Good day and thank you for standing by. Welcome to the NACCO Industries Second Quarter 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] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today Ms. Christina Kmetko. Please go ahead.

Thank you. Good morning, everyone and welcome to our 2021 second quarter earnings call. Thank you for joining us this morning. I'm Christina Kmetko and I am responsible for Investor Relations at NACCO Industries. Joining me today are J.C. Butler, President and Chief Executive Officer; and Elizabeth Loveman, Vice President and Controller. Yesterday, we published our second quarter 2021 results and filed our 10-Q. This information is available on our website. Today's call is also being webcast. The webcast will be on our website later this afternoon and available for approximately 12 months. Our remarks that follow, including answers to your questions, contain 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. These risks include among others, matters that we have described in our earnings release issued last night and in our 10-Q and other filings with the SEC. We disclaim any obligation to update these forward-looking statements, which may not be updated until our next quarterly earnings conference call, if at all. In addition, we will be discussing non-GAAP information that we believe is useful in evaluating the company's operating performance. Reconciliations for these non-GAAP measures can be found in our earnings release and on our website. In a moment, I'll discuss our second quarter results. But first let me turn the call over to our President and CEO, J.C. Butler for some opening remarks. J.C.?

Thank you, Christy and good morning, everyone. I'm happy to be on the call this morning since we have a lot of good news to report. 2021 continues to be a good year for us as our second quarter earnings release described new developments that build on a lot of good news from our first quarter. I'll start with some great news for our Coal segment. In late June, Great River Energy entered into an agreement to sell Coal Creek Station and the adjacent high-voltage direct current transmission line. Once closing conditions are met and the sale of Coal Creek Station is completed, the existing agreements between GRE and our Falkirk Mine will be terminated and we will receive a $10 million termination payment as well as certain other assets that are described further in our release. Falkirk will continue to supply all of the coal requirements for Coal Creek Station under a management fee agreement with Coal Creek Station's expected new owner Rainbow Energy. Similar to our existing management fee contract with GRE, Rainbow will be responsible for funding all mine operating costs and securing all capital required to operate and reclaim the mine. This is very exciting news for everyone involved and I think it really highlights the kinds of things we're trying to accomplish with our protect the core strategy. Turning to North American Mining. Our team signed a one new contract in the second quarter of 2021 to develop and operate a new aggregates operation in Indiana. This contract is with an existing customer who is a major US producer of construction materials. The team further advanced our growth efforts in late July by signing two contracts with a leading supplier of construction materials in North America to perform all mining operations at two sand and…

Thank you, J.C. I'll start with the consolidated quarter results and then provide additional detail at the segment level. On a consolidated basis, our second quarter operating profit improved significantly, increasing 93.4% to $8.7 million from $4.5 million in 2020. Our consolidated net income also increased rising 7.5% to $6.5 million or $0.91 per share from $6.1 million or $0.86 per share last year and our consolidated adjusted EBITDA increased 39.4% to $15.3 million from $11 million in the prior year second quarter. These increases were primarily driven by improved results in all three of our operating segments, most significantly our Minerals Management segment. The increase in net income was not as significant as the other improvements because of higher income tax expense as a result of an increase in our estimated annual effective income tax rate in the 2021 second quarter. At our Coal Mining segment, operating profit and segment EBITDA, increased primarily due to a reduction in costs for outside services at Centennial Natural Resources and income associated with mine reclamation at Caddo Creek, partially offset by a decrease in earnings of unconsolidated operations, primarily from mining contracts that are no longer in place. North American Mining's second quarter 2021 operating profit increased over the prior year, mainly due to favorable changes in the mix of customer requirements. This improvement was partially offset by higher employee-related costs, including medical costs and an increase in business development expenses. Segment adjusted EBITDA also increased due to the operating profit improvement and an increase in depreciation expense as a result of more equipment being placed in service to support activities related to newer contracts. At the Minerals Management segment, second quarter 2021 operating profit and segment adjusted EBITDA increased significantly over 2020, primarily due to increased royalty income generated from newer…

[Operator Instructions] Your first question comes from the line of Nachy Kanfer of Donavan Energy.

Hi folks. Can you hear okay?

Yes, we can.

Yeah.

Thanks so much. Thanks for the informative presentation. Nachy Kanfer with Donovan Energy. Just hoping you can give us a little bit more color on Mississippi Lignite pretty thin profit margin and long-term contract here. How should we be thinking about forward-looking profitability for Mississippi Lignite as it relates to the 2032 end date on the contract? Thanks.

Well, the -- so the way that content -- thanks for the question, by the way. So the Mississippi Lignite's contract, its all requirements, its mine-mouth operation. It is the one operation where we pay all the costs and we pay all the capital. And we clearly over the last few years including this year we've been investing quite a bit of capital which we just had to do because we're moving from one mine area to another one. You just have to advance this as you need additional coal requirements to fulfill the contract. The CapEx is adding pretty substantially to our forecasted depreciation going forward not surprisingly. And that is going to -- as we've disclosed that's going to adversely affect the operating profit margins out of that business. But because -- if you think about the capital right and we've said, this we're going to spend a lot of capital in the last few years and this year. And then, there's really not a lot of capital going forward. So I think in that business EBITDA probably -- in that part of the business EBITDA becomes a better representation of what's really going on, because you don't have to replace your depreciation with additional CapEx. So I think operating profit is not going to be great but I think EBITDA is going to show you really the kind of the cash-on-cash returns that are coming out of that business going forward, the price that, we sell the lignite to our customer that is set -- it's a formula price. It's not a market price. That moves in line with a basket of indices -- widely published indices that sort of reflect general inflation. So as you look in -- everybody's got their own views on where we're headed in inflation. Even if you just assume a moderate level of inflation the price will continue to go up. We understand what our costs are. And then, you just have to factor in this depreciation piece. Is that helpful?

Yeah. And just one quick, follow-up, any views on the underlying creditworthiness of your customer at Mississippi Lignite?

No. No. I don't have any concerns.

Thanks so much.

All right. Thank you.

[Operator Instructions]

It appears we don't have any further questions, Dina. J.C. do you have any wrap-up comments?

No I do not. Thanks Christy.

All right. Thank you everyone for participating. We do appreciate your interest. And if you do have any follow-up questions, my information is available on the earnings release and on the website. Thanks so much. And have a fantastic day.

The replay of this call will be available two to four hours from now. Participants may dial 800-585-8367 or 855-859-2056 or internationally on 404-537-3406 and enter the conference ID number to listen. This concludes today's conference call. Thank you for participating. You may now disconnect.