Alpha Metallurgical Resources, Inc. (AMR) Q3 2019 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to the Contura Energy Third Quarter 2019 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker today, Mr. Alex Rotonen. Thank you. Please go ahead, sir.

Thanks, Casey, and good morning, everyone. Before we begin, let me remind you that during our prepared remarks and the Q&A period, our comments relating to expected business and financial performance contain forward-looking statements and actual results may differ materially from those discussed. For more information regarding forward-looking statements and some of the factors that can affect them, please refer to the company's third quarter 2019 earnings release and associated SEC filings. Please also see those documents for information about our use of non-GAAP measures and their reconciliation to GAAP measures. Participating on today's call are Contura's Chief Executive Officer, David Stetson; Chief Financial Officer Andy Eidson. Also participating on the call is Jason Whitehead, our Chief Operating Officer, who will provide an update on operations. With that, I'll turn the call over to David.

Thanks. Good morning and thanks to everyone for participating. Just over three months ago I was given the opportunity to return to Contura and I was then and remain now humbled by this opportunity. There were headwinds for sure, including declining share price since the merger, increasing operating costs and the burden of solving the Blackjewel's situation. But I knew that Contura had the best diversified metallurgical reserves and operating properties in the Central App region, one of the strongest and most experienced workforces in the industry and a vertical infrastructure that allows our product to move efficiently from mine to end user. Since my return, we began to take immediate actions to address our challenges. We reduced our Board to a more efficient size, with additional energy of expertise, initiated measures to reduce costs, streamlined decision-making and made progress on four capital projects. We also closed the PRB transaction with ESM, repurchased approximately 5% of our outstanding shares and have taken steps to reestablish Contura as one of the leading metallurgical coal producers in the United States, which I will detail later in this call. When I sat down with Andy to review the third quarter financial results, we were both extremely disappointed. The quarter started with a sharply underperforming July that generated just $5 million of EBITDA and saw all-in costs increase to approximately $94 per ton. As I dove deeper into the third quarter, pricing of our metallurgical products, as experienced by others in our industry, were significantly below our expectations from earlier this year. As a result of the declining pricing, our Trading Logistics group experienced loss in their trading during the quarter. In addition to the downturn in the metallurgical coal pricing, Contura as well as the industry, as a whole, experienced weakening demand for our products, with sales volumes being off from our internal budgets by over 550,000 tons for the quarter. We have no control over pricing and the demand side of the equation, but we do have control over our production costs. The cost increase in the third quarter resulted partially from our vacation schedule and Cumberland's longwall move. Andy is going to give you a little more color on those items shortly. As it relates to Cumberland mine, I want to provide a brief update on some operational challenges that we are addressing. We recently determined that we will need to commence the construction of a new impoundment at our Cumberland mine sooner than expected, which will take approximately 24 months to construct, at an estimated cost of $61 million. We planned for this capital expense in later years, but the acceleration of this project will require a comparable acceleration of expenditures. Additionally, we're anticipating approximately $58 million in other capital needs in 2020, as we continue to develop into Cumberland's new reserve district. We will continue to take a very disciplined approach to the market, by reducing our output via mine closures and worker schedules. For example, we have idled surface operations at Republic, underground operations at Brushy Eagle, have reduced the workforce at our Highland surface operation and we're shortly ceasing highwall mining activity at Black Castle. On the cost front, Jason has made multiple operational changes and continues to execute on his plan for additional cost controls. We have seen our operating cost decrease and our morale and enthusiasm in the field increased since he came on board in mid-August as the COO. He has taken measures to increase our efficiency. For example, our mines in July averaged just 212 feet per shift. And since Jason came on board, we've seen significant increases in this measure with multiple days in excess of 265 feet per shift. Obviously, it will take Jason time to fully build out the core team at the operating level, execute on his strategy to make our mines the safest in the industry, while achieving high levels of efficiency and cost reduction and establish our vision of a flat nimble operating culture. We are reviewing our corporate and operating overhead to allow for streamlined decision-making and lower corporate SG&A. As I mentioned previously, we've reduced the size of our Board of Directors, while concurrently increasing its industry expertise through the appointment of Emily Medine. While I could dwell on the headwinds experienced throughout 2019, my focus is on our future. I fully understand the challenges our company faces, but I'm optimistic regarding the opportunities that lie before us. The true character of any team is how they respond to difficult situations. I'm here to tell my shareholders, that our team at Contura is meeting these challenges head on. I task the Contura team to enhance our position in the industry; strive to become the safest, largest, best diversified metallurgical coal company in the United States; to streamline our decision-making, so that we quickly respond to market condition; and to lower our costs at both the operating and corporate level. We have and continue to make executive decisions that help us achieve these goals and they include some of the following. Our capital projects that were designed, engineered and commenced in 2017 and 2018 continue to make progress and these projects validate our commitment to move from high-cost mines to some of the lowest-cost metallurgical mines in the Central App. Let me take a few minutes to discuss those projects with you. Road Fork 52 is a low-vol, low-sulfur mine that replaced the retiring Road Fork 51 and Wyoming number two mines. The first production section is scheduled to start late in Q1 of this year -- of next year, with two additional sections going into production by Q4 of next year. There is approximately 30 million recoverable tons and the full run rate of production is expected to be approximately 1.2 million annually at a cost of sales of approximately $70 per ton. Black Eagle is a high-vol A reserve, adjacent to our Marfork plant load-out. The main reserve body of the Black Eagle lies at the end of a three-mile underground corridor that is currently under development. As of today, approximately 35% of that corridor development is complete and access to the main reserve body is expected by the end of Q3, 2020. Black Eagle contains 20 million tons recoverable coal, but also will provide transportation service for numerous other coals that lie west of the current portfolio of Marfork mines. At a full run rate, the mine is expected to produce around 750,000 tons annually at a cash cost of sales of approximately $70 per ton. Lynn Branch is a high-vol B+ metallurgical reserve, which replaced our retiring Alma mine that feeds our Bandmill plant. The Lynn Branch reserve body contains approximately 20 million recoverable tons much of which is greater than 2.5 clean tons per foot. Production with the first section should commence in Q2 of 2020 and a second section will be added in Q1 of '21. Upon installation, the second production section of mining is expected to produce 900,000 tons annually, with an expected cost of sales of approximately $65 a ton. And we'll have the ability to ramp up to 1.2 million tons annually. With Lynn Branch coming online, the met qualities from our Bandmill complex will change drastically and favorably. We are also transitioned the Republic mine complex from thermal to met. Historically, Republic has produced approximately one million tons per year, with thermal coal representing 90% of that output. Jason has modified our mine plan for the property and he's currently executing on his plan that will shift the mine towards a higher percentage of metallurgical coal. In 2020, the mine will produce a ratio of approximately 65% to 35% steam-to-met. In '21 and beyond, the mine is expected to continue to transition to even higher percentages of metallurgical production via actions at our Kingston surface and our newly acquired Pax reserves from the Blackjewel bankruptcy. As with any organization, over time in response to specific situations, initiatives were undertaken, departments created, personnel hired that met the needs of an organization at that time. However, as the company evolves a holistic review of the organization and support structure must occur. To that end, we've identified certain departments and positions that will be eliminated with those duties and areas of responsibility being transitioned to others within our company. The harder decision that had to be made involved reduction in our corporate family. After careful review and discussions with our senior management team, we announced last week several key changes at the senior level as well as throughout the organization. I would like to discuss a few of these changes with you. I appreciate and applaud the hard work, tremendous loyalty and family sacrifice that Mark Manno has made over the past years. He navigated a difficult bankruptcy; transitioned Contura to a public company, managed the merger with Alpha and has been a true confidante of mine since I came back on board. Mark has devoted an inordinate amount of his energies to the company and we can never adequately express our thanks to him. As we recently announced, Mark will be departing in December. I thank him for all of his service. I will streamline the organizational chart and eliminate the Chief Legal Officer and Chief Administrative Officer positions and transition those duties to the General Counsel and others within the organization. Jill Harrison has admirably served the company these past couple of years as General Counsel and as Mark can tell you, Jill has balanced many responsibilities from bankruptcy, merger with Alpha to the day-to-day legal matters. Her expertise and knowledge will be sorely missed. I'm happy to report that Roger Nicholson has agreed to join our team as the new General Counsel. Kevin Stanley was instrumental in the merger with Alpha and he coordinated and led the sales department. It was a monumental task to combine two sales teams, build a sales and logistics brand and facilitate the growth of our domestic international business. However, with changing and more importantly declining markets, I want to be closer to our customers and actively participate in our sales decisions. To that end, Dan Horn will be taking on management of the metallurgical coal sales and Bill Davison will be managing the thermal sales moving forward. Both will be reporting directly to me. Our Chief Strategy Officer, Scott Kreutzer has held key roles in our organization over the years including past responsibilities for land, environmental affairs and operation. Scott has been an important asset to the company with this broad range of knowledge, can-do attitude and tireless work ethic. Going forward Andy, Jason and I will jointly lead our strategic planning and M&A initiatives. Finally, I want to thank Suzan Moore, our Chief Human Resources Officer for her steadfast leadership and numerous contributions made toward the company's success over her many years of service with Contura and its predecessor companies. With Suzan's departure, the HR functions will be reporting directly to Andy. With the above action and others that we are in the process and have been identified, we believe we'll reduce SG&A by approximately $6 million for 2020 and we will continue to pursue other savings. On the operating side, Jason and his team have identified and on the process of executing on approximately $10 million of additional cost reductions. On the thermal side of the company, we are actively exploring a reduction in our thermal footprint and have several non-strategic operations that we are currently reviewing for divestment. While I can make no assurances that we will in fact divest in an operation, my vision for Contura is to focus our capital on our metallurgical operations. On a similar note, I would like to highlight that last month we reported that we closed on the transaction to transfer our permits in the Powder River Basin. While it consumed some of our capital resources, it was critical to mitigate the operational, financial and regulatory risk that ongoing operations or reclamation mode of those assets would have created. As of the end of the third quarter, we purchased 1,030,000 shares of the company common stock at an average price of $31.54 a share. However, with soft markets expected for the near future, our primary objective is maintaining the strength of our balance sheet and we will shift our focuses to debt reduction. With that, I'll turn the call over to Jason.

Thank you, David. Good morning everyone. As an operational update and upon reviewing of Contura's operations and as David has previously alluded, we've identified a lot of opportunity and potential operating improvements, especially at our underground mines. In the last three months we've taken several key steps that have improved and will continue to restore the operations to their full potential. The steps we plan to continue to pursue can be outlined in the following. Number one, realignment of mine management. We've done that by streamlining reporting structures that enabled a more rapid and accurate flow of information and improves management's decision making abilities, matching surface and underground discipline experts with appropriate areas of responsibility. Second, we've improved our reporting processes that focus on monitoring the well-being of the operations both through real-time reporting on the health of the operations and key performance indicators such as feet per shift, yard per day, recoveries and ratios. We've increased the frequency of mine costs and financial information. And we've increased the frequency of the flow of data and information that allows problems to be mitigated more expeditiously. Third, we've implemented several sound continuous improvement processes such as optimizing our reserves, ensuring that the right production sections are in the right locations through geologic and various other operational assessments, section processes and critical KPI valuations. It's not only generated real-time results from identifying and eliminating constraints to productivity, but it also builds history and aids in prudent decision making for future mines and operations. Fourth, we've continued our focus to reduce our thermal footprint and reallocating our assets into metallurgical production. Whereas, our legacy thermal surface mine operations can't be quickly turned on and off, we are executing on plans to mine them into an idle status. Specifically two of our large exclusively thermal surface operations Highland and Black Castle have undergone significant changes in 2019. By year-end, they will have completed four employment or schedule cutbacks. 1.1 million tons generated in 2019 will be reduced to 400,000 tons in 2020. This is due to Highland reaching an idle status in Q2. And thermal production at Black Castle's will continue to 1,000 to zero by Q2 of 2021. As David has mentioned, we've also shifted our assets at Republic from a historic 10% met operation to a 35% met operation in 2020. Other actions are in the queue to further this shift in 2021 and beyond. Evidence of the success of our actions taken in the last three months can be seen in our underground advancement rates. As David mentioned, we finished July with a mine average of 212 feet per shift. And in October we finished at a mine average of 246 feet per shift. Also noteworthy is our West Virginia operations have improved 17% from 233 to 272 over the same time period. As you know productivity rates are directly related to cash cost of production. To that end, our preliminary unaudited cost to produce coal for October was just over $76 per ton. Lastly, in response to the questions we received, I'd like to address the company's ton per man hour statistic decline from Q3 and Q2. One contributing factor mentioned earlier was the CAPP deep mine advancement rate of 212 in July, which staged the quarter for an insurmountable hurdle in which to recover. Other major contributing factors were the modification and longwall move at Cumberland, which added zero ton man hours and contributed to the majority of the variance. Looking forward to where we're heading, productivity is improving in real time month-to-month. I mentioned 17% improvement across our mines in recent months. Our free land volume and man hour accounting shows October to be basically flat in tons per man hour versus Q2 and a 12% improvement in tons per man hour versus Q3. So with that operational summary, I'd like to hand the call over to Andy.

Thanks, Jason. Jumping straight into the Q3 numbers. Our third quarter EBITDA came in at $40 million compared with $141 million in the second quarter. These results were mostly driven by the CAPP - Met segment where soft market conditions resulted in lower realizations contributing approximately $47 million of the shortfall; and lower volumes which contributed an additional $17 million of shortfall quarter-over-quarter. Net performance also declined relative to second quarter, mostly due to the higher cost items that David mentioned earlier the longwall move in September and then the typical miner vacations that happened during the quarter, which combined reduced third quarter production out of Cumberland by approximately 600,000 tons. Broken down by segment, CAPP - Met which now includes the former Trading and Logistics segment generated $59 million of adjusted EBITDA during the third quarter. CAPP - Thermal contributed $2 million of EBITDA while Northern App lost $4 million due to those costs just discussed. And please note that these segment numbers do not include any SG&A allocation. Our third quarter CAPP - Met shipments including the collapse of the T&L into the segment declined from 3.4 million tons to the 3 million tons even quarter-over-quarter, while NAPP shipment volume declined from 1.7 million to 1.6 million tons and CAPP - Thermal shipments were essentially flat at 1.1 million tons. On the cost side, CAPP - Met cost of coal sales was approximately $87 per ton compared with $85 per ton in the second quarter and that's the reported number. It's important to note though that again as mentioned beginning in the third quarter, we have combined CAPP - Met and Trading and Logistics into one segment under the heading of CAPP - Met. T&L activity increased CAPP - Met costs by approximately $2 per ton in the second quarter, if you make those on apples-to-apples, so essentially quarter-over-quarter CAPP - Met costs were flat. In the CAPP - Thermal segment, costs increased more than $7 a ton to approximately $59 due to lower production, specifically at the Empire mine, which was mined out and the Republic mine where production was adjusted and a spread of equipment was idled due to the soft thermal market. Additionally, there was an environmental settlement during the quarter that was allocated to the thermal segment of approximately $3 million. So that was roughly $3 a ton of additional variance. As we mentioned earlier third quarter performance at Northern App was impacted by the planned longwall move and the customary miner vacations resulting in much lower production and higher costs $43.87 as compared with $31.28 back in the second quarter. Looking at our liquidity. At the end of the third quarter, the company had approximately $153 million in unrestricted cash and our total restricted cash balance was $291 million including restricted cash, deposits and long-term investments. Total liquidity including unrestricted cash, unrestricted investments and availability under our ABL was around $354 million as of quarter end. Now looking at third quarter cash flows for a moment. Our overall unrestricted cash balance declined approximately $97 million as a result of a few things mostly a soft quarter from an EBITDA production standpoint share repurchases and the annual payments into legacy liability funds. As David mentioned in total, we bought back just over one million shares for $32 million averaging $31.54 per share. As we mentioned in the earnings release, our primary focus going forward is going to be maintaining our balance sheet while the coal market sort themselves out and we have -- we deal with other cash requirements of the business. And as such, we have suspended the share repurchase program for the near term. On the legacy liabilities front, we paid approximately $20 million on the Lexington Coal note from that transaction back in 2017. We also paid $10 million in acquisition-related obligations into the reclamation funds. And again, that's a carryover liability from the Alpha bankruptcy. In addition, we paid nearly $5 million into the escrow account for the contingent revenue rise another item of bankruptcy hangover. As we look forward to the fourth quarter, we do have some cash payments to make note of related to the previously announced PRB transaction with Eagle Specialty Minerals -- or Materials all of which is expected to be offset by the release of restricted cash in the fourth quarter, in addition to the previously discussed tax refund we expect in the first quarter. And to put a little bit more detail behind that, we did make a $90 million payment to Eagle Specialty Materials, which consisted of an $81 million cash consideration payment at closing of that transaction. And an additional $8.7 million payment going into an escrow account to be used in respect to a federal royalty claim against one of our subsidiaries. There was an additional $13.5 million payment to Campbell County Wyoming on a back tax ad valorem settlement. Total payments during the quarter related to this transaction were just under $110 million, including fees and expenses. With respect to cash inflows, we anticipate approximately $77 million of restricted cash will be returned to us in the fourth quarter, consisting primarily of three items. The first one is a workers comp LC that is currently posted under the old Alpha cash-supported LC facility. We'll be moving that LC to our ABL. So that will free up $53 million of cash, but it will be liquidity neutral. Secondly, approximately $9 million of surety collateral associated with the PRB transaction should be released during fourth quarter. And then finally, we do anticipate approximately $15 million of additional collateral releases as we negotiate improved terms across our surety portfolio. And then in addition, we expect the $69 million tax refund related to the AMT credit monetization to be received very early in the first quarter of 2020 pretty close to right after year-end. Turning now to guidance for a moment, based on the continued softness and the demand outlook we're revising our 2019 guidance. We now expect to ship between 12.4 million and 13 even million tons within the CAPP - Met segment inclusive of T&L, down from our previous combined guidance of 12.8 million to 13.7 million tons. In the CAPP - Thermal segment, we're maintaining guidance of 4.3 million to 4.7 million tons, while we're lowering our NAPP shipment guidance to a range of 6.5 million to 6.9 million tons from previous guidance of 6.8 million to 7.2 million tons. We're fully committed for the year for CAPP - Met tons with 96% of CAPP - Met committed at an average price of just under $118 per ton with another 4% committed based on index pricing. We're also fully committed at the midpoints of guidance in NAPP, at an average price of around $43 per ton. Within CAPP - Thermal, we're fully committed on those as well and priced at $58.26 per ton. As a result of the costs during the third quarter, primarily we're increasing our cost guidance for NAPP to $36 to $38 per ton from $34 to $37 per ton. We're also increasing our CAPP - Met cost of coal sales to a range of $87 to $90 per ton from a range of $83 to $87 per ton. And CAPP - Thermal guidance will be increasing to a range of $55 to $59 per ton from a previous range of $52 to $57 per ton. Please note that in the CAPP - Met approximately $1 of that increase is due to the change in reporting and collapsing the T&L segment into the CAPP - Met segment. We're maintaining SG&A guidance range of $60 million to $65 million. We're also maintaining our cash interest expense range $45 million to $49 million and CapEx guidance at $170 million to $190 million. Next, I want to look at our initial 2020 guidance. As David mentioned in his prepared remarks, we expect our overall performance to improve meaningfully in areas we can affect mainly on the cost side. On the volume side, we expect our CAPP - Met shipments to be 12.7 million to 13.3 million tons, up from 12.4 million to 13 million tons as we enhance productivity and as a result of production from our three new primarily replacement mines Road Fork 52, Black Eagle and Lynn Branch, although there is a small portion of production from those mines that will be incremental. Given our strategic focus on met and the soft economics of CAPP - Thermal, we're lowering our planned CAPP - Thermal shipments from our 2019 estimated range of 4.3 million to 4.7 million tons down to 3.4 million to 4 million tons in 2020. NAPP guidance will be reduced from 6.5 million to 6.9 million tons down to 6 million to 6.8 million tons. It's important to note that, we are moving to the new district in the Cumberland mine approximately 2021 and at that point, as we've discussed many times before we expect production to increase significantly starting in 2022. For 2020, from a sales commitment standpoint, we have approximately 31% of our CAPP - Met tons committed at an average price of $102.88 per ton and that primarily is derived of our domestic business. In addition, we have approximately 14% of our CAPP - Met tons committed and priced off index for the next year. On the thermal side, we're nearly fully committed for 2020 with 97% of Northern App committed and priced at $43.42 per ton. CAPP - Thermal is 92% committed and priced at just under $56 a ton. In our key segment, CAPP - Met we expect to see our cost of coal sales decline meaningfully to a range of $76 to $81 per ton in 2020 from our guided range of $87 to $90 in 2019. Primary drivers on this will come from improved productivity in several of the initiatives that Jason mentioned earlier. And again, while this is a significant decrease we are seeing the fruits of some of the labors that Jason has implemented through his movements. As he mentioned, our preliminary unaudited October cost of production in Central App met was roughly $76. On the CAPP, Thermal segment we anticipate the cost of coal sales to increase slightly to a $56 to $60 range, primarily due to lower production levels as we continue to pull that segment back. In Northern App, we expect cost to be in the range of $34 to $38 in 2020 and we anticipate the two longwall moves will happen in the first and third quarters. As for other guidance items we expect them to be relatively flat with 2019. SG&A is expected to be between $60 million and $65 million while idle operations are expected to decline slightly to a range of $14 million to $18 million. Cash interest midpoint will hit approximately $50 million and DD&A should come in between $230 million and $260 million, while capital will be slightly higher in 2020 over 2019 approximately $175 million to $195 million, as we deal with the impoundment in NAPP that David spoke of earlier. Cash taxes are expected to be minimal in 2020. We've included a range of 0% to 5%. And with that I'll return the call over to David.

Thanks, Andy. I appreciate it. We recently held an off-site leadership conference for our senior management team and the theme of the conference was accept the challenge. Our team has accepted the challenge, has embraced our vision for Contura and we will position Contura for a strong future, a future where Contura will be known as having the best workforce in the industry; the best diversified metallurgical reserves and operating properties in Central App; an operational and a corporate mindset that will lower our cost structure; a streamlined flat and nimble culture that allow to embrace new strategies, make decisions efficiently and respond quicker to market changes. And finally we have capital projects that allow us to maintain our position as a leading provider of high-quality met coal for the long term. Thank you.

Yes we'll take questions now.

Thank you. [Operator Instructions] And your first question here is from the line of Mark. Please go ahead. Your line is now open.

Okay. Thanks very much. So a couple of quick questions related to -- first is related to 2020 guidance on CapEx. How much of that relates to the increase or the modest year-over-year you're expecting as it relates to the impoundment? And I guess related to that point is there any opportunity to drive that number lower if market conditions stay where they are or get worse?

Hey, Mark. This is Andy. Good to talk to you. For 2020 the impoundment is going to contribute roughly $40 million to $45 million of the capital there. And again this is something that had been planned but it was probably 18 to 24 months out further in the future. And as we continue to evaluate different plans around the mine as Jason can attest to it's just become apparent to us at this point that we need to go ahead and start moving on that. So that cash will need to be spent next year to make sure the impoundment is available and running in time, particularly in light of moving to the new higher productivity district in 2021.

Got it. And then coming back to the met coal cash cost guidance for 2020 versus 2019. I think you noted that there's a pretty, pretty significant improvement. Is all of that product -- or is all of that productivity improvement? Or how much of that I guess is just lower met price versus productivity versus -- are there any other factors or reasons why one would be confident that you could drive the number down to that level?

Yes. Mark I think just the market itself is probably responsible for maybe $1.50 of that just ballparking sales-related costs to where they are. The remainder of that we are seeing some improvements in supplies cost just because of general commodities pricing across the board. But the vast majority of the savings are coming from just higher productivity. And some of the feet per shift numbers that Jason was talking about earlier are having a very, very significant impact already. Again as reflected in October, which honestly, I think it was meeting Jason's expectations but it surprised me by how low it was coming in. So I think right now there's a lot of reason for us internally definitely to believe that these costs for next year are imminently achievable.

Okay. And then Andy on to the cash position. So I think you mentioned the cash position at the end of the quarter and then in Q4 that you'll have the outflows related to the PRB situation will be resolved but then you'll get some restricted cash back into the unrestricted. I guess my first question is what -- maybe what's the cash position today? And then as you kind of think about where cash will be at year-end relative to where we are right now maybe any thoughts around that as well?

Yes. I mean, I hate to try to target year-end just because the sales this quarter even though we are in the middle of November, it's been a pretty challenging past couple of months. And so I don't want to push too hard on guessing there. But I will say, we ended the quarter -- third quarter at 100 -- we'll call it $150 million for even math and we spent roughly $110 million just on the PRB transaction. So that would get you down to a $40 million number. That's not where we are. I mean, we have generated a little bit of cash since then. So, we'll end the year somewhere between -- you would end up somewhere between $50 million and $100 million just based on run rate, but then when you add in the $77 million of cash we expect to release, you can kind of do that math and it almost gets you back to where we started in the $125 million to $150 million range. But again, that's leaving a lot of room for things to change during the quarter.

Got it. Got it. And then my last question is on the PRB, have the permits transferred yet?

The permits have not transferred. They're in process. But again, just to make a distinction between this transaction versus the original transaction the benefit of how we structured this was we've -- our bonds have been released hence the $9 million that we will be receiving back from the sureties at some point during this quarter. But since our bonds have been released, new bonds have been posted in the name of Eagle Specialty Materials. And so their bonds are first line of defense for any kind of reclamation action that has to happen. And then the other settlements that we've disclosed in the transaction documents themselves show that we're really out of the line of fire in the event some other adverse situation takes place.

Got it. Appreciate it. Thanks very much.

And Mark just to add on to that.

Yeah. Sure.

We do expect the permits to transfer. It's still important to get those out of our name just for administrative purposes, but we do expect those to happen sometime in the next probably five, six months if not sooner.

Okay. Great. Thanks very much.

Thank you, Mark.

[Operator Instructions] Your next question comes from Lucas. Please go ahead. Your line is now open.

Hey, good morning everybody. And thank you for taking my question. I wanted to follow-up on Mark's question regarding the met coal cost guidance for 2020. So just kind of in the gross numbers, it looks like $100 million decline in costs. So, a great outlook really, really looking forward to that. But can you give us a little bit more color? I think Andy you mentioned some of the supplies have come down in terms of costs. You mentioned higher productivity, but is it possible to provide a breakdown of that $100 million? I think that would be super helpful. Thank you.

Sure, Lucas. Good morning by the way. So if you look at the total amount, I mean, you're looking -- you're seeing there's a little bit of impact as I mentioned from sales related. There is some impact from purchased coal and T&L activity now that those are collapsed. So just because we are focusing more on our captive produced coal rather than buying coal for resale, the weighted average impact of that is probably pulling out a couple more dollars of costs. Beyond that we're seeing $3 to $4 of labor and benefit savings and that's not savings. It's again productivity increases. You're getting -- we're getting more tons for the same amount of labor and benefits. And then as I mentioned supplies and maintenance. Some of that is related to actual pricing. Some of it will be related to the spreading of fixed costs. But I would say probably three-quarters -- or I'm sorry two-thirds of it is related to productivity. The rest of it is related to decreased activity in purchased coal-type activity and a focus on captive produced coal.

Got it. That's very helpful. Very much appreciate that incremental color, Andy. And yeah, steel prices have come down quite a bit. So, on Cumberland, I kind of struggle a little bit with that operation being core. Just kind of looking at it over the last few years, it's been really inconsistent in terms of its performance. In Q3, you had the vacations and the longwall move and it seems like that was enough to push cost to really high levels relative to my expectations. Is there a way to maybe sharpen your focus as that -- being that premier met coal producer in the Eastern United States? Any interest in divesting this asset? How -- and then you mentioned the shift to a different reserve district. What could that look like? I think you mentioned 2022. Really appreciate some high-level review of that asset. Thank you.

Lucas, this is David. I think we'll tag team you here on that question. As I said earlier, I'm not going to speak to any specific piece of property today on the call. I can tell you that my goal and vision for the company is to be the best metallurgical coal company in the Central App region. So, I am looking at divestment of nonstrategic reserves, but I'm not getting into any long-winded answer on specific as to Cumberland or any other specific thermal properties. As for the move into the Northern District, I'll let Jason kind of describe that to you.

Yes. So, early next year, we'll be moving to the north. I guess you've been -- you've commented on this for the last couple of years, several quarters, longwall moves, increasing costs. And what we've incurred over the last couple of years are two longwall moves per year and it was the nature of the size of the district width and the length of the panels. And as we move to the north going into next year we expect that two longwall per year move to be reduced to one.

Andy? Go ahead Andy.

Yes. And just to kind of close off that question Lucas. Cumberland has been -- it's had its fair share of issues no question over the past few years in particular. This one -- this quarter however is -- I think it's more of a disconnect in expectation. The longwall move was planned. The miner vacations were typical and expected. And actually if that -- I think that's more of a miscommunication or a lack of communication and I'll take the blame for that one. I don't think we probably communicated that clearly enough so people could have their expectation set as to what the impact on cost would be. But be sure we won't make that error again.

I appreciate that very much. Thank you for all the color. I'll try to sneak one last one in. I really appreciate the guidance for 2020 here at this point in the year. I know it's always difficult. And what I wanted to follow-up on are there -- Andy could -- are there other kind of lumpy cash items that we should be plugging in for 2020 either on the black lung side, other legacy liabilities, reclamation, et cetera? Would appreciate your comments on that for 2020 specifically. I appreciated your earlier comments regarding end of year cash balance, et cetera.

Yes absolutely. So, the cash balances or the cash movements for next year, if you look at our presentation that we posted on the website and I believe we also issued an 8-K for this morning, we try to keep everybody in the loop as far as the big one-off movers because they do receive a lot of attention as they should. But you'll note the tax refund as we've been discussing in the past, well actually since the Alpha transaction happened we'll be looking for about $70 million to hit in early in Q1 of 2020 and that's the big cash inflow. On the outside, we're looking at the continued payments on our reclamation -- the reclamation funding agreement that came from the bankruptcy approximately $21 million. We've got a similar structured transaction but a little bit different with Lexington Coal which is an additional $20 million. The contingent revenue obligation, of course, that's going to be market-driven based on where the pricing is primarily on the met side. We're kind of budgeting $15-ish million. I think that's probably a pretty decent number plus or minus $1 million. And then as far as ARO spending for reclamation activity, we're showing $24.7 million. That number moves around a lot. Again we've seen significant improvement particularly at Black Castle. The team there has done an incredible job of doing reclamation for much less than we had originally anticipated. So, there could be some upside to that number. Beyond that you're probably looking at the only other big outliers that you mentioned federal black lung. When you look at kind of as a whole federal black lung, collateral -- workers' comp collateral, and anticipated pension contributions, you could probably layer on another $25 million to $30 million. Now that number could move up or down. If it's going to move, unfortunately my expectation at this point would be that it moves up a little bit. There's just the general disposition of the insurance markets against the coal industry are making it tougher to find carriers. And therefore collateral requirements are going up commensurate with that. But I think that number is kind of a decent catch-all to get the dribs and drabs of things related to more human resource-type matters. But I think that pretty well covers all the lumpy below the line cash payments.

Got it. Super helpful. Appreciate that. Best of luck of tackling this market here.

Thank you, Lucas.

And I'm showing no further questions that are in the queue at this time. I would turn the call back over to David Stetson for any closing remarks.

Well, thanks everybody getting on the call today. I have to tell you even though I continue to watch our stock price and I'm very concerned about making sure I get the right message out to the marketplace. I can tell you that my vision for the company hasn't wavered since I returned to the company. We have, in my humble opinion, some of the best metallurgical assets in the Central App region. As you could tell from our presentation today, we are driving forward to get three of our capital projects completed. As you saw from my comments and from Jason's comments cost -- the cash cost of sales of those projects are in the $65 to $70 range and we're excited about that. It solidifies our future on both the low-vol and the high-vol A products that we can offer the future. We are actively working to make a flatter, more nimble operating and corporate team. And so the team has fully responded. So, I am really excited about the future of Contura. And we'll continue to execute and look forward to chatting with you in the future.

And ladies and gentlemen this concludes today's conference call. Thank you for participating and you may now disconnect.