Ramaco Resources - Earnings Call - Q1 2020

Transcript

Speaker 0

Ladies and gentlemen, thank you for standing by, and welcome to the Ramaco Resources Inc. First Quarter twenty twenty Earnings Conference Call. At this time, all participants are in a listen only mode. After speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Jeremy Sussman, Chief Financial Officer. Thank you. Please go ahead, sir.

Speaker 1

Thank you. On behalf of Ramaco Resources, I'd like to welcome all of you to our first quarter twenty twenty earnings conference call. With me this morning is Randy Atkins, our Executive Chairman Mike Bauersachs, our President and CEO and Chris Blanchard, our Chief Operating Officer. Before we start, I'd like to share our normal cautionary statement. Certain items discussed on today's call constitute forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

These forward looking statements represent Ramaco's expectations concerning future events, and it is possible that the results discussed will not be achieved. These forward looking statements are subject to risks, uncertainties and other factors, many of which are outside of Ramaco's control, which could cause actual results to differ materially from the results discussed in the forward looking statements. Any forward looking statement speaks only as of the date on which it is made. And except as required by law, Ramaco does not undertake any obligation to update or revise any forward looking statements, whether as a result of new information, future events, or otherwise. Lastly, I'd encourage everyone on this call to go on to our website, ranicoresources.com, and download today's investor presentation under the events calendar.

With that said, let me introduce our executive chairman, Randy Atkins.

Speaker 2

Thank you, Jeremy. As always, I wanna thank everyone for joining us today to discuss our first quarter results. There is an old Chinese curse that goes, yours shall be a life lived in interesting times. We are all indeed operating under such a curse at the moment, I'm afraid. Before I turn to our results, let me comment on essentially what is the thesis of our three legs of the stool strategy for at least the next six months and probably longer.

First, we will do all that we can to keep our people safe. This is a rapidly changing landscape, but we will attempt to do all we can to balance health, safety, and continuing operations. Secondly, we already have the cleanest balance sheet in the business on the liability side as well as some of the lowest cost structure. We are going to work to preserve this balance sheet, but at the same time, create as much liquidity as we can prudently to enable us to take what we're calling a shield and sword approach to the market. We know Ramaco and indeed the whole industry will be tested over the next few months, so we have taken steps to add new liquidity.

This is being done through a combination of operational and payroll cuts, new changes in our revolver, and some recent borrowings, all of which we will speak about later. We think that the market may deteriorate for at least the next one or two quarters. By how much and for how long are certainly unclear. That market deterioration will no doubt create pitfalls, some for us, but plenty for others who are disadvantaged by higher mining costs and debt. We feel that added liquidity plus the fact that we've already sold forward about 80 percent or 1,550,000 tons of our 2000 20 production should provide Ramaco a shield to weather this storm, which brings me to the third leg of the stool, the so called sword behind the shield.

Notwithstanding taking defensive measures, we've also been active doing future planning on our development front. Due to the market upheaval, we stopped construction on the Berlin development slope in March. But once that project is reinitiated, we are roughly five to six months away from reaching the low vol Pocahontas number four seam and initiating long term low cost production in that reserve. We have also added two new low vol and mid vol mining projects, which we refer to as the Triad and the Big Creek Mines. For relatively little CapEx, we could bring on these two new mines within four months from breaking ground.

When we combine them with Berwind, then within six months of a clear market landscape and, of course, a green light from our board, we could add roughly 1,200,000 tons of additional low and mid vol coal at peak production. This would normalize to about 900,000 tons of annual production on an ongoing basis and compares to our current

Speaker 3

low vol run rate of about 200,000 tons.

Speaker 2

We estimate these new mines will produce with an average mine cost in the low $60 per ton and require additional development CapEx of approximately $11,000,000. This could place us to potentially increase our production level to as much as 3,000,000 tons next year. That is about 66% above 2,020 production levels and would break down as roughly 2,100,000 tons of high vol from Elk Creek and 900,000 tons of low vol from Berwind and Knox Creek. Again, we will not greenlight these projects until we see better market clarity. But we obviously like the relatively low CapEx, low mine cost, and short lead time to add some meaningful production.

Now let me turn to some of the financial results for q one, which Jeremy is gonna fill in in more detail in a moment. At the start of 2020, we faced a pricing environment, which, of course, was markedly lower than last year. In 2019, we had locked in our domestic met coal sales at an average price of $113 a ton. Thus far in 2020, our average price is almost 20% lower at about $93.5 per ton. In q one, we realized $8,400,000 in EBITDA on coal sales of roughly $42,000,000 or 416,000 tons, priced at an average of about $93 a ton.

This worked out to diluted earnings of 5¢ a share. We are pleased that we maintained strong cost discipline with our main operating Elk Creek complex averaging mine costs of about $61 a ton and CapEx falling by 25% from the prior quarter to just under $9,000,000 Turning to the sales and marketing landscape, it still looks difficult at best with no meaningful pulse right now in the export markets. The Atlantic seaborne prices have dropped this quarter by over $20 a ton, and US low vol benchmark is now hovering at about $1.00 7. Although there has been some recent bounce from China, it is probably prudent to expect more domestic weakness before we see truly encouraging news. As we said last quarter, we do not expect any real market resilience until the 2020 and perhaps not beginning until actually Q4.

As such, we are not really providing any further production guidance for the balance of the year. But even in these challenging times, we continue to maintain our long term production guidance of four to 4,500,000 tons. For those of you who like to keep track of our production ramp, I would encourage you to take a look at the slides in our earnings decks, which outlines these projects. Our fundamental long term strategy remains the same, which is to maintain a low debt, low ARO liability capital structure. Because none of us knows what the next several months will unfold like, We have recently taken some structural steps to strengthen the shield by improving liquidity.

In q one, we added about 11,000,000 of a functional new capacity to our revolver. In q two, we drew down a new $5,000,000 equipment line and also received a paycheck protection loan of over $8,000,000 which enabled us to bring back the almost 200 miners we had furloughed in the April. We idled further development construction at Berwind and also took some strong g and a cuts. All of these steps combined, plus some additional ones we're prepared to initiate in q two and q three, could add as much as 40,000,000 in new liquidity if there is further market deterioration. We continue to assume that we are going to see supply reduction in cap in 2020 at some point.

To date, we have seen some contraction but expect more. Our sense is that the ability to defy gravity exists in this business for only so long. And particularly now with current benchmarks equating to about mid seventies per ton at the mine with average mine cost in the mid eighties. We suspect many of our peers are still operating these higher cost mines or potentially over levered or both. And as the old saying goes, the markets can often stay irrational longer than you can stay liquid.

So time will tell. Now with that overview, I would like turn it over to Jeremy to give a more granular discussion on finances.

Speaker 1

Thank you, Randy. In terms of first quarter twenty twenty financial highlights, adjusted EBITDA was $8,400,000 which was a 6% decrease from the 2019. Frankly, given the fact that our sales price declined to $93 per ton in the first quarter compared to $104 per ton in the fourth quarter, the 6% quarter over quarter decline was better than we had anticipated. Chris' operating team had an excellent quarter with cash costs at Elk Creek of $61 per ton, which compared to $66 per ton in the fourth quarter and $63 per tonne in the same period of 2019. Overall company costs, which include our Berwind development mine, came in at $67 per tonne in the first quarter, which was also down both on year and quarter over quarter.

Rounding out first quarter financial metrics, revenue was $42,000,000 down 8% from the fourth quarter and down 27% from the same period of 2019. First quarter earnings per share of $05 was in line with fourth quarter two thousand and nineteen results and compared to $0.17 a year ago. As we noted in our press release, COVID nineteen has brought on an unprecedented amount of uncertainty. As such, like most of our peers, we are suspending our forward sales guidance for 2020 with the exception of giving our current annual sales commitments of 1,500,000 tons at $93 per ton. However, I do want to touch upon three areas on the financial front where I see differentiation between Ramaco and many of our peers.

First, everyone on this call is aware that Ramaco has been in growth mode as a relatively new met coal producer. We are extremely proud of the fact that production has grown over 235% from 2017 to 2019 and that we have added roughly 400 good paying jobs over the past few years. As Randy noted, when there is more clarity in the market, Ramaco will continue to add new low cost production as we ramp to a four four to 4,500,000 ton production plateaued. However, I want to be very clear that given current market uncertainty, we have stopped virtually all of our growth CapEx. As you'll see in our press release, 6,700,000 of the 8.9 million first quarter CapEx was related to growth mostly at Berwind.

While there will be some growth CapEx payments that bleed into the second quarter as well as modest capitalized losses expected at Berwind to fulfill an existing contract, we expect first quarter to be by far our our high watermark for 2020 CapEx. Second, as Randy noted, because we live in a world of uncertainty right now, we have plans in place which could add roughly $40,000,000 in liquidity from the beginning of this year through the third quarter to ensure that we can ride out a protracted downturn, if indeed that turns out to be necessary. While keeping our workers is always while keeping our workers safe is always our number one goal, protecting our balance sheet and liquidity is a very close second right now. To date, the additional liquidity has come in the form of adding new debt, modifying our existing revolver, and making g and a, operational, and CapEx cuts. Specifically, we have taken on $13,000,000 in new debt consisting of $4,750,000 of new equipment debt and $8,400,000 from the payment protection program, which we used to recall all previously furloughed workers.

We have also modified our existing revolver to, among other things, increase availability. Specifically, we amended our $30,000,000 revolver in February and extended the maturity date to year end 2023. We also worked with our partner, KeyBank, to modify the definitions of both inventory and receivables under the borrowing base. On average, this should increase our true borrowing base availability by $11,000,000 compared to our previous internal estimates over the course of the year. Lastly, the balance of existing and future increases in liquidity come from g and a, operational, and CapEx cuts.

Third, I want to remind everyone of the key competitive advantages for Ramaco. As we show on slide 12, our net debt to EBITDA metrics are the best in the industry. I'd remind everyone that as of March 31, our net debt stood at just $10,000,000. We have an industry leading net debt to EBITDA position of 0.2 times based on 2019 adjusted EBITDA. Given our lack of meaningful interest expense, cash taxes, and other below the line cash items, I'd remind everyone that when stress testing how Ramaco may hold up in a protracted downturn, EBITDA minus maintenance CapEx should get you almost all of the way there.

Furthermore, at just $15,000,000, Ramaco's legacy liabilities are 98% below our direct peer group average and by far the lowest among that group. I'd remind investors that at its core, Ramaco is a low cost, opportunistic opportunistic producer at with very little net debt or legacy liabilities. We have designed our operations to be resilient in turbulent times and, of course, take advantage of strength in the markets in good times. With that, I would now like to turn the call over to our President and CEO, Mike Bauersachs. Mike?

Thank you,

Speaker 3

Jeremy. Operationally, all Ramaco mines ran well in q one. Cost containment on less than ideal sales volume was exceptional at our Elk Creek mining complex. As we sit today, the impacts from COVID nineteen continue to take their toll on what was an already weak marketplace. At all levels, has gone to great lengths.

At all levels, Ramaco has gone to great lengths to address health and safety concerns relative to the COVID nineteen in our mines and related infrastructure. Infrastructure. Chris Blanchard will provide additional details relative to the on the ground efforts that we have implemented. I would like to focus the first part of my remarks on the current coal markets and how Ramaco is positioned to respond. During much of q one, coking coal market fundamentals performed relatively well as the effects of COVID nineteen were yet to be felt in The Atlantic Basin.

During this period, China's early virus related lockdowns created labor and logistics issues causing a spike in Pacific Basin demand. China's first quarter coking coal imports were up nearly 30% year over year. Seaborne pricing followed suit, rising to levels in mid March, nearly 20% above 2019 prices, only to give back most of these gains as q one came to a close. With the major impacts of the virus seemingly behind them and encouraged by stimulus spending, China was able to post year over year crude steel and pig iron production gains of 1.22.4% respectively for the first quarter, while global steel crude and pig iron production, excluding China, fell 4.15.4% respectively during the same period year over year. Different regions and countries around the world are now in various stages of dealing with the continued impacts of the COVID nineteen pandemic.

These impacts have materialized in the downstream auto, manufacturing, and construction sectors and have affected consumer confidence and spending habits. The pandemic's effect on the coking coal market has been swift and severe with major integrated steel producers around the world idling blast furnaces and curtailing production, which has in turn reduced coking coal demand and pricing. Many US and Canadian met coal producers responded by temporarily although a significant supply response from Australia is yet to occur. Until we see major steel producing countries implement government backed economic stimulus measures, it is likely that demand destruction will continue to outweigh the overall seaborne supply response. We expect indices to remain subdued due to lack of demand and uncertainty around the timing of an eventual recovery.

During the first quarter and through April, we were able to maintain our originally planned shipment schedules with all existing customers. Our domestic sales position for 2020 has made Ramaco less vulnerable to the steep decline in demand and pricing currently seen in the seaborne market and has provided stability in shipment schedules and revenues. As we navigate the remainder of the second quarter, we continue to work closely with our customers to maintain planned shipments and minimize potential delays in offtake. We are also working closely with our key transportation partners. They are experiencing the downturn as well and are reacting by implementing cost cutting measures.

While likely necessary, we need to ensure that their cuts do not hurt our ability to ship our committed volumes. Ramaco is prepared to produce and ship all of its committed tonnage. However, we can confirm receipt of force majeure notices from the majority of our customers. Lack of market clarity continues to reduce certainty around forward shipping schedules for remaining twenty twenty committed tons. This lack of clarity has caused us to cancel providing forward looking volume guidance.

As the first quarter advanced, an already weak global economy did not present material sales opportunities for us to add international term business to our sales portfolio to bridge the gap between committed and uncommitted production. In many cases, existing export term business was simply rolled over with current suppliers at prices that were likely much lower year over year in order for those incumbent suppliers to maintain market share, preventing new entrants from gaining business. Ramaco is now focused on international spot tenders to bridge the gap between our highly efficient production sources and our coal sales as well as making trial shipments to new customers. With that said, our uncommitted volume position is smaller than most of our competitors and allows us to be more discriminating with regard to current opportunities and pricing levels, while at the same time staying ready for a potential market rebound. We also remain focused on placing unsold volumes into those markets which provide the best return for our high quality products and make the most long term strategic sense.

Despite the current market downturn, during the first quarter and April, Ramaco has renewed relationships with a couple of customers in Europe. We also shipped our first tons to Asia, and we have made significant inroads in South America, having our products now approved for use by all major integrated mills. We're extremely pleased to welcome Jason Fannon, our new chief marketing officer, to our team. Jason brings a wealth of experience to our senior management levels. And alongside Kevin Parazio, we'll provide a two pronged approach to growing our international book of business as well as maintaining and growing our domestic relationships.

All of the Ramaco mines that were previously idled due to COVID nineteen related furlough are currently operating. The decision to restart the mines was substantially impacted by the receipt of 8,440,000.00 in PPP loan funds from the SBA through our primary bank, KeyBank. Ramaco's profile and the obvious uncertainty in the coal industry prompted us to apply for the loan. We also believe that the SBA properly granted the loan and that we met all appropriate guidance issues by the US Treasury. We have received substantial independent advice on the subject and are confident we have met all all eligibility criteria to both receive and retain the loan.

Market uncertainty has caused us to let to delay a substantial amount of capital projects. With capital markets for coal at a virtual standstill, the best way to retain liquidity is to control spending and match production with sales while also controlling our stockpiles. From a guidance standpoint on capital, it is difficult at this time to provide clarity. What we can do is provide feedback that we remain firmly committed to driving the slope from the Pocahontas three seam to the Pocahontas four seam at our Berwind mine. We reached the slope bottom at our Berwind mine in the first quarter and began working on the slope.

We subsequently idled this work until we could get comfortable with our sales prospects and build a comfortable level of liquidity. Most of the competing growth projects that we are seeing domestically are high volatile coal projects. We believe that our Berwind mine expansion is the only substantial high quality, low volatile project currently being pursued. Other competing developments from a quality standpoint will likely be forced to compete primarily in international markets versus seeking what should be more attractive markets domestically. Management is switching its near term development focus to being able to react quickly with new production to a recovering market.

We are advancing the ball on several quick to implement high impact projects that require relatively modest amounts of capital. I'll let Chris Blanchard discuss some of these opportunities in more detail and their potential impact. I might add that these types of projects are a result of our relentless focus on geology and our willingness to both take projects from scratch to production as well as opportunistically and decisively acquire assets that are synergistic with existing assets. While the challenges and uncertainty that we face are formidable, we believe that they are manageable. We have continued to regularly deploy maintenance CapEx in our coal mines while many competitors have not.

We've avoided tying up large amounts of cash by not stranding large amounts of inventory at docks, piers, and railcars. While the furlough at Elk Creek in April allowed us to prepare for and address COVID nineteen related issues, it also allowed us to better align stockpiles with our coal sales. We continue to focus our available liquidity and cash generation on stability and continuity versus elevated debt, debt retirements, and maintenance of nonvalue creating liabilities. The realities of the current market continue to discourage investment, and it looks more and more like there will be failures and potentially more bankruptcies among our competitors. Many have already implemented production cutbacks, reduced shifts, and reduced wages and benefits.

Cost structures are elevated, and it's clear that many are selling coal below their cost to generate cash from elevated inventory levels. All of this is being done with the backdrop of capital markets for coal basically being closed. In our experience, bankruptcies in this type of setting look more like chapter seven liquidations than chapter 11 reorganizations. In summary, Ramaco is not immune to the difficulties that it faces as we migrate through what is looking like a difficult recovery. We are doing everything possible and prudent to weather the storm that we are in.

We remain that the way our company is structured will prove to be one of the winning strategies that ultimately benefits from this downturn. I would now like to turn things over to Chris Blanchard.

Speaker 4

Thank you, Mike. I think Randy said it best at the beginning, we are living through interesting times. As Ramaco continues to navigate through all the uncertainty, our primary focus is on protecting the health and safety of our entire workforce with a particular emphasis on safeguarding our essential coal miners who continue to work and produce coal that will fuel and supply the eventual economic recovery. In this time of COVID nineteen, Ramaco continues to be proactive and quickly responsive to adapt to the virus to best protect our employees. Early in March, we began workplace modifications to adapt to the coronavirus.

We staggered shift times to eliminate or minimize congregations of large groups of miners. We implemented extensive cleaning and sanitation of all common areas and mining equipment, and we enhanced our sick and our leave policies to provide more flexibility for our employees and their families. As guidelines have changed over the past two months, our policies have evolved to incorporate all of the best practices at the federal, state, and local levels. We have adopted best practices in the industry and solicited suggestions from our frontline employees. As we recalled monitors from the April furlough period, we have also implemented temperature checks for all employees, visitors, and vendors on a preship basis every day.

We have issued reusable face masks to all of our employees for their use both at home and at work. We're continuing to monitor events and guidance, and we'll continue to take all steps necessary to protect our miners. Looking back at operational results of the 2020, we had one of our best quarters to date in most operational metrics. Our feet per shift at our underground mines was at its highest level for the combined company since the Berwind Development mine began production in 2017. Both Elk Creek and Berwind exceeded budgeted productivity levels.

As a result, our cost per ton on a produced basis dropped well below our previous year guidance levels and showed improvement quarter over quarter and year over year. From a geologic standpoint, all of our Elk Creek operations remain in favorable operating conditions, and production has resumed at q one levels as we return from the furlough. Turning to the furlough, we now have recalled all of our miners and each of our operating mines and sections is back at full operation at both Elk Creek and Burland. The furlough period was contained within April with most underground operations at Elk Creek for the majority of the month. Because we continued to operate the Elk Creek preparation plant throughout the furlough to continue to service our existing orders, we were able to reduce our raw coal inventories to more manageable levels.

Mine stockpiles were reduced by over 160,000 raw tons. However, the production curtailment also caused slightly more than 100,000 tons of clean coal not to be produced during the month. As mentioned previously, we will continue to engage with our customers and plan to adjust and modify our operations as needed during the downturn while remaining poised to take advantage of any recovery in the market or any additional customer needs. At our Berwind development mine during the first quarter, mining progressed underground and reached the slope bottom area for the future access to the thicker Pocahontas four seam above. We did mobilize on slope construction in the quarter, and we started initial excavation.

Unfortunately, as we began to see the impacts to steel, coke, and coal markets from the global COVID-nineteen response, we suspended construction and excavation on the slope in April. Our construction subcontractor has demobilized from the site, but has left some of their equipment in place to allow for a rapid restart once we see some stabilization in the industry. As we sit today, we have slightly less than 90 vertical feet separating our slope excavation and the Pocahontas Number 4 seam. Once we restart construction, we project six months or less of excavation to reach the upper coal horizon. The geology in the Pocahontas Number 4 reserve at Berwind will allow this mine to produce at mine cash costs, which will rival or be superior to even our Elk Creek high volatile mines.

Nevertheless, our focus on liquidity in the near term during these extraordinary times makes this delay absolutely the correct decision. Turning to some of our other near term possibilities that Randy and Mike have mentioned. We have continued to permit mines in our controlled reserves and have made some strategic acquisitions of shovel ready projects that logistically fit into our portfolio of existing properties. At our Berwind complex, we have received a permit for an incremental Pocahontas number four seam reserve, which has outcrop access, and we'll be able to utilize the surface infrastructure of our existing Berwind Mine. This mine will have similar favorable geology to the future Berwind Mine, Pocahontas 4 Reserve, and is located in a small area between two legacy p four mines.

Unfortunately, this reserve is not contiguous with our own Berlin number four reserves, but will give us an opportunity to mine low cost, low vol tons either as a bridge for our main Berwind mine or as an increase to our overall production profile. Our second potential quick lead project is a permitted mid vol to mine located in near proximity to our Knox Creek plant. This permit and reserve sublease was acquired in the 2020. This mine will be in the Jawbone seam of coal, which our low vol customers have purchased from us in previous years as a part of our former purchase coal program. This mine will require electric power and other mine infrastructure to be installed prior to production, but site access had already been constructed by previous owners.

This mine also has outcrop outcrop access, so development time is minimal. Both of both of these mines could be brought online in less than six months after greenlighting the projects. Obviously, at this time, neither of these growth projects has been started, and our current focus remains on employee safety, inventory management, and liquidity until we see some stability and visibility in the coal markets. While back before clarity, both near and medium term is frustrating, Ramaco does continue to position its operations and assets to survive this downturn with its low cost profile and be ready to expand our portfolio as the market recovers. This now concludes management's prepared remarks.

At this time, I'd like to open the line up for any questions you might have on our first quarter twenty twenty results or outlook. Operator?

Speaker 0

And our first question comes from the line of Mark Levin with The Benchmark Company. Your line is now open.

Speaker 5

Great. Thanks very much and congratulations on the good cash cost quarter. Related to that point, should we think of cash cost at Elk Creek in the first quarter as kind of being the high watermark or the best of the year? Mean how should cash cost trend there? Guess demand looks like it's pretty uncertain.

But I'm just trying to get an idea. I know you aren't giving guidance, but just kind of have to think about Q2, I guess, from midway through that and then onward, if this demand environment persists for cash cost at Elk Creek? Mark,

Speaker 4

this is Chris. I think the cash costs that we saw at Elk Creek in the first quarter are indicative of what that complex can run, when we are running at full capacity. So it's all volume related. If we're able to run near full utilization, we should see those rates. And if the volume tapers off, then we'd expect those to rise slightly.

Speaker 1

And and, Mark, it's it's Jeremy. I'd I'd remind everyone if if you look at for first quarter production, you know, we annualized to about 2,100,000 tonnes for company wide, which was at the high end of the previous guidance that we had given. So as Chris noted, clearly, mines ran well both volume and cost wise in Q1.

Speaker 5

No. That's very helpful. And then you'd referenced maybe getting from 2,000,000 to 3,000,000 tons. But obviously the longer term goal is 4,000,000 tons. I think you're analyzing around 2,000,000 in the first quarter.

Can you maybe provide some update in terms of like the capital to get from 2,000,000 to 3,000,000 or the incremental capital at from this point onward to get from, let's say, that 2,000,000 ton annualized rate to 3,000,000 tons? And then what's the total amount of capital it would take for you to double your production by your estimates to get to 2,000,000 to 4,000,000 tons?

Speaker 2

Let me take the first part of your question, Mark. This is Randy. So

Speaker 6

as I said

Speaker 2

in the remarks, and basically, we were pleased that we can basically take it from 2,000,000 to 3,000,000 for the $11,000,000 I mentioned.

Speaker 1

Okay.

Speaker 2

We've got, just a little bit more to spend, obviously, on the Berwind Slope. As I said, we're about five, five or six months away from that. And then the capital requirements for these two other mines that Chris mentioned, the Triad and the, Big Creek are pretty modest. So $11,000,000 all in, gets us another, you know, roughly million tons, which we think is pretty attractive proposition. But we're not ready to pull that trigger yet to do a development project until, obviously, we're going to get a sense of where the market is.

Speaker 5

And then, Randy, to get to the incremental $4,000,000 instead of double your production, you know, on top so it sounds like to get from two to three is 11, and then to get from three to four?

Speaker 2

Chris, you wanna pick up on the, the last million tons, so to speak?

Speaker 1

And, Chris, before you go, for those that are on the call, you know, we added a new slide, slide eight, which kinda goes through, what we're kinda calling these three phases of growth. So, Randy talked about phase one. And and, Mark, basically, what you're asking is sort of, the the the last incremental million tons, which is phase two and three, Jawbone and our our Elk Creek expansion, which, Chris, do you wanna give a little

Speaker 4

color on that? Alright. So we've talked about, both the Jawbone at our Knox Creek operation and the expanding the Elk Creek preparation plant. And each would provide about a half a million tons of annual production once we started those projects. Just rough numbers, somewhere between 10,000,000 and $12,000,000 for the Elk Creek plant expansion and a little bit more than that primarily related to mining equipment for the Jawbone expansion when we green light those projects.

Speaker 5

Got it. Very helpful. And then my last question just goes back to liquidity for a second and Jeremy some of the comments that you had made. So where is liquidity? I guess you guys gave a cash and availability at the end of the first quarter.

Where is it maybe today? And then ultimately, I think you referenced a 40 something number. Can you just provide a little bit of clarity as to how you would get there or when you might get there?

Speaker 1

Yeah. It's a great question, Mark. So, you know, as of March 31, you know, we had $15,300,000 of cash on hand and and another sort of 13 and a half million of, of availability on on under our under our revolver. Subsequent to that, in April, we've taken on about well over $13,000,000, of new debt. So 4.75 of that is equipment debt, with, you know, KeyBank, and about 8,400,000.0 of that is, from the payment protection program.

So that's that's subsequent to the number that we, of course, have as as of March 31. You know, we we referenced a a $40,000,000 number in in in our prepared remarks. So, you know, clearly, you know, 13 of that is is coming from the additional debt that that we're taking on. I also referenced, and and Randy did as well, about 10 to $11,000,000 of additional availability under the revolver. So what we did in February was we amended and extended our revolver, which functionally gave so it it it was a $30,000,000 revolver beforehand, and it's a $30,000,000 revolver today, but it functionally gave us the full $30,000,000 of capacity, so call it an additional $10,000,000.

You know? Then the next phase is is the growth CapEx, cuts, which, you know, let's call it about 6 to $7,000,000. And then the remaining 10,000,000 is is, you know, a couple of us referenced a combination of G and A cuts and and also some cost cuts like, like the furloughs. So hopefully, that that gives you a bit of a flavor of of how we, you know, come up with that.

Speaker 0

No. That's

Speaker 5

great. Thanks very much. Really appreciate it.

Speaker 2

Sure.

Speaker 0

Thank you. Our next question comes from the line of Scott Scheer with Clarksons. Your line is now open.

Speaker 6

Good morning, everyone. Thanks for taking my questions. I appreciate all the commentary around the new growth projects. I was hoping you can kinda walk us through what market conditions you'd be looking for before giving a green light to these investments.

Speaker 2

Sure. I don't think that there's a magic number. Obviously, we're looking for the the the general benchmark to get reasonably significantly above where we are right now. You know, I would I would love to say that, as soon as we start to see a one fifty benchmark and above that life begins to look a little bit rosier. But I think we're also gonna have to take a look at not only the price, but also the demand equation because, as you see right now, there's there's a little bit of strength in pricing.

It seems to be coming out of Asia. You know, anecdotally, there's maybe some demand in China. We obviously don't do too much business in China. So it's really, you know, what business is gonna be coming from not only our traditional domestic customers, but the Atlantic seaborne markets, both of which are weak, at the moment. So we're gonna have

Speaker 3

to see some underlying strength in our own markets before I think we feel comfortable moving ahead. I guess probably also likely that that we will have seen domestic business for for 2021 probably finished up before we would would pull the trigger on some of the stuff just to provide provide more certainty and, you know, what's what's coming at us in

Speaker 2

the next year. So I I will say, though, Scott, you know, the one thing we like is because these are pretty near term projects. I mean, you know, within a a six months time span, you know, we could essentially ramp up, you know, north of a million tons of production, which gives us the optionality when we start looking at our book for '21 to talk to some of our customers about, you know, a significantly larger low vol component to the extent that we can, be comfortable on pricing and demand.

Speaker 6

That's very helpful. I appreciate that. Switching gears to, I guess, more of a broader market question. I think you had about 5,000,000 tons committed and priced into the export market. And it looks like you committed a little bit more over the quarter.

Could you give us a little bit of color around where these tons are going and the demand picture that you're seeing from the seaborne market as well as any kind of pushbacks, from any customers, that you're getting on some of these shipments?

Speaker 3

Yeah. Sure. You know, I I spoke about some of the, some of the positive things that have occurred is is, you know, reconnecting with some different types of coals with some customers that we've had in the past and and sending some high vol of coals to Europe has been you know, was a positive thing that happened in the last four months or so. Shipping a test shipment actually to what could be a potentially large customer in in South Korea was a very good very good thing for us. It's it's also, I think, positive that that we've gotten qualified into Brazil, which and and the other mills that are in in South America.

So, you know, we've got we've got a number of different things that I think could result in some term business and and and longer term relationships. But what I can tell you is that the demand right now has been has been fairly weak. When we look at spot type deals that have been out there, it's been reduced volumes from what were normally in the past. And and it makes sense with the shape that the, you know, the economies are in in in the Atlantic Basin, which is our, you know, which is our primary focus. But we remain very optimistic that Asia can be a big component of of of what we do going forward.

And I might add our sales guys are both both very familiar with that marketplace and have had great successes there in the past. So pretty tough right now, though,

Speaker 2

is is is really the, you know, the bottom line to gain volume anywhere. But I I will say, Scott, one thing that we did, you know, within the last few months is is Mike pointed out in his remarks. We've added another very senior guy on our marketing and sales team. So we you know, for our size, we've got two pretty senior sales guys, because it's you know, we told the board, look. You know, we're gonna go from, you know, 2,000,000 to four or 5,000,000 tons, over the next few years.

So we wanna make sure we've got a broad based, marketing efforts we can we can put in place. So I'm I'm comfortable that we're sort of positioning ourselves for the next phase of our our growth, you know, which, again, market permitting, we're in the position to execute on in a reasonably short period of time.

Speaker 6

Great. I appreciate all that color. Congratulations again on the solid cost control over the quarter, and good luck on the quarter.

Speaker 1

Thanks, Scott. Appreciate it.

Speaker 0

Thank you. And our last question comes from the line of David Gagliano with BMO Capital Markets. Your line is now open.

Speaker 7

Great. Thanks for taking my questions. I just wanted to drill down a little bit further on the commentary regarding force majeures. So, obviously, you've got, I think, 1,500,000 tons committed for the rest of 2020. But but how much of that is actually, you know, kind of really firm?

And how how much of the volume has has been exposed to these force majeures and the customers pushing back and deferrals and that kind of thing.

Speaker 3

Well, what we can say, Dave, is that, you know, to date, we're rateable in that business. We you know, in this sort of setting, we can look sort of thirty days forward, really, is about all of the sort of the guidance even we get from our customers, which is why we, you know, which is why we basically take a guidance down. And and it's, you know, it's difficult for our customers. It's difficult for us. It's all really contingent on what sort of recovery and and, you know, what happens in the, you know, in the key segments that that our customers serve.

So it's, you know, it's difficult to tell what's gonna happen. But I can say I I can say looking thirty days out, we also appear to be rateable. We think our coals go to some some customers and their plants that seem to be sort of key plants. So we'll see how everything develops. Force majeure letters, of course, don't mean that people are canceling business.

It means that the business is likely to be shuffled around, and, we expect to see some of that. You know, that being said, again, we think the places where our calls go will be somewhat resilient. So

Speaker 7

Okay. And so so now I mean, just on a, you know, near term basis here, I I understand guidance not, you know, not not for the year, but, you know, we're we're we're pretty much halfway through the, the second quarter. And And, what are volumes shipment volumes so far through the second quarter?

Speaker 1

Dave, it's Jeremy. I think we're just we there's a lot of uncertainty. Obviously, you know, we we wish we could give guidance, but like others, we've we've pulled guidance. So I think we'll just kinda leave it with Mike's comments on that front.

Speaker 7

Okay. And then in terms of the CapEx cuts, as we look into 2021, excuse me, it sounds like, again, know the visibility is zero here, but for the cuts that happened in 2020 as we think about the 2021 volumes, roughly how much of an impact would that have on if things kind of get back to normal, let's say, the fourth quarter, what's sort of the delay if if, you know, CapEx ramps up again in Pocahontas, and and how much volume comes out of 2021 even in that situation?

Speaker 1

Yeah. I think I think, Dave, if

Speaker 2

I understood your question correctly, it relates mostly to our Berwind slope, and we've probably got another 5 or $6,000,000 to spend at Berwind to get to our Pocahontas number four scene. So we have stopped that spend. And, you know, when we turn it on, we've got about another five to six months worth of work to get to that scene. So, you know, round it up, call it a million bucks a month, round numbers, you know, once we once we decide to green light that. And as

Speaker 1

I said, we're not you know, we're

Speaker 2

in pretty good shape there. It's just a question that, you know, we decided let's let's keep, our liquidity options, at the, at the front of the queue here as opposed to our spend options. And, so, you know, we can turn that switch back on when we need to.

Speaker 7

Okay. And and alright. I'll just leave it at then. Thank you very much. I appreciate it.

Speaker 2

Sure. Thanks, David.

Speaker 0

Thank you. And this concludes today's question and answer session. I would now like to turn the call back to Randall Atkins, Executive Chairman, for further remarks.

Speaker 2

Okay. Once again, we appreciate everybody being on the call on these unusual times. Everybody please stay safe, and we'll look forward to catching up with that again, I guess, in August. So take care, and thanks again.

Speaker 0

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and you may now disconnect.