SunCoke Energy Partners' CEO Discusses Q4 2013 Results - Earnings Call Transcript

Jan.30.14 | About: SunCoke Energy (SXCP)

SunCoke Energy Partners, L.P. (NYSE:SXCP)

Q4 2013 Earnings Conference Call

January 30, 2014 10:00 AM ET

Executives

Ryan Osterholm - Investor Relations

Fritz Henderson - Chairman and CEO

Mark Newman - SVP and Chief Financial Officer

Analysts

Spiro Dounis - JP Morgan

Nathan Littlewood - Credit Suisse

Brian Yu - Citi

Lucas Pipes - Brean Capital

Dave Katz - JPMorgan

Garrett Nelson - BB&T Capital Markets

Timna Tanners - Bank of America

Sam Dubinsky - Wells Fargo

Operator

Welcome to the SXCP Earnings Call. My name is Adriana and I will be your operator for today’s call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now like to turn the call over to Ryan Osterholm. Ryan, you may begin.

Ryan Osterholm

Thank you, Adriana and good morning everyone, and thank you for joining us on the SunCoke Energy Partners fourth quarter 2013 earnings conference call. With me are Fritz Henderson, the Chairman and Chief Executive Officer of our General Partner; and Mark Newman, the Senior Vice President and Chief Financial Officer of our General Partner.

Following the remarks made by management, the call will be opened for Q&A. This conference call is being webcast live on the Investor Relations section of our website, at www.sxcpartners.com. There will be a replay available on our website. If we don’t get to your question during the call, please call our Investor Relations department at 630-824-1907.

Now before I turn over the call to Fritz let me remind you that the various remarks we make about future expectations constitute forward-looking statements and the cautionary language regarding forward-looking statements in our SEC filings apply to the remarks on our call today. These documents are available on our website as are reconciliations of any non-GAAP measures discussed on this call.

Now, I’ll turn it over to Fritz.

Fritz Henderson

Good morning everyone just like to quick summary of the 2013 accomplishment for SunCoke Energy Partners. Interestingly as we think about it, we reached our one year birthday, our anniversary in the month of January SunCoke Energy Partners as the IPO was launched in January of last year as the first field facing MLP. The operations in south, the coke making operations excuse me, Haverhill and Middletown sustain a very high level of operating performance and safety performance in both plants during the year. Coke making capacity utilization was a 108% in the fourth quarter and a 107% for the year.

We also completed two immediately accretive coal logistics acquisitions during the year. One in the third quarter and one in the fourth quarter with $4 million of adjusted EBITDA added to the business relatively quickly. We did receive a favorable private letter ruling on iron ore concentrating and palletizing. And we are seeking a follow up ruling on direct produced iron that we expect to receive early in 2014. The increased cash distributions which Mark will take you through approx by 15% in the first year of the operation. And we remain we think well capitalized of growth within the company.

Mark?

Mark Newman

So, distributions per unit were up 15% for the full year, as you recall we declare the distribution on January 27, which is a 10% increase over Q3 levels that represent a 15% increase versus the MQD rate of 0.4125.

In our first year, we grew distributions in every quarter and we will evaluate future increase in cash distributions as we work with our sponsor on potential drop downs.

Turning to our financial results on chart four. For Q4 and fiscal year 2013. We had another strong quarter for SXCP with adjusted EBITDA up in the quarter and the fiscal year versus the comparable 2012 predecessor levels. In the quarter, we achieved adjusted EBITDA attributable to SXCP of $27.6 million, $24.8 million of which came from our cokemaking operations in which we owned 65%, $4 million related to our newly acquired coal logistics business which is performing in line with the expectations we had at the time of acquisition. Finally, we had corporate cost in the quarter of $1.2 million.

On a full year basis, we achieved pro forma adjusted EBITDA attributable to SXCP of $99.9 million this was at the high-end of our 2013 guidance range. Again as Fritz alluded to great performance for the whole year from our cokemaking operations which contributed a $102 million, coal logistics $4.7 and corporate costs for the full year were $6.8 million. Just a word on corporate cost the $6.8 million is inclusive of direct costs of operating the MLP, allocated costs from the sponsor and acquisition cost for the two acquisitions we included including a $1.8 million payment to DTE related to the Lake Terminal acquisition.

On a net income basis, we achieved $17.3 million or $0.53 per unit in the quarter. On a full year basis net income attributable to SXCP was $58.6 million which equates to approximately $1.81 per unit.

Turning to distributable cash flow on chart 5, we achieved $18.9 million of distributable cash flow in the quarter and $78 million for the fiscal year which resulted in a 1.24 coverage in Q4 according which we had fairly high levels of ongoing CapEx, and 1.28 for the full year versus our target coverage ratio of 1.15.

Our liquidity on chart six. We ended the quarter with $46.3 million in cash. And what you will notice is in the quarter, we drew down our cash levels and we drew $40 million on our $150 million revolving credit facility, and largely to fund the $84.7 million KRT acquisitions.

With respect to working capitals, we had great performance in the quarter largely due to the timing of coal purchases and the increase in payables to our coal suppliers. And then finally on financing cash flows, we distributed $13.4 million to our sponsor for their 35% interest in Middletown and Haverhill, and then we made $13.9 million in distribution to unitholders.

One thing I would say on cash going forward, our cash balance, we expect the cash balance to decline slightly some as we go into 2014. As the spending on the environment or remediation project at Haverhill picks up, but we, as Fritz said at beginning well capitalized to complete this expenditure and to run the business with the available debt capacity revolver capacity and cash balance, we have at the beginning of the year.

As we look at 2014, I am now on chart seven. I’d like to recap briefly, our results for fiscal year 2013. Again we achieved $78 million of distributable cash flow which resulted from adjusted EBITDA attributable to SXCP of $99.9 million. Our full year ongoing CapEx of $9.1 again this is SXCP share was in line with our expectation, but you will notice we had a fairly heavy outflow in Q4 just given the timing of the ongoing CapEx projects.

Finally, you will know this in the calculation, we have a $2.7 million add-back that relates to the $1.8 million DTE payment which again was part of the Lake Terminal acquisition and then $0.9 million of make whole payments from our sponsor for the full year, of which $0.3 million was paid in Q4 based on the higher levels of production at Middletown in the quarter.

Looking at 2014, our adjusted EBITDA range is 105 to 112, which results in an estimated distributable cash flow of $74 million to $81 million respectively. One thing I would say about our guidance for ‘14, obviously both Middletown and Haverhill ran very well in 2013. And in fact we actually produced approximately 30,000 tons above or contract maximum at Haverhill as we were able to sell some coke on the spot market in Q3 and Q4.

We did not replicate the higher level of production in sales in our 2014 guidance, but obviously we will do everything possible to maximize production and sales of those two assets.

Finally in terms of our distributable cash flow guidance, you will notice that we have higher levels of ongoing CapEx related to the coal logistics business and higher levels of CapEx accruals as well, again related to the expanded business footprint of the entity. And then lastly, our cash interest forecast for the year is higher based on the fact that we are starting the year with our revolver partially drawn.

With that, I’ll turn it back to Fritz to make some wrap up comments.

Fritz Henderson

Thanks Mark. Slide eight summarizes our 2014 priorities for SunCoke Energy Partners, starts with maintaining operational excellence within both the coke making operations and coal logistics. And as we look at how do we define operation’s excellence, it starts with safety performance, our environmental compliance and obviously maintaining high levels of operating rates, cost management, yield and profitability across these operations.

I will talk a little bit later during the sponsors call about the impact of the cold weather on the operations across SunCoke Energy. At SunCoke Energy Partners we have seen a small impact at Haverhill from the cold weather start to the year but the Middletown operation has managed the situation pretty well and coal logistics has actually managed the situation pretty well. So the impact of the sponsor from other plants has been higher.

In terms of growth, we plan to leverage coal logistics to grow volumes and pursue potential follow on merger and acquisition opportunities. Pursuing entry into the ferrous value chain, I already made some comments at the beginning of the call about the private letter ruling that was received for concentrating and palletizing and our requested ruling on direct reduction iron which we expect to receive early this year. We anticipate a green field coke opportunity could deliver if successful. And this is really predicated largely on customer commitments which are not in hand today but we are talking to customers about that that could deliver EBITDA growth beginning in 2017. In that regard the sponsor received in the month of December the draft permit for that plant in Kentucky and through the common period during January. So, we were encouraged by that, but that’s just another step in the process.

Finally, in terms of optimizing the business and capital structure, we plan to work with our sponsor to evaluate potential dropdown opportunities. The sponsor had been subject to a series of limitations and restrictions on restructuring activities as a result of the tax spinoff from Sunoco. Those restrictions specifically that relate to restructuring expired on January 18th of this year. So now we're free to work with our sponsor to consider potential dropdown opportunities.

And finally, leverage our existing assets in terms of operations, acquisitions and dropdown opportunities to drive potential increases in cash distributions per unit going forward.

Thank you very much. At this point, we're ready for questions.

Question-and-Answer Session

Operator

Thank you. We will now begin the question-and-answer session. (Operator Instructions). And our first question comes from Spiro Dounis from JP Morgan. Go right ahead.

Spiro Dounis - JP Morgan

Hey, good morning everyone. Thanks for taking my question. Just I had quick questions, I wonder if you could share your thoughts on dropping down additional interest in the coke making assets you already own versus I guess broadening the base with the remaining coke assets, but is there any wisdom in broadening the base, just for diversification purposes?

Fritz Henderson

Spiro, good morning. Thanks for the question. We'll have some more to say about this subject on the sponsors call little bit later this morning. But what I can say is that as I mentioned on the call, we’ve now passed through the January 18th date, we’re free to work with our sponsor to evaluate the optimum strategy for dropdowns. And I would say things like broadening the base, there is a number of considerations as to what the next steps might be. But that would be one of them, but I wouldn’t say we reached any conclusion at this point, we just have some work ahead of us.

Spiro Dounis - JP Morgan

Okay, understood. And then just a quick milling question. So, I noticed coal logistics had about $4 million in EBITDA in the fourth quarter which is just a run rate of about $16 million, but it looks like 2014 guidance is popping out at about $15 million, just wondering if you could reconcile that difference?

Mark Newman

I think -- Spiro, it’s Mark. I think most of the deterioration in our year-over-year guidance really relates to our coke assets. In fact, I would say based on the cold weather we’ve actually seen slightly better performance early in the year on coal logistics. But our assumption is, we will perform close to the run rate that we’re at in Q4 for the full year.

Spiro Dounis - JP Morgan

Got it, great. That’s it for me. Thanks.

Fritz Henderson

Thank you.

Operator

And our next question comes from Nathan Littlewood from Credit Suisse. Nathan, go right ahead.

Nathan Littlewood - Credit Suisse

Good morning guys. Thanks for the opportunity and congratulations on a great first year here. Listen, I just wanted to pick your brains on this whole iron ore MLP thing. I understand what you’re up to with the concentrating palletizing and DRI. But could you perhaps talk a little bit about why you may not have up until now at least or thus far looked at I guess a broader MLP of the iron ore value chain? And then particular reasons why the iron ore side and -- sorry, the iron ore mining side, and perhaps the iron ore logistic side were not appealing to you as an MLP business?

Fritz Henderson

So, Nathan thanks. Let me see if I can kind of go right to the heart of that question. I mean there is work obviously going on to establish our basis for determining whether or not the activities will be qualifying, let me step those aside for a minute. When you take both handling of ore and mining of ore, so on handling of ore, I think we’ll be open to those sorts of opportunities, because it’s consistent with whether we are handling coal or handling ore from our standpoint, I don’t think that would be a significant lead for us.

And it’s our preliminary view that the handling of ore could very well generate qualifying income. With respect to the mining of ore, really not interested in taking the company into the mining business. We will talk a little bit later on the sponsors phone call about, we are now with that January 18 date passing, we are now going to evaluate what our strategic options are with respect to small amount of coal mining we do. But I can tell you with absolute assurance that we have no interest in going into the ore mining business.

Nathan Littlewood - Credit Suisse

Is that a function of the commodity price exposure that you say existing now or are there other reasons for that?

Fritz Henderson

Exactly, you put your finger on it.

Nathan Littlewood - Credit Suisse

Okay.

Fritz Henderson

I mean interestingly our business is all based upon feed per ton, whether it’s a coke making business or the coal logistics business. We generally in their coke business pass through that commodity exposure to the customer. We don’t -- we think we are a manufacturing company and/or handling business. And really in terms of the mining business and the management of commodity prices, it’s a very different core competencies; it’s not really in our DNA.

Nathan Littlewood - Credit Suisse

But if you could set up an MLP such that you could mine iron ore without the commodity price exposure, would that be of interest to you?

Fritz Henderson

Interestingly you probably ought to ask that question to another company, you probably would have. But I would say, we are not a scale miner. I mean when you look at the ore mining business, it’s composed of giants, very big companies. And we don’t -- that’s not our business. We wouldn’t have that kind of sort of scale, that sort of capability and no interest in building it.

Nathan Littlewood - Credit Suisse

Great, thank you very much. Appreciate the opportunity again. Cheers.

Operator

And our next question comes from Brian Yu from Citi. Brian, go ahead.

Brian Yu - Citi

Okay, thank you and good morning. Just follow-up on the iron ore comments you made earlier. Have you had any discussions thus far what sort of facilities that are available out there to miners?

Fritz Henderson

No, we have discussions with potential partners on potential pelletizing opportunities, on even exploratory discussions of DRI. And that's why I would kind of put the circle around that we haven’t expanded it beyond those two.

Brian Yu - Citi

Okay. And the second question I’ve got is, you mentioned the Greenfield coking opportunity in Kentucky, fairly this week U.S. Steel mentioned that they might be looking at building an UVAS and for going to blast furnace. I know it’s a relatively recent announcement, if they do anything, it’s not till 2017. Does this move impact how you guys are thinking about building new coke clients?

Fritz Henderson

Well, there is five blast furnace manufacturers in North America, we pay attention to what each of the five do. So as we look at what U.S. Steel announced in terms of the substitution of the blast furnace in Alabama for an arc furnace, taking the blast furnace capacity out and then increasing black furnace production at other locations. Net-net it would result in a reduction in coke demand for U.S. Fuel when they reach that point. This was not something from our perspective and planning that was totally unexpected, obviously these are decisions taken by U.S. Fuel and by customers. But as we’ve considered the plant in Kentucky, we thought that this could very well happen.

So, I wouldn’t say it dissuades us from continue to do the work, but I think customer -- it would be better if they had from a coke perspective had they continue to run the plant that is customer’s decision. We think net-net probably they would reduce their cost of blast furnace output by about 1 million tons net relative to what they might do with some of their other facilities, which if you just you were to use rule a [thumb] that would reduce coke demand by perhaps 400,000 tons on an annualized basis going forward. We don’t supply -- I mean we haven’t supplied U.S. Fuel to the Granite City facility.

Brian Yu - Citi

Okay. That’s helpful. Thank you.

Fritz Henderson

You are welcome.

Operator

Our next question comes from Lucas Pipes from Brean Capital. Lucas, go ahead.

Lucas Pipes - Brean Capital

Good morning everybody.

Fritz Henderson

Hi Lucas.

Lucas Pipes - Brean Capital

So I also wanted to talk about acquisition, but not necessarily in the iron and ferrous side or even the coke side. But the way it’s been, it’s been a while since we last had an acquisition on the logistics side and I wonder if you still are evaluating additional opportunities where you stand in that process, so if we could look forward to maybe a couple of more bolt-ons over the course of this year?

Fritz Henderson

So we closed the KRT acquisition October 2nd, so few months ago. We are continuing to look at opportunities. We actually like this business. We think that there are some bolt-on opportunities that could be considered. We kind of like that size of that deal. We've got a good management team we brought to board with KRT that’s helping us do that. We don't have anything to announce today and obviously this would be a function of actually identifying and closing on deals. But this is an area where we're actively looking at how might we build on in 2014. Obviously I can't say we have one or two deals in it, but it's an area where we think we have some opportunities, we're doing work and we'd like to.

These are things that can be done, could be done in good size, can be bolted on; we now have a management team to run them. And to be honest, you can close them pretty quickly and move on and they can be done directly within the MLP. So, we're very interested in this.

Lucas Pipes - Brean Capital

Great. I think those are great opportunities. And then maybe just in terms of your leverage ratio, could you remind us where you would like to be what kind of -- and what you're looking at on that front?

Mark Newman

Yeah. So Lucas I think in the MLP what we have said is if you look at our 2013 results of approximately $100 million attributable to SXCP and our current leverage debt and revolver of roughly $190 million, we are below kind of two-to-one today. I think what we've said is we are comfortable with the range of 3 to 3.5 for the MLP. And obviously overtime that will depend on the diversity of assets and businesses in the MLP. But I would say today, we have additional leverage capacity based on our forecast EBITDA for 2014.

Lucas Pipes - Brean Capital

That's very helpful. Congrats again on your first year and look forward to more updates. Great, thank you.

Mark Newman

Thank you.

Operator

And our next question comes from Dave Katz from JPMorgan. Dave, go ahead.

Dave Katz - JPMorgan

Good morning. Hope you’re very well. Turning back to one of the previous questions, you anticipated that something like Fairfield might happen. I was curious if you think that it will continue to happen. In other words if the 1 million that equates to 400,000 tons will turn into 3 million or 5 million as producers take similar actions?

Fritz Henderson

Interestingly, this is the one -- Dave, good morning. Let’s just talk about this as a potential for several years actually. Obviously Mario and his team made this announcement after considerable work and analysis. So as a fact that they’ve been -- have this under consideration for sometime, is on our radar screen. So, it didn’t come as a [contingent] price. And obviously what they said is they’re going to try to increase their blast furnace production at their other facilities so that the net effect to be a 1 million.

When we look around at their other customers, we don’t see the other customers today looking at those worth of actions, none of them are telegraphic. That doesn’t mean they couldn’t do it, but we feel we don’t see the same sort of activity. And I think, I mean I don’t [taper] myself machine in the U.S. field, but I think much of the deliberation was focus around the unique circumstances of --.

So it’s a direct answer to your question. It could happen, but we haven’t heard more, we really sense that that’s under consideration by in any situation.

Dave Katz - JPMorgan

Okay. And then coming back to the environmental remediation, what they understand is that you have the cash and it was effectively pre-funded. But could you just refresh us on what you expect for ‘14 and ‘15 in terms of the outflow there?

Mark Newman

So, Dave, it’s Mark. We spent approximately $27 million on the environmental remediation at SXCP in ‘13. We expect to spend approximately $36 million in 2014, which really will be the lion share of the approximate $70 million or so of CapEx really to do that project at Haverhill.

Dave Katz - JPMorgan

Okay. And so, the remainder of that would come in ‘15, the remaining $7 million and then it would be done after that, correct?

Mark Newman

Correct, it would come in ‘15. So essentially, just to close the loop here, we pre-funded the amount, but we use some of those cash proceeds to purchase KRT and draw the revolver. So from this point forward, we are going to self-fund it at the MLP because it was entirely prefunded by the MLP chose to use those funds to buy a business that would contribute the earnings and cash flow.

Fritz Henderson

Dave, one other thing I want to add to what Mark was saying, when the original project was put together and obviously it involves assets in the MLP and Haverhill as well as one that’s not in the MLP [graffiti]. Our estimate to that point, our best estimate was that total project cost would be about $100 million. SXC is in the Omnibus agreement provides protection to the MLP and you don’t have any overrun that might occur at Haverhill.

Our best judgment today, as the total cost of that project is probably be $120 million approximately we are going to update that as part of our normal filings. Some part of that increase would be [itself] at Haverhill, but that's where the indemnification provisions would come in.

So the Omnibus agreement provides the stand at SXCP is known and won’t be above the amounts that were considered when the MLP was launched.

Dave Katz - JPMorgan

Okay. Thank you.

Operator

And the next question comes from Garrett Nelson from BB&T Capital Markets. Garret, go ahead.

Garrett Nelson - BB&T Capital Markets

Good morning. Thanks for taking my question. In the SXC release, you mentioned that weather would impact Q1 results. Is it pertains to the MLP; I think you addressed weather in the logistics business. But on the coke side at Haverhill and Middletown been impact with and if so, could you give us some direction on what we should be expecting in terms of volumes utilization or EBITDA per ton for the first quarter?

Fritz Henderson

Sure. Obviously, to some degree this is a little bit of guess work, but I’ll give you at least our best judgement at the MLP and what the impact was in the month of January. We think relative to, I’ll call what our normal expected rate would be. In Middletown we might be 2000 tons maybe 3000 tons behind when we won’t wind-up the month of January. Haverhill more likely would be about approximately 8,000 tons.

So, between the two operations during the month of January, we could be 10,000 tons behind given the size of these operations and the fact that's happening in January it’s not like you can make up tons per say, but this is one where -- the impact actually some of the other sites has been larger, which I’ll comment on later. But that's the impact, to directly answer your question that’s been the impact in January.

As to what might be the impact in February and beyond, I just don’t have weather forecast in my [resume]. I think the operations have actually done a pretty good job. These two operations have done a pretty good job managing in the extreme cold. Interesting issue at Haverhill has been more a function of coal, coal handling, coal moisture; my sound bite for the morning was we’ve had cold chunks coming out of some of the cars, some of the rail cars that have rail size of desk. So it’s just been -- it’s impeded production and yield early on. I think we’ll work through them. But I think these two operations have done a pretty good job managing the impact and Haverhill has been larger but that’s about the tonnage impact.

Garrett Nelson - BB&T Capital Markets

Okay, that’s very helpful. Thanks a lot.

Fritz Henderson

You are welcome.

Operator

And our next question is from Timna Tanners from Bank of America. Go right ahead.

Timna Tanners - Bank of America

Hi, good morning.

Fritz Henderson

Timna, good morning.

Timna Tanners - Bank of America

Wanted to just -- since you have kind of opened the door talking about the Greenfield, want to get your perspective on the changes in China and pollution concerns and what you are seeing in terms of the potential impact on the global coke market given less appetite for coking ovens in China and the pollution that that causes?

Fritz Henderson

Interesting question. Where we’ve seen the changes in China impacting is actually not been in SXCP, it’s been at our India joint venture where we’ve seen either imported coke actually more directly the possibility of imported coke from China had a depressing effect on prices in the Indian coke, not seen any impact on the U.S. nor -- I have to think about it more Timna, but I don’t necessarily see it impact on U.S. coke making as a result of China curtailing production because of pollution concerns. I think about it more but sitting here today, we haven’t seen the impact, don’t necessarily think we would see it.

Timna Tanners - Bank of America

Could help the global balance, that’s why I was wondering about in terms of 2017.

Fritz Henderson

Of course, yeah. I mean interestingly the estimates of overcapacity in China are not I'll call a precise measure. I have seen numbers as high as 200 million tons of excess coke production capacity in China. Obviously China is so large. Yes. So, any activity that might reduce obsolete and/or polluting coke plant would have a favorable impact certainly in the environment in China and on coke balance on a global basis, but that number, the estimated overcapacity is still pretty big number.

Timna Tanners - Bank of America

Sure. Okay. I wanted to just ask on that. And I think the second one, wanted to know if you can characterize your conversations with some of the miners, we're heading into a third year of very depressed coal markets. Does that mean they got a greater or smaller appetite for divesting some of this midstream or handling assets, if could you just characterize those conversations or how they might changed in recent months?

Fritz Henderson

I would say our conversations continue to be productive. I wouldn't say they’ve changed fundamentally interestingly, we got into the coal handling business really seriously and when we close KRT October. So, I wouldn't say we've seen any change in tone from October till today. I'd say that there are some good opportunities out there.

Timna Tanners - Bank of America

Okay. Thank you.

Fritz Henderson

You’re welcome.

Operator

And our next question comes from Sam Dubinsky from Wells Fargo. Sam, go ahead.

Sam Dubinsky - Wells Fargo

Great. Sam Dubinsky, Wells Fargo. Thanks for taking my question.

Fritz Henderson

Sam, good morning. I know your last name, so go ahead.

Sam Dubinsky - Wells Fargo

In terms of coal logistics, can you just remind us what percentage is thermal versus metallurgical? And how do you see those volumes playing out in ’14? Obviously I think thermal should be a little better because of the cold weather and met-coal I think obviously a little bit softer. Can you just talk about the mix and how those volumes trend?

Fritz Henderson

Sure. So, Lake is a 100% met, I mean that’s obviously feeding our Indiana Harbor coke plant. But on KRT, more directly to your question, we did the acquisition, we expect it to be about 55% net 45% steam. And yes, we have seen certainly early this year upticks in volume opportunities in the steam side.

Sam Dubinsky - Wells Fargo

Okay. And what about the met side, is that stable or is that -- has that planning versus your expectation?

Fritz Henderson

Met is stable.

Sam Dubinsky - Wells Fargo

Okay, great. And then you mentioned your target coverage ratios of 1.15 and leverage ratios 3 to 3.5; how long do you think it will take to get to those levels as you optimize the MLP structure?

Mark Newman

So, I would Sam, it really depends on we would likely do this around either an acquisition and/or a dropdown from our sponsor. We did mention on the call that we will work with our sponsor on that. So I would say we would likely time any change, fundamental change in our capital structure around a transaction where we need funding from the marketplace to get to a more optimal level.

Sam Dubinsky - Wells Fargo

And should we also assume that the distributions go in hand with that, so this is sort of the steady state and at which point you do a deal on the distribution’s hockey stick up or do you plan to sort of gradually ratchet up your distributions?

Fritz Henderson

Sam, I think obviously that’s a matter for the Board, they consider it. If you’ve seen our actual experience, you’ve seen we’ve been interested in increasing distributions we have done so. And as I said in my summary chart, combination of -- we still -- the operations are running well, we have good coverage ratios between that, the opportunity to do acquisitions and the opportunity to dropdowns, they get certainly in area that we’d like to do but it’s a matter that just going to have to stay tuned.

Sam Dubinsky - Wells Fargo

Okay, sounds great. Congrats.

Fritz Henderson

Thanks.

Operator

And we do have a follow-up question from Brian Yu from Citi. Brian, go ahead.

Brian Yu - Citi

Thanks for a follow-up. I got a couple of clarification questions on guidance. Just first, my understanding is that, you guys had a great year obviously in coking last year and the premium that you get that incrementally we get is also a function of net coal prices. So embedded in your guidance for 2014, what’s the year-on-year decline in that premium for yield because met coal prices have dropped?

Mark Newman

So actually, we don’t get a premium for met coal prices, we [pact] through. So it’s really not, it doesn’t affect the SXCP brands. I’m trying to make I understand your question.

Brian Yu - Citi

And just rising from a higher yield, you’ve got a base [loan] yield that you contracted; actually you get a higher yield than that. My thought was that, you guys actually get that incremental benefit for higher yield?

Fritz Henderson

We do.

Brian Yu - Citi

Okay.

Mark Newman

Brian yes, yield is worth less when coal prices are lower. So I guess that is a year-over-year unfavorable trend for all of our coke plants. I would say the primary driver really is two-fold; one, lower volumes because we are budgeting based on contract maximum. And secondly, I would say there is an element of conservative, I mean our Haverhill numbers, because we have a fairly large environment for remediation project ongoing at that facility, while we are running the plant.

So I would say the combination of those two factors and then against a year where we really had stellar results in every quarter including our beginning of last year where we’ve had significant coal gains that we are not annualizing in our guidance. So, I think it has to do more with production, some conservatism around the work at Haverhill. And then as you pointed, yes, yields are worth less and we will see that either in our coal gains or our ongoing yield performance.

Fritz Henderson

So Brian, I mean one last point on that. When coal prices went from 175 to 115 that was a pretty marked change, coal prices moving from 115 to 102 or 103, obviously they’re going to affect, but it’s not as significant.

Brian Yu - Citi

Okay. And the other one on guidance is just you might have given this earlier, but what's range of EBITDA associated with this 17 million to 20 million tons of coal handling?

Mark Newman

Yeah again, I think our guidance really is in line with our run rate in Q4 of about $15 million to $17 million of adjusted EBITDA.

Fritz Henderson

Within the logistics business.

Mark Newman

Right.

Brian Yu - Citi

Great, thank you.

Fritz Henderson

Thank you, Brian. At this point I’m advised that we have no further questions, so thanks very much for participating in the call for SunCoke Energy Partners. Thanks very much for your continued interest in SunCoke Energy Partners during our first year of operation. So, thanks and have a good morning.

Operator

Thank you, ladies and gentlemen. This concludes today’s conference. Thank you for participating. You may now disconnect.

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