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Massey Energy (NYSE:MEE)

Q4 2010 Earnings Call

February 02, 2011 11:00 am ET

Executives

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

Bobby Inman - Chairman of the Board, Member of Compensation Committee, Member of Governance & Nominating Committee and Member of Executive Committee

M. Harvey - Vice President and General Counsel

Mark Clemens - Senior Vice President of Group Operations

Eric Tolbert - Chief Financial Officer and Vice President

J. Adkins - Chief Operating Officer and Senior Vice President

Roger Hendriksen - Vice President of Investor Relations

Analysts

Brett Levy - Jefferies & Company

Andre Benjamin - Goldman Sachs Group Inc.

Shneur Gershuni - UBS Investment Bank

Brian Gamble - Simmons & Company International

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

Mark Levin - BB&T Capital Markets

Operator

Good morning, and welcome to Massey Energy Company's Fourth 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

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

Today, you'll be hearing from Admiral Bobby Inman, the Chairman of Massey, as well as members of our management team including Baxter Phillips, the Chief Executive Officer and President; Chris Adkins, Senior Vice President and Chief Operating Officer; and Eric Tolbert, Vice President and Chief Financial Officer. Mark Clemens, who is Senior Vice President of Group Operations; and Shane Harvey, Vice President and General Counsel are also on the line and will be available to answer questions.

Before we begin this morning, I need to read a rather lengthy legal disclosure. I'm going to try to do it with as much dramatic flare as possible but quite frankly, the material I've been given just isn't that exciting. Please bear with me for a few minutes as we work through this.

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 and 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. This communication may contain information on the proposed acquisition of the company by Alpha Natural Resources Incorporated, which was announced on January 29, 2011.

The following factors among others could cause actual results to differ from those set forth in the forward-looking statements. The ability to obtain regulatory approvals of the transaction on the proposed terms and schedule, the failure of Alpha or Massey stockholders to approve the transaction, the outcome of pending or potential litigation or governmental investigations, the risk that businesses will not be integrated successfully or such integration may be more difficult, time-consuming or costly than expected, uncertainty of the expected financial performance of Alpha following completion of the proposed transaction, Alpha's ability to achieve the cost savings and synergies contemplated by the proposed transaction within the expected time frame, disruption from the proposed transaction making it more difficult to maintain relationships with customers, employees or suppliers, the calculations of and factors that may impact the calculations of the acquisition price in connection with the proposed merger and the allocation of such acquisition price to the net assets acquired in accordance with applicable accounting rules and methodologies, general economic conditions that are less favorable than expected, changes in renewal of and acquiring new long-term coal supply arrangements and competition in coal markets.

Information concerning additional risk factors is available on 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. This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or solicitation of vote or approval.

In connection with the proposed merger, Alpha will file with the SEC a registration statement on Form S-4 that will include a preliminary joint proxy statement/prospectus regarding the proposed merger. After the registration statement has been declared effective by the SEC, a definitive joint proxy statement/prospectus will be mailed to Alpha and Massey stockholders in connection with the proposed merger. Investors are urged to read the joint proxy statement/prospectus, including all amendments and supplements thereto and other documents relating to the merger filed with the SEC when they become available because they will contain important information about the proposed merger.

You may obtain a copy of the joint proxy statement/prospectus when it becomes available and other related documents filed by Alpha and Massey with the SEC regarding the proposed merger, as well as other filings containing information free of charge through the website maintained by the SEC at www.sec.gov. By directing a request to Alpha's Investor Relations department at Alpha Natural Resources, Inc., One Alpha Place, P.O. Box 2345 Abingdon, Virginia 24212, Attention: Investor Relations. To D.F. King & Co. Inc., 48 Wall Street, 22nd Floor, New York, New York, 10005 or to Massey's Investor Relations department at (804) 788-1824 or by e-mail to investor@masseyenergyco.com.

Copies of the joint proxy statement/prospectus and filings with the SEC that will be incorporated by reference in the joint proxy statement/prospectus can also be obtained when available without charge from Alpha's website at www.alphanr.com under the heading Investor Relations and under the heading SEC filings. And Massey's website at www.masseyenergyco.com under the heading Investors and under the heading SEC filings.

Alpha, Massey and their respective directors, executive officers and certain other members of management and employees may be deemed to be the participants in the solicitation of proxies in favor of the proposed merger. Information regarding the persons who may, under the rules of the SEC, be considered participants in the solicitation of proxies in favor of the proposed merger will be set forth in the joint proxy statement/prospectus when it is filed with the SEC. You can find information about Alpha and Massey's directors and executive officers in their respective definitive proxy statements filed with the SEC on March 30, 2010, and April 16, 2010, respectively. You can obtain free copies of these documents from Alpha or Massey's contact information previously described.

Ladies and gentlemen, please hold your applause until the end of the program. With those formalities out of the way, I'll turn the call over to Admiral Inman.

Bobby Inman

Thank you, Roger. Good morning, and thank you all for joining us. This is the first quarterly conference call we have conducted since I became Chairman and Baxter became Chief Executive Officer of Massey.

In my view, a conference call of this nature is properly handled by the CEO. But I did want to make myself available to you today in case you had any questions specifically for me. I won't take much time, but I want to say a few words about our strategic review process and the resulting merger agreement we reached with Alpha.

First, it was a very challenged task to evaluate carefully all of the strategic options we have. I want to compliment Baxter Phillips and Dick Gabrys from the board for the work they did on the special committee. They truly went about the process, keeping a constant focus on shareholder interest as the first priority. I'd also like to thank the rest of the Massey board for their work on the strategic review process and their thoughtful and thorough inputs throughout. We had a great many meetings working our way through this process. I believe the Massey shareholders have been well served by this group of directors.

Next I want to thank the management teams of both sides of the agreement for all the hard work they put into the due diligence process. Through their efforts, we were provided with all of the data we needed to make the best decision possible. Finally, we continue to believe that Massey would have been able to increase shareholder value significantly over the next several years even if we had remained independent.

However, after all the data was placed before us, it became clear that the combination with Alpha offered the greatest near-term and long-term value for our shareholders. Now I'll turn the call over to Baxter.

Baxter Phillips

Thank you, Admiral. I concur with Admiral Inman's comments and confirm that it was not an easy process. But at end of the day, we came away convinced that the value of the combined companies was just too compelling to ignore. We intend to work diligently with the management team at Alpha in order to conclude the transaction as quickly as possible. The process could still take several months, however, and we have to remain focused on running our business and serving our customers and shareholders until the transaction is complete.

I appreciate today having Mark Clemens, our Senior Vice President and Group Operations Manager and Chris Adkins, our Senior Vice President and Chief Operating Officer with me to participate in the conference call. Now let me say a few words about our fourth quarter and briefly touch on some key points and issues.

Our produced coal of shipments fell short of our expectations in the quarter due to a combination of lower than planned production, poor rail service and delays of shipments through the ports on the East Coast. I don't want to oversimplify the issues but essentially, where our operations ran well and produced according to plan, we struggled to get rail service to move the coal. Where the rail coals were available, we seemed to struggle to produce coal at planned levels. We have been in contact with the railroads and we are reviewing the service levels together as we work to determine a way to improve the consistency of service going forward. The current market conditions and demand for coal exports offer very attractive business opportunities for Massey and the railroads, provided we can work in unison.

On the production side, Chris and his team are working very hard to turn production around following a very challenging year. We are focused on adhering to regulatory requirements while maintaining our production objectives. After having his priorities and time focused on most exclusively on UBB for the majority of the last year, Chris is now at a point where he can refocus more fully on running our operations. I have great confidence in Chris and Mark in their plans for improving productivity in our mines in the weeks and months ahead.

As most of you know, we announced the closure of our Freedom Mine during the fourth quarter. It had become challenging to maintain the required safety standards in the extensive ore works of the mine, and we had previously discussed the potential closing of this mine. As you know, the Department of Labor filed an action to require us to close this mine. We worked with the Department of Labor and reached an agreement allowing us to shut down the mine in an orderly manner under strict safety standards. We appreciate the cooperation of the Department of Labor in working with us to reach this agreement.

Now I will ask Chris to go over some of the details of operations in the quarter.

J. Adkins

Thanks, Baxter. As Baxter said, our produced coal shipments fell short of our plans resulting in a very disappointing quarter. Of the 1.4 million ton shortfall in shipments, approximately 700,000 was a result of rail issues. 700,000 were the result of misproduction. Breaking the production shortfall down further, we attribute approximately 400,000 of the shortfall to running fewer shifts than planned either due to regulatory enforcement or due to staffing issues. The remaining 300,000 tons were the result of lower productivity than planned in several of our deep mines.

As you might expect, with the mid-market being as hot as it is, right now the labor market for skilled underground miners is getting tight. This is significant to our operations because of the way increasing turnover negatively impacts production levels. In the fourth quarter of 2010, our voluntary quits were about 12% higher than the fourth quarter of 2009, which hurt us on a year-over-year comparison. The good news is that while the fourth quarter turnover was high, it was significantly better than the third quarter. We are working hard with our members to try to ensure that the sequential improvement will continue into the first quarter of 2011 and beyond. And with the announced merger, one would think a reduction in turnover will occur.

On our surface mines, cost were impacted by higher strip ratios and higher cost for supplies. On average, our strip ratio was nearly 20% higher in the fourth quarter of 2010, which drove a proportional increase in the consumption of diesel fuel, tires and other supplies. Most significant was the increase in the ratio at Twilight, which is one of our largest surface mines. The ratios there increased by about 33% year-over-year as we got out of sequence on our mine plan and had to mine almost all year in heavy overburden to finally access more favorable reserves.

We are now beginning to benefit from that difficult transition, and ratio and cost are improving for our surface operations. In January, we appear to be back on track for planned tons and cost on our surface mining operations. We are continuing to work on the development of our Marianna property, which will enable us to increase the low vol met coal production. We are building the new Marianna processing plant, which should be operational in August of this year. And we'll begin processing coal from our Guyandotte mine. We're also preparing to develop new deep mines on the property in the Pocahontas 3 and Sewell seams with access to a total of 50 million tons of high-quality reserves. We plan to invest $80 million to $100 million on this project this year, but it will eventually produce about 1.2 million tons of high-quality metallurgical coal per year. Production from this first new mine is planned to begin late in mid-2012.

Now I'll turn the call over to Eric for a discussion of the financial details of the quarter.

Eric Tolbert

Thanks, Chris. For the fourth quarter of 2010, we reported a net loss of $70.1 million or $0.69 per share. This compared to net income of $24.4 million or $0.28 per diluted share in the fourth quarter of 2009. Our produced tons sold totaled $8.9 million in the fourth quarter this year compared to $7.8 million in the fourth quarter of 2009.

Our average produced coal sales realization of $71.76 per ton in the fourth quarter was $7.63 per ton higher than in the fourth 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 mainly attributable to the addition of higher priced thermal coal contracts assumed in the acquisition of Cumberland Resources and the roll-off of older contracts.

Average cash cost per ton for the fourth quarter of 2010 was $62.67 per ton, this compared to $49.87 per ton in the fourth quarter of 2009. These per ton figures exclude SG&A costs and UBB-related charges. The key drivers of the cost increase were lower productivity in underground mines and higher ratios and supply cost at the surface mines, as Chris described in his previous comments.

At December 31, 2010, Massey had cash and cash equivalents totaling $327.2 million and this compared to $665.8 million at December 31, 2009. In addition to our cash and cash equivalents, we had $122.8 million available on our asset-based revolving credit facility for total liquidity of $450 million at December 31, 2010.

Now during the fourth quarter, Massey entered into an amended and restated asset-based revolving credit agreement, which provides for available borrowings including letters of credit of up to $200 million depending on the level of eligible inventory and accounts receivable. Subject to certain conditions at any time prior to maturity, the company may elect to increase the size of the facility up to $250 million. The previous credit limit was $175 million, including letters of credit. The facility's maturity has been extended to May 2015.

Now total debt at December 31, 2010, was $1,316.2 million compared to $1,319.1 million at December 31, 2009. Massey's total debt-to-book capitalization ratio was 42.5% at December 31, 2010, compared to 51.2% at December 31, 2009. Capital expenditures for the fourth quarter 2010 totaled $156.3 million compared to $51.5 million in the fourth quarter 2009. Included in the fourth quarter CapEx was the completion of the Zigmond preparation plant and the start of construction on the Marianna plant.

Depreciation, depletion and amortization was $99.6 million in the fourth quarter of 2010 compared to $63.6 million in the fourth quarter of 2009. DD&A for the fourth quarter of 2010 included $11.5 million in the amortization of above market sales contracts and other intangible assets acquired in the acquisition of Cumberland Resources, and $17.8 million related to impaired assets at idled mines. Now let me turn the call back over to Baxter.

Baxter Phillips

Thank you, Eric. I'll wrap up our prepared comments with just a few words about our outlook for our operations in coal markets generally. The year is just a few weeks old at this point, but our daily shipments are much improved over the fourth quarter levels. In fact, we generated more EBITDA in the month of January than we did in the entire fourth quarter. So I believe there is reason to be excited about improving operations in 2011.

We and the rest of the industry have experienced significant cost increases over the past year for all of the reasons that Eric and Chris have discussed. Even so, coal prices have moved higher and created opportunity for increasing margins and profitability. Higher cost and lower production in the Eastern U.S. and the possibility of thermal coal exports have pushed the forward price curve beyond $80 per ton for high BTU, low sulfur thermal coal in 2012.

The potential for hard coking coal in the months ahead is enormous. Our pricing outlook is strong with 100% of our thermal coal sold in 2011 at approximately $68 per ton and 6 million tons of met coal priced at approximately $128 per ton. We expect to ship between 10 million and 14 million tons of met coal for the year, and we believe low freight rates, a weaker dollar and supply disruptions in Australia will enable Central Appalachian coal to remain very competitive in world markets at great prices.

The market conditions today are strong and offer more promise than any time during the 30 years I have been with Massey. Because of this, I'm extremely enthusiastic about the opportunities the combined Alpha and Massey organizations will have to increase the value of your investment. Thank you for your interest and continued support. This concludes our prepared comments. As I turn the call back to the operator to take your questions, I would ask that you contain your questions to interest about Massey at the quarter and its operations this year. As you know, we had a call earlier this week, joint call with Alpha to discuss the merger. And we'd like to focus this call on Massey. Thank you. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Jeremy Sussman of Brean Murray.

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

Of your open met coal for 2011, is it an average quality or if you have a fair amount of your higher quality met sort of pushed -- set aside for your upcoming export business?

Baxter Phillips

I'll ask Mark Clemens to provide you with the detail on that.

Mark Clemens

Mainly, it's depending on the market and depending on which range and which end of the spectrum. Remember [ph] on the 2010, 14 million of open coal. The bulk of it, probably 70% of it is of the high vol B type quality coal.

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

If I look back to the beginning of the year, can you give us a sense of sort of how much underground production you think was lost due to lower than expected productivity? And I guess, what has productivity done overall in the last, say, quarter, quarter and a half?

Baxter Phillips

Chris Adkins will step up to that one. Go ahead, Chris.

J. Adkins

Yes, approximately 5 million tons.

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

And any improvement recently or I think you mentioned January numbers were a bit improved. So is it safe to say productivity is improving there, too?

J. Adkins

We're slightly improved but we're still looking for people. So due to the vacancies that we have, we still have some issues.

Baxter Phillips

On-shift productivity is improving, but we're not having all of the shifts that we had planned as planned, and where Chris is running extra shifts to cover for those shifts that are not fully staffed.

Operator

Our next question is coming from the line of Shneur Gershuni of UBS.

Shneur Gershuni - UBS Investment Bank

I guess my first question is given the strength of the met market these days and so forth, I was wondering if you can give some color as to why there's a range at all on your met coal production? I would assume that you'd be able to sell all of it in this type of a market. Is it really more productivity related, or is it that you're concerned that some of your grades of high vol B are not eligible to be entering into the met market? If you can give us some color around that.

Mark Clemens

Well, again, it depends on the market itself. I mean most of the coals that we would have that would participate would be the high vol B coals. And depending on the market, is where we would have vulnerability of getting that number to 14. As obviously the market, it has gotten hotter. But if it continues to stay hot, yes, we will be hopefully into that 14 million ton volume level. But it would have to be at the high vol B coal that needed to be demanded.

Shneur Gershuni - UBS Investment Bank

Do you have any color as to kind of where the high vol B market is right now, where some recent transactions have been done?

Mark Clemens

Roughly in the 120 FOB mine to 130 range.

Shneur Gershuni - UBS Investment Bank

My second question is just with respect to your cost guidance. Obviously you had some challenges in the fourth quarter. You've talked about staffing issues as well, yet your cost guidance remain unchanged. Does that mean we can flow towards the top end of that range? Or is there signals that you're seeing in the first couple of weeks of the year that sort of give you an indication that gives you some comfort with the range and you can be in the middle towards the bottom end? So just some color on that would be great.

Eric Tolbert

Shneur, this is Eric. I think, as Chris had stated, in terms of some of the improvements that we're seeing in the surface mine side, that's built into our plan to show a reduction in cost in 2011. And that's offset by some of the inflationary cost that we've also built into our plan for labor and supplies and such. But I think, yes. The answer to your question is yes. I think what we've seen in January gives us some comfort that what we put out there as our cash cost guidance will still be within that range. I don't know if I could really tell you where within that range we'll fall, but I think we feel pretty comfortable within that range.

Shneur Gershuni - UBS Investment Bank

Have there been any discussions with MSHA to try and sort of smooth the relationship out a little bit. Things have obviously changed at the management level and so forth to try and work together a little better in terms of trying to improve the pattern of violations and so forth?

Baxter Phillips

Shane, did you have any comment on that?

M. Harvey

No discussions at a high level, but every resource group is working to improve its compliance and its relationship with the agency.

Baxter Phillips

Shneur, this is Baxter. What I have asked to be passed down at the organization is that we strike an effort to develop, if you will, an ongoing rapport with MSHA at all levels, a professional manner. I would like for every conversation to be professional and businesslike and if we have issues that we need to address. Otherwise, we'll address it through the appropriate channels. But basically, turn down the, if you will, the tension that appears to exist.

Operator

Our next question is from the line of Brian Gamble of Simmons & Company.

Brian Gamble - Simmons & Company International

I wanted to talk a little more about met if we could. The number you gave for high vol B, 120 to 130, you've got 30% left of assumingly higher grade product for '11. Maybe you could give us kind of a ballpark figure for the rest of that availability on the met side?

Mark Clemens

Well, the mid vol would be probably somewhere between the 170 and 190 range, and the high vol A would be somewhere probably between the 160 and 190 range. Just depending on -- there's actually some cases where the high vol A would actually be higher than the mid vol in some cases.

Brian Gamble - Simmons & Company International

As you kind of look out longer term, take 2010 into account and think about what you've said in the past, it's kind of a long-term run rate for your met capacity, 20 million tons by 2015. Have there been any kind of revised plans for that sort of growth? Are you seeing anything from the productivity side, from the regulation side that would lead you to believe it's anything other than that?

Baxter Phillips

No, Brian, we haven't. As we look through it, review it and assess it, we even reviewed it again this morning prior to the call. We have a high level of confidence that we could achieve those numbers going forward.

Operator

Our next question is from the line of Andre Benjamin of Goldman Sachs.

Andre Benjamin - Goldman Sachs Group Inc.

You cite issues with higher strip ratios at several key mines. But in the press release, you only go through the detail at the Twilight mine. I was wondering how much above normal were the strip ratio at some of the other troubled mines that you put in that group, and how long would you expect that to reverse and the impact on cost?

J. Adkins

The majority of our miss was at our largest surface mine, Twilight. And the ratios, we feel, are coming back in line in the first quarter and we'll be meeting our targets this time, we think.

Andre Benjamin - Goldman Sachs Group Inc.

On the export side of the business, could you talk a little bit about what your capacity is both in terms of nameplate at the port. But then also we all know there's a real effect of capacity when you look at what the mines are able to do in real constraints. Where that is now? Are there any plans to grow and if so, how much over time?

Baxter Phillips

The export capacity, we think somewhere in the range -- for the remainder of 2011, we think will be somewhere between 7.5 to 11 million tons of export depending on the met market.

Andre Benjamin - Goldman Sachs Group Inc.

And so all of your export capacity will be driven by whatever happens in the export market. It's the strong API prices that Patriot was speaking of or some others that's not in your concern right now?

Baxter Phillips

One thing we worry about, the transportation issue that you related to there. And it's taking the AP prices and comparing those margins on those coals versus the margin that we would receive on the met coal is what we typically look at and see which of the export capacity assets we'll use and what market we'll put it in. We don't want to basically use up net export capacity on higher margins for the same stuff.

Andre Benjamin - Goldman Sachs Group Inc.

That makes complete sense. So the fair conclusion then is that all affected capacity is used by met, therefore we shouldn't really expect much of a growth in thermal exports at least for the next couple of years?

Baxter Phillips

That's our view currently, yes. We're focused on exporting margins.

Operator

Our next question is from the line of the Brett Levy with Jefferies & Company.

Brett Levy - Jefferies & Company

When you said that January was ahead of all of fourth quarter EBITDA, was the EBITDA as stated in the press release of $35 million and change? Or I don't know, traditionally, we add back things like severance and one-time mining problem cost or something like that. Is it the stated EBITDA that you're referencing? And then talk a little bit about if there was anything that made January unusual.

Eric Tolbert

Brett, this is Eric. And in general, it was the stated $35 million for the quarter essentially that we're looking at. We weren't trying to get too specific in what we were trying to say there. But just indicate that we were seeing some good results in January and more or less in line with what our plans are. And I don't know of anything specifically in terms on P&L side that stuck out in January that we want to comment on.

Baxter Phillips

I'll just say that when I said that, it came to my attention earlier in the month that we were already ahead of the fourth quarter. So without getting into the detail where we are for the month, I want to make a point that we are much better than we had in the prior quarter.

Brett Levy - Jefferies & Company

Can you talk a little bit about the Pocahontas 1.2 million tons per year of met coal? Sort of the timing of the 80 to 100, sort of where that's going to go and when? And then sort of when you'll hit what point, mid-year of what year that you'll hit 1.2 million tons of met coal for that particular project?

J. Adkins

This is Chris. And that'll depend a lot on the strategy and the path forward, post-merger, on what they foresee and how much capital that we want to put into accessing these reserves. You have the ability on the new Marianna plant to put one slope down and put two sections in or you have the ability to put two slopes down and have four sections in, feeding a plant that is via belt line. So it will depend on communication, again, after the merger here on how much capital they want to put in. We foresee that we could have the 1.2 million tons up by early 2013.

Baxter Phillips

While we're trying to stay away from talks about the merger, this morning, it was necessary for Chris to clarify that when talking about Marianna because if you paid attention to the joint conference call on Monday, Kevin clearly indicated the example using the Marianna plant where trucking Alpha production to that plant was one of the synergies. So that was the reason Chris needed to caveat that for you.

Brett Levy - Jefferies & Company

What's the capacity of Marianna?

Baxter Phillips

It's a 700 ton per hour plant.

Brett Levy - Jefferies & Company

19 million tons per year?

J. Adkins

About 3.5 million tons a year. But one of these face up to sitting about 1,000 feet away from their Kepler plant. So they can go there as well.

Operator

Our next question is from Mark Levin of BB&T.

Mark Levin - BB&T Capital Markets

Just on the production bridge, I think you alluded to it a second ago. But going from roughly 37 million tons to 43 million tons to 47 million tons, maybe you can kind of break it out where all that comes from. And then same on the met coal side. And then my final question is on 2012, can you guys maybe provide a breakdown in terms of utility v [ph] met, in terms of what you committed and the prices as well?

Eric Tolbert

This is Eric. I'll start out with the bridge and the produced tons and turn it over to Mark on your met coal question there. If you assume that our tonnage go to the midpoint of the range that we placed out there at 45 and basically assume it's about an 8 million ton increase over 2010 production, about half of that is going to come off of our deep mine by an increase in the number of shifts that we have in our plan, some small increases in our clean tons per foot and feet per shift assumptions but not necessarily significant considering what we ended up the year on our productivity in 2010. The rest is spread out over a combination...

Operator

[Operator Instructions] Thank you for standing by, ladies and gentlemen. Our board apologizes for the technical difficulties. And if you would like to follow-up with Mr. Hendriksen and the board, they can arrange for discussions with management on individual basis. Once again, thank you for participating in today's conference. And we do apologize for the technical difficulties. You may follow up with Mr. Roger Hendriksen and arrange for discussion with management on an individual basis. Thank you, everyone, and have a good day.

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