Ladies and gentlemen, thank you for standing by, and welcome to the NACCO Industries Q4 and Full Year 2019 Earnings Conference Call. [Operator Instructions]. I would now like to hand the conference over to Christina Kmetko, Investor Relations. Please go ahead.

Thank you very much. Good morning, everyone, and welcome to our 2019 fourth quarter and full year earnings call. I am Christina Kmetko, and I'm 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 fourth quarter and full year 2019 results and filed our 10-K. Copies of our earnings release and 10-K 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 For anyone who is not able to listen to today's entire call, an archived version of this webcast will be on our website later this afternoon and available for approximately 12 months.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-K. Now let me discuss our 2019 results. I will cover our consolidated results first and then provide the highlights for each segment. On a consolidated basis, while our full year 2019 net income solidly increased, rising to $39.6 million from $34.8 million last year, our quarter did not fare as well. Our fourth quarter consolidated net income decreased to…

[Operator Instructions]. Your first question comes from Andrew Kuhn with Focused Compounding.

So North American Mining has grown a lot in terms of revenues, but it's not yet reported profits and it spends a lot on CapEx. So internally, I'm assuming you can make decisions on stuff like business development spending, buying a new dragline, et cetera, based on what kind of customer retention rates you think this kind of work will have, the useful life of a dragline and stuff like that. But externally, shareholders obviously can't see that kind of information. So I was wondering if you could talk about whether you look at things like the internal rate of return or the expected eventual rate of return on capital you think North American Mining can have. And if so, what are the key factors for you deciding if that upfront capital at NA Mining creates value over time?

Great question. So the - just to talk about individual projects that we look at, obviously, this business is important and we think will be a substantial part of the company, a part of - it's one of the reasons that we turned this business into a segment a year ago from 2019. As we look at new projects, obviously, we've got a couple of different business models. And one of them is purely a service model where we're really providing a service for a fee and there's very little capital involved in that. The nature of the model of those contracts, the service-based contracts is the customers pay all the direct costs, they provide the capital. We do have some administrative cost that goes into overseeing the mine or the quarry to some extent. So those are pretty simple to look at because it's really fee-based, and then we just have to consider what are our additional overheads - what additional overhead spending will be required for that project. And you can see that fee income that comes out of it. We tend to look at those on sort of an NPV basis to say, okay, if we go do this project for 3 years, 5 years, whatever the term is, what do we think about that? And given the nature of the project, how do we feel about the customer retention? We typically have had very high retention in all aspects of this business. So we feel pretty good about our ability to take care of our customers and be there for a long time even beyond the term of the contract. When you get to the other model, which is a fixed-price model, that's where we are spending money on a dragline or potentially some other pieces…

Sure. And I guess in relation to the lithium mine, how do you think about the long-term earnings potential, the durability, the risks and stuff like that of a lithium mine differ from a lignite mine? Can you just compare lithium and lignite for us in terms of how you think about running one kind of mine versus running a different one? I mean obviously, you're planning to be mining 3 different materials pretty soon: lignite, lime and lithium. Can you just talk about how the risks and returns differ for you and if they do? Or is it more so from NACCO's perspective, it's really similar running one kind of mine as a service versus running another kind?

Yes. You will see in our annual report, in the letter that's in the front of the annual report that's going to come out very soon, that we historically have been known as a coal mining company. And the reality is we're a mining company. We happen to have a tremendous amount of experience in coal, but the skills that we use in a surface mine - a surface lignite mine are very, very similar to the skills that we use - that we will use at a lithium mine. You remove the overburden, you remove the ore body, whether that's lithium, coal or anything else and you deliver it to your customer, and then you work on reclamation. Of course, there's permitting upfront and equipment selection and workforce management and all that stuff, which is important, but it's very, very similar. So - and to use the same skill transfer into the limestone mining business, primarily, what we've done in limestone is operate and maintain draglines at wet quarries, quarries that are - we are mining the lime rock underwater. The skills that we have there all came out of our historical mining business. We operate more draglines than anybody else in North America. And so we've refined those skills. We use that to mine lime rock really no differently the way we operate draglines in our coal mining business. It's the same when you mine lithium. And frankly, we're studying all the other things that are mined, surface-mined in the United States to see what else might make sense for us to add to our portfolio. Again, we really - I think the way to think of us is a mining company, and there's lots of other things we can mine. Now from a risk standpoint, I mean it's - I mean there's no hiding the risk in mining coal today. It's politically unpopular. I haven't heard of lithium mining being politically unpopular. In fact, there's just tremendous opportunities, it seems, from the research that I read for lithium to really grow as there's the electrification of transportation markets, transportation in the United States and around the world. Our customer, Lithium Americas, which is a public company, they state in their filings that this will be the large - this is the largest known lithium reserve in North America. And this is going to be a substantial supplier of lithium into the U.S. and North American market. So I mean that seemed - those seem like pretty positive dynamics from a risk standpoint.

Sure. And relating to the mineral interests, you now say, and I'm quoting, "considering the acquisition of additional mineral interests or similar investments in the energy industry as part of the growth of Mineral Management with an initial focus on smaller, diversifying acquisitions with near-term cash flow yields." So I'm sure you don't want to tell us exactly what you're looking at. But by this, do you mean you'd be looking to spend cash on buying non-coal properties that you could then lease out for royalties, like what you've done with your legacy properties in Ohio being leased out for natural gas? And then I guess when you say "or similar investments in the energy industry," does this mean you'd actually consider like diversifying into something as far as like owning solar assets if you like the cash flow yields enough on something like that?

Well, I mean it's in the minerals segment. So I don't know that I would consider solar to be growth in the minerals segment.

Sure.

Specifically around minerals, we are looking at, just as you described, acquiring mineral interests that we could lease out to others or perhaps it'd be a mineral interest that's already been leased and we're buying a position in an individual property or we could be buying a position in a portfolio of properties. There are people that put those together, and from time to time, they're available for purchase. So it's really - for the most part and I'd say in the initial stages, it's going to be just as you described, acquiring mineral interests that are not dissimilar to our positions in Ohio.

Got it. And then I guess I'll have - I have one last question, and then I can hop back in the queue. You have authorization to buy back over 23 million more of your own shares, and you now have a little over $120 million in cash at the parent company. But you do have some debt. You have some long-term liabilities for asset retirement. You have a pension plan, stuff like that, that you've always had. But now you also have a commitment to provide up to $50 million to start up the Thacker Pass project. And you're talking about doing some possible acquisitions of mineral rights. You're probably planning for the possibility that one of your biggest customers stops taking coal deliveries from you at some point. You're guiding for negative free cash flow this year. And you do still play - pay a dividend. So without saying what a cheap enough stock price is, do you think your cash flow of today versus all these things you want to be prepared for is close to the point where even if your stock falls to a level you think is ridiculously cheap, you wouldn't necessarily buy in a meaningful amount of shares simply because there's a certain amount of cash you always want to have on hand no matter what? I mean I guess basically, how should shareholders be thinking about whether NACCO needs to be run with a significant amount of cash on hand at all times simply because of the industry it's in and because you don't want a lack of cash to ever limit your long-term plans for growth that diversifies you away from coal versus using some of your cash to buy back stock?

Lots of layers to that question. Yes, so I guess first off, and we say this in a number of places, both in our earnings release and in the annual report letter and elsewhere, we've got a - we take a very conservative view of our balance sheet. Just over time, companies end up making - they have - they get into short-term decision-making mode because they don't have a balance sheet that allows them to really think about the long term. And we do not want to be in that situation. So if you then balance that with pretty substantial growth ambitions, growth and diversification ambitions and the fact that a sizable part of our business is in coal, which has its own risks, we think pretty carefully about how we manage the balance sheet. And we want to make sure, from a business standpoint, that we are doing the right things. We're 107 years old. We intend to be around over 200, doing a much more diverse group of things. As you think about paying dividends, and we've paid dividends - gosh, Liz, I think our history goes back to maybe in the early - in the late '50s, pretty consistently paid a dividend. So that's something that's obviously important to us. We want to make sure we continue to do that. Share repurchases, we've been doing share repurchases, I mean, certainly for the last 15 years, maybe 20 years, but we do so selectively. We're not a company that just runs a program that says we're going to buy x number of shares every month. So do we - how do we think about a price? Would we buy at - would we get in a situation where we might not buy shares? Well, I mean sure, of course, that's possible. If we start to see the money that we might be spending on capital or risk increase, we can always decide not to buy shares. But historically, we've been opportunistic buyers when we think it's in the best interest of the company. That answer your question?

All right. Yes, yes.

[Operator Instructions]. And we have no further questions queued up at this time. I'll turn the call back over to the presenters.

Thank you for joining us today. J.C., did you have any follow-up comments you wanted to make?

No, I do not. Thanks, Christy.

Okay. Thank you very much for joining us. If you do have any further questions, you can reach out to me. Thanks so much, and have a great day.

Thank you for participating in today's NACCO Industries Q4 and Full Year 2019 Earnings Conference Call. This call will be available for replay beginning at 12:00 Eastern today through until 11:59 p.m. Eastern Time on March 12, 2020. The conference ID number for the replay is 7753979. The number to dial for the replay is 1-800-585-8365. This concludes today's conference call. You may now disconnect.