SunCoke Energy Inc (SXC) 2014 Q4 法說會逐字稿

Welcome to the SXC Earnings Call. My name is John, and I will be your operator for today's call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. Please note that the conference is being recorded.

And I will now turn the call over to Lisa Ciota.

Thank you, John, and good morning, everyone. Thank you for joining us on the SunCoke Energy Fourth quarter 2014 earnings and 2015 guidance call. With me are Fritz Henderson, our Chairman and Chief Executive Officer; and Fay West, our new Senior Vice President and Chief Financial Officer. Following our remarks today, we'll open the call for questions from you.

This conference call is being webcast live on the Investor Relations section of our website at www.suncoke.com, and there will be a replay available on our website. If we don't get to your questions today, please feel free to call us on the Investor Relations phone line at (630) 824-1907.

Now before I turn the call over to Fritz, I want to remind everyone that the various remarks we make about future expectations constitute forward-looking statements and that the cautionary language regarding forward-looking statements in our SEC filings apply to our remarks today. These documents are available on our website, as are reconciliations to any non-GAAP measures we discussed on the call today.

Now I'd like to turn the call over to Fritz Henderson.

Good morning, and thanks for joining us this morning. We'll have to cover today between discussing both the fourth quarter earnings as well as our 2015 targets. Number of things going on the business, so Fay and I will be back before as you go through this presentation, but some areas we usually get through the presentation relatively quickly. We'll have plenty of time for Q&A at the end of this call, but there are some areas we're going to slow down a little bit today to make sure we cover in detail how we handled makes particularly around coal and other things of our business. So little bit of change today from how we handled prior calls.

Let me start with chart two, which is 2014 overview. Operating performance wise, as we look at the year and particularly look at the fourth quarter, I'd say we sustained a solid year from an operating safety and environmental perspective in coke, logistics and coal. We recovered through from what was a very weak first quarter that was impacted by weather. You'll see when we look at adjusted EBITDA where we landed, but I'd say with the year where we're recovering from the first quarter throughout the year.

The one area where we felt sure about our objectives was in the Indian Harbor refurbishment turnaround. We did complete the project, but the turnaround itself is still work in process and while we did deliver improved results relative to the prior year we thought sure about our guidance and it is taking longer than we expected and I'll come back to that later in the presentation.

We did complete the construction of the Haverhill 2 gas sharing project that was done, had a scheduled? And we're executing to get that project, which is another major project that is affecting both the Haverhill and subsequent to the Granet City site. So we look back at operating performance at the synopsis in 2014. If you look at 2015, excuse me from a restructuring perspective, we did execute two drop-down transactions including most recently in January of this year, 75% of Granite City, but we're not able to sell the coal money businesses plan.

We initiated that process very promptly after the expiration of the tax sharing agreements in early 2014. The team worked on the transaction I think did a very professional job. We've professionally advised. We talked to a whole host of parties about the business. By the end, we were unable to do the transaction, driven a large part by the continued negative backdrop from net coal pricing.

While our team has done a good from a port activity perspective, let me talk about the results in 2014, I'd say that in a backdrop of net coal pricing of about $90 were a high cost, mid wall, deep (inaudible) and it made the transaction the way we want to destructor it not feasible. And so instead, we've initiated rationalization plans to skill back the operation to first step that in December, Fay will talk about later, but we took the second step today to rationalize our coal mining operations and we did record about in 2014 a $150 million of non-cash impairment to an affect bring them caring value the coal business and books down to the net revisable value.

We do continue to pursue M&A effort, the activities and number of the activities that we focused on in 2014 were in the area of coal handing. We brought in the lens and I'll spend some more time talking about that later in the presentation, but 2013 we did two small deals, 2014 we're unable to close any deals, but that doesn't mean that we're backing off at all in fact we're reinvigorating in that effort as we go into 2015.

And then finally relative to our India JV, while the India JV has been able to tread water as the way we describe it operationally and from a cash perspective we did in the fourth quarter take about $30 million non-cash impairment that business has been most significantly affected by (inaudible) coke prices. And factors we look at are relative to the expectation we had going into the joint venture. It's been profitless in other word, we've been able to tread water, but given more cook prices are we measured the future potential performance of business itself a non-cash impairment was wanted and we reported that in the fourth quarter.

And finally in terms of the capital allocation, 2014 was a year that brought the first quarter with cash dividend, but that exceeds. We initiated a $150 million share repurchase program, approved $150 million share repurchase program executed $75 million of that or half by an ASR. We had another $75 million authorized repurchases we go into '15 and we know that this morning that the first chunk of that are $20 million was going to be done by an ASR within two days of today's call. So we are proceeding for another $20 million of the remaining $75 million as we speak if you will.

GP/IDR cash flows in 2014 reached $2.1 million. They were a very small number in 2013, they were $700,000. So we did see a significant uptick as we moved into the split and as we think about going forward further dropdown, we'll see continued meaningful progress there. Fay will talk about that little bit later.

And finally we continued delevered the SXC balance sheet. We ended the year with a solid cash position with approximately $400 million of revolver capacity between the SXC and SXCP largely undrawn and with a capital structure, which I think facilitates both investment and growth of the business organically or through M&A and provide flexibility to provide further meaningful capital allocation and specifically dividends and share repurchase is going forward. So we felt like at the end of the year in 2014 with a stable balance sheet that will allow us to finance our business going forward.

At this point, as I look at the Granite City transaction summarized and I won't spend a lot of time here, but I will reinforce that in January this year, we did execute the 75% drop down at Granite City was executed. In terms of total -- as we think about a total value at about 9.9 times Granite City EBITDA broken down between the direct transaction value, the value of the units over time from the accretion and value in the GP idea or cash flows. We've talked through this methodology in the past. We've used the same methodology here as we look at the value of the Granite City drop.

We were pleased with the execution of the Granite City drop and the SXCP call earlier, I've attempted to talk more specifically about it, but I think by the way we both tilted the capital structure of the drop, more toward debt less toward equity, we took back the equity units at the parent. The debt execution was done well. The yield [at worst] was within expectations, will be tighter than expectations. And the level of accretion was something we felt was attractive. So we were pleased to be able to get that done in 2015 already. And it's our intention as we look at directly 2015 to execute at least one other drop down transaction through 2015.

Next chart, page four is a broad summary of both the fourth quarter in the calendar year 2014 results. If we look at the four quarter, adjusted EBITDA from continued ops was up $7.2 million and was up $16 million in the fiscal year. In the quarter, it was really driven by Indiana Harbor, Jewell coke in Brazil, plus lower corporate costs. The calendar year benefited also from the full years inclusion of coal logistics. These results were at the lower end of our $235 million to $255 million guidance that we provided in July 2014. So that's where we ended the year.

On a consolidated basis, we ended the year at $210.7 million that did reflect a $12.3 million charge, we took for Black Lung valuation, which we had previously discussed. The Black Lung charges that we took brought us below to $220 million to $240 million guidance range that we provided earlier in the year and it was -- as I think about it without the Black Lung, we were in the lower end of that range as well.

And then finally in terms of earnings itself, the EPS from continuing ops reflects both Black Lung as well as the India charge that I mentioned and the coal of impairments we took through the year and the prep plant impairment, we took further impairments in the [150] if you will in the fourth quarter, which affected net income as well as the accelerated depreciation at Indiana Harbor.

At this time, I'll turn it over to Fay.

Thanks, Fritz. Just to anchor the presentation material, I would remind you that in the third quarter we classified our coal business as discontinued operation and we have restated prior period to conform to this presentation. Also, certain liabilities and assets that were previously included in the coal segment are not part of the coal disposal group and have been characterized as legacy costs. These assets and liabilities consist primarily of the existing coal prep plant asset, asset reclamation liabilities, black lung liabilities, pension, OPEB and Workers' Comp.

Given that these legacy items are not directly related to our ongoing operations and in some cases will be settled or demolished in 2015, we have excluded them from adjusted EBITDA from continuing operations. So adjusted EBITDA charges, legacy costs and discontinued operation, the GAAP measures of net income and net income from discontinued operations do include the impact of impairment charges, legacy costs and exit costs.

Adjusted EBITDA from continuing operations for the quarter was $70 million. This is a $7.2 million improvement over the prior year quarter. This increase was based on stronger domestic coke performance and lower corporate costs. On a full year basis, adjusted EBITDA from continuing ops was $237.8 million, an improvement of $16 million from the prior year. This is mainly due to the increased contribution from Indiana Harbor in the full-year contribution of coal logistics.

I will take you through the detailed adjusted EBITDA averages on the next two slides. We recorded a net loss from continuing operations attributable to SXC of $25.3 million for the fourth quarter and a loss of $20.1 million for the full year. Both the quarter and the year reflect the impact of the impairment of our joint venture in India as well as higher charges related to the Black Lung liability. When combined, these two items had a drag of roughly $32 million on an after-tax basis to net income.

As we discussed in our third quarter call, we had experienced adverse trends in the approval rates proclaim eligibility status in discount rate for Black Lung. As a result we have taken a significant charge in the fourth quarter to reflect these new assumptions. Additionally, based on current market factors and a recent history of losses as well as anticipated losses in 2015, we evaluated the recoverability of our investment in India.

In 2013, China eliminated its export here at SunCoke, which drastically reduced prices for Chinese Coke and increased exports from China.

This increased import competition from China continues to depress coke pricing in India, which is resulting in very weak margins and losses for our joint venture. This along with headwinds from iron ore mining restrictions were the primary drivers of the $30.5 million impairment that we reported.

We essentially wrote off the goodwill in certain intangibles that were reported as part of the purchase accounting in 2013 and our current investment in the joint venture is approximately $22 million. While we are pleased with the operations of the joint venture, which has been running efficiently and cost effectively, the results have been disappointing.

And finally discontinued ops reported a loss of $40.1 million in the fourth quarter and $106 million for the full year. For the quarter and the full year reflect the impact of asset impairments, severance and other exit costs.

I'll just note that we have included a chart in the appendix to this presentation on page 36, the details by quarter and financial statement classifications, all of these unusual items.

Turning to the next chart, again adjusted EBITDA from continuing operations for the fourth quarter was $70 million versus $62.8 million in the prior year. As you can see in the chart, the largest increase is attributable to Indiana Harbor, specifically an increase in volumes and yields as well as better O&M recovery.

The balance of the coke business was essentially flat with the prior year. The prior year results included a coke quality [claimant] role of $2.5 million of Jewell coke, which provides a favorable comparison to the current year. This was offset by higher outage costs at our Granite City operations. Corporate costs were down versus the prior year due mostly to lower employee cost.

You may recall that we took some restructuring actions earlier this year at our corporate headquarters and we are seeing the benefit of this restructuring activity and our current quarter results. International coke was unfavorable as improved results in Brazil were more than offset by losses in India. Coal logistics had higher O&M in the quarter and corporate benefited from lower employee costs as mentioned.

Working from adjusted EBITDA from continuing operations to consolidated adjusted EBITDA, legacy costs were a loss of $13.3 million and discontinued operations was a loss of $4.9 million, bringing consolidated net adjusted EBITDA to $51.8 million. The biggest driver in legacy costs related to the charges for the Black Lung liability I just mentioned. The adjusted EBITDA loss for discontinued ops reflects coal sale price headwind. On average, there was a $17 per tonne decrease in the average coal sale price as compared to the prior year. This impact was largely offset by lower cash cost in the coal operation.

Looking at the full-year adjusted EBITDA in the next slide, adjusted EBITDA from continuing operations for the full year was $237.8 million versus $221.8 million in the prior year. Domestic coke excluding Indiana Harbor was down compared to the prior year and reflects the financial impact of the extreme weather conditions that we experienced in the first quarter, specifically the impact on volumes and O&M expenses. With respect to Indiana Harbor, despite lower volumes resulting from Q1 weather impacts results were $13.2 million better than the prior year. As you can see in the chart, the favorable impact of the new contract as well as higher yield and better O&M recovery benefited the year.

International coke was unfavorable year-over-year as favorable volumes in Brazil were more than offset by losses in India and we also benefited on a full year basis for the full-year contribution of coal logistics. Working from adjusted EBITDA from continuing operations to consolidated adjusted EBITDA, legacy costs were a loss of $17.1 million and discontinued ops with a loss of $10 million. Bringing consolidated adjusted EBITDA to $210.7 million.

Once again, the biggest driver in legacy cost related to Black Lung, but it also included significant workers' comp cost. Adjusted EBITDA for discontinued ops reflect similar coal price from production cost dynamics discussed in the quarterly comparison. Moving to the next slide, diluted EPS from continuing ops was a loss of $0.38 per share, compared to diluted EPS of $0.22 per share in the fourth quarter of 2013. The factors that impacted adjusted EBITDA are also impacting EPS. But I want to highlight some of the other driver.

Depreciation and amortization is up $0.09 versus the prior year, a portion of which is attributable to accelerated depreciation at Indiana Harbor with additional depreciation was recorded in connection with certain refurbishment work performed on the Oven. We also recognized an asset impairment on the existing coal prep plant asset. These assets are not considered part of the coal (inaudible) group and are therefore part of continuing operations.

And as part of the coal rationalization plan, we intend to demolish this plant in the first half of 2015. We also wrote off capitalized costs associated with the coal prep plant that we had previously contemplated construct. Lastly, looking at tax expense, that was lower this quarter than the prior year and it was based on lower overall earnings.

Moving to the full year EPS loss, diluted EPS from continuing operations on a full year basis was a loss of $0.29, compared to earnings of $0.58 in 2013. The same factors that impacted the quarter are reflected in the full year EPS. Also impacting year-over-year comparisons for EPS is the incremental depreciation and amortization for a full year coal logistics.

And one additional item of note is that EPS -- the EPS impact and interest expense and financing cost, as you could see in the chart, debt extinguishment cost and the call premium cost decreased EPS by $0.17. These costs were incurred in connection with the dropdown of the assets to SXCP and the repayment of parent company debt.

Moving to chart 10, on a full year basis, adjusted EBITDA per ton was $59, just below our range of $60 to $65 per ton. And as the chart illustrates, it was greatly affected by the impact of Q1 weather. Adjusted EBITDA per ton in the fourth quarter was $58 per ton and reflects the operational performance at Indiana Harbor, which was discussed on the next chart.

Moving to chart 11, the graph on the right chart is quarterly coke production for Indiana Harbor. And as you could see, our fourth quarter production was below our previously guided range of 285,000 to 295,000 tons. While we have seen really good yields at the plant, we are disappointed with our fourth quarter results. We've experienced a setback in our pushing cycle, specifically the number of ovens pushed per day. The number of ovens pushed per day was below our target and inconsistent throughout the quarter, which resulted in lower production.

The disruption in cycle time was caused by two major equipment failure. We had two door machine fires in the fourth quarter. One is unusual, but (inaudible) to is really unprecedented. The equipment failures coupled with the challenges associated with the start-up in commissioning of the newly designed PCM really impacted quarterly results, causing a production shortfall of approximately 20,000 tons.

Operationally, we are working towards normalizing our push schedule to make it more consistent, which in turn should address our production issues. We are working on addressing existing equipment reliability issues and maintenance practices that will benefit from a normalized push cycle, and are working our way through the commissioning challenges that we have faced. We will also prioritize the completion of (inaudible) replacements in 2015, which is included in the CapEx number -- 2015 CapEx number of $15 million, which is significantly below 2014 spend.

We have continued to experience issues in January, and expect that we will be between 30,000 tonnes to 40,000 tonness below run rate in the first quarter. We believe that the plant can achieve name production capacity of 1.22 million tonnes, albeit a little later than we originally anticipated.

Moving to slide 12, this slide shows fourth quarter and full year net loss from discontinued operations, reconciled to adjusted EBITDA from discontinued operations. I previously discussed the operational performance for coal operations, specifically despite improved production cost, the coal operations continued to face coal price headwinds. On a full year basis, the adjusted EBITDA loss from discontinued operations was $10 million, and was within our guided range of $10 million to $13 million.

Further, we've recorded $133 million in asset impairment charges in the full year, $29.1 million of which was recorded in the fourth quarter. Based on the status of the sale process and the coal pricing environment, which deteriorated significantly in the fourth quarter. We continued to assess the carrying value of the coal assets throughout the year, and as it compare to market value. This actually resulted in impairment taken in the second quarter, third quarter, as well as in the fourth quarter.

The remaining carrying value of the coal operations with the net liability is roughly $18 million. Of that amount, PP&E is valued at less than $10 million. In December, we announced our intent to downsize the coal mining operations, and we will go into more detail on that later slide. We had guided in December, in a December press release that we would incur some one-time cost related to contract termination and employee severance costs. And these costs totaled $17.6 million in the quarter and are within our guided range.

We believe we may incur an additional $3 million to $4 million of exit cost in 2015. But, just to note that the employee severance cost, the charge taken in the fourth quarter, included the terminations that occurred in December as well as January.

Turning to slide 13, we ended the year with a consolidated cash balance of $139 million, which increased from the third quarter, and with a combined revolver capacity of close to $400 million. Positive cash flow from operations adjusted for non-cash impairment charge was partly offset by CapEx of $15.8 million, and $8.9 million in distributions to SXC shareholders; as well as a $3.8 million dividend payment to SXC shareholders.

As Fritz mentioned, we initiated the SXC dividend here in the fourth quarter of 2014. CapEx for the full year was $125 million, and just slightly below our guided range of $128 million dollars with a strong cash position, we maintained essentially no net debt at the parent and have significant revolver capacity at both SXC and SXCP, which provides us with the flexibility to fund to Greenfield project and/or M&A. With that, I will turn it back to Fritz.

Thanks Fay. Turn to page 15 on 2015 Priorities. Three important ones carryover from 2014. From an operating perspective, the objective is to sustain high level of operating, safety and environmental performance in our coke plant, and return Indiana Harbor to its nameplate run rate. And as we look at Indiana Harbor, the plant will run at the 1.22, it's -- but behind schedule, but our focus from an operating perspective is on improvement and the execution of the Indiana Harbor turnaround and bringing it to where it should run.

Second is executing the coal rationalization plan and then optimizing Jewell Coke on a standalone basis and we'll spend some time as we got through the 2015 targets explaining the impact on both discontinued operations, in other words what remaining mining activities are going on the properties that we own as well as what's happening at the Jewell Coke plant.

And then finally from a gas sharing, environmental project perspective completing the construction by late in the year of the gas sharing project at Haverhill 1. We did that, completed the construction of the first part of that project at Haverhill 2 in 2014. So from an operating perspective, those are the priorities.

From a growth perspective, it's pursue MLP-qualifying, industrial-facing processing and handling M&A opportunities. Growth is the third major priority for us in 2015. Lot of activity has been -- a lot of activity in 2014 that activity is only intensified in 2015 and the focus is really around activities that are one qualifying in nature; two that as we look at it ideally, provide a platform for future growth. I was asked earlier on the call -- on SXCP call whether or not, we might consider doing organic projects or new greenfield projects in businesses we've not been involved in the past. I made the point on that call that our focus in terms of entering new business lines would be more on M&A and then look at growing organically once we are in those lines of business, I still think of the right way to enter.

And then finally, continuing to pursue a greenfield project both in terms of the new coke plant in Kentucky and talk to our customers about 2015, maintain the dialog about their long-term coke needs. We are ready with that plat from the standpoint of both permitting and then as well as with engineering, but we're patient at the same time, because we're not going to commence construction or commit any capital to that plant without adequate and reasonable customer assurances in that regard and we work with one potential partner with respect to new DRI facility and that dialog continues and finally in terms of the capital structure and the optimization of our capital structure as I mentioned earlier, we do intend to execute at least one additional dropdown in 2015 of our intent and build upon our capital allocation strategy initiated in 2014 with respect to both share repurchases as well as dividend.

Okay. On slide 16, looking forward to our 2015 Domestic Coke business, we expect adjusted EBITDA to be in the $240 million to $255 million range as compared to 2014 adjusted EBITDA of $248 million. Adjusted EBITDA per ton is expected to be in the range of $55 to $60 per ton, and we expect to increase production from 4.3 million tons -- we expect to increase production to 4.3 million tons, which is up from 4.2 million in 2014.

Our 2015 guidance does reflect the year-over-year improvement in Indiana Harbor, but we anticipated that we will be below our $40 million targeted run rate and the next slide in the presentation covers Indiana Harbor in more detail. We anticipate that when IH always returned to run rate, we will be back within a $60 to $65 range for adjusted EBITDA per ton.

With regards to Jewell, we anticipate that as part of the coal rationalization plant, Jewell Coke will incur approximately $7.5 million in incremental cost necessary to operate as a standalone facility. Essentially, these costs, which were previously borne by Jewell Coke can be bucketed into three categories. The first category is incremental employee costs. You can think of this as back office personnel, such as finance and HR that were previously shared with the coal mining operation, but will now be part of Jewell Coke. This is approximately $1 million.

The second coke category is related to blending and handling services. Consistent with our other coke making operations, Jewell Coke will incur blending and handling services. We estimate that this will be approximately $3.5 million.

And the last category is related to coal moisture. When other plants receive purchase coal, the market assumption is that moisture is approximately 7.5%. Jewell Coke was previously purchasing coal from Jewell Coal at a 4% moisture rate, which is not the market rate. Bringing the moisture percentage to market, we will have approximately a $3 million impact to Jewell Coke. For the balance of our domestic plants, we expect to achieve solid operating results with various puts and takes across the plant.

Moving to the next slide. With regards to Indiana Harbor, we expect adjusted EBITDA to be in the $25 million to $35 million range for 2015. This reflects the continuation of production challenges that we faced in the fourth quarter rolling into January. As I mentioned, we expect Q1 to be 30,000 to 40,000 tons below run rate. Should note that we do have capacity across the fleet to cover any production shortfall if needed. Our other plants have demonstrated the ability to run above nameplate capacity and contract mix in the past.

The operating environment in Indiana Harbor does remain challenged, but we are taking the right steps to address these challenges. Specifically the team is working on establishing consistent oven push cycles even bringing in a fourth crew to help reduce cycle time. We are also working on mastering the new PCM and believe the modifications to retrofit the PCM are behind us and that we have addressed any related winterization issues with this new machinery.

Improving equipment maintenance practices and completing the floor -- floor and sole flue replacement is going to be a top priority for us as well. Stabilizing these operations is a real focus for the organization and we have devoted significant resources to address these challenges.

One item of noted as we discussed in the third quarter the economics of the cost recovery mechanism at Indiana Harbor is different in 2015. Based on the terms of our new contract, the recovery mechanism for O&M cost is changing from essentially a pass-through mechanism to a fixed rate recovery mechanism in 2015.

And although we expect that we will see a significant decrease in the absolute spend on O&M cost in 2015 based on our contract we anticipate being in an unfavorable O&M recovery position. This under recovery is primarily related to additional repair work and common tunnels and ovens as well as increased natural gas usage and is built into the expected 2015 adjusted EBITDA range of $25 million to $35 million.

Although [IHO] has been more challenging than anticipated, we believe that the plan is on the right path towards achieving stable production and earnings and producing at nameplate capacity.

Moving on to the next slide, this slide details out our coal rationalization plan. The top part of the slide details out our actions and the bottom part of the slide details out the financial impact of these actions. In December, we began working on our mining plan and idle period signs reducing production by 50%. We also eliminated approximately 50% of our workforce at that time.

Today, we announced that we are idling one additional mine and are eliminating the rest of our hourly mining workforce. We recognized some one-time costs in the fourth quarter related to these downsizing actions, which as detailed at the bottom of this chart. We reviewed coal blend requirements, which are based on the quality specifications that our dual coal contracts and evaluated various sourcing options.

Our goal of course was to minimize costs to maintain quality. The various scenarios that we considered were one, sourcing all the coal from external coal suppliers; two sourcing, a portion of the coal from external coal suppliers in continuing to mine the balance of coal with our own resources; and three, sourcing a portion of the coal from external coal suppliers and implementing a contract mining model to use contract miners to mine our reserve.

The option that best preserved our flexibility, the best preserved our option to sell and balance the impact to Jewell Coke was still maintaining the right coal blend characteristics for Jewell Coke with the last scenario. So our plan is to purchase approximately 50,000 tons of high and low vol coal from third parties and use contract miners to mine approximately 600,000 tons of mid-vol coal from our reserves.

We are also planning on transitioning our coal washing and prep activities to a third party in the first half of 2015. And we'll be commissioned our existing coal plan. We expect an adjusted EBITDA loss of $20 million in 2015, which also includes the impact of lower coal sales price, the roughly $12. We think that the first half of 2015 will be burdened with additional costs as we move to execute the various actions of this plan. But we think a more reasonable run rate is in the $12.5 million range. We also plan to install coal handling and blending capabilities at an investment cost of $5 million to $10 million per Jewell Coke.

Turning to the next slide, this slide highlights the benefits of the coal rationalization plan, specifically as it compares to the status quo. What the top section illustrates is the cash loss under the status quo scenario, which is essentially adjusted EBITDA plus CapEx. And you could see that this growth significantly in 2015 to approximately $14 million. What we have foot noted to the side of the slide is the estimated cost of $50 million to $70 million to build a new prep plant. This is not included in the $40 million estimates, but given the age and reliability of the existing prep planet, this CapEx would need to be spent, if we continue the status quo operation.

The bottom section illustrates the cash loss under the coal rationalization plan. For 2015, we anticipate the coal rationalization plan under that plan that the coal was generating negative $20 million in adjusted EBITDA that we would spend capital to install coal handling and blending facilities at Jewell Coke. And that Jewell Coke would incur $7.5 million in standalone costs. All in that comes out to the cash loss between $33 million and $38 million. In 2016, we expect that this online number will be a loss of $20 million, when you normalize and have a run rate for the rationalization plan for coal. You could see that this is favorable both to the status quo scenario of $40 million.

Of course, our job is going to be to manage these numbers, and try to bring them down as much as possible. Looking to the next slide, this schedule bridges 2014 adjusted EBITDA from continuing operations, to 2015 expected adjusted EBITDA from continuing operations, and walk down to consolidated adjusted EBITDA.

From a continuing Op basis, adjusted EBITDA as estimated to be $225 million to $245 million. This reflects the outlook at Indiana Harbor as well as the incremental cost to operate dual coke as a standalone operation.

The other category includes incremental corporate cost for growth initiatives, India joint venture losses, offset by volume increases with coal logistics in Brazil. Walking down to consolidated adjusted EBITDA, which is not a cost of change, we have discussed the $20 million loss for coal operation.

In the legacy cost category, we are in the process of terminating our pension plan and plan to you have that completed in 2015. We will in incur a $13 million non-cash accounting charge when the termination is complete. The plan is fully funded at year-end in this non-cash charge reduces other comprehensive income.

Turning to slide 21, we have discussed most of these items, but I wanted to point out and follow a couple of things. CapEx is estimated to be approximately $90 million, $30 million in environmental spent and $60 million in ongoing. This is an overall decrease of roughly $30 million year-over-year.

Operating cash flow is expected to be in the range of $125 million to $145 million, an increase over the 2014 operating cash flow of $112.3 million. So you can see that we're anticipate being in a good free cash flow position in 2015.

Also just to know cash taxes will be in the range of $10 million to $15 million, and reflect the utilization of tax credit carry-forward.

With that I will turn it over to Fritz.

Thanks Fay. To wrap it up on page 22, we talked about value creation for shareholders. As we think about growth, we ended the importance of growth can't be underestimated. Our coke business itself is designed and run well to be stable. It generates stable sustainable cash flows with modest levels of CapEx.

Therefore, the growth needs to come to either organic and inorganic platform. Organic, if we think about long-term project development, these will be projects that if initiated in 2015, would not be generating EBITDA until late 2018, early 2019, but nonetheless they're very valuable, whether it's pursuing the construction of a new coke plant in Kentucky or pursuing a partnership with a selected partner in DRI. So, we do continue to do work on organic growth. In inorganic or M&A, the focus is, as I said before, on industrial facing, processing and handling assets, and this is where we'll spend a considerable amount of time in early 2015.

And then finally, the third leg of the stool, if you will, in terms of value creation is capital allocation and capital optimization. And as we think about the business and going into 2015 both with the fundamentals of our business as well as the balance sheet that we have coming into the year. We think we preserve significant flexibility to both fund growth, as well as evaluate dividend increases as GP, LP cash flows grow. As we initiated our first dividend last year, we talked about it relative to GP, LP cash flows as they grow. We maintained $75 million of authorization under our share repurchase program that we implemented this morning, $20 million toward that $75 via ASR.

We do expect to grow our cash distributions at SXCP by 8% to 10% through 2016 from domestic drop-down to loans, and as we talked about on the SXCP call earlier, we will evaluate in 2015 potentially tightening our coverage ratio of 1.15 to approximately 1.1, which will provide further flexibility. And if we look at the Granite City drop-down alone in 2015, it's our intent to increase distributions each quarter by 2% through 2015 in the first Granite City drop-down. That's our framework, if you will for value creation as we look into 2015.

A few comments on the next chart in the steel industry. Relative to the third quarter, the recent both capital market as well as industry environment has shifted significantly negatively with respect to the environment for our customers. As we look out at primary demand for steel in the US, I would say the outlook is reasonable. Each of our customers, US Steel and AK Steel -- AK Steel earlier this week, US Steel yesterday talked about the demand outlook for steel in the US. Automotive demand remains robust in production. Non-residential construction, our (inaudible) estimates of growth in 2014 of about 6% and the view is non-residential construction would grow between 5% and 7% in 2015.

The Architectural Billings Index remains as the leading indicator positive, and so as we think about this largest segment of steel demand, the view is that we would see growth in non-residential construction. On the other hand, obviously there are significant challenges in oil and gas and tubular. But demand outlook overall, I think we used the word reasonable, because if you look at these pieces, I think the demand outlook is reasonable. Steel pricing, however, is under pressure. While there's been, what I would call constructive consolidation in 2014 in the industry you see an elevated level of imports in the strong US dollar, which is discussed by each of our customers on their calls thus challenging the domestic producers.

On the cost side, the commodity prices do provide I think continued tailwinds in the '15 on carbon certainly coke, as well as pulverized coal, we should see continued reductions in 2015 versus 2014 scrapped most recently, and finally to a different extent depending upon the manufacturer as we look into 2015.

We've finally point is -- final point is energy inputs should also be favorable if you look at steel production. Last point I would make while each of our customers are executing their strategies and coping with the current environment, but we do continue to see age coke making capacity get rationalize, which in our judgment that the scenario of age coke making capacity being taken offline is playing out as we speak. And I think we've certainly seen that as customers are taking actions regarding both cost reduction and capacity rationalization.

Page 24 as we thought about the movements in the SXC share prices certainly most recently, we've been reflecting on why, trying understand why our share prices behave the way they are in part obviously in substantial part it reflects our actions in the business, whether it's the actions in the business to run the coke business, to manage the coal divestiture and growth, I mean there are whole group of things that I think we know we need to execute on in 2015 that were unevenly executed in 2014, particularly Indiana Harbor and the need to get that plant to run -- get it run rate. We look at the correlation and these charts go back to January of 2013 and measure daily correlations of the share price of SXC versus both AK Steel as well as US Steel, you can see high levels of correlation. And this is something we most recently looked at correlation coefficient with AK Steel of 0.9 and with the US Steel, a little bit less but at 0.82.

And as we think about this and try to make sense of this, I look at the fundamentals that affect our customers and we're not steel Company, you think about the issues that are affecting steel companies and steel demand, pricing of steel and the pricing of commodities. And so if you look at significant amount of variability in the business model of steel maker. When you look at business models that's on Coke which is the last chart as we look at the lesser consideration for SunCoke and specifically SXC we are a steel Company, we maintain long-term partnerships with steel Companies, but we are long-term strategic supplier to those companies. And we think about our business it starts with stable long-term cash flow, long term take-or-pay contract with strategic customers and strategic assets. Our returns are generated in a fixed fee structure and not driven by commodity prices, they're driven by a fixed fee structure, which doesn't vary. And we pass-through coal in operating costs by and large across our fleet. And so our business is about stable steady cash flows with modest levels of CapEx in order to sustain them. Therefore, growth has to come through either organic projects or through M&A, because it doesn't come from squeezing more out of our existing assets. We can optimize, but we're not going to make significant step changes in profitability from our existing assets.

We entered the year with a strong balance sheet, essentially no net debt to the parent and net debt to EBITDA at SXCP of 3.1. So, we feel like we are conservatively managed in the balance sheet and we preserve the ability to both grow as well as allocate capital to shareholders.

Limited legacy obligations. Our legacy obligations as we've talked about, our pension is over-funded and will be terminated. OPEB is capped and Black Lung is, while it's provided volatility in our results, it's still on an absolute basis relative to the overall balance sheet to the Company modest.

In terms of growth, we have done work on coal handling, we've done work in other areas in the past. But I think we do see opportunities in industrial facing businesses that basically handle and process non-renewable natural resources and would fit the model of qualifying income for SXCP and allowing us to drive SXC to more of a pure-play GP. We do have a visible drop-down structure. We spent time talking about that. We're on path to achieve the goals that we set when we set up the MLP.

And then finally, in terms of capital allocation, we have declining ongoing environmental CapEx. The $90 million that they talked about was for environmental as well as ongoing, that didn't include any capital for our [rabid] project or DRI to the extent that we are to undertake one or both of those projects. We feel like we have a balance sheet that would allow us to finance those projects, but they would be additive to the $90 million. But if we don't pursue those projects, CapEx is going to decline significantly year-to-year and operating cash flow rises. So as we think about the flexibility we have in the business to both fund growth as well as allocate capital shareholders, we feel like we're well positioned as we go into 2015.

With that, time for questions.

(Operator Instructions) Brett Levy, Jefferies.

You gave some pretty specific guidance for 2015

***Part15*** early in the year, et cetera, so I mean is there a met coal pricing input number that goes into that? Is there sort of a contracted -- I guess I'm trying to figure out the inputs and output assumptions that go into the guidance you put out and whether or not that has some variability around it?

All right. You're talking about 15, right?

Yes, I am.

(inaudible).

Yes, no 2015. But I mean you gave very specific guidance and I think there's a lot of variables in there, but tell me how much is, and is not variable?

All right. So the assumption we use for our (inaudible) prices about $90, number one. Number two, it's not very variable because when you look at that -- when Fay talked about the 20 million declining 12.5 over time by and large what that is the transportation cost associated with bringing coals to the coke plant. Because the price on our Jewell coke agreement is the (inaudible) mine.

So what we're doing -- our job is to manage that number down to the best of our abilities over time and we become much less sensitive to coal prices than we were when we were much more significant in the mining business. Now if prices were to rise, we're not banking on, but if they were to rise, we think actually that would probably allow us to make even further progress because our mines would be more marketable but net-net, the assumption we're using is [$90] and we're not very agreeable to that assumption because in fact we do receive a market price for our coals, it's the (inaudible) price and what we have to do is manage down transportation cost.

Got it. And then can you talk a little bit about kind of organic growth, whether it's in the US or internationally? I think you positioned yourself well to kind of take the next step and I just want to get a sense as to sort of what you're thinking about either organic build it or buy it, and then sort of what geographies are kind of on the list and off the list?

Geographies US, we would do a project in Canada, but really that's not likely. Our focus is on the US, we're not focusing outside of the US, and so that's the first part of your question. And then I would say our organic projects to the extent we were to do them would be one, either a new coke plant that we've been working on for Kentucky -- in Kentucky or alternatively a new DRI plant, which would also be in the US.

Both of those would generate qualifying income, both of those would be constructed as apparent and then drop down to the conclusion of the construction period. On inorganic, M&A, again the focus is on the US on businesses that would generate qualifying income. They don't have to be 100% qualifying income, but they got -- they need to be the lion share qualifying income because we think that over time, our right strategy is to take efficacy to more of a pure play GP.

Nathan Littlewood, Credit Suisse.

Yes, good afternoon guys. Just had a couple of questions for you on the US coke market broadly. They've obviously been a couple of plants retired recently, one of your big customers was talking recently about fairly [lengthy] shutdown at Granite City. I just want to know if you could give us a bit of an update on how you're seeing the supply demand balance for domestic coke over the next few years?

So supply. When you talked about, you mentioned with the Granite City announcement by US Steel, they've made a number of announcements about what's happening across their assets and I'm not going to speak for my customers, but I'd just for the benefit everybody on the call with several weeks ago, they announced they're going to permanently close their Granite City coke plant.

In age by product coke plant historically at the Granite City site, we would supply approximately since we've been in production we supply approximately 70% of their requirements and their own internal coke plant would supply approximately 30% of their requirements. We also provide about 80% of their superheated steam for the turbine as part of our production. They announced they're going to close that plant permanently. What they announced yesterday was at the Granite City location, they were making a significant investment actually to replace and put in a new casting line (inaudible) that they had purchased from RG Steel. And so they're going to be taking down one of their existing (inaudible) and basically accelerating the -- and outage they planned in one of their two blast furnaces at the location. There is lot of things going on at that site. With respect to coke capacity, what they're doing is they're taking permanently good capacity out of about 300,000 tons, where they've been running 300,000 tons to 350,000 tons.

Last year, they announced significant rationalization (inaudible). They announced that they were closing their (inaudible) plant, you've seen our middle in the past is actually picking up part of the (inaudible) production and so what we've seen is we've seen a continued decline in the supply balance from the by-product battery. Obviously, the uncertain part is the demand part. Because, in fact, we're talking about is demand for coke for us to build a new coke plant, the discussion with our customer is about 2018, 2019, 2020 and beyond because we would be in production until that point anyway. So my crystal ball there is a little less clear. But in terms of coke supply, it is moving down with these batteries being rationalized.

Sure. Okay. And under scenario where the Granite City outage you're still was talking about a few months I think, but under scenario here with (inaudible) some sort of miss happenings are taking a little bit longer, maybe it ends up taking six months for argument sake. Can I decide (inaudible) such a bad thing because the market is pretty tough right now anyway, what sort of risk does that present to you in terms of this year's earnings and volumes?

So, we'll start with the fundamentals contract, right. It's the contract, is our main nameplate capacity Granite City about 650 contract mix is 680, the historically operated better one 680 and the way our contract works. We produced a contract mix. They're responsible for taking the call. We've run that plan actually up a little bit about 700 in the past one year. We've been able to do 24-hour coke, we've been able to do a number of things on that land. So that's kind of the way the contract works.

Second is, they're making an investment in that location, actually, to put this category and what they've talked about is the objective is to make the Granite City study more flexible and as I look at their decision to make that investment there lasted a major re-line of one of the two blast furnaces and what they're doing is accelerating our second blast furnace, what they said yesterday, it was they would bring that up depending upon market demand makes sense to me.

If we think about, I can't speak for my customer. But I can't say that it's a less that second blast furnace offline for a reasonable period of time. We think they're going to run that first blast furnace very hard and where they're sourcing coal for that location. So we've not had any indications from our customers and of the desired to reduce our production from that plant where we expect to actually wouldn't we have worked with customers in the past and they have, I've had outages. AK Steel for example, they had some production disruptions. We diverted coke elsewhere, as a result of that, we reduced our production in Middletown to a small extent. None of this was material in the past. And so, we've always been willing to work with our customers to try to accommodate that. But our contract is pretty clear number one; number two, if we look at the dynamics of Granite City, we feel like we're in a good position where that we're going to be the full force of coke at that location in longer term, and number three, while we work with our customers in the past on a short-term basis it's not historically been a significant issue for results.

I guess, same -- sort of same question, my thinking a little bit further out, I mean we've got (inaudible) by cracking coal and on all those are falling pretty rapidly globally. The fierce price environment, whether you're talking about Steel or scrap is sort of coming down across the board. The implications of that for the US steel industry is that the guys who are vertically integrated and have high fixed costs like the non-US Steel and to some extent metal they had a relative competitive disadvantage here. So in a world where fares pricing is going to stay low for a few years, it is probably reasonable to expect that the guys that are your customers are going to need to be offering the lion's share or the volume response. With that in mind, could you just talk a little bit about any contract renewals or contract maturities that are coming up in sort of the next five years?

Okay. So, Nathan I'm not going comment my customers, so the kind of a lead in your question, I'm not going to get into. Let me answer your question -- our next renewal is 2020. So we have several contracts of ArcelorMittal, which come due in 2020, then we have the next one in 2023, so we -- the outer edge -- the five-year period that you outlined, we have two contracts with ArcelorMittal that would come due for renewal.

(Operator Instructions) Our next question is from Lucas Pipes from Brean Capital.

Hey, good morning. Again.

Hi Lucas.

I just wanted to follow up on the coal side really quickly. I think you, you may have alluded to it earlier on the call, but in terms of these legacy costs. What's that going forward kind of past 2015 potential headwind on that item?

So legacy cost for 2015 are anticipated to be roughly $15 million. What's included in there though is $13.5 million related to the pension termination, which is a non-cash charge, so you could see the balance of that activity is nominal. What's really driving -- you've got puts and takes across the various liabilities. But the charge that we saw in 2014 related to Black Lung, we don't anticipate seeing that same level of charge in 2015.

Okay, great. So that's very helpful. And then maybe to continue on the coal side, you've gone through this optimization plan here in terms of finding a contractor and such. Do you view that process as completed now or there further considerations at this stage. How would to you --?

I think I know what you're getting out. In the end we're going to -- we will continue to be flexible with respect to the sale of coal assets, one of the advantages of the approach we're taking is -- there are continued mining activities at the location albeit with contractors and with oppose to Company run mine, which frankly provides us more flexibility to sell and we will continue to be open to that, we're not counting on it, but if we continue to be open to that. Also If it turns out that we're able to buy longer-term beyond 2015 significantly cheaper, we're flexible right. We can basically -- we could stop contract mining and we can buy.

So this allows us to both mine at the location, and this is principally mid-vol actually, high-vol and low-vol there are good sources of high quality coal relatively nearby with logistics cost.

So that the flexibility means that if we just don't like the cost and the transportation costs associated with mid-vol we can mine, in other hand to the extent that we see improved offers we can buy. So this number the 12.5 million dollar number that Fay talked about on a run rate basis, is the number we're going to spend time trying to manage down over time.

What the strategy that we have is flexible one because it provides us the flexibility either buy or mine and more over the last piece of the puzzle is to develop and we're working on this as we speak, develop lower cost sources of washing our coals and we're testing it with two different companies today. These are minus, they have capacity we will wash coal with them as opposed to wash it ourselves and then demolish or own prep plant not have the cost of running that not have to invest in it, not have to staff it and it's (inaudible) that Fay talked about is I mean we think by doing this we'll actually improve our yield over time even in that's mine locally, so we think that also improves our flexibility.

What I would say is net-net, this is we're going to spend time going forward try to manage that number down, but by virtue of pursuing a plan were on we have flexibility to do that.

Okay, great. Great, well, I appreciate that's helpful.

Okay, Lisa advises me that there are no more questions just in terms of wrapping up. Thanks very much for your time this morning for dialing in for your interest and for your not only your time, but also your interest in investing in in SunCoke from the SXC shares, we covered a lot this morning Lisa's team will be available to answer your questions, and with respect to 2015 we're hungry for the year actually to achieve our objectives. So really appreciate your time

Thank you ladies and gentleman that's conclude today's call. Thank you for participating, you may now disconnect.