SunCoke Energy Inc (SXC) 2013 Q4 法說會逐字稿

Welcome to the SXC earnings call. My name is Adrian and I will be your operator for today's call. At this time all participants are in a listen only mode. Later we will conduct a question-and-answer session. Please note this conference is being recorded. I will now turn the call over to Ryan Osterholm. Ryan Osterholm, you may begin.

Thank you, Adrian, good morning, everyone. Thank you for joining us on the SunCoke Energy fourth-quarter 2013 earnings conference call. With me are Fritz Henderson, our Chairman and Chief Executive Officer, and Mark Newman, our Senior Vice President and Chief Financial Officer. Following remarks made by management the call will be open for Q&A.

This conference call is being webcast live on the Investor Relations section of our website at www.suncoke.com. There will be a replay available on our website. If we don't get to your question during the call, please call our Investor Relations department at 630-824-1907.

Before I turn over the call to Fritz, let me remind you that the various remarks we make about future expectations constitute forward-looking statements. And the cautionary language regarding forward-looking statements in our SEC filings applies to the remarks on our call today. These documents are available on our website as are reconciliations of any non-GAAP measures discussed on this call. Now I will turn it over to Fritz.

Thanks, good morning. Thank you, Ryan. A quick look at our fourth-quarter and fiscal year 2013 earnings. We delivered -- SunCoke Energy delivered on the 2013 adjusted EBITDA guidance albeit at the lower end of the revised range. But the fourth quarter was weak and I want to talk a little bit about why. They were impacted by really three things.

First, Indiana Harbor was about $7 million, in terms of performance, below our expectations, a function of three things. One, lower volumes, which were in part driven by the project, in part driven by just normal throughput challenges that we have, and then a relatively large part particularly in the month of December driven by weather. Also higher costs at Indiana Harbor and finally lower yields including some coal losses, coal handling losses.

It wasn't a good quarter for us at Indiana Harbor. And our other coke plants which can often times kind of pick up the pace basically performed expectations. So I would say Indiana Harbor was the main driver.

Second is we did make an accrual for a customer quality claim at Jewell.

And then third, there was weakness in Coal Mining which included inventory mark-to-market adjustments. Mark will take you through how much those were. So those are the three things that affected our fourth-quarter results.

Our fourth-quarter and our 2013 EPS really reflected the lower EBITDA performance and the income attribution to SXCP public unitholders. We maintained our financial flexibility through the year and at year-end ended the year in a solid liquidity position. We did -- we exceeded our operating cash flow target for the year by about $30 million and today we are affirming our 2014 outlook.

A couple of comments here. I do expect the first quarter to be challenged by the impact of the severe weather. I was on a call earlier; SunCoke Energy Partners will be impacted again. At the SunCoke Energy level across our plants in the month of January our estimate today of the lost production due to production disruptions directly or indirectly related to weather is about 45,000 tons, half of that would be at Indiana Harbor.

Really as I look at it, it's a function of a number of things. One, certain days the weather made it so that we couldn't actually push our ovens. Second, we have seen higher costs as we have taken action to keep our plants operating and keep the mobile equipment operating. We have higher manpower at the sites keeping the equipment running.

Third yield has -- we've seen some impact on yield, particularly coal moisture and in a number of cases coal freezing. We have had significant freezing of -- I saw one where an entire coal car was frozen solid at one of our sites. We've seen chunky coal at a couple of our sites. And interestingly, at Granite City we were impacted by the frozen Mississippi for a while. And then our rain that deluged some of the coal cars and we had coal soup.

So we had a number of challenges, put in the category as I think about the last two years we've had benign winters, this has not been a benign winter. But nonetheless we think -- we certainly believe that within the context of the 2014 outlook we are affirming our guidance. First quarter will be affected by the weather.

Second quarter was going to be affected when we published our guidance by our customers' planned blast furnace outage at Indiana Harbor. So as you look at the first half of the year relative to the second half we would anticipate the second half of the year to be stronger.

So that is a quick look at both the fourth quarter and the calendar year financially. In terms of the 2013 accomplishments, start with the coke making operation, we maintained top quartile coke and coal safety performance. We sustain solid Domestic Coke performance despite the refurbishment at Indiana Harbor.

And here the refurbishment -- we have not done a project like this in recent memory where we have refurbished a plant while running it at the same time. So we have learned as we have gone through this process. In some cases it is been tougher than expected. The weather, as I said before, hasn't helped. But I would also say that we have actually learned as we have gone through this project.

Two things I would say about the project. First, our total cost estimate for the project today is about $100 million, which is up from prior. The refurbishment is about deploying largely trades in refurbishing the plant, the tunnels, the various different parts of the plant.

The increase has not been driven by -- there have been some scope increases but that hasn't been a big issue. We haven't seen significant overruns in equipment or equipment purchases. It has been really more a function of our ability to productively and effectively deploy the trades, first while coordinating with the plant's operations; and second, affected by the weather.

So we think that the permanent effect of Indiana Harbor from the refurbishment, we remain optimistic actually about our ability to hit our long-term targets at Indiana Harbor because of the work we are doing on the ovens, the tunnels and in terms of rebuilding the plant will pay the dividends we expect.

But nonetheless, the project has been tougher than we expected. But it is still from our perspective a very good driver of EBITDA growth particularly in the second half of this year and into next year.

We have seen meaningful improvements in our coal mining productivity, in our cash production costs over year, but the financial results on coal have been candidly disappointing and I will have some more to say about that later in the call.

Operationally though as we look back, a really good solid year for SunCoke Energy. In terms of positioning for growth both SunCoke Energy and SunCoke Energy Partners, we renewed the Indiana Harbor contract in the third quarter of this year; we made substantial progress on that refurbishment project that I mentioned.

We did in December receive a draft permit on a potential new coke plant and we have been in the public comment period through January. SXCP completed two accretive Coal Logistics transactions, one that closed in the third quarter, one that closed at the beginning of the fourth quarter.

SXCP also received a -- SXC and SXCP received a favorable IRS ruling on concentrating and palletizing within ferrous activities. And we have petitioned the IRS for a ruling on DRI, which we expect to receive early this year.

So in terms of growth we feel like we have positioned the Company in the right way for growth, both within the MLP as well as at the sponsor SXC. And finally, in terms of financial strength and flexibility, we have achieved our 2013 financial target with the one exception being in coal where we underperformed our target.

The IPO of SunCoke Energy Partners was done in January of 2013, so we have had a one year anniversary at SunCoke Energy Partners and it has delivered results as planned and in a number of cases actually better than we expected when we embarked on this journey. At this point let me turn it over to Mark.

Thanks, Fritz, and good morning. As Fritz indicated, Q4 was a weak ending to an otherwise good year. Focusing on our adjusted EBITDA results in the quarter, we reported adjusted EBITDA of $59.7 million versus $69.7 million in the prior year. With really weakness coming in a couple of key areas.

First, as Fritz indicated, Indiana Harbor was below our expectation and I will cover the year-over-year comparison in a minute. Additionally, we did have an accrual in the quarter of $2.5 million related to some quality issues at our Jewell Coke facility.

And then finally, coal sequentially to Q3 and year-over-year was weaker, but the results there were also impacted by some adjustments, namely a $2.3 million mark to market on coal inventory and an unfavorable $1 million Black Lung liability adjustment in the quarter.

On a full-year basis we reported adjusted EBITDA of $215 million versus $265.7 million in the prior year. And as you will notice in the chart, the year-over-year deterioration is more than accounted for by our coal mining segment with coke and corporate costs being relatively flat and Coal Logistics being additive, a new business for us in calendar year 2013.

Turning to chart 5, cover the adjusted EBITDA bridge for the quarter. Again, $59.7 million versus $69.7 million, $10 million lower in the prior year (sic -- see slide 5). If you look at our Domestic Coke business, excluding Indiana Harbor, it was actually up slightly and the $3.1 million is inclusive of the unfavorable accrual related to the quality claim at our Jewell Coke facility.

Indiana Harbor on a year-over-year basis was down relative to its performance by around $8 million. We have shown here the impact of the contract renewal relative to the volumes we produced in the quarter which is favorable by $3.3 million. And then I will just remind the group that last year in Q4 we had a favorable billing adjustment of $4.2 million, so that results in an unfavorable year-over-year comparison.

International Coke was up $3.4 million in the quarter in part due to the results at our Indian joint venture, VISA SunCoke, where we had both favorable operating performance as well as foreign-exchange activity that resulted in a $2.2 million uplift. As I said earlier, Coal Logistics is a new business for us and is performing in line with the expectations at the time of the acquisition.

Coal mining unfavorable $14.9 million; again, is inclusive of the $2.3 million mark-to-market on coal inventories and the $1 million Black Lung adjustment. And again really reflects the significant year-over-year price which was somewhat mitigated by the work that we have done on coal cash cost.

Finally, corporate is favorable in part driven by a $4.4 million favorable Black Lung adjustment. Maybe I'll just explain that.

We have two populations within our Black Lung, we have some legacy mines that were closed a long time ago in Kentucky and this population we have had favorable actuarial adjustments and obviously a higher discount rate, whereas in our Jewell Coal Mining segment where we have an active mine population we've actually had higher claims.

So in spite of the higher interest rate we actually had a negative Black Lung adjustment in Coal Mining and a favorable adjustment in our corporate segment.

Turning to our full-year comparison on chart 6. We ended the year at $215.1 million of adjusted EBITDA, down from $265.7 million in the prior year. Again, if you look at our coke business, excluding -- our Domestic Coke business excluding Indiana Harbor, we were favorable $9.6 million inclusive of the unfavorable accrual.

Most of this favorability comes from Middletown and Haverhill, which, as you know, are inside of the MLP, 65% is owned by the MLP. And this explains the relatively favorable SXCP results which we reported earlier. Indiana Harbor on a full year is down roughly $15 million. Again, we noted here the contract renewal impact which only impacted Q4 and the Q4 billing adjustment.

Looking at International Coke for the full year, primarily better results from our Brazilian operations with India essentially a breakeven on a full-year basis. Coal Logistics again favorable $4.7 million.

And then finally the big negative on this chart, which I will cover in more detail later, really relates to our Coal Mining business where our realized coal prices for the full year were down about $49, that is $167 in 2012 versus $118 in 2013.

And then finally we did improve cash costs by about $19 a ton on a full-year basis where our full-year cash costs in 2012 were $145 versus $126 in calendar year 2013.

Corporate costs were slightly unfavorable and really reflect a number of puts and takes. I'll just remind the group that we have the cost related to running the MLP in the full-year results inclusive of the $1.8 million payment to DTE related to the Lake Terminal acquisition.

Chart 7 is a chart that we added to compare the guidance that we provided -- the EBITDA guidance at the beginning of the year versus where we ended up. So again, if we take, starting from the left of the chart, our full-year guidance adjusted EBITDA of $205 million to $230 million and we simply take the midpoint of that range which would be $217.5 million and we then walk across to our full-year results of $215.1 million.

Again Domestic Coke, excluding Indiana Harbor, quite favorable versus our full-year expectations at the time we provided guidance. Indiana Harbor, which really earned $3 million in adjusted EBITDA for the full year is down versus our expectation. And obviously we had curtailed our expectations based on the refurbishment project which was underway, but quite frankly the project is proving more difficult and its impact on operating results more severe than we expected at the beginning of the year.

International Coke is in line with expectations with Brazil doing better and India doing worse. And then Coal Logistics was not included at the time we provided guidance.

Finally Coal Mining, we provided a guidance range of zero to minus 15 on an adjusted EBITDA basis. So if you assume a midpoint of that of $7.5 million, our results of $18.7 million negative are down roughly $11 million versus the initial guidance.

And then finally, corporate costs ended up being slightly favorable in part due to some of the adjustments we took in Q4 primarily related to Black Lung but somewhat offset by higher acquisition costs and the cost of running the MLP.

Turning to turn 8, the EPS walk. First for the quarter the results -- the EPS deterioration from our prior year where we reported $0.39 versus $0.16 in the quarter is primarily driven by the lower EBITDA and the equity income losses related to our Indian joint venture.

Indiana Harbor depreciation, which we have been calling out all year, was $0.02 in the quarter with roughly $0.01 attributable to accelerated depreciation. We are picking up also depreciation related to our newly acquired Coal Logistics business. Taxes are favorable really based on the lower earnings as well as the income that is attributable to our SXCP public unitholders.

On a full-year basis we reported EPS of $0.36 versus $1.40 in the prior year, again, driven by lower EBITDA performance, higher depreciation at Indiana Harbor where the accelerated depreciation is $0.14 for the full year and, again, taxes being favorable on the basis of lower earnings and earnings attributable to SXCP.

We also had slightly higher interest expense as a result of the transactions that we took on in the year, namely the IPO and the debt issuance at the MLP as well as the repayment of debt at the parent.

When I look at our full-year tax rate, we came in for 2013 at approximately 11.4% which was a little lower than our guidance based on the lower earnings. Our cash tax rate for the full year was higher than our guidance of 25.9%. We actually made some estimated payments that in retrospect we didn't need to make and will result in refunds in early next year. So our cash tax rate for next year we actually expect to be lower than the guidance that we provided in December and we will cover that later.

Turning to chart 9, our Domestic Coke business summary. Again, production in the quarter of 1.056 million tons was low really related to Indiana Harbor. Our EBITDA per ton in the quarter was approximately $54 million, I think for the full year we were at $57 million, in line with our guidance. Obviously the EBITDA per ton in Q4 impacted by both Indiana Harbor as well as the $2.5 million quality accrual that I spoke about earlier.

Finally, we have added a chart here that shows our coke sales by customer and we were able to sell roughly 38,000 tons on the spot market to a fourth customer, which really allowed us in Q3 and Q4 to run above contract maximums for the full year at Haverhill and our Jewell Coke facilities.

Turning to our India Coke chart on chart 10. Again, we reported $2.2 million of adjusted EBITDA in Q4. You will see the improvement in capacity utilization from the prior quarter. So at this point we have relatively stable operations, we have high capacity utilization and we have seen some reversal in terms of the strengthening of the rupee from where we were early in the year, which impacted us favorably in the quarter.

I'm pleased to report that we now have our FX hedging program in place and we have also completed our trade credit facilities of approximately $50 million equivalent which will allow us to run the plant at the optimum levels of inventory.

The market in India, the coke market remains weak. We really do not expect significant change in the first half. Our Indian colleagues tell us that until after the general election in April we should expect the market to remain weak. With the FX hedging and trade credit facilities now in place our focus really is on running the business for profitability and cash flow going forward.

Turning to Coal Mining on chart 11, again, our EBITDA results were down approximately $15 million in the quarter on a year-over-year basis driven again by weak coal prices, down roughly $48 on a year-over-year basis. And partially offset by lower cash costs.

We are down only $11 in Q4, which was not a strong quarter for us. But on a year-over-year basis we're down approximately $19 to the average of $126 per ton. Again our results in the quarter were impacted by the $2.3 million mark to market inventory adjustment and the Black Lung -- increase in our Black Lung liability.

Additionally, I would say from an operating perspective we had some geology challenges in the quarter and we had nine fewer working days. Our full-year adjusted EBITDA of $18.7 million came in somewhat below the lower end of our range.

Again, if I look at the $3 million related to both Black Lung and the mark-to-market in Q4, we feel like we were somewhat close to the range for the full year. And we continue to expect for 2014 an adjusted EBITDA range of a loss of $20 million to $30 million on an adjusted EBITDA basis.

Turning to SXC liquidity. We ended the quarter with a cash balance on a consolidated basis at $233.6 million. If you look at the change and cash what you will notice is that most of the reduction in cash occurred at the MLP at SXCP or effectively we drew down our cash balances and did a $40 million draw on the revolver to fund the $84.7 million acquisition of KRT. So this was a planned use of excess cash and the revolver to fund what was a very good acquisition.

If you look at the operating performance, the operating cash flows in the business in addition to the earnings and depreciation we had a favorable working capital of $19.5 million in the quarter, this is even in spite of the extension of payment terms of approximately $21 million, which we provided to AK Steel related to shipments from Middletown in December.

We also had a buildup of our interest payable, which is paid twice a year in February and August in the quarter. For the full year. as Fritz mentioned at the outset, we achieved cash flow from operations of approximately $151 million even after taking into account the $21 million of extended payment terms to AK as well as the payment of $30 million in sales discounts throughout the year.

And I would say in addition to our strong focus on operating performance, we have really sharpened our focus on both inventories and all other forms of working capital at our plants and it has paid big dividends this year. So with that I will turn the call back to Fritz.

Thanks, Mark. Just looking again at 2014 consolidated guidance, today we are affirming our 2014 earnings guidance although, as I mentioned earlier, we do expect the first quarter to be challenged by the impact of severe weather particularly in January -- have to see what the weather is in February.

Impacts in January in production about 45,000 tons in total across all of our coke fleet, about half of that fell at Indiana Harbor. So it just gives you some sense overall.

In looking at the individual components, the two things that we would modify today, CapEx up from $110 million to $117 million, that is largely because of Indiana Harbor spending more, as I mentioned earlier, than we originally thought. And then our cash tax rate being down from the prior guidance 16% to 22% to 10% to 18% largely, as Mark mentioned, as a result of the refund we expect to receive. So nothing of significant note here.

Let's turn to the next chart, strategic consideration. Those of you who have followed us, which just about everybody on this call has, since SunCoke Energy was born in July 2011 knows that we were born from a tax-free spin from Sunoco.

As part of that spin we made certain representations to Sunoco and signed a tax sharing agreement that contained a number of provisions and limitations -- important ones that had to do with restructuring of the business really had a two-year tail after the distribution date. The distribution date took place in January of 2012.

January 18 saw the conclusion of those limitations. And which does provide and expands both our strategic and our structuring flexibility going forward. So what we plan to do is the following.

With respect to the Domestic Coke business we have engaged key financial advisors. Analysis is underway to assess potential drop downs into SXCP. We do expect to engage our Board in the coming weeks to determine, and I'm going to come back to this because I want to provide you a little bit more sense about what this analysis is.

But we do expect to engage our Board pretty extensively in the next several weeks and be back to you in March on the Investor Day. We did, as I mentioned -- we moved our Investor Day to March in 2014, typically we might have had it in December and we made the decision last year to move that date because we thought we would be able to provide you with a more substantive update on a number of these matters in March (inaudible) in December.

Second is on mining, we are now beginning to evaluate our strategic option. From a management perspective we have some views as to where we ought to go with the mining business, but we need to engage our Board, while at the same time obviously continuing to drive our productivity because we have to run the business effectively and we continue to be challenged. We would also anticipate providing you with an update on mining in March.

Let me come back to the Domestic Coke business and talk a little bit about what the scope of this work is. We anticipate a couple of things. First, what we want the work to do is validate management's view that our Domestic Coke business in its entirety should be dropped down into SXCP over time. And it is certainly management's view, but we want to both validate and confirm that with our Board.

Second, we want to analyze the appropriate first drop-down, specifically which asset we should select, the size of that asset and the timing of the transaction.

Third, we want to evaluate the appropriate timing for all of the drop downs over time. So we want to be looking at what is the appropriate timing for a complete drop-down strategy for the SunCoke Energy Domestic Coke business.

Three inter-related matters come from this work that I want to talk about. First, once a drop-down is completed obviously we need to evaluate what the appropriate use of proceeds would to be at SunCoke Energy, which would include both prioritization of growth capital as well as the appropriate returns to shareholders and how should we manage capital allocation at the sponsor or SunCoke Energy.

Second, what is the appropriate capital structure for SunCoke Energy Partners, specifically how to finance drop-down transactions, what the appropriate -- we have a view as management as the appropriate capital structure for SunCoke Energy Partners which we will review with the Board.

But coming from a drop-down strategy how would we then finance drop-downs between debt, equity, what units we might take back versus what units might be offered to the public. So a lot of work needs to be done in terms of the capital structure of SunCoke Energy Partners.

And third and finally, what is the proper capital structure at SunCoke Energy, the sponsor going forward. If we think about mining separately and making changes in the mining business versus where it stood today and the entire Domestic Coke business being placed into SunCoke Energy Partners over time, we want to engage our Board as to what the appropriate capital structure is at SunCoke Energy.

So there are three things that I think flow from a drop-down strategy for the Domestic Coke business. Through each of these steps obviously we will be looking at what the appropriate tax implications are for each of these transactions.

So a lot of work in front of us here. We are excited about getting started actually. We have quite a bit of work to go to engage our Board but we are beginning that work. So that is how I wanted to wrap up in terms of restructuring activities and really end up on 2014 priorities.

Last chart of the deck. 2014 priorities begin as they always do with operations excellent. We need to sustain a high level of operating performance and really in a number of cases regain some of that from where we ended the fourth quarter, maintain top quartile safety performance in coke and in coal.

We want to execute the environmental remediation project and that is a very important project that there is a lot of work underway at Haverhill in 2014. (inaudible) continuous with respect to Granite City which is the other plant affected by our environmental remediation project.

As Mark mentioned, we feel like we've stabilized our India joint venture, now we need to manage it for profitability and generating cash flow and driving mining efficiency gains to achieve the lower cost we expect because the lower prices are a certainty. So it's making sure that while we consider our strategic options that we are continuing to drive our efficiency gains in our mining business.

Second, in terms of growth, completing the refurbishment at Indiana Harbor, ramping up production as we go through the year particularly as we get through the customer's expected blast furnace outage. And very important in terms of growth drivers for EBITDA.

We did in December obtain a draft permit for our new coke plant in Kentucky. That permit is subject to public comment and we are through the public comment in January and this gives us the flexibility now to actually continue to engage with customers on customer commitments in 2014 with a permit in hand, actually. So still work ahead of us, but we were encouraged by receipt of that draft permit in December.

And then finally leveraging SunCoke Energy Partners to pursue further opportunities in either coke making, Coal Logistics where we have already done two deals in 2013 and we see this is a continued area where we can look to do bolt-on acquisitions, if you will, there are a lot of deals that we think could be considered. The size is reasonable and attractive. And now that we have a management team that has come aboard will also guarantee giving us I think -- we are interested in this field and growing the business.

And finally, entering the ferrous value chain, we did receive a favorable private letter ruling in 2013 with respect to both the concentrating and palletizing of iron ore. We have requested a private letter ruling from the service with respect to DRI, we expect to receive something on that early this year.

Finally, in terms of optimizing the business and the capital structure, completing the evaluation with our Board of the appropriate strategy for coke asset drop downs to SunCoke Energy Partners and evaluating our strategic options with respect to the mining business. And then executing on this plant once we receive Board approval.

Not all the work we think in this area will be done by the March investor meeting. I think that is important to say. But we think we can make really good progress early this year. So at this point I want to open it up for questions.

(Operator Instructions). Neil Mehta, Goldman Sachs.

This might be premature, but can you talk about what you mean in the press release and in the slides about exploring coal mining strategic alternatives? Is exiting the business altogether one of the options on the table? And if so, what are the gating factors that make this actually practically achieving that?

I would say all options are on the table today, Neil. So it is a premature question. But all options are on the table which could include that -- which could include exiting. But that is one of a number -- I think the one option that I don't have on the table is the status quo. We think we need to do something different from where we are today.

So gating factors obviously are first and foremost for us the supply of coal on a cost-effective basis to our coke plant. We can buy coke -- excuse me, coal, we do that obviously at other coke plants and we actually do that at Jewell as well. But we want to make sure that we have a good source of supply longer-term for this very important Jewell Coke asset.

The second is my view is any transaction I would want to have the ability to make the coal business more competitive. We lack scale in this business, we are small obviously in a world of much larger miners and I would like to have a transaction improve the competitiveness of the mining operations in Jewell.

Third, we wouldn't look for something -- if we were to do a transaction obviously the one question sometimes asked in these sorts of matters is well, do you have a price in mind? We actually -- we are very flexible on structuring as to how we would look at coal, because we have the flexibility to consider alternative structures that might, for example, allow us to preserve upside going forward while potentially moving the operating responsibility to another party.

So we are pretty flexible on structuring actually is what I would say and which is why we need to take the time now with our Board to consider a strategic option.

Got it. And then the second question is you think about the suite of opportunities before you from a tuck-in M&A perspective. Can you talk about which verticals you see the most ripe for opportunity for a potential acquisition?

Well, obviously this is an area where prognostication is [ripe] with risk, but let me at least take a shot at it.

I think Coal Logistics actually -- it is a big area out there with a lot of activity. We now have a management team in place that came with us with KRT and it's an area, as I think of 2014, that we are going to continue to plumb this because we think we have some interesting opportunities.

The deals can be smaller but given the size of our MLP even small deals can be accretive and nicely accretive. So we are going to work on that. We have done a lot of work on coke plants. We know what coke plants might be of interest to us in terms of acquiring existing coke plants. And I think on this one we are going to be patient actually because you have got to have two parties that are interested in doing a deal.

And so we have done the work, we have done all the diligence and I would say we would be open doing this in a number of certain coke plants. But we are going to be patient; we are going to see whether or not counterparties might have an interest. It is not like there are hundreds of coke companies out there. So that would be second.

Third, in terms of our greenfield projects, this wouldn't generate adjusted EBITDA until 2017. So this is more about working with customers to address their longer-term coke needs and, if we are successful, beginning a project later this year. So I would say in terms of tuck-ins or bolt-ons or whatever we want to call it, Coal Logistics is the area where we see the most fertile ground in 2014.

Perfect. Thank you very much.

Nathan Littlewood, Credit Suisse.

Just wondering in relation to this whole drop-down scenario, I appreciate it may be a little bit too early. But is there any metrics or guides that you could perhaps give us for thinking about the rate at which that might occur? Are there some sort of target multiples that you would want to keep in mind or within?

Nathan, no and no. Because I think this is really an area where we want to engage with our Board. We also need to engage not only with the Board of SunCoke Energy, we need to engage with the three independent directors of SunCoke Energy Partners which constitute the [concepts] committee.

So we have got work ahead of us. Obviously these are key things. I mean the multiple in which a transaction would be done as a drop-down is a critical item. But at this point we don't have any parameters we could share with you.

Got it. You guys might have to sell tickets to this thing in March, it sounds like a popular event (laughter). That is it for me; I guess I will have to wait a month or two. Thank you.

Brett Levy, Jeffries.

As you look at strategic alternatives, I mean it is not a gigantic met coal mine, what are the approximate costs of sort of shutting this down for a period of time and then opening it back up again when prices return to more normal levels? I mean, is there a ballpark size of that, have you guys figured that out yet?

No, actually, we haven't figured it out yet. It is obviously you need to consider all alternatives which could include that. We haven't done any real work on that yet. But that is something that we are going to evaluate here as we consider what our fallback alternatives are.

That would not be our preference but you have to consider what your alternatives are. And we have idle mines, we know what it costs to hot idle a mine. And it is not inconsiderable, but it also not -- it doesn't break the bank.

So I think our preference is to figure out how we structure the mine and how we work with potential partners in the mine. At the same time we will be quantifying what the impact might be of hot idling mines or even cold idling mines if we need to.

And then as AK has basically sort of suspended their investment in AK Coal, does that have any impact on the amount of business you guys do with them at Middletown or Ashland or anything like that kind of in the out years?

No. And in mining it is really contracted for on an annual basis, we don't have anything that goes beyond one year. So we haven't seen the impact now. But I don't really know how we would think about it beyond one year.

All right. Thanks very much, guys.

Lucas Pipes, Brean Capital.

My first question is on Indiana Harbor. Could you maybe give us a quick update on where you stand in the refurbishment today? How much more work you think needs to be done?

And then I am kind of thinking about a quarter-over-quarter throughout the year improvement at this oven. Is this the right way to think about it or are there kind of inflection points where it is then going to be fixed and earnings could -- the profitability at that plant could maybe increase a little bit more quickly in any particular period?

So status of oven refurbishment which is I will call it the main body of work that we are taking on at Indiana Harbor. There are four coke batteries in Indiana Harbor, three of which are done, the fourth of which is part done. And we had been making good progress on it until the weather hit us pretty hard, actually hit us very hard.

But I would say we feel like we -- at one point had the weather been I will call it more reasonable and going into the fourth quarter we thought we might be able to finish that fourth battery by about now or early February and it has frankly taken us a little longer given all of the other issues we have had. So it gives you a sense on the ovens.

On cleaning tunnels, which is more expense money actually than it is capital, we have gotten good progress on that but again that has been slowed by both production as well as the weather. Equipment itself is on order. We anticipate the pusher/charger machine which is the principal equipment we have ordered, so it is going to come into the second quarter anyway.

I think the real issue has just been particularly on upsizing the size of the project has been the inability to -- we have the trades, we're just not able to complete the work as quickly as we would like. But we are well along. But it is just not done and we would have liked to have been pretty much done at this point.

In terms of your second question on quarter-over-quarter improvement. We mentioned when we provided the guidance and we had a chart on journey of Indiana Harbor that we anticipated the Indiana Harbor would accelerate pretty much in the second half of this year.

We thought the second quarter would -- the customer has an expected planned outage for their major blast furnace there. So we anticipated production to be restrained in the second quarter. Obviously the impact in the first quarter has been impacted more by weather than it has been by any outage per se.

But as I look at Indiana Harbor in terms of its rate of improvement, we certainly think the rate of improvement will the back end loaded in 2014.

Okay, that is very helpful, thank you. And then as a follow-up, from what I understand you've made great progress on the permitting of the new Kentucky facility. Is it fair to say that the previous time table still holds that in May or so you should have a final permit for this facility? And in anticipation of that, when do you expect to increase your negotiations with potential off takers for this facility and how do you expect those to evolve?

One step at a time. So we got the draft permit in December, we go through a one month public comment period, I think that has just about ended actually and we are collecting the comments now, we will analyze them and figure out what changes, if any, need to be made. You then submit your proposed modification.

We anticipated a final permit to be issued in the first quarter of this year approximately and I still think that is a reasonable estimate. So I don't think there is any change in timing there. Obviously we need to evaluate the comments that have been provided to see whether or not -- -- we just haven't done that yet.

So let me kind of go to the -- in my mind the more gating item which is customer commitment. As we look out at the market today with this permit, we have had preliminary dialogue with customers on this, we now have a permit with a plant, with the size, with the capital cost, with the various things that we need to be able to provide more firm quotes, if you will, to customers as we get into the spring and summer.

I anticipate, as I mentioned before, if this plant is built it will be likely built as a multi-customer plant. Haverhill today is a multi-customer plant but it is interesting, it was not built that way. It was built in two modules each with one customer. This is a plant that will be built for a multi-customer. So I don't think that any single customer would take on the 660,000 tons of capacity that we have sized it at, number one.

Number two, I don't -- I think that contract terms of this plant would be more flexible. Given our size I think we can be more flexible now. But the traditional 15 year long-term take or pay for the entire plant we are likely to have more flexibility required around that than we have historically done. And we can manage that within our overall coke fleet capacity.

And then third, interestingly a multi-customer plant, you need to have some agreement with who those customers are as to coal blend and coal blending because you are going to have to have more consistency across the plant.

And historically we have done coal blends that are specific to a customer and specific to a plant. You're going to run a multi-customer plant you are going to have something which is more generic. But you certainly are going to want to manage a more consistent blend across customers.

All of that -- I kind of dived into the weeds, let me come back out -- means we're going to be in dialogue with customers spring and summer of this year I think. And if we are successful we would break ground later this year. And we would start producing coke EBITDA in the first quarter of 2017.

But we are not going to break ground on this plant without having some reasonable portion of this plant's capacity spoken for on a committed basis. We are not going to build this plant on spec.

Great. And reasonable -- is that 70%, 80% what do you (multiple speakers)?

Interestingly there -- and that is a very good question, I have asked myself that question before. I would say 70% is probably a reasonable number. If you had -- if you were at 65% and you had -- you knew you had high confidence about something else you would probably do that.

So I don't think there is a hard and fast number. But I certainly think 70% is a good reasonable number because then you'll be talking about a couple hundred thousand tons within the 660 B available for merchants. It is not a bad mix actually, that would be a pretty good basis for us.

That is very helpful. Good luck and great progress. Appreciate it.

(Operator Instructions).

I think at this point we -- I am advised by Lisa that we don't have any other questions. Again I want to thank everybody for your time this morning, for your interest in SunCoke Energy. And a lot of good work to do. I am not sure we will be selling tickets to our analyst meeting in March. But I really appreciate your interest in the Company and look forward to the future discussion. Thanks very much.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.