Arch Resources(US:ARCH)2021-07-28 03:26Financial Data and Key Metrics Changes - The company reported a nearly 50% increase in gross margin, generating more than $61 million in the metallurgical segment [6] - In the thermal segment, the gross margin was nearly $40 million, with a nearly 25% increase in sales volumes [7][13] - Operating cash flows totaled $20 million, with a significant build in working capital due to increased accounts receivable [28] Business Line Data and Key Metrics Changes - The metallurgical segment achieved a 20% increase in sales volume and a 25% increase in per ton margin [6][18] - The thermal segment expanded its sales commitments by approximately 7.6 million tons and increased per ton cash margin nearly threefold from $0.98 to $2.62 [7][23] Market Data and Key Metrics Changes - Global steel output is on pace to return to or exceed 2019 levels, driving strong demand for coking coal [14] - Thermal coal demand and pricing have strengthened due to natural gas prices trading above $4 and a robust global economic expansion [15] Company Strategy and Development Direction - The company is focused on a strategic pivot towards steel and coking coal markets while implementing a harvest strategy for legacy thermal assets [11][12] - The Leer South project is expected to enhance cash-generating capabilities and solidify the company's position as a low-cost coking coal supplier [9][10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in a strong second half of the year, driven by improved market dynamics in both coking and thermal coal markets [8][14] - The company anticipates strong cash generation for the remainder of the year, supported by current market conditions and reduced capital spending [33] Other Important Information - The company became the first U.S. metallurgical coal producer to join ResponsibleSteel, an ESG-driven standard and certification initiative [26] - The company is exploring strategic alternatives for its thermal assets to maximize cash flows while managing long-term closure obligations [12] Q&A Session Summary Question: Can you comment on the incremental pricing on the metallurgical side? - Management noted that market price movements significantly influenced pricing, and they expect significant improvement in market pricing in the second half of the year [36][39] Question: What is the outlook for direct sales into China? - The company has seen growing opportunities to export volumes into China, with several vessels expected to be shipped in Q3 and Q4 [41][45] Question: What is the expected maintenance CapEx moving forward? - The expected maintenance CapEx is around $100 million annually, with the company generating substantial cash flow to cover this [46][52] Question: What is the current status of the thermal asset retirement obligation (ARO)? - The ARO is approximately $200 million, with expectations to reduce it to around $160 million by year-end through ongoing reclamation efforts [55][57] Question: How does the company plan to utilize free cash flow? - The company plans to fortify its balance sheet, reduce debt, and potentially initiate a capital return program, including share buybacks or dividends [47][48]