SunCoke Energy, Inc. Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Reached an agreement with the U.S. Department of Labor regarding legacy federal black lung liabilities: paid $36 million, eliminated $45.5 million in accrued liabilities, and recognized a $9.5 million pre-tax gain.
• Extended the Granite City coke supply agreement with U.S. Steel to June 30, 2025 (with an option for an additional six-month extension), which is part of the GPI project.
• Signed a three-year barge-to-rail coal handling agreement at the KRT Logistics facility, with a $12 million expansion project to increase barge unloading capacity from 2 million tons per year to 5 million tons per year, expected to be completed in Q2 2025.
• Ended the third quarter with a cash balance of $164.7 million, a fully undrawn revolver of $350 million, and net cash provided by operating activities of $107.2 million.
• Emphasized strong safety and environmental performance, having sold out non-contracted coke for 2024, and focusing on executing operating and capital plans for full utilization of cokemaking assets.
• The GPI project remains a top priority, with strong fundamentals unchanged while working toward a final agreement.

Segment Performance

• Domestic Coke: Third quarter domestic coke adjusted EBITDA was $58.1 million with coke sales volumes of 1,027 tons. Due to lower coal-to-coke yields on long-term take-or-pay contracts and Hurricane Helene impacts, full year domestic coke adjusted EBITDA guidance is revised to $230 million to $235 million from the prior range of $238 million to $245 million.
• Logistics: Third quarter Logistics adjusted EBITDA was $13.7 million (compared to $8.4 million in the prior year). Full year Logistics adjusted EBITDA guidance is increased to $47 million to $52 million. Full year total logistics volume guidance is approximately 22 million tons, with CMT handling approximately 8 million tons and domestic terminals handling approximately 14 million tons.

Guidance

• Full year consolidated adjusted EBITDA is expected to be between $260 million to $270 million, primarily driven by favorable logistics performance and the gain from the black lung liability extinguishment.
• Domestic coke adjusted EBITDA guidance is revised to $230 million to $235 million from the prior range of $238 million to $245 million.
• Logistics adjusted EBITDA guidance is increased to $47 million to $52 million, and total logistics volume guidance is increased to approximately 22 million tons.

Risks

• No specific risks explicitly discussed in the transcript beyond general mentions of monitoring market conditions and operational factors.

Question and Answer

Q: On the extension of the Granite City supply agreement, where is the material going?

A: Katherine Gates states that the coke is being sold to U.S. Steel.

Q: Should we think about the extension of the Granite City supply agreement having any relation to the progress of the GPI project, or are they completely separate?

A: Katherine Gates replies that the extension is part of the GPI project, bridging the period while working toward a final GPI agreement.

Q: Could you expand on the $12 million expansion project at KRT Logistics, specifically regarding geographies or customers targeted?

A: Katherine Gates mentions that the company is constantly looking for new business at its logistics terminals and coke plants, and the $12 million project expands barge-to-rail unloading capacity to handle more volume, building on existing business at KRT.