Warrior Met Coal, Inc. Q2 FY2025 earnings call

• Operational results: Delivered strong operational results, maintained positive cash margins and generated positive operating cash flows. - Blue Creek update: Accelerated the Blue Creek longwall startup to early Q1 2026, achieved first commercial sales of steelmaking coal from Blue Creek ahead of schedule. - Market conditions: Markets under significant pressure due to excess Chinese steel exports, lackluster global steel demand, and a well-supplied steelmaking coal market. - Pricing impact: Average premium low-vol steelmaking coal index prices declined, with PLV FOB Australia staying above first quarter lows but second-tier indices reaching year-to-date lows. - CapEx: Spent $94 million on CapEx and mine development in Q2, with Blue Creek development costs below budget.

In the second quarter of 2025, Warrior's sales volume was 2.2 million short tons, a 6% increase from the same quarter last year. Production volume was 2.3 million short tons, also up 6% year-over-year. Total revenues were $298 million, down from $397 million in the second quarter of 2024. Average premium low-vol steelmaking coal index prices declined 24% compared to Q2 2024. The PLV FOB Australia averaged $167 per short ton. The company achieved first commercial sales of steelmaking coal from Blue Creek, with the longwall startup accelerated to early first quarter 2026. Blue Creek contributed 239,000 tons of sales in Q2, and the project's capital expenditures to date total $823 million, remaining on budget. Revenue contribution: Asia accounted for 52% of sales, Europe 37%, and South America 11%.

• Full year 2025 guidance updated to reflect challenging market conditions. - Blue Creek longwall startup accelerated to early Q1 2026. - The One Big Beautiful Bill Act is expected to positively impact Warrior, including tax credit benefits for metallurgical coal.

• Market weakness: Continued pressure from excess Chinese steel exports, weak global steel demand, and a well-supplied steelmaking coal market. - Pricing volatility: Fluctuations in steelmaking coal indices and arbitrage issues between Australian FOB and China CFR indices. - Uncertainty: Uncertainty in global trade and tariffs, which could impact seaborne pricing.

Q: Congratulations on such a strong quarter and for the pull forward of Blue Creek. My first question, your updated cost guidance of $110 to $120 per ton, despite a downward revision, I think, still implies that costs would be towards the higher end of that range in the second half to reach the midpoint. To me, this seems somewhat unlikely based on the strong performance year-to-date. So my question is, how should we think about cost cadence between here and the end of the year?

A: Nick, thanks for the question. Yes, it's to account for -- we had a strong quarter where we really managed our costs. But as I said in my prepared remarks, look, things happen and you got to plan for those. So we have planned for that in the back half that it may happen. But we're going to continue to tightly manage all of our costs and have the mines perform at their optimal capacity. But we're also just planning for things to swing the other way. You have things break and you have to repair them. So we're averaging year-to-date about $107 a ton, which is near the bottom end of our year -- full year guidance. So plan for just a little upside -- I'm sorry, a little downside on the rest of the year.

Q: Congratulations on such a strong quarter and for the pull forward of Blue Creek. My second question was with Brazilian tariffs being implemented, I believe that market has historically been around 20% of volumes. How should we think about the potential for diversion? And which markets would you favor if there was a need for diversion? And how could that impact realizations?

A: This is Walt. I think what's really going on is, it's the additional high vol A tons that are coming into the market that typically do not flow into South America. South America was a larger part of our market when we were moving more of a mid-vol product out of Mine 4 down into South America. And now that's a high vol. So we saw some coal flowing there, but not what used to. And if you back out the Blue Creek tons, we're probably at about the same level in terms of the number of tons going to South America. It's just on a percentage basis, the number has dropped down. And I think that will pretty much continue. And as we've said before, the high vol A tons right now, especially are moving heavily into Asia.

Q: Can I ask about Blue Creek, please? So well done firstly on bringing this forward. That's a clear win. I have 2 questions here. Just firstly, on costs. I'm looking back at the Blue Creek project update from February. Your cash cost of sales guidance here was $90 to $105 a short ton. Can I ask where does that sit firstly today in light of the pretty good Q2 cash performance as well? And is there potential for this to go lower? And how much of that is dependent on the denominator getting to 6 million tons?

A: Yes. Well, thanks, George. That guidance was based on a PLV price of $2.50 with a price relativity to that's closer to the 10-year average, which is not where we are today. So that's going to be a little higher than where we are today. And we're just coming out of the gate just ramping up. So I don't want to really give you a separate number for Blue Creek other than it positively impacted the quarter as we start to ramp. The full benefit of that will be seen next year when the longwall comes up. And we haven't -- we don't have all this cost in there yet.

Q: So, Dale, just a quick on the cost. Can you just remind us the cost base, roughly how much is variable versus fixed and also maybe as well as royalties, how to best think about what sort of percent of the variable cost base that's averaged through cycles?

A: Yes, George, I would just suggest looking at the percentages we provide in our press release, cost of production, 67% year-to-date. Transportation royalties 1/3 of our cash cost. We don't go into the variability. We can't get into that detail of the transportation royalties.