Arch Resources Inc (ARCH) 2015 Q1 法說會逐字稿

Good day and welcome to this Arch Coal Incorporated first quarter 2015 earnings release conference call. Today's conference is being recorded. At this time I would like to turn the conference over to Ms. Dawn Theel, Investor Relations. Please go ahead, ma'am.

Good morning from St. Louis and thank you for joining us today. Before we begin, let me remind you that certain statements made during this call, including statements relating to 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 our forward-looking statements, whether as a result of new information, future results, or otherwise, except as may be required by law. I would also like to remind you that you can find a reconciliation of the non-GAAP financial measures that we plan to discuss this morning at the end of our press release, a copy of which we have posted to the investor section of 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 will be happy to take your questions. John?

Good morning. Today Arch reported its first quarter financial results and recorded [$82 million] of adjusted EBITDA. These results reflect the impact of low prices for competing fuels domestically and the continuing softening of the seaborne coal markets.

Despite the lower shipment levels, our operations turned in a solid performance during the first quarter of 2015. We tripled our adjusted quarterly EBITDA versus the prior year quarter and in our Powder River Basin and Appalachian segments we expanded our cash margins by more than 20% versus the fourth quarter 2014.

The start of 2015 hasn't brought much, if any, relief to the coal marks but Arch continues to take proactive steps to navigate these trying times. As Paul will describe in more detail in his prepared remarks, our operations are performing well and each of our 10 major operating complexes were cash flow positive again this quarter.

We also continue to have success on the cost front. In fact, our Appalachian segment had their lowest cost performance in four years, which allowed us to lower our annual cost guidance for the region. Our continued progress in control and cost, managing capital spending and optimizing our low cost asset base, combined with over $1 billion of liquidity and no near term debt maturities, are just some of the levers we are using to position the Company for the future.

That said, it has been a challenging few months for the US coal industry. Natural gas prices have fallen more than 40% from this time last year due to elevated storage levels and more moderate winter season. Year-to-date, natural gas pricing levels have put most coal supplier basins under heavy pressure.

In fact, with current pricing below $2.75 per million BTU, natural gas is starting to compete with PRB coal in some areas of the country. As a result, we estimate that from the end of 2014 through March, there has been roughly 10 million ton billed in US coal stock piles. Furthermore, based on our internal forecast, we estimate stock piles could grow to 180 million ton marked by the start of the summer burn season.

In addition, the mass regulation took effect in April. We estimate roughly 20 gigawatts of the expected coal-based generating capacity will close over the course of 2015. That equates to domestic demand decline of approximately 25 million tons on an annualized basis. And we expect less than a third will impact the Powder River Basin.

Looking ahead, that leaves roughly 20 gigawatts to retire between 2016 and 2018. However, we do expect the surviving coal fleet will run harder as it has done in the past and, to some extent, offset the impact of the plant closures.

Given these market factors, we now expect domestic coal consumption for power generation to decline by 80 million tons in 2015 from prior year levels. We estimate that more than half of that loss coal burn will come out of Appalachia due to its higher cost structures and Powder River Basin coal will be the least affected as it remains the most competitive against natural gas. We are starting to see coal supply response and expect the output reduction will escalate over the course of the year and counterbalance the lower demand to some extent.

To more closely align our revised market outlook, we have elected to modestly adjust down our 2015 expected sales volumes for both thermal and metallurgical coal. Part of the reduction results from our decision to lower the output at our West Elk mine in Colorado to a run rate of roughly 5 million tons per year.

This will allow us to preserve the reserve base while retaining the flexibility at the mine to respond quickly to market opportunities. Paul will provide additional details on our operational plans in his prepared remarks.

Turning now to global coal markets, which remain under significant pressure as pricing is further softened and supply continues to exceed demand. In recent months, US export levels have fallen as additional head winds, including the appreciation of the US dollar and the decline in international freight charges, have made it more difficult for US coal suppliers to participate at these low prices. As a result, we expect US exports to fall below 90 million tons in 2015.

Although we believe seaborne market challenges will persist in the near term, there are some encouraging data points that stand out. For example, India's expanding its power generation with over 23 gigawatts of new coal-based generating capacity currently under construction and more planned.

Metallurgical markets have shifted down recently with the latest benchmark pricing settling lower by 6% versus the previous quarter and global steel production declining in early months of 2015. In the US, steel mill utilization rates have fallen well below the five-year average and additional domestic closures have been announced.

At this time, we don't anticipate a recovery until 2016 but do see a few positive indicators for the domestic market. Nonresidential construction spending is steady so far this year and growth in the US auto sales is expected to continue as recent forecasts have raised expectations by nearly 0.5 million units from last year.

In summary, there is no doubt coal markets are extremely difficult right now. But with our comfortable liquidity position, ample debt runway and continued focus on the strategic initiatives we have been executing over the past several years, Arch has the ability to operate well in these challenging market environments and beyond.

On that note, I will now turn the call over to Paul Lang, Arch's COO, for discussion for our operating performance in the first quarter and an updated outlook. Paul?

Thanks, John. Our first quarter results reflect our continued commitment to managing the variables that we can control. Driven by a strong operational form in Appalachia and higher realizations in the Powder River Basin, we dropped our average cash cost by 6% on lower sales and expanded our consolidated cash margin by 12% as compared to the fourth quarter.

In the Powder River Basin, our first quarter realizations reflect the improvement in pricing that we locked in during the prior year as well as a larger percentage of higher quality tons in the volume mix. Our average sales price increased $0.62 per ton over the fourth quarter, expanding our cash margin by 23%.

As planned, our cash costs were elevated during the quarter, driven mainly by higher sales sensitive costs, scheduled repair and maintenance expense and lower shipment levels, most of which were offset by meaningful [diesel] savings. As we have discussed in the past, our approach to managing the risks related to diesel costs is to use out-of-the-money call options that protect us from spikes and pricing and allows us to fully capture savings when oil prices decline. As such, the benefit we received from lower diesel prices during the quarter was in line with the guidance we offered on our previous call.

We have continued to apply this strategy and implemented another layer of call options for the back half of 2015 in addition to building meaningful coverage for 2016. All of which means that we expect to continue to benefit from these cost savings through at least next year. Based on our expectations of slightly higher quarterly shipments and our ongoing cost containment efforts, we are reaffirming our cash cost guidance for the region at a range between $10.50 and $11 per ton.

Our bituminous thermal operations ran at lower levels in the first quarter as compared to the fourth quarter of 2014, which impacted our costs. As John mentioned, with natural gas prices below the competitive range for a portion of this region's coal, we're reducing our production target for West Elk this year to a 5 million ton run rate. This adjustment brings our targeted regional production, generally in line with our 2015 commitments, and raises the midpoint of our cost guidance by $0.50 per ton. We now expect regional cash costs to be in the range of $23 to $26 per ton for 2015.

Our West Elk mine provides us with a fair amount of production flexibility. This allows us to tactically respond to market opportunities like we did in 2014 when we raised production, as well as lower our production when market conditions softened, without drastically impairing our cost structure in the region. Even with the reduced production levels, our cash margin in the region was 25% in the first quarter.

In Appalachia, we [expanded] our cash margin by 29% in the first quarter due to a decline of nearly $7 per ton in our cash costs. This outstanding result was driven by strong operational performances across our regional platform, especially at our Leer Mine, whose performance has allowed us to lower our full year cash cost guidance by $1.50 per ton at the midpoint to a new range of $56.75 to $59.75 per ton.

Turning to marketing. As you know, the first quarter is typically a slower time for thermal sales. So far this year, customer RFPs have generally been more measured pointing to softer market conditions due to lower natural gas pricing and caution on the part of buyers not to overbook their commitments. Even with that, we have successfully layered in incremental tons for 2015 delivery and placed another 5.4 million for 2016 deliveries.

Given our strong book of business to date, we are well positioned to be selective on new business and thus have achieved pricing considerably above the indexes. Based on the midpoint of our large thermal volume guidance of 125 million tons, our 2015 and 2016 committed levels are now over 95% and 50% respectively. These levels are comparable to the sales commitment we had at the same time in 2014.

In Appalachia we settled a long-standing contract dispute which allowed us to terminate a multi-year underwater contract with a utility. By doing so, we closed the mining operation and eliminated about 700,000 tons of eastern thermal sales that were spread between 2015 and 2016. Looking ahead, we will continue to be active in the market so we can position our business well for the outer years and run our mines efficiently.

On the metallurgical side of the business, we shipped 1.5 million tons at an average price of $77 per ton in the first quarter. Shipments were light, in part, due to the normal start-up timing of the shipping season on the Great Lakes. During the quarter, we committed approximately 1.2 million tons at an average price of about $75 per ton and rebalanced our expectations for PCI deliveries for the year by approximately 300,000 tons.

Quarter-over-quarter, we increased our committed sales volume by 900,000 tons and increased our average sales price by approximately $1 to $78.27 per ton. As mentioned in the release, we've lowered our metallurgical volume target for 2015 by approximately 250,000 tons to a midpoint of 6.4 million tons.

Based on this, we have 75% of our targeted volumes committed, of which 500,000 is unpriced. In addition, we now have 1.3 million tons committed for 2016, of which 700,000 tons are priced at $82.69 per ton.

We continue to see reasonable demand for our coking coals, although with softer prices. Given the diverse low cost platform we now have operating in the region, we continue to capitalize on market opportunities and are progressing on the placement of our open sales volume.

Next, let me touch briefly on our capital plans. We have reduced our capital spending guidance by $5 million and now expect to end the year at $147.5 million at the midpoint of our revised range. We are taking a disciplined approach to our capital spending and believe over the next several years we can continue to run the business at lower capital levels.

Finally, I want to recognize Arch's employees for delivering another outstanding performance related to our core values of safety and environmental stewardship. Through the first quarter, they achieved world-class results in both of these critical facets of our business.

With that, I will turn the call over to John Drexler, Arch's CFO, to provide an update on our financial results, liquidity and guidance. John?

Thanks, Paul. As John and Paul have described, our focus on optimizing our portfolio, managing our costs, reducing our capital spending and controlling our cash flow and liquidity is designed to allow us to chart a course through these markets. The decisions made throughout the downturn of the market cycle continue to serve us well.

Let me open by reviewing our cash flow and liquidity. At quarter end, we had (inaudible) billion in liquidity, of which $940 million was in cash. During the quarter our cash declined by $44 million, which was largely impacted by a $50 million increase in our inventories.

The build in inventories was primarily in our Appalachia operations and was the result of strong production throughout the region, especially at our longwall mines, along with the lower met shipments in the quarter. We expect that the negative working capital adjustment you see on the cash flow statement will reverse over the remainder of the year, as Leer and Mountain Laurel both have longwall moves in the second quarter and as we continue to match our production with sales.

As we look out over the remainder of the year, even with the current market headwinds, we have a thermal portfolio that is more than 95% committed at prices above what we achieved in the prior year for our PRB and bituminous thermal segment, a met portfolio that is 75% committed at its revised midpoint and an expectation of lower cash cost year-over-year. The result is that we continue to expect expanding cash margins in our two most significant regions. With the continued expectation of improved results in 2015, we anticipate our cash outflow will be comparable to 2014.

As a reminder, during the second quarter we will be making the fourth of five annual $60 million LBA payments for the South Hilight reserve in the PRB. That payment, combined with the majority of our semiannual unsecured bond interest payments occurring in the second and fourth quarter, will make the second quarter our largest cash outflow quarter for the year.

As a reminder with regard to our capital structure, we have no major financial maintenance covenants until June of 2015. At that time, a relaxed senior secured leverage ratio covenant of 5 times steps back in on the $250 million revolver. We currently expect to be in compliance with the covenant when it steps back in.

In addition, we have a minimum liquidity covenant of $550 million in place tied only to any borrowings under the revolver, which is currently undrawn, and we have no meaningful debt maturities until mid 2018. Factoring all of this together, we believe Arch is well positioned with ample liquidity and extended maturity runway, modest and manageable cash flows and a solid book of business for 2015.

One other item I would like to highlight is our SG&A expenses. The $23 million we incurred during the first quarter was the lowest level of SG&A spend we have had since the third quarter of 2008. While there were a few positive one-time adjustments that caused us to guide to a higher level than our quarterly run rate would imply, we have been focused across our entire portfolio on administrative and overhead expenses and expect to continue to find ways to reduce costs in the future.

Turning now to our updated expectations for 2015. In the PRB we continue to expect cash costs in the range of $10.50 to $11 per ton. In Appalachia, with the ongoing success of the Appalachian portfolio and, specifically the Leer complex, we are reducing our expected cash costs to a range of $56.75 to $59.75 per ton, a reduction of $1.50 from the midpoint of the prior quarter range.

In the bituminous thermal region, as a result of reduced volume expectations, we now expect cash costs in the range of $23 to $26 per ton, an increase of $0.50 per ton from the prior quarter. In other financial guidance, we expect our 2015 CapEx range to be between $140 million and $155 million. Included in that range is the fourth of five $60 million LBA payments for the South Hilight reserve, [BD&A] to be in the range of $410 million to $440 million, total interest expense to be between $385 million and $395 million. Our cash interest expense will be between $360 million and $370 million for 2015.

We expect our SG&A expenses to be between $112 million and $118 million, a reduction of $3 million from the prior quarter midpoint. We also expect a tax benefit for the year in the range of zero to 10%.

We are pleased with our operational performance and the progress we have made in preserving liquidity while containing cash outflows during challenging market conditions. We have the right assets in place with our reconfigured platform of low cost, large scale complexes that generate positive cash flow in evolving and uncertain market conditions.

These successes, together with the continued progress we have made on executing our strategy to manage what we can, are how Arch continues to manage through the market cycle lows. More importantly, they are a large part of what will position Arch to be a stronger player when coal markets begin to recover.

With that, we are ready to take questions. Operator, I will turn the call back over to you.

(Operator Instructions)

Our first question comes from Michael Dudas with Strene Agee.

Good morning, Michael.

Hey, Michael, we can't hear you.

Oh, yes, thank you very much. Good morning, everybody. First, I want to discuss your -- John's Eaves comments on PRB outlook. And you mentioned about natural gas displacement of PRB given where current prices are. Maybe you could elaborate a little bit more on that. Is it the different types of coal? The distance away? Are the railroads being more fluid so that is helping maybe build inventory quicker than you would anticipate? And in your target towards inventory build and thermal in the US, does that also include a build-out in the PRB?

Michael, certainly we got a slow start to the winter burn season. You think about fourth quarter 2014, consumption was off, natural gas prices started to deteriorate pretty quickly and our customer base was able to build some inventory. I would tell you that the railroads are continuing to improve on their performance. We really I don't have any big issues with their performance right now. I would tell you there is probably a little bit of pressure been taken off of some of our customers. There is not a sense of urgency on replenishing their inventories. I mean we -- as I said in my opening comments, we think we could enter the summer burn season at about 175 million, 180 million tons. And when you look at the inventories throughout the country, the PRB is the lowest at about 68 days.

So clearly we think that the PRB can compete with natural gas below $3 and that $2.75 range. But I would say that currently, we are starting to see some displacement in areas like Texas and the southeast but do think on an ongoing basis that the PRB is the one region that can actually compete with these low natural gas prices. We've certainly seen the impact in the other supply regions. Paul, have you got anything to add to that?

Yes, Michael. I think -- if you kind of stand back, I think what we're looking at is a growth in the PRB of just very nominal amounts, say less than 1% or 2 million tons. But as you stand back and look at it, I think within that we believe that it is going to be a little bit of a repeat of history where the 8,800 BTU mines are going to cannibalize the 8,400 mines. And I think that is going to be a little bit of a repeat going down the road.

I appreciate that. And my follow-up, John -- for John Eaves, is you indicated production cut-backs so far in 2015 in the US. Are you continuing to see evidence, I guess assuming in the Appalachian region where you guys operate, that the day is coming where you are going to start to see some more meaningful impact given where natural gas and demand views are? Thank you.

Michael, we do. If you think about what happened last year, we saw cut-backs. We ended the year 2014 in central App at about 117 million. We are forecasting to drop well below 100 million this year. So I do think at natural gas prices, at the level we are seeing, that there is just not a lot of thermal production in the east that can compete. So therefore you are going to see a lot of pressure continue in the east. And the one thing that we have worked hard on, and Paul and his team have spent considerable time refining our portfolio in the east where we have a very low cost structure, not only on the thermal side but on the met side, and feel like the fact that we are generating cash margins at all of our locations right now really positions us pretty uniquely in terms of the market. So things are probably going to get a little tougher if you think about not only natural gas but what you have seen in the international markets with API pricing, met pricing. We think that the acceleration of cut-backs, particularly in Appalachia, will continue as we move through the balance of 2015.

Thanks, John.

Thank you.

Our next question comes from Brandon Blossman with Tudor, Pickering, Holt and Company.

Good morning, guys.

Good morning, Brandon.

A bit of follow-on from the last question. Paul, you had mentioned a restructured or an unwinding of a thermal contract, Appalachia's thermal. Just one: wanting to make sure I understood what that was. It sounded like you said 700,000 tons per year over the next two years?

Yes.

Or was that just --

Yes. That is correct.

And that was sourced from a specific mine. Is there any other contracts like that that may be out of the money that you might be able to renegotiate or lay off?

Brandon, obviously as you have followed us over the years, we inherited this contract with ICG and it is a contract that has been in litigation for years. We were able to successfully end it. And I think we are very pleased with the outcome. We did shut the mine down. It was in northern App -- a thermal mine. As you look at the tons, it was about 350,000 tons that were in 2015 and the balance was in 2016. We narrowed this down to -- our portfolio down to where we are pretty well in the money in all of our major complexes, both on the metallurgical and thermal side. And while there's probably a few contracts we would like to target, it always comes down to the economics of what is right for us and what's right for our customers.

Okay. But this feels like the biggest chunk of possibilities, right?

I think we were very pleased with this outcome.

And then back -- also on the contracting side of things, transport [tanker] pay, liquidated damages, any change to your outlook around being able to renegotiate those in the near term?

We are always in conversation with the players. And I think most of the ones that are here for the long term understand the market. As you can see from our guidance, we think we will be about where we were in the first quarter of this $50 million to $60 million range. We would like to improve on it but right now that's about where it sits.

Okay. Fair enough. Thank you very much.

Thank you, Brandon.

Our next question comes John Bridges with JP Morgan.

Thanks, John, John and Paul. I think following on from Mike's question, or your response to it, you said the risk of cannibalization of 840 business from 880, does that mean that you might be looking at Coal Creek as something that might save you money if you [mothballed] it?

I will let Paul jump in here, but we continue to run Coal Creek. We've got a solid customer base at Coal Creek that likes the coal. We have been happy with the performance there, John, and feel like at -- we're always looking at our portfolio to make sure that we're optimizing that, but really comfortable with what we are seeing from not only Coal Creek but from Black Thunder. Paul, you got any --

John, you've got to put it in context. You've got to remember, in 2001 I was the one who shut it done. So if I thought it was right to do, I would do it again. But as you look at the mine, it is low ratio. It is low cost. And as you look at it, also, it is a drag-line operation. And it may be the last drag-line operation in the PRB without [prestrip]. It requires very low capital and has not required any federal leases. Overall, it is PNL positive and cash positive. I think the closures are a relevant question and we ask ourselves that a lot. I think it is an outstanding operation. And it, in fact, may be one of the lowest cost mines in the PRB right now.

Okay. Enough said. And then you made some great progress on cost cutting. Could you talk a little bit about the sustainability of these cost cuts? And in particular, the improvement at [Leer] -- was that simply getting more tons out of it or was there something else that happened?

You know, John, I think you got to stand back and look at central APP and really what we have done in the last two years. We have aggressively gone after high-cost mines. If the mines are not generating cash, we shut them down. And we have lowered our cost considerably in central App. We are now sitting -- we sat at about $52.50 in Q1, which is outstanding. You stand back and look at Leer, ever since it has come online our average cost has dropped quarter after quarter. We had an outstanding quarter at Leer in Q1. We produced just over a million tons. And I really can't say enough about what -- the job the guys have done and continue to see this as a positive development going forward. As I look at things -- our met platform in the east is probably one of the lowest cost, if not the lowest cost of all of the coal companies now.

Okay, great. Well done, guys. Best of luck.

Thank you.

The next question comes from Paul Forward with Stifel.

Thanks. Good morning.

Good morning, Paul.

Just wanted to follow up on that last point on the met coal in the east. I think you had said you had committed 1.2 million tons during the quarter at 75. You can talk a little bit about where that market would be right now? Because it sounded like you had a significant inventory build during the quarter and that was at a really good production quarter at Leer but some of that went into inventory. Can you talk about where that market would be now relative to the 75 if you were -- as you work those inventories down through the rest of the year?

Paul, let me try and give you a little color on our sales. During the quarter, we placed 1.2 billion tons for 2015 delivery. The average price was $74.92. If you look at those sales, 70% were low vol and high vol A and 30% were high vol B and PCI. And in addition to that, we rebalanced our PCI production and dropped it about 300,000 tons. These sales were pretty evenly split between domestic and international.

The net impact of switching all of these products was a net increase of committed metallurgical sales of about 900,000 tons, which puts us at 4.9 million at an average of $78.27. I guess as you look at this, the impact of all of this was we also raised our average price about $1. The PCI tons ended up going into the industrial market. As you look at what we got left, about 75% of our stales are now committed. So based on the midpoint, our remaining to sell -- about 45% of it's low vol, high vol A and 55% is high vol B, PCI. And relative to your question on inventory build, obviously we had an outstanding quarter at Leer that really pushed the inventory up. But as John said, as we go through the year, we have a series of longwall moves that we think most of this will be absorbed.

Okay. And switching over to bituminous thermal, you didn't have any sales -- it didn't look like there were any new commitments for 2016 for new commitments. And just wanted you, if you could, to talk a little bit about as the year goes along in 2015, what are the prospects for raising that commitment level? I think right now you've got 2.8 million tons committed. But this is -- the utilities in the region are struggling with high inventories. Just wondering if you can talk about -- as you look at your plans for 2016, for volumes, particularly West Elk, what is the risk that 2016 is going to be a year when your production has to go down again there?

We entered 2014 with 1.5 million in sales and we ended up shipping 6.3. As we entered this year, we were in a little bit stronger position. But as you noted, we sold very little coal either for 2015 or 2016. Frankly, the prices just weren't pushing any tons into the market. As I look at 2016, it is a little less than what I would like to be. But I also know that this coal is still pretty favored on the export market. We still plan on exporting about 20% of this coal. And those tend to be annual contracts. I guess bottom line is, West Elk is always going to be a concern. It plays into the export market well. But the export market isn't very strong right now. And its customer base is been hit pretty hard by low natural gas prices. So we are going to have to make that call here in the next 6 to 9 months.

Paul, this is John. Just an add-on. We do have a pretty good industrial base of business out there in addition to the international market. And with the domestic utility business we have right now, to your point, there are a little bit of a build in inventories. But we do think that there is reasonable expectation to replace some of that volume in 2016. They just haven't come to market yet. So between the industrial base, the international market and replacing some of our existing domestic business, hopefully we can run at least in that 5 million to 6 million ton level going forward. But as Paul said, over the next quarter over two, it will be pretty telling in terms of West Elk.

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

Good morning, everyone.

Good morning, Lucas.

My first question is for John Drexler. I wanted to foe follow up on the covenant. So the way I understand it, the -- sorry, not the covenant, but the revolver. The way I understand it, the covenant steps down at the end of Q4 and then it matures in mid-2016. What is your plan for that?

Lucas, as we've indicated on previous calls, we are continuing to look at and evaluate how we will manage the revolving credit facility. You are correct. As we sit here and we look out through remainder of 2015 and our expectation, we expect to be in compliance with covenants, but then the facility matures in mid 2016. So we will evaluate what we want to do. As we have described in our previous discussions, by design, the revolving credit facility has become a small part of our overall liquidity profile. So as we sit here today, we are very comfortable with the liquidity profile with the majority of that being in the form of cash. So we will continue to look at where markets go, what our opportunities are and evaluate it as we approach that coming due.

Could you maybe share with us what the options could be specifically in terms of that?

I think one option clearly could be a potential opportunity just to renew a revolver, obviously at a much smaller component of our overall liquidity. We will see what the market offers from that perspective. That is secured capacity that we have and have access to. So if it is no longer there, there is potential other secured capacity options that we could evaluate, once again, from a liquidity perspective as we move forward. So we think there is a variety of options as we move forward and approach the maturity of that facility.

That's very helpful. And then I have another quick question for John Eaves. We had this recent combination at the Illinois Basin and the way I understood it, they indicated that there is market share to be taken from the PRB. I'm sure you probably heard about that. How do you think about the competition from the Illinois Basin on your PRB business?

Lucas, certainly with the market environment we see, natural gas prices where they are, coal inventories where they are, we see the most pressure being on central App in the east. And I think I commented earlier about the falloff in volume we see from 2014 to 2015. But going forward, when we look at the impact of [mats], the potential displacement of coal by natural gas and the economics of Powder River Basin, we think that the Powder River Basin is going to do well, if natural gas prices in that $2.75 plus or minus, than any regulatory environment. So I would tell you that we think we will do just fine in the PRB. I think there is opportunities for Illinois as well, which we also participate in. But going forward, we do think that the markets that PRB serves are going to continue to be strong. And out of the 25 million tons that mats is going to impact the market this year, we are forecasting about 7 million or 8 million of that to be PRB.

We will go ahead and move to our next question from Jeremy Sussman with Clarkson Capital.

Yes, hello. Good morning.

Good morning, Jeremy.

My first question is just on CapEx. How long do you think you can kind of operate at these levels? I mean obviously nice to see you kind of bring this down a little bit. And then just from a mechanics standpoint, how much do you have, payment-wise, left for the LBA and is that in CapEx for 2015 and 2016?

Jeremy, I guess I will start with that and if anyone wants to jump in. But as we look at our CapEx this year, it is kind of broken up into two big buckets. About $0.60 of the $1.11 in CapEx is in maintenance capital and the remainder is in land. I think what has been pleasantly surprising to me over the last year or two is we are learning to run this Company with a lot lower CapEx. While I don't think we can sustain a $0.60 run rate on CapEx, I don't see it going back to the levels we saw historically. I think looking at $1.00 to $1.25 as maintenance CapEx longer term is not out of the question. Relative to the land payment, I believe John pointed out that our second to last payment is due this quarter and the last one will be in 2016.

And how much is the payment? And is that included in CapEx?

It is $60 million. And it is included in our guidance range that we provided.

Great. So we should see a nice drop-off in CapEx in 2017 then?

That is correct.

Okay. Great. That's all I've got. Thank you very much, guys.

Thanks, Jeremy.

The next question comes from Neil Mehta with Goldman Sachs.

How are you, John? Good to talk to you guys. In terms of thermal export market, you had a comment in the release that you thought we would be going from 100 million tons of US exports overall to 90 million this year. But the bulk of which would be metallurgical coal, not thermal coal. Just wanted to get you to expand on that a little bit in light of depressed New Castle prices. I would have thought thermal would have been a sizable contributor as well. And then the follow-up to that is, as you think about New Castle prices currently, what level do they have to be in order to make PRB net-backs make sense from an export perspective?

Certainly exports have been under pressure. With API pricing where it is currently, we don't see a lot of coal coming off of the East Coast. About the same for the West Coast. If you look at what we typically price ourself off of off the West Coast would be the 5,000 [kcal] out of Indonesia. And those prices are in the $50 range. So when you do the net-backs, they don't work. Clearly API pricing has ways to go. I would say in the mid-80s to low-90s before it makes any sense for central App coal. And in terms of the 5,000 kcal out of Indonesia, don't remember -- don't forget, over the last couple of years, we have seen prices $80, $90 which we actually were providing better pricing than we were seeing in the domestic market. Currently that is not the case.

So we do see weakness in that market at least in the short term. There is not a lot of new coal-fired generation being constructed around the globe. A lot of that in Asia and we think over the next several years they're going to need the US to step up their thermal exports to participate in that. And I would say our forecast from 2014 to 2015 is down from, as you said, about 100 million down to mid-80 million. We think that split is probably about [50] million or so of met and about 30 million, 35 million of thermal. Paul, you got anything to add to that?

Yes. Just to give you a little more color, Neil, in the first quarter we exported about 1.5 billion tons and that included coal from every one of our operated segments, including the Powder River Basin. About 60% of our exports were metallurgical and about 40% were thermal. And as John noted, most of our thermal exports are coming from the west. And the majority of those are coming from West Elk. One thing you have to remember is West Elk trades slightly higher premium to API too and to New Castle because of its lower ash and lower sulfur.

Okay. That is great color. And then my other follow-up is you made the comment that it looks like rail capacity and take away capacity is improving. I wonder if you can flush that out a little bit in terms of what you are seeing from the rails in terms of providing service. I recognize the demand at this moment isn't as strong as it was even 12 or 14 months ago. But to having the improved capability is an important point. So across the system, if you can comment on in terms of what you are seeing there.

Let me start and maybe Paul can jump in. I think it is a couple of things. One, they spent the capital in 2014. They continue to spend the capital on locomotives, on manning. We are starting to see the benefit of that. Also, you got to look at what is going on with oil prices in the Bakken. I think that has probably freed up some equipment. But really, both railroads are performing relatively well. And as I commented earlier, a lot of our customers built inventory in the fourth quarter of 2014, coming into 2015. So I think the sense of urgency has kind of been taken off the table for the short term. So overall, I would give pretty high marks to the railroads. Paul, any additional comments?

Obviously the railroads have been a lot of discussion over the last year, particularly in our prepared remarks and in the questions. But I think the very fact that we are not talking about it, except for this question, is a good sign. I got to give [BN] a lot of credit. They stepped up and did what they said. Frankly, I think their act is back together.

And we will move to our next question from Brett Levy with Jefferies.

Hey, guys. As you look at your covenants and your various [tranches] of bonds, to free up a little bit more senior capacity or anything else like that, is there a most restrictive covenant in a particular issue that maybe you would target to buy back with some of your liquidity?

Brett, this is John Drexler. We have talked about this over various calls. Each of the debentures have various restrictions and components of them that we continue to evaluate. There has been a lot of talk out in the markets regarding the [20/20's] as being the most restrictive from a debt capacity. There is a 30% CNTA limitation associated with those. But as we've described, we think that there are various baskets, others things within all of the indentures that allow us various amounts of secured capacity that if we altered or wanted to go access, we have the ability to access. As we have done here throughout the market cycle, we have been very focused on liquidity. We have been very focused on getting cash outflows under control. As we described over the course of the prepared remarks, we feel good about that. We have also focused on making sure that we've got an extended runway. We have that as well.

So as we sit here today, as we've described, market conditions are difficult. But we feel that we are managing through them well. We feel that we have a good amount of liquidity and we've got ample runway. We will continue to evaluate what opportunities are out there. But we feel good about how we have arrived at where we are today.

And we are not that far into the current quarter. Have you guys, to this date, repurchased any bonds?

Brett, as we've described, throughout the market downturn our focus has been liquidity. And, no, we have not been out and have not purchased any bonds.

Due to time constraints we will take our last question from Arjun Chandar with JP Morgan.

Hi. Good morning. Just a quick question on liquidity, with the cash and short-term investments sitting at around $940 million and total liquidity of $1.1 billion, I was wondering if you could comment on the available capacity under the revolver. Fully under on revolver would imply close to $1 billion too of liquidity. So just wanted to know whether there are either some letters of credit or borrowings reducing availability under that revolver. Thanks.

Arjun, we're -- I'm going to answer your question. You were very muted as your question came through. But I think it was what is the capacity of the revolving credit facility. And as we have described, we have $1.1 billion of liquidity, $940 million of that in cash. So you've got the revolving credit facility and if you look at secured capacity, using that 30% CNTA limitation, you need to evaluate kind of what the CNTA is. Take the $8 billion assets on -- plus on the balance sheet, make the adjustments that you need to make. And essentially what you arrive at is around $100 million of capacity on a revolving credit facility. In addition, we have a $150 million accounts receivable securitization facility that falls outside of that. So really between those items, that makes up the rest of the liquidity in excess of cash.

That's great. Thank you very much.

And ladies and gentlemen, that does conclude today's Q&A portion of today's call. I would like to turn the conference back over to Mr. John Eaves for any closing remarks.

Thank you very much and we appreciate your interest in Arch Coal. We continue to manage through these market headwinds, focusing on the things we can control -- cost, capital, liquidity and sales [quotas]. We have done a lot of good things in the east to establish ourself as one the lowest cost producers, particularly on the met side. We continue to position the Company well for the market improvement down the road. So we look forward to continuing to update you for the balance of the year and we will talk to you next quarter. Thank you.

And ladies and gentlemen, that does conclude today's conference. We do thank you for your participation. You may now disconnect. Have a great rest of your day.