Arch Resources Inc (ARCH) 2013 Q2 法說會逐字稿

Good day, everyone and welcome to this Arch Coal Incorporated second-quarter 2013 earnings release conference call. Today's call is being recorded. At this time, I would like to turn the call over to Jennifer Beatty, Vice President of Investor Relations. Please go ahead.

Good morning from St. Louis. Thanks for joining us today.

Before we begin, let me remind you that certain statements made during this call, including statements relating it our expected future business and financial performance, may be considered forward-looking statements according to the Private Securities Litigation Reform Act. Forward-looking statements by their nature address matters that are to different degrees uncertain. These uncertainties, which are described in more detail in the annual and quarterly reports that we file with the SEC may cause our actual future results to be materially different than those expressed in our forward-looking statements. We do not undertake to update a forward-looking statement, whether as a result of new information, future events or otherwise, expect as may be required by law.

I'd also like to remind you can find a reconciliation of the non-GAAP financial measures that we plan to discuss this morning at the end of our press conference, a copy of which we have posted in the investor section on our website at www.Archcoal.com. On the call this morning we have John Eaves, Arch's President and CEO; Paul Lang, Arch's Executive Vice President and COO and John Drexler, our Senior Vice President and CFO. John, Paul and John will begin the call with some brief formal remarks and thereafter, we will be happy to take your questions. John?

Good morning, everyone. I would like to briefly highlight some milestones that Arch has achieved thus far in 2013 and provide an update on our outlook for the back half of the year. During the second quarter we generated over $110 million of EBITDA, which was 32% higher than what we earned in the first quarter. Our operations continue to turn in solid performances in terms of mine safety, environmental compliance and operational efficiency. In fact, our strong cost control in the first half of the year has allowed us to lower our full-year 2013 cost expectations again this quarter.

Beyond cost control, we are also reining in capital spending. Our overall spending this year was more heavily weighted to the first half and we remain committed to preserving capital in light of the current market conditions. That's why we are again lowering our capital expenditure levels for the full year 2013. More importantly, we expect capital spending to decrease next year as the Leer mine moves into production and after Canyon Fuel sale is completed. Even with a near-term cautious outlook on global coal markets, we are confident that better days are ahead and we are pleased with the success we have had in managing what we can control. We are taking the right steps to weather this downturn and as prices improve, we are well positioned for the market rebound.

Another area of focus for Arch has been the non-core asset sales, and we have executed on this front with the announced sale of Canyon Fuel in June. This transaction was a result of an ongoing process to identify assets within Arch's portfolio that didn't fit into our longer-term strategic growth plans. We are pleased with the value this transaction will provide us and believe the sale puts Arch in a strong position for an evolving domestic coal marketplace. While our Utah mines have created value for shareholders over the year, particularly since we increased our percentage ownership in those assets to 100% in 2004, we do not view these mines as core to our strategic positioning and thus, are monetizing those assets now to bring forward incremental value.

This sale will also save us north of $200 million in CapEx and OpEx over the next four years. What's more, the $435 million in proceeds expected from the sale accelerates multiple years of cash flows and puts it on our balance sheet today. This incremental boost in liquidity in the near-term is a bonus, and we will enhance our ability to delever the balance sheet over time when market conditions turn more favorable. We remain on track to close the transaction in the third quarter. I'd like to extend my gratitude to the out Utah employees for their contributions in the areas of safety, stewardship and performance. We want to provide the most seamless transition possible for them. At the same time, we are running Canyon Fuel as we normally would until the sale is final. Thus, we will continue to report our key metrics with Utah included, and we will refrain from providing further commentary until the sale is completed.

Now, turning to our outlook for Coal. This divestiture allows Arch to concentrate our efforts on the most valuable enhancing parts of our business going forward. Those include a strong PRB franchise, a growing metallurgical platform and a larger footprint in Illinois and seaborne coal trade. On the domestic thermal front, we believe we are in the early stages of a multi-year recovery are for PRB. Natural gas prices are less of a head wind. Weather has normalized to some extent, and power demand is up. Coal has gained ground in the electric generation market. US production is down and coal stockpiles at PRB served plants are on the decline. In fact, we believe the summer burn season will drive days of supply at PRB customers down to below the five-year average. This trend is a significant turnaround from where we were just a year ago and is leading to increased customer interest in securing [tons].

In the near-term, increased PRB demand is allowing us to run our mines more efficiently, even while a portion of our equipment fleet is idle. Over time, we believe that we will see even further improvement in PRB markets, which should allow Arch to capture upside through both volume and price recovery. In addition, the long-term opportunity of moving PRB tons into Asia creates a compelling value proposition for Arch. That's why we continue to pursue port opportunities off the West Coast. In fact, the Army Corps of Engineers recently stated it will limit the scope of its environmental assessment of proposed coal export facilities to the projects themselves, which is positive for Millennium Bulk Terminal and all the export businesses that provide economic benefits to the communities along the West Coast. At the same time, we expect a multi-year process to bring MBT online with many milestones to be reached along the way, but we're making progress. In the meantime, we are shipping limited volumes out of Ridley to develop a customer base for PRB and will continue to pursue other options to expand our export opportunities for our western coals. Overall, a rebound in domestic coal markets coupled with a growing and vibrant export market for PRB should unlock further value for our assets and Company over time.

Turning to the build-out of our metallurgical coal platform, we continue to optimize our asset base in Appalachia by consolidating equipment and manpower into complexes that have a competitive cost and quality advantage in the market. We are idling higher cost met mines, at the same time developing world class met property at Leer. Our Appalachian platform represents one of the lowest cost operating profiles in the region, and our mix of metallurgical assets can provide superior returns going forward, not to mention the optionality of further organic growth on the Tygart Valley reserves.

We believe the inherent value of our met assets and reserves will become even more apparent over time. However, we are clearly cognizant of the market in which we are operating in today. While met coal demand remains relatively stable, driven in part by solid utilization rates at US steel mills, prices were muted and supply rationalization to date has not sufficient to balance the market. Late last year we idled several met mines, and during the second quarter of 2013, we shuttered two contract mines at Cumberland River. These curtailments have reduced our overall met coal capacity by approximately 2 million tons annualized. In addition, we have elected to slow the startup of Leer's longwall until later in the fourth quarter. We continue to feed development tons into the marketplace with good success, as Paul will discuss, but we won't expect orders for larger volumes to kick in until the start of the year as the traditional contracting season is just getting underway.

While current market dynamics have led to our decision to reduce our met coal sales expectations for 2013, we are confident that the global met coal supply and capital spending for met coal projects are in the process of significant rationalization which sets the stage for recovery. We are also confident we have some very strong met assets under our roof that can compete in the global marketplace during weak periods and that can shine in stronger markets.

Lastly, Arch expects to grow its footprint in Illinois and in the seaborne trade over time with good quality, cost competitive and strategically positioned assets. We have low cost thermal coal assets and reserves in each key basin that can be major players in the domestic and export markets. We are also securing transportation options, building our export access and expanding our offices overseas. We are doing all these things for diversification, for growth potential and more importantly, for enhancing future returns on our capital employed and we are excited about our long-term strategy. With that, I will turn the call over to our COO, Paul Lang, for a discussion of Arch's sales and operating performance. Paul?

Thanks, John. During the second quarter of 2013, we successfully expanded our consolidated operating margin per ton, largely driven by our ability to control costs. Our focus on cost control across the operating platform has resulted in margin expansion in the first half of 2013 and helped reduce our cost guidance for all operating regions for the full year. That cost reduction is occurring even though we are running at lower volumes than we have historically. In a commodity-based business we are always evaluating ways in which we can further reduce our costs, but in a downturn such as this one, our focus has become even sharper. In particular, our dedication to process improvement initiatives over the years has provided Arch with many best practices to improve the operational efficiencies at our mines.

In the Powder River Basin, the mines have built upon their strong first quarter cost performances through these initiatives. As just one example, we're now using diesel emission profiles on haul trucks to help establish predictive maintenance schedules. This emissions-based maintenance program has allowed us to achieve maximum performance on equipment while reducing fuel consumption, as well as wear and tear on the trucks. With this, we have been successful in reducing unplanned maintenance costs and associated downtime, as well as extending the useful life of equipment. All of these things are positively impacting our bottom line today and will deliver capital savings in the future. In addition, we're testing different blends of explosives in the Powder River Basin and we have been experimenting with our blasting techniques for several years now in order to save on raw material costs. The value of these types of programs is significant when you consider that explosives and diesel account for roughly 20% of our cash operating cost in the region. So far in 2013, our efforts have reduced our consumable costs by 5%. More importantly, we expect to maintain these cost savings during the next market rebound.

In Appalachia, we have successfully redeployed equipment and personnel from idled operations into active ones, which has helped reduce our maintenance expense, improve mine productivity, and lower future capital needs. These efforts have contributed to a 2% decline in cash cost for the region in the second quarter over the first and a 5% decline over last year. That's even though we're running 20% lower volume levels than we did in 2012.

In other operating regions, our cost performance in the second quarter were all better than expectations. Beyond our successful cost control efforts, we're benefiting from previous recapitalizations of mines such as West Elk in Colorado and Viper in Illinois, and expect those operations to be well positioned for the future. With this collection -- with this collective success we have lowered our cash cost per ton guidance across all operating regions for the full year.

Turning now to our coal market outlook, I'd like to highlight our sales performance. In the Powder River Basin, sales were up slightly in the second quarter compared to the first quarter as customer shipments increased against a backdrop of favorable spring weather and higher competing fuel prices. During the quarter, we placed some new business for 8800 BTU coal to domestic and export customers and priced some of our previously committed tons for the year. Our sales position is now essentially sold out for 2013. For 2014, 80% of our new sales made during the quarter reflect higher margin 8800 BTU tons with the balance representing 8400 BTU coal. To date we have locked in a mix of sales for 2014 with 75% or so our volume committed based on 2013 run rates. This will allow our operations to run efficiently in the Powder River Basin while still maintaining meaningful upside with uncommitted volumes in an improving market.

Anecdotally, we are seeing increased interest by customers to supplement their current needs and the desire to build out requirements into the future. We have signed multiple agreements with customers, some of which extend through 2018. In other regions, we're seeing pockets of opportunity in the industrial and utility markets on a plant-specific basis. We are also fielding interest from overseas customers, although current prices make those sales more challenging. Yet we are still finding success in certain markets, particularly Europe, which has turned increasingly to the US for its coking and thermal coal needs.

Turning to the metallurgical side of the business, we shipped 2.1 million tons of coking coal at an average price of $88 per ton in the second quarter with about two-thirds of the sales mix representing high-vol B and PCI coal. Overall, our metallurgical shipments in the second quarter improved as shipping lanes across the Great Lakes opened up and Canadian customers took their tons. To date, we have committed 7 million tons of metallurgical coal and we are now forecasting total coking and PCI sales of around 8 million tons for 2013. The new range reflects the startup of the Leer longwall later in the fourth quarter and the idling of metallurgical contract mines during the second quarter.

Over the past three months, we have continued to advance the Leer project. From an engineering perspective, we now have all the major infrastructure in operation, including the preparation plant, rail load out and conveyor systems. The longwall equipment is on site and the continuous miners are working methodically to develop the longwall panels. From a sales standpoint, our customer tests are complete or nearing completion. These targeted customers include a diverse base stretching from North and South America to Europe and Asia. The ongoing feedback we are receiving has been positive and the introduction of the product into the world market has gone very well.

The value proposition we offer to customers with Leer production is a very cost competitive coking coal with strong quality attributes from a homogenous seam and an extensive reserve base that can be mined for decades to come. We expect to begin placing those tons in earnest for 2014 contracting season starting this fall, and we see no benefit given the current market conditions to push Leer into the market any sooner than necessary. With that, I'll turn the call over to John Drexler, Arch's CFO, to provide an update on our financial results and guidance. John?

Thank you, Paul. As John and Paul have discussed, the second quarter was a strong one from a cost control and capital discipline perspective. As expected, our free cash flow was negative for the quarter because we had higher than normal cash outflows due to the timing of our annual $60 million payment for the South Hilight LBA. Additionally, we had our scheduled semi-annual interest payments of $110 million due in the quarter. These cash outflows will not recur next quarter, and we would expect to generate positive free cash flow as result. Our internal projections also exclude any expected cash proceeds from the Canyon Fuel transaction.

Turning to our results, we generated over $110 million in EBITDA during the second quarter, which includes earnings from our Canyon Fuel subsidiary. As required under the accounting rules, we have presented our GAAP results with Canyon Fuel listed as discontinued operations as these assets were held for sale at the end of the quarter. However, as John mentioned in his prepared remarks, we are still running the Canyon Fuel operations, so our key metrics will include earnings from those mines through closing. After the transaction is completed, we will be looking at how our ongoing operations from a marketing and business perspective align going forward. We are also reviewing our reporting requirements and changes that could result from this transaction and will provide an update on our next quarterly call.

Turning now to our liquidity position, we finished the second quarter with cash and short-term investments of almost $900 million and total liquidity of roughly $1.2 billion. As a reminder, aside from our cash and investments, our liquidity includes borrowing capacity under our accounts receivable securitization program and our undrawn revolving credit facility. The revolving credit facility remains the only component of our liquidity and debt structure exposed to financial maintenance covenants. We have two covenants that apply to the revolver through the end of 2015 in the event we have borrowings under that facility. First, there is a minimum liquidity requirement of $450 million. Second, there is a senior secured leverage ratio that is calculated net of cash and investments. Based upon our current expectations, we remain comfortably in compliance with both of those covenants.

In addition to the strategic benefits that John discussed, the Canyon Fuel transaction will also enhance our liquidity. When the transaction closes, we expect to record a gain of $120 million to reflect the sale. This gain will be included in our EBITDA for the calculation of our financial maintenance covenants. In addition, after receiving $435 million in gross proceeds from the sale, we will have $1.3 billion of cash and $1.6 billion of liquidity available on a pro forma basis. When the transaction is complete, our immediate view is to prudently maintain that liquidity in the form of cash. However, as markets improve we will have additional flexibility with which to delever the balance sheet. We have many avenues to choose from and will do so opportunistically, ensuring that we make the best long-term decisions for our stakeholders.

Turning now to our expectations for full year 2013. We have provided updated guidance in our earnings release. Our success in containing costs has allowed us to reduce our cost expectations in each of our operating basins. In the Powder River Basin, we now expect cash costs in the range of $10.45 to $10.85 per ton, representing a reduction of $0.25 from the midpoint of our previous guidance. In Appalachia, we expect cash costs of $65.50 to $69.50 per ton, down $1.00 from the midpoint of our previous range. In the Western Bituminous region, we are now estimating cash costs between $24 and $26 per ton, a reduction of $1.00 from the top end of the previous range. This guidance includes our Canyon Fuel operations. And finally, in Illinois we expect cash costs to be in the range of $33.50 to $35 per ton, representing a reduction of $0.75 from the midpoint of the previous range. In addition, we expect to reduce capital spending by $20 million with the range now between $280 million and $310 million and DD&A now in the range of $480 million to $510 million.

With our current outlook and the expected impact of percentage depletion, we would continue to expect a tax benefit in the range of 30% to 50%. Our second quarter results and updated guidance demonstrate our ability to strategically navigate these current challenging conditions. When markets improve and with the proceeds from the Canyon Fuel sale, we will be in a strong position to delever the balance sheet and set the stage for future value creation for our stakeholders. With that, we are ready to take questions. Operator, I will turn the turn the call back to you.

Thank you.

(Operator Instructions)

We will take our first question from Holly Stewart with had Howard Weil.

Good morning, everyone.

Good morning, Holly.

John, just trying to reconcile the 2013 budget. Can you remind us, what is in the numbers for total CapEx for Leer? And then maybe try to get us a number on the Western Bituminous side. Just trying to think about maintenance type of levels for next year.

Yes, I'll start that out. We had roughly two -- we're showing about $295 million in CapEx our midpoint. About $100 million of that is Leer.

Yes, Holly, we should have that fully capitalized by the end of this year, and it will put us in very good position as we move into 2014.

And then any color on the Western Bit side? I was just assuming the $200 million that's coming out of the budget was related to Western, but now it sounds like all of that is still included in the guidance?

Holly, at the time of the Canyon Fuel transaction, we had indicated on a pro forma basis we expected about $20 million of CapEx over the course of 2013 for Canyon Fuel. That's for the full year. As we projected out further into outer years, that CapEx was expected to increase for Canyon Fuel. Part of the rationalization of why we were monetizing that. Hopefully that gives you some color. If you look at CapEx over the first half of the year, it's more heavily weighted to the first half because of the LBA payment that we made for $60 million. So, that's all what's included in the full-year guidance that we have reflected now with the midpoint of $295 million.

Holly, one of the drivers moving forward in the CSE transaction was the capital that we had to spend over the next four years to keep those mines producing at the current levels. It was north $200 million, which was mostly capital. A little bit of G&A savings, but for the most part, capital savings over the next 48 months or so.

Okay. And then maybe on my follow-up, just trying to get a sense, you guys mentioned the enquiries from overseas customers continued or has continued. So -- and then maybe last quarter you took a charge for throughput capacity at one of your terminals. Just trying to think about how you guys are handling the export market today. Did you take a charge this quarter that you didn't call out during the lease? Maybe just bigger picture, the international market from a thermal perspective?

Yes. Holly, this is John. We continue to build out our international customer base. We are pleased with the demand that we are seeing, particularly in Asia right now. Don't like the pricing, continue to evaluate those markets. We are still forecasting exports industry-wide plus 100 million tons. Our target for Arch for 2013 is about 12 million tons of exports. The LDs was a little bit less this quarter. Paul, you may want to touch on where we were on those.

Yes, Holly, this is Paul. We had minimal liquidated damages during the second quarter. As part of an ongoing evaluation, we continue to review our throughput contracts and our potential exposure. There could be additional payments through the year, but we were successful in the second quarter mitigating the costs.

Okay, great. Thanks, guys.

And we'll take our next question from Michael Dudas with Sterne, Agee.

John, out in the PRB, when you look at next year's open tonnage and what you have contracted, let's say in the second quarter and what you expect going forward, the blend of index versus real contract negotiations gives a sense of given where what we see in the trade rags a spot price, and how steep is the [contain go]? Are you able to get much better deals out in the future than you have on the near-term basis? Can you give us a sense of how that looks as we start to model in 2014?

Yes, Michael, we put to bed a lot of business during the second quarter to the tune of about 19 million tons, and we saw a lot of activity during the second quarter for 2014. I think we'll see how this plays out over the balance of the year. We think we're continuing to draw inventories. We think PRB customers are at kind of normalized inventory levels for what is normal today. That may be changing. But clearly, natural gas prices in that $3.40, $3.50 range. The fact that we continue to draw inventories, we think as we move further into the buying season for 2014 that we could see an improved market as we move into 2014. Based on our 2013 volumes, we're about 75% committed for 2014 right now.

So, we feel pretty good about where we are. We will have to see where this market goes. But you can see what putting some of those volumes to bed has done to our costs in 2013. We would expect to maintain that as we move into 2014.

Are index tons more or less expensive than negotiated tons in your portfolio?

The index tons pretty much move with the market. There is typically maybe a quarter lag in those tons. They are all a little bit different. They're driven by the publicly submitted indexes that we see out there.

Thanks. My follow-up, John, is in Appalachia. Received some pretty hard production cutbacks, thermal. We're starting to see it in met. How much more do you think comes out from a North American standpoint in this production rationalization? And obviously, you think it's going to continue pretty hard with mine shutdowns and layoffs and mine closures in Appalachia as we move through into 2014.

Michael, if you look at instant data through June 30, production industry-wide is down about 20 million tons. A big part of that is in cap, about 12 or 13 million tons. We think cap is going to continue to be under pressure. We think you will continue to see that transition away from the thermal market into the met market, and there will be further pressure on shut downs in terms of supply. You look at gas prices right now at $3.50. Central App thermal coal will not dispatch at $3.50 gas. We think PRB, Western Bit, even Illinois will do fine with gas prices on that level.

But as you have heard me say many times, we need somewhere between $4.50 and $5.00 gas to allow the thermal coal to dispatch. Our internal forecast for 2013 at Central App about 20, 21 million tons down over 2012. So, down and around that 128 million ton range for this year. And I think, quite frankly, from what we've seen first half, that may be high. So there might be more pressure on that the back half.

I appreciate that, John. Thank you.

Thanks, Michael.

And we'll take our next question from Mitesh Thakkar with FBR Capital Markets.

Good morning, guys.

Good morning.

Just a quick question on the utility demand trends a little bit. When you think -- you mentioned in your call that you have made some contracts which go through 2018. Is that a change which you are seeing versus last year when utilities were looking for much shorter contracting and how to think about pricing in general as far as PRB is concerned?

This is Paul. I'll start that. I think we have seen a couple customers, I think, wanting to lock in some volumes down the road, and my sense is it's maybe a little bit more than we've seen in the past. But I don't know that it's a huge sea change of the way people are going about things.

Okay. And when you think about your own contracting, you did a fair amount of contracting this quarter, and it looks like you're almost 80% sold out for next year. How do you think about closing the year out? Should we expect a lot more contracting to happen between now and the end of the year, maybe go 100% contracted this year?

I think our numbers actually are closer to 75% sold out next year based on 2013 run rates. And I feel pretty good about that position. I think we have a good sense of where the market is. The fact is, we're losing about as many bids as we're hitting on. So, I think we're having continuing success reducing costs. We're broadening our customer base and we plan to layer in more long-term deals. But sitting here at 25% right now, I think, uncommitted next year I think is pretty comfortable.

Mitesh, if you look at our position for 2014 right now, as Paul said, we are probably in better position than we have in many years in terms of our commitments, at the same time maintaining the ability for upside as we see that materialize in the market. We're real happy with where we sit today and where we're headed.

Great. Thank you very much, guys.

Thank you.

We'll take our next question from Brian Yu with Citi.

Great. Thanks. My first question is with the metallurgical coal reductions, can you parse out how much of that is related to the delay of Leer versus the contractor mine idlings?

Brian, I think it's a combination. We did some -- we closed three coal mines in the fourth quarter of 2012. In the second quarter of this year, we reduced some contract times at Cumberland River and then the slowdown of Leer by a month or two. All of that combined on an annualized basis was about 2 million ton reduction.

Okay. And then the second one is, once Leer is fully up and running, if you look at your 8 million ton guidance for this year, how much incremental will that contribute for 2014?

Well, we have said publicly that that mine will run full production basis about 3.5 million tons. A portion of that will be put into lower quality, kind of an off middling site product that generates -- that is generated through the metallurgical process. But 3.5 million tons at steady run rate is what we expect in 2014.

Okay. Great, thank you.

Thank you.

We'll take our next question from Brandon Blossman with Tudor, Pickering Holt and Company.

Good morning guys, Jennifer. Let's see. Let's see what you can disclose on this. But focusing on West Elk for a second, it looks like historically it may be about 25% of the total export tons, is that a valid assumption on a go-forward basis, kind of ex- the growth in met out of Leer? And is there any other color that you can give us just on the cost structure at West Elk individually and maybe who the customers are historically there?

Yes. We don't typically break out our export by mine location. We exported about 5.5 million tons through the first half of 2013. We're on target for about 12 million tons for the year. We also don't really break out costs. But what I will say about West Elk, if you look at the quality and the cost structure and our customer base, whether it's domestic or international, it's got a pretty wide reach. Good quality coal, low sulphur coal. Good access to markets, not only off the West Coast, but through the Gulf and through Houston. So, we're pleased with that asset. We think it will play well in the US and international markets going forward.

Okay, and a follow-up on that. Was there some foreshadowing there that West Elk, because it -- as a basin will be a single mine that it may be rolled into the results into, say, Powder River Basin and reported as a Western Basin on a go forward?

Brandon, that's something from an accounting perspective we look at from a segment reporting issue. It's something we are evaluating now and as indicated, that's something we will update on the next call.

Okay. Fair enough. And then just real quick, second question, met, the reduction in guidance for 2013, was that primarily driven by demand or was that the mine closures?

Well, I think it was based on the demand that we saw in the marketplace, our cost structure. And we always said that we're going to always be looking at our portfolio. Make sure that we've got a wide range of quality products and a good cost structure that allows us to generate positive cash margins in tough markets and really do extremely well when we see market improvements. That's what we have 'done, and we think we are well positioned with high-vol Bs, low-vol Vol A, low-vol PCI. Paul and his team can walk into a customer in the US or around the world and pretty much provide any type product that they're looking for.

Fair enough. Thank you very much.

And we'll take our next question from Brian Singer with Goldman Sachs.

Thank you. Good morning.

Morning.

Good morning, Brian.

On met coal, in your release you mentioned you see the supply rationalization at existing operations underway in the industry. And to that end, you have released your outlook for this year by about 0.5 million tons. I think so some of that is the timing of deferring Leer until the end of the year. Do you think your contribution, along with what you see from others, is enough to balance the met market? And what would it take pricing-wise for you to either reduce your output further or return to prior levels?

This is Paul. I'll start out and see if John wants to jump in. But I think the simple answer is, is there is still excess supply in the market. It's a tough number to gauge, but I think we believe it's somewhere between 15 and 25 billion tons on a worldwide basis. But it appears to be more heavily weighted towards low-vol coals, which is why I think you're seeing the benchmark pricing down.

Clearly, Australian dollar drop has helped those producers. I think what's being lost in this is the relative strength of the high-vol coals into Europe. We're down through the year maybe $5.00 or $8.00, but it's not nearly the percentage we are seeing on the benchmark pricing.

Brian, I think when you look at the industry right now, as Paul said, it's really hard to get your hands around what the oversupply is. We don't think it's significant, that 15 to 25 million ton range. We do think in that 300 million ton seaborne market that there is a pretty significant percentage of suppliers that don't have the economics to play at, say, a benchmark of 145. So, we think over the coming months you've got to see some type of rationalization. And not only from the US, but we think you will see some in Australia as well as potentially in Canada.

Great. Thanks, that's helpful. And my follow-up is, going back to the CapEx question. Looks like you are on track for a little bit over a $60 million run rate for the second half. That seems like, as you said earlier, if we eliminate the Canyon -- the contribution in Utah, you were talking about more of a $45 million to $50 million run rate per quarter. Is that -- does that make sense? And is that a level of CapEx that you expect to continue on an ongoing basis? And excluding Leer, what growth or decline would that imply? Is that maintenance or is that less than maintenance?

As I brought up earlier, Leer CapEx is being to be about $100 million, and our 2013 CapEx was weighted very heavily towards the first half. I would expect the range that you put down, about 40% will be the balance between the split between the next two quarters. I think we're being careful to adjust our spending not to hurt our operating costs or hurt anything at the operations. But as you look at 2014, I think prior -- in the last release we gave a range of $210 million to $220 million for the operations and another $80 million on land. We're continuing to evaluate this. And I don't think we are ready to provide any hard numbers, but I think we are looking at coming off those numbers and it will depend on the market.

Great. Thank you.

We will take our next question from Paul Forward with Stifel Nicolaus.

Good morning.

Good morning, Paul.

Good morning, Paul.

I wanted to follow up on that discussion on the met coal markets. I think Paul, you had mentioned that the high-vol was holding up pretty well. Can you talk a little bit about where we are for market prices today? And maybe if you don't want to talk about individual prices, are there any markets where you could say you can buy coal cheaper than you can produce it and therefore, there might be further potential shutdowns if there is no recovery in the markets?

Paul, I'll start that one off. Clearly, we're seeing prices that have trended down. But I think it's not been the decline you have seen in the Australian low-vol in the Pacific Basin. Kind of ballpark numbers, low-vol, I think at the mines we're seeing in the mid 90s. The high-vols paid on the grade somewhere -- the As are probably in the -- around 90, high 80s, low 90s, while the Bs are in the mid 70s to low 80s. I think -- I haven't seen a case yet where we could go out and buy coal cheaper than we could produce it.

Paul, this is John, and I would agree with Paul. We have worked real hard on refining our mines and making sure that we have got a very competitive cost structure in place for all of our products. And again, we are generating cash margins from all of those. When you think about the high-vol B prices and you think about our discussion last quarterly call, there really hasn't been much deterioration in that pricing quarter-over-quarter versus what you have seen in the benchmark. So, we're pleased with how the high-vol coals are holding up in the marketplace.

Okay, that's very helpful. Thanks. And maybe if I could just ask, you have a midpoint of cash cost guidance in the Appalachians at $67.50 this year. With the brand-new long wall for -- coming online and contributing to all of 2014, directionally, where do you see that number going '14?

Paul, we have pretty well stuck with the line that with the addition of Leer, our guidance number is going to stay about where it is. Our average cost will be about the same.

Okay. Thanks.

Thank you.

And we'll take our next question from Jeremy Sussman with Clarkson Capital.

Hi. Good morning.

Good morning, Jeremy.

A follow-up on Paul's question in terms of thinking out a little bit next year and in the Powder River Basin. I guess back half of the year production will -- looks like it will trend up a little bit, especially given where first quarter this year came in. Can you give us a sense kind of direction of how we should think about costs in the Powder River Basin for next year?

Yes. I think to start with, I'm very pleased with what the guys have done. Our cash costs in Q2 were $10.47, which was $0.43 below Q1. More importantly, it was $1.11 below Q4.

If you carve out the first halves of 2012, 2013, we've dropped our costs about $0.58 over 54 million tons. That equates to about $30 million in savings. And if you break that out, about 30% of it was labor, 30% was maintenance and repair and 20% diesel and the rest were contractor. The guys did a good job during the quarter and hit on the things that I talked about in my prepared comments, and I think we're feeling pretty good. A lot of these are sustainable cuts.

Jeremy, we are in the early stages of our planning for 2014. The budget kicks off here in the next 30 to 45 days. I think we will have a better idea as we move through the fall on what 2014 looks like. But to give Paul and his team a lot of credit, in a tough environment, they have managed cost control very effectively and we expect that to continue as we move into next year.

Appreciate that. No question the cost control has been excellent, and just a quick follow-up. You talked about -- John, you talked about markets, the markets improving. Certainly utilities ultimately looking like they will be below the five-year average in terms of inventories. Certainly PRB burning ones, anyway. Given that outlook, how do you look at the decision to lock in 19 million, 20 million tons this quarter versus waiting for the market to improve? Can you just give us a sense of how you weigh the two options?

Jeremy, you have heard me say on many occasions we're not smart enough to catch the top of the market, and we said we're always going to be in the market. And we needed to get some volumes laid off to make sure we can run our operations optimally, and that's what we've done. I would say during the second quarter we saw a lot of opportunities in the marketplace, and we took advantage of those. And you've seen this year what it does to our costs and like I said, we would expect that to continue next year. So, we have done that. At the same time, we haven't given up the upside opportunities if the market presents those.

Absolutely. I appreciate it, thanks.

Thank you.

We'll take our next question from Lucas Pipes with Brean Capital.

Good morning, everybody.

Good morning, Lucas.

Lucas.

John, you made some comments in your prepared remarks about the Illinois Basin that sounded pretty positive to me. Could you elaborate on what you see for that region and how do you expect Arch Coal to participate in that?

Lucas, Arch has got a long history in Illinois, it goes back 30 or 40 years. We've spent a lot of time there, we feel like we understand it. We have got the Viper operation in the central part of Illinois that's about 2 million tons a year. Generating very good EBITDA. We have got a 49% equity investment in Night Hawk, which is an investment we've been extremely pleased with. And then beyond that, we have 700 million tons of a low chlorine, higher BTU coal that we think will have a good cost structure. As we look at the market and we see what's going on in the regulatory environment, the cost pressures, the inability to get permits in the east, over the next three to five years, we see the winters being primarily PRB and secondarily the Illinois Basin. So, we're in both of those regions.

Our Lost Prairie operation in Southern Illinois is permitted and ready to go. If you look at Illinois market today, there is too much volume coming out of that market. We don't think it's prudent. But as we see the market evolve, more cost pressures on other regions, we think we have got a fantastic reserve there that we can bring on, put a big percentage of that to bed in US markets and also be very competitive in the international markets. When you think about Arch over the next three to five years and once we get through this tough market we delever our balance sheet, two areas that are going it to continue to grow, with one be the Southern Illinois and the other piece would be the Tygert Valley reserves, which is just west of our Leer. So, we have got some very attractive organic projects once the market improves that we can take advantage of.

I appreciate that. That's very helpful. And in the meantime, do you believe that the current market environment is going to drive more M&A across the US mining space -- coal mining space?

Lucas, I think it's possible. I've got to tell you, everybody in this environment is pretty inwardly focused, I would say. Not that you won't see some M&A, but everybody is focused on managing their balance sheet, making sure they get through this tough period. We will have to see where it goes. But if you're a Central App supplier and you've got some higher costs and pretty much thermal coal and you don't have any infrastructure in place to access the international markets, I think you are going to be pretty challenged over the next couple of years. So, whether they go away, become part of another company, I think time will tell.

That's helpful. And then maybe lastly, you mentioned also multi-year recovery in the domestic thermal coal markets in your prepared remarks. What do you see as the main drivers for that taking place?

Well, I think it's a couple things. I think it's the pressure on supply, particularly in the east. And as I said in one of the other questions, we see about a 20 million plus ton reduction in Central App. That might be conservative. It's down 12 million to 13 million just through the first half. That's going to create opportunity. I think natural gas prices just in the mid 3s creates opportunities, particularly for the PRB Basin. The fact that normalized weather continues to pull inventories creates opportunities. We are still paying for a couple winters ago when we had one of the mildest winters on record. We are starting to dig out of that. Depending on what the new normalized level for inventories are, we think towards the back half of this year, we could be fairly close to those and create and really set up a real buying opportunity as we move into 2014. And what we've tried to do as a Company is ensure that we've got the right assets in place to be able to take advantage from that from a quality standpoint, from a cost standpoint, and from a transportation standpoint. We think we've done all those, at the same time, maintaining adequate liquidity to make sure that we get through this perfect storm that we're currently in.

I appreciate that. That's very helpful. Thank you.

Thank you.

We'll take our next question from Curt Woodward with Nomura.

Good morning.

Good morning, Curt.

I just wonder if you could put a little bit more context around the ramp up at Leer. Is there any market condition that would cause you to potentially push out that ramp up further? We have seen some other projects like Quintette from Teck being pushed out. I guess right now where you said you feel pretty confident that if demand conditions don't change, you will still be able to ramp up to that full capacity level in 2014?

Let me just kick it off here and I'll let Paul jump in. We're pleased with the way the Leer project has gone. We have spent most of that capital. We think it's going to be one of the lower cost operations in the eastern United States. That combined with the high-vol eight quality that it's going to generate we think is pretty powerful.

We continue to do our tests here and abroad that test, as Paul indicated in his opening comments, are going very well. We are getting a lot of positive feedback. We are just moving this back a month or to. We think it's a prudent thing to do. It will not impair our testing in any way and don't see anything currently that would cause us to make a different decision for 2014. Paul, you got anything it to add to that?

Yes. I think just following up, as John said, I think we are all pretty pleased with the way the project has gone. The guys have hit -- pretty well hit all of their schedules. I was underground a couple weeks ago, the mine looks very good. I really haven't found any surprises and we're well on our way to finishing the head gate/tailgate and we will pulling those together.

At the same time, after I came back from there I talked to John, and it just seemed like we were basically spending money to build inventory at the mine at the end of the year. And I think we pulled -- I think we talked about it. We decided to pull it back a little bit and position ourselves for '14. I think it was the right decision and I still feel very good about the reserve. It's going to be very competitive, and the mine has great transportation logistics to the seaborne market. Just overall, it's still I think a very good story.

Okay, and then just a follow-up on the met pricing. You said that your high-vol sales into Europe you see going down like $5.00 to $8.00 a ton, yet we've seen $20 to $30 per ton reductions on the benchmark. Do you think that it's a matter of time before the European customers want pricing down, or is it more of a function of Atlanta Basin pricing corrected earlier than the Pacific and now it's maybe more closer to a parity on a delivered basis into Europe?

Certainly, we look at the benchmark pricing for direction, and certainly we've gotten some of that. But as we look at our markets for our coal, we look at the US markets, which we have been very successful in. We look at Europe and South America and Asia, and in that order is where we get the best economics. We have transportation advantages into Europe as well as South America. We will continue to look to those markets as we build out Leer. We think those markets have been very responsive. We're pleased with what we're seeing in terms of demand and still think that we can hold up in terms of a pricing standpoint from what is going on in maybe other parts of the world.

And we'll take our next question from Meredith Bandy with BMO Capital Markets. We ask that you take one question and one follow-up.

Okay. Thank you very much for taking my question. I guess just big picture, we used to say 15 by 15 in terms of met coal production for you guys. What do you think -- if you are in a better world for met coal in a couple of years, what do you think would be your maximum capacity now and how would you get there?

Meredith, this is Paul, obviously we've pulled back on a lot of the new projects that are out there, but they haven't gone away. Leer is coming online in the end of this year. It will bring on about 3, 3.5 million tons depending on how much of that we send to the mids market. Longer term, we have several other operations just to the west of Leer that we can continue to bring on high-vol A projects. So, the pipeline is still there. We're continuing to work on permits and those type of things, the exploration and design. The time will come and we'll keep those basically in our pocket.

Meredith, this is John. We have always said we are going to be responsive to market conditions, and we have done that. If you look at our reserve base, we've got over 400 million tons of high-quality met. The cost structure, we think, can be competitive here and around the world. We want to make sure that we protect those reserves and aren't forcing them into a market that doesn't want them. As Paul says, once we see the market evolve, and we think it will. We have steel consumption growing about 35% over the next six to eight years to over 2 billion tons all over the world, and we want to make sure we have got the reserves, the quality and the cost structure to take advantage of that growth and demand.

Okay, thanks. And then a minor point for my second question. John Drexler mentioned the 30% to 50% tax benefit you are expecting for the rest of the year. Is there a cash refund associated with that?

No, there is no cash refund. That's the -- that gets put into a deferred tax asset position. If you look at the details of our balance sheet, you can see that we have got a healthy deferred tax asset that's on the balance sheet. So, that's not a tax refund that comes back.

Okay. Thank you very much.

We will take our next question from Timna Tanners with Bank of America Merrill Lynch.

I wanted to ask a little bit about how you approach the process of looking at asset sales. Because I appreciate the obvious underlying potential growth long-term and the quality of your assets, but given the size of your net debt and even a pretty solid market recovery, I just wanted to hear how you are thinking about the potential for monetizing some of those assets that may be less or non-core, if you will.

Yes, it's a continuous process that we have at Arch that we have been doing for years. And we've said that we'll always be looking at our portfolio to see what fits, what doesn't fit. As we look at the growth in demand over the next couple years, what we think will play in the domestic and world markets on a thermal side, what we think will play on the met side, we have come to the conclusion that we want to focus on areas that we can get the best return as a Company. And we think our position in the PRB, our position in the met coal, our cost structure, our quality allows us to do that. In saying that, we retain West Elk, which is a low cost, high quality coal that has a tremendous reach, not only in the US, but around the world.

The Utah assets were something that we -- over the last 15 years, we've pulled out over $600 million of cash flow from those operations. We have been very successful with them. It's a hard working, dedicated work force that has done that. At the same time, maintained an incredible safety record. But when we look at those assets going forward, they're going to require some capital outlay just to maintain the production levels that we have had over the last couple of years. We think over the next four years we'll save well over $200 million in mostly capital by monetizing those assets now, putting that cash on our balance sheet, making sure we've got plenty of liquidity in the short-term.

But as the market starts to improve, we'll be able to delever our balance sheet of quicker and focus on the PRB, the met build-out, the infrastructure to access the international market and the build-out of our international customer base. We are very comfortable with our strategy and what we have in place, our ability to manage our costs and our capital. And this is something that will continue to look at and make sure that our asset portfolio fits in with what we're trying to accomplish long-term.

Okay, that makes sense. I guess I'll ask a follow-up just a little differently. In light of potential prolonged weakness in the market, how do you look at what other areas that you could cut out? The SG&A cut was pretty small. Can you continue to see the progress you've made in operationally in cost cutting and do you expect there is a lot more room there? Thanks.

Well, we lowered our G&A a little bit this quarter, and we continue to focus on that. I would tell you post CSC transaction, there is probably some additional things that we will focus on from a G&A standpoint. But if you look at our cost management, our capital management, it's been pretty significant. And as Paul alluded to earlier, as we move into 2014, we have got Leer fully capitalized. Our capital requirements may not be as high. If you look at Arch's G&A relative to others, it's something we have always had a focus on, not just when we got into this tough market environment. We have always managed a very flat type G&A organization and we'll continue to do that. We are always looking for ways to cut, but we are pretty comfortable with the way we are managing our business right now. But we're never satisfied.

Okay, thanks.

(Operator Instructions)

We will take Chris Haberlin with Davenport & Company.

Thanks very much for taking my call.

Hi, Chris.

John, I think you mentioned in the press release that current levels of met prices are unsustainable, and I think earlier you referenced a toss curve. And we've heard that from a number of companies here over the past several quarters, say going back to the fourth quarter when pricing reached $170 a ton. But since then, we have seen very little in the way of supply cuts. Can you just comment on any near-term or short-term roadblocks that might be holding up an incremental supply coming out of the market and what your outlook is for the needed cuts to come off so we can rebalance the market?

Chris, as I indicated, in the 300 million ton market, we think there is a pretty significant percentage of people that have economics that don't work at 145. And you can call it whatever you number you want, we think it's probably at least 20%. So, we think there has got to be some more rationalization. Maybe -- you can point to a number of things.

I am sure you have heard on other calls, there is pretty significant take or pays in Australia, that may be driving it. You may have agreements that fall off between now and the end of the year that may cause people to make a different decision. But what we've tried to do is we've looked at this space is always make sure we've got a variety of products with a cost structure that we can make a positive cash margin in difficult markets, and we're doing that now and make sure that we manage those costs in a way when the market turns that we can create significant margins. We think we've got Arch positioned that way right now.

We made some cuts in the fourth quarter, in the second quarter of this year, and we think those are prudent. But what we have right now at this 8 million level is a cost structure that we think can be very competitive. I can't speak for competition, but I can tell you there is a lot of high cost met out there, whether it's in the US, Australia, or Canada. And those are things that some people are going to have to face between now and, say, over the next few quarters. We think there is rationalization coming, we just can't tell you how quick that's going to take place. But what we can tell you is Arch has got itself positioned where it will be standing when all of this shakes out.

We'll take our next question from Caleb Dorfman with Simmons & Company.

Thank you for taking the question. I guess first, the met market stayed bad for a lot longer than everyone expected. Let's assume it continues to stay in a tough position for an extended period of time. How do you work through that operationally and strategically? You have got a lot of liquidity. Are you comfortable, do you have enough to work through it? And with the Leer mine coming online, how do you work that production into the market? Does that displace other higher cost Arch lines or other higher cost lines from other producers?

This is Paul, Caleb. I'll start out. As you look at Leer coming online, it's going to be a product that is a high-vol A, and we expect it mostly to go into the Atlantic Basin seaborne market. It's really not a product that we're pushing out there right now. Most of what we're selling is a high-vol B into Europe. So, I really don't expect any kind of self-cannibalization with Leer. But at the same time, as John said, we're always going to be looking at our portfolio. And if we have high-cost operations or uneconomic operations, we'll make the call.

And we'll take our next question from Lance Ettus with Tuohy Brothers.

I know you are delaying Lear to -- or the long wall to the end of 4Q. Is that, kind of a -- should we be implying that you are assuming that the benchmark rebounds maybe for the 1Q 2014 as higher than today's?

Well, I think the market will play out and we'll see how the rationalization happens over the next few quarters. I think what we've said is we didn't see any reason to force tons in the market between now and the end in of the year, given the fact our tests are going well. We are getting plenty of coal out in the best markets. The feedback has been positive. We would certainly expect, whether it's first quarter, second or third of '14, that after this rationalization occurs, you are going to see a step up in price and we want to make sure that we're positioned for that. But even in a difficult markets, as Paul said, we are going to have a cost structure at Leer in our other met mines that allow us to generate a positive cash margin, even in the difficult markets that we're in and make sure that we're positioned so that when this market does materialize, that we can take advantage of it. That's how we positioned Arch.

And we'll take our next question from Matt Farwell with Imperial Capital.

Hey, good morning.

Hi, Matt.

Just a question on the cash. Sounds like you will be building some cash over the next quarter. Obviously, you will generate another $435 million from the Canyon Fuel sale. You mentioned in the commentary you are looking for proof of a market recovery before you determine a use for that cash primarily for deleveraging. I guess the first question is, with the thermal recovery on track but further rationalization needed in met coal markets, do you need to see an improvement in met coal pricing before you look to use that cash to deleverage? And then secondly, when you get to that point, would you be focused on extending maturities and reducing cash interest or would you be focused on reducing bank debt?

Matt, good questions. I think as we sit here today and we look at the markets, you are correct. As we look at the overall fundamentals on the thermal side of the business, we see things all heading in the right direction. With all of that said, we're also sit hearing today with a less than hot summer. And so that combined with, as you alluded to, the met market and wanting to see some recovery there, we think it's prudent right now to leave the liquidity, the cash, on the balance sheet.

As we do see those markets begin to improve, our view would be that we have excess cash on the balance sheet and we have indicated previously, our focus and strategic priority will be to reduce leverage in a variety of ways to do that. We will look at all avenues. Clearly, our next largest maturity coming due are the 2016 notes in the back half of the year for those notes. So, they are ones that we are focused on; at the same time, we also have prepayable bank debt as well. We will look at all avenues and proactively attack that as we move forward in future years as we see markets improve.

We will take our next question from David Gagliano with Barclays.

Hi. Thanks for taking my questions. I am going to keep these to a couple of housekeeping questions. They are related. What are the -- what was the $9 million mark-to-market gain related to in Q2, and are there more of those in the future? And then the other question is, how much met did you actually sell in the second quarter?

The mark-to-market, David, as we've had previously, are positions that is we have API two positions with some of the market movement have resulted in mark-to-market gains. As we've indicated previously, as -- that's for anticipated shipments. Most of that is in the back half of the year. As those shipments occur, that gain will reverse against those shipments. And so that's what that is. It's been consistent with what you have seen coming through our income statement from quarter to quarter, depending on where market movement has been.

David, relative to the question on met sales in Q2, just to give you a little bit of color, we shipped 2.1 million tons, which is roughly 30% domestic. Most of that was high-vol A -- or excuse me, high-vol B and PCI, with the balance of that being high-vol A and low-vol.

We'll take our next question from David Lipschitz with CLCA.

Good morning, David.

Can you talk to me about how -- you talked about the -- we need maybe 15, 25 million tons of coking coal to come off line. Except it seems like everybody is bringing on new production, and it seems like you have the same issue with oversupply potentially in the Powder River Basin. Where do we need to get to on a marginal cost basis for you really guys to start to delever, even above and beyond your cash balances after the deal? Because you are still going have 3.7 billion or 3.8 billion of net debt. When do -- what do we need to see for you guys really to start generating? And with all the oversupply still there, how do you look going forward in terms of -- how do you get out from under this mess, so to speak?

We try to take a long-term view of the market. As we look over the next couple of years, we see steel consumption growing at a pretty rapid pace. We think the demand is going to grow, whether it's increasing capacity of existing blast furnaces or build out of new blast furnaces. From that standpoint, we do see improvement in demand growth longer term, and we want to make sure we position ourselves for that. As we look on the thermal side, if you look at the pressures we are seeing in the Eastern United States from a cost standpoint, from a permitting standpoint, we do think that PRB is going to be one of the primary beneficiaries of that fall off in supply in the east.

If you look globally, there is 280 gigawatts of new coal-fire generation that are being built. These aren't being discussed, planned. They are being built and are going to come on over the next three or four years, needing 800 million to 900 million tons of additional supplies. All those things, we think will drive improvements in the market.

It's -- as John talked about, our cash position, we want to make sure we got liquidity in place to get through this tough period. We can't tell you if it's 6 months, 12 months or 18 months. But what we can tell you is Arch will be around once we get through it, and we want to have the quality products whether it's thermal or met. We want the cost structure to access the US and international markets. That's why we have been more proactive than others in terms of going out and getting infrastructure to allow us to access that demand growth we see around the world.

I can't put a hard number on what it's going to take in the PRB or what it's going to take in the met market to start seeing a point where we get a situation where we're deleverring our balance sheet pretty significantly. But I would tell you that it's not significant. It's -- certainly, it's not 145 to 150 in the benchmark pricing. But it wouldn't take huge increases in the met market and huge increases in the PRB for us to start generating significant EBITDA and delevering our balance sheet.

Due to time constraints, we will take our final question from Matt Vittorioso with Barclays.

Thanks for taking all the questions. Just was hoping to get a little more color on the cost breakout in Appalachia. If we thought of your overall tonnage in Appalachia being somewhere around 15 million to 16 million tons and were split mostly evenly between thermal and met, where does that cost break out, if your average cost is in the mid to high 60s, is the met 75 and the thermal is 55? Can you give us any color on that?

We really don't break that out in any greater detail. And as you said, we're about almost evenly split in Central App between thermal and met. Right sitting here today, we basically have one large met -- or thermal complex left, that's Coal-Mac, which should be -- still doing or still capable of positive returns, even in this market. But at the same time, we've also got two very low cost operations or will with Mountain Laurel and ultimately, Leer. That should have a very competitive cost structure in the future.

That concludes today's question-and-answer session. Mr. Eaves, at this time, I will turn the conference back to you for any additional or closing remarks.

I do want to thank you for your interest in Arch Coal. We had a busy second quarter. We are focused on the things that we can control., cost, capital, sales commitments. And we continue to execute on our strategy to monetize non-core assets. So, we look forward to updating you on the October call. Thank you.

This concludes today's conference. We thank you for your participation.