Arch Resources(US:ARCH)2023-07-27 19:08Financial Data and Key Metrics Changes - The company reported adjusted EBITDA of $130 million for Q2 2023, which was lower sequentially and compared to the previous year's second quarter due to weakened market prices for both metallurgical and thermal coal [19][20] - Operating cash flow for the quarter was $197 million, an increase of over 56% sequentially, although lower than the previous year's second quarter [20] - Discretionary cash flow for the quarter totaled $151 million, with a declared dividend of $3.97 per share [21] Business Line Data and Key Metrics Changes - Coking coal sales for the metallurgical segment totaled $2 million at $6.54 per ton for the first half of the year, with Q2 representing the strongest production quarter for Leer South to date [13][14] - The thermal segment contributed total segment-level EBITDA of $29.2 million, which was higher than initially anticipated, demonstrating excellent cost control [14] Market Data and Key Metrics Changes - Global hot metal production, excluding China, was down 2.8% through May compared to 2022, contributing to a softening in coking coal markets [9] - High-Vol A coal, the principal product, is currently trading at $210 per metric ton on the US East Coast, with demand remaining weak but prices still supporting healthy margins [10] Company Strategy and Development Direction - The company aims to enhance its position in the market by maintaining a strong cash generation capability and a robust capital return program, having returned nearly $1.2 billion to shareholders since relaunching the program in February 2022 [8][12] - The focus remains on expanding the Asian market presence, with expectations of increased demand for coking coal driven by growth in blast furnace capacity in Asia [76][78] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the current market weakness as an opportunity to differentiate the company by highlighting its low-cost position and ability to generate substantial free cash flow [83] - The company expects to return to normal operations at West Elk by Q4 after addressing localized geological challenges [65] Other Important Information - The company has maintained a perfect performance in environmental compliance, achieving zero environmental violations and a 47% reduction in CO2 equivalent emissions since 2011 [17] - The Board is committed to the capital return program, with ongoing discussions about the relative weighting of dividends versus share buybacks [9][70] Q&A Session Summary Question: Cost expectations for the metallurgical segment - Management expressed confidence in achieving cost guidance for the metallurgical segment, despite variability due to mining operations [29][30] Question: Market appetite for spot pricing - Management indicated confidence in managing the met book and remaining exposure, with ongoing efforts to optimize sales [31][33] Question: Discrepancy in asset retirement obligations - Management clarified that the funding on the asset side is primarily directed towards Black Thunder, with ongoing reclamation efforts [34][35] Question: Working capital return expectations - Management expects around $60 million to $65 million in working capital returns in the back half of the year, potentially skewed towards Q4 [43][45] Question: Performance expectations for West Elk - Management confirmed that West Elk is on track to return to normal operations by Q4, following a longwall move to a higher quality area [64][65] Question: Future market flexibility - Management indicated readiness to shift volumes to the seaborne market if it proves to be the best economic option [80]