International Coal Group Q3 2009 Earnings Call Transcript

International Coal Group, Inc. (ICO)

Q3 2009 Earnings Call

October 29, 2009 11:00 AM ET

Executives

Roger L. Nicholson - Senior Vice President, Secretary and General Counsel

Bennett K. Hatfield - President, Chief Executive Officer

Bradley W. Harris - Senior Vice President and Chief Financial Officer

Phillip Michael Hardesty - Senior Vice President, Sales and Marketing

Analysts

Shneur Gershuni - UBS

Garrett Nelson - Davenport and Company

Michael Dudas - Jeffries & Company

Lawrence Jones - Barclays Capital

Presentation

Operator

Good day ladies and gentlemen and welcome to the Third Quarter International Coal Group Conference Call. My name is Carmen and I'll be your coordinator for today. At this time all participants are in a listen-only mode, we will be facilitating a question and answer session for the end of this conference. (Operator Instructions).

I would now like to turn the presentation over to your host for today's call, Mr. Roger Nicholson. Please proceed.

Roger L. Nicholson

Thank you. Welcome to International Coal Group's third quarter 2009 earning's conference call, I'm Roger Nicholson, Senior Vice President and Secretary and General Counsel. We released our 2009 third quarter earnings report yesterday after the market closed.

With me on the call today are Ben Hatfield, President and CEO of International Coal Group. Brad Harris, Senior VP, CFO and Treasurer, Mike Hardesty, Senior Vice-President, Sales and Marketing and Ira Gamm, Vice President, Investor and Public Relations.

Before we get started, please let me remind you that various remarks we may make on this call concerning future expectations, plans and prospects for the company constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. These statements are made on the basis of management's views and assumption regarding feature events and business performance as of the time the statements were made.

Because these forward-looking statements are subject to various risks and uncertainties, actual results may differ materially from those implied. Factors that could cause actual results to differ materially are contained in our filings from time to time with the Securities and Exchange Commission and are also contained in our press release, dated October 28, 2009.

Non-GAAP financial measures will also be discussed. You will find a reconciliation of the differences between the non-GAAP financial measures and the most directly comparable GAAP financial measures at the end of our press release. The copy of which has been provide on our website. At this time I would like to turn the call over to Ben Hatfield for his opening remarks.

Bennett K. Hatfield

Thank you for joining us this morning. The market environment for coal remained challenging in the third quarter as low industrial electricity demand, weak natural gas prices and mild summer weather led to reduce coal power generation and record high utility inventories.

Despite these challenges, improved realization and our focus on cost control and managing production allowed us to achieve improved financial results for the quarter.

We reported increases in net income, adjusted EBITDA and margin per ton sold compared to the same quarter in 2008. Industry wide, we expect fourth quarter shipments to continue to lag due to high utility inventories. In response, we anticipate continued industry wide production curtailments and estimate 2009 U.S. coal production to fall by approximately 100 million tons below 2008 levels.

Nevertheless, we see encouraging signs for a recovery by mid 2010. These favorable indicators include; rising natural gas prices, weather forecasts that indicate the upcoming winter season could be unusually cold, which should increase coal demand for our utility customer base, and increased metallurgical coal demand.

As a result of the increase in metallurgical demand, certain high volatile cost over coals could be removed from thermal market which is expected to tighten supply and thus support improved thermal pricing.

We believe the 2010 could be a balancing year for coal demand that sets the stage for a much stronger market in 2011. At this time, I would like to turn the call over to Brad Harris, our Chief Financial Officer to discuss our third quarter financial results.

Bradley W. Harris

Thanks Ben. In the third quarter of 2009, we reported total revenues of $296.6 million including $246.8 million attributable to coal sales of 4.1 million tons. Third quarter 2008 total revenues were $309.2 million of which $282.3 million is attributable to the coal sales of 4.8 million tons.

We reported adjusted EBITDA of $64.7 million for the third quarter compared to adjusted EBITDA of $45 million for the same quarter of 2008. We estimate that customer initiated shipment delays reduced third quarter sales by approximately 350,000 tons and decreased adjusted EBITDA by approximately $9 million.

This year's third quarter results benefited from a one time $27 million payment received from a early termination of two related coal supply agreements and last margin on pre-termination shipments. The scheme was disclosed in our second quarter press release and conference call.

Net income for the quarter was $18.7 million or $0.12 per share on a diluted basis compared to net income of $9.3 million $0.06 per share on a diluted bases from the third quarter of 2008.

Average coal sales revenue per ton for the third quarter was $59.67 compared to $58.87 per ton for the same period last year. Our coal cost per ton was $50.31 in the quarter versus $50.10 for the same period in 2008. Margins were up 7% to $9.36 per ton for the quarter compared to $8.77 per ton over last year's third quarter primarily due to higher realized prices.

Depreciation, depletion and amortization expense totaled $27 million for the third quarter of 2009 compared to $24.2 million for the third quarter of 2008. Corporate SG&A for the third quarter was $5.4 million compared to $8.4 million for the same period last year. SG&A for the quarter was lower due to the favorable resolution, certain legal matters and the recovery of a substantial bad debt.

As of September 30th, 2009 total debt was $444.5 million consisting primarily of $175 million of 10.25% senior notes and $225 million of 9% convertible senior notes. Our total debt to capitalization ratio was 45% at the end of the quarter. The company's total assets were 1.4 billion at both September 30th, 2009 and September 30th, 2008.

Capital expenditures for the quarter totaled $23.7 million essentially all of which was spent in support of existing mining operations. CapEx for the year is projected to be approximately 90 to $95 million. At the end of the quarter, we had $97.7 million in cash. Our borrowing capacity under a $100 million credit facility as of September 30 was $26.4 million and we have 73.6 million in support of letters of credit outstanding.

The company continues to be and expects to be remain in compliance with all its debt covenants. As we previously discussed, disclosed in a new release, in September we successful reached an agreement with our banks to amend our 100 million credit facility. The amendment addressed the risk of non-compliance with certain covenants that were contractually scheduled to tighten effective January 1, 2010.

At this time, I will turn the call back to over to Ben.

Bennett K. Hatfield

Thank you Brad. Now I would like to provide an update on recent key developments. As you thought we read the environmental protection agency initiated so called enhanced review of saving down Army Corps of Engineers permits under the Clean Water Act.

Included in this review are full ICG permits. Our three affected Kentucky permits include two small scale surface mine projects and a coal use (ph) disposal projects that will support certain non-county underground mines. So one permit in West Virginia is for our Jennie Creek project in Lingo County. The delay in issuing these four permits has not impacted our current production, but may have adverse consequences in the future.

It is inevitable however, that all Appalachia and coal producers will face more significant operational difficulties unless the administration de facto moratorium on coal permit issuance is listed and permits for both surface and deep mining operations are issued without undue delay.

We eagerly await an articulation about the EPA and ACOE a fair, clear and understandable standards for reviewing and approving permit applications for both surface and deep mining in a timely manner.

During the quarter we continued the balanced production with committed sales, selectively idling 400,000 annual tons of higher cost production at our ICG East Kentucky complex and reducing work schedules at several other locations.

In late September, Allegheny Energy Supply, that sold customers of coal produced by Wolf Run's Sycamore No. 2 mine, suspended deliveries from that mine claiming excessive inventory at its Harrison Station. The mine remains on out of status with no indication from the customer as the shipments will resume.

In early October, we also reduced annual production at ICG Eastern by an additional 500,000 tons due to market demand.

In mid September, as previously disclosed, our ICG ADDCAR subsidiary acquired certain international patent rights that substantially expand with ability to manufacture and market its ADDCAR highwall mining systems beyond North America. With this acquisition, ICG ADDCAR is now entitled to manufacture and market its highwall mining systems throughout North America, South America, Africa, Europe as well as key coal producing countries of China, Russia and South Africa.

Also in September, ADDCAR concluded successful testing in sale of its new Steep-Dip Highwall mining system to a coal producer in British Colombia. This new model allows mining in narrow, steeply dipping coal seams such as those found in Canada and parts of the Western United States.

We are pleased to report that our ICG Hazard operation just received the 2009 Commissioner's Award for Excellence and reclamation from the State of Kentucky's Department of Natural Resources. The award recognized Hazard's Ridge surface mining operation for its commitment to the environment and for achieving outstanding post mining land use.

Turning now to our committed sales and outlook for the balance of 2009 and 2010. Speaking first to 2009, coal production is expected to be approximately 16.4 million to 16.6 million tons.

We expect the sale approximately 17.3 million to 17.5 million ton with an average selling price of $59.25 to $59.50 per ton. Committed in price sales are approximately 17.4 million tons or essentially all of our projected shipments at a average sales price of $59.45 per ton excluding freights and handling expenses.

Projected annual cost per ton for 2009 is between $49.25 and $49.75 per ton excluding selling, general and administrative expenses.

For 2010, coal production is expected to total 16 million to 17 million tons. Due to continued weak thermal coal demand we have reduced the level of projected sales to between 16.5 million and 18 million tons.

Metallurgical shipments for 2010 are projected at 2.2 million tons, an increase of 1.2 million tons over 2009. Committed sales are approximately 14.7 million tons or 85% of planned shipments, approximately 13.8 million tons of planned shipments are priced including 1 million ton subject to collared price adjustments.

The average price for 2010 committed sales is approximately $61 per ton, excluding freight and handling expenses. An additional 900,000 tons of 2010 planned shipments are committed, but pricing is subject to a competitive market re-opener.

Approximately 1.2 million tons of 2010 uncommitted sales are expected to be marketed as metallurgical coal. Due to that degree of market uncertainty we do not anticipate providing revenue or cost guidance for 2010 until our fourth quarter 2009 earnings release.

In summary, we believe coal market fundamentals remain positive as we expect global economic activity, electricity generation and competing fuel prices to begin normalizing in 2010. We have a solid contractual foundation in place for 2010 and our focus remains on strengthening our liquidity and closely managing production and cost levels.

At this time I will open the call to your questions.

Question-and-Answer Session

Operator

(Operator Instructions). Our question come from a line of Shneur Gershuni from UBS. Please proceed.

Shneur Gershuni - UBS

Hi.

Bennett Hatfield

Good morning.

Shneur Gershuni - UBS

Just a couple of quick question here. Just kind of looking at your 2010 guidance and so forth. You mentioned 1.2 million tons are uncommitted, are metallurgical coal tons. I was wondering if you can kind of give us your total that you plan to produce next year and what's your maximum capability is with respect to the met coal and also with respect to 2010 guidance and if you can also about how fast you can bring workers back on and bring tonnage back on if the market turns faster than you think.

Bennett Hatfield

First speaking, first as the production question. As we noted our current forecast cost for producing between 16 and 17 million ton, but your point is on target and that certainly reflects substantial cutbacks of existing production capacity because of the weak thermal market. Over the course of the last three quarters, we have shredded over 30 million tons of annual production capacity.

So, if we have a much more favorable thermal market there is certainly a substantial portion of that production that could be brought back on line. But I would offer to caution and certainly we would not be doing so unless we see attractive margins.

Permitted mine reserves that is reserves that are ready to produce are already faced up, already developed and have approved from it from becoming an increasingly scarce resource, particularly in the current regulatory environment. So, we want to make sure that the margin is there to just completing that resource before we reactivate production.

So, we will be very cautious on proceeding with any restarts that we would have the capacity available to those productions with reasonable notice by any growth from about 2 to 3 million tons certainly for 2010.

Shneur Gershuni - UBS

And with respect to your metallurgical capabilities on both the high and low wall?

Bennett Hatfield

Well, at 2.2 million tons which is our current forecast. That's why we consider that the comfortable achievable level for 2010. And as that reflects a step up our new Beckley low-volatile operation as well as improved output at our Central (ph) highwall metallurgical mine. So, we are comfortable with that forecast for 2010. There is certainly another incremental production available with we have a very strong market because we have a variety of coals that are kind of on the bubble so to speak as to whether they go into the thermal market or the metallurgical market, and several of those did well in export blend, particularly thanks to the favorable reality of our household and our low wall coal.

So with that strong premium products in the blend, certainly we could boost that overall metallurgical output. As its bit of firm number on it but I think we could comfortably say possibly, what would you say Mike Hardesty?

Phillip Hardesty

Up to about 200,000 tons.

Bennett Hatfield

I would recommend it as possibly 2 to 400,000 tons more as a range. So there is certainly some upside there, we do see a market that just files it and certainly the sizes now are encouraging.

Shneur Gershuni - UBS

And just two more questions here; one pretty straight forward one. Kind of what are your CapEx price for the fourth quarter you kind of kept a lid on it so far this year? Do you expect to be spending the balance of your budget this year or are you going to continue to watch the low line on CapEx?

Bennett Hatfield

We are holding the line on CapEx and certainly in part we are able to push down CapEx as we're constraining production. And so that's allowed us to defer some spending certainly and also reuse old equipment in some situation, so as alternative to buy new.

So I would say we are likely to come in on the light end of our total of projected CapEx budget for the year. I think we reiterated a total for the year of 90 to 95 million. Perhaps will be surprise if we even touch the 90, but I don't... I think we are good distance from the 95 unless we truly have the opportunity to accelerate some projects, there is a little bit of variability there because we have some development projects that are moving forward month by month.

But I think we are going to be on the light end of our range from the current outlook.

Shneur Gershuni - UBS

And one just final question just with the whole EPA permitting thing. My understanding is there was supposed to be some watershed studies in Kentucky and so forth, as wondering if there is an update of any of those studies have been completed and where they stand?

Bennett Hatfield

You raised a good point, it's my understanding that the key, I guess the reference point highlighted by the EPA and including three of our Kentucky permits on that list was a certain regional watershed studies had not yet been completed and they chose these as a basis for simply delaying action on the permits until that watershed study is complete.

That is an ongoing effort, I am not certain as to the status at it. But I do know it's not yet completed and that is a project that's being supported by multiple coal companies to kind of address an entire region to give us the background so to speak as to the overall hydrologic impact.

So, we are anxiously pushing to get those studies completed as quickly as we can. We don't think they're going to highlight anything adverse to practical and responsible mining. But I don't have an update of that, whether they can be accelerated or come out this time.

Shneur Gershuni - UBS

Great. Thank you very much.

Operator

And the next question comes from the line of Garrett Nelson from Davenport and Company. Please proceed.

Garrett Nelson - Davenport and Company

Good morning everyone.

Bennett Hatfield

Good morning.

Garrett Nelson - Davenport and Company

Looks like you've increased production exactly every quarter since the mine initially came online about two years ago. How much of the 2010 back way tonnage is still open for contracting and what is the expected geographic mix of the customers?

Bennett Hatfield

I'll let Mike Hardesty speak to that question. Well, your point is correct, certainly we are ramping up production, we've been successful in building a strong team there and developing, I think a good mine infrastructure. We are now having, expecting that our third section during the fourth quarter that's approaching coal production capacity as planned.

Well, Mike Hardesty will speak to our current sales position at Beckley and where it left general geographical ranges of our customer base.

Phillip Hardesty

Currently, we would estimate roughly depending on how fast we choose to ramp up the third section to have 400,000 to 550,000 tons. And so Beckley has traditionally been more of a domestic facility. I would think next year that we would see exports in the neighborhood of 3 or 400,000 and as total 1 to 1.1 million tons.

Garrett Nelson - Davenport and Company

Okay, great. And could you provide some detail regarding your current 2011 commitments in pricing.

Bennett Hatfield

Exactly?

Garrett Nelson - Davenport and Company

Just overall

Bennett Hatfield

Actually not at this time, again we are in the midst of multiple discussions on contracting opportunities and we really are going to be pretty cautious about stepping out any further then guidance its already offered until the market opportunities are better defined.

Garrett Nelson - Davenport and Company

Okay. But just a general range of how much of expected production is currently committed in price?

Bennett Hatfield

We expect that metallurgical coal specifically is a very small portion that's committed for 2011. Its growth is pretty nominal now, substantially more thermal coal is committed for 2011 as we were successful during the peak of the market so to speak in 2008 and locking into multi-year agreement. So we had some favorable contracts on the thermal side, but very little of the metallurgical coal is actually committed for 2011.

Garrett Nelson - Davenport and Company

Okay. And is the average pricing on the overall commitments higher or lower than the 2010 level?

Bennett Hatfield

I'd rather not speak to that until we can give you a full picture and discuss the whole outlook, and we may be able to do that as early fourth quarter call, but not at this stage.

Garrett Nelson - Davenport and Company

Okay. Thank you.

Bennett Hatfield

Thank you for your interest.

Operator

And your next question comes from the line of Brett Levy from Jefferies and Company. Please proceed.

Unidentified Analyst

Hey, good morning guys, this is actually San Rigor (ph) calling in for Brett. Can you talk a little bit about the 50,000 tons that were pushed out of the third quarter and sort of what the mix was on that and when you expect to ship those tons?

Bennett Hatfield

Well, it was all chemical, no metallurgical deferrals and it heavily impacted our Northern Appalachia operations in particular. We mentioned in our call that Allegheny Energy was one of the customers that had some very high inventory levels as they reported that, and they were a substantial portion of those deferrals. But we had several other operations that were impacted including our East Kentucky operations, Hazard, Thunder Ridge and others.

So, there was a fairly broad impact to our operations, but I would say most of it was focused on Northern App.

Unidentified Analyst

Okay, thanks. And it looks like you've tightened up your, the rest of the year's production deal. Do you anticipate any further pressures into 2010 or is that the rest that you probably are going to see at this point?

Bennett Hatfield

We are still seeing some push out in October as we speak. So, some of the weak demand or I would say a high inventory basis for deferrals are continuing and will negatively impact fourth quarter. But, certainly as the coal weather moves in its probably less of an issue. But, the good part of the situation is that the way our contracts are structured, most of those tons are actually following into 2010. They are generally favorably priced contracts. So, despite the near term paying, it's generally giving us a somewhat stronger position in 2010 as we can get through the weak period.

Unidentified Analyst

Okay. Then I guess final episode of logical to think that some 2010 tons are being pushed out to 2011 then as well?

Bennett Hatfield

I think that's unlikely at this stage. We see a much different market environment coming into play, particularly in second half 2010. So I would not anticipate that contract position that automatically be rolling from 10 into 11 at this service stage.

Unidentified Analyst

Okay. Thank you very much guys.

Bennett Hatfield

Thank you.

Operator

And our next question comes from the line of (inaudible) Ivy Tech Financial. Please proceed.

Unidentified Analyst

Good morning. Thanks for taking my call. I just don't want to blow the point about the EPA permits, but as we've been reading about the mountain top permits being permanently held. I was wondering if there is a way for you to quantify that sort of damage or curtailment in production maybe over the longer term, excuse me over the next two years or so?

Bennett Hatfield

Well, the short answer would be essentially our higher costs impact certainly. We do not see in the permits that are either prescribing this point anything that's likely to cause us to have to literally shatter production in that two year time horizon. But certainly there is a cost impact that even there as we speak in the current period, because when you don't yet permits for new valley fields that means you have to hold the material further.

We are fortunate to have locations, particularly at Hazard in ICG, Eastern locations, where we can hold the material little further and maintain our more or less our current production output. But there is a cost connected to that. So in the near term I would say more pressure on higher costs because we don't have the permits approved and certainly over the more extended period I would say beyond the two year horizon, substantial list of production shutting and quite literally as existing mines are depleted and the success are permits simply on approved at that stage.

Unidentified Analyst

Okay, that's great. I mean did you have like a plan B, I'm all curious I mean over the say three years or whatever you want to pick out, if these, how likely do you think that the EPA sort of continues to halt these mountain top permits? Do you have a strategy for sort of how to deal with that going forward?

Bennett Hatfield

Our strategy would be easier to find, if could find some method to the madness part. Frankly, when they won't even give us a good excuse of what they are looking for or what their problems are, we don't, quite know how to react. We think that the permits are receiving an unprecedented level of scrutiny and review long before they get to the regulators.

So the permitting package and the mine plans are stronger than they have ever been in decades. So we think the plan estimated is strong and we don't exactly know at this point what the EPA is really looking for, other than the general, fairly ominous sense that they are trying to generate bought large scale surface mining.

But our overall plan as you know probably from following our... for a period of time, most of our growth is on the underground side. Beckley with a big piece of our growth, Center with a big piece of our growth and continuingly we expect to develop the Tygart project beginning in 2011. That's another major step up on underground production.

So I think you would generally see our company particularly in the industry, in many cases favoring, bidding on both on the underground side as of somewhat safer haven so to speak because of the uncertainty as to how long it takes or even whether you can get a surface mine permit approved.

So I think that the short answer is moving more of our focus on expanding underground operations and looking particularly at our subs operations or locations where we can continue producing without new adequate, not letting not putting material back on existing bench or reusing an older field. So there are some strategies that help us bridge that period of time, but the industry overall is going to see a negative impact to production output and particular to surface mining in Appalachia.

Unidentified Analyst

Okay, great. So you guys are competitively against the rest of the industry, I mean it seems like your terms of mountain top versus underground, you seem like you are in pretty good shape and strategy is sort of wait and watch to see what's going on and going forward.

Bennett Hatfield

I would put that we feel we are as well balanced and protected with our production plans anyone in the industry and frankly stronger than some, because of our ability to put material back on existing benches that are current sub standing operations and our ability to focus more of our growth on the underground side, because of such a large portion of our reserve base is underground and that's been our focus, favoring of course underground mining and metallurgical productions over the last few years.

So I would say, we are as well positioned as anyone in the industry with respect to weathering out the regulatory storms specially.

Unidentified Analyst

Okay, great. Thanks very much.

Operator

And our next question come from a line of Michael Dudas from Jeffries. Please proceed.

Bennett Hatfield

Good morning.

Michael Dudas - Jeffries & Company

Hello Ben, good morning, sorry about that. How are you today?

Bennett Hatfield

I am fine Michael.

Michael Dudas - Jeffries & Company

Maybe a broader picture, can you characterize the Central Appalachian, non-Appalachian coal fields today going into year-end, given all the capital pressures cost pressures, EPA pressures, market pressures on the industry. And do you anticipate that despite that that there maybe a more rosy outlook for thermal coals second half here into 2011 will continue to see some pretty significant tonnage come off especially as some of the contracts roll of from the smaller companies?

Bennett Hatfield

I thinks its certainly likely to that we are going to see production continue to drop off. Our internal estimates as to what's happening industry continue to point to overall of 100 million tons or so of production coming out versus a year ago.

I think that's reflecting multiple things certainly in the near term, weak thermal demand and before shutting in many cases of thermal production. But its also reflecting the broader impact of regulatory environments, taking far longer to get a surface mine, or a deep mine approved in the production than we have ever seen, and in some cases we have mines that have been struggling to get approved for five years and are still getting rejected.

So we are beginning to see the impact of that I think on the production side as a tightening of supply. And then you have the overall impacts certainly over depleting resource in Central Appalachia specifically that's going to continue to tighten overall production output. So I think all of the indicators point to continuing tightening of supply and I think as a near term thermal market weakness has only lesser bated situation or increased the general declining rents if you will.

So we believe that we are going into 2010 with a much tighter production situation industry wide as they have seen in long time, because many of these contracts that some smaller producer particularly are living off presently will expire or be renegotiated at the end of the calendar year, as its often the case with many utility contracts.

Michael Dudas - Jeffries & Company

I appreciate your color, Ben. And do you sense labor turnover like, just probably a little bit turn over internally and with met coal prices ramping up, do you expect to may be see a little more competition for underground miners or do you think the cycle we witness here recently is going to keep some of the miners little bit closer to where they have been?

Bennett Hatfield

I think, first off in the recent quarters we've been able to certainly push down our turnover rate and overall strengthen our position with respect to worker skills and retention, so that's been I think a key factor in boosting productivity at several of our newer metallurgic operations.

But I think the impact of the improved metallurgical market is likely to raise the level of competition so to speak for labor, particularly in Southern West Virginia. I think we are well positioned to deal with that, but it's a small neighborhood and a limited number of skilled miners so it will naturally raise the, has the tendency to the raise level of competition. I don't know see it getting anywhere near as difficult or challenging as it was in 2008, to speak of the market when we saw the huge pressure from thermal side as well. But clearly I think we are going to see some tightening of labor market particularly in Southern West Virginia.

Operator

The next question comes from the line of Brian Campbell from Simmons and Company. (ph) Please proceed.

Unidentified Analyst

Good morning. Just a couple of follow-ups on Dudas' last questions. Ben I think that you've rather noted in the opening comments at all of the CapEx spends during the quarter went through maintenance, I was just wondering of the year-to-date total is that also true?

Bennett Hatfield

Yes it is, Brad Harris is clarifying that, yes, it is true. The very small portion's been dedicated to expansion and that would generally fall in this category, permitting expanses and drilling expenses on longer term projects. So a very small portion of the current capital spending for the entire year would be in the expansion category.

Unidentified Analyst

But that then implies with some of the curtailments that you've made this year that next year's maintenance level could be even lower?

Bradley Harris

I wouldn't say that, I think we've kind of brought things into par in the current period about reallocating some resources and certainly focusing on minimizing our capital expense level. But I would say it's going to be as we indicated more or less with our comments that 2010 CapEx is likely to be in that same neighborhood as 2009 or possibly slightly lower. But I wouldn't anticipate that it will be dramatically lower.

Unidentified Analyst

Okay. And you detailed out the permanent issues that you've had very well and talked about the some extended hauls that might be necessary or that's possible it has in ICG East. So, is there anyway to quantify what sort of change in the cost structure of those two operations will result in from the longer hauls?

Bradley Harris

Those metrics did widely bad job and it would be difficult, it's even practical to put a firm number on the impact because again it varies widely from job to job. In some cases it might be pennies, in some cases it could be Dollars. So, I really can't give you a general indication other than clearly its an additional cost and it's going to demonstrate itself in the form of a offer burden handling, particularly at our surface operations as you have to movement material further in the log trucks to continue to the same level of productivity, that is the same level of productivity.

And that means the same number of banking (ph) cost per day is going to you give fewer tons of coal. So, it shows up most visibly in the productivity.

Unidentified Analyst

And then on your push out you are talking about continued push out in some of the thermal tons. Does that apply to more customers than just gaining if you had other deferrals from other customers?

Bennett Hatfield

Yes, I did mean to imply they were only one they were just one of the one of the larger components of the deferral and there are several other customers that had similar inventory constraints and at deferred tons in 2010.

Unidentified Analyst

And then you in current discussions with Allegheny you could figure when that delivery schedule can be resumed?

Bennett Hatfield

We are anxiously pursuing their response. We don't have much feedback to this point other than their inventory situation even as recent as last week continues to be a problem for resuming shipments. So, we are anxiously pursuing a dialogue to get some answer, but we do not yet have one.

Unidentified Analyst

Fair enough. Thank you very much.

Unidentified Analyst

Thank you.

Operator

(Operator Instructions). Your next question comes from the line of Lawrence Jones from Barclays Capital. Please proceed.

Lawrence Jones - Barclays Capital

Hi, good morning.

Bennett Hatfield

Good morning.

Lawrence Jones - Barclays Capital

On your last call, I believe you stated that you are evaluating alternatives regarding the convertible bonds that mature in 2012. Can you just provide us with an update?

Bennett Hatfield

Only to say that we are continuing to look about opportunity, we believe certainly the financial markets have strengthened somewhat and there maybe some flexibility there that certainly justifies the review of our position. But there has been no decision to this point and no action taken other than ongoing of review of opportunities.

Lawrence Jones - Barclays Capital

I mean, to be fare. Partially actually on convertible bonds. I guess my question is what's the rush? They don't mature for almost three years, your current high yield bonds are yielding over 11%. I am just wondering what I am missing. Are these bonds potable by holders of a certain share price fresh holders in that.

I mean, could've been a worst case scenario; I recognize the dilution that could make this convert to the common stock?

Bennett Hatfield

I think the short answer is there is no rush, but I'll Brad Harris speak to your specifics. Brad?

Bradley Harris

Yeah, obviously there is a conversion price as posted, I think its 631 is the pricing. So at this point they are not convertible to our stock trade deals to that level. So, into Ben's comment there is no regulator to that. I think the biggest thing that we like to consider right now is I think you are aware there our revolving credit agreement matures in mid 2011 in conjunction with restructuring our revolver and that type of thing.

I imagine there will be some need to review our total capital structure, including the converts that come in the '12 as we go to through that process prices. So, short answer, there's no immediate short term type of thing, but we will certainly be looking at this part of a longer term capital strategy.

Lawrence Jones - Barclays Capital

Okay, that's very helpful. Thanks a lot guys.

Bennett Hatfield

Thank you.

Operator

And we have no further questions at this time. I would now like to turn the call back over Mr. Ben Hatfield for closing remarks. Please proceed.

Bennett Hatfield

Thank you operator. International Coal Group is eager to build on its third quarter performance during the balance of the year and in into 2010, we look forward to joining you again at our fourth quarter conference call in February. Have a good day.

Operator

These concludes the presentation for today ladies and gentlemen, and you may now disconnect.Have a wonderful day.

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