Arch Resources(ARCH) - 2023 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Arch Resources achieved an adjusted EBITDA of $126.3 million and generated$86.5 million in discretionary cash flow during Q3 2023 [5][6] - The company repurchased nearly 216,000 shares for $28.2 million and declared a quarterly cash dividend of$21.6 million, or $1.13 per share [6][26] - Operating cash flow totaled$131 million, with a working capital benefit of $16 million, while capital spending was just over$44 million [22] Business Line Data and Key Metrics Changes - The metallurgical segment delivered higher per ton realizations and stronger cash margins, with cash costs expected to be less than $90 per ton, approximately 5$277 per metric ton, remaining strong despite weak steel market dynamics [9][10] - Coking coal exports from Australia are down by roughly 5 million tons year-to-date, contributing to supply constraints in the metallurgical coal market [10] Company Strategy and Development Direction - The company is focused on delivering operational excellence and maintaining a strong financial position while advancing sustainability practices [11][12] - The Board adjusted the capital allocation model to prioritize share repurchases over dividends, reflecting a commitment to return 100% of discretionary cash flow to shareholders [8][26] Management's Comments on Operating Environment and Future Outlook - Management noted that despite weak demand in the steel market, supply constraints in metallurgical coal could lead to future price stability [9][10] - The outlook for the thermal segment remains positive, with expectations of substantial margins on thermal export volumes in 2024 and beyond [11][18] Other Important Information - Arch's operations achieved a total loss time incident rate of 0.42 per 200,000 employee hours worked, significantly better than the industry average [20] - The company received the 2023 Excellence in Coal Mining Good Neighbor Award, highlighting its commitment to community engagement [21] Q&A Session Summary Question: Capital return policy and framework - The company plans to allocate 25% of discretionary cash flow for dividends and up to 75% for buybacks, with flexibility based on market conditions [28][29] Question: Production expectations at Leer South - Production is expected to improve, with a target of around 3 million tons annually, and potential for further increases as operations transition to better geological conditions [34][36] Question: Thermal market outlook and pricing - The company anticipates modest reductions in pricing for Powder River Basin operations in 2024, but remains confident in maintaining solid margins [39][41] Question: Coking coal shipment growth potential - The company expects to comfortably exceed 9 million tons at the midpoint for 2024, driven by improved performance at Leer South and other operations [46] Question: West Elk production levels - West Elk is expected to reach around 4 million tons annually, with potential increases to 4.5 to 5 million tons by 2025 as operations improve [52][54]