two or three vessels at least, I would say. A couple hundred thousand tons.
spk07: Got it. Thanks. Thanks. Well, and then maybe, um, you know, a lot of moving pieces, um, you know, in costs, you know, during the quarter deal, you did a good job kind of laying all that out. I mean, inflation was another $4 ton headwind again, this quarter. Um, you know, just curious, I mean, do you guys expect kind of, you know, that level of headwind to persist during the fourth quarter and maybe even going forward for you see any signs of that abating and really just trying to get a feeling of what costs might be sticking. kind of going forward into 2023 and maybe where you see that cost return number heading?
spk05: Yeah, I think we're going to continue to see inflation impacting us. As we said in our prepared remarks, it's not only the cost, but it's the lead times as well, getting pushed out 18, 24 months, some things even further out than that. But, you know, right now we're Moving along, had about a $4 per ton impact on a quarterly basis. I wouldn't expect that to change much. As far as going into next year, it all depends on what happens with the Fed's actions. Right now, we are not hearing any reductions or cutbacks. We are looking at, as we continue to kind of work around these long lead times. We are trying to buy some things in advance and stick them in inventory. But I don't see it abating anytime soon. So we might be well into next year before you see some abatement of this inflation. It's going to take some time for the Fed's action to kind of work through the overall global economy, I think.
spk07: Dale, could you remind me kind of what portion of your costs are variable? Let's just say assuming We do see a little bit of a deceleration in the net price in 23 versus these elevated levels we see at 22. Just curious how that could possibly factor or possibly lower your cost per ton next year.
spk05: Well, we don't really look at a fixed and a variable component. We look at it as transportation and royalties are the biggest variable there. And at the end of this quarter, they were 47% of the cash cost per ton versus last year. They were only 39%. The cost of production remains pretty flat on a dollar basis, most quarters over the long run. There'll be some quarters that are higher than others, just depending on the amount of maintenance and things like that that gets done, but certainly transportation and royalties. So as you look into the fourth quarter, as I said earlier, our fourth quarter will be, our transportation rates will be lower. than the third quarter because of where met coal pricing is. So you may have some increase, just depending on where prices are, you may have some increase in wealthies, just depending on ultimate price for the fourth quarter. But, you know, you could see our cost per ton decrease, you know, 10 to 12% in the fourth quarter.
spk07: Very, very helpful. I appreciate that, Dale. Just one more, if I may. Just would be great to maybe get a little more color on the labor situation. I know, Walt, you made a couple comments there. Are you guys still having some success on the hiring front? I know labor remains extremely tight, not just in this industry, but throughout. And as of today, you know, based on kind of where you see labor logistics and some of your comments on the market, do you have any broad thoughts around where, you know, production and shipments could look like next year? Thanks.
spk06: We are having success in hiring. It's just the issue now is throughout the U.S., especially in mining, there's not a lot of experienced labor unemployed. So we're having to bring in unexperienced labor, and it takes time to train them up, get them to where they can operate equipment safely. And so, yes, we're having success hiring, but take a little bit more time than we'd like for all the training that has to go on in terms of where we see next year going we really haven't we're still in the budgeting process so we're working on that but our expectation is we continue to build on where we are today so we definitely look for things to get to continue to improve that's great well I appreciate the time guys and best of luck in the fourth quarter
spk07: Thank you. Thank you.
spk00: Thank you. Your next question is a follow-up from Lucas Pipe with B. Riley Securities. Please go ahead.
spk01: Thank you very much for taking my follow-up question. I do want to ask on this deceleration of demand that you mentioned a few times today, does that cause you to – shift sales into maybe whatever warrior non-traditional markets, be it thermal, be it, for example, with sales to China, things like that, would appreciate to what extent there's a commercial adjustment from warrior. Thank you.
spk06: Interestingly, when you look at the third quarter and what we're projecting for the fourth quarter, the percentage of our product moving into Europe has remained really strong. In fact, it's probably up a little bit. So our customers in Europe continue to, you know, through the end of the year, and I don't know of anything changing next year, continue to want their committed tons and continue to take those tons. So while we see things slowing down, I really think most of these customers operate their own Coke plants. They're going to continue to operate those Coke plants. They'll buy less merchant Cokes. But they'll continue to operate. So I think our demand in Europe, I wouldn't be surprised to see it remain pretty stable. Now, you know, you see us flip-flop in Asia and South America. We can go as high as 24%, 25% in South America, and then in the next quarter be at the same level going into Asia. I would look for those numbers to continue. And we will and do look at if there's opportunities to move – A cargo of coal, if we have excess coal that can move as a thermal at a higher price, we'll consider that. But right now, we're pretty satisfied with where our order book is.
spk01: What amount of tons are committed for 2023?
spk06: I don't have that number. I can tell you that typically our contracted tons have been running at about 80 about 80% or so, and spot tons have been running at about 20% or so. I don't look for that to change, but I don't have that actual number in front of me.
spk01: That's helpful. Really appreciate the additional color, and again, best of luck.
spk06: Thank you.
spk00: Thank you. Your next question comes from Alex Hacking with Citi. Please go ahead.
spk04: Hi, Walt and Dale. I have a couple of questions, if it's okay. Firstly, They realized price was quite strong compared to what we were modeling. Is that just an issue associated with the timing of your specific shipments? And then second question, given your current operating footprint, should we assume that mine production next year would be similar levels to what we've seen this year, or would it potentially be higher? Thank you.
spk05: Well, I'll start with the realized prices. Most of that is the lag effect. If you remember, most of our contracts are best priced on a, let's call it an average of 40 days lag. So the average of the index price 40 days prior to loading the vessel. So a lot of that came from the higher prices earlier on. And so that's kind of the real answer there on that particular realized pricing. Production. Right now, we're working on our budgets, as I said earlier. You know, if we did, if we're going to do in the range that we're talking about this year of somewhere around 6 million tons up to 6.3, you know, we could see somewhere in that range, depending on the labor, whether or not we can get additional labor in, get it trained. And, you know, with the labor shortages, It's going to be hard to predict that and at what point, you know, we may be able to get those levels up to, you know, back to normal at some point down the road. Thank you very much. Thank you.
spk00: Thank you. Your next question comes from Mark Zand with Wexford. Please go ahead.
spk03: Yeah, thanks very much. Can you go over... what the remaining amount is to be spent on Blue Creek to get it up and going, and what sort of the cadence is. I know you'd mentioned 400 to 450, and I thought I understood you to say that was for next year. But, you know, please correct me or fill it in.
spk05: Yeah, so we're early in. If you're not familiar with the timing of that project, I would suggest you look at a presentation on our website for Blue Creek. That's a five-year build, $700 million project. As I said, we've only spent $21 million so far this year. Next year will be a $200-plus million year. As we finalize our budget, we'll have a better idea at the end of our fourth quarter. And then the third year will be in a similar range. So the two highest spending years are coming up. Of that 450, next year you could be two to 250 just for Blue Creek. We do have the remaining amounts for the Shields that we put deposits on this year, that's about 60 million, and then we need to finish the four north portals. So when you consider all those things, we're in that range of somewhere between four and 450 million next year.
spk03: And what's the mine life for mine four and mine seven?
spk05: When you look at the reserves and then you take into consideration any resources, Mine 7, I believe, is around a little more than 20 years. Mine 4, somewhere around 30 years.
spk03: You know, and just sort of, you know, I wonder then, you know, explain to me what the rationale is. for Blue Creek, given that your nameplate capacity is, I don't know, 8 million tons at Mine 7 and Mine 4, and obviously you've got a long mine life.
spk05: Yeah, we're looking to grow the company. Adding Blue Creek will grow the company 60%. And, you know, when we look at any potential M&A opportunity, you've got to look at Blue Creek in comparison to that. And when you look at the information that we've provided in our presentation on our website, you'll see that that project's an IRR of 30% or better, and it's a high-quality product that will get a premium price. And when we compare that to other mines that potentially we might think about acquiring, they just don't stack up to Blue Creek. So that's the focus right now is building out Blue Creek.
spk03: Okay. Thank you. Just going back to a question that Lucas asked, it looks like your inventory tonnage is about a million tons or more. Is that accurate?
spk05: No, 858,000. Okay. Okay.
spk03: And just one final one. Who is the railroad that you use that's been causing these problems?
spk06: CSX is our primary rail provider.
spk03: Okay. So it's not like somebody that's local. Okay, good. Thanks very much, guys. Sure.
spk00: Thank you. Your next question comes from Patrick Fitzgerald with Baird. Please go ahead.
spk02: Yeah, hi. Could you go over your obligation with respect to paying down the bonds before you pay out any additional special dividends if there are any restrictions?
spk05: Well, there's certainly a lot of restrictions within the bonds for different types of payments. But we have sufficient capacity to pay out restricted payments or dividends currently. And the bonds are a three-year no-call. So we cannot call the bonds for the first three years. But, however, we can take advantage of some opportunities when, and we did in the quarter, When people offer, you know, in the open market to repurchase those bonds, we repurchased a few bonds at a discount and took advantage of, you know, that discount and put some savings on the books here for the future. But there's a lot of nitty-gritty details about the restrictions around the bonds, but primarily it's the three-year no-call right now.
spk02: Okay. Do you know what the RP basket is at this point?
spk05: currently yeah sure we track all that all the time and it's not some of the details we get into discussing all right thanks thank you at this time there are no further questions I'll now turn the call back over to mr. Scheller for any comments that concludes our call this afternoon
spk06: Thank you again for joining us today. We appreciate your interest and warrior met goal.
spk00: Thank you. And that does conclude our conference for today. Thank you all for participating. You may now disconnect.
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