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…

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…

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…

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.