CONSOL Energy (US:CEIX)2021-08-03 21:41Financial Data and Key Metrics Changes - CONSOL Energy reported a net income of $4.2 million or $0.12 per diluted share for Q2 2021, compared to a loss of $18 million or $0.69 per diluted share in the same quarter of the previous year [51] - Adjusted EBITDA for Q2 2021 was $84.4 million, up from $34.2 million in Q2 2020 [51] - Free cash flow generation reached $54.4 million in Q2 2021, with unrestricted cash increasing by nearly $56 million to a total of $146 million, the highest level since Q2 2019 [53][54] Business Line Data and Key Metrics Changes - Coal production at the Pennsylvania Mining Complex (PAMC) was 5.9 million tons in Q2 2021, significantly up from 2.4 million tons in Q2 2020 [31] - The average cash cost of coal sold per ton was $28.02 in Q2 2021, compared to $25.90 in Q2 2020, but adjusted for prior year idling costs, this represents a significant improvement [32] - The CONSOL Marine Terminal achieved a throughput volume of 3.8 million tons in Q2 2021, compared to 1.6 million tons in the year-ago period [34] Market Data and Key Metrics Changes - Export sales volume reached a record 3.2 million tons in Q2 2021, representing nearly 55% of total shipments [21] - Demand for coal strengthened due to economic recovery, with Henry Hub natural gas spot prices averaging $2.95 per million Btu, a 73% increase compared to Q2 2020 [24] - API2 spot prices rose by 82% compared to Q2 2020, driven by hot weather and strong LNG pricing [27] Company Strategy and Development Direction - The company is recommencing the Itmann Metallurgical project to diversify revenue streams and reduce reliance on power generation markets [12][15] - The strategic shift towards export markets is emphasized, with a focus on increasing industrial business and reducing exposure to the declining U.S. coal market [23][62] - The company aims to maintain strong liquidity while selectively allocating capital towards strategic initiatives like the Itmann project [37][95] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about market conditions improving due to global economic recovery and a muted supply response [26][92] - The company is focused on maintaining cost control despite inflationary pressures and is committed to strengthening its balance sheet [60][61] - Management highlighted the importance of the CONSOL Marine Terminal in executing the strategic shift into the export market [62] Other Important Information - The Itmann project is expected to require an additional $65 million to $70 million in capital expenditures to complete [47] - The company has layered in commodity derivative contracts in the API2 market for calendar year 2022, ensuring strong netback core prices [44] - The company has a fully funded status on its defined benefit pension plan, with no funding requirements for the foreseeable future [45] Q&A Session Summary Question: Cost guidance and potential for outperformance - Management acknowledged the potential for costs to rise due to inflation and longwall moves but aims to keep costs tight [68][70] Question: Pricing and export market expectations - Management indicated that additional contracted volumes are likely to go to the export market due to price arbitrage [73][74] Question: Production levels in 2022 - Management expects production levels in 2022 to be similar to 2021, with potential upside depending on market conditions [76] Question: Itmann project production ramp - Management plans to ramp up production in the second half of 2022, targeting full production shortly after the completion of the Preparation Plant [78] Question: Domestic customer base and coal power plant closures - Management noted that domestic utilities are seeking long-term contracts due to low inventories and high gas prices, with minimal exposure to announced coal power plant closures [102][103] Question: International market dynamics - Management highlighted the lack of supply response in the Asian coal market and the opportunity for growth in exports, particularly to India and China [107][108] Question: Derivative book and risk management - Management confirmed that the derivative contracts are opportunistic and serve as a risk management tool in the current pricing environment [110]