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Presentation

Operator: Good afternoon. My name is Joe, and I will be your conference operator today. At this time, I would like to welcome everyone to the Warrior Met Coal Fourth Quarter and Full Year 2022 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. 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 releases and SEC filings.

I have also been asked to note that the company has posted reconciliations to of the non-GAAP financial measures discussed during this call in the tables accompanying the company’s earnings press release located on the Investors section of the company’s website at www.warriormetcoal.com. In addition to the earnings release, the company has posted a brief supplemental slide presentation to the Investors section of its website at www.warriormetcoal.com. Here today to discuss the company’s results are Mr. Walt Scheller, Chief Executive Officer, and Mr. Dale Boyles, Chief Financial Officer. Mr. Scheller, you may begin your remarks.

Walter Scheller: Thanks, operator. Hello, everyone, and thank you for taking the time to join us today to discuss our fourth quarter and full year 2022 results. After my remarks, Dale will review our results in additional detail, and then you’ll have the opportunity to ask questions. We ended the fourth quarter with optimism, the strong customer demand to facilitate a drawdown of our inventories with the expectation of continuous improvement in rail transportation and improved performance at the McDufffie Terminal. Unfortunately, several uncontrollable shipment delays continue to drive higher-than-normal inventories and lower shipment volumes in the fourth quarter. As we mentioned on previous calls, the rail transportation and the McDufffie Terminal performance issues impacted our shipment volumes each quarter during 2022 and caused our demurrage costs to increase by 415% last year.

This underperformance by our business partners resulted in sales volumes that were below our expectations and guidance for the full year 2022. We had the customer orders ready to ship, but the mechanical failures prevented us from realizing the strong customer demand during the fourth quarter. Looking further at our outbound logistics, the fourth quarter provided a mix of encouraging and disappointing news. On the positive side, we experienced our best coal movement quarter of the year, largely due to improvements in rail service and the consistent reliability of our barging system. The performance by our rail carrier was stable throughout the quarter and has remained so into the first few weeks of 2023. We expect to see this level of service going forward as incremental improvements are made over time in order to return the service to historical performance levels.

On the disappointing side, our main export terminal, McDufffie, suffered a myriad of mechanical issues that greatly impeded its loading abilities. The mechanical failures have been mainly concentrated on its conveyor and transfer systems, as well as on the larger operational equipment such as the ship loaders. In addition, vessel movement was interrupted for approximately six days during December due to heavy fog and severe weather. As a result, we experienced longer-than-normal vessel queues and fell short of our – end-of-year shipping potential by approximately 300,000 to 350,000 short tons. In January this year, we initiated a series of projects jointly with our partner, McDufffie, to address the root causes of these recurring issues. In addition, we’ve committed both personnel and other resources towards these projects.

We’ve already seen significant progress with these joint efforts, and we expect the performance of McDufffie to improve over the coming quarters, while recognizing that some other projects, such as the replacement of major operational equipment will take longer to fully address. In addition to providing support to our terminal partner, we are also diverting some of our coals to alternative local terminals to maintain our sales volumes with a minimal increase in cost. From a market perspective, the fourth quarter played out in line with our forecast with the obvious succession being China’s decision to abandon its Zero COVID policy. As a result of China’s reopening, we saw several transactions between Chinese customers and U.S. suppliers with loadings in both the fourth quarter of 2022 and the early part of 2023.

China has also announced several measures to stimulate its critically important property sector, which should directly benefit the local steel industry. Despite these tailwinds, improvement in China’s economic activity have been slow to come. In the Atlantic Basin, steel production remained subdued due to a combination of low demand, high energy prices and inflation. One estimate has a total capacity reduction close to 26 million metric tons per year. During the fourth quarter, we also saw capacity reductions in other Asian countries, with Vietnam announcing the idling of several of its blast furnaces. The good news is that steel pricing in most geographies seems to have found support late in the quarter as several attempts to pass on price increases were successful.

These price increases, albeit modest, are welcomed by our customers whose margins have been stressed by the current environment. From a supply standpoint, there were challenges with outbound logistics, labor and production that remain a common theme across the world’s three largest supply regions. With November 2022, year-to-date exports trailing the previous year’s volume by 5%, the largest exporter, Australia is on track to deliver a third year in a row of negative year-over-year growth. Exports from both the U.S. and Canada should end the year with single-digit growth in export volumes versus 2021. The lack of a positive supply response during the best met coal pricing year ever is by itself remarkable. We expect some of the issues affecting supply such as the European ban on Russian coal, weather and port disruptions, high inflation and poor rail transportation performance to ease in 2023.

We do expect the lack of sector investment over the last several years with an improving global demand outlook beyond 2023 to continue to constrain supply and drive pricing above all benchmarks for long-term pricing. The World Steel Association recently reported that global pig iron production decreased by 3.8% in 2022. China recorded a decrease in production of 0.8% for the period, while the rest of the world’s pig iron production decreased by 9.4%. The decreases were primarily driven by the Russia-Ukraine war, weak economic conditions in Europe, and lower production from China. China’s lower production continued to be impacted by strict COVID policies and depressed property markets. India was the only country with a year-over-year increase of 2.9%.

Our European customers had an especially challenging quarter dealing with compressed margins due to elevated energy and raw material costs and low steel pricing due to soft demand. As reported by industry publications, several integrated producers operated at reduced production rates and in some cases even idled some blast furnace capacity. From a pricing standpoint, the fourth quarter was the least volatile quarter of the year in our primary index, the PLV FOB Australia. The index started the quarter at $245 per short ton, averaged $253, and closed the year at $267 per short ton. The CFR China Index was more range bound, averaging $277 per short ton and closing the year at $286 per short ton. Even with the shipment delays, we performed quite well, delivering fourth quarter sales volume of 1.5 million short tons that was flat compared to the fourth quarter of 2021.

As I said on previous calls in 2022, we could have sold more volume during the quarter if not for the shipment delays. These shipment delays pushed our coal inventory level to 855,000 short tons by the end of the fourth quarter. As performance on the McDufffie Terminal improves, we believe that we are well positioned to take advantage of customer demand and spot market opportunities to reduce the working capital tied up in our inventories. Our sales by geography in the fourth quarter were 46% into Europe, 32% into South America, and 22% into Asia. European sales continued to be strong despite the economic headwinds facing the region, including the softening of the steel production. Production volume in the fourth quarter 2022 was 1.5 million short tons compared to 1.1 million short tons in the same quarter of 2021.

The higher tons produced in the fourth quarter and for the full year resulted primarily from restarting Mine 4 and running a full year in 2022. We added approximately 140 people at the mines during the year compared to the prior year with the bulk of those additions at Mine 4. The mines ran well and were very efficient in the fourth quarter, despite the normal extended downtime for the holidays. Our safety incident rate continues to be approximately 63% lower than the industry average and reflects the training programs in place and the dedication of our employees to maintain a safe working environment. I want to say a special thank you to all of our employees for your hard work and dedication. Over the past year, the mines have trended higher in clean tons produced per manhour 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. These statistics represent another strong quarter for employee productivity and safety compared to historical periods. We appreciate the significant efforts by our employees to drive higher production levels while continuing to maintain a safe working environment. During the fourth quarter, we spent a record high $98 million on CapEx and mine development. CapEx spending was $85 million, which included $27 million on the Blue Creek project. Mine development spending was $13 million during the fourth quarter. We expect development of Mine 4 will be completed by the second half of this year. We made good progress in 2022 on the development of Blue Creek, which represents a transformational growth opportunity for Warrior.

More specifically, we continue developing this site, constructing the slope, service shaft, and ventilation shafts. We invested approximately $47 million in Blue Creek in 2022. 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 substantially over the next two years. As I will discuss in a few minutes, we remain extremely excited about the potential to create significant stockholder value through this project. We expect to continue to balance our growth investment in Blue Creek with returning excess cash to stockholders, allowing them to benefit from our strong free cash flow generation in the near term and over the long term.

Dale will speak more to capital allocation in a moment. For most of 2022, we met or exceeded our targets as outlined in our previous guidance. Except for sales volume that were lower than our expectations due to the previously discussed shipment delays. Despite the lower sales volume, we delivered strong financial results in the fourth quarter that marked the conclusion of an exceedingly strong financial year for Warrior, which posted record operating cash flow, free cash flow and adjusted EBITDA, which was more than double our 2021 adjusted EBITDA of nearly $1 billion. I will now ask Dale to address our fourth quarter results in greater detail.

Dale Boyles: Thanks, Walt. For the fourth quarter of 2022, the company recorded net income on a GAAP basis of $100 million or $1.93 per diluted share compared to net income of $138 million or $2.68 per diluted share in the same quarter of 2021. Non-GAAP adjusted net income for the fourth quarter, excluding the non-recurring business interruption expenses, idle mine expenses and other non-cash adjustments was $1.90 per diluted share compared to an adjusted net income of $3.17 per diluted share in the same quarter of 2021. These decreases quarter-over-quarter were primarily driven by lower average net selling prices and higher operating cost. We reported adjusted EBITDA of $148 million in the fourth quarter of 2022 compared to $240 million in the same quarter of 2021.

The quarterly decrease was primarily driven by a 17% decrease in average net selling prices, on flat sales volume, plus higher variable transportation and royalty cost and the impact of inflation on labor, materials and major equipment rebuilds. Our adjusted EBITDA margin was 43% in the fourth quarter of 2022, compared to 58% in the same quarter of 2021. Total revenues were $345 million in the fourth quarter compared to $416 million in the fourth quarter of 2021. This 17% decrease was primarily due to the 17% decrease in average net selling prices. Other revenues were slightly lower in the fourth quarter of 2022, primarily due to the prior year, including a mark-to-market gain of $7 million on our gas hedges offset partially by an increase in revenues due to higher natural gas prices.

Platts Premium Low Vol FOB Australian Index price on average was $82 per short ton lower in the fourth quarter of 2022 compared to the same quarter of 2021. The index price averaged $253 per short ton for the fourth quarter. Demurrage and other charges reduced our gross price realization to an average net selling price of $227 per short ton in the fourth quarter of 2022 compared to $274 per short ton in the same quarter of 2021. Demurrage and other charges were $4 million higher this fourth quarter versus the fourth quarter of 2021 as a result of the shipment delays. We continue to see inflation in long lead times impacting our business for an indefinite period of time. In addition to the higher cost, the lead times on supplies and equipment purchases continue to be in the range of 18 to 24 months.

Despite partial mitigation of these issues with our improved productivity at the mines, we are experiencing significant increases in cost of operating supplies and materials, repairs and major equipment rebuilds. Those price increases led to a $5 per short ton negative impact on our fourth quarter results. Cash cost of sales were $179 million or 54% of mining revenues in the fourth quarter, compared to $153 million or 39% of mining revenues in the fourth quarter of 2021. The increase of $26 million was primarily due to higher variable costs associated with price sensitive wages, transportation, and loyalty cost plus the impact of inflation. Variable transportation and royalty costs were higher primarily due to the delayed impact of tons being produced in earlier quarters when met coal prices were higher and recognizing cost of sales on a FIFO inventory basis in the fourth quarter.

This delayed recognition will revert to normal as we bring down our coal inventory levels. Inflation accounted for $7 million of the higher cost or $5 per short ton resulting from higher costs for labor, materials and major equipment rebuilds as previously noted. For labor, materials and major equipment rebuilds as previously noted. Cash cost of sales per short ton, FOB port was approximately $123 in the fourth quarter compared to $106 in the fourth quarter of 2021. Higher variable wages, transportation and royalty costs were the primary drivers as previously noted, plus the $5 per short ton impact in inflation. Despite the higher variable cost and inflation, cash margins were $104 per short ton in the fourth quarter. SG&A expenses were about $12 million or 3.4% of total revenues in the fourth quarter of 2022 and were higher than fourth quarter of 2021, primarily due to an increase in stock-compensation expense of $2 million and charitable donations of $1 million.

The interest income earned on our cash investments exceeded the interest expense on our outstanding notes and equipment leases during the fourth quarter of 2022, primarily due to our high cash balances. Our fourth quarter non-cash tax expense primarily reflects the utilization of our federal net operating losses or NOLs, offset partially by the tax benefits for depletion. During 2022, we utilized a significant amount of our federal NOLs and have approximately $122 million remaining plus $23 million of tax credit carry-forwards. We expect to continue to utilize our federal NOLs and tax credit carry-forwards and believe we may become a cash taxpayer in late 2023 or 2024 based upon our long-term forecast in met coal prices, sales volumes and performance.

During the fourth quarter, we incurred incremental non-recurring business interruption expenses of $3 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 $2 million in the fourth 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 restart of Mine 4 operations during 2022 versus the prior year comparable quarter when it was fully idle. Turning to cash flow, during the fourth quarter of 2022, we generated $97 million of free cash flow which resulted from cash flows provided by operating activities of $195 million less cash used for capital expenditures and mine development cost of $98 million.

This resulted in free cash flow conversion of 65% this quarter versus 63% in the fourth quarter of 2021. Free cash flow in the fourth quarter of 2022 was positively impacted by $47 million decrease in net working capital from the third quarter of 2022. The decrease in net working capital was primarily due to a decrease in accounts receivable due to lower average net selling prices. Partially offset by higher inventories and lower accounts payable. Our total available liquidity at the end of the fourth quarter was a record $953 million representing an increase of $84 million or 10% over the third quarter and consisted of cash and cash equivalents of $830 million and $123 million available under our ABL facility. From a capital allocation standpoint, the company continues to be committed to returning excess cash to stockholders to increase stockholder value, while driving long-term growth with the investment in its World-Class Blue Creek reserves and demonstrated that commitment in 2022 by increasing our fixed quarterly dividend by 20% and paying two different special cash dividends, which together totaled $1.30 per share.

A strong macroeconomic environment that pushed prices to levels never seen before in this sector enabled us to provide the stockholder returns on top of relaunching a significant value creation opportunity in Blue Creek. In addition and more recently, the company announced further returns to stockholders with another increase in its fixed quarterly dividend of 17% and another special dividend of $0.88 per share to be paid in early March. In summary, despite the multiple issues in rail transportation and operational issues at the McDufffie Terminal throughout 2022 that led to lower shipment volume. We delivered record breaking financial results, some of those all-time records were revenues of over $1.7 billion adjusted net income of $666 million or $12.88 per diluted share.

Adjusted EBITDA of nearly $1 billion, cash flows from operations of $842 million; free cash flow of $588 million and total liquidity of $953 million. In addition, we relaunched our growth investment in the Blue Creek reserves in 2022, which we expect to create significant stockholder value. Now turning to our outlook and guidance for 2023. We believe we are well positioned to achieve our targets outlined in the outlook section of our earnings release. The achievement of these targets will be driven in part by the continuous improvements in performance at the McDufffie Terminal and in rail transportation to allow us to draw down our coal inventory in 2023 as we currently expect. We expect capital spending for the year to be an all-time record high as we continue the development of Blue Creek, complete the 4 North Portal and make final payments on the two sets of Longwall Shields.

In the future capital returns beyond those recently announced from excess cash flows will be at the discretion of the Board of Directors and subject to consideration of several factors, including business and market conditions, future financial performance and other strategic investment opportunities. I’ll now turn it back to Walt for his final comments.

Walter Scheller: Thanks, Dale. Before we move on to Q&A, I would like to make some final comments on our outlook for 2023. Overall, we are cautiously optimistic entering this year as some of the factors that impacted global steel and met coal demand last year will begin to subside and revert back to past norms while other factors may continue to linger longer than expected. The daily news headlines continue to proclaim the expectations of a coming global economic slowdown in 2023. We believe the Atlantic Basin customers will operate at reduced capacity levels in the first quarter while expecting some improvements in local steel demand. Also, we expect the steel price increases initiated toward the end of 2022 to establish a floor and more importantly, provide positive improvements for our customers’ margins.

In early January, rumors of a change in Chinese policy toward the import of Australian coals became true. This change is unfolding now and additional details may change our view. But for now, we do not see the reopening as materially disruptive. We believe changes in trade flows will occur over time as markets become more efficient. The recent changes in Chinese policies are encouraging with the government unveiling a comprehensive plan to support the property markets and guidelines for a gradual reversal of the strict Zero COVID policies. These measures, combined with other stimulus measures should lead to some recovery in Chinese steel demand in 2023. Offsetting the challenging economics in the U.S. and Europe, India has continued to demonstrate ongoing strength in steel production recently and may provide another bright spot to global weaknesses elsewhere.

We expect the year 2023 will be a significant turning point in the development of a world-class Blue Creek mine that will drive long-term stockholder value. As I said earlier, we started the construction of the slope, service shaft and ventilation shaft in 2022 and that work will continue in 2023. More importantly in 2023, we will begin groundbreaking for the larger infrastructure components, such as the new core preparation plant, Bathhouse of mine offices, overland belt conveyor and barge load out. We’re very excited to see the progress that will come this year as we expect to spend approximately $250 million on the project. We are extremely excited about this organic growth project, which will transform Warrior and allow us to build upon our proven track record of creating value for our stockholders.

As we previously indicated, we expect the first development tons from continuous miner units in the third quarter of 2024, with the longwall scheduled to start up in the second quarter of 2026. As I said earlier, there are expectations of a global economic slowdown in 2023, which could impact the short-term overall financial results of the company if those expectations play out as forecasted. However, since we have over $800 million of cash on hand and nearly $1 billion in total liquidity, we expect to continue the development of Blue Creek at a rapid pace despite the overall macroeconomic environment in 2023. With that, we’d like to open the call for questions. Operator?

Operator: And our first question here will come from Lucas Pipes with B. Riley Securities. Please go ahead.

Lucas Pipes: Thank you very much, operator, and good afternoon, everyone. My first question is on the cost guidance for 2023. And I wondered if you could add a little bit more color as to kind of the key drivers here to what extent is the first half of this year materially higher than the first half last year, right, with inflation really taking off over the course of last year. Is that a component? And then related to this, obviously, there’s still some terminal issues down in Mobile, if those issues you get resolved here in the short-term, could there be greater fixed cost absorption on the sales side so interested in the interplay there with cost and volumes? Thank you for your perspective.

Dale Boyles: Yes, thanks, Lucas. This is Dale. Yes, the cost guidance includes some incremental inflation this year on top of what we experienced last year. And as I noted, for the full year, we experienced about an additional $4 a ton of inflation. So we built in somewhat of a similar amount into 2023 because we’re not seeing any changes in that right now at this point. As we said in our prepared remarks, also the lead times on supplies and equipment continue to be quite long. And so, the security of some of those prices is costing a little more. So we’ve tried to protect ourselves with that, but that is one of the key drivers. And as I also said in my remarks, because we built up some of these inventories that were produced earlier in the year, those were at higher met coal prices.

So our transportation rates reset, but they haven’t reset to the lowest prices in the fourth quarter. So you have some lag effect still rolling over for a quarter until that inventories get down. So that’s part of it. We can get some good leverage as we move forward, depending upon how the operations at the port improve.

Lucas Pipes: Thank you.

Walter Scheller: At the port, our expectation is that they will – their performance will improve relatively quickly. It won’t get back up to what we consider to be optimal levels for a while. I don’t think. I think they have some big projects they have to work on, but I think they’ll get back to a reasonable operating level. And that shouldn’t – so we should see a decrease in inventory levels. That’s our expectation. And that should not have any impact on our cost.

Lucas Pipes: That’s helpful, thank you. And to kind of stay on the board side, can you, one, elaborate a little bit more on what exactly happened? And then two, in terms of the sales cadence throughout the year, I appreciate it’s early, but could you maybe walk us through maybe what’s reasonable for Q1 volume — sales volume wise Q2, obviously, back half of the year is pretty far out. And to the extent any long moves have an impact on this cadence as well I would appreciate that additional color? Thank you.

Walter Scheller: Okay, on the ports, it really is just a myriad of small maintenance issues that are plugging them, belt splicing the shot works at transfer points on their belt lines, they had the weather issues. And this all kind of — in my opinion is this all kind of really started back when they had to completely rebuild the two car dump last summer, I think that just started kind of a little bit of a cascading of problems at the port as they completed that project, and we’re very focused on that. I think some other things just kind of slipped past and now there’s a bit of attention that needs paid to that. And that project replacement of the – of that 2-car dump was pretty capitally intensive, and they have a budget as well. And I think that now we’re just going to have to work our way back to what we consider to be strong performance.

Dale Boyles: And as – as far the sales cadence, Lucas, I think we tried to build in to our guidance there for sales volume, taking down some of these inventories versus what we’re going to produce this year. And if you kind of take the midpoint and evenly put that over the quarters, you’re probably looking at an average of about 1.7, 1.75 per quarter. So we don’t want to get too far ahead of ourselves to say, look, we’re going to recover all this in the first quarter. As we said all last year, we thought we were going to get there every quarter, and we just didn’t get there. So while we’re seeing improvement and things down there, we don’t want to commit to anything higher than that at this point.

Lucas Pipes: Understood all right, well, I have more questions, I’ll turn it over for now. But thank you and continued best of luck.

Walter Scheller: Thanks, Lucas.

Operator: Our next question will come from Nathan Martin from The Benchmark Company. Please go ahead.

Nathan Martin: Yes, thank you. Good afternoon guys, congrats on the record year even despite some of those logistical challenges maybe just sticking with full year shipment guidance for a second up around 1 million tons at the low end. Obviously, hope we’re going to sell some of those inventory – some of that inventory based on the delta between production and sales guidance as well. But maybe can you walk us through kind of how you see the increase, which I think on the sales side, again, over 1 million tons on the production side looks over 300,000 tons or so at the midpoint, how you’re getting to those numbers? Thanks.

Walter Scheller: Well, I think, first of all, if you look at our production, the production is going to be pretty good for this year, 6.3 to 6.9 in that range. And we just leased this year with a strong production year of 6.3 I’m sorry. Yes, it was 6.3 million tons. So that’s the low end of our guidance. So if we do nothing different in ’23, we should be at that low end. And the fact that we’re trying to hire more people, get more boots on the ground to increase production that can get us to that upper end of that range.

Nathan Martin: Yes that actually lead me, so that’s what

Walter Scheller: Taking down the inventory, like you were saying, should get us to those sales guidance numbers.

Dale Boyles: Yes, when we look at the inventory levels, as we exited last year at 880,000 tons our expectation is the right level of inventory is sub 500,000 tons, somewhere between 350,000 and 500,000 tons is probably an optimal inventory level. So you can see we had at least 380,000 tons of excess inventory that we expect to work off.

Nathan Martin: That’s very helpful guys. And then I wanted to touch too on the labor situation. I think you said in your prepared remarks, you added about 140 line workers in ’22 build, it sounds like you’re still looking to grow that number just to kind of confirm that. And then just any updates on the efforts there given the tight market?

Walter Scheller: Yes, we continue to hire people on a monthly basis and train them and get them to work. Now naturally, a lot of these people that we’re hiring right now are in experience. So it takes time for them to get up to speed and be able to do some of the jobs like running equipment, but we’ll continue to hire. There’s a lot of opportunity if we can continue to get folks in at the rate we were able to hire last year and we’ll continue to hire at that rate. As far as the labor situation with the UMWA, we continue to negotiate in good faith, but there hasn’t been an awful lot of headway made.

Nathan Martin: Got it appreciate that Walt. I mean kind of going back maybe real quickly to the full year cost guidance. I appreciate the earlier comments. Additionally, just curious what met prices are you guys assuming in that range?

Walter Scheller: We’re just a little over $200 million for the year.

Nathan Martin: Okay. And does that kind of get you to that midpoint of that cost per ton range still? I think that’s a little bit wider than you guys usually get to that $109 million to $125 million range.

Walter Scheller: That’s correct. Yes, the midpoint.

Nathan Martin: Okay, perfect. And then just want to make sure I heard this correctly, too. Looking at the breakdown of growth CapEx for the year, the $325 million to $345 million, I think you guys said in the prepared remarks, $250 million of that was Blue Creek, but maybe just to make sure, can you break out Blue Creek versus spending on the longwall shields in the 4 North portal?

Dale Boyles: That’s correct about $250 million of Blue Creek for the year.

Nathan Martin: Okay and then just the balance mainly on those two other items?

Dale Boyles: Yes, the shields are roughly 55 – 52 to 55 and then the rest of it is finishing in 4 North portal.

Nathan Martin: Perfect, all right. I’ll leave it there very helpful guys. Appreciate the time and best of luck in ’23.

Walter Scheller: Thank you.

Dale Boyles: Thank you.

Operator: Our next question will come from David Gagliano with BMO Capital Markets. Please go ahead.

David Gagliano: Hi thanks for taking my questions. A lot of them have already been asked. I just wanted a quick follow-up on the last question. On the other discretionary spending, obviously, longwall shields and potentially 4 North Portal. As you go into ’24, is there any meaningful incremental other discretionary spending aside from obviously Blue Creek, which has already been laid out?

Walter Scheller: This should be a very small amount. We’re putting a bunker in at the 4 North portal and that bunker is set to come online in the first quarter of ’24. So there will be a little maybe $5 million or so on that project. And so I can’t say we won’t find other projects we want to do. But right now that would be the only one that I’m aware of that would be – we would categorize as discretionary.

David Gagliano: Okay, okay that’s helpful. And then just switching gears a little bit, we’ve seen some restarts, obviously, in Europe in terms of the blast furnaces. And I was just wondering if you could comment a little bit on the – I know there were some commentary in the prepared remarks. I was wondering if you could comment a little bit further on any recent change. Obviously, your volumes are committed, but just curious about the customer activity in recent weeks?

Walter Scheller: What we’ve seen is very strong customer demand. We’ve seen customers ask for additional tons, additional vessels here and there, a few additional vessels. So we’re seeing very robust demand out of our traditional customer base.

David Gagliano: Okay. That’s it, it’s helpful. Thanks.

Walter Scheller: Thank you.

Operator: Our next question is a follow-up from Lucas Pipes with B. Riley Securities. Please go ahead.

Lucas Pipes: Thank you very for taking my follow-up question. The first one is also a market-related question. Aussie pricing pulled well ahead of Atlantic price. First, I believe that is ultimately benefiting you because you – well, you’re selling under the Aussie price, so you’re benefiting from that strength. If you could just comment on that and then related, what do you think is driving those spreads? And any views on how sustainable they are at these levels? Thank you.

Walter Scheller: I just don’t think there’s been a lot of additional supply, come online. I think that’s driving it more than anything else. And I think when you look at – and I think I mentioned it in my comments that if you look at last year, it was – one of the best is the best market for met coal ever. And from a supply standpoint, there was very little, if any, incremental supply, come online. There’s, reports of some additional problems a few of the Australian operations going into this year. I think when you look at the growth model for what’s expected in India, India is going to have a very high demand level. You’re going to have China coming back into the market, that’s going to cause — that’s just going to redistribute where the coal goes.

But I just think it’s going to continue to be a very strong market. And I think the Chinese coming back in is helping to influence that market. And again, I think the other thing that’s allowing the market to stay firm right now are some of the price increases our customers were able to get for steel toward the end of the year last year.

Lucas Pipes: And is the strength in the Australian price pulling more of your cargoes into the Asian market already?

Walter Scheller: No, it’s a pretty traditional number in the low 20% range, somewhere there. We may have a quarter here or there where we find a few spot vessels and ship some spot vessels out. So we may have a quarter or two where that will be impacted. But I think overall, it will be pretty traditional for us in terms of a 20%, 22% into Asia, 50% or so into Europe and the remainder into South America?

Lucas Pipes: That’s helpful. And then turning to Blue Creek for a moment, can you comment on the nature of the contract with the general contractor a key contractor? Are there pass-through provisions for some of these inflationary pressures that we’re seeing, for example, raw materials, price protected for you? Any views on that? And then in terms of the project development with labor generally still being tight across the economy, any view on potential impacts there? I know it’s early, but curious to hear your thoughts. Thank you.

Walter Scheller: So on the contract side, a lot of the key large contracts, as we noted in our prepared remarks, will be entered into this year and started, Lucas. So it’s still speculation on what those prices are. Some may have provisions for pass-throughs, others won’t because we’re basically digging holes in the ground this past year. And now this year, we’re in the negotiations for the prep plant, the overland conveyor belt, the barge load out, all the big chunks of capital. So we’ll have a better update on total CapEx expense later this year, hopefully, once we get into those — get those project contracts signed those particular ones because there are various contractors doing different parts so that we can accelerate and get this project done as soon as possible.

Dale Boyles: The labor situation for our contractor seems to be pretty manageable. We haven’t had any delays based on labor shortages. As we look at the mine from our standpoint, and we begin running continuous miner units there, probably in the third quarter of next year, we’ll be growing that workforce kind of in fits and starts, but there will probably be each quarter, there will probably be 30 or 40 people at least that are added to that workforce. I think we’ll be able to manage that pretty well.

Lucas Pipes: That’s very helpful. I appreciate the additional color and again, best of luck.

Walter Scheller: Thank you.

Dale Boyles: Thanks.

Operator: And our next question will be a follow-up from David Gagliano with BMO Capital Markets. Please go ahead.

David Gagliano: Hi, I just — may have already been asked, but I apologize if it has. I just had a quick question on the cash cost guide for 2023. The price assumption embedded in the cash cost and the — a $10 change in the price is about how much of a change in the cash costs?

Dale Boyles: Yes. We said earlier that our midpoint of our cost guidance is roughly $200 index price for the year. And then we’ve also built in some additional inflation into ’23 as well.

David Gagliano: Okay. And then just the second part of that, like every $10 change in that price is about how much has changed in the cash cost?

Dale Boyles: I don’t really have that handy, David. We don’t kind of track it that closely. We’re looking more at the factors individually. And hopefully, some of this inflation will turn around. That’s been a big driver this year, but maybe we can get that to slow down.

David Gagliano: Okay. Thanks.

Walter Scheller: Thank you.

Operator: At this time, there are no further questions. I will now turn the call back over to Mr. Scheller for any comments.

Walter Scheller: That concludes our call this afternoon. Thank you again for joining us today, and we appreciate your interest in Warrior Met Coal.

Operator: Thank you. And that concludes today’s conference. Thank you all for participating. You may now disconnect your lines.