Walter Energy Management Discusses Q2 2013 Results - Earnings Call Transcript

Aug. 1.13 | About: Walter Energy, (WLT)

Walter Energy (NYSE:WLT)

Q2 2013 Earnings Call

August 01, 2013 10:00 am ET

Executives

Mark H. Tubb - Former Vice President of Investor Relations & Strategic Planning

Walter J. Scheller - Chief Executive Officer, Director, Member of Executive Committee and Member of Special Committee

William G. Harvey - Chief Financial Officer and Senior Vice President

Michael T. Madden - Chief Commercial Officer and Senior Vice President

Daniel Paul Cartwright - President of Canadian Operations

Analysts

James M. Rollyson - Raymond James & Associates, Inc., Research Division

Brandon Blossman - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Evan L. Kurtz - Morgan Stanley, Research Division

J. Christopher Haberlin - Davenport & Company, LLC, Research Division

Lance Ettus - Tuohy Brothers Investment Research, Inc.

Mitesh Thakkar - FBR Capital Markets & Co., Research Division

Curtis Rogers Woodworth - Nomura Securities Co. Ltd., Research Division

Caleb M.J. Dorfman - Simmons & Company International, Research Division

David A. Lipschitz - CLSA Limited, Research Division

Lucas Pipes - Brean Capital LLC, Research Division

Jeremy Sussman - Clarkson Capital Markets, Research Division

David E. Beard - Iberia Capital Partners, Research Division

David S. Martin - Deutsche Bank AG, Research Division

Philip Gibbs - KeyBanc Capital Markets Inc., Research Division

Timna Tanners - BofA Merrill Lynch, Research Division

Matthew Vittorioso - Barclays Capital, Research Division

David J. Olkovetsky - Jefferies LLC, Fixed Income Research

Matthew Farwell - Imperial Capital, LLC, Research Division

Operator

Welcome to the Walter Energy Second Quarter 2013 Earnings Call. [Operator Instructions] I would now like to turn the meeting over to Mr. Mark Tubb, Vice President of Investor Relations. Sir, you may begin.

Mark H. Tubb

Thanks, Tanya. Good morning, everyone. Thank you for joining us today. This morning's call is being webcast, and a recording will be archived and available on our website for up to 30 days.

On this call, we may refer to forward-looking statements made in today's press release, and we may make those and other forward-looking statements during this call.

For more information regarding the risks associated with forward-looking statements, please refer to the company's SEC filings.

Joining me on today's call are Walter Energy's CEO, Walt Scheller; CFO, Bill Harvey; and other members of the management, who will be available for Q&A.

At this time, I would like to turn the call over to Walt.

Walter J. Scheller

Thanks, Mark. Good morning, everyone, and thank you for joining us. We'll get into our operating and financial results for the quarter shortly. But first, as we always do, I want to talk about safety. Our focus on safety is paramount in everything we do, and we have a track record that shows consistent improvement across the company.

However, we recently suffered a tragic loss. On June 6, we lost 1 of our employees in an accident at our No. 7 mine. And before we talk about the company in the quarter, I want to take the time to acknowledge this loss and express to family, friends and coworkers my deepest sympathies.

Turning to our second quarter performance, met coal production totaled 2.9 million metric tons for the quarter, up 7% from the first quarter. Of this total, 2.5 million tons were hard coking coal, with the remaining roughly 400,000 tons being our low-vol PCI product.

Met coal production in our Alabama low- and mid-vol mines was up 25% compared to the first quarter. At Jim Walter Resources, Mine No. 4 and 7 performed well in the second quarter, with both mines increasing production and reducing cost per ton compared to the first quarter despite having a low-vol movement at Mine No. 4.

Mines 4 and 7 combined for a total of 1.9 million tons of met coal production compared to 1.5 million tons in the first quarter. Cash cost for these operations decreased $11 per metric ton or 14% in the quarter compared to Q1, primarily due to improved productivity.

Met coal production in our Canadian operations for the second quarter was just under 900,000 tons, down about 100,000 tons from the first quarter due to the Willow curtailment. We operated Willow until mid-April when we scaled back to partial operations, washing the coal from Brule and continuing minimal pit activity needed to support disposal of refuse from Brule coal.

Cash cost of production per metric ton in our Canadian operations decreased by $7 per metric ton or 6% compared to the first quarter. Performance at Brule was excellent, with zero year-to-date reportable safety incidents, production tons growing 27% compared to Q1 and production costs that are cash cost positive at Q3's lower low-vol PCI benchmark, which was set recently at $116 per ton.

At Wolverine, production volumes were down 5% and production cost up versus Q1 due to property development costs and significant unanticipated shovel repairs.

I'll talk more about the operations and the outlook. But first, Bill will talk about our financial results for the quarter.

William G. Harvey

Thanks, Will. In the second quarter, we reported a net loss of $34.5 million or a loss of $0.55 per share. This loss includes after-tax charges of $3.3 million or $0.05 per share related to the proxy contest and a $3.4 million or $0.05 per share net benefit related to restructuring and asset impairment.

For the quarter, adjusted EBITDA was $36.7 million. Both net income and adjusted EBITDA included a lower of cost of market charge, of which $19 million, pretax, related to the effect of the expected third quarter decline in met coal price on the quarter's ending inventory, primarily at our Canadian operations.

Second quarter revenues were $441 million, down from the $491 million for the first quarter, driven by a 12% decrease in met coal sales volumes. Our cost performance in the second quarter continued to be strong. On an average cash cost of production basis for met coal, we improved by $11 per metric ton in the second quarter as compared to the first quarter or 12.6%. Cash cost of sales increased by about 2%, as a result of the lower of cost to market charge I previously mentioned.

To put it in perspective, compared to the second quarter of last year, our met coal cash cost of production has declined by over 20%. Our coking gas businesses have also felt the impact of weak markets, generating an EBITDA of $3 million in the second quarter, a modest improvement versus the $2 million loss of the first quarter. This does represent a decline from the $9 million EBITDA of the second quarter of 2012.

Our thermal business had a cash loss of $8 million in the second quarter, driven by the continuation of the tough mining conditions we experienced at our North River mine in the first quarter. We previously announced that we have amended the sales contract at the mine to reduce the volume requirements. We expect that the mine will satisfy these requirements prior to the fourth quarter, and this will allow for its accelerated closure. Conditions have improved at the mine, and we do not expect it to negatively impact our operating results going forward.

We continue to provide supplemental financial information for the Willow Creek mine separately, as it operated as a stand-alone mine through April. The Willow Creek mining operations have now been fully curtailed to only that which is required to support processing for the Brule operations. In future releases, we will combine the mine with Brule for presentation purposes.

Included in the second quarter results was a $3.4 million net of tax charge that was above our initial estimates for curtailing the mine. As well, the mine lost $11 million in the quarter, as a result of a $6.5 million LCM charge on its inventory in operations during the wind-down.

SG&A for the current quarter was $27.1 million, inclusive of $5.4 million pre-tax expense related to the proxy contest. Net of this expense, SG&A for the quarter was $21.7 million compared to approximately $24 million in the first quarter, excluding the proxy contest cost.

Annualizing the second quarter SG&A, we are now roughly at an $87 million run rate compared to our original budgeted SG&A for the year of $100 million. We have previously targeted to lower SG&A to $90 million. We now have a new target, to reach a run rate of $80 million, and we are aggressively implementing actions to achieve this level by year end.

Depreciation and depletion of $68 million represented a $13 million decrease from the previous quarter, as a result of a couple of one-time items surrounding mineral reserves. We expect prospectively that our quarterly depreciation and depletion will be in the $80 million range.

The interest expense of $53 million includes roughly $6 million in non-cash items, primarily the amortization of debt issuance cost. We recorded a tax benefit during the quarter of $50 million, which reflects a 59% effective tax rate. We expect that our effective tax rate for the full year in the current environment will be around 50% level.

Looking into working capital. We invested $37 million into inventory in the quarter. This was a result of strong production, the very low levels of inventories we began the quarter at in Alabama, a more gradual inventory decline in Canada as we reconfigured the Brule and Willow mines and the weak market conditions. We now expect the decline in our Canadian inventories to be more gradual than originally anticipated.

Prepaid expenses increased by $13 million in the quarter, as we made scheduled large annual payments. Accounts payables also declined by about $10 million, partially related to curtailing operations at Willow.

On the cash generation side, we did reduce AR by about $60 million, as a result of the significant shipments during the end of March and the reduced second quarter sales volumes.

Our capital spending in the quarter was $46 million. For the full year of 2013, we have lowered our capital spending expectations to $150 million. We ended the quarter with liquidity of $488 million, consisting of cash and cash equivalents of $171 million, plus $317 million of availability under our revolving credit facility.

As previously disclosed, we amended our credit facility in July to improve our financial flexibility. The amendment suspended financial ratio compliance until the second quarter of 2014, at which time we'll be subject to a net senior secured leverage ratio. The amendment also institutes a minimum liquidity test of $225 million and a limit on capital spending through 2014. We have full access to our bank lines and believe our liquidity is sound.

Looking forward, we are focused on increasing our financial flexibility even further. This includes targeted asset sale proceeds of $250 million to be achieved over the next 9 months, either through divestitures or joint ventures as appropriate.

I'll now turn it back to Walt.

Walter J. Scheller

Thanks, Bill. Looking at our operations for the rest of the year, we remain on target for about 11 million tons of met coal production. We expect to see continued reductions in cost and expect to achieve our original target, a full year cost reduction of 15% on a per ton basis.

In Alabama, Mine 7 continues to perform well and remains on track with previous full year target. Production is expected to total a little over 4.5 million tons for the year, and cash cost of sales should average about $100 per metric ton. In total, second half volumes will be slightly lower than the first half.

At No. 4 Mine, as expected, production improved as we began mining longwall panels. When we moved into the N 5 [ph] panel in September, the width of longwall face increases remained 850 feet to 1,040 feet. This will increase productivity even more.

Second half volumes will exceed the first half, with the increase mainly coming in the fourth quarter. For the year, No. 4 Mine is on track to achieve our original target of 2.2 million to 2.4 million metric tons and a cash cost of sales around $110 per metric ton.

Our North River thermal mine returned to normal production rates in June, after mining through a difficult geology earlier in the year. We remain on track to complete production at this mine by the end of the year, and we expect the mine to be cash flow positive for the second half of the year.

Turning to Canada. I first want to touch on Brule. I'm pleased to say our focus on performance improvement has resulted in the strong Q2 performance, which yielded production costs that are cash-positive even at Q3's lower prices.

Over a year ago, we focused on achieving a substantial reduction in Brule's cost, beginning with the transformation of a contractor to company-operated mine. At that time, we also sized Brule's mining capacity to match the tons currently hauled over the Falling Creek Connector Road. That was achieved last November. We've also been implementing the essential programs and processes Dan Cartwright has referred to in our past earnings calls. These include proven safety programs, better mine planning, real-time performance monitoring, predictive maintenance processes, proven supply-chain practices and others.

Our corporate and Canadian team have recently completed a study that shows the optimum path forward is to continue operating Brule. This allows us to generate cash with fresh production while concurrently monetizing the coal inventory at Brule and Willow. We will continue to monitor prices as we move forward. And as I have stated previously, we will not continue to operate Brule or any other Walter mine if it cannot yield positive cash.

In Q3, Wolverine entered a portion of its mining cycle in which the highest ratio of waste to coal must be mined before getting into the bulk of the coal in the present mining area. This will raise Q3 production cost by about $15 a ton. The most favorable portion of the mining cycle will be entered in Q4, dropping cost significantly, with a benefit of low waste to coal ratio.

Taking a look at our outlook for sales, broadly speaking, we will be targeting sales at levels in line with production. We're monitoring the inventory closely, but we're looking at inventory differently in light of the current market environment. Our original plan for the year was to focus on de-stocking the low-vol PCI inventory throughout the year. However, given the significant decline in met coal pricing, we will be focused on optimization going forward, as we work through the remainder of the current cycle. We will continue to focus on monetizing excess inventory in our Canadian operations, which is primarily at Willow and Brule.

Demand has continued for our low-vol PCI product. However, the Willow curtailment slowed our rate of inventory reduction, as we focused on minimizing cost. Inventory reduction efforts in both locations are limited by the reduced capacity of the Willow plant and refuse disposal operations.

Cost-effective Brule inventory reduction is further limited, as the coal has to be hauled over the Falling Creek Connector Road to the Willow plant and washing where it can be railed and shipped. The optimal way to monetize this inventory and maximize earnings is to draw it down from now through next year, provided prices permit the fresh coal production to continue to be cash-positive.

As we closely monitor this, we will continue our efforts to further drive down cost and to achieve sales that yield the highest possible value for this coal.

In Alabama, as you may recall, we only had about 300,000 tons of low- and mid-vol coal in inventory at the end of the first quarter. We currently have about 600,000 tons on hand, about 100,000 tons higher than we like. At the same time, production volumes will fluctuate depending on timing of longwall moves and other variables. So we have to be careful not to let inventory levels get too thin, which would ultimately result in shipping delays and demerge charges.

As we look at the market, we continue to see the short-term outlook for hard coking coal pricing under pressure. We are being confronted with low operating levels at most steel mills, oversupply of hard coking coal in the market and an exchange rate, which is favoring Australian supply.

These factors contributed to a benchmark price for Q3 at $145 for top-tier coals and $116 for low-vol PCI. The spot pricing is $15 to $20 below that.

As we move into this quarter, we began to see production cutbacks being announced from Mozambique, Russia, the U.S. and, to a lesser degree, Australia. Australia does currently benefit from the favorable exchange rate.

Asia continues to drive the world economic climate, with China remaining in the lead. Crude steel production in China is running at an 800 million metric ton per year rate. Destocking continues in China, and we began to see the spot market for hard coking coal move up. Japan is showing solid signs of improvement. Recent foreign exchange improvements resulted in an increased steel and cement production. It is now forecasted that crude steel production for the Japanese fiscal year will be in the 108 million to 111 million metric ton level.

GDP for Q1 has now beneficially upgraded to 4.1% from previous estimate of 3.5%. Korea will show a pickup in coal demand, as [indiscernible] has restarted the blast furnace and Hyundai will commission its new blast furnace in September.

In South America, Brazil continues to show reduced production levels compared to 2012. However, most still anticipate an improvement in advance of the World Cup and Olympics. Europe continues to be soft with exception -- with the exception of the U.K. which continued to show a steady production improvement, a trend we've seen since March. However, today, the EU reported, the PMI for June was over 50, which is the first time in the last 24 months.

And let's not forget about the U.S. Our economy has been on a steady improvement, as evidenced by the raw steel production figures of an operating capacity of 78% to 79%. Second quarter GDP expanded 1.7%, which is more than originally expected. We continue to be cautious on pricing for the remainder of the year, but the longer-term outlook looks good. The trade association representing the world's primary steel makers issued a short-range forecast of global steel consumption, predicting a 2.9% increase in apparent steel use for 2013 and a prediction for 2014 of 3.2%.

In wrapping up, we will continue to focus and execute on the areas within our control, as we continue to navigate through this cycle, cutting cost, improving productivity and reducing capital expenditures. We'll also continue focusing on improving financial flexibility. Related to this, as Bill mentioned, we're targeting cash generation from asset sales or other arrangements of $250 million. On the operation side, we'll monitor each mine's performance and be aggressive in taking action.

Thank you again for being with us this morning. We'll now open the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Jim Rollyson with Raymond James.

James M. Rollyson - Raymond James & Associates, Inc., Research Division

Walt, you've mentioned, I think, back -- at least, in your ops update a couple of weeks back, kind of, the short fall in sales this quarter versus production is just timing of some shipments and vessels. Couple of questions around that. Do you think that can get made up in the next quarter, or do you think it takes 2 or 3 quarters just to kind of separate the difference between the 2? And when we think about that impact in the U.S. and Alabama mines since you mentioned the longwall move in the third quarter, do you think you can offset some of the production shortage from the longwall moves with the sales out of inventory to kind of balance out sales costs?

Walter J. Scheller

Thanks, Jim. I'm going to ask Mike Madden if he'll answer that question.

Michael T. Madden

Hello, Jim. The delay on shipments we had came out of an NE BC, a little over 200,000 tons and it's probably going to take us more than just 1 quarter to make those up because we're pretty capacitized there right now with ground [ph] storage more heavy. So it's a question of getting coal out to catch that up, but there will be some price benefit from that because the price was already fixed for those tons. In Alabama, we've always said about 500,000 tons of inventory is a comfortable level for us. Well, right now, we're at 600,000. Obviously, we will have some delays with longwall movements and what have you on shipments -- I mean, on production. So, yes, there's probably a good possibility that we'll bring that inventory down.

James M. Rollyson - Raymond James & Associates, Inc., Research Division

Okay. That's helpful. But when you look at the market today, everyone seems to have a little different opinion about the level of oversupply we're sitting with today. One, what do you think that number looks like right now? And one of your competitors mentioned kind of some differences between supply and demand levels of low-vol versus high-vol quality coals. I'm kind of curious on your thoughts on that as well.

Walter J. Scheller

Jim, I still think the numbers we've heard as far as what's been taken off the market are considerable. But we're still hearing estimates in the, I don't know, 20 million ton range, something like that -- yes, 20 to 40 million tons that needs to come off. I did see where someone said they believed it was the low-vols and mid-vols that were in an oversupply situation. I tend to disagree with that. I think the steel mills still require the higher quality coals in order to maintain their coke strength and protect their blast and their coke ovens from the expansion of some of the lower quality coals. So what we've seen is we still have a very strong demand of our low- and mid-vol products. So I would tend to disagree with that.

Operator

Next question comes from Brandon Blossman with Tudor, Pickering, Holt & Co.

Brandon Blossman - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

I guess, just some details on cost. CapEx this quarter, $46 million, well above run rate for the full year guidance. What were the kind of incremental components in this quarter?

Walter J. Scheller

I'm not sure we heard. Could you repeat that? Just the last part of that question? I could not hear that, sorry.

Brandon Blossman - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Yes, sorry about that. $46 million of CapEx in this quarter, that looks like it's above the run rate of the guidance. What were the incremental components of this quarter?

William G. Harvey

I think you have to look at it on the first half of the year. In the first half of the year, we were about $80 million, and we had originally guided to $170 million. And now, we're guiding to $150 million. So it was just a normal spend, especially as we're in the better months. In Canada, for instance, you avoid the winter months and some spend. But if you look at it, our $150 million really relates to just a modest decrease for -- it's a big decrease, $20 million, but it's -- but we already have been pulling back. And that $80 million. We were at a run rate that is less than what we had previously announced.

Brandon Blossman - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Fair enough and useful. And then, on the U.S. assets, great quarter, second quarter, is it fair to expect quarter-over-quarter Q3 -- Q2 to Q3 cost to go up just incrementally?

Walter J. Scheller

Well, I think that with a longwall move and with the fact that we have miners' vacations in -- at least, in part affecting Q3, we'll strive to maintain our cost levels where they are. But it would be possible that they could go up slightly.

Brandon Blossman - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

And it looks like in kind of looking out over 12 months or so that there's a possibility of incremental improvement at Mine 4. Is that fair?

Walter J. Scheller

Yes. So I think one of the -- for this year, it will be between 2.2 and 2.4 million tons. I still think there's a significant upside from that as we move forward next year and into the following years.

Operator

Next question comes from Evan Kurtz with Morgan Stanley.

Evan L. Kurtz - Morgan Stanley, Research Division

I just want to get a little bit more color on your comments about asset sales and cash-in from JVs. And I guess, top of mind comes to U.K. and maybe cash-in from JVs from Blue Creek. Could you confirm that? And are there any other assets out there that maybe we're not thinking of that could be monetized?

Walter J. Scheller

We don't want to get into specific assets. I think you pointed 2 that are pretty obvious, but we've had inquiries and our thought -- where we are in the process right now is dealing with inquiries and actual contact on [indiscernible] assets. We're not going to cover what exactly assets we're talking about, but you should take the -- or we take the view that we're not trying to move away from a strategy on focusing on the good cash generators or the big cash generator Mine 7 acceptor [ph], but we've got inquiries on more than just those assets. We're in the process of dealing with it. And frankly, you'll hear more, when we can say something more tangible. But we are right in the middle of it right now.

Evan L. Kurtz - Morgan Stanley, Research Division

Great. Sounds interesting. And then, just one question. You're moving some cost out of SG&A down to the cost of sales, and I'm wondering if that's going to change your, kind of, year end targets that you gave us for cost per ton at the various mines, the 110, 100 over run rates at 4 and 7 and then the 130, 120 up at Brule and Wolverine? Are those still good?

Walter J. Scheller

Our expectation was that our operating presidents will find ways to reduce their costs to keep them at the original target levels.

Operator

Next question comes from Chris Haberlin from Davenport & Company.

J. Christopher Haberlin - Davenport & Company, LLC, Research Division

Can you just give us a little bit more detail as far as the production cost at Brule? What really drove that decline? How sustainable are those on a quarterly basis? Just a little bit more color there.

Walter J. Scheller

I'm going to ask -- Dan Cartwright is with us, the President of the Canadian Operations. I'll ask Dan to address that.

Daniel Paul Cartwright

Thank you for that comment. We've been -- as Walt had said in his early comments, we've been focused on Brule for really over a year now, recognizing that the -- even though the low-vol PCI is among the best in the world, it still sees that lower-price. And so, when we began back changing it from a contractor to a company-owned mine, we also began a company-operated mine. We also began to make those adjustments, including changing the size. One more step that we took then with Willow was that, that gave us the opportunity to fill some positions and strengthen some positions we have. So first of all, we have a really stronger team there than we had in the past. And then, we focused on those areas that Walt mentioned and I mentioned in the past. We've substantially, I think, redone our mine plan. We've looked at the lumpiness that we had over a year ago for example, when the costs were up and down with the mining cycle, we dampened that. We've looked at opportunities to move into changing our mix of coals that we mine that we believe will be to our advantage. We put in a maintenance system now that's much more proactive and predictive than reactive than we had a year ago. Our accounting system has helped us a lot in terms of our ability to know where our costs are, and we're making improvements on supply chain. So the team out there is really excited, and I know what they're focused on. The coal that we'll be mining in the next year will be similar to what we've had this year and perhaps even a little bit lower ratio. So we think we're really well positioned, and we will be continuing to operate at that level.

J. Christopher Haberlin - Davenport & Company, LLC, Research Division

And then, to be clear, are you still guiding to full year cost at Brule at $130 a ton, or is that number coming down?

Daniel Paul Cartwright

We would expect that number to come down now. I mean, given what we've seen what the pricing in Q3 and Q4 will be, we'll -- what we're gearing to is to be able to generate positive cash at that level or even slightly lower.

J. Christopher Haberlin - Davenport & Company, LLC, Research Division

So -- and I think you said earlier that it is cash positive -- or should be cash positive in Q3 at Q3 prices from a cash cost of sales perspective, is that right?

Walter J. Scheller

That has -- for fresh tons, it is. I want to make sure we mention that because we have what amounts to quite a bit of inventory there. So the actual sales in Q3 will be out of the inventory. But fresh tons will be cash positive at these prices.

William G. Harvey

And the Inventory has been LCM. But we have no knowledge, of course, on fourth quarter. We don't expect any price to do down necessarily, but we -- there's always that impact or risk.

J. Christopher Haberlin - Davenport & Company, LLC, Research Division

And then, just last one for me. Walt, I think you mentioned during your prepared remarks that you all were still seeing short-term price pressure, but then you had mentioned that you started to see spot prices move higher. Can you just kind of clarify what exactly you're seeing out there in the market in terms of spot pricing and maybe how it relates to benchmark pricing?

Walter J. Scheller

I think we saw spot pricing got as low as about $125 for the premium coals, and we've seen that creep back up in recent days to a little over $130. So while it's still below the benchmark, we're seeing it start to move north again.

Operator

[Operator Instructions] Our next question comes from Lance Ettus from Tuohy Brothers.

Lance Ettus - Tuohy Brothers Investment Research, Inc.

I just wanted to see a little -- get a little color on the potential for further -- I know you got the covenant waiver, which was great news and gives you some leeway here. But I just want to see if you tried to do refinancing before you kind of got hit with that one-time, kind of, credit strike. It seems like the bond markets back in full force again. Just wanted to see if you guys can give us any color on potential for further refinancing kind of buy yourself some maybe some -- an extra few years of potential weak [indiscernible] in the coal mine market?

William G. Harvey

It's Bill Harvey. On the -- where we are right now, of course, job one was to get the amendment done and get it -- and get the runway, but -- and as Walt mentioned and I think I mentioned as well, I mean, our goal is to get an improved financial flexibility quarter-on-quarter. If you look at what we've done over the last year, we've, of course, as you know, we've raised over $450 million in liquidity. We consider financial flexibility has to come from cash flow -- internal cash flow, so we're pulling every level there, CapEx, unit cost of production, closing uneconomic production, lowering SG&A. And now the amendment is in place, and what we're doing now is moving forward about -- with asset sales and looking at capital markets. We did include in the amendment the ability to issue unsecured debt as one of the provisos for liquidity purposes, there are other tools we have. I think the key message is we're action-oriented and we're going to make progress and we're going to -- and move very decisively and quickly.

Operator

Next question comes from Mitesh Thakkar with FBR Capital Markets.

Mitesh Thakkar - FBR Capital Markets & Co., Research Division

Just a quick question on the inventory. Can you talk a little bit about the composition of inventory. How much is PCI and how much Wolverine related? And also, if you can, can you explain to us a little bit about what is the thought process in slowing the inventory disposal if it could help you on the EBITDA side, which will benefit you in the -- when the June covenant -- the calculation comes into picture?

Walter J. Scheller

Well, first, I'll start with discussing why we're slowing that down a bit, and then I'll ask Mike to discuss where the inventory sits at each operation. The reason for slowing that down is the Falling Creek Connector Road, which hauls the coal from Brule down to Willow is the low-cost transportation to get that coal down to the Willow plant. If we take that coal over the open road, it probably has an additional $5 or $6 per ton to move it down that way. And the reason for that is the Falling Creek Connector Road is 65 kilometers. The over the highway haul is 105 kilometers. So it just has a higher cost associated with it. So any tons that we chose to move down the highway, would have that additional cost associated with them. And additionally, after we curtailed Willow, we needed to size Willow in a manner that would be the lowest cost possible and still be able to dispose of the refuse coming through the Willow plant for the Brule operation. And so now in sizing it accordingly at, a minimum cost we can only process a certain amount of coal on a monthly basis. So if we try to increase that amount, we would have to add additional shifts at the preparation plant and additional shifts at the mine in order to be able to dispose the additional refuse. And both of those would come with additional costs as well. The lowest cost alternative for us is to just bring that inventory through the process a little more slowly than we had originally anticipated, when prices were a little stronger than what they are. And with that, I'll ask Mike if he wants to talk about these particular inventory levels.

Michael T. Madden

Basically, the inventory is split 50-50 between hard coking and PCI.

Mitesh Thakkar - FBR Capital Markets & Co., Research Division

Okay. And just my other question was on -- wouldn't it help you to generate a little bit positive EBITDA from inventory even though the pricing is low, because when you do the covenant calculation for the June 2014, it might help to have a little bit higher EBITDA from the inventory disposal?

William G. Harvey

Mitesh, it's Bill here. We like EBITDA, there's no question about that. And you generate some EBITDA because of even though it's been LCM, there is some slight profit as a result of it, when you do sell at the price. I don't -- but there's not a lot of profit. If it comes in over the next year, I mean, frankly, from a covenant management point of view, we're indifferent. But more importantly, this is the best way to generate the most cash from the inventory. The cost of processing it and the cost, as Walt covered, the cash flow realized is higher. And so to minimize costs of this inventory, of processing the inventory is fundamentally outweighs that element and frankly, we'll have more EBITDA doing it this way than we would if we try to basically pull it through quicker and raising our costs.

Mitesh Thakkar - FBR Capital Markets & Co., Research Division

Okay. Good. But the plan is still to dispose it off in next one year, right? That hasn't fundamentally changed?

William G. Harvey

That hasn't changed. This is just a more -- really, this is a result of a lot of work that was done by the operating people to make do it the right way.

Operator

Next question comes from Curt Woodward with Nomura.

Curtis Rogers Woodworth - Nomura Securities Co. Ltd., Research Division

Walt, just to get back to the asset sale. Question, can you comment on how you got to the $250 million number? And in terms of the JV potential, would you look at potentially JV-ing your assets in Canada?

William G. Harvey

It's Bill Harvey again. On the $250, that really comes down to just pragmatically looking at what the activities we have underway now and putting in front of us a goal. I'll tell you it's a goal we believe is attainable. That was the first thing. And the time period was fit for this in the same manner. We're not going to cover again. We're not going to point at any specific assets or talk about anything in specific, except to say that we're taking a very aggressive approach here.

Curtis Rogers Woodworth - Nomura Securities Co. Ltd., Research Division

And do you have any sense on timing of those asset sales?

William G. Harvey

Well, we did say our target is to have that done by -- over the next 9 months. Clearly, not like every asset sale in the world can happen in the last 2 weeks of December. So fundamentally, it does take time to get deals done. And we think 9 months is a reasonable amount of time. And we have an expectation we’ll come to a reasonable conclusion in that point in time.

Curtis Rogers Woodworth - Nomura Securities Co. Ltd., Research Division

And on the CapEx side, what do you think your run rate for cap spending will be going into '14? And what should a good level of maintenance spending look like for next year?

Walter J. Scheller

I think what we've said is that in terms of critical capital, we need about $130 million in 2014, somewhere right in that range. And we're just -- we're beginning the budgeting process right now. So we're not going to cut capital if we think it adversely impacts our production levels. But we're going to try to constrain capital down to that critical level, and we believe it will be in that $130 million range next year.

Curtis Rogers Woodworth - Nomura Securities Co. Ltd., Research Division

And do you have further spending plan for Blue Creek next year?

Walter J. Scheller

At this point, at critical capital levels, that includes very little growth capital being expended.

Operator

Next question comes from Caleb Dorfman with Simmons & Company.

Caleb M.J. Dorfman - Simmons & Company International, Research Division

First off, it seems like you've done a really good job cutting your costs. When you're looking at the overall portfolio, and I know there's a lot of moving pieces, but what type of free cash flow generation or what type of benchmark met price both for hard coking coal and for the low-vol PCI do you think you need to actually generate free cash flow?

William G. Harvey

It's Bill Harvey again. We've looked at it from a lot of different ways. And frankly, we've set our budget at one price. We lowered it in the first quarter and we've lowered it again. If you look at our second quarter, for instance, there's a lot of free cash flow negatives that occurred from the closure of Willow and other things. And I think you know them, and I won't cover them at length, except to say we had like $70 million of cash outflow cover at Willow, including the operating loss, et cetera. I think when you run your numbers, you'll see that it come down by a substantial amount. If the benchmarkers holds where it is now, we're doing everything we can do to bridge the gap. Some of the things we're doing, of course, just on a quarterly basis, the reduction of CapEx, the way we look at it is $5 million a quarter. The SG&A reduction, 2, 2.5. So it's adding up. We think we can get 45 or below, we're not there yet, but we're going to do what's necessary to get to a point where we're generating cash at today's price, subject to the fact we really would like to see spot get closer to benchmark because it all impacts us in the bottom line. But as you add up what we've talked about, it's a pretty significant, significant reduction in our breakeven.

Caleb M.J. Dorfman - Simmons & Company International, Research Division

That's good to hear. And I guess some of your peers have talked about the movement to shorter-term contracted or pricing. I know that most of Walter's customers are longer -- operate under longer-term contracts. Is this something that you're also seeing? Are the spot prices taking more of an impact on your actual realization or is the quarterly benchmark the way that we should continue to think about Walter's realization will be on a go-forward basis?

Michael T. Madden

This is Mike Madden. All of our customers are still of the opinion they want to stay on a quarterly pricing basis. There is still following the benchmark. What we are seeing is this, in the last quarter, we started to see a development where the contracts are being taken as they call for, but what they're seeing is that, they're looking for benchmark pricing on the majority of the coal, but they would like to see some drop on -- a portion of the material because they're under tremendous pressure by management to take advantage of some of this spot pricing. But they do not want to deviate from the quarterly. They don't want to transition to a monthly or an index by any means. And they are pretty much online with the contract listing.

Caleb M.J. Dorfman - Simmons & Company International, Research Division

Great. That's very helpful. And I guess, could you quickly remind us how much carryover tonnage you have from the U.S. and Canada? And what type of prices and what quarters we should think about it actually rolling through?

Michael T. Madden

I think from Q2 into Q3, we're looking at just about 400 -- 400,000 tons. That's mainly out in Canada.

Operator

Next question comes from David Lipschitz from CLSA.

David A. Lipschitz - CLSA Limited, Research Division

So a couple of quick questions for you. My first one deals with the fact that you're trying to reduce cost and that's all well and good. But everybody seems to be doing the same thing. Does that mean the marginal ton of coal that everybody talks about is a lot lower because everybody seems to be trying the lower cost? And does that hamper the upside of where prices potentially can go?

Walter J. Scheller

Well, I do think everyone is -- as you read through all the reports, everyone is doing everything they can to reduce their costs. So that does move the marginal cost down a bit. But still, you're going to end up with some of those third and fourth quartile mines just aren't going to make it. So it's just -- it's still just a matter of time to where those tons come out of the market.

David A. Lipschitz - CLSA Limited, Research Division

Okay. And then my second question is how much of your third quarter is locked up already? Is it all booked at whatever spot or benchmark prices or do you still have some stuff to sell?

William G. Harvey

We still have about 2 accounts left open, otherwise we're probably 96% done.

Operator

Next question comes from Lucas Pipes with Brean Capital.

Lucas Pipes - Brean Capital LLC, Research Division

My first question is actually a follow-up in terms of the sales price for the next quarter, if 96% locked up. Could you give us a sense of where realized prices should shake out in Q3 on the hard coking coal side and on the PCI side?

William G. Harvey

The fact -- before Mike answers that, the fact that we don't have all the tons locked up puts me in a position where I really don't want to discuss where we are to date.

Lucas Pipes - Brean Capital LLC, Research Division

And if you could maybe give us some sense of direction, perhaps due to some carryover tonnage prices kind of hold steady, go up, flat? Or where do you see the direction of prices?

William G. Harvey

Well, the Q2 price is well above the Q3 price. So I think we're going to see prices come down in Q3 versus Q2.

Lucas Pipes - Brean Capital LLC, Research Division

Helpful. And in terms of your production and sales costs, obviously, in the sales cost number there is a considerable amount of noise, and I think part of that is attributable [indiscernible] across where inventory stood. Can you maybe give us your cost of inventory at quarter end, the second quarter for your various products, so it would help us to model your EBITDA for the remainder of the year?

William G. Harvey

I think we don't -- and I understand your question, Lucas, but we don't provide the cost of inventory except globally. I think you could point to certain products. If you look at where we took LCMs, for instance, Lucas, you can see that we talked about Canada, so you could assume that those costs in the Canadian operations are at or around the price, projected price for the third quarter. In the U.S., in the large mines, Mine 7 and Mine 4, I think a proxy for that is the cost to production plus $30, $32 of getting to the port would be a good estimate.

Operator

Next question comes from Jeremy Sussman with Clarkson Capital Markets.

Jeremy Sussman - Clarkson Capital Markets, Research Division

On the asset sale front, would -- assuming this is successful, would this be included in EBITDA calculations under your covenants? And then also is it safe to say that you're looking at both operating and nonoperating assets in terms of potential sales, JVs, et cetera?

William G. Harvey

We're certainly looking at all possibilities, including nonoperating. I think in the EBITDA calculation, I don't think it would not be included in any EBITDA calculation in the asset sale. It would be obviously helpful from a liquidity point of view and it would be helpful for reduction of debt. You could argue that -- remember, the debt, the ratio we're talking about is a net secured debt, so those proceeds would actually come in as cash and lower the net debt.

Jeremy Sussman - Clarkson Capital Markets, Research Division

Great. No that make sense. And then just a quick follow-up. I believe, Walt, you said full year cost of production guidance remains down 15% versus last year. Could you give us a sense of kind of full year cost of sales versus last year?

William G. Harvey

It's Bill, again. Full year cost of sales are so driven off of these LCMs we've taken. It's very hard to give you a number there except to -- so I think as a proxy, again, looking at the cost of production plus that $30 roughly gives you an estimate of what we're looking at. But it's very, very difficult to forecast LCMs.

Jeremy Sussman - Clarkson Capital Markets, Research Division

Okay. Maybe just directionally up or down in the back half of the year?

Walter J. Scheller

The assumption will be on selling price and assuming the selling price does not go down further, which we believe won't happen, then you should see it come down definitely.

Operator

Next question comes from David Beard from Iberia.

David E. Beard - Iberia Capital Partners, Research Division

Could you just maybe talk a little bit about where your average selling prices in the quarter came in relative to the benchmark? And was that a mix of spot versus contract pricing or actually a slight mix within what was sold in the U.S. or sales out of inventory? Maybe just talk a little bit about that relative to the benchmark?

William G. Harvey

I assume what you want to talk about is the Q2 numbers? Is that right?

David E. Beard - Iberia Capital Partners, Research Division

Yes. I mean, obviously, if you can give us any outlook going forward, but just maybe talk about the Q2.

Walter J. Scheller

I guess to answer that, we've got to look back in retrospect. The benchmark in Q2 was fixed at $172 and then I would say probably within days after that, the monthly was fixed at $162. We saw a $10 drop. And immediately, customers picked up on that as their starting point. So we ended up, I guess, in that $162 range there for our top quality coals.

William G. Harvey

And I think looking at the supplemental financial data, you can get a lot of that out of -- with respect to the low-vol hard coking coal, what our average for the -- especially for the U.S. operations, where it was there was -- there was a quicker turn on inventories, you can almost see what our selling price is.

Operator

Next question comes from Dave Martin with Deutsche Bank.

David S. Martin - Deutsche Bank AG, Research Division

First, I had a basic question. I was just trying to understand the second quarter operating result a little better. EBITDA improved versus the first quarter of this year when most metrics were negative sequentially. Shipments were down, revenue per ton was down, and cost per ton sold was up modestly. So can you help me understand what the offsets would have been? And maybe part of the answer is, there's this cash cost of other products which you disclosed, I don't know what that is and/or why that would have decreased $15 million quarter-over-quarter?

William G. Harvey

Yes. Now there's a couple of reasons for that difference. Again, and again, because of the LCM, except for the cash cost, the sales did go up slightly, a lower cost of production as we've talked came down very significantly. But the things you can look to when we talk about the coke business, the gas business, we had a nice improvement there, not big positives, but there was a pretty big improvement. And if you add in there the improvement in thermal, you had about and SG&A, a reduction of a couple of million, you had about a $10 million improvement on those items. Cash cost of other products which you point to -- and that's Note 2 to our stat sheet, that actually is the final piece of the puzzle. That came down primarily because of a lot of cost reduction efforts we did in June, that affected all -- across the whole company that were done in a cost reduction program, including compensation and other things. And it was done at the top and it was a basically reversal of accruals and other things. And that's been put in there, but it has not been pushed out to our products. So that's savings we generated through a cost reduction program that have not been pushed to our products. Although, frankly, Dave, some of those do affect the actual cost of our products, but we did them as part of a major program.

David S. Martin - Deutsche Bank AG, Research Division

Okay. And then secondly, you discussed longwall moves for the third quarter, there being one in Alabama in the third quarter. How about the fourth quarter?

William G. Harvey

Both longwall moves at Mine 7 will move in the fourth quarter. Both longwalls will move in the fourth quarter.

Operator

Next question comes from Phil Gibbs with KeyBanc Capital Markets.

Philip Gibbs - KeyBanc Capital Markets Inc., Research Division

I just have a question on some cash cost, normalized levels. Is there any update on where you expect the longer-term cash cost of sales to be at your various mines? I know you had given some guidance on that earlier in the year?

Walter J. Scheller

What we've continued to say is that Mine 7, we think will be around $100 a ton cash cost of sales as it moves forward and continues. Mine 4, at $110. I still believe, as we look into next year and get in to even longer panels, and now that we'll be in wider panels, there's some upside to come below that $110 level. I don't think it will ever -- it would be very difficult for that mine to achieve the same level as Mine 7, if they're both operating well because there's more infrastructure shared across the 2 longwalls at Mine 7. At Brule, we start to see the -- their cost coming down very nicely. I don't -- I think it's down over 30% year-on-year. And while there may still be some upside even beyond where they are today, I think it's going to become far more incremental. I think the low-hanging fruit has been harvested and there's just a little left beyond that. And I don't know how quickly that -- we can do that. At Wolverine, Wolverine's cost structure is going to be really dependent upon where they are in their mining cycle. And it will be, as we've said, the third quarter will be a bit higher and the fourth quarter will be quite a bit lower. And really, when you look at Wolverine, we're still going to target about $120 longer term for that mine. But I think you're going to see quarters that are much better than that. I think you're going to see quarters that struggle to get anywhere near that number, given where they are in their mining cycle.

Philip Gibbs - KeyBanc Capital Markets Inc., Research Division

Okay. And Bill, if I could ask how long until your financials reflect the Brule cash cost to sales on, say, fresh tons under $115 a metric ton?

William G. Harvey

I think you'll see that relatively quickly, we're going to be pulling down the inventory, but it will be off to the side. So you should see that relatively quickly with the proviso that it depends -- it could be LCMs and other things that I just can't forecast.

Philip Gibbs - KeyBanc Capital Markets Inc., Research Division

Okay. And lastly, any color you could give us on your absolute level of Canadian inventories at this point in tons?

William G. Harvey

Canadian inventories. Mike?

Michael T. Madden

Well, Canadian inventories about -- right around 1.3. And most of that is PCI.

Philip Gibbs - KeyBanc Capital Markets Inc., Research Division

How does that compare to where you came into the year?

Michael T. Madden

It's about the same level, actually.

Operator

The next question comes from Timna Tanners with Bank of America.

Timna Tanners - BofA Merrill Lynch, Research Division

I just wanted to -- and I know you talked about this in the prepared remarks, I'm sorry if I didn't catch it all. But I just wanted a little guidance, if possible, on working capital given some of the swings. How are you thinking about working capital and the potential generation of cash from that into the second half of the year?

William G. Harvey

I think, we -- I did cover some of the elements that have changed in working capital. And the big item in the quarter was inventories went up. We believe that inventories will come down for the balance of the year, the question is at what pace. And that should be -- it will be a spread over the 3 quarters rather than just -- or 2 quarters, rather than just coming in, in 1 quarter. I think in the quarter you saw a lot of investment in working capital related to the closures and some onetime things, such as the proxy contest in the first quarter that actually expenses were paid in the second quarter. So there is some -- I don't -- you won't be seeing that going forward so things like we had almost $17 million of cost that came through and that were paid in the second quarter related to the closure of Willow and other items such as that. So working capital, I would expect to be relatively positive, or in fact, possibly even better than that for the balance of the year, just because of the nature of some of those decisions were major and actual cash costs that have occurred in the second quarter.

Timna Tanners - BofA Merrill Lynch, Research Division

Okay. Appreciate that. And then my second question was just related to the preferences in China we're hearing a lot of. And overseas in general, as you mentioned, steel mills being strapped. Are they moving toward PCI? Are they moving toward low-vol? What are they preferences is in terms of blending and usage?

Walter J. Scheller

Was your question related to China?

Timna Tanners - BofA Merrill Lynch, Research Division

Well, China and elsewhere, right? Not just China, but just in general are you seeing kind of return to PCI after the spreads narrowed? Or are you seeing -- what are you seeing generally regarding PCI versus low-vol?

Michael T. Madden

I mean, this is Mike. We're seeing steady offtake on the PCI. Actually, probably a little more demand on PCI than we had anticipated. But generally speaking, I think China picks and chooses what's out there at the most attractive price at the time.

Operator

Next question comes from Matthew Vittorioso with Barclays.

Matthew Vittorioso - Barclays Capital, Research Division

I guess, I'm just trying to get a bit more clear sense of how you view liquidity in the capital markets. You talked about doing asset sales and that should help over the back half of the year or early next year. You also mentioned that your credit agreement amendment allows for, I think, unsecured debt. Would you say that all options in the capital markets are on the table? I mean, unsecured debt in the market right now seems to cost you 12%, 13%, it seems fairly expensive. What do you think about that? Would you be willing to pay that for additional capital? Is equity on the table? Just how philosophically are you thinking about the capital markets and liquidity in those different options?

William G. Harvey

Well, we view it -- liquidity comes from 3 areas or financial flexibility comes from 3 areas: operations, capital markets and asset sales. And we're focused on all 3. I just pointed that out in the amendment, it doesn't necessarily mean we're focused on that one in particular. We're looking at all alternatives. And we'd like to be aggressive and move decisively, but we're not going to rule anything out and we're not pointing to any one in particular at this point.

Matthew Vittorioso - Barclays Capital, Research Division

So everything is on the table though, yes?

Walter J. Scheller

It always is on the table.

Operator

Next question come from David Olkovetsky with Jefferies.

David J. Olkovetsky - Jefferies LLC, Fixed Income Research

This is just a follow-up to one of Timna's questions as it relates to working capital. It sounds like what you're saying is you think that there's going to be a bit of cash -- a source of cash from working capital on the back half of the year. I just want to confirm if that's correct?

William G. Harvey

That's correct. And I covered in the prepared remarks some areas that were onetime elements that occurred in the second quarter, such as prepaid expenses. We have major, for instance, we pay our insurance in the second quarter around June. So some of those things just occurred. And so we expect to be positive for the balance of the year.

David J. Olkovetsky - Jefferies LLC, Fixed Income Research

Okay. And then as it relates to the 8-K that you guys filed on the 23rd, now there's a $225 million liquidity requirement, so I wanted to make sure I understand it correctly. If you fall below that, do you then have to go back to the lenders and seek an amendment? And then as it relates to the senior secured leverage test, I believe that, that is 8x at June of 2014, is that a net senior secured leverage, i.e., is that the 2 term loans? And I know you think that's on the RC, is that offset by cash?

William G. Harvey

Yes. It's an offset with cash. There's a limit on that and you can -- which includes $240 million plus any debt coming due with 1 year, is how much cash we can apply against the debt for the net secured debt test. That's the one test that will come into play as -- next year at this time. It's 8x is correct. We -- and again, it's off of adjusted EBITDA. And just as a reference point, we have talked about adjusted EBITDA versus EBITDA in the past. And that excludes onetime items and adjusted EBITDA, as well as non-cash components of EBITDA which are roughly 10 -- can be as high as $10 million to $15 million, or usually $10 million to $15 million higher than the EBITDA we disclose. The minimum liquidity test is a test at the end of every quarter. And it basically is the normal type of minimum liquidity test. We have full access as of today and going forward under our bank lines and we'll take actions if necessary to make sure we make those tests.

David J. Olkovetsky - Jefferies LLC, Fixed Income Research

Okay. And then can you just give me a sense for what your adjusted EBITDA would need to be given this sort of moving parts by the June 2014 period in order to make sure that your compliance with the 8x?

William G. Harvey

Well, if you took today's debt and net debt and just off of our balance sheet, and you were at 8, you would see you need adjusted EBITDA about $180 million. That does not -- and your commitment to your calculation off of that adding back that $10 million to $15 million difference I said or we mentioned has historically been the difference between EBITDA and adjusted EBITDA, that's per quarter.

David J. Olkovetsky - Jefferies LLC, Fixed Income Research

Okay. Fair enough. And then just one more follow-up, if it's okay. As it relates to the -- your asset sales. I mean that's a pretty specific number and timing that you guys are giving, is there something specific that you have in mind that you're looking to sell? And also would you consider sale leasebacks for a -- as a method for raising capital?

William G. Harvey

We haven't done a lot of work on that. But I mean, our specific time really comes down to what's a reasonable time and a reasonable level. And we wanted to give some specificity, but only just to give you or all our stakeholders an understanding of what level we're talking about. I don't think you should read too much into the $250 million or as being the number, if I could. If an asset sale is underway and someone bids higher than $250 million, we will take the money. You can be sure of that.

David J. Olkovetsky - Jefferies LLC, Fixed Income Research

Okay. But is there something specific in mind that you're looking to sell as of now? And are you in any conversations as we speak?

William G. Harvey

Again. We don't want to get into -- we are not going to talk about -- we're in dialogue, but we're not talking about anything on this call related to which assets we're talking about.

Operator

Our final question comes from Matt Farwell with Imperial Capital.

Matthew Farwell - Imperial Capital, LLC, Research Division

Most of my questions were answered on liquidity. But just curious about that minimum liquidity covenant. If you are able to access the capital market or -- so the issue would be if you're able to access the capital markets, would there be any flexibility around that minimum liquidity covenant?

William G. Harvey

Well, I think we have an access to capital markets, of course. If we felt we were at risk of breaking that covenant, we would just access the capital markets to raise liquidity. I'm not sure I understand the question.

Matthew Farwell - Imperial Capital, LLC, Research Division

Isn't there a mandatory use of proceeds to repay term debt?

William G. Harvey

Not under unsecured and under specific scenarios. There's a lot of specifics in an agreement. It's a large agreement, but there are mandatory repayment schedules related to raising certain types of debt, yes.

Walter J. Scheller

That concludes our call this morning. We appreciate your interest in Walter Energy.

Operator

Thank you. This concludes today's conference. You may disconnect at this time.

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