Warrior Met Coal - Earnings Call - Q3 2025

Transcript

Operator (participant)

Good afternoon. My name is Michael, and I will be your conference call operator today. At this time, I would like to welcome everyone to the Warrior third quarter 2025 financial results conference call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. This call is being recorded and will be available for replay on the company's website. I would now like to turn the conference over to Brian Chopin, Chief Accounting Officer and Controller. Please go ahead.

Brian Chopin (SVP, Chief Accounting Officer and Controller)

Good afternoon and welcome everyone to Warrior's third quarter 2025 earnings conference call. Before we begin, let me remind you that certain statements made during this call, including statements relating to our expected future business and financial performance, may be considered forward-looking statements according to the Private Securities Litigation Reform Act. Forward-looking statements, by their nature, address matters that are to different degrees uncertain. These uncertainties, which are described in more detail in the company's annual and quarterly reports filed with the SEC, may cause our actual future results to be materially different from those expected in our forward-looking statements. We do not undertake to update our forward-looking statements, whether as a result of new information, future events, or otherwise, except as may be required by law. For more information regarding forward-looking statements, please refer to the company's press releases and SEC filings.

We will also be discussing certain non-GAAP financial measures, which are defined and reconciled to comparable GAAP financial measures, and our third-quarter press release furnished to the SEC on Form 8-K, which is also posted on our website. Additionally, we will be filing our Form 10-Q for the third quarter ended September 30th, 2025, with the SEC this afternoon. You can find additional information regarding the company on our website at www.warriormetcoal.com, which also includes a third-quarter supplemental slide deck that was posted this afternoon. Today on the call with me are Mr. Walt Scheller, Chief Executive Officer, and Mr. Dale Boyles, Chief Financial Officer. After our formal remarks, we will be happy to answer any questions. With that, I will now turn the call over to Walt.

Walt Scheller (CEO and Director)

Thanks, Brian. Hello everyone, and thanks for taking the time to join us today to discuss our third quarter 2025 results. I'll start by providing an overview of the quarter before Dale reviews our results in additional detail. We're extremely excited to share that our third quarter presented an opportunity for Warrior to showcase its strength in a number of ways. From our strong financial performance to significant operational achievements, we've been driving success in the near term while continuing to improve our long-term position and prospects. We have an exciting future ahead of us, and this is a direct result of our unwavering commitment to operational excellence and the exceptional teamwork and dedication of our employees. First, from an operational achievement perspective, I'm thrilled to announce that in October we started the longwall operations at Blue Creek, which were approximately eight months ahead of schedule.

This remarkable accomplishment underscores our team's exceptional execution and reflects our commitment to driving shareholder value with high-value strategic investments. Second, factoring in the earlier startup of the Blue Creek longwall, we now expect to produce approximately 1.8 million short tons of high-vol steelmaking coal from the Blue Creek mine, representing an additional 800,000 short tons this year, or an 80% increase over our initial 2025 guidance. As a result, we've raised our full year 2025 production volume guidance by approximately 10%. Third, earlier this month, Warrior won the bidding in the federal coal lease sale of 58 million short tons of high-quality steelmaking coal reserves contiguous to our current operations, subject to the finalization of a binding lease agreement with the Bureau of Land Management.

This strategic opportunity is expected to enhance our long-term value proposition by bolstering our reserve base and extending the life of our core mining operations. I'll provide further details on these accomplishments in a few moments. From a financial performance perspective, we delivered a strong performance in the third quarter despite ongoing weak steelmaking coal market conditions. The combination of our high-quality products and strong customer relationships, supported by our variable cost model, generated impressive net income and Adjusted EBITDA. We have confidence that our operational successes will continue to drive strong financial performance over the coming quarters. Turning back to Blue Creek, let me provide you some additional details on this transformational growth project.

Achieving a startup for Blue Creek's longwall operations eight months earlier than our original timeline is almost unheard of in this industry, where projects are usually delayed for years and many millions of dollars over budget, particularly in an inflationary environment. The success of our Blue Creek development was cumulative over the project timeline and a testament to our incredibly talented employees and partners. It provided an opportunity for us to demonstrate the strength of our talented workforce and the performance-driven culture of our organization. I want to extend my sincere thanks to all Warrior employees and our partners for their hard work, dedication, and resilience to bring this project to fruition approximately eight months ahead of schedule while staying on budget. These accomplishments are a direct result of their efforts and continue to drive our success as we execute our long-term growth strategy.

The Blue Creek mine features world-class assets, which incorporate the most modern and latest technology available in the mining industry. It was built with the scope and scale to accommodate more than 6 million short tons of annual production of high-quality steelmaking coal and the potential to be the lowest-cost mine in the world. In addition, these assets enable Warrior to scale up and expand in the future to a second longwall operation if market requirements dictate such an increase in production. Our team's sense of urgency and high performance enabled us to accelerate the startup of Blue Creek longwall for a second time. In October, we completed key infrastructure, including the installation of the overland and clean coal belt, along with the remaining modules of the preparation plant, and made significant progress on the barge loadout and other key infrastructure components.

Financially, we dedicated another $64 million of capital expenditures in the third quarter and $171 million year-to-date on the Blue Creek project. That brings the total project-to-date capital expenditures to $888 million, which remains on budget. Our total project estimate remains unchanged, ranging from $995 million-$1 billion and $75 million. Looking ahead, we will be laser-focused in the fourth quarter on ramping up longwall production and optimizing the performance of the underground and surface infrastructure. While the underground longwall operations have recently commenced, a significant amount of work remains to complete the project, which we expect will occur by the end of the first quarter in 2026. The remaining work includes completing the barge loadout, paving roads, completing storage and shop buildings, additional storage silos, and final electrical installations, along with the usual assortment of final project details.

The accelerated Blue Creek longwall startup enables us to increase our guidance for total company production and sales volumes for 2025, as you will have seen in our earnings release. We have raised our Blue Creek production volume by 80% from 1 million short tons to 1.8 million tons. We expect to sell approximately 2/3 of the Blue Creek production, or approximately 1.2 million tons in 2025. This increase in production from Blue Creek raises our full-year outlook for production volume by approximately 10% at the midpoint of the range. This startup marks another critical inflection point in the development of this world-class asset, representing the start of transition from capital investment to free cash flow generation. Turning to another growth opportunity, we learned in September that we were the successful bidder in a federal coal lease sale administered by the Bureau of Land Management.

Once we enter into this lease, the acquisition will expand our footprint strategically, with the addition of an estimated 58 million short tons of high-quality steelmaking coal reserves. These reserves are adjacent to existing infrastructure, which will allow for efficient integration into our current operations and capital planning. Also, this acquisition will allow for access to additional reserves that could further the life to both Mine 4 and Blue Creek. The total bid for the leases was approximately $47 million, which will be paid over five years. We appreciate the Bureau of Land Management's efficient review, the support of the Alabama federal delegation, and our local and state government officials in advancing this process. We also appreciate the Department of the Interior Secretary, Doug Burgum, and the entire Trump administration for the support of mining on federal lands.

While there are several regulatory and administrative steps that remain before Warrior finalizes the lease agreements with the Bureau of Land Management, we are actively engaged with the relevant agencies to ensure timely progress and compliance with all requirements. We expect this process will be completed shortly after the end of the government shutdown. Now let's turn to the steel and steelmaking coal markets during the third quarter, which provided the backdrop for our strong operational and financial results. Our markets faced headwinds from increased Chinese steel exports, subdued global demand, and oversupplied seaborne steelmaking coal markets. Nevertheless, our team's focus and resilience enabled us to achieve record quarterly sales volume. The drivers underlying the weakness are the same as they have been for some time.

First, exports of low-priced Chinese steel are up over 10% for the first nine months of the year compared to 2024, which was already a record year for Chinese steel exports. Second, with the exception of India, lackluster global steel demand continued because of trade uncertainty and tepid global economic activity. Third, the seaborne steelmaking coal markets remained under pressure due to strong supply, as demonstrated by strong Chinese domestic steelmaking coal production and a slowdown in Chinese imports. While there have been discussions in China of anti-involution and coal production controls combined with mine safety checks and shutdowns, those actions have fallen short in reality, while trade tensions continue to weigh heavily on global market sentiment.

In addition, the European Union recently announced plans to protect the EU steel sector from the unfair impacts of global steel overcapacity by limiting import volumes and doubling the level of tariffs to 50%. These actions could lead to a recovery of steelmaking coal demand from Europe in the long term, but we do not anticipate a recovery anytime soon. Likewise, the steelmaking coal market remains oversupplied, as demonstrated by the prolonged period of weak pricing. According to the World Steel Association monthly report, global pig iron production decreased by 1.5% for the first nine months of 2025 as compared to the prior year period. Pig iron production in China, which is the world's largest production region, decreased by 1.1% for the same period. The rest of the world's pig iron production experienced a decline of 2.5% for the first nine months of 2025.

India remains a bright spot with a growth rate of 7% and is expected to continue growing, with new blast furnace capacity expected to come online in the next year. Our strong sales volume was primarily driven by high contractual demand from our customers, combined with the strong performance of our existing mines and the additional commercial sales from our Blue Creek mine. This combination enabled Warrior to achieve a record high quarterly sales volume in the third quarter of 2.4 million short tons compared to 1.9 million in last year's same quarter, representing a 27% increase. We sold 378,000 tons of Blue Creek development steelmaking coal during the third quarter, which were contractual volumes sold primarily into Asia. Our sales by geography for the third quarter breakdown is as follows. 43% into Europe, 38% into Asia, and 18% into South America.

The spot volume was 11% for the third quarter of 2025, which was primarily sold into Europe. For the full year, our spot volume is expected to be approximately 10%-15% of total sales volume. Production volume in the third quarter of 2025 was 2.2 million short tons compared to 1.9 million in the same quarter of last year, representing a 17% increase. Our existing mines continued to perform well, and the continuous miner units at our Blue Creek mine produced 175,000 short tons during the third quarter, adding to the overall increase in production volume. Blue Creek production was lower than the second quarter, as more time was spent on construction and development work for the longevity of the mine and the startup of the longwall. Our coal inventory levels decreased slightly to 1.1 million tons at the end of September compared to the end of June this year. I'll now ask Dale to address our third quarter results in greater detail.

Dale Boyles (CFO)

Thanks, Walt. Warrior was built to excel in all market conditions with high-quality steelmaking coal assets, a low-cost position globally, possessing a strong balance sheet with ample liquidity, and a relentless focus on operational excellence. Each of these attributes were clearly demonstrated in our third quarter results and recent accomplishments. From my vantage point, I believe few companies are able to embark on and make continued strategic investments of over $1 billion in an organic growth project like Blue Creek without diluting shareholders with equity offerings or additional leverage.

For Warrior, our ability to accomplish this is due to our incredibly talented workforce, which enables us to continuously focus on resource development and operational excellence. Turning to market conditions we experienced this past quarter, our primary index, the PLV FOB Australia, was relatively stable, averaging $166 per short ton. This average pricing has remained relatively consistent through the first and second quarters of this year. However, during the third quarter, the PLV CFR China index price recovered from its low points earlier in the year and averaged $162 per short ton. This average was over $11 per ton higher than the second quarter of this year. Although the arbitrage narrowed by the end of the third quarter, it remained closed most of the third quarter.

As for the main second-tier indices, the Australian LVHCC index price recovered from its low point in the second quarter and averaged $137 per short ton, while the U.S. East Coast HVA index price established a low for the year and averaged $141 per short ton. As a result, we saw the relativity of the LVHCC index price compared to the PLV index price improve from 78% in the second quarter to an average 82% for the third quarter. This narrowing of the spread primarily drove our higher average debt selling price in the third quarter compared to the second quarter this year. On the contrary, the U.S. East Coast High Vol A price index recorded a decrease in relativity from 92%-85% during the same period.

We achieved a gross price realization of 83% for the third quarter compared to 93% in last year's same quarter, which was a function of relative index pricing, product mix, geography, tariffs, and freight rates. The 83% achievement was 3% better than the second quarter of this year. This result was lower than our annual targeted range of 85%-90%, primarily due to three things. First, the LVHCC index price relative to the PLV index price has widened compared to the historical relationship between these indices. Second, we sold a higher mix of High Vol A product versus Premium Low Vol product. Third, the higher High Vol A volume has been sold primarily into the Pacific Basin on a CFR basis, which has met a freight cost. As Walt noted earlier, the steelmaking coal markets continue to be pressured in the third quarter by the same factors.

Let me first highlight our third quarter financial achievements compared to the second quarter of 2025. Our third quarter Adjusted EBITDA of $71 million was 32% higher than the second quarter this year, primarily due for two reasons. First, our sales volumes were 6% higher, including an increase of 139,000 tons of Blue Creek coal with its inherently lower cost structure. Second, our average net selling prices were $6 per ton higher, primarily as a result of the higher High Vol A pricing relative to PLV pricing of 82% versus 78% in the second quarter. The higher sales volumes, higher average net selling prices, and incremental Blue Creek sales volumes contributed to the higher operating cash flows of $67 million, with $37 million of higher free cash flow than the second quarter of this year. Our spending for capital expenditures and mine development were a combined $30 million higher in the third quarter compared to the second quarter of this year, primarily related to the investment in Blue Creek.

Excluding the Blue Creek capital expenditures and mine development investments in the third quarter, free cash flows were a +$86 million. Now let us compare the third quarter of the current year to the prior year's third quarter results. Warrior recorded net income of $37 million or $0.70 per diluted share compared to net income of $42 million or $0.80 per diluted share in the same quarter of 2024. We reported Adjusted EBITDA of $71 million in the third quarter of this year compared to $78 million in the same quarter of last year. Our Adjusted EBITDA margin was 22% in the third quarter of this year compared to 24% in the same quarter of last year.

On a per ton basis, our Adjusted EBITDA margin was $30 per short ton for the third quarter of this year compared to $42 in last year's third quarter. The decrease in the quarterly results was primarily driven by 21% lower average net selling prices and a 13% higher sales mix of High Vol A product versus Premium Low Vol product. These decreases were partially offset by 27% higher sales volume, including lower cost Blue Creek volumes and lower variable costs for transportation and royalties, plus controlling and managing our production costs. Total revenues were $329 million in the third quarter of this year compared to $328 million in the same quarter of last year. The total increase of $1 million was primarily due to the 27% higher sales volume impact of $85 million offset by the impact of a decrease in average gross selling prices of $81 million.

A higher mix of High Vol A volume sold of $11 million. In addition, demurrage and other charges were $6 million lower compared to last year's third quarter. This resulted in an average net selling price of $136 per short ton in the third quarter compared to $172 per short ton in the third quarter of last year. Cash cost of sales of $237 million or 74% of mining revenues in the third quarter of this year compared to $230 million or 72% of mining revenues in the third quarter of last year. Off the $7 million net increase in cash cost of sales, there was a $61 million increase in costs, which were attributed to the 27% increase in sales volumes, which include the leverage of low-cost Blue Creek tons.

These higher costs were offset partially by $54 million of lower costs that were driven by the lower variable transportation royalty cost on 13% lower average steelmaking coal price indices. In addition, we rationalized and tightly managed our spending on supplies, repairs, maintenance expenses throughout the operations. Cash cost of sales per short ton, FOB Port, was approximately $101 in the third quarter of this year compared to $123 in the same quarter last year. The decrease was primarily related to overall spending at the legacy mines of $11 per ton due to tightly managing our overall spending, lower variable transportation royalty cost of $8 per ton on lower steelmaking coal prices, and $4 per ton from the incremental sales of low-cost Blue Creek tons.

While we were able to manage our spending tightly during the third quarter, some cash costs, such as repairs and maintenance, may be higher in future quarters due to potential unexpected breakdowns that would require investment to restore the equipment to their normal operating status. Our cash cost of production for the third quarter of this year was 67% of our total cash cost per short ton compared to 66% in the same quarter last year. Overall, transportation royalty costs were 33% of our cash cost of sales per short ton in the third quarter of this year on lower average net selling prices compared to 34% in the same quarter last year. As a result of the lower average net selling price, our cash margin per short ton was $35 in the third quarter of this year compared to $48 in the same quarter last year.

SUMA expenses were $17 million and were about $6 million higher than the third quarter of last year, primarily due to higher employee-related expenses. Depreciation expenses were $44 million, which was higher than the third quarter last year, primarily due to the additional assets placed into service at Blue Creek and the higher sales volume. Our net interest income earned from cash investments was lower due to lower average cash balances and lower rates of return combined with higher interest expense on newly leased equipment. We recorded an income tax benefit of approximately $14 million on pre-tax income of $23 million in the third quarter. Our year-to-date effective income tax rate varied from the statutory federal income tax rate of 21%, primarily due to tax benefits recognized for depletion expense, marginal gas well credits, and a foreign-derived intangible income deduction, which exceeded forecasted pre-tax book income.

Turning to cash flow, free cash flow was a -$20 million due to $105 million in operating cash flows, less cash used for capital expenditures and mine development of $125 million. Capital spending totaled $83 million, which included $64 million spent on the Blue Creek project, as previously noted. Mine development costs for the Blue Creek project in the third quarter were $42 million and continued to be below budget as we continued to focus on cost control. Working capital decreased by $31 million during the third quarter, primarily due to lower accounts receivable and higher accrued expenses. Our investment into Blue Creek is generating revenue and contributing positive operating and free cash flow to the overall company.

We amended and extended our ABL facility, which increased the commitments available to be borrowed by $27 million-143 million, and extended the maturity date, giving us further financial flexibility and higher liquidity. Our total available liquidity at the end of the third quarter of this year was $525 million and consisted of cash and cash equivalents of $336 million, short and long-term investments of $48 million, and $141 million available under our ABL facility. Let me turn to our revised outlook and guidance for the full year 2025. As Walt previously noted and outlined in our earnings release, we have updated and increased our production sales volume guidance for the full year 2025 as a direct result of the early startup of the longwall operations at Blue Creek. In addition, we lowered our guidance for cash cost of sales per ton, reflecting more recent actual results. While weak steelmaking coal market conditions are expected to persist for the remainder of the year, we remain optimistic about our long-term growth trajectory. I'll now turn it back to Walt for his final comments.

Walt Scheller (CEO and Director)

Thanks, Dale. Looking ahead, we recognize persistent challenges in our customers' markets will continue to be driven by ongoing surplus in Chinese steel exports, heightened global trade tensions, and subdued economic activity worldwide. However, we're hopeful that new trade agreements with key global partners will be supportive for our markets and will materialize in the near term. Similarly, we expect the steelmaking coal markets to be pressured by additional supply, which is expected to come online over the next few quarters due to a combination of new capacity and the return of certain idle models. We believe the pricing will remain weak and range-bound, and supply rationalization will be necessary to balance market dynamics.

While the steelmaking coal markets are expected to continue to be weak in the upcoming quarters, we're excited about the positive accomplishments in our business and with some of our key partners. For example, on October 13th, the Alabama State Dock had its official ribbon-cutting ceremony to celebrate the completion of a multi-year project of deepening the draft and widening of the channel at the port. This project is expected to benefit both Warrior and our customers by allowing them to load heavier and larger vessels in the future. In addition, several important machinery and equipment upgrades are being completed at the port over the next few quarters. These upgrades at the port are anticipated to enhance our operations and position the company for long-term success. We appreciate our long-standing partnership with the state.

In conclusion, the combination of accelerated Blue Creek production and strategic reserve acquisition significantly enhanced our long-term growth strategy and provided Warrior a strong platform to meet long-term sustained global demand for premium steelmaking coal. Our world-class assets, low-cost position, and disciplined capital deployments are our foundational strength. We remain focused on delivering long-term shareholder value through strategic resource development and operational excellence. With that, we'd like to open the call for questions. Operator?

Operator (participant)

At this time, I would like to remind everyone that to ask a question, please press star, then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from Katja Jancic with BMO Capital Markets. Please go ahead.

Katja Jancic (Metals and Mining Analyst)

Hi. Thank you for taking my questions. First, congratulations on the early Blue Creek startup and the quarter. Maybe starting on the Blue Creek, with the early startup, how should we think about production next year?

Walt Scheller (CEO and Director)

We are working through our budget right now, but as you know, our plan was not to have started that till mid-year. Naturally, that number is going to be enhanced greatly. We are still working on that. I am hesitant to give you an exact number on where we will be. I think a lot of it is going to be market-driven as we get into next year as opposed to operationally-driven. We are working on that right now.

Katja Jancic (Metals and Mining Analyst)

Secondly, the CapEx is coming down on the Blue Creek project. Can you remind us how you are thinking about capital allocation?

Dale Boyles (CFO)

Yes, Katya. Thanks for the question. I think it would be similar to what we've done in the past when we generate the excess free cash flow above the needs of the business, and we will return cash via different methods, which will be the fixed quarterly dividend, which I expect would be higher in the future. Supplement that with some cash special dividends and possibly some stock buybacks along the way selected.

Katja Jancic (Metals and Mining Analyst)

Perfect. Thank you.

Dale Boyles (CFO)

Thank you.

Operator (participant)

Your next question comes from Nick Giles with B. Riley Securities. Please go ahead.

Nick Giles (Senior Research Analyst)

Yeah. Thank you so much, Operator. Guys, I really want to commend you on this incredible achievement. I know Tuscaloosa breeds champions, but it's clearly not just football. My question was, what does this mean from a hiring perspective? Do you still need incremental workers to ramp up here? If sales are expected to be market-driven, would you plan to build inventory, or would you really toggle production just on market conditions? Thank you.

Walt Scheller (CEO and Director)

The first part of your question on how many people, we still need more people. We're okay running at the pace we are right now, but we'll continue to hire over the next year easily and probably continue beyond that. I think next year we'll be looking at a balance. We'll look at, as I've said before, we really wanted to make sure that we had a certain percentage of the tons tied up before we ramped up. I'm not going to say four and a half is the number for next year, but I think you're probably going to be closer to that type of a number for Blue Creek. We will be looking at cash flow. We'll be looking at what's happening in the market. We don't want to build a bunch of inventory, and we don't want to flood the market either. We are going to be balancing all those factors to make sure we maximize the value for the company.

Nick Giles (Senior Research Analyst)

I appreciate that. Maybe just looking to the fourth quarter here, I mean, I think if I did the math right, your guidance could imply a 20% increase in sales. Can you just walk us through what, maybe on a mine-by-mine basis, how sales could shift quarter-over-quarter?

Dale Boyles (CFO)

I don't have that breakout by mine, but what we said is two-thirds of that volume of Blue Creek for the year should be sold this year, 1.2 million tons. We've sold about half of that so far through the end of the third quarter. You're going to see a big jump just because of the Blue Creek tons there, Nick. That's the biggest driver in the fourth quarter.

Nick Giles (Senior Research Analyst)

Got it. Thanks for that, Dale. Maybe one last one, if I could. It's good to see you were able to tuck in such a significant amount of reserves at a reasonable cost. I think you mentioned this is relevant to Mine 4 and Blue Creek. My question is, how much does this acquisition influence any potential decision to add another longwall to your operating footprint? How much capital could be required later down the road? Appreciate any color there.

Walt Scheller (CEO and Director)

What I've said in the past is an additional longwall, you're probably looking at incremental capital, probably out of that $300 million or so, because you're going to have to add three CM units. You're going to have to add another longwall. You're going to have to add modules to the preparation plant. There is a lot of infrastructure and just a lot of build-out that would have to happen. In terms of making that decision, we had enough reserves without the BLM to add a second longwall if we thought the market justified it. This just makes us even more efficient because some of the places where we were going to have to skip around some coal, now we have control of it. This is going to make us a lower-cost, more efficient operation at both Mine 4 and Blue Creek as we roll forward.

Nick Giles (Senior Research Analyst)

Understood. Guys, congratulations again and continued best of luck.

Walt Scheller (CEO and Director)

Thank you.

Dale Boyles (CFO)

Thanks.

Operator (participant)

Your next question comes from George Eadie with UBS. Please go ahead.

George Eadie (Metals and Mining Analyst)

Yeah. G'day, Walt, Dale, and Brian. Hope you're well. Really impressive performance here and good set of numbers. So well done. Can I just follow up on that question before? Another longwall, is it a price decision if you were guaranteed, say, $200 metric benchmark PLV, would you do it? The spreadsheet maths, it clearly works. When we get to sort of mid-2026 as the first longwall at Blue Creek is ramped up, how would we go about thinking about the decision for another one?

Walt Scheller (CEO and Director)

I think the real, what we need to do is we need to stretch this first longwall as tight as we can and see just what it's capable of. What we've said is 6 million. I don't know where the top end is for that one longwall and how many CMs it takes you to support that one longwall if you're running it flat out throughout the year. The real question is going to be, where's that limit? Beyond that, what's that next longwall get you? I think we're years away from making that decision because I think there's still so much headroom on the first longwall.

George Eadie (Metals and Mining Analyst)

Yeah. Okay. Thanks for that, Walt. Maybe to Dale, you just sort of call out those three factors: discounts, more high-vol, more Asia sales. How do I triangulate that with the low-vol, high-coking index, flat quarter-on-quarter? Your realized price was up quarter-on-quarter. That caught me off guard. How do I triangulate that going forward as well? More Blue Creek sales, more Asia sales. Is it likely that this was just a one-off really strong realized price in quarter, or how do I sort of triangulate those factors?

Dale Boyles (CFO)

I don't think it's a one-off quarter. I think if you go back to my remarks, I said, "Look, the increase from the second quarter to the third quarter was two things: 6% higher sales volume and a net realized price of $6 a ton higher." That $6 a ton came primarily from the increase in the LVHCC during the third quarter. That relativity rose from 78% in the second quarter to 82%. That spread narrowed, right? That drove that $6 a ton, which just flowed to the bottom line.

Brian Chopin (SVP, Chief Accounting Officer and Controller)

Think of it as that. Think of it that way. Pick your PLV price and then pick your relativity. Okay? For example, a $200 PLV. An 80% relativity. You are going to be pretty close.

George Eadie (Metals and Mining Analyst)

That relativity, that 82%, that 4% quarter-on-quarter jump is what I was talking about there, sorry, Dale. That caught me off guard. More. High-vol sales, more into Asia. How do we think about that going forward in a Q4, I guess, as well?

Dale Boyles (CFO)

We do not break it out by geography on a forward-looking basis, but we do think that in the long term, more volume will go into Asia long term as we ramp up Blue Creek. That will be a gradual climb over the next year or two.

George Eadie (Metals and Mining Analyst)

Yeah. Okay. No, that is right. Just last one on price.

Dale Boyles (CFO)

Yeah. I was just going to say one more thing, George, to think about there is customers have their different time schedules throughout the year. That is why we might sell more into Europe in one quarter versus another quarter. It is hard for us to forecast that into the future as to what geography it is going to go into. We do not have that preciseness very far out. We know about a quarter ahead, but not too much further out than that.

George Eadie (Metals and Mining Analyst)

Yeah. Okay. No, that's fair. Just what was sort of saying, quite bearish sort of met coal prices at the start, but benchmark prices are up at $197, and flat's starting to now talk quite optimistic with demand outlook ex-China. Any sort of color you can give?

Walt Scheller (CEO and Director)

I think I always try to be conservative in my expectations. That's the way we run our company. We make sure that we're able to respond to any positive market news, but we make sure we're prepared in the case of any negative market news. It's hard for me to see a reason why prices will go up or, at best, they'll maintain the level they're at now, I think. It takes one event to cause this price to shift dramatically. I don't know what that one event is right now.

Dale Boyles (CFO)

Yeah. It's hard to see on the demand side what the catalyst is. Then you're thinking about the supply side. As we said in our remarks earlier, look, there's the Blue Creek coming online next year. There are other mines that are restarting next year. You're going to have additional supply coming on that's going to keep that pretty balanced, we think, going forward. It's hard to be too optimistic right now about what the next year or two looks like, other than we should perform well because of Blue Creek coming online. It's such a much low-cost structure, we're going to benefit from that.

Operator (participant)

Again, if you have a question, please press star, then one. Your next question comes from Nathan Martin with The Benchmark Company. Please go ahead.

Nathan Martin (Senior Equity Research Analyst)

Thanks, Operator. Good afternoon, gentlemen. Congratulations on the early longwall startup. I just wanted to come back to the pricing question quickly. I think maybe what we're trying to figure out is how should we think about realizations versus the benchmark kind of going forward as you bring on these additional Blue Creek tons? Do you think you can get back to kind of your targeted 85%-90% range of the benchmark?

Brian Chopin (SVP, Chief Accounting Officer and Controller)

That is what our target is. Yes, I think we can get there. It just depends on what the markets do. I mean, we can't control that. My crystal ball says, maybe. Prices change all the time for different reasons. I mean, if you can't predict it, I can't predict it, right, what prices will be tomorrow. The realizations are what they are. We are 83%, our target range is 85%-90%. We're creeping up. It depends on what continues to happen with LVHCC pricing in the Pacific Basin. That will be a big determinant of where we get to.

Walt Scheller (CEO and Director)

I think, said another way, we definitely think we will get back to that 85%-90%. The question is just when.

Brian Chopin (SVP, Chief Accounting Officer and Controller)

Yeah.

Walt Scheller (CEO and Director)

We can't tell you if that's going to be two quarters from now or a year and a half from now. We don't know when that'll occur.

Nathan Martin (Senior Equity Research Analyst)

That makes sense. That's fair. As far as Blue Creek sales are concerned, Dale, I think you said that you guys were maybe initially targeting those tons towards Asia. Is that correct? How many Blue Creek tons have you guys been able to contract at this point with starting up the longwall early?

Dale Boyles (CFO)

The majority of the sales volume so far, yes, has gone into Asia. Right now, these tons that are being shipped are really trials, right, to get confirmation of contracts. It is a little early with the volume that we sold to give a percentage of how much we have contracted because of these trials. I do not want to get into that yet. If we have better, and hopefully we will have better information during our fourth quarter earnings call about that. Right now, it is a little bit too early because we only have about 1.2 million for this year.

Nathan Martin (Senior Equity Research Analyst)

I appreciate that. Maybe just one final one on the cost side of the equation. Good to see cash cost guidance for this year down again, another $5. I just want to make sure, is there any change in your net price assumption there that would have impacted that update? Then last quarter, Dale, I think you mentioned you had built in some maintenance and repair costs. I think you touched on that briefly in your prepared remarks as well. Is that still the case in that range?

Dale Boyles (CFO)

Yeah. That's kind of baked into that range. Really, the price assumption hasn't changed because the PLVs average virtually the same amount each and every quarter this year.

Nathan Martin (Senior Equity Research Analyst)

All right. Very helpful. I'll leave it there. Appreciate the time. Best of luck in the fourth quarter.

Dale Boyles (CFO)

Thank you.

Nathan Martin (Senior Equity Research Analyst)

Great.

Dale Boyles (CFO)

Thank you very much.

Operator (participant)

Your next question is a follow-up from Nick Giles with B. Riley Securities. Please go ahead.

Nick Giles (Senior Research Analyst)

Thanks so much for taking my follow-up. I just wanted to follow up on that last question on the cost side. I think guidance does still imply a slight tick up in the fourth quarter. I wanted to see if there's anything specific that could drive that or if that's maybe just an added level of conservatism. Thank you.

Dale Boyles (CFO)

Yeah. It's just making it what it is, right? As I said in my prepared remarks, we've been pretty tight on repairs and maintenance all year. Something could break, and we've got to fix it in the fourth quarter. That's covering those kind of things. If we have a little tick up, and we have recently in the last couple of weeks on the prices to $196, there could be some change there a little bit on the cost. That's all baked into that range. We're averaging for the year-to-date, we're averaging at the bottom of the range. A slight tick up would be very minor.

Nick Giles (Senior Research Analyst)

Got it. I appreciate the clarification.

Dale Boyles (CFO)

All right. Thanks, Nick.

Operator (participant)

At this time, there are no further questions. I will now turn the call over back to Mr. Scheller for any closing comments.

Walt Scheller (CEO and Director)

That concludes our call this afternoon. Thank you again for joining us today. We appreciate your interest in Warrior.

Operator (participant)

Thank you. That concludes today's conference. Thank you all for participating. You may now disconnect.