Core Natural Resources Inc (CNR) 2022 Q2 法說會逐字稿

Thank you, and good morning, everyone. Welcome to CONSOL Energy's second quarter 2022 earnings conference call.

Any forward-looking statements or comments we make about future expectations are subject to some risks, certain of which we have outlined in our press release and our SEC filings and are considered forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. We do not undertake any obligations of updating any forward-looking statements for future events or otherwise.

We will also be discussing certain non-GAAP financial measures, which are defined and reconciled to comparable gap financial measures in our press release and furnished to the SEC on Form 8-K, which is also posted on our website. Additionally, we filed our quarterly report on form 10-Q for the quarter ended June 30th, 2022 with the SEC this morning. You can find additional information regarding the company on our website, www.consolenergy.com, which also includes the supplemental slide deck that was posted this morning.

On the call with me today are Jimmy Brock, our Chief Executive Officer; Mitesh Thakkar, Chief Financial Officer; Dan Connell, our Senior Vice President of Strategy; and Bob Braithwaite, our Senior Vice President of Marketing and Sales. In his prepared remarks, Jimmy will provide a recap of our key achievements during the second quarter of 2022 and specific insights on operations and sales. Mitesh will then provide an update on our balance sheet initiatives, financial performance, and 2022 outlook. He will also highlight the recently completed refinancing of our revolver and accounts receivable securitization facility.

Additionally, we will also discuss our recently announced enhanced shareholder return program before Jimmy lays out some key focus areas for the remainder of the year. After the prepared remarks, there'll be a Q&A session which Dan and Bob will also participate.

With that, let me turn it over to our CEO, Jimmy Brock.

Thank you, Nate, and good morning, everyone. CONSOL Energy achieved very strong results on many fronts across the company during the second quarter of 2022. Pennsylvania Mining Complex shipped 6.2 million tons in Q2 of '22. And for the second consecutive quarter, achieved the highest quarterly average co-revenue per tons sold since CEIX became an independent public company in 2017. After adjusting for the effects of settlements of commodity derivative instruments, we achieved an average realized coal revenue of $72.18 cents per ton. Additionally, we increased our PAMC forward-contracted position by 7.6 million tons through 2025. The CONSOL Marine Terminal shipped 3.8 million tons in Q2 of '22. And, for the second consecutive quarter, generated its highest ever quarterly terminal revenue and adjusted EBITDA.

Financially, CEIX achieved a Q2 '22 adjusted EBITDA of $216 million and generated $160 million in free cash flow. We also made substantial debt repayments in the quarter while still increasing our unrestricted cash position and liquidity. On the growth and diversification front, our Itmann project made significant strides in the second quarter, and we now expect startup to occur during the third quarter of 2022. Finally, we are very excited to announce that we are implementing a shareholder return program, which will begin in Q3' 22 and return a portion of our free cash flow generation back to shareholders. We will provide more color on this program shortly.

Let's now discuss our operational performance in more detail. Coal production at the Pennsylvania Mining Complex came in at 6.2 million tons in Q2 of '22, only slightly below our Q1 '22 performance, despite multiple long wall moves in the second quarter, compared to zero in the first quarter. Intermittent railroad delays continued during Q2 '22. However, we saw continued improvements from our transportation partners throughout the quarter as they worked to increase their staffing levels. As such, productivity at the PMC has continued to improve since mid-year 2021. Productivity in the first half of 2022, measured as tons per employee hour, improved by 6% compared to the second half of 2021.

On the cost front, our PMC average cash cost of coal sold per ton for Q2 '22 was $34.81, a significant increase from the $29.91 in Q1 of 22. Along with ongoing development cost associated with the fifth longwall, we continued to experience inflationary pressures on goods, services, and repair and maintenance cost at our operations. Additionally, a premature termination of a fixed power contract, as a result of a supplier bankruptcy, also weighed on our cash cost during the quarter.

On a positive note, the development of the fifth longwall continues to progress on track and will provide additional operational flexibility once completed toward the end of this year. The CONSOL Marine terminal had a throughput volume of 3.8 million tons during Q2 '22, consistent with the prior year period. However, terminal revenue for the quarter came in at $21.8 million, a significant increase over the $17.4 million in Q2 of '21. This was driven by a substantial improvement in the throughput rate per ton, due to increased export demand and commodity pricing strength. CMT operating cash cost came in at $5.7 million for the quarter compared to $5.3 million in Q2 of '21. This resulted in CMT adjusted EBITDA of $15.1 million in Q2 '22, compared to $11 million in the prior year period.

Wrapping up the operations update, our Itmann project development work progressed on schedule in the second quarter with preparation plant commissioning and production scale up now expected during the third quarter of 2022. At the end of Q2 '22, relocation and construction of the Itmann prep plant was roughly 80% complete. The majority of the plant equipment was also installed during the second quarter. The new rail sidings and mainline rail construction activities are nearly complete with tie-in expected to occur in early August. Additionally, we have continued to build out our workforce and mining equipment fleet and preparation for ramp up by the end of Q3 2022.

In Q2 of '22, the Itmann mine produced approximately 35,000 tons of low-volume metallurgical coal and sold 51,000 tons into the export market. Our marketing efforts continued during the second quarter and the Itmann product has been well received. In conjunction with the plant startup in Q3 of '22, we have successfully concluded a contract in the domestic market for a portion of the '22 Itmann volumes, and discussions regarding additional trials for the product are ongoing.

On the marketing front, the demand for our PMC product remain robust in the second quarter of 2022 due to a persistent lack of supply response in the coal space, coupled with supply shortages across the energy markets more broadly. As such, we sold 6.2 million tons of PMC coal at an average realized revenue per ton sold of $72.18 in Q2 of '22, compared to 5.9 million tons at $44.02 in the year ago period. Additionally, we improved our average realized coal revenue per ton by $12.58 in Q2 of '22, compared to the first quarter of this year.

Looking across the broader thermal coal markets, global demand remains robust as a result of tight supply. In the US, we are seeing domestic coal-fired electric generation units delaying retirements due to energy shortage and grid reliability concerns. Internationally, Europe, Australia, and Japan are all bringing back coal-fired electricity generation units due to grid reliability concerns in the face of a potential loss of Russian gas.

Adding to the concerns of further declines in supply availability, the new incoming Columbian president is anti-fossil fuel, and though not guaranteed, could elect to ultimately end fossil fuel extractions in the country. Columbia currently exports about 50 to 60 million tons of thermal coal annually, which is already down considerably from roughly 90 million tons exported in 2016.

Persistent coal supply tightness remains a major theme and is keeping the markets for our product strong. On the back of this market strength, our sales team opportunistically secured additional sales contracts and increased our forward sold position by 7.6 million tons through 2025. We remain near fully contracted for 2022 and now have 19.6 million tons contracted for 2023.

Let me hand the call over to Mitesh to provide an update on our financial performance in the quarter and some exciting developments for the company on the financial front.

Thank you, Jimmy, and good morning, everyone. Let me begin by updating you on our refinancing and other balance sheet initiatives before I dive into the quarterly results and outlook. Towards the end of 2Q and into early 3Q, we successfully renegotiated an amendment and extension of our revolving credit facility and our accounts receivable securitization facility.

First, on the revolver front, I'm pleased to note that we are successful in securing $260 million of commitment to extend a trench of our revolving credit facility with a maturity of July 2026. We also have a non-ending trench of the revolving credit facility of $140 million that will stay in effect through March of 2023, which enables us to maintain a $400 million reward worth throughout that period.

The non-extending trench of lenders made up $282 million of commitment in the previous version of our revolver, and they have chosen not to extend their commitments as ESG concerns continue to drive the loaning decision for many of the banks. We thank the departing lenders for their past support of CONSOL Energy.

On a positive note, we were able to identify several new banks that recognize the improving credit profile of our balance sheet, the critical role that coal continues to play around the world in providing reliable, low-cost energy, and the important part that CONSOL's business plays in enabling America's energy independence.

Accordingly, we were successful in securing more than a $100 million of commitments from these new lenders, many of whom are in the same communities that we currently serve. In addition to these new lenders, we secured roughly $40 million of upsized commitments from existing extending lenders. We welcome the new lenders to the CONSOL family, and we thank all extending lenders for their continued support and commitment.

In summary, while losing capacity is never easy, we are happy with our new revolving credit facility structure for several reasons. First, this amendment and extension right sizes the facility to reflect the new CEIX, which now has the strongest balance sheet in its history and a lower need for external financing. Second, our current lender group consists of more supportive lenders, thus reducing the future risk of (inaudible).

Third, we'll maintain full access to a current $400 million revolver, through its current maturity, at the end of March, 2023, which allows us to rebuild liquidity, while continuing to aggressively reduce debt and initiate a shareholder return program sooner. Finally, when the facility drops to $260 million in March 2023, we'll have the ability to add new lenders to the facility, if we choose to do so. On the AR securitization front, we maintained the current a hundred million capacity and extended the maturity to July, 2025. Due to several favorable modifications to the borrowing based calculations, we have successfully achieved a higher facility utilization.

Moving on to other balance sheet items, we have continued to take advantage of the opportunities presented by strong market fundamentals to further accelerate our financial goals and priorities. In 2Q '22, we generated $160 million of free cash flow. We continue to make strides on our overall debt reduction goal, deploying most of our free cash flow for that purpose. In 2Q '22, we made total debt payments of $116 million, which included $75 million of terminal loan B payments and $35 million to fully retire a terminal loan A. We have now made total debt repayments of $154 million in the first half of 2022. I'm pleased to announce that we also made a $50 million discretionary payment on our terminal B at the end of July, that is not reflected in our second quarter results. This brings our total debt repayments to more than $680 million, since the beginning of 2018. We will continue down the path of significant debt reduction, towards achieving our goal of approximately $300 million of aggregate gross debt.

Additionally, in the quarter, our unrestricted cash balance increased by nearly $40 million, despite our significant debt reductions, bringing our total unrestricted cash to $262 million at the end of June, 2022. When accounting for our restricted cash of $51 million, a total cash balance sat at $313 million at quarter end. Furthermore, we ended 2Q '22 with a liquidity position of $404 million. This all led to a net leverage ratio of just under 0.5x at the end of 2Q '22, which was reduced from just under 1x at the end of 1Q '22. We remain excited by our progress on this front and expect to continue to better align a gross debt level with our mid-cycle EBITDA level. However, one area of the disappointment for us has been the lack of recognition of our balance sheet and liquidity improvements in our credit ratings. Both S and P and movies continue to rate our corporate credit at essentially the same letter grade that it was lowered to during the depths of COVID.

They each have recently experienced analyst turnover issues, which may be contributing to this inaction. While frustrating, we continue to work with them and emphasize the importance of our ratings for our borrowing costs. We are optimistic that, with the recent debt reduction and revolve our amendment, we can achieve some ratings improvement later this year. Finally, let me provide some color around the financial rationale behind our shareholder return program announced this morning.

We have prioritized a strong balance sheet, since becoming a public company, but have really emphasized debt reduction over the last 2 plus years, during our shrinking access to capital markets. In fact, over just the last 4 quarters, we have reduced our gross debt by 190 million and enhanced our liquidity by 104 million. Furthermore, a strong free cash flow visibility, an extension of our revolving credit facility gives us comfort in our ability to continue to reduce debt meaningfully, even while allocating some capital to our shareholder returns. In the near term, we'll continue to allocate the majority of our free cash flow towards debt reduction.

And as we achieve a target debt level, we'll consider a further increase to our shareholder returns. Jimmy will provide more details on this program in his closing remarks. A financial strategy has evolved since early 2020, from a very defensive posture focused on liquidity preservation during the COVID related thematic decline to opportunistic debt repurchases and asset sales to a growth mode in 2021, with our restart of the admin project and the redevelopment of the fifth long wall at the Pennsylvania Mining Complex, ultimately culminating with this announced shareholder return program. Again, this all stems from our ability to generate free cash flow in all parts of the cycle, coupled with a prudent capital allocation strategy.

Now, let me recap our second quarter financial results and the outlook for the remainder of the year. This morning, we reported a very strong 2Q '22 financial performance. We ended the quarter with net income of 126.3 million or $3.54 per diluted share and adjust a bit of 216.3 million.

Furthermore, we generated $159.9 million of free cash flow, primarily driven by $198.4 million of cash flow from operations and capital expenditures of $39.4 million. For the PMC, we are pleased to announce that, due to the strong 2Q '22 performance and improved outlook, we are raising our expected average realized cold revenue guidance to a range of $64 to $67 per ton, net of supplements of commodity derivatives. Our updated guidance assumes average PGMS data, head power powers of $88.44 per megawatt hour at the midpoint of the second half of 2022.

For every dollar per megawatt hour change in PGM west power prices during the second half, we estimate the dated average realization across our entire portfolio for the full year of 2022 would change by approximately 7 cents per ton at the midpoint price. Additionally, throughout this year, we have been successful in opportunistically blending and extending certain contracts to push out lower priced volumes into future years and replacing them with volumes that better match current market pricing, thereby, creating a win-win situation for ourselves and our customers.

This gives certain customers that desired volume commitments for multiple years, while simultaneously improving on year term pricing and balancing our sales book over a multiple year period, by pushing lower price terms to future years that are much less contractor. Additionally, for the PMC, we are improving our 2022 sales volume guidance range to 24 to 25 million tons, as the operations ran very well in the first half of 2022. And the transportation bottlenecks have gradually improved since the end of 2021. However, on the flip side of those improvements, we are increasing our PMC cash cost of coal sold guidance to a range of $32 to $34 per ton. Ongoing inflationary pressures continue to create inward push in the second quarter. And while our operations and supply chain teams have done a great job of managing costs as best as possible, certain increases are out of our control.

According to fact set, analysts currently estimate the U.S. Producer Price Index for 2022 will increase by 11.6%, compared to an expectation of 2.6% increase, just 1 year ago. Price increases for items such as steel, diesel, lubricants, power and services have been ahead so far this year. Despite this, we still expect an improvement to our cash margin of $3 per ton, at the midpoint of our guidance ranges, as compared to last quarter's guidance. Potentially offsetting some of the operating cost increases is a deduction to our capital expenditure guidance range to $160 million to $185 million. And this is mainly driven by some delays in equipment deliveries and rebuilds that had been included in our initial guidance. For Edman, our preparation plan project is now on track for 2Q '22 startup. And we are reaffirming our production guidance of 300 to 500,000 tons for 2022. We expect to provide additional operational guidance for the Edman 1 on our next call and in conjunction with the ramp up to full production.

We are very pleased with how 2022 has progressed to this point and our ability to optimize our sales book. Looking ahead, we remain even more excited about our future prospects. We continue to strain them, an already strong book of business for 2023 and beyond. And next year, we expect higher sales volume from both the PMC and Edman that could further add to the upside. Additionally, we continue to bolster our balance sheet and lower the fixed cost of running the business through lower debt servicing cost. All these factors have put us in a good position to share the upside with our stakeholders.

With that, let me turn it back to Jimmy to touch on the shareholder return program and our key priorities for the last of 2022.

Thank you, Mitesh. Now let me touch on the details of our announced shareholder return program that we are very excited about. As Will promised for a few quarters, several conditions needed to be met before looking to shareholder returns. We wanted to get below 1x leverage, reduce a significant portion of our gross debt, and de-risk our Edman development project. We are happy to report these conditions have now been met. We set just below 0.5x net leverage at the end of Q2 22, our Edman project is nearing a ramp up to full production. And though we still have more work to do on our debt reduction targets, we feel comfortable about our ability to achieve our target gross debt level in the near term, while still implementing a shareholder return program. We have engaged many of our shareholders during the second quarter. And based on their feedback, we believe it is prudent to initially focus on dividends, as the preferred means of shareholder return, with the flexibility to opportunistically repurchase shares of our common stock.

Here's how the shareholder return program works. Under this program, at the discretion of the board of directors, CEIX will return a portion of its free cash flow generation back to shareholders in the form of quarterly dividends and/or share repurchases. Based on the free cash flow results from Q3 22, the first payment under this new program will happen in the fourth quarter and return approximately 35% of free cash flow. In the short term, the majority of our remaining free cash flow will be allocated toward our debt reduction goals. Once our target gross debt level is achieved, we expect to further increase the free cash flow allocation percentage.

In order to kick off the program, we are also pleased to announce that the board of directors has elected to pay a special dividend of $1 per share on August 24th to all shareholders of record, as of August 16th, based on our Q2 22 results and excess free cash flow generation. We also announced this morning that, in conjunction with the initiation of the shareholder return program, our board of directors has increased its previously authorized repurchase program to an aggregate amount of up to $600 million and extended the duration of the program by 2 years, to December 31, 2024.

We now have 381 million of availability to repurchase our second lien notes and shares of CEIX common stock. We appreciate the patience of our shareholders as we navigated through the significant debt burden associated with our spend, as well as a tough 2020 due to COVID related demand destruction. However, we believed our capital allocation approach would set us up for success, and it is very rewarding to see it paying off now for our shareholders. Rest assured, we are not finished. We have more work to do on the debt reduction front, but we are well on our way.

For the remainder of 2022, we have a few key focus areas to help drive success this year and beyond. First, we are focused on bringing the fifth longwall back into the operation in late Q4 and are working with our operations, marketing and logistic partners to ensure that we remain on track. We are also fully committed to getting our Itmann Prep Plant up and running this quarter.

Second, our sales team remains opportunistic in its approach and will continue to balance revenue visibility and contract duration with market optionality and arbitrages maximization. We expect to continue to layer in additional business for 2023 and beyond. And depending on the breadth of this ongoing demand strength, we expect to enter next year with a very strong contracting book of sales. This would allow us to turn our full attention to future years sooner than what is typical.

Third, strengthening our balance sheet and liquidity is always a major focus. I'm very proud of our work to successfully amend and extend the Revolver and AR Securitization facility. We expect that this will increase our financial flexibility for years to come. And from a balance sheet perspective, allow us to focus on reducing our long term growth debt level. Our strong free cash flow generation and expectations for the near term should allow us to accelerate this goal.

With that, I will hand the call back over to Nate.

Thank you, Jimmy. We will now move to the Q&A session of our call. At this time, I'd like to ask our operator to please provide the instructions to our callers.

(Operator Instructions) Our first question comes from Lucas Pipes from B. Riley Securities.

Congrats on the results and the announcement of the shareholder return program. So a few questions, I'll try to keep it short. On the contracted position for 2023, 19.6 million tons are fixed. Could you share what prices have fixed that?

Thank you, Lucas. Sure. Let me first give you the breakdown here, Lucas, of our volume for '23. So at 19.6, we have about 12.5 million tons contracted domestic, of that 12.5 million about 2.5 is linked to our power prices and then 7.1 million tons export. Based on where API2, 4s are today and also power prices, we're seeing our realization across the 19.6, come in and call it low to mid 70s, but also, keep in mind, we expect to have 5 longwalls in operation throughout next year. And then although we haven't announced, guidance, I think it would be safe to assume that we will expect a year-over-year improvement in terms of our production sales volumes, which would give us, let's just call it, 6 plus million tons of our production left to sell, which I will tell you, we have the majority of that earmarked for the export markets.

That's very helpful. And a quick follow up, the export portion of the 19.6, is that floating with API2 or is it at the cap in the average price you just mentioned. How should we think about the export piece?

Yes, about 3.5 of the 7.1 are linked to API2. I will tell you that we're significantly above where the cap is. So I think Cal 23 is trading roughly around 250, 260 today, that would have to drop significantly in order for us to get below what that cap is and then the balance would be fixed price.

Understood. That's helpful, thank you. And then you priced an incremental at 3.3 million tons compared to the prior quarter. There are always a few moving pieces here, but why not more? And was that all incrementally domestic? And if so, could you again, please share kind of roughly the pricing ballpark on those incremental tons? Thank you.

Yes. So we did some optimization in 2022, as Mitesh mentioned, that was about a half a million tons in 2022 that got moved out into future years. A majority of that did get moved out to 2023. That would've been domestic. When you take the domestic tons, optimization tons, plus the incremental tons that we sold, I think when you do the back of the envelope calculation, the 3.3 incremental tons that we now have in '23 were sold well north of $100, call it closer to $120.

Okay. And that's domestic?

I'm sorry, domestic and export. It's more heavily weighted toward domestic, about 70% domestic, 30% export.

Okay, that's very helpful. Thank you very much for that. Now I do want to touch on one of the industry points that was raised, the 12 gigawatts of coal fire generation that has announced retirement delays. Do you have a rough regional breakdown for those extensions? How much of that would fall within the geographic footprint of CONSOL?

I don't have that breakdown specific breakdown Lucas, but what I can tell you is what we're seeing is customers that were, I would say concerned about long term deals. And what I mean by long term deals, is if their plants or units are going to be running the future, I think are now starting to get a sense that they will be needed. So we're starting to see longer duration contracts because of that, and I would say, higher volumes than they traditionally would contract out. So I don't have the specific breakdown, but I could tell you the majority of our customers in the PJM and then also into the Southeast are starting to get a sense as though coal will be a vital part of their energy mix for years and years to come.

That's helpful. I'll try to do one last one. You mentioned the cancellation of a power supply agreement due to bankruptcy of the supplier. What's the power situation on the cost side today? Are you floating with Spot or have you locked in something else? And what's the cost impact of that?

Yes. So Lucas, right now we are more Spot driven on the power side from the cost perspective, but our sensitivity to the cost piece is much lower than our sensitivity on the revenue piece. So higher power prices is a significant net benefit for us.

(Operator Instructions) The next question comes from Michael Dudas from Vertical Research.

Jimmy, characterize the mind of buyers all heading into the European or Asian markets today, obviously there's urgency given all the dynamics in the energy markets, but given other cycles that you guys have participated in, maybe '07/'08 cycle, maybe the '12/'13 cycle, is there going to be more patience? And given where prices are, is there more willing to be more variable at it? Or how are you guys thinking about it relative, especially as you look at in the longer term, and lock in significant higher floor prices for your product than has been witnessed in the last 20 years?

Yes, I'll take the first part of that and then we'll let Bobby talk about some of the specifics. But backing up looking at the cycles, I think the one thing that we're seeing different here is the tightness in supply. Before, as soon as the market prices start to go up and reach attractable prices, you saw a lot of production increases. You're not seeing that today, although they may be a little, but some of that is because of, we went through COVID, people were serving cash, the investments are just not made and the capital's not invested to bring on that supply. So I would say the one big difference, particularly, in my career, and I've certainly been through all of those cycles, is there's not the supply response to drive that price back down as quickly.

Now, obviously there's things that we don't know looking into the future, such as this Russian/Ukraine war and those type things that play on the energy market in general. But I do believe that markets are going to remain strong for at least the next couple years, that's what we're looking at. And then when you look at where the coal is going into different regions, that also plays into what we do, whether we would hold back some, or we would go ahead and move for those contracted positions. Obviously, we would sacrifice a little bit of price for duration.

Yes, then, Mike on the marketing side, just talking with our customers over in Europe, obviously there's a strong appetite to continue to contract. For the challenge today, obviously in the near term is that all the ports are nearly full with Russian coal today and then you have the Rhine river situation, which is exacerbating the problem. The utilities need the coal, so once this Rhine river situation kind of corrects, which we think will be sometime late August, early September, obviously the August 10th ban of Russian coals will take effect here.

So that obviously will reduce the amount of Russian or eliminate the Russian coal coming in, they obviously will be looking, Europeans, will be looking at Columbia, US to backfill a lot of that need. So I think in Q4 there's obviously going to be a strong demand and desire to contract additional volumes. We have been successful in contracting volumes in '23 to Europe. I will tell you that the only reason why I don't think we have more done today is just due to the lack of liquidity in the API2 markets, and then also the cost of hedging for these utilities.

Mainly utilities in Europe do like to buy on a fixed price basis from the producers. And then what they do is go out, and they hedge power prices, carbon prices, and API2s. With that being said, I think there's still a lot of opportunity for us to move more coal into Europe, potentially as early as late Q4 of '22, which fits really well within our program as we have our fifth long wall coming online, and then '23 as well, and well beyond that.

Has your historical commitments to say the Indian market changed on this part, and how are they thinking about their needs, given where prices and availability is today?

Yes, we're having calls with the Indians quite often. There certainly is strong demand there. Petco prices are off a little bit, so the biggest arb for us continues to be to ship coal into Europe. But ultimately, India is still a growth market, and we fully expect to continue to send coal to India for decades to come.

That's encouraging. And then turning to Itmann, Jimmy, maybe to remind us when you contemplated the investment into the project, what kind of longer term price for the product did you budget in and maybe tie that into cost inflation over the past several years, given what's happened, where the market is today, and are you willing to sell all that coal into the thermal market, which everybody seems to be is the new gig these days?

Well, I'll take the first part and then we'll let Dan weigh in as well. We started thinking about the Itmann project, we started investing it. I think it was somewhere around 2019. And obviously, we had the COVID situation come on in 2020 to where we had to pull back on capital, but make no mistake about it. We're still very, very excited and feel good about this project. So, we did the sensitivities whenever we put Itmann in, understanding that at the time, the met markets are somewhat volatile. I think we did a benchmark around 150 when we put that in, and did the net back to the coal mine, and we felt very good about the project at that number.

Obviously, the prices are elevated today, but we still feel like that Itmann is going to be a very good project for us. As I said before, it's some of the best quality there and we think it's going to travel well and be well received from our customers. Dan, you have anything you want to add?

No, I mean, I think you covered it pretty well, Jimmy. Mike, I guess you also were asking about the potential to send Itmann into the thermal market. I'd say we evaluate all of the options, but right now our priority with Itmann is taking a long term view and really getting the brand established in the marketplace. So, as we ramp production up in the second half, we'll be looking to complete trials with a number of potential customers to get the coal established on the met side as our top priority. And then obviously to the extent that we have additional tons to sell, having accomplished that, we will consider the best arbitrage opportunity. Our terminal is a valuable asset for us in managing the logistics associated with all of that as well.

That makes perfect sense. You get the sense that we're going to see some of these dynamics on the reverse crossover, as I consider it, given where the markets are? Is that something that's tangible or is it because of quality issues and logistics, it's a little bit more just around the edges? Just generally in the market.

Yes. I mean, I would tell you that high vol coals alone would have a better success rate in potentially crossing over in the thermal markets. One thing, if we were to take Itmann to the thermal markets, although I'd say it'd be a small percentage, we would likely use that and blend with our daily product to make a more superior product going forward. But Itmann by itself is not a coal that likely would be able to cross over by itself. The first priority for us, Mike, will be to get all the trials done to where we know the customers know the brand and we know what's there. Then we'll have a lot of decision points on where we take it.

The next question comes from Nathan Martin from the Benchmark Company.

Congrats on the quarter. I think a lot of them have been addressed, but maybe looking at the additional 7.6 million tons layered on through '25, could we get a breakdown of how those tons were spread across the next several years and then maybe any early thoughts on how many total tons are committed price for 2024 at this point, and maybe with a split domestic export is for there?

I'll take that. Of the 7.6, 5.5 were domestic, 2.1 were export for the total 7.6 million. The breakdown's a little foggy here because we do have the optimization tons on how they moved, but I will just tell you that we had some incremental volumes, very small, that we sold in 2022.

Obviously, we increased our sold position 2023, bought another 2.5 million in '24. And then 1.4 million in 2025. In terms of 2024, we're not prepared to really give pricing guidance, but I can tell you, we have just over 7.2 million tons sold for '24. And what I would tell, based on the amount of open tons we currently have and where the current forwards are, I certainly could see a scenario by where we have our '24 average sales price north of our '23 average sales price.

That's extremely helpful, Bob. Appreciate that. And then maybe kind of as we're looking at where API2 prices are today, obviously remain elevated as we've talked about. Strong global demand for thermal coal. Could you walk us through, Bob, how you're calculating net backs, as you see them right now?

Yes. I think what I would tell you, Nate, is these markets as you're well aware are extremely volatile. I mean, we're seeing $20-plus swings in API2 prices almost on a daily basis over the past couple months. But the good news is, we have been able to lock in some volumes, term volumes, at attractive prices during these times.

What I would suggest to you, I think API2, Cal 23 right now is right around 260. Based on what we've been seeing, the net back to the mine is, call it the mid to upper 100s. But again, as I mentioned earlier, it's a little bit of a challenge to get volumes committed long term today just based on the liquidity and the API2 markets as mentioned. But I think that's a good kind of sensitivity, looking at where prices are today, call it 260, nets back mid to upper 100s.

Very helpful. Appreciate that. And then maybe, Bob, can you talk about how domestic contracting is going? I think you mentioned, or Jimmy said, obviously duration is an important factor for you guys. Again, with these elevated net backs, hope that the power companies are seeing that out there as well. Have you guys had any success adding some tons with some duration on the domestic side?

Yes. I mean, that's what's important for us. It gives us the visibility. Most of our domestic contracts that we have concluded last quarter were anywhere from 2 to 4 years in duration. I would just say this, you've heard us say that we've shifted our focus to the export market and that still holds true today. That's where the growth is, but certainly want to stress that our domestic customers, especially the ones that have been with us for decades, are extremely important to us and certainly, we'll keep them in our portfolio for years to come.

There are no more questions in the queue. This concludes our question and answer session. I'd like to turn the conference back over to Nathan Tucker for any closing news.

Thanks, Jason. We appreciate everyone's time this morning and thank you for your support in CEIX. We hope we answered your questions today and we look forward to our next quarterly earnings call. Thanks, everyone.

Conference has now concluded. Thank you for attending today's presentation. You may now disconnect.