Massey Energ CEO Discusses Q3 2010 Results - Earnings Call Transcript

Oct.27.10 | About: Alpha Appalachia (MEE)

Massey Energ (NYSE:MEE)

Q3 2010 Earnings Call

October 27, 2010 11:00 am ET

Executives

Baxter Phillips - President, Executive Director, Member of Finance Committee and Member of Safety, Environmental & Public Policy Committee

Don Blankenship - Chairman of the Board, Chief Executive Officer, Chairman of Executive Committee, Chairman of the Board of A T Massey, Chief Executive Officer of A T Massey and President of A T Massey

Eric Tolbert - Chief Financial Officer and Vice President

Roger Hendriksen - Vice President of Investor Relations

Analysts

Jeffrey Cramer

Shneur Gershuni - UBS Investment Bank

Michael Dudas - Jefferies & Company, Inc.

David Khani - FBR Capital Markets & Co.

Jeremy Sussman - Brean Murray, Carret & Co., LLC

Operator

Good morning, everyone and welcome to the Massey Energy's Third Quarter 2010 Earnings Conference Call. [Operator Instructions] Roger Hendriksen, Massey Energy's Vice President of Investor Relations, will now provide opening remarks. Please go ahead, Mr. Hendriksen.

Roger Hendriksen

Thank you, Nathania. Good morning, everyone, and thanks, for taking the time to join our call this morning. We appreciate your continuing interest in Massey Energy Co. As you know, we distributed our third quarter press release after market closed last night, and if by chance, any of you have not seen it, it is posted in our website and has been furnished to the SEC on Form 8-K.

The members of our management team who will be speaking with you today are our Chairman and Chief Executive Officer, Don Blankenship; our President, Baxter Phillips; and our Chief Financial Officer, Eric Tolbert.

Before we begin, I need to remind you that the statements made in this presentation, which are not historical in nature are forward-looking statements, made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 and are based on current factual information or certain assumptions, which management currently believes to be reasonable. Financial and operational results for future periods may differ materially from current management projections, as a result of factors outside the company's control.

Information concerning those factors is available in the company's 2009 annual report on Form 10-K and other periodic filings with the SEC. In providing projections and other forward-looking statements, the company does not make and specifically disclaims any undertaking or obligation to update them.

With those formalities out of the way, I'll turn the call over to Baxter Phillips.

Baxter Phillips

Good morning, and thank you for joining us. Planning productivity in the third quarter continue to be hampered by issues related directly or indirectly to the UBB tragedy. Specifically, increased inspection activity and more stringent enforcement actions by MSHA, led to disruption of operations and lost ships. In total, approximately for 450 ships were lost during the quarter due to regulatory issues.

Nearly 30% of these were due to delays in the approval process for ventilation or other mine plant changes. We estimate that the lost ships reduced our plant production by approximately 230,000 tons. In addition, and consistent approval or denial of the use of scrubber technology and continuous miner sections, has forced shorter cuts and increased equipment moves that lower productivity, and in our view, increased the risk of accident and injury. As a result of MSHA's new policies, we believe some of our older mines with more extensive underground works may need to be idle as they become impractical to operate.

Needless to say, management focus and attention continue to be distracted, as the management team supported the federal investigation at UBB. As a result of these issues, productivity is measured in feat of advance per shift in underground mines, declined by 16% in the third quarter of 2010, as compared to the first quarter of 2010 prior to the UBB accident. Production costs per ton in the underground mines increased by 13% over the same period.

In response to the decreased productivity, we have refocused management and production numbers on training and efficiency improvements. Chris Adkins, our Chief Operating Officer was until recently, spending all of his time on activities related to UBB. He is now able to focus more of his attention on mining productivity. To assist him, Chris has promoted Jason Whitehead to be Vice President of Underground Operations. Jason will work directly with Chris, focusing on mines that are not meeting our productivity standards.

As a result, we have seen productivity stabilized and improved slightly each month during the third quarter. More significantly, underground productivity during the first three weeks of the fourth quarter was up by approximately 10% over the third quarter average. We expect future production to be aided by the recommencement in September of the Revolution's longwall mine and the recommencement of operations in mid-October at the Sprouse Creek preparation plant, which has recently been modernized. The Revolution longwall mine has the capacity to produce approximately 1 million tons of metallurgical coal annually. The mines feeding this Sprouse Creek facility, provide approximately 400,000 tons of additional annual production capacity, most of which is also metallurgical coal.

More underground sections that can be in this facility may be added in the near future. We also anticipate the startup of the Zigmond processing facility in early December, which should add approximately 1.2 million tons of annualized met coal production capacity. At this time I'll turn the call over to Eric for a discussion of our financial details for the quarter.

Eric Tolbert

Thank you, Baxter. For the third quarter of 2010, we reported a net lost of $41.4 million or a lost of $0.41 per diluted share. The net results included pretax charges of $14.5 million related to the UBB tragedy. Excluding these UBB charges, we reported a net lost of $33.8 million or a lost of $0.33 per share. This compared to net income of $16.5 million or $0.19 per diluted share in the third quarter of 2009.

Our produced tons sold totaled $9.9 million in the third quarter of this year compared to $8.7 million in the third quarter of 2009. Our average produced coal sales realization is $71.24 per ton in the third quarter was $9.45 per ton higher than in the third quarter of 2009. This improvement was driven largely by higher average prices, realized on thermal and met coal tons. The higher thermal coal prices were primarily attributable to the addition of higher priced thermal coal contracts assumed in the acquisition of Cumberland Resources. Average cash cost per ton for the third quarter of 2010 was $62.50 per ton, excluding the UBB cash charges. This compared to $49.81 per ton in the third quarter of 2009. These figures both exclude SG&A costs.

Lower productivity attributed to increased regulatory enforcement actions, temporary shutdowns and higher surface mine ratios were the key drivers of the cost increase. In addition, wage-rate increases were implemented during the quarter, driving an increase of about $0.70 per annual ton. At September 30, 2010, Massey had cash and cash equivalents totaling $477 million. This compared to $665.8 million at December 31, 2009. In addition to our cash and cash equivalents, we had $94 million available under our asset-based revolving credit facility for total liquidity of $571 million at September 30, 2010.

Total debt at September 2010 was $1,311,300,000 compared to $1,319,100,000 at December 31, 2009. Massey's total debt-to-book capitalization ratio was 40.9% at September 30, 2010, compared to 51.2% at December 31, 2009. Capital expenditures for the third quarter of 2010 totaled $114.6 million compared to $43.8 million in the third quarter of 2009.

Depreciation, depletion and amortization was $92.5 million in the third quarter of 2010 compared to $66.3 million in the third quarter of 2009, and DD&A for the third quarter of 2010 included $17.3 million, an amortization of above market sales contracts and other intangible assets acquired in the acquisition of Cumberland Resources. And $1.4 million in additional write-downs resulting from UBB tragedy.

Remainder of the increase was attributable to tangible assets acquired from Cumberland. Now at this time, let me turn the call over to Don.

Don Blankenship

Thanks, Eric. I want to start my comments this morning with a few words about the issues raised by the Wall Street Journal last week. Our Board of Directors and management team conduct an annual review of our strategic options, typically during this time of the year. The board is exercising it's fiduciary duty by looking at options to increase shareholder value. They are conducting a very deliberate process to consider all options.

We cannot comment on any specific opportunities. We recognized that the tragedy and result of ongoing impacts on cost and productivity have negatively influenced share price. The board is focused on optimizing shareholder value. Now let me give you an update on UBB.

The investigation at UBB remains difficult. Nevertheless, a great deal of work has been done and we have some preliminary observations about what happened. We are certain that methane was the fuel for the explosion. Immediately prior to the exposures, three separate handheld methane monitors recorded no methane. At the time of the explosion, maximum methane readings were recorded on each monitor. Similarly, post-explosion monitoring by MSHA showed that methane levels in the mines atmosphere were over 4x higher than normal. Explosive force indicators underground strongly suggests that the explosion was initiated in the tailgate entry of the mine, and preliminary computer models strongly suggests that an invasion of methane in the tailgate entry was the cause of the explosion.

We do not believe that coal dust was a meaningful factor. We continue to negotiate with MSHA as to what we will be allowed to do in regard to conducting our own UBB investigation, and we are working hard to conduct the most thorough investigation possible.

We also learned late last week that MSHA has denied our request for permission to open a new mine adjacent to UBB in the same coal reserve, a possibility we had discussed in our last conference call. Land production from this potential mine has been removed from our 2011 production plans, and the reduction has been incorporated into our new guidance. Now let me wrap up with some comments on our view of the coal markets going forward.

In the United States, several macro issues are combining to drive coal demand lower. One key factor has been the increased production and lower cost of natural gas. Averaging about 385 per million BTU, low-cost natural gas displaced and estimated 40 million to 50 million tons of coal in the power generation sector in 2009. Gas process had rebounded somewhat this year, but we do not expect coal to regain a significant market share at the current price levels.

Challenges to our efforts to permit new coal-fired generation plants have led most utilities to scrap future plans to add coal-fired capacity. Projects already under construction or have already been permitted will likely add 18 gigawatts of coal-fired capacity between now and 2015. This could add approximately $50 million tons of annual coal demand. Beyond 2015, we expect coal-fired generation capacity will begin to decline. In the Southeast, we expect met coal generation capacity will be lower in the next five years, resulting in a lost of approximately 5 million tons of coal demand annually.

In total, U.S. coal demand is expected to decline by approximately 0.5% annually from 2010 to 2013. Global coal demand is a completely different story. Globally planned coal-fired generation capacity additions over the next five years amounted to 382 gigawatts of capacity, and nearly 1 billion tons of coal on an annual coal demand basis. Most of this growth in Asia. In addition to the increases in power generation, steel production and the demand for metallurgical coal are growing significantly, total global seaborne imports could increase by as much as 100 million tons over just the next five years.

Approaching 290 million tons by 2015. China and India will of course, see the greatest growth. We believe this global dynamics represent tremendous opportunity for Massey. The high quality of our coal, the scale and efficiency of our operations and our proximity to East Coast and Gulf ports, allow us to participate in coal markets around the world. We plan to increase our Central Appalachian market share from approximately 19% to around the 30% over the next five years. We have already begun this strategy by increasing our metallurgical coal production capacity. We've also expanded our access to the ports on East Coast and in the Gulf, acquired additional loading capacity on the river and secured extended contracts for barge capacity.

Driven by the strong growth dynamics globally and constraints on the production domestically, the pricing outlook is favorable. We have heard of prices for high-quality, high volume met coal north of $180 per short ton of demand. The forward price curve for 125 BTU low sulfur thermal coal is above $82 in 2013. Given the strong pricing outlook and our expectations for increasing production and stabilizing costs, we expect to generate record EBITDA in 2011. This concludes our prepared comments. And now we'd be happy to answer any questions you may have.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Michael Dudas with Jefferies & Company.

Michael Dudas - Jefferies & Company, Inc.

Don, when I look back at the UBB, when beginning of 2010 and your outlook from Massey's 2011 tonnage, the estimate was 37 million to 44 million tons. Now I'm going to assume Cumberland is pretty much flat, given year-over-year. So in the 4 million ton reduction in 2011 core Massey volume, could you maybe share with us what's driving the 4 million-ton reduction on midpoint? What parts is productivity, what parts weren't shutting down the higher cost mines that you talked about in your release? What part is the mine year the UBB, or any permit or surface issues regarding some of the reductions at the core Massey mines?

Don Blankenship

Let's say if I was putting it in through for big categories, based on the fact that we can't reface UBB, at least in the near term, or we're uncertain of when we will be able to, it might be taken a million of those four. I would say that we've now baked in the fact that we may have as many as 2 million tons of order mines with large areas of our works and sealed off areas that were not fully certain of what we will do. But we're getting lots of our relations at those operations under the new scrutiny and field works and so forth. But present a lot of challenges and that might be 2 million. And then the other million might be just the reduction in productivity that's resulted from baking in what we've been experiencing since the tragedy in terms of production levels today versus the previous guidance appeared.

Michael Dudas - Jefferies & Company, Inc.

My follow-up Don is what's your expectation of 10 million to 14 million tons of 2011 met coal shipments? Could you share with us what drives the low end versus the high-end? And your overall target by the end of 2012 of having 20 million tons of met coal capacity? Is that still as you've gone through your annual overview with the board and the management team, that's still a realistic goal, given the changes you've made in this release?

Don Blankenship

On the second question, first, without UBB, we may be at 19 million instead of 20 million, but there's no fundamental change there. And I suspect that once the UBB investigation is fully competed or we have more time to focus on that place up and the case that it should be allowed, and we would probably be back to that kind of capacity. As far as 2011 and why it's 10 million to 14 million instead of 12 million to 14 million or something higher, it's all a matter of placing the coal, as opposed to producing the coal. What we see is that last year, you had the highest prices were low vol and then high quality, high vol and then you go to the B quality. This year, we're seeing extremely heightened demand for high quality, high vol, and of course, continuing on the low vol. But we see a little bit of resistance at this point on the B quality met coals. And so we're looking at what's going to happen in the exports team market. Whether we're going to be able in some of these higher cost mines, either in the PCI market or in the low quality both in coal to get process that we want to continue to operate certain mines. So the flexibility there is primarily that the B quality or the lower quality high vol market is uncertain. And of course, we still have in the back of our mind that when we were about this stage of 2008, looking at 2009, we saw total change in the market downward in the previous year 2007. About this time looking at 808, we saw a big change in the market in a positive way. So there's still a lot of potential for change in the market and a lot of uncertainty around the B quality met coal.

Operator

Our next question comes from Jeremy Sussman with Brean Murray.

Jeremy Sussman - Brean Murray, Carret & Co., LLC

Don, it looks like you've priced about 600,000 tons of met coal in Q3. Have you signed any more tonnage in recent weeks? And I know you talked a little bit about -- in general terms what you're seeing on the B quality side? But can you maybe talk about some pricing for various grades, maybe a little bit less than A, high vol and things like that?

Don Blankenship

We did sign some met coal for '11 in the quarter, and it'll probably average 155, 160 of different qualities. I think, we're going to see an extremely high priced, and be able to sell whatever quality of high vol we want. But I don't that we know how many tons we can push out away. If you look at our numbers we're at about 8.5 million or so, whatever it is in 2010. So to get to 14 million, we have to push 5.5 million tons out of the market, which means, or someone else out, or it will have to be India, Asian type of growth, Chinese growth. So I'm not at all sure of what to expect when we begin to gather up that kind of market share or depend entirely on Asian growth for that demand.

Jeremy Sussman - Brean Murray, Carret & Co., LLC

Looking at your Cumberland production, can you give us a sense of how the market has been receiving that as a net product? And maybe your expectations, let's assume that prices kind of firm up and there's a market for the B quality stuff? How much, let's say by 2012, do you think of the Cumberland production could we see as a Met product?

Don Blankenship

Baxter speaks to that specifically, but I will say that now that we've gotten familiar with Cumberland, the met qualities are better than we thought, but probably to the highest side of the other B quality. In other words, they're probably good coal. And We're continuing to look on ways to switch off even in '11. But I'll let Baxter speak to where we might be in '12.

Baxter Phillips

First of all, the met coal has been well received by the steel community for the coal that we put into the market. Obviously, at this point, we put a limited amount in. As I said in the last conference call, because of the lost production at Upper Big Branch, we have the opportunity to work with some customers, shifting some qualities around and introducing this coal into the market. And it has been indeed, well, received. We should note that the Cumberland production is included in the overall 20 million tons of production that we're talking about for metallurgical coal going forward. Next year, in 2011, we would -- this limited amount that's moving into the market, I think that for 2012, if I recall correctly, it should be somewhere in the, maybe 2 million-ton range, that's with 5 million tons ultimately moving into the market.

Operator

Our next question comes from Shneur Gershuni with UBS securities.

Shneur Gershuni - UBS Investment Bank

In your prepared remarks, you attribute some of the challenges that you've been having in the guidance revisions to MSHA in the increased regulatory scrutiny. It seems that Massey's kind of in the -- under a microscope, more so than some of the other companies. And you've attributed some of the recent stock underperformance and so forth. Can you give us some color on what you're doing, specifically to try and hit the reset button, to try and to improve the relationship there to try and not being singled out the same way, as some of the other producers are?

Don Blankenship

I think I can do it. We're the ones who had a tragedy. And that's something we can't change and that brings a lot of focus. And, of course, to many respects, our size and our prior success and our paradigm breaking and so forth, brings with it some attention. What we're doing about it is we're trying to communicate with them at all levels. We are adding a, what we're calling, rescue teams. But actually, there are also hazard reduction teams or violation reduction teams that will act much less internal inspectors. I think in the past, we've had like 20 some of these types of people, but we'll have 50 soon. They will do rounding off in random surprise, sampling or reviewing or inspections, I should say. We have rewritten every underground job description at Massey, so that we can attribute certain task to specific individuals and are going to have in place a system, that every violation is assignable to one of our 3,000 underground miners, so that we can begin to use that in their annual reviews or in random reviews to discuss with them why their area of responsibility was the one that got the violation. Of course, I think everybody knows about the stand down this Friday. As someone has been in the business for a long time, I know that one of the biggest challenges we have is getting thousands of people who are working miles underground in the dark at night to do exactly what you've trained them to do, when perhaps, it's a little easier to do something different. It's also a challenge that we've trained our people for years, that they would be discharged or disciplined, if they weren't running there's scrubbers. And now, we had to teach them they will be discharged or disciplined if they are running their scrubbers, and we've got that situation, that ventilation being different than has been for a long time. So the challenges are significant. The effort we're putting behind it, I think is even more significant, whether it'd be the stand down, the additional personnel, the job descriptions, the holding individuals accountable. We've developed probably seven different training films on everything from roof boulders, to how to take a rock-dust sample. We're going to take our own rock-dust sample analysis, and have our fire bosses doing rock dust sampling in the out-fire areas. So I could go on and on with details, but I'd give you that much detail rather than -- I could talk for an hour about how many things we're doing, but you can rest assure that we're doing everything we can to comply better than anyone else in the industry.

Shneur Gershuni - UBS Investment Bank

And I guess as a follow-up to that question, your cost guidance changed for 2011, seem somewhat muted, given the amount of tons that were taken offline. Is it you're seeing some of these implementations and some of these practices that you're putting in place, starting to see the productivity flow through and it's giving you some confidence as you look towards 2011?

Don Blankenship

We've seen the productivity come through a little bit. I think there's a lot of room for it to improve. I mean we have at Massey, developed what we think are the best ventilation and the best equipment and the best techniques in the industry. And we're going to have to abandoned some of that to satisfy MSHA, and of course, that takes some retraining. And with the mines all having different, ventilation plans and different cut consequences come and so forth, you will no longer can have a meeting and have 100 coal miners in the room and describe what you want them to do, because you got to have 10 different meetings with 10 people and describe them what to do. So that process is longer than we would like. But we're trying to develop best practices for any scenario, whether you're on a 20 foot cut with no scrubber, or whether you're on a 35-foot with a scrubber, or whether you have a section that on one side, there's 35 foot with the scrubber, and the other side is 20 foot without a scrubber. So what was best practices that could be fairly well applied across the board, is now best a practice for every-single section. But we are encouraged that we're getting our arms around it, it's just going to take a while. But we will, I think, outperform the industry as soon as we get everybody on board.

Shneur Gershuni - UBS Investment Bank

Your open position for next year on the met side. How much is sitting in the high vol, A quality category versus B?

Don Blankenship

Eric's going to look at that. I'd say, we may not have it too readily available. But if you go to the higher number of 14 million, there's probably 5.6 million tons unsold. And I would guess 3.5 million of that or so is the lower quality. What is it Eric, do you have it broken out?

Eric Tolbert

Not specifically in that area.

Don Blankenship

See we don't break out anything we have in front of us as to A quality and B quality, because we do so many blends and so forth. But we have enough unsold and sold low vol and high-quality, high vol to make the 10 million-plus. And then the tons that we are a little bit nervous about is the B quality. But I went upstairs before I came down here and talk to the sales department, and they're a lot more optimistic. I simply wanted to put a number in there that didn't cost us to be dependent on the B quality coal movement. Because basically what's happening is the customers are buying the low vols and high vol high qualities, but on the B quality, they're just not buying. And so they will buy it at some point in this process, but they haven't, yet. And again to answer your question, there's probably 5.6 million total with 3.5 million of B quality or so.

Eric Tolbert

And I would say, Don, that you can have a breakdown between high vol and high vol B on the 4 million tons that we have, priced and committed. It's pretty balanced between the higher quality and lower quality at this point.

Operator

Our next question comes from David Khani with FBR Capital Markets.

David Khani - FBR Capital Markets & Co.

Can you give us a little bit update from your side about what's going on with the UBB investigation? And I know, they've been restricting you guys from doing your own and so I'm curious of what's going on?

Don Blankenship

Yes, I know that there's been a lot of write ups out there about my out spoken that's about the investigation, let me say on the front end. But we have such a tremendous responsibility to these families and our coal miners to make it as less likely for this to reoccur as humanly possible that we very much want to get experts and people in the mine and technology in the mine. And figure out as close as we can what happened, and make sure that we do pragmatic things to not only prevent it happening at Massey, but in the industry. And we have already learned that there are higher technology methane detectors, and we've already convinced ourselves that more methane monitors in different locations and so forth would be an improvement. We don't believe that verification and what happens three and four years ago, are as far as somebody not having everything perfect in terms of equipment or whatever is the answer to the problem. The frustration has been, that we've had experts on our payroll, that are explosive experts that much like an arson experts or something, can figure out what fueled it and how it spread and where the -- at the center of it was based on the way things were blown and so forth. And, as well as ventilation experts and civil engineers, and they have not been allowed to go in as a team during this entire six-month process. And look at the cracks and look at where things are and take high quality pictures and so forth. And instead, it's been inspectors from MSHA doing an investigation. In my opinion, it's not as likely to get the answers that we need. What's happening now is we have high-technology equipment that are figuring out exactly what the configuration of the entries are in that area, where stuff went to. We'll do testing to see how much heat in certain areas are experienced, we will test different ventilation plans on computer models, which we already have to determine what would happen if the door was open, versus if it was shot. What kind of velocities were in there, how the fire or whatever might have spread in which directions and for what reasons. So once we figured that out, which we are in the process of doing, if we're allowed to continue, then we will know a lot better how to prevent it, and where to put or place methane monitors and what types of methane monitors to use, and that's -- I hope that's a response.

David Khani - FBR Capital Markets & Co.

Yes. And what do you think from their side, how far along do you think they are in their investigation? Have you heard anything?

Don Blankenship

I don't know what they would say, but I think their underground investigation is probably 80% or 90% complete. I'm sure they have to have meetings among various experts, and probably even with [indiscernible] input as to what they should say caused the explosion. If you look at their public release information, they've been focused on bruised out methane monitors, which I don't think they have found any evidence of it, and focused on this post explosion dust sampling, which has been proven unusable in prior explosions, because the explosion itself makes the best sampling irrelevant. So it seems like from what they've put out publicly, that they're not looking at it, in the same manner we are. But then again, what they're doing in their private offices, I'm not sure. But we're convinced that we can make an improvement. And going forward, safety of our coal miners. And that's what has to be our priority at this point.

David Khani - FBR Capital Markets & Co.

Let me move to something a little different. Capital spending, you raised capital spending a little bit. Can you talk a little bit about where it's going and sort of the targets?

Don Blankenship

I'll let Eric speak to some of that in terms of number. But basically, what we're doing is we've launched the construction of the Marianna plant, which is the one that will wash lava coal. We have two sections around now, the coal is being processed under contract by another operator, and we have section going in, in the next few weeks that will ultimately feed this new plant. That plant is probably a $50 million, $60 million plant, and we're starting on it now. The whole job counting the new low valve, they'll probably get up in the $120 million range over two to three years. So that project has been launched. Of course, when Bandmill caught on fire for the second time, I went over there and watch the fire and was alarmed by the fact that it's become commonplace in the industry to use. Certain types of plastics instead of steel and so forth. And we redid the Bandmill plant with steel piping and so forth. And changed some cyclones and so forth, that I thought were more flammable than they ought to be to make it less flammable. And then we've looked at over our other plants in that regard. And then of course, we've had as seems to be the case for a long time, continued spending on sellthroughs and other devices that are related to regulatory enforcement, and has spent more money there than we anticipated. Going forward, next year, I think we're still in a number around $500 million. Even with that, we should generate $200 million, $300 million free cash flow, depending on other things. So I think you can count on us, putting in state-of-the-art prep plants and coal mines and complying with all these safety things and being focused on metallurgical coal coproduction increase.

Operator

Our next question comes from Jeff Cramer with UBS Investments.

Jeffrey Cramer

I was just talking a little bit about the pricing guidance for 2011? I guess just with the -- I think with some of the tons that came out of the forecast on the sale side was on the thermal front. And I guess I would've expected the pricing guidance to be up a little bit, particularly with met coal prices doing a little better. Could you quantify some of that?

Don Blankenship

Yes, the easy simple quantification is when you drop that bottom number on the met from 12 to 10 and take 2 million tons like 120-dollar ton over the average, you drop about $100 million out of the revenue, if you assume that you dropped out 2 million tons of met coal. So you basically would drop the average about $1 or $2, and we decided we ought to drop the low end of the price range, from $82 to $81, because we dropped the met tons from $12 to $10. And I think we moment ago, we were talking about how cautious we're being there. But once you drop 2 million of the met tons up, it push you down $1 or so. On the midpoint, and we just sort of surrounded the midpoint with that $81, $86 range.

Jeffrey Cramer

And just on the various grades of met coals that you guys have, could you just kind of comment on the price points that you're seeing for each? You touched on it a little bit earlier, but just, if you can kind of go through from low vol to the higher quality high vol to the lower quality high vol?

Don Blankenship

Again, if you first realize that we are blending, so it get's really complicated in real life. But basically, the low vol coal that be produced is probably 160, 175 type product because it's not only low vol and it's high quality, and we do have some mid vol. So if you put those in at 160, 170, the high vol high-quality coal like Marfork has been a surprise. I mean we've seen prices, 160, 180, it doesn't mean you're going to get those prices everywhere, but you've at least, we've gotten some of those prices, and we see that market being real short of coal. You've had some idlings like UBB and others, and there's increasing demand to get maximum yield out of coke ovens. So as coke ovens are being built in Brazil and everywhere else, everybody is trying to get as much big on mill for a ton of coke as they can. So you're seeing these high quality coals jump the way up. And you're seeing the B quality coal, which is the one that slips on probably in the 110, 120 range. And the PCI coal, probably in the 90 to 110 range. So that would be the ranges, and of course, it all depends on the exact quality of the blends, the transportation, the customer's preferences and all.

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