International Coal Group Inc. Q1 2008 Earnings Call Transcript

May. 2.08 | About: International Coal (ICO)

International Coal Group Inc. (NYSE:ICO)

Q1 2008 Earnings Call

April 24 2008 11:00 am ET

Executives

Roger Nicholson - SVP - Secretary and General Counsel

Ben Hatfield - President & CEO

Brad Harris - SVP, CFO & Treasurer

Mike Hardesty - SVP - Sales & Marketing

Analysts

Brent Levy - Jefferies & Company

John Bridges - JP Morgan

Justine Fisher - Goldman Sachs

Laurence Jollon - Lehman Brothers

Operator

Good day, ladies and gentlemen. Thank you very much for your patience and welcome to the first quarter 2008 International Coal Group, Incorporated Earnings Call. My name is Bill and I will be your conference coordinator for today. At this time, all of our participants are in a listen-only mode. We will be conducting a question-and-answer session towards the end of today's conference. (Operator Instructions). As a remainder today’s conference is being recorded for replay purposes.

I would now like to transfer the conference over to your host for today's presentation, Mr. Roger Nicholson. Mr. Nicholson, you may proceed.

Roger Nicholson

Thank you. Welcome to International Coal Group's first quarter 2008 earnings conference call. I'm Roger Nicholson, Senior Vice President, Secretary and General Counsel of International Coal Group. We released our 2008 first quarter earnings report yesterday after the market closed.

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

Before we get started, please let me remind you that various remarks that we may make on this call concerning future expectations, plans and prospects for the Company constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. These statements are made on the basis of management's views and assumptions regarding future events and business performance as of the time the statements were made. Because these forward-looking statements are subject to various risks and uncertainties, actual results may differ materially from those implied. Factors that could cause actual results to differ materially are contained in our filings from time to time with the Securities and Exchange Commission, and are also contained in our press release dated April 23, 2008.

Non-GAAP financial measures will also be discussed. You will find a reconciliation of the differences between the non-GAAP financial measure and the most directly comparable GAAP financial measure at the end of our press release, a copy of which has been posted on our website.

At this time, I would like to turn the call over to Ben Hatfield for his opening remarks.

Ben Hatfield

Thank you for joining us this morning to discuss our first quarter results. We had several positive accomplishments in the first quarter and believe we have turned the corner from both an operational and financial standpoint. While production in January and February fell below our expectations, our March performance was quite encouraging, as we saw notable improvement at most of our mining complexes.

Among the operational highlights in the first quarter, production at our Sentinel complex improved by 31% in March versus February and is on pace for a similar month-over-month improvement in April. Sentinel is now operating very near its planned production rate of 1.5 million tons per year of high-vol metallurgical and premium utility coal.

The Buckhannon complex also delivered a strong first quarter as production improved significantly. Our Eastern operation exceeded planned production in the first quarter despite a 30-day unplanned dragline outage, which is a tremendous accomplishment.

Tempering this turnaround, however, was a slower than expected ramp up in production at the new Beckley complex. Production was affected by labor shortages, supplemental roof support requirements, mine plan adjustments to protect long-term main entries and regulatory delays.

We have implemented new programs to enhance our employee recruiting, training, and retention programs. We expect these actions will result in continued improvement at Beckley in the second quarter. This mining operation is now projected to reach full production in the third quarter.

As our metallurgical coal production at Sentinel and Buckhannon continue to build in the first quarter. We selectively capitalized on the strong metallurgical coal market by signing attractively priced spot contracts for shipment to international markets. We expect to book several more export cargos as the year progresses.

We are also seeing strong interest in Vindex's lower quality metallurgical product, which is expected to enhance performance of that operation over the balance of the year.

Finally, we retained a substantial uncommitted met coal position for 2009 and 2010 at both Sentinel and Beckley, along with smaller amounts at Vindex and Buckhannon.

In summary, we expect to see continued improvement in our operating performance as production from our new mining operations reaches targeted production levels and as higher priced sales contracts kick in.

As this common in an expanding market, some additional cost pressures are also expected, such as price increases for diesel fuel, ANFO and steel and continuing escalation of labor costs.

However, we anticipate that continued favorable market pricing will result in meaningful margin improvement during the year. We believe the strong market demand for steam and metallurgical coal and resulting price strength is sustainable for the foreseeable future. There are several different factors contributing to this strong market demand.

First, broad supply constraints in several coal producing countries coupled with strong demand from developing regions are forcing international customers to look beyond their traditional supply bases. The weak American dollar also has made U.S. coal markets more attractive to European buyers.

Second, Eastern U.S. utilities are back in the market after recognizing that the new pricing structure appears to have a solid base. In the first quarter, utilities began making long-term commitments at prices that were significantly above previous contract prices.

Third, the days of Eastern US coal producers of simply hitting a switch to increase production are long gone. There are now significant impediments to increasing coal production in the US including regulatory issues, reserve depletion, and labor shortages. In fact, despite strong pricing, Eastern coal production is down 1.2% this year while electricity generation is up nearly 1% year-to-date.

And finally, natural gas and nuclear energy each face their own issues. Natural gas carries the burden of higher costs and nuclear is saddled with declining output, aging facilities and long permitting and construction timelines for new reactors.

A combination of these factors leads us to conclude that the current coal pricing strength will have substantial duration. Indeed, we believe the metallurgical coal may have even longer-term pricing strength than steam coal as expansion projects in the US and internationally will only serve to heighten demand.

At this time, I would like to turn the call over to Brad Harris, our Chief Financial Officer, to talk about the first quarter results.

Brad Harris

Thanks, Ben. Turning to our first quarter financial results, ICG reported revenues of $250.9 million, including $225.6 million attributable to coal sales on 4.9 million tons. This compares to first quarter of 2007 revenues of $228.3 million of which $213 million was attributable to coal sales of 5 million tons. The decrease in tons sold is primarily due to the expiration of broker coal agreements.

We reported adjusted EBITDA of $14.6 million for the first quarter of 2008, compared to adjusted EBITDA of $12.9 million for the first quarter of 2007. Current quarter performance represents a dramatic improvement over results from operations during the last two quarters.

Average revenue per ton for the first quarter was $46.51, compared to $42.75 for the same period in 2007. While cost per ton sold was $42.95 for the first quarter versus $38.98 for the same period in 2007.

For the first quarter of 2008, we reported a net loss of $11.5 million or $0.08 per share on a fully diluted basis, compared to a net loss of $8.1 million or $0.05 per share on a fully-diluted basis for the same period of 2007.

Depreciation, depletion and amortization totaled $22 million for the 2008 first quarter, compared to $21.2 million for the first quarter of 2007.

Corporate SG&A for the first quarter was $8.5 million, compared to $8.6 million for the same period in 2007.

At March 31, 2008, total debt was $411.3 million consisting primarily of $175 million of 10.25% Senior Notes and $225 million of 9% Convertible Senior Notes. Our total debt to capitalization ratio was 45% at the end of the first quarter, while our debt to market capitalization ratio was 30%. Total assets for the company were $1.3 billion as of March 31, 2008, compared to $1.4 billion as of March 31, 2007.

First quarter capital spending totaled $29.4 million of which 55% related to the development of new mining complexes and 45% related to support of existing mining operations.

As of the end of the first quarter, we have $54.2 million in cash. First quarter cash requirements include $19.2 million in semiannual interest payments on the Senior Notes and Convertible Senior Notes and $33.9 million in capital expenditures. We retain a borrowing capacity of $100 million under our credit agreement of which $70 million supports outstanding letters of credit.

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

Ben Hatfield

Thank you, Brad. I would now like to provide an update on key developments in the first quarter. The ramp up of our new Beckley underground complex in Raleigh County, West Virginia is well underway. Despite some short-term delays, we expect the mine to reach its targeted production rate of 1.4 million tons annually in the third quarter.

The Sentinel complex has nearly achieved its projected production rate of 1.5 million tons per year. The price realization outlook for Sentinel's product is exciting and we anticipate that significant amounts of its production will be sold in to the export metallurgical coal market.

The West Virginia Surface Mine Board has reissued the mining permit for our Tygart No. 1 complex. We are currently awaiting one additional governmental authorization, which we expect within the next three months.

Pipe construction is expected to begin in the third quarter, with production projected to begin in late 2009. At full output, Tygart No. 1 is expected to produce 3.5 million tons annually of high-volatile metallurgical and premium utility coal. The pricing outlook for this product is very favorable in the current market environment.

We are very pleased that our ICG Eastern subsidiary received a prestigious Mine Reclamation Award from the Interstate Mining Compact Commission. This national honor is awarded annually to only one coal mining operation in the entire United States. The award represents our commitment to complying with environment regulations at all of our operations.

On a disappointing note, the ICG Illinois Viper mine had a difficult first quarter due to a roof fall in January and a two day unplanned elevator outage that hampered output. The mine has now returned to normal operating mode and we still expect this team to meet their 2008 production goals.

During the first quarter, we concluded several steam coal contracts for 2009 and 2010 delivery, and a small amount for 2011. We focused on selling our lower Btu and higher sulfur coals first, due to the relatively low current emission allowance costs. We also booked strong spot prices for 2008 steam coal, but reserved a portion of the uncommitted tons for monthly spot market sales over the balance of this year.

Turning now to our committed sales for 2008 and 2009; for 2008, the company is committed and price sales are approximately 19.5 million tons, or about 95% of current planned shipments. Price volume for 2008 averages $48.50 per ton, excluding freight and handling expenses. Approximately 35% of the 2008 unpriced tonnage is metallurgical coal. For 2009, committed and priced sales are approximately 15.4 million tons, or about 75% of projected shipments. Price volume for 2009 averages $52.10 per ton, excluding freight and handling expenses. Approximately 34% of the 2009 unpriced tonnage is metallurgical coal.

For 2010, committed and priced sales are approximately 7.4 million tons, or about 35% of projected shipments. Metallurgical sales for 2010 are expected to be approximately 2.6 million tons, virtually all of which is unpriced.

Turning now to our outlook for 2008 and 2009, we have updated our guidance. For the full year 2008, we continue to expect to sell approximately 20 million tons at an average selling price of $51 to $52.50 per ton. Our previous guidance was $47 to $48 per ton.

Coal production in 2008 is expected to total approximately 19 million tons of which approximately 2 million tons is expected to be sold is metallurgical coal. We expect our average cost per ton sold in 2008 to be in a range of $42 to $43.50, excluding selling, general and administrative expenses.

For 2009, we expect to sell 20 million to 21 million tons at an average selling price of $58 to $63 per ton based on recent price indications and contracting activity. Our previous guidance was $51 to $53 per ton.

Coal production in 2009 is expected to total 19 million to 20 million tons of which approximately 2.2 million tons is projected to be sold is metallurgical coal.

Export shipments for 2008 are expected at approximately 3 million tons, split about evenly between metallurgical and steam coal. Exports are also expected to remain strong in 2009.

Capital expenditures are expected to total approximately $157 million in 2008 and $192 million in 2009. Our outlook for 2008 and 2009 is much stronger today than it was during the previous quarter's call. We expect that demand for metallurgical and steam coal will continue to grow. The demand from international markets will continue to positively affect the price of coal. And that Eastern US production will continue to be relatively constrained. Taken together, we expect these conditions to support continued price strength and improved operating results for ICG throughout this year and next.

At this time, I'll open the call for your questions.

Questions-and-Answers Session

Operator

Thank you very much, sir. (Operator Instructions).

Our first question comes from the line of Brett Levy at Jefferies & Company. Please proceed.

Brett Levy - Jefferies & Company

Hey, guys.

Ben Hatfield

Hello.

Brett Levy - Jefferies & Company

Let we'll start with by most folks estimates the miss for the quarter was about 10 million. Can you describe bits and pieces of the Delta to the Beckley delays, the labor shortage, the shortages of roof supports, etcetera? Is there any way versus where you had hoped to be for first quarter putting a little bit more granularity there?

Ben Hatfield

I really can't break it in to that level of detail, but clearly the biggest piece of it is the slower ramp up at Beckley and the slow, but eventually achieved production output at Sentinel. So I think the production shortfall at those two key operations is the biggest piece of it.

Diesel fuel is another huge piece. I'm not sure what assumptions are out there with respect to diesel costs, but price per gallon is probably a dollar north of what it were a year ago. And that's on the order of; let's call it $6 million to $8 million per quarter kind of financial impact, so it is substantial.

So, when you kind of wrap it all together, the labor cost increases that are just part of the market that we're in, and the diesel fuel increase year-over-year, and then the slower ramp up at those two new operations, I think you've captured most of the problem area.

Bret Levy - Jefferies & Company

And then you guys have done a previous call guided to a second quarter '09 funding gap where you probably need at some point to go back to the market and raise a bit more capital, based on these stronger markets is that still the rough timing?

Ben Hatfield

We're still looking at that, but I would simply say that, at this point our forecast would be more positive than they would have been when we discussed this last quarter. Certainly, revenue is significantly higher, expected margin significantly more attractive. So, there is a substantial possibility that that funding crunch could be significantly reduced and even significantly delayed. So, we think the outlook with respect to that pending need for funding on our capital spending is much more favorable than would have been the case a quarter ago.

Brett Levy - Jefferies & Company

All right, and then on the permitting side, I think the bulls in this stock probably are looking at the possibility of $200 buck a ton margins in 2011 on 6 million tons of met coal, and what’s the nominal EBITDA would flow out of that. Can you talk a little bit about for the Tygart piece of the puzzle, what the permitting hurdles are right now? Do you need the fourth circuit to overturn something, or are the permitting issues a little easier than that?

Ben Hatfield

Actually, with respect to the Tygart project the issues are much less complex. The Tygart permit delay is really just part of the regulatory environment that we're currently in and it is not encumbered by the instance the Chambers' Decision in Southern West Virginia Federal District Court on Valley Fields.

The Tygart complex permits are approved by the Pittsburgh office of the Corps of Engineers and that region is not impacted by the Chambers Decision. So truly, the Tygart project is just moving forward with the normal permitting constraints.

We have cleared the hurdle with respect to state requirements. You may recall that last year we received a state permit. That permit was challenged. We went through an extensive hearing and presented evidence. Essentially, we received a favorable outcome from the State Board that reviews those permit challenges. But they did ask us to go back and incorporate some of the technical data that we presented during that hearing in to the actual walls of the permit, within the actual permit application.

So, we went through that process with them. They've now reissued the Tygart permit, so we're moving forward full steam ahead with respect to the state approval and are only waiting for the federal approval from the Corps at this point.

Brett Levy - Jefferies & Company

Okay, so again, it starts to look like a 2011 story. You guys talked about 2.6 million tons of met tons in 2010. Could you double that in 2011?

Ben Hatfield

It's too far, we have to try to speculate, but we believe certainly there is an upside with respect to the 2010 forecast. Because we've made them pretty conservative assumptions with respect to what portion of the Sentinel operation production and the Tygart operation production will be sold in the metallurgical market. That's very much a market decision, because there are a lot more tons coming out of the mine and we have to make our own judgment and assessment as to how much can get the best margin going to the met side, and how much can get the better margin going to the steam coal side.

So, there is some subjectivity in it, some flexibility that's going to be driven by market factors. So, I can only say I think there's upside. I wouldn't want to speculate on how much that met tonnage might be in 2011.

Brett Levy - Jefferies & Company

All right, and then on the previous call Consol, they've talked about being able to sell met coal at $240 at the mine in the spot market right now. Would you concur with that pricing dynamic?

Ben Hatfield

We are seeing some pretty phenomenal pricing opportunities. I don't want to comment on specific transactions, because obviously, we have active negotiations with customers as we speak. But we are seeing some pricing indications that could very easily approximate $200 on met coal for spot cargos. I think it's yet to be determined what the kind of normalized price is going to be going forward, because we're in a pretty dramatically-changing environment. Fortunately for us, all the changes seem to be moving in a positive direction. But we don't want to get in numbers out there that are distracting. But certainly, we have seen in our activities some mine prices that could certainly approach that $200 dollar level.

Brett Levy - Jefferies & Company

Thanks very much. I'll get back in queue.

Operator

Thank you very much, sir. Ladies and gentlemen, your next question comes from the line of John Bridges of JP Morgan. Please proceed.

John Bridges - JP Morgan

Hi, Ben and everybody.

Ben Hatfield

Hi, John.

John Bridges - JP Morgan

Just following up from the previous caller, as was said Consol is talking about a price X mine that in excess of $200 a ton, and presumably that's what you're going to see for your low-vol coal out of Beckley. But then you're producing different grades of coal as well. Could you characterize the different grades? Well, I know you've got some high-vol there, but could you characterize the different grades of met coal that you're producing and help us sort of pin down a little bit closer the pricing? Peabody did give us that guidance for Australia.

Ben Hatfield

I'm going to ask Mike Hardesty to address your questions and we'll try to keep it simple, because it can get complicated if we get in to too much detail, Mike Hardesty can answer that question better than me.

Mike Hardesty

Hello, John, this is Mike. In general, I think we've been very conservative with our projections and I'll focus on 2009 as that's where most of the volume is exposed. We used for our high-vol products 100 to 130 in our range, and for our low-vol products we used 130 to 160 in our ranges. So I think we've been very conservative.

Certainly, the Beckley coal that we had it available right now, would be equal to, I think, what Consol is touting for their product. We take a discount for our Vindex low-vol because it is a higher ash, higher sulfur product. And to a certain extent our Buckhannon product takes a discount also due to the higher ash, higher sulfur.

John Bridges - JP Morgan

That's very helpful. Thank you very much

Operator

Thank you very much, sir. (Operator Instructions). Our next question comes from the line of Justine Fisher of Goldman Sachs. Please proceed.

Justine Fisher - Goldman Sachs

Good morning.

Ben Hatfield

Good morning, Justine.

Justine Fisher - Goldman Sachs

As far as procurement of equipment for mines and labor, may be this is a tough to question, but are you guys finding that some of the larger companies that produce more are getting priority for ordering some equipment or for obtaining labor?

Ben Hatfield

With respect to the equipment issue; first, I would not say that we have seen that. I mean, certainly, vendors are influenced by the size of the customer dealing with, but they also have a pretty well established queuing system, if you will, for people that place orders. At least in our experience to this point they are honoring that queuing system, and if you place your order in a timeframe, you're going to get it delivered. At least if it's delayed, it'll be delayed in sequence with everyone else's. I haven't seen any bias per se at favoring a larger producer over a small one.

But generally speaking the larger companies, including us, are going to have some advantage in that we can make a larger commitment sooner. Whereas, a small producers, single-mine kind of operations may be more constrained to getting their credit lined up and things of that nature. So oftentimes, we can kind of deliver a commitment sooner for a longer period of time and that's an advantage. But otherwise, I think you pretty much just have to get in the queuing system and they deliver the machine when it's ready.

Justine Fisher - Goldman Sachs

Okay, and then as far as export versus keeping domestically. I know, when all the coal companies report in the same week we can always talk about what everybody say on their conference calls. But Consol just said that they are trying to sell more domestically for relationship purposes. I was wondering whether you guys, if you had your druthers, would prefer to sell coal to the export market or prefer to start cementing relationships with utilities in the US with some of your newer tonnage coming on line from newer mines?

Ben Hatfield

I'll speak to that and then I'll let Mike add to it, if he wants to comment further. But in short, I think we like a balance. We haven't tried to chase 100% export or 100% domestic. We think there is a happy medium there, where we enjoy sometimes the greater predictability and longer term stability of the domestic relationships and at the same time participate in what oftentimes are higher margin export sales.

That also in some respects can help from the standpoint of rail service and, again, predictability of demand because obviously export boats can get delivered at different times and delayed for different reasons and it can be pretty challenging sometimes to plan around a 100% export schedule. So the short answer is we like a balance and, Mike Hardesty, do you want to add anything to that?

Mike Hardesty

I totally agree and our exports will grow on the metallurgical side as our production ramps up. But on the steam side, I would just as soon sell to our traditional bread-and-butter utilities where there is a lot less complications. Transportation has been mentioned and they're really our long-term future.

Justine Fisher - Goldman Sachs

Okay, and then as far as contracts for, let's say 2009 or 2010 for steam coal, for those contracts that are still in negotiation, would you think that it's the coal companies or the utilities that are stuck right now as far as actually putting those contracts to bed?

Ben Hatfield

I'm not sure I understand your question.

Justine Fisher - Goldman Sachs

I think a lot of producers have said that they're still in discussions as far as selling remaining '09 and 2010 tonnage. And it seems obviously that there can't be an agreement on price, but would you say that it's the coal companies that are waiting to sell at higher prices, or the utilities that are balking at current prices?

Ben Hatfield

I think, again, I can only speculate, because I'm not on the utility side of it, but I think it's a fair observation that utilities are trying to stay out of the market as much as they can. Because obviously prices are at phenomenal levels versus where they were a year ago, and so just from a standpoint of planning their business would try to minimize near term sales as much as they can.

So, in some respects we are waiting for utilities to come in with solicitations. We saw a bunch of them come through in the February, March timeframe and we responded and planned some very attractive business. We expect that cycle to continue.

Some utilities are going to roll out solicitations quarterly, some only twice a year or once a year. So the pattern varied a lot by the buyer. But I would think the biggest driver, generally, is the utilities kind of coming to a decision that, okay, now is the time to buy and this is the best deal I'm going get and moving forward with it.

Certainly, you have coal companies that are trying to keep some dry powder so to speak for market improvement and that's a factor, but I don't think that's the biggest factor with respect to how quickly these commitments are being made.

Justine Fisher - Goldman Sachs

Okay, and then the last question is on the cost side. It seems as though a lot of the coal companies that have been reporting for well, I guess every single one just has had rising costs, but the Monterey said that's okay because prices are rising too. Is there any room to maneuver on the cost side downward, if prices do decline? I know that everyone is finding prices at significantly higher levels and so, at the moment that doesn't seem to be a problem. But if pricing does stagnate, is there any room to move costs downward?

Ben Hatfield

Again, for one thing, I mean the commodity piece of it is pretty much out of our control, except to the extent that we can make term commitments for diesel or steel products or things of that nature that may help moderate the cost escalation. So, on commodity part of that, we're pretty much at the risk of the market and that's going to be oftentimes kind of an annual escalation issue. With respect to labor, I think we're going to have to pay the market and our competitors are going to have to do the same, so you are going to see continuing increases in labor costs as we have to stay competitive to maintain staffing and reduce turnover.

As far as a kind of going forward reaction to try to keep costs under control, you're generally going to see coal companies focus on opportunities may be where transportation costs are diminished. You're going to probably see capital projects move forward to try to eliminate trucking to try to get costs down, particularly in an environment where you've got diesel that's driven by $120 crude. So you want to see perhaps like capital focus on reducing costs and that's likely to become a common discussion point among many in the industry.

But much of the stuff, we pretty much just have to deal with the market as it faces us. You can invest in projects that will get costs down. You can try to focus on the thicker portions of your reserve to try to keep costs under control, but that's normally something we do anyhow regardless of what the price is.

Justine Fisher - Goldman Sachs

Okay, thank you very much.

Operator

Thank you very much. Ladies and gentlemen, your next question comes from the line of Laurence Jollon of Lehman Brothers. Please proceed.

Laurence Jollon - Lehman Brothers

Good morning. Brad, your cash balance decreased a little bit more, not a lot, but a little bit more than I thought it would in the quarter. And depending on the timing of improving results, and I know the outlook is very favorable, if you have to draw down on some of your revolvers are you apt to draw down on your Caterpillar facility first to avoid tripping any other covenants?

Brad Harris

I think the short answer to that is yes. We've run the models and we're certainly re-forecasting what we're looking at the balance of the year, and we are not concerned about tripping any of the financial covenants under the line. But we are certainly looking at financing some of the equipment purchases for the latter part of this year. Some of the things based on our cash position previously we were buying a lot of that equipment outright. But given, to say the uncertainty or the market as it is right now, we are starting to take a look at and take more advantage of our Cat financing in the near term for current equipment acquisitions.

Laurence Jollon - Lehman Brothers

Okay, and then just on your revolver, have you guys been in conversations with your lenders about just getting some relief ahead of time just to take the covenant issue off the table, or are you just so confident that you aren't not going to worry about it?

Mike Hardesty

Again, like I said, we ran our models. We don't see the covenant conflict right now based on our projection period. Plus, we see, as Ben indicated, increased performance for the balance of the year, which will continue to take pressure off of that. So right now, we're certainly in discussions with the bank on a regular basis, but we have not entered in to, nor currently perceive the need to modify covenants at this point.

Laurence Jollon - Lehman Brothers

Okay and then last question, I may have missed this in hopping between calls, regarding Tygart are you still considering a JV partner there, or given more favorable financial results for your company are you going to try to do it all alone?

Ben Hatfield

I think the short answer is we haven't made a firm decision on it, but we continue to receive interests, particularly from potential buyers of that coal. Even since our last call, further inquiries from people that have interesting working with us on that project. I think it's clear to say that we have less pressure, if you will, to bring someone else in. Certainly, with the broader margins the more positive outlook, we certainly have more flexibility.

But I think we continue to have interest in that kind of discussion, particularly if it helps us secure a contract position, a coal supply agreement position if you will, at prices that we're comfortable with. So, I think it's the kind of project that certainly fits well with the customer relationship kind of a JV. But we certainly are in position where we can quite honestly pick and choose whether we go that direction or not.

Laurence Jollon - Lehman Brothers

Thanks for your time.

Operator

Thank you very much, sir. And at this time, we have no further questions in queue. We do actually have a follow-up from Justine Fisher at Goldman Sachs. Please proceed.

Justine Fisher - Goldman Sachs

Sorry, a one more question. You must have a substantial reserve position and I was wondering if you guys are getting phone calls from people potentially trying to buy some reserves off of you given the current coal market environment?

Ben Hatfield

Well, I'm expecting that we're going to have that kind of interest. I won't say that there are any substantial deals in the works or anything of that sort. But certainly that's a reaction that we expect given the strong interest in the coal market and people looking at opportunity to expand production. And we may identify selective areas of reserves that are so far out in the mine plan that they don't have a great deal of value to us and we may want to divest those.

But there's nothing imminent, no active discussions, and so at this point we're pretty happy with the position that we have. It gives us a lot of growth opportunities going forward, a lot of flexibility on where we expand and when we expand.

But it's certainly possible that over the next couple of quarters that that kind of thing could happen, because your point is right on target. We have nearly 1 billion tons of coal covering four or five states and there certainly could be some opportunities may be to sell a portion of it, someone is going to do something with the center.

Justine Fisher - Goldman Sachs

Okay, thanks very much.

Ben Hatfield

Thanks.

Operator

Thank you very much, ma'am. And at this time we have no further questions. I'd like to turn the call back over to management for their closing remarks.

Ben Hatfield

Thank you. International Coal Group is looking forward to the balance of this year, as we enter the summer with improved coal pricing and the well timed startup of our new operations. We also believe that timing is remarkably favorable for development of the new Tygart No. 1 mine given the new pricing environment. We look forward to breaking ground later this year. We hope you share our anticipation. Thank you for your interest in International Coal Group. We look forward to joining you again next quarter. Have a good day.

Operator

Thank you very much, sir. And thank you, ladies and gentlemen, for your participation in today's conference call. This concludes your presentation for today. You may now disconnect. Have a good day.

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