Good morning. My name is Brandy, and I will be your conference operator today. At this time, I would like to welcome everyone to the NACCO Industries Third Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Ms. Christina Kmetko, you may begin your conference.

Thank you. Good morning, everyone, and welcome to our 2019 third quarter earnings call. I am Christina Kmetko, and I am responsible for Investor Relations at NACCO Industries. I will be providing a brief overview of our quarterly results and business outlook, and then I will open up the call for your questions. Joining me today are J.C. Butler, President and Chief Executive Officer of both NACCO and North American Coal; and Elizabeth Loveman, NACCO's Vice President and Controller. Yesterday, we published our third quarter 2019 results and filed our 10-Q. Copies of our earnings release and 10-Q are available on our website. For anyone who is not able to listen to today's entire call, an archived version of this webcast will be on our website later this afternoon and available for approximately 12 months. As we begin, I would like to remind participants that this conference call may contain certain forward-looking statements. These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements made here today in either our prepared remarks or during the following question-and-answer session. We disclaim any obligation to update these forward-looking statements, which may not be updated until our next quarterly conference call, if at all. Additional information regarding these risks and uncertainties was set forth in our earnings release and in our 10-Q. Now let me discuss our 2019 third quarter. I will cover our consolidated results first and then provide the highlights for each segment. On a consolidated basis, although revenues increased to $32.6 million from $31.4 million in the prior year third quarter, our third quarter 2019 operating profit decreased to $8.7 million from $10.5 million a year ago. Despite the decrease in operating profit, consolidated net…

[Operator Instructions] And your first question comes from the line of Andrew Kuhn with Focused Compounding.

Hi, guys. Thanks for taking my call. Yes. So 2020 is going to be a year of higher than normal CapEx. So I'm kind of curious, what does the normal CapEx year look like? Looking past the next two years of higher CapEx, would you expect most years from 2022 on to be the same dollar amount of CapEx, would you expect 25% less CapEx, 50% less CapEx? I'm kind of curious for some clarity on that.

So, this is J.C. Butler. And thanks for your question. So CapEx is driven really by what's going on at our consolidated coal mining operations and North American Mining, at least as it – as we're organized today. Any CapEx that happens in our unconsolidated mines doesn't show up in our CapEx line because it's funded by the customers. So when you think of those groups, what's driving higher CapEx right now is moving into a new mine area at MLMC, in our main consolidated mining operation. That's going to go on. I think we're saying there for a couple of years, started in 2019. It's going to go on in 2020 and 2021. And then it's going to drop back to levels that are more consistent, at least at that operation with what we've seen in prior years. Now I've got to caution you that the equipment that you use at a mine site is big stuff. And it periodically has to be replaced. So you can go along at a "normal level" and then come upon a year when it's time to replace a couple of haul trucks and it can cost $8 million, $9 million, $10 million to replace that equipment. So I don't know that you can really say what's a normal level because I would consider when the trucks reach the ends of their life and it's time to replace them. That's normal. Although it is going to cause some bumpiness in the cash flows. At North American Mining, I'd say, given the growth trajectory in that business, it's a little hard to predict. We do, from time-to-time acquire draglines that we put into inventory. We may in the future, acquire other pieces of equipment that we would put into inventory that we can use…

Got it. Thanks for answering that question. And then if I could ask a couple more in last year's proxy statement, some bonus payments were tied to Mississippi Lignite Mining, adjusted return on tangible capital employed. And you say you don't disclose MLMC's return on tangible capital employed because the number is competitively sensitive. So without disclosing the actual number, can you explain why MLMC's adjusted return on tangible capital employed is important for shareholders? And why you use it as a performance metric for management?

Well, I mean the reason – I mean, return on total capital employed is essentially the money that we make off of the business measured on sort of a cash flow basis compared to the capital that we have employed. As managers of the business we invest money and we're expected to earn an acceptable return on the capital that's employed. Return on total capital deployed has been used for gosh, I mean, I've been around for 25 years, and it's been almost 25 years, and it's been in use in one way, shape or form in our incentive plans about as long as I can remember. It's a pretty standard measurement of are you being good, responsible stewards of the capital that we have put to use. It also provides a lot of people in the company that are participants in the incentive comp programs to focus on that. Mining is a capital-intensive business. And so having the people that are making decisions about the capital investments that will be made at MLMC, have them think about how do you defer capital, how do we minimize capital, how do we think about ways to do mine development with less cost that gets capitalized, all those are good things because it's reducing the amount of shareholder capital that we've got employed. And then the trick is how do we maximize the returns that come from that. Does that answer your question?

Yes. No, that does answer my question. And then if I could ask one more, since the value of lithium per ton as many multiples of the value of lignite per ton. Will your management fee per ton at that capacity many multiples of the management fee per ton that you now charge at your lignite mines?

So if you study kind of how we talk about ourselves in our annual report letter and our website. We are really a service business. We provide mining as a service for people. And I don't mean that like airplane engine manufacturers are providing engines as a service. I mean, we do this business as a service. We get paid a fee for providing the expertise to come run a mine for somebody. So the value of the product that's produced, I don't think really has a big influence over the services that we're providing. The service that we're going to provide to lithium Americas at the past project is very similar to the services that we provide at one of our coal mines, where we're managing the whole mine from permitting to initial pre strip, do all the mining, do all the reclamation, take care of all of that. So it's a service that's very, very similar to what we're doing at a mining – at a coal mining operation and the fees will be calculated in a similar way.

Got it. Thanks a lot for answering my questions.

Yep. Thank you.

[Operator Instructions] And there are no further questions at this time. I will now turn the call back over to the speakers for any closing remarks.

Thank you again for joining us today. We do appreciate your interest. If you do have any follow-up questions, please reach out to me. My number is available on the earnings release. Thanks so much, and have a wonderful day.

Thank you for participating in today's NACCO Industries Third Quarter Earnings Conference Call. This call will be available for replay beginning at 11:30 a.m. Eastern today through 11:59 p.m. Eastern on November 7, 2019. The conference ID number for the replay is 3849307. Again, the conference ID number for the replay is 3849307. The number to dial for the replay is 1-800-585-8367. Again, that is 1-800-585-8367. Thank you. And this does conclude today's conference. You may now disconnect.