NACCO Industries(US:NC)2021-11-06 18:50Financial Data and Key Metrics Changes - The consolidated operating profit for Q3 2021 improved significantly to $27.6 million from $9.4 million in Q3 2020 [16] - Consolidated net income rose to $24.8 million or $3.47 per share, compared to $8 million or $1.14 per share in the previous year [16] - Consolidated adjusted EBITDA, excluding the termination fee, increased by 55.3% to $23.3 million from $15 million in the prior year [16][29] Business Segment Data and Key Metrics Changes - The Minerals Management segment had a strong quarter, with operating profit and segment adjusted EBITDA significantly increasing due to $3.3 million of settlement income and higher royalty income from increased production and higher natural gas and oil prices [19][27] - In the Coal Mining segment, operating profit improved primarily due to the Bisti termination payment and increased earnings from unconsolidated operations, despite higher operating expenses [9][17] - North American Mining's segment adjusted EBITDA increased significantly over the prior year, driven by increased production and new contracts [24] Market Data and Key Metrics Changes - The demand for coal has increased as power generation companies rely more on coal for low-cost and dependable electricity due to rising natural gas prices [9] - The company expects coal deliveries to decrease in 2022 due to the Bisti Fuels contract termination and anticipated customer requirements [23] Company Strategy and Development Direction - The company is focused on protecting its core business while diversifying and growing through strategic acquisitions and management fee contracts [14] - There is a strong growth potential in North American Mining, with a robust pipeline of new projects and the ability to leverage expertise across various minerals [11] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the long-term outlook, citing confidence in strategies to grow and diversify the business [14] - The company anticipates a significant increase in consolidated operating profit and net income for Q4 2021, but expects a decrease in consolidated net income for 2022 due to lower earnings in the Coal Mining and Minerals Management segments [29] Other Important Information - The company ended Q3 2021 with consolidated cash of $87.5 million and debt of $17 million, compared to $85 million in cash and $32 million in debt at the end of Q2 2021 [30] - The anticipated sale of GRE's Coal Creek Station is expected to close in Q1 2022, which will result in a $14 million termination payment [13] Q&A Session Summary Question: Sensitivity to Natural Gas Prices - Management acknowledged that natural gas prices significantly affect both royalties at Minerals Management and dispatch at coal power plants, contributing to increased demand for coal [33][34] Question: Credit Availability and Fossil Fuel Lending Policies - Management noted that it is becoming more difficult for coal companies to borrow due to banks steering away from fossil fuels, but they are currently pleased with the terms of their refinancing efforts [36][37] Question: CapEx at Mitigation Resources - The $2 million CapEx mentioned is for equipment to enhance financial returns in mitigation resources, which is treated as work in process inventory rather than traditional CapEx [38][39] Question: Risk of Early Termination of Coal Sales Agreement - Management discussed the new owners' intent to operate the plant efficiently, viewing it similarly to a manufacturing operation, while acknowledging various business and regulatory risks [44][45] Question: Capacity Factors and Demand in Mississippi - Management explained that increased natural gas prices have supported higher dispatch levels at the Red Hills power plant, which is expected to continue operating through its power purchase agreement [50][51]