Core Natural Resources, Inc. Q4 FY2024 earnings call

• Strong start post-merger: Core has made progress in integrating operations, announced $1 billion share repurchase authorization, and locked in ~one-third of indicated synergies. - Capital return framework: Targets 75% of free cash flow to shareholders, heavily weighted towards share repurchases with a small quarterly dividend. - Synergy capture: Already executed strategies yielding over $40 million in synergies, with focus on marketing, blending, transportation, and eliminating overlapping corporate positions. - Leer South progress: Resumed development work with continuous miners in just over a month, still expects to resume longwall mining by mid-year. - Global coal market dynamics: Soft pricing in metallurgical and high cal value thermal coals, but Core has strong committed positions; U.S. domestic thermal market tightened due to cold weather.

The company has three main product segments. The Metallurgical segment is introducing annual coking sales tonnage of 7.5 million to 8 million tons, with committed tons priced at an average of $135.82 per ton sold and an average cash cost of coal sold ranging from $96 to $100 per ton. The High-CV Thermal segment is expecting 29 million to 31 million sales tons, approximately 80% contracted at the midpoint of a projected price range of $61 to $63 per ton, with an average cash cost of coal sold of $38 to $40 per ton. The PRB segment has approximately 37 million tons contracted and priced at an average coal revenue of approximately $14.78 per ton, with an average cash cost of coal sold per ton ranging from $13.75 to $14.25.

• High-CV Thermal: 29-31 million sales tons, ~80% contracted at $61-$63 per ton, average cash cost $38-$40 per ton. - Metallurgical: 7.5-8 million tons coking sales, committed tons priced at $135.82 per ton, cash cost $96-$100 per ton (lower in second half of 2025). - PRB: ~37 million tons contracted, average coal revenue ~$14.78 per ton, cash cost $13.75-$14.25 per ton. - 2025 cash-based SG&A: $110-125 million, expected to decrease to ~$90 million when synergies are fully realized. - 2025 capex: $300-330 million. - Merger-related cash outflow: ~$100 million for expenses incurred before and after merger closing.

• Uncertainties in global coal markets affecting pricing. - Impact of Chinese tariffs on U.S. coal imports, which can disrupt trade flows. - Leer South combustion event initially impaired near-term cash flow and poses operational risks if not managed properly.

Q: Starting within the coking coal segment, guidance sales of 7.5 million to 8 million tons. Could you guys give us any approximation of quality mix today after the combined companies? Or is there a capture rate maybe versus the LC benchmark price that you guys are targeting?

A: On the mix, about 2 million tons of Low-Vol product, ~1 million tons of High-Vol B, and the balance will be Leer High-Vol A product. Of the 6.6 million tons sold, about 1.5 million is domestic, 5.1 million is export. What we have sold today is 1.2 million tons of Low-Vol, 4.4 million tons of High-Vol A and about 1 million tons of High-Vol B. So that gives us ~1 million to 1.5 million tons left to sell this year.

Q: Maybe while I have you, too, could we get a breakdown of the committed and priced high CV thermal tons between export, domestic, et cetera?

A: Of the 24.6 million, about 21.6 million of it is PAMC coal. In that 21.6 million, 4.2 million tons is linked to API-2. And we have about 2.5 million tons linked to power, our power netback contracts. And the balance, our 3 million tons is our West Elk product. About 2.4 million is fixed price, and the balance is about 600,000 tons that is all priced against the Newcastle index. And the breakdown in total is 13 million is domestic and 11.6 million is export.

Q: Taking a step back, guys. I don't really know, Paul, if you made direct comments on this in your prepared remarks or not, if I did, I apologize. But be great to get your thoughts on how this current Chinese tariff on U.S. coal imports is impacting your business or how it could potentially impact your business? How many tons the combined companies sell into China in 2024? And then – are you assuming any of your current guidance?

A: At the time that the tariff was announced, Core had about eight vessels on the water, one which was Leer and the balance were PAMC. We do know of one or two PAMC cargoes being taken to China still, the balance have been diverted. Some have been diverted to India. We had one diverted to Egypt, one to Vietnam. But I will tell you that the domestic market is where the bright spot is. January power prices came in at over $66. We're seeing some high power prices here in February. Inventories, as Paul mentioned, in some cases, have been into critical type levels. And the team continues to receive calls almost on a daily basis for some additional loadings for Q1 and for the back half of the year for that matter. So although the tariff situation certainly moved the trade around, I will tell you that there's certainly enough demand out there today to cover the volumes that we were moving to China last year.

Q: Just one final one, coming back to the high CV thermal segment. Your price per ton and you're committed 24 million tons at $61 to $63. What API-2 price does that assume? And is there any sensitivity we should keep in line?

A: I think two things, we're assuming right around $110 API-2 price. The sensitivity is about $0.13 per ton across the entire segment. But I also mentioned to you that we have our power netbacks modeled at the floor. So in January alone, there was about an $8 million uplift there and February, it looks like we'll receive EMA again. So when we put the pieces together, we kind of looked at, okay, what's kind of like our worst case, best case, and that's why we came with a range of $61 to $63.

Q: Wanted to start on the met cost side, targeting low 90s as you resume long-haul mining in the second half. Should we think about this as a normalized target level going forward? Or could there be some additional improvement, whether from a synergy perspective or just returning to steady state?

A: Look, I think the low 90s is on the back half of the year is a number that we felt pretty comfortable with. But I'd tell you the last couple of weeks as we've gone through this, as we've gone through combining the teams, I think as I mentioned in my earlier comments, I think there are some additional synergies that we haven't picked up and there's things that we're learning from each other, particularly on the longwalls that I think will apply to both the legacy companies' operations. I feel fairly confident about where these things are going, and it's off to a good start. From a procurement standpoint, prior to the merger of the two companies, there's limited amount of information that we can share. So with that in out of the way now. I think that pocket of the synergy is just starting to pick up. So as we go through that, I think the 2026 run rate would be interesting to see. But back half of 2025 is a good starting point, and hopefully, we can do better from there.

Q: It's nice to see a successful reentry at Leer South. And you've maintained your guidance of resuming longwall mining by midyear and was curious to what extent this might be an added level of conservatism or maybe said differently, would a resumption by midyear be more reflective at the midpoint or the low end of guidance?

A: Yes. Look, I guess I want to start off with really complementing the teams from the actions they took as well as the assistance we received from the state and federal officials. They did a great job not only protecting the people, but they also did an amazing job. It looks like keeping the mine intact. When we first gave our guidance on January 14 through 15, about it's going to be, typically, it's about three months to get in and typically about six months get the longwall restarted. That was based on not only our own experiences over the years on these things and what we've seen others do in the last couple of years. The team in the end, did an amazing job getting the first part of this done, which was to seal the small area behind the longwall that was – where the combustion event occurred. Because of that, we got it seal quickly, and it appears we minimized any damage to a large extent. We were able to get the CM started back up Monday, which was an amazing accomplishment. As we look forward, what I wanted to do was keep our guidance midyear simply because I know these things take the life of their own and they have – these aren't straight-line paths. Right now, things are lining up well. I feel good about where the mine is. But there's no sense say we're ready to go a lot faster than we will be. We need to be methodical and get this done, and we need to be prepared when we start back up on the things that we're going to do to try and prevent anything like this in the future.

Q: In the release, you noted an expectation for excess cash available for shareholder returns. And I was wondering if you could speak to potential magnitude or appetite to take advantage of the weakness here? And maybe related, how should we think about a minimum cash balance given the larger platform?

A: So Nick, on the cash front, we target to keep net cash on hand given the outage at Leer and weak commodity price backdrop. But approximately $200 million of debt on our balance sheet and any additional cash beyond our debt and reserves for short-term working capital events such as Leer South will be available for deployment. And we recognize that our shareholders have been patient through the merger process. So we'll take this pullback in our equity to put that cash to work. We'll fine-tune this further as we see improvement and progress on Leer South and commodity prices. The good news is that our thermal assets are generating free cash flow right now, which is one of the key strategic rationale for this merger. We have a solid base of revenue through our thermal contracted book. So while maintaining the potential to have the upside pricing volatility on the met market. So I think we'll be methodical about it, but we will put some of that cash to work.