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Arch Coal, Inc. (NYSE:ACI)

Q3 2013 Earnings Call

October 29, 2013 10:00 a.m. ET

Executives

Jennifer Beatty – VP, IR

John Eaves – President and CEO

Paul Lang – EVP and COO

John Drexler – SVP and CFO

Analysts

Brandon Blossman – Tudor, Pickering, Holt and Company

Michael Dudas – Sterne, Agee

Mitesh Thakkar – FBR Capital Markets

Holly Stewart – Howard Weil

David Gagliano – Barclays Capital

Caleb Dorfman – Simmons and Company

John Bridges – JPMorgan

Curt Woodworth – Nomura

Brett Levy – Jefferies

Lucas Pipes – Brean Capital

Brian Yu – Citigroup

Luke McFarlane – Macquarie

Jim Rollyson – Raymond James

Neil Mehta – Goldman Sachs

Timna Tanners – Bank of America Merrill Lynch

Matthew Vittorioso – Barclays

Dave Martin – Deutsche Bank

David Lipschitz – CLSA

Operator

Good day, everyone, and welcome to this Arch Coal Incorporated Third Quarter 2013 Earnings Release Conference Call. Today's conference is being recorded. At this time, I would like to turn the call over to Jennifer Beatty, Vice President of Investor Relations. Please go ahead.

Jennifer Beatty

Good morning from St. Louis. Thanks for joining us today.

Before we begin, let me remind you that certain statements made during this call, including statements relating to our expected future business and financial performance, may be considered forward-looking statements according to the Private Securities Litigation Reform Act. Forward-looking statements, by their nature, address matters that are, to different degrees, uncertain. These uncertainties, which are described in more detail in the annual and quarterly reports that we file with the SEC, may cause our actual future results to be materially different than those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by law.

I'd also like to remind you that you can find a reconciliation of the non-GAAP financial measures that we plan to discuss this morning at the end of our press release, a copy of which we have posted in the Investors section of our website at archcoal.com.

On the call this morning, we have John Eaves, Arch's President and CEO; Paul Lang, Arch's Executive Vice President and COO; and John Drexler, our Senior Vice President and CFO.

John, Paul and John will begin the call with some brief formal remarks, and thereafter, we'll be happy to take your questions. John?

John Eaves

Good morning everyone. Our operations turned in solid cost performances during the third quarter helping to mitigate the impact of weak coal market conditions. Our quarterly cash costs per ton in the PRB were the lowest in 10 quarters helping us to lower our full year cost guidance range for that region.

Our Appalachian operations also continued to hold the line on costs which aided us in lowering our full year cost targets there as well. And our new bituminous thermal segment comprised of the Western bit and Elk acquisition assets is positioned to further complement our strategic focus on PRB and metallurgical assets while providing Arch with consistent cash generation.

In August, we finalized the sale of our Canyon Fuel assets, demonstrating our ability to lever long-term value for our stakeholders by divesting non-core mines that we believe will face market, operational and transportation challenges going forward as well as require substantial sustaining capital needs. We received $423 million in cash in this sale and can now shift our focus towards assets where we see better value and growth potential over the next five years. In the near term, the proceeds from the sale will improve our liquidity and should ultimately help us reduce our leverage when coal markets turn more favorable.

During the quarter, we made progress on our asset and development at the Leer mine and expect the long-haul to start up in December. Earlier this month, we also extended the life of the Leer mine with the announced acquisition of the Guffy reserve for $16 million. This bolt-on acquisition is contingent upon Patriot’s exit from bankruptcy and will provide Arch with the ability to produce up to an additional 8 million tons at Leer over the life of the mine.

As you can see, we are reshaping our portfolio in Appalachia to include top quality competitive metallurgical assets while restructuring our thermal assets in the region to focus on our profitable core. Beginning in the second quarter of 2012, we shuttered eight thermal mines in the east that we believe weren’t likely to compete from a cost, quality and transportation perspective. Since that time we further pruned the portfolio by idling contract mines, reducing shifts and realigning production with the market demand expectations.

In the third quarter of 2013, we recorded a non-cash impairment charge at Hazard thermal operation in Kentucky where we have reduced the workforce and output at the mine to respond to current conditions. John Drexler will provide further details on those charges in his prepared remarks.

Arch is transitioning into a metallurgical coal play in Appalachia and we expect to take another step forward with Leer. At the same time our thermal production remains concentrated in our low cost thermal asset Coal-Mac. Beyond that our thermal output in Appalachia represents by products in the met mines that can be blended and resold into various applications, our coal that can be sold in industrial markets as is the case with Lone Mountain. There is no doubt that our thermal footprint in Appalachia has become smaller but more sustainable.

Turning now to our coal market outlook, I would like to make a few comments on recent trends we are seeing that should impact our business going forward. First, PRB coal is competitively positioned versus natural gas. PRB coal plants have been running all year with gas prices averaging in the 365 range. Days of supply at PRB serve plants declined to 60 days at the end of September and are likely to fall below this, this winter.

On the national level, customer coal stockpiles could end the year around 150 million tons. That’s more than 30 million ton drawdown during the course of 2013. U.S. coal demand is exceeding production and supply curtailments, particularly in Central App are accelerating. Looking ahead, even if we play at a scenario where coal demand is flat in 2014, we are on pace for another 30 million ton drawdown of stockpiles next year all else equal. With such a drop, inventories will fall to levels not seen since 2005. That’s why we believe coal markets could become much more dynamic next year as compared to what we have seen during the last 18 months.

Shifting gears into the metallurgical side of the business, it’s no secret that we are in the midst of a global cyclical downturn – one that's probably more supply driven. That being said, we do expect markets to continue improving over the course of the next 12 months and that improvement is likely to be driven by continued rebound in demand and ongoing supply rationalization.

Certainly in the U.S. steel market, a key market for Arch, it has held up rather well with consistent utilization at steel mills. Forecasts suggest that there will be further growth in 2014 for the North American steel industry driven by the energy, automotive and construction sectors. Of course, Europe steel industry has been under pressure the past several years but we expect some stabilization there in 2014. Finally, projected continued growth in China, India and overall Asia should help further tighten global coal market fundamentals.

So while we are seeing some signs that coal markets are poised to improve, we aren’t ready to predict that turnaround will occur. For now we are focused on managing those factors under our control, containing costs and capital spending, prudently managing our sales portfolio and proactively protecting our liquidity and selectively streamlining our asset base to its most profitable core.

At the same time we are mindful that those markets could turn quickly and we are positioning ourselves to capitalize on those opportunities as they arise.

With that, I’ll turn the call over to our COO Paul Lang for a discussion of Arch’s safety and operating performance. Paul?

Paul Lang

Thanks John. I would like to start off with a discussion about safety. The safety of employees at Arch is our top priority and every day we are committed to delivering our core values. Sadly, two of our mining subsidiaries had incidents in August that resulted in fatal injuries. We are grieving the loss of colleagues Lenny Gilliam and Jacob Dowdy. Our thoughts and prayers are with their family, friends, and co-workers. In the wake of these tragedies, we are all committed to working even harder to prevent incidents such as these from occurring again.

With that said, we continue to make good progress on safety elsewhere in the corporation. During the third quarter, our West Elk mine achieved a new safety milestone by completing 2 million employee hours without a lost time incident. In addition, our Coal Creek and Hazard operation each completed 1 million employee hours without a lost time incident.

Our 2012 efforts will be recognized with two national Sentinels of Safety awards at a ceremony tomorrow evening in Washington DC. We remain sharply focused on continuous improvement in safety and are striving for the ultimate goal of zero reportable injuries and zero environmental violations at every operation every year. These are our core values and we will continue to pursue them with passion.

Turning now to our operational results, I would like to spend a few moments discussing each region’s performance and outlook. In the Powder River basin, our mines turned in a very strong cost performance, their best since the fourth quarter of 2010. Even with the milder than expected summer, we shipped at a higher pace in the third quarter. This trend is not surprising given that generator stockpiles are moving down and in some cases are likely below targeted levels.

Those stockpiles will also probably not be replenished due to the snow storm in Wyoming in early October. The weather has affected shipments in the PRB and only recently does the region appear to be back to normal. Certainly our strong cost performance in the third quarter reflects the benefit of increased PRB shipment levels but it also reflects the success of ongoing productivity improvement initiatives. For example, we are lowering maintenance costs and extending the useful life of equipment components by using technology to accurately predict part replacement rather than waiting for parts to fail or using an hourly baseload.

We are also continuing to find success in extending the tire life on haul trucks and have improved tire life by another 10% through improved road designs and specialized training of personnel. These initiatives along with others have allowed Arch to successfully reduce our full year 2013 cost expectations for the region. Of course, this cost performance in the PRB helped to offset the impact of lower prices in the third quarter, which reflected average sale price based on market price tons and increased shipments to Asia out of Ridley, where export netbacks were not nearly as favorable as domestic opportunities.

Looking ahead, we place a small amount of tonnage for the remainder of 2013, partially driven by increased brokerage activity where it made sense to do so. We’ve also successfully locked up for priced additional business for 2014 that will allow us to run our operation in an efficient manner. As of now 80% or so of our volumes are committed based on current run rate. What’s more – we’ve had success in placing business for outer years into the forward curve that remains in contango. We do expect more robust and dynamic domestic thermal market going forward and Arch has levered to both volume and price recovery in the Powder River basin.

Turning to Appalachia, our metallurgical realization in the third quarter improved sequentially to $90 a short ton but our quarterly shipments of 1.5 million tons were below our expectations. Part of the volume shortfall was customer related, including a force majeure. The situation has been resolved and should result in incremental sales during the 2014 calendar year. Beyond that, our metallurgical sales volume shortfall was production related. Mining conditions at Mount Laurel in the third quarter were less favorable than in the second quarter which slowed the advance rate of the long wall. We expect those conditions to normalize over the remainder of the year.

For full year 2013, we are reducing our estimate for coking coal and PCI volume to 6.9 million to 7.3 million tons. This new range reflects a shift that some personnel from Sandler [ph] mine to Leer displacing contractors at Leer as we begin to ramp up that mine for the long-wall start. The shift will result in a lower level of metallurgical sales out of Sentinel going forward but will allow us to move the crews back when the market demands.

We are also looking to optimize the placement of tons between the PCI and industrial markets where netbacks and opportunities are most compelling. This trend has resulted in some tonnage shifting back into our thermal volume count.

While our metallurgical volumes are slightly lighter than we forecast, so too our cost, strong performances at several mines in the third quarter, such as Beckley, and an ongoing restructuring of our mine portfolio in the region have allowed us to lower our cost expectations for full year 2013.

We remain on-track with the development at Leer and expect the longwall to start up in December. We started to take the longwall components underground and should begin setting the face up in the next two weeks.

From a sales perspective, we’re in active discussions with our customers regarding our placement of our metallurgical volumes in 2014 and we plan to update you further on the next call. In addition, we’ve layered in some thermal sales in Appalachia for 2014 and beyond that provide us with a solid book of business for operations while maintaining upside for potential domestic or export market rally.

Lastly, our new Bituminous Thermal segment includes a partial quarter contribution from our legacy canyon fuel assets as well as a full quarter of performance from the West Elk mine and Colorado and Viper mine in Illinois. This segment does not reflect the joint venture with Night Hawk where Arch owns 49%. That investment is accounted for under the equity method and reported in other operating income. We expect this new segment to provide us with consistent cash flow generation as well as exposure to both the Pacific and Atlantic coal trade.

In summary, we’ll continue to focus on controlling what we can throughout the full market cycle and positioning Arch to benefit from the changing dynamics of our industry as they occur.

With that update, I’ll turn the call over to John Drexler, Arch’s CFO will provide an update of our financial results and full year guidance. John?

John Drexler

Thank you, Paul. The most significant event of the third quarter, of course, was the divestiture of our Canyon Fuel thermal assets. That sell provided us with more than $400 million in proceeds allowing us to further increase our already strong liquidity position. In addition to the cash proceeds from that sale, we recorded a pretax book gain on the transaction of $115 million. Adjusted for taxes, the net gain was $75 million or $0.35 per share and that gain is reflected on the discontinued line in our income statement.

Also, as anticipated, Arch delivered positive free cash flow in the third quarter. After accounting for capital spending our free cash flow totaled $80 million for the three months ended September 30th. That figure excludes the cash proceeds from the Canyon Fuel transaction. At quarter’s end Arch had $1.4 billion in cash and $1.6 billion in available liquidity.

Another item of note in our financial statements this past quarter was the non-cash asset impairment charge of $200 million. Those charges primarily relate to the reduction in the carrying value of thermal coal assets in Eastern Kentucky that were deemed impaired. In addition, we also recorded the value – reduced the value of our equity investment in a coal conversion project that is yet to progress. These one-time non-cash charges do not affect our cash flows financial maintenance covenant calculations or ongoing business operations and are thus excluded from our reported quarterly EBITDA.

Finally, the income statement line for coal derivative in trading activities reflects an expense of $10 million in the third quarter. This paper loss is primarily due to the expiration of, in the money, API2 swap positions that were entered into to hedge the price of export shipments. The cash income we received from the settlement on this positions offset that loss but for reporting purposes the corresponding income is reported under the other operating income line.

Turning now to our expectations for full year 2013, we have provided updated guidance in our earnings release. Our ongoing success in containing cost has allowed us to reduce our cost expectations for our key operating basins. In the Powder River Basin we expect to have cash cost in the range $10.40 to $10.60 per ton, representing a reduction of $0.15 per ton from the midpoint of our previous guidance range.

In Appalachia, we expect cash cost of $65 to $69 per ton, a reduction of $0.50 per ton from the midpoint of our previous range. Upon the sale of our Canyon Fuel operations we have combined the reporting for our West Elk and Viper operations. Our new Bituminous Thermal segment should have blended cash cost between $23.50 and $25.50 per ton. In addition, we have reduced our SG&A range to $126 million to $130 million representing a reduction of $7 million since the start of the year, as we begin to realize benefits from realigning our corporate functions following the sale of Canyon Fuel. We have also tightened our capital spending range to between $290 million and $300 million.

Also, we now expect DD&A in the range of $420 million to $450 million, interest expense between $370 million and $375 million and an estimated tax benefit in the range of 30% to 50% given our current outlook and the impact of percentage depletion.

Our third quarter results and updated guidance demonstrate our ability to continue to manage our costs, expenses and capital spending. We are also prudently managing our abundant liquidity as we navigate challenging markets. As fundamentals improve we will have the flexibility to opportunistically address our capital structure. With that we are ready to take questions.

Operator I will turn the call back over to you.

Question and Answer

Operator

Thank you. (Operator Instructions). We will go to our first question with Brandon Blossman with Tudor, Pickering, Holt and Company.

Brandon Blossman – Tudor, Pickering, Holt and Company

Good morning guys, Jennifer. Is there any way we can parse out the Powder River Basin price realizations to a greater degree of detail for the quarter? And obviously what was priced in the hedge was higher than what was realized and I heard some was spot fails and some was Ridley, is there any kind of order of magnitude that you can put on that?

John Eaves

Well Brandon, I think it was a combination that it was indexed tons, that was tons that we put to Ridley and it certainly had a downward pressure on the weighted average. In terms of more clarity I don’t know that we can break it out any more than that.

Brandon Blossman – Tudor, Pickering, Holt and Company

And does the realized price number reflect the fair value hedging also, or is that incremental too?

John Eaves

The fair value hedging did not apply in to the PRB region. It applied in to Appalachia and Western bit shipment.

Brandon Blossman – Tudor, Pickering, Holt and Company

Okay. And then a last follow-up question. This is a big picture question for John and John probably. What fundamental change would you need to see in the market to be more comfortable with not having such a large cash balance on your balance sheet?

John Eaves

Well Brandon we are certainly seeing some positive signs in the PRB, inventories are coming down, we like where natural gas prices are right now, with normalized weather the balance of the year we think we really could be setting ourself up for a much better 2014 where PRB is concerned. We did see positive direction in terms of the benchmark from 145 to 152 that certainly is something that we are not celebrating but directionally it is going the right way.

I think we would need to see a little bit more improvement on the met side, certainly inventories get down a little bit more in the PRB, activity pick-up in the PRB, see some price appreciation out there. Those two things would help us, getting the long wall up and running at Leer, having more run time with that for a few quarters. All of those things combined Brandon I think would give us a little bit more comfort, but with the uncertainty we are seeing right now we think the levels of cash that we have are prudent and that is the way we are going to manage the business. But obviously as we see the market turn and we get comfortable with that we are quickly going to move to de-leverage our balance sheet.

John Drexler

Brandon, this is John Drexler. As we saw the markets turning a negative here you saw us take steps over the course of 2012 essentially to grow our liquidity at the time of 2012 to extend maturities. We had maturities coming due in 2013 which we addressed and very importantly we transformed the majority of our liquidity to cash. And with all of those goals having been achieved a big focus for us was also to have the capital structure in a position to aggressively address once markets began to improve. So we think we are very well poised to have excess cash as we see markets improve given our low cost operation base that we operate from and as John indicated as those things do start to head the right direction we will end up in a position of excess cash which as we have indicated one of the first priorities for us will be to de-leverage it.

Brandon Blossman – Tudor, Pickering, Holt and Company

Great, I appreciate all of the detail guys. Thanks.

Operator

We will take our next question from Michael Dudas with Sterne Agee.

Michael Dudas – Sterne, Agee

Good morning, gentlemen, Jennifer.

John Eaves

Good morning, Michael.

Michael Dudas – Sterne, Agee

Good luck in Boston this week.

John Eaves

We’re going to need it. We got to win two games.

Michael Dudas – Sterne, Agee

Exactly. John, could you share your thoughts about the Powder River Basin and the ability for the excess capacity in that region to limit whatever pricing recovery that some of these fundamentals that you cite, which I agree with, in your commentary to generate more sustainable pricing because of the topic that’s of course, I’m sure would have come up on other discussions with other producers.

John Eaves

You know, Michael, you know, I’m just going to really speak to Arch’s position. I mean, we probably have more idle equipment than most out there. You know, we’ve said and we continue to say that we’re not going to bringing that idle equipment back until we see a sustained improvement in the market; and that’s not a quarter or two, I mean, it’s when we can go out and sign longer term agreements at prices that we think make sense, you know. I don’t think there’s the excess capacity on the PRB that maybe people think there is. I think you got idle equipment that would require maintenance, timing to get back in to operation. You have to go and hire people. I think, people are faced with higher ratios as they move West. I mean, all of those things make it tougher and tougher to bring operations back in or bring idle equipment back into production very quickly. I mean, it would take us probably months to do that and, you know, not a lot of capital but it’s not something that we just flip a switch, you know. I think that’s pretty indicative of others as well. Paul, you got anything to add to that?

Paul Lang

No. My sense, across the industry and not just in the peer that, you know, equipment replacements have slowed and clearly there has been maintenance deferrals. And those are going to ultimately eat into any reaction we’re going to see. What’s more, as I’ve said in the past, this isn’t the basin I left 7, 8, 10 years ago. It’s not quite as easy to turn up the production as it was then. The biggest issue has been the advent of the prestrip and the affect is ratios are higher. I think it’s going to surprise people how difficult it is to bring back some of this production in a fast fashion.

John Eaves

What you think, Michael, you know, just a follow-up. I do think if you see the inventories come down the balance of the year, assuming we just have normalized weather and gas prices really don’t have to do anything other than what they’re doing today, you really could – we think there’s quite a bit more coal that needs to be purchased in 2014. You could start seeing some price appreciation as we move into next calendar year.

Michael Dudas – Sterne, Agee

I appreciate that. My follow-up, John, is – maybe for Paul – maybe getting a little insight into Night Hawk and what – and with your minority position – what the plan is for their production, outlook for expansion, capital cutbacks, you know, things going on in the Illinois Basin that might be different or similar to what we’re seeing elsewhere, that would be helpful, thank you.

John Eaves

Well, let me – you know, and Paul can jump in here; he actually sits on their Board. It’s been a great investment for us, Michael, we’ve got 49% investment in that operation, we’ve been very pleased with the way the company is managed. They’ve got a good cost structure. They’ve been very prudent in the way they market their coal. They’ve got a good industrial as well as a utility base and are actually in pretty good shape from a sales standpoint over the next couple of years. They don’t have a whole lot of market exposure.

In terms of our situation down there. We have the Viper operation which runs roughly at about 2 million tons. In the central part of the state we’ve got a good customer base in place there, not real active in the open market there. And then beyond that, down the road we’ve got a significant reserve based called Lost Prairie, which is a low chlorine high quality coal, we think would have good cost structure. It’s fully permeated and ready to go but given the volumes that are coming out of Illinois today, we don’t think it makes good business sense to go ahead with that, but I would think down the road when we see the demand improve domestically as well as internationally you could see Illinois being a huge or core operating region for Arch. So, we’re certainly pleased with our investment in Night Hawk and what’s going on at Viper. We’ve made some real improvements on the cost side at Viper over the last couple of quarters. Paul.

Paul Lang

Yeah, I think the only thing I’d follow-up – and I’m just damn surprised what John said, Night Hawk has been an outstanding investment for us and it offers – you know, we’ve stayed in a market that’s been a little bit under the radar, we kept the production somewhere between 4.5 million tons, 5 million tons a year, it’s all low chlorine coal. We’ve also had some relatively low sulfur coal for Illinois and we’ve been able to keep a low profile and do very well. And as John said, we tend to be a little more committed down there and really haven’t seen the impact that some of the other operators in Illinois.

John Drexler

And Michael, this is John Drexel. So if you look back over the last several years at some of our disclosures Nighthawk has contributed roughly about $20 million a year of income to us as well.

Operator

And we will go to our next question with Mitesh Thakkar with FBR Capital Markets.

Mitesh Thakkar – FBR Capital Markets

Congratulations on all of the cost improvements in the PRB and Appalachia. Just taking a step back and more on the stable level, when you think about your met volumes, how should we think about your ability to ramp up the volumes as well as how much of the tonnage is shifted to the steam market versus what used to be a met capacity before? Can you talk a little bit about that including how the ramp up is going on at Leer and when do we expect volumes to be fully producing there?

Paul Lang

Hi Mitesh, this is Paul, I will start this one out. If you look at our change in guidance roughly about half of it was due to the customer driven issues and about half of it was due to either what we decided to do at Sentinel or the issues at Mountain Laurel. Then imbedded in that also was the switch from PCI to industrial and the fact is that if you stand back and look at the PCI market right now, which we are a large player in, the netbacks at the mine is going to give you a range of about $68 to $73. The industrial market which is a little bit of a niche market and we play very well out of at Cumberland River and Lone Mountain, those prices probably right now are somewhere in the $73 to $77 range.

So clearly some of this switching from met to thermal is a little bit of – it is just a change of names but on a revenue basis it was the right move. You know as far as Leer, every long wall I have been around there is always a ramp up period. I think we still feel good about 3 million to 3.5 million ton production but clearly there is going to be a ramp up of the long wall and it usually takes one to three months, sometimes four months to really get things clicking.

John Eaves

Mitesh, I think this really speaks to how nimble we can be as an organization and if you look at our met portfolio, you look at our cost structure, our ability to take coal from PCI and put it in the industrial markets, the ability to take workforce in Sentinel and put it over to Leer when the market improves we can move that workforce back, I think it really as we get closer and closer to bringing Leer out I think it is going to be clear that we are going to be a major player in the met markets.

We have a variety of quality coals from PCI to low-vol to high-vol B and high-vol A at a cost structure we think that plays not only in the domestic market but in the international markets. I think it is a real credit to Paul and his team that when we see changes in the market we react quickly and make those changes and really do it generating positive cash margin.

Mitesh Thakkar – FBR Capital Markets

And just on the PRB side, it looks like you are a little better contracted than what you were last year at this time and have a good view of what the sales book looks like. Paul, a question for you, what would it take in more contracting, if you will, to get a really good control over the costs to make sure they don’t rise from here and stay at an optimized cost, if you will?

Paul Lang

I tell you Mitesh, I feel really good about where we are contracted with PRB. Just round numbers it is about 80% based on current run rates. I have to be honest, for us to even consider ramping up or bringing back equipment in any fashion, prices have got to be quite a bit better than what they are today. The numbers just don’t support any further volume pick-up.

Operator

We will go to our next question from Holly Stewart with Howard Weil.

Holly Stewart – Howard Weil

First can we start in the PRB, I think you had a nice ramp in sales during the quarter, can you just talk about the operations, how they ran during the quarter and then looking at those operations as you head in to 2014?

Paul Lang

Yes, I guess just the cost in general, I think overall the guys did a great job lowering cost and obviously that’s helped us drop our cost guidance across the company. I’m particularly proud of the Powder River Basin, the team down there dropped – our cost were down $0.72 from a year, that equates to almost $60 million. Having said that though, none of us can be satisfied with where we are on cost. And in this market and in any of them, we really got to keep pushing. As you look forward to ’14, you don’t really see the headwinds we have in the past as far as cost pressure. The workforce is stable, we’re seeing pretty good things from – as far as vendors. I think everybody understands that things are pretty tight. I guess, there’s always a variability in a commodity such as diesel and that but we continue to focus on the things we could control at the mine. And the guys turned in a good result.

Holly Stewart – Howard Weil

Great. That’s helpful. And then, sorry if I missed the realized pricing on the met side during the quarter, so can you just give us that number? And then maybe quantify those four measure tons as well as the production impact from Mt. Laurel?

Paul Lang

Yes, the price was about $90. Mt. Laurel, the force majeure was at Mt. Laurel. Holly, you’re talking about the production impact at Mt. Laurel?

Holly Stewart – Howard Weil

Yes.

Paul Lang

Yes, Mt. Laurel, if you look at it – when we moved to Cedar Grove we had said there was going to be a step-change as far as the production and we also felt there would be a little bit more variability. If you look in the third quarter we ran about 580,000 tons. It wasn’t a disastrous quarter but it wasn’t a good – particularly coming off the second quarter which is the best we have run, which is about 740,000 tons. So, just kind of round numbers, about 10% of that impact would have fallen on Mt. Laurel. So, as I said in the early comments, about half of our volume drop was in the customer force majeure and other customer issues.

Holly Stewart – Howard Weil

Okay. Great.

John Eaves

But – Mt. Laurel, I mean, we expect it continue to be an important piece of our met portfolio. I mean, we think from a quality standpoint, from a cost standpoint, the coal does very well in the U.S. and international markets and we would expect it to continue to do so as we move into 2014.

Holly Stewart – Howard Weil

Yeah. Appreciate the color.

John Eaves

Thank you.

Paul Lang

Thank you, Holly.

Operator: We’ll go to our next question from David Gagliano with Barclays.

David Gagliano – Barclays Capital

Hi. Great. Thanks for taking my questions. I just have two. First of all, given the moving parts with Leer coming on and perhaps scaling it back a bit at some other operations, can you give us a sense as to your range of expected 2014 met coal volumes; that’s my first question. And then my second question, just for John Drexler, I missed the impact from the hedges that flow through results this quarter, was that a gain or a loss and if so how much flow through results in Q3? Thanks.

John Eaves

David, let me take the first piece and I will kick it over to Drex for the second. On the met volume, we are still in the planning, budgeting stage for 2014. I would be hesitant to give you a volume for met right now. I think a lot of that is going to be driven by where we see the market opportunities. We are in the early stages of discussions with our domestic customers; we haven’t really concluded anything yet. I think we’ll have more clarity when that gets concluded and we start discussions with the international customers. So, all that about the time that we get Leer ramped up in December and work through the kinks, as you have with any new operations. So, I think it’s something we’ll have to update you on the January call. John?

John Drexler

David, as far as the question on the swaps, we have a line item on the income statement “change in fair value of coal derivatives” that’s showing a loss of $9.8 million. The vast majority of that loss is a paper loss on the expiration of in the money hedges. So, there were gains recorded previously there, mark-to-market gains, that as those positions came to fruition we got the cash flow. The benefit of those gains are flowing through the other operating income line lower on the income statement. So net-net, it’s not a loss, it’s essentially a wash for the third quarter.

David Gagliano – Barclays Capital

Okay. Got it, great. Thanks. And then just one quick follow-up. Could you just comment a little bit about how your domestic met coal contract negotiations are going for 2014 in terms of the directional move in pricing and if you could give us a range, that would be great?

John Eaves

I would be hesitant to give you much color on that other than to say that our domestic customers continue to run their plants at pretty high capacity factors. They have been in the mid to high 70s most of the year. So, we think that the demand will be there. We’ve enjoyed a long-term relationship with our domestic customers I think. I would characterize the discussions as productive at this point and would be very hesitant to give any price direction at this point for your assessment.

Operator

We'll go to our next question from Caleb Dorfman with Simmons and Company.

Caleb Dorfman – Simmons and Company

I guess costs in the PRB were incredibly good compared to when we looked back one or one and a half years ago. I guess Paul, could you give us a breakdown of the driver in the different buckets between like fixed cost spread and underlying cost savings and maybe raw input costs and then when do the increased stripping costs start to come into play and put upward momentum onto these costs?

Paul Lang

Just kind of -- as you look at the PRB the costs kind of fall in the four big buckets. Labor and benefit are about 20%, maintenance and repair about 20%, expenses in fuel are about 35%, then kind of the remainder is the kind of the bottom five.

As you look at the PRB over the years, labor and benefits have always had a good control. Those mines are relatively predictable as are the maintenance and repair expenses. As you look at the things that we focus on, on costs it's generally in the area of maintenance, repair and explosives and fuels as I have talked in the past, those are the big cost drivers in PRB.

Caleb Dorfman – Simmons and Company

And at what point do you think you start to need to repair some of the equipment which you had previously parked and then are using now?

Paul Lang

As I said earlier I think the step back up, bringing back online of production in the PRB is a little bit of a step function and some of the equipment is going to be easy to bring on than others. But as I said, I think we're going to have to see a pretty good market change before we get serious about a lot of this equipment.

Operator

We'll go to our next question from John Bridges with JPMorgan.

John Bridges – JPMorgan

Just wondering what's the problem Laurel, is this a one-off, are you going into a more difficult part of the coal seam?

Paul Lang

Hello John, the mine struggled with a rock parting on the longwall phase had cut our advance rate. As I said earlier if you recall, we did have a step change when we moved from the Alma to Cedar Grove. But last quarter we had the best production quarter in Q2, we had the best production quarter, since we moved up plus 700,000 tons. As I said this dropped us down to about 586. So it was a tough quarter, the cutting was a little harder than we'd wanted. We got a little bit of rock coming in on the face but I think in general it's not as I said, it's really not a disastrous issue it's just one we had to work through. And it looks like we're coming out of it. I'm looking for kind of a little more normalized production in Q4.

John Bridges – JPMorgan

Is this a known parting in that part of the world?

Paul Lang

It’s what it is John there is a rider that comes down and at certain points that parting will get a little flicker [ph]. And as the rider comes down, that parting tends to drop out on the face. So it's relatively predictable with that.

John Bridges – JPMorgan

Okay. And then as a follow up, you moved labor from Sentinel to Leer. Is that helping you on the cost side as well as your longer term labor more affordable than the contractors?

Paul Lang

Yes, that was a good move for a lot of reasons. I think contractors tend to be a little bit of a necessary evil but we had kept a pretty good contract workforce there to have some flexibility. And as you know the two mines are relatively close to each other, they are about 12 miles apart, 15 miles apart.

We are able to displace a pretty good workforce of contractors and move in about the equivalent of a section of the Sentinel people. And really what we did was we were able to upgrade quite a bit, we brought in very skilled people and we’re all getting ramped up for the long wall start up that’s coming here in the next six to eight weeks.

Operator

We'll go to our next question from Curt Woodworth with Nomura.

Curt Woodworth – Nomura

In terms of the Leer ramp up, could you just talk about the timeline there and when do you think you would get to full capacity and what sort of customer commitments do you have at this point for that coal?

Paul Lang

You know as I said, we are still looking at a December startup with the longwall. We started taking the equipment underground and we’ll actually start setting the face up. A few of the other things that’s going on at Leer , we had actually set up kind of a short face on the surface where we had, I think, roughly10 shields as well as a section of pan line, a head tail drive in the share, so we started the training last couple of weeks. One of the things that we did with Leer is that we built the longwall identical to Mt. Laurel. Now that’s got a lot of benefits, but set aside the inventory and the maintenance issues we’re bringing people from Mt. Laurel to train our people at Leer and I think typically we look at a ramp-up time of a couple of months for longwall. And I still think we have that built in our plan. But I’m optimistic that hopefully with the fact that this is identical phase and we can bring up people that will cut that back a little bit.

As far as commitments, we’re really just in the heart of negotiating with the domestic players and we’re really about two months out on the international side.

John Eaves

But we continue to get positive feedback from our customers on the test and how the coal is behaving and the quality. And it’s certainly encouraging what we’re hearing.

Curt Woodworth – Nomura

Okay. And then just one last question on potential monetization opportunities. Would you guys look to the best year reserves in the Illinois Basin just given the interest level there and do you see asset sale opportunities elsewhere in the portfolio?

John Eaves

You know, Curt, we’re always looking at that. I think we proved with the recent CFT transaction that we’re willing, if somebody comes in and provides more value on a particular asset that we see and it’s not strategic to execute our strategy over the next three to five years, we’ll consider monetizing it. And it goes for Illinois as well as other parts of the Company. But again, with our liquidity position, our cash position, we really don’t have to be forced into doing anything. So, we can be patient, make good prudent business decisions. And again, if somebody is going to come in and give us full value for an asset that we don’t think is strategic; yeah, we’ll monetize it.

Operator

We will take our next question from Lucas Pipes with Brean Capital.

Lucas Pipes – Brean Capital

Good morning, everybody.

John Eaves

Good morning, Lucas.

Lucas Pipes – Brean Capital

My first question is on the discontinued ops that you had during the quarter. It looked a little high even after accounting for the Canyon Fuel transaction, could you maybe elaborate on what is in that bucket?

John Drexler

In the discontinued ops, as we indicated, the largest piece was the impairment charge we took writing down the Hazard Operating Complex. In addition, coal-to-liquid facility that we indicated was also written down. Those two items represent the lion’s share of the charge flowing through the asset impairment and mine closure line on the income statement.

Lucas Pipes – Brean Capital

That’s helpful. And then just a few points on the PRB to follow-up. First, what is your sense of why prices are still relatively weak at this point in time, considering we had substantial inventory correction? And on the back of that, how much do you expect the production to actually increase, when it has to increase, in the PRB in 2014? And then lastly, peer group seem to have a pretty big impact on pricing, how should we model that going forward?

John Eaves

Well, yeah, I mean we still think there needs to be a draw in inventory, Lukas. If you look back over the last several quarters, back into the second, third quarter 2012, prices were $10, $10-and-change, today they are probably in the $11 range. So, you have seen some improvement; not near what we would like to see. I think as you go through the balance of this year into the winter months with normalized weather, natural gas at $3.50, $3.60, they will continue to pull down those inventories and I think you can very well start to see some benefit as you go into the 2014 season.

You know, we’re in the budgeting/planning stages right now but we think the PRB production in 2013 will be pretty flat. We’re not really forecasting any meaningful step-up in 2014 as well. And as Paul said earlier, I mean, Arch is not planning on bringing additional volume on until we see a sustained improvement in the market. So, with the challenges of bringing on idle equipment and other things, we think the opportunity is there to see some improvement in the pricing in the peer group.

Paul Lang

Yeah. I think the only other comment I’d add, John, is that we’re seeing customers being very careful about what they’re contracting this year and as near as we can figure, it's probably on the low end of what they think they will need. And they are just being careful about what their burn is going to be and being careful about what the gas prices are going to be. So, I think that's why if you want to paint kind of a positive scenario for pricing, if the winters, the more normal winters and gas prices stay where they are, which ought to go together I think you could see the changing of pricing in the PRB happen rather rapidly.

John Drexler

And Lucas, this is John Drexler again. I have a trustee staff here that let me know that I interpreted your question incorrectly. So let me clarify before I confuse anyone. We have two line items in the income statement that I have discussed. First is the asset impairment and mine closure costs. Two, there is a Hazard in the coal to liquid facility that we discussed flowing through there and the discontinued op line that is all, the vast majority if not all of that is Canyon Fuel. We talked about a gain around $115 million but what flows through that discontinued op line is net of taxes. So the vast majority of what you seeing flowing through there is that gain adjusted for taxes coming through.

Operator

We'll take our next question from with Brett Levy with Jefferies.

Brett Levy – Jefferies

Hey guys. Just on the cash front. Can you talk a little bit about under your covenants, what's your maximum ability to add additional senior debt? Also is there any opportunity to wring some cash out of working capital? And then on the Canyon Fuel sale, you mentioned book taxes, what are cash taxes likely to be?

John Drexler

Brett, this is John Drexler. So, a couple of items there, from a secured position, the most restrictive notes that we have are the 2016 notes, that we have a 20% consolidated net tangible asset limitation on secured borrowing. If you work through the numbers roughly, it essentially indicates that we've got $1.8 billion of available capacity. So you've got a $1.6 billion secured term loan and then you have additional capacity of roughly $100 million to $200 million. That's the extent that we have right now.

So, clearly as we move forward, we'll be looking at the opportunity as we look at our capital structure and what we'll address. Those 2016 notes are callable, they are the most restrictive of the CNTA limitation and they are also in relative terms some of our highest cost debt that we have on the book. So, that clearly is going to be in focus for us as we move forward.

The next most restrictive limitation is the 30% limitation in some of the longer dated bonds. So there is a 10% increase in secured volume capacity that will occur once those 2016 notes are addressed at some point in the future. As far as cash taxes on the CFC transaction, we are not expecting -- given our tax position with significant deferred tax assets on our books, we will be able to utilize those, so we'll have very limited if not any cash taxes associated with Canyon Fuel transaction.

Operator

We'll go to our next question from Brian Yu with Citi.

Brian Yu – Citigroup

My first question is if you look at the fourth quarter met coal settlement it was little bit better. And you compare that to the cost structure implied in this year's met guidance of 6.9 to 7.3. Do you think you guys can do better, same or worse met coal volumes in that for next year assuming the demand is there but prices are where they are for 4Q?

John Drexler

Well I think it depends on how we see things evolve. We were certainly encouraged with the step up from 145 to 152, we continue to look at the global markets, we think the demand has been reasonable there, but there is currently an oversupply, and depending on which numbers you look at, we think that's somewhere between 15 million and 20 million tons. We think given a market of that size of 300 million tons plus, we think that's not a significant oversupply in one of that, whether it's a flooding or production issue, you could correct it pretty quickly.

So what we are trying to do is make sure that we're positioned as a company when we see those changes in the marketplace that we can react. And that's what we have been doing with conversion from PCI to industrial market, workforces from Sentinel to Leer, all those things are really reacting to what we see out there. So, we do think there is probably additional supply that's going to come off, whether it's over this fourth quarter or into next year, we think that oversupply gets rationalized whether it's in the U.S., Canada, Australia or Mozambique. But clearly, over time, we don't think these price levels work, we think there is a pretty significant percentage of suppliers in the seaborne market that have cost structures at 152 aren't getting any kind of return.

Brian Yu – Citigroup

Okay. That’s helpful. I was more trying to get a sense of how you guys would look at it given your cost structure at 152 for next year? Do you think you would still do the 6.9 to 7.3 excluding Leer or maybe a little bit better that given that Mt. Laurel will perform more favorably?

John Eaves

Well, you know, I mean I still think it’s a little early given that we’re in the budgeting process and it gets back to our ability to react to what we see out there. And I would tell you right now, we are generating positive cash margins with our portfolio. And that’s what Paul and his team have worked hard on, to make sure that we’ve got to a size, with our met portfolio, that we generate positive cash margins and that’s where we are today.

Operator

(Operator Instructions) We’ll go to our next question with Luke McFarlane with Macquarie.

Luke McFarlane – Macquarie

Yeah. Hi, guys. You have mentioned that you think there is going to be 130 million tons of coal production out of the Central Appalachian in 2014. Can you give us any sense of what you think that looks like into 2014?

John Eaves

I continue to think there is going to be pressure on Central App, if you just look at the average cost structure. And we’re fortunate to have some of the lowest costs there and we’ve actually paired down our thermal portfolio and really basically Coal-Mac and some peripheral coal that we’re taking from some of the met mines. So, if we don’t see any improvement in the thermal markets, we don’t see any improvement in natural gas prices, I think there is another pretty significant step-down in 2015. I mean, we’re down from 148 million in ’12 to about 130 million this year. I think you could see a comparable step-down in 2015 if there is no improvement in the market. I mean there is people in Central App that have cost structures that when you are competing against the natural gas in the Southeast at 3.50 it doesn’t work.

Paul Lang

As John said, we are basically down to Coal-Mac, as far as Arch is concerned. Now, Coal-Mac has a very competitive cost structure but thermal production in Central App is becoming extraordinarily difficult.

Luke McFarlane – Macquarie

Alright. And then of the remaining tons that would likely come out, if they do come out, do you think it’s a mix or do you know what the mix would be between like a listed coal producer and a small private companies that are operating there?

Paul Lang

Yeah, that’s a hard thing to get a handle on. Obviously, there has been consolidation in Central App but there is still a large number of small players that – what’s always hard with those – with the smaller operators – is to guess, if they’ve got contracts that have kept them going for a period of time when those roll off. So, that is a very difficult thing to get hold of it, but what’s clear is – and on a sustaining basis, people are not going to invest in thermal mines in Central App and the ones that are there are having tough times staying with the production they have now.

Operator: We will go to our next question from Jim Rollyson with Raymond James.

Jim Rollyson – Raymond James

Hey, good morning, everyone.

John Eaves

Good morning, Jim.

Jim Rollyson

John, you guys have done a really good job of squeezing costs out of your system here in the last few quarters; no thanks to the market, probably, pushing you to have to do that – but you have done a good job nonetheless. Where do you think you are in that ballgame in terms of being able to get costs out? Are you mostly there or what you think you can do or do you – or there still leverage you can pull?

John Eaves

Well, I mean it’s something, Jim, we look at every day. And I think you can see what Mr. Lang’s done on the operating side. We continue to make improvements quarter-after-quarter. The fact in the PRB that we’ve been able to sell some volume has certainly helped but some of the initiatives that they’ve looked at out there are not only short-term initiatives I think they’re longer-term initiatives that we actually can carry into and improve market and that’s what we expect to do.

On the admin side, with the CFC, we indicated that we would drop our G&A about $10 million, which we have and will. I think the challenge there is that we were already running pretty lean. If you look at our G&A relative to others, we already had a pretty flat organization with not a lot of fluff there – that doesn’t mean that we won’t continue to look at those opportunities to cut. But, we are in the planning/budgeting stages right now. We actually have another meeting next week and we will be talking more about that, but let me assure you, Jim, we never quit looking at those opportunities, period. Whether it’s on the operating side, the G&A side because in this kind of environment you have got to manage your costs. And I think we have proven thus far that we can go that and we'll continue to focus on those things.

Operator

We'll take our next question from Neil Mehta with Goldman Sachs.

Neil Mehta – Goldman Sachs

Can you talk about the international export opportunity both for met and for thermal and just from a netback perspective, how much higher do you think you need to see NewCastle or international coal prices to make the PRB exports in the money?

John Eaves

Well, let me kick it off and I will let Paul jump in. As we look at the international markets, we think it's an important segment for us in terms of demand growth. I mean let's be honest when we look at the U.S. markets, we think over the next six to eight years demand levels added about 900 million tons and that's kind of where we are focused. And we think we can make a lot of money in that giving our asset base but when we look at purely growth, they are building 280 gigawatts of new coal-fired generation around the world. Over the next 48 months, you have got World Steel Association forecasting 35% to 40% improvement in steel productive over the next six years. Those are all things that are driving Arch's behavior.

Last year, we exported almost 14 million tons, this year we'll be closer to 12. The industry as a whole exported about 124 million short tons. So it's something that we think is important. In saying that though there are certainly going to be ups and downs and this year has been tough, current API prices are in the low 80s. We think they need to be much higher to really provide opportunities for us particularly in the East. When we look at PRB coal that's going off the West Coast, we benchmark ourself off of the 5,000 Kcal out of Indonesia. Those prices are in the high 50s to around 60 range.

Really doing the work right now when you do the netbacks. We've been very proactive with the marketing team in Asia to make sure that we're in front of the customer doing transactions when sometimes they don't make pure economic sense but we think developing those relationships now is a prudent thing to do when the market turns. I mean it hadn't been 15 to 20 months that the 5,000 Kcal was $1800 and I can assure you that works very well. In fact there was a period in time where we were getting a lot better pricing in Asia than we were getting in the domestic market.

So in summary I do think the international markets are going to be very important to Arch Coal over the coming years, but they won't be without pain. I mean you are going to have ups and downs and we have to have the flexibility the cost structure to build, react to those when the prices come down.

Paul Lang

The only thing I would add to that I think John hit at API too and the Indonesian markets fairly well. Well we have had success and we have recently shipped some coal to Japan from West Elk. Those netbacks still work and aren't that bad. You think about it, West Elk has a lower ash and a lower sulfur than some of the Australian coal and it does bring a little bit of a premium to the Newcastle coal, so that's a market that we keep looking for these small things and that's been one of the gains we've had this quarter.

Operator

We'll take our next question from Timna Tanners with Bank of America Merrill Lynch.

Timna Tanners – Bank of America Merrill Lynch

Wanted to just follow up if I could on the Leer mine and want to make sure that I understood if there was going to be incremental or if you're looking to place existing capacity and if there is any additional cost into the fourth quarter that we need to understand?

John Eaves

Well, I think we've indicated publicly that that mine will be 3 million to 3.5 million tons of mostly met. I mean we are in the process of 2014 planning and budgeting right now. We will see what the market conditions are. But given the margin enhancement, the quality of coal, the market opportunities we see for Leer, we are very excited about that going forward.

Timna Tanners – Bank of America Merrill Lynch

Okay. So I am understanding that you have done a planning process, have you ever quantified or do you have an updated amount of information about the supply that you have to the domestic industry just for our own edification?

John Eaves

On what now, excuse me?

Timna Tanners – Bank of America Merrill Lynch

On met coal supply to the U.S. market.

John Eaves

I think if you look at our met portfolio, about 40% of it goes to the U.S. market and the balance goes in the international market.

Paul Lang

U.S. and Canada is 40%.

Operator

We will take our next question from Matt Vittorioso with Barclays.

Matthew Vittorioso – Barclays

Good morning and thanks for taking my question I was wondering if we you could get some high level color on your met costs. Thinking forward into 2014 once you have Leer coming online, I think Arch uniquely has a lot of its met coal coming from longwall operations.

If we think of Arch being sort of a mid to high 16s Eastern cost profile, what -- how does your met coal sort of differ from that mid to high 60s, particularly once you get Leer online, is that significantly higher than the average or just above could you quantify that in anyway?

Paul Lang

What we said in the past is that Leer will fall in a range with our current cost structure. And I think until the mine is up and running, that's probably as good a guidance as we should give.

Matthew Vittorioso – Barclays

And can you comment at all on what you think that Leer quality coal with netback to you guys at the mine in today's market ?

Paul Lang

What we found is this is a little bit better quality, it's been one of the pleasant surprises at Leer , the quality is coming better than we thought. It's had good reception with all the customers as John indicated. The quality of this coal right now if I were to call it probably is in the mid-90s.

Operator

We will go to our next question from Dave Martin with Deutsche Bank.

Dave Martin – Deutsche Bank

I had a follow up question on the earlier discussion about exports. John, I think you mentioned that you think your exports this year will be up 12 million tons. I was wondering if you could give us some level of detail by product, what will make up that 12 million tons.

John Drexler

I am trying to do the math in my head. Paul, do you know the breakdown of our 12 million for 2013 in the export?

Paul Lang

I don't have that at the top of my head.

Dave Martin – Deutsche Bank

Okay. I concluded from your comments on met coal that about 4 million tons is going export, I just didn’t know. What are the remainder was west and east, but I can follow up with you. And then, my second question related question is, at various times in the past you've talked about port and terminal contracts?

And I am curious as to if any of those contacts or relationships are due to expire?

John Eaves

We have got various agreements that have various terms on them. So, I mean we are always in discussion with these guys and they don't all drop off at the same time. But as we have indicated in the past, I mean we exported 14 million tons last year and had revenue associated with those exports of about 1.2 billion tons.

So we couldn't have done that without those type of agreements, so that's something that we are always going to have out there. As I indicated earlier there is always going to be ebbs and flows and we just have to manage against those.

Operator

And due to time constrictions we'll take our last question from David Lipschitz with CLSA.

David Lipschitz – CLSA

So, quick question and just to follow up, most of questions have been answered. In terms of the PRB realization for 2013, does that mean there is a big step-up in fourth quarter for PRB realizations based on the average for the year?

Paul Lang

No, I would not model that, Dave.

David Lipschitz – CLSA

Okay. Could you just -- you have 12.55 and obviously there is a lot -- you are much lower for the first three quarters on average, so I was just wondering.

Paul Lang

Yes. That wouldn't take into account any incremental sales or open market sales we could do out of Ridley.

Operator

At this time, I will turn the call back to John Eaves for closing remarks.

John Eaves

Thank you. Certainly appreciate your interest on the call today. Let me assure you that the management team is focused on the things that we can control. It's managing our cost, our capital, our liquidity. It's really focused on the assets that we think can create the most value and the most growth over the next three to five years and that's our PRB and our met asset.

We are pleased with the progress we are making on the cost side and the capital management and certainly pleased with where we stand today with liquidity. So we look forward to updating you in January on the progress on all those fronts as well as the update on the start-up at Leer. Thank you. We will talk to you in January.

Operator

And that concludes today’s conference call. Thank you for your participation.

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