Cloud Peak Energy's (CLD) CEO Colin Marshall on Q4 2016 Results - Earnings Call Transcript

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Cloud Peak Energy, Inc. (NYSE:CLD) Q4 2016 Results Earnings Conference Call February 15, 2017 5:00 PM ET

Executives

Bryan Pechersky - EVP & General Counsel

Colin Marshall - President & CEO

Heath Hill - CFO

Gary Rivenes - COO

Analysts

Dave Gagliano - BMO Capital Markets

Michael Goldenberg - Luminus Management

Lucas Pipes - FBR & Company

Paul Forward - Stifel Nicolaus

John Bridges - JPMorgan

Mark Levin - Seaport Global

Vinayak Labade - Yellow Mountain Capital

Adam Peterson - Alliance

Operator

Good day, ladies and gentlemen, and welcome to the Cloud Peak Energy, Inc. Fourth Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we'll conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded.

I would like to introduce your host for today's conference Mr. Bryan Pechersky, Executive Vice President and General Counsel. You may begin.

Bryan Pechersky

Good afternoon and thank you for joining us. With me today is Colin Marshall, Cloud Peak Energy’s President and CEO; Heath Hill, CFO; and Gary Rivenes, COO.

Today’s presentation may contain forward-looking statements regarding our outlook for our company and industry, financial and operational guidance, volumes, prices and demand, the regulatory and political environment, growth strategies, capital resources and other statements that are not historical facts. Actual results may differ materially because of various risks and uncertainties, including those described in the cautionary statement in today's earnings release and in our most recent Form 10-K and Forms 10-Q.

Today's presentation also includes non-GAAP financial measures. Please refer to today's earnings release for the reconciliations and related disclosures. Our earnings release is available on the Investor Relations section of our website at cloudpeakenergy.com.

I will now turn the call over to Colin Marshall.

Colin Marshall

Thank you, Bryan. Good afternoon and thank you for taking the time to listen into our Q4 and full year 2016 results call. As Bryan mentioned, we're joined by Heath Hill our CFO and Gary Rivenes our Chief Operating Officer.

In the last quarter, we continue to see the improvement in shipments we experienced in Q3. We fill out our minds to continue to operate efficiently. At the same time, we were able to export 400,000 tons to our export customers and have now contracted 1.9 million tons to be exported in the first half of this year.

Adjusted EBITDA of $40 million during the quarter was very similar to that generated in Q3. We also completed some significant financial transactions, which greatly improve our position as we enter 2017. I'm happy to be able to report that in 2016 Cloud Peak Energy had its best ever safety performance.

There were three reportable injuries suffered by our employees during the year, resulting in I'm sure, all injury frequency rate of 0.25. Given all the distractions during the year, it was commendable that everyone was able to stay focused on working safely to produce this result.

Since 2008, Cloud Peak Energy's health, safety, environmental management systems have been independently certified to assess 18,001 standards in 2016 as well as once again completing our 18,001 Certification, we also gained the independent certification under the National Mining Association Coal Safety Program, and what was our safest year, it was good to see the whole U.S. coal industry also had its safest year ever.

There were 244 MSHA inspection days at our sites during the year with 10 substantial and significant citations issued. There were no environmental citations at any of our sites during the year and is now over three years since our last environmental citations.

During the quarter, our Antelope Mine was awarded the Wyoming Game and Fish Department's Industry Reclamation Wildlife Stewardship Award in recognition of our success in increasing Golden Eagle and other Raptor numbers near our mines.

Now turning to our operations, shipments were 58.5 million tons for the full year, down from 75.1 million tons in 2015. This was due to the combined impact of mild weather, low natural gas prices and years of regulations, which have closed many coal plants.

Lowering per ton cost for the quarter and full year compared to 2015 as production dropped by 22% was a great achievement that took a lot of hard work from everyone at Cloud Peak Energy. Greater flexibility was brought into our operations as we cancel shift, reduced overtimes and eliminated contractor use wherever possible.

During the year, our total workforce declined by 233 to 1,342, which included a reduction of 24 support roles. According to MSHA data full-year PRB coal production came in at 317 million tons also down 22% from 405 million in 2015. EVA estimates PRB stockpiles decreased by 15 million tons, but they remain elevated at 86 million tons at year end.

Heath will cover the financial details in his remarks, but I would like to preface that by saying that the financial transactions we have been to complete, position us well for the future. We are able to eliminate the use of self-bonding for reclamation liabilities. We negotiate our bank facility, complete the bond exchange, reduce total debt and extend their term maturity and finally we were able to reduce our port and rail commitment, significantly while retaining the ability to export. As I said, these transactions set us up well for the future.

Looking to our longer-term operations, we also continue to make progress with the development of the Spring Creek complex as we look to develop the Crow tribe's big metal deposit on our own Youngs Creek coal. Application for the whole road amendment and preparation for the environmental impact statement are underway. We've also scheduled 200,000-ton test burn at a major existing PRB customer who wants to evaluate Spring Creek Coal to ensure their medium-term supply for their plants.

We are in discussions for similar test burn with another major 8800 Btu customer who is not previously burn Spring Creek coal. I'm increasingly confident that we will be able to develop the additional coal around our existing Spring Creek mine to meet future demand and incremental steps that will reduce our capital outlay and maximize its value.

I'll now hand over to Heath to run through the financials before returning to cover the outlook.

Heath Hill

Thank you, Colin. The steady shipment base during the second half of the year resulted in fourth-quarter volumes of 16.8 million tons, which supported our fourth quarter cost per ton of $8.96. With our realized price per ton of $12.15 during the period we were able to record a fourth quarter cash margin of $3.19 per ton.

We continue to align our cost to the varying rates of shipments. Although volumes were 10% lower as compared to the fourth quarter of 2015, our total mining cost decreased by 15% during the comparable period. Our owned and operated mines, generated segment adjusted EBITDA of $51.7 million for the fourth quarter.

With a positive impact of the sale and delivery of 400,000 export tons, the logistic segment adjusted EBITDA loss was only $3.3 million for the fourth quarter as compared to the $12.6 million order loss in 2015. We also collected our final Newcastle hedge gains in the period.

SG&A costs were $50.9 million for the year, which included over $8 million of higher mark-to-market stock compensation expense and bonus accruals as compared to 2015. Had these expenses been consistent with prior year, our SG&A cost would have been about $5 million lower than the 2015 results of $48.9 million. This shows the impact of our work to reduce headcount and costs across the company.

Our consolidated adjusted EBITDA for the fourth quarter was $40 million, which was 15% higher than the $34.7 million reported for the fourth quarter of 2015. We ended the year with $83.7 million in cash. Our total available liquidity at year-end was approximately $440 million, which is the aggregate amount of our cash balance and available borrowing capacity on our credit agreement and our AR securitization program.

As we reflect back upon the year of financial transactions, we are pleased with the considerable progress we made in decreasing our obligations and commitments, while maintaining our financial flexibility in this transformative year for the industry. Let me summarize the steps we took over the year.

Total reclamation bonding exposure was reduced by $167 million or 28% due to the work of our mine engineers and updated cost guidelines issued by the Wyoming Department of Environmental Quality. We ended 2016 with $418 million of reclamation bonding with third-party sureties that are supported by a 15% collateral in the form of letters of credit.

During this first quarter of 2017, we received approval for a further $25 million reduction, which has completely eliminated our self-bonding exposure. The bank amendment to our revolver modified our financial covenants and increased second lien capacity, which gave us the financial flexibility required to complete our bond exchange offers.

During our bond exchange transactions, nearly 80% of the 2019 bondholders along with over 70% of the 2024 bondholders, exchanged into the newly issued second lien 2021 bonds. Through this transaction, we reduced our outstanding debt by over $91 million or over 18%, while extending a significant portion of our nearest term debt maturities out to 2021.

Finally, we were pleased to announce that the port and rail throughput agreements were modified. Our undiscounted port and rail take-or-pay commitments through the remaining term in 2018 are now approximately $51 million. These new agreements can be extended through 2019. In comparison to previous port and rail agreements continued through the end of 2024 and assuming we did not ship any exports, had a reported total commitment value that was over $475 million higher.

As we look forward, our range of shipments for 2017 is between 55 million tons and 60 million tons of which we expect to export approximately 5 million tons. Our 2017 adjusted EBITDA guidance range is between $80 million and $120 million. This wider range to begin the year reflects the uncertainties on the price of our open export volumes and of our total domestic shipments.

The midpoint of our adjusted EBITDA range does assume some improvement on export prices in the second half of the year. With the focus on necessary capital repairs to maintain the health of our equipment along with anticipated land purchases, the guidance range for capital expenditures is between $20 million and $30 million. We have no significant LBA payments in 2017.

Depreciation, depletion and amortization expense is expected to be between $70 million and $80 million for the year and cash interest for 2017 will be approximately $50 million. In conclusion, we finished 2016 with shipment rates and cost controls that produced a cash margin of $2.65 per ton for the year.

In addition, we protected our liquidity and significantly reduced our obligations and commitments, enabling Cloud Peak Energy to enter 2017 in a stronger financial position. We are well-positioned with the flexibility required of the current coal markets.

With that, I will hand the conversation back to Colin.

Colin Marshall

Thank you, Heath. I'll now cover the international outlook before moving to the domestic. After the very rapid price run-up in Q3, international coal prices have retreated to more sustainable levels with the met coal around a $170 per ton and seaborne thermal coal around $80. The main drivers of this increased Chinese import was increased Chinese imports due to restrictions on domestic mines the reduced production.

The restrictions on domestic Chinese production appear to be being used to improve their profitability of the profitable domestic producers. We are continuing to receive strong interests from our historic fab Korean customers who are keen to take U.S. coal when economic. We've currently contracted 1.9 million tons for delivery in the first half of 2017 and are planning to export around 5 million tons for the full year.

While our exports have virtually small margins at current prices, I should point out that exports have benefited our company by $110 million since 2011. This is the net impact of sales, hedges and take or pay cost since 2011. In 2017, we expect PRB coal demand to rebound a little with growth of 10 million to 20 million tons.

As we saw last year, the price of natural gas and hot or cold weather can have a significant impact on coal demand. It does appear that many utilities are planning to purchase coal for delivery this year if their burn is elevated by increased demand or elevated natural gas prices.

While we used to know what we're going to produce going into a year, that is no longer the model for U.S. coal produces and we've had to adapt to that. For 2017, we're currently contracted to sell 54 million tons. Of this committed production, 53 million are under fixed-price contracts with a weighted average price of $12.22 per ton.

The 8 million tons we contracted or priced since our last coal with an average price of $11.55 per ton reflecting the mix of 8800 and 8400 coal and prevailing prices. In recent weeks, we have been able to contract coal for 2017 delivery at higher prices reflecting the recent increase in OTC prices. Currently, we've contracted 25 million tons for 2018 at an average price of $12.55.

To sum up before we take your questions, 2016 was a very challenging year. We plan to sell 68 million tons and ended up selling 58 million. We were able to recover some buy-out value and to manage our operations to reduce our costs in line with shipments. We also completed several financial transactions, eliminated the need for self-bonding and we renegotiated our port and rail agreements to strengthen our financial position.

At the same time, our safety and environmental performance were the best in our history. As we start 2017, our minds are in good shape and shipments are continuing at a steady pace. We have contracted the 1.9 million tons of exports and expect to sell more each quarter as the year progresses.

Natural gas prices are holding around $3 and domestic prices have moved modestly upwards with some in-year buying occurring. While it will take some time to domestic coal supply and demand to come into balance, I believe we are in a good position to benefit as demand increases from last year's lows.

With that, we can now take your questions.

Question-and-Answer Session

Operator

Thank you. [Operator instructions] And our first question comes from the line of David Gagliano from BMO Capital Markets. Your line is open.

Dave Gagliano

Okay. Thanks for taking my questions. I am just going to stick with a couple of them. First of all, does the 53 million tons include the 1.9 million export tons in the first half, the 53 million tons that's committed in price, does that include the exports tons?

Colin Marshall

Yes it does.

Dave Gagliano

Okay. And in your $80 million to $120 million EBITDA guidance, what are you assuming for the logistics business and what underline Newcastle price are you assuming?

Colin Marshall

So as we talked about it, if you think about the midpoint, the logistics contribution would be about 25% of that and so if you just do the math back into it on 5 million tons, you can kind of get to a per ton contribution. We talk about 75 million tons to 80 million tons being breakeven.

Dave Gagliano

Sorry. So the logistics contribution would be 25% meaning 25 million of the $80 million to $120 million EBITDA?

Colin Marshall

Roughly yes.

Dave Gagliano

Okay. And then just last question, is there a hit in the 2017 EBITDA tied to the renegotiated shipping take or pay agreement and how much of that hit.

Colin Marshall

No, there is not a hit, currently no.

Dave Gagliano

Okay. I'll get back in the queue. Thanks.

Colin Marshall

Okay.

Operator

Thank you. And our next question comes from the line of Michael Goldenberg from Luminus Management. Your line is open.

Michael Goldenberg

Good afternoon.

Colin Marshall

Good afternoon.

Michael Goldenberg

Congratulations on strong results. I had two questions. First of all looking into balance sheet, if that's just have any 5 million of that by the individual pieces that up to 409 am I missing something?

Heath Hill

Yes, in the third quarter, we disclosed that this was deemed an accounting modification. So, there's a difference between the principal amount of debt outstanding under the new bonds and what got deferred, that's where we talk about the principle amount that's outstanding. The balance sheet on the accounting will recognize that amount over the five-year term of the 2021 instrument. In the 10K, you'll be able to see the full disclosure again.

Michael Goldenberg

But the actual cash that like if you could repay the 5 million, it's 409 that's what you will get back.

Heath Hill

Correct. Yes.

Michael Goldenberg

Okay. Just and then the second part, 51 million is the amount that's outstanding going forward, does that include the amount that you paid as part of the readjustment or were those amount sufficient?

Heath Hill

That is the ongoing cash commitments under that two-year term of the contracts.

Michael Goldenberg

And how much was paid to renegotiate the contract?

Heath Hill

The upfront components effectively were a release of escrow that had been recorded and net cash less than $10 million.

Michael Goldenberg

Okay. So, it was a negligible amount that was paid.

Colin Marshall

Yes, relative to the size of the commitment yes.

Michael Goldenberg

Okay. And then finally, besides these minimum payment, what is the rate of the actual shipment then and transportation?

Colin Marshall

We don't disclose that and we're actually not allowed to under the terms of the agreement.

Michael Goldenberg

But let's whatever that amount is, do you pay in lieu of the payment or is it 51 plus the rate…

Heath Hill

The benefit here is we've reentered the export market with the support of the port and the rail and we are contracting export, that is a number that is the full exposure if we weren't to ship and so as we look at the market and we enter into it, we fully expect that it will target our 5 million of export volumes in 2017 and therefore, the take-or-pay in effect would really not come into play.

Michael Goldenberg

So, it's irrelevant, it's irrelevant because as you pay the rate, that pace eats into the payment.

Heath Hill

Yes, we want to focus on the business and exporting coal.

Michael Goldenberg

Understood. Okay. Great. Thank you very much.

Heath Hill

Okay.

Operator

Thank you. And our next question comes from the line of Lucas Pipes from FBR & Company. Your line is open.

Lucas Pipes

Hey, good afternoon, everybody.

Colin Marshall

Hi Lucas.

Lucas Pipes

Good job on all these various improvements to the balance sheet. I wanted to follow up on Michael's question there, I think the way you previously framed it as it relates to the payment set, the fixed payments for the extra business I think it was previously 18.8 million, you said if you divide that by 6 million tons essentially for every ton we ship and we reduce our take-or-pay by about $3 per ton effectively. Should we do the same math on the 26 million or so that I presume are due in 2017 and then also in 2018?

Heath Hill

I guess if you took the contracted rate of $5 million and you look at the cash obligations, I guess we really would like to emphasize that our expectation is to export the coal. That assumes we don't export coal just being clear. So, that's the situation we were in. In 2016 we had a contract that was just kind of on a per ton basis not to ship coal and we're looking to have throughput.

Lucas Pipes

Got it. Got it. So essentially the incremental, so if I assume that you pay the 26 million regardless, the incremental rate that you would pay in order to export is lower than it would otherwise be.

Colin Marshall

If you want to think of it like that, you will get to the right answer.

Lucas Pipes

All right. Fair enough and then appreciate the details on that, but this is a pretty big announcement in my opinion when I consider how central the export business has been to your long-term strategy. I'm sure you thought about that. I would be curious about your thoughts.

Colin Marshall

Well, we see export as having good potential. I think we'll see prices going up and down as we have done recently in the international market and what we try to do is position ourselves when the prices are up, we're able to export and take advantage of them, but equally when the prices are may be down, that we're not paying too high price that week on forward.

So, I think that's the balance that we've managed to strike with these deals with the relevant ports going forward and they're very keen for us to export. It's good business for them and it's a growth business for them certainly in terms of the diminishing coal for the rail. So, we've structured it in a way that we can come in and out of the market when it's profitable for us.

I think realistically, we're never going to be at the low -- the bottom of the cost curve internationally because of just the distance we are from the coast and compared to Indonesia and to the customers compared to Indonesia. So, we need to recognize that and position ourselves accordingly.

Lucas Pipes

Okay. That's helpful. I appreciate it and then may be switching over to the domestic market, you guided I think in the release and in the prepared remarks to increase PRB demand of I think 20 million tons to 30 million tons in 2017 at gas prices around $3. Your shipments I see this correct at the midpoint are actually down slightly. How do you think about volumes? How do you think about the market and should be read a degree of conservatism into your sales and shipment guidance for '17 thank you?

Colin Marshall

Okay. I don't think we're being conservative, but I think what we'll trying to flag is that there is a range of potential outcomes. We saw that most dramatically last year when as I said we sold 70 million tons contracted at the start of the year and we ended up shipping 58. This year, the winter has been kind to us. I think the fact that gas is holding around $3 even though it's turning mind at the moment is significant because when it was below $2, customers curtailed their shipments and that's what really impacted us through Q1 and the first half of last year.

When gas prices went above $3 in the middle of the year, the trains turned up and we rounded a much steadier pace of the second half of the year, which has now continued. So, I think what we're trying to flag is that the reality of the coal industry going forward is that the price of gas and weather will matter. It's been good to see gas production come off and even though rigs are going back now, they're going back in the lowest cost basins and there seems to be some sort of stability to the gas price around $3 so that drillers can return rather than the free-for-all that's maybe gone on to four or five years before that.

So, I think we're seeing some stability come to the market to the gas prices and that's giving some stability to coal, but the amount of burn is going to depend on gas because quite a few utilities are giving themselves the ability to switch between gas and coal at relatively short term notice, which maybe they didn't plan on having in years gone by.

Lucas Pipes

That's helpful. I'll jump back in the queue for now. Thank you.

Operator

Thank you. And our next question comes from the line of Paul Forward from Stifel. Your line is open.

Paul Forward

Thanks, and good afternoon.

Colin Marshall

Good afternoon, Paul.

Paul Forward

I just wanted to follow up on that last point from Lucas, which was -- we're just looking at the last two quarters, I think you had sold almost 34 million tons of coal annualizes to about 67 million tons, just simply based on what your sales were over the last couple of quarters, I know you can -- there's always seasonal factors.

But thinking of the range of 55 million tons to 60 million tons, I know you have to be realistic and reasonable about how much you can plan to ship. I guess my question would be if we were to see sustained gas prices at a level that would encourage utilities to maximize their PRB burn, could we look at that the last couple of quarters sales rates as being a reasonable bull case about what the company could ship in 2017 or is there structural factors which tell you, you really can't repeat the last couple of quarters and annualize it.

Heath Hill

I think we could come close in terms of the operations, but I also think that if you actually say, well I'll do the second half by 70 million and we really have only sold 54 million tons and we're half way through February, so if that was to happen, utilities would have to be out buying coal at quite a fast clip now and that must have buying coal in our RFPs.

There is no way that we're heading towards 70 million tons based on what we're seeing at the moment. So, whilst the mines if you should have got the orders in very soon, we could probably do something in Q2, which normally drops off. I'd say, we're really not picking that up from my customers in terms of the amount of coal they appear to be wanting to buy at the moment.

If it was a very hot summer and all the rest of it, then things could change, but then they're actually very quickly would run out of time to actually deliver the coal.

Paul Forward

Okay. And thanks, and just thinking along the lines, if you've got 54 million tons committed at the midpoint of your guidance, it's 57.5 million tons and you had 1.9 export, I believe it was 1.9 for the first half of the year, with potentially another 3 million tons that could go into the export markets in the second half of the year.

I guess I would ask does that not imply that you're anticipating in the midpoint of your guidance practically no additional commitments for 2017 to the domestic customers?

Colin Marshall

That's roughly right, yes give or take the things that normally happen with some deferments or whatever. You're being much more precise than we are is the reason there is a range on the guidance is because a lot of things will happen between now and the end of the year, but yes, most of the extra sales are to plan to go to the exports.

Paul Forward

Okay. Great. And I guess also thinking longer term on the post 2019, I guess I would say so after 2019 with the take-or-pay obligations expiring beyond after the one year option on 2019, so what is your ability to ship them through Westshore? You would have really no rights to any of the Westshore capacity after 2019 and I guess I would ask following up on Lucas' question which should be can you -- thinking about Spring Creek and how it is so well-positioned for the export market, can you commit capital to Spring Creek anticipating that the export market would grow over time without rights to export capacity?

Colin Marshall

Well I guess there are two points there. One is that both the rail and the port exporting our coal is good business and there is no reason why they should not want to explore the coal beyond 2019 as long as it is profitable for us.

The other point is we shall try to make in the remarks was that we've talking to domestic customers about the potential to burn PRB coal, sorry, Spring Creek coal in a few years and the 200,000-ton test burn we've got scheduled for Q2, I think is significant along with the positive response we're receiving from other customers who are keen to try this coal.

So, as we look at the Spring Creek complex whilst I see it's not just about exports. Exports will be good for us and we do have that that advantage with the geography and the energy content of the coal, but the other thing that's driving our desire to develop that complex is the medium-term reserves in the powder of the basin become depleted or their strip ratios continue to increase, that will become increasingly more attractive for the domestic market as well as the export.

Paul Forward

Okay. Thanks very much, Colin.

Operator

Thank you. And we have a follow-up question from the line of Dave Gagliano from BMO Capital Markets. Your line is open.

Dave Gagliano

Okay. Thank you. I just wanted to go back, it is a follow-up, I wanted to go back to my questions earlier, the comments, I want to make sure, I heard this right. So, you said the logistics business, the embedded assumption, the midpoint range is a positive 25 million of EBITDA this year. Is that what I heard?

Heath Hill

Yes.

Dave Gagliano

Okay. So, then what I am trying to figure out is obviously that implies 75 for the domestic business, and we've got like 53 million tons priced at $12.22, which I think implies a very high unit cost to get to that 75 million.

Heath Hill

You got to factor in David the 45 million of SG&A.

Dave Gagliano

I understood, but even after doing that, I think it's full -- can you just give me a sense of what you're thinking about unit cost in the PRB?

Colin Marshall

Well, they're not going to change dramatically right. So, you're missing something that we could maybe take offline, but now our cost will carry on, we'll carry on as we always say trying to do everything we can to stop the strip ratio and the inherent underlying cost increases taking up the unit cost and I think the guys did an amazing job last year of actually bringing them down with dramatically reduced production.

But there is no whilst we're facing strip ratio in whole distance and all those things, there is no dramatic change this year that we're planning.

Dave Gagliano

Okay. All right. I'll catch up with you offline. Thanks.

Colin Marshall

Sure.

Operator

Thank you. And our next question comes from the line of [Ann from SBIC]. Your line is open.

Unidentified Analyst

Good afternoon. Thanks for taking the question. I guess my first one is on the take-or-pay, under your old take-or-pay agreement, what was going to be your cash cost in '17 and '18?

Heath Hill

Cash cost under the amendment were approximately 20 million each year.

Unidentified Analyst

So was 40 million for '17 and '18 versus the 51 million they you're going to payout now. Am I correct in that?

Heath Hill

No 51 million is the commitment over 2017 and 2018. So, same period, but we get -- this really reintroduces the fact that we are shipping and it's a different arrangement. So yeah, we had a situation under the previous amendment that's now been modified and with each ton that we contract into the export market, we're mitigating that exposure. It comes down.

Unidentified Analyst

Right and that 51 million doesn't include the 10 million released from escrow though correct?

Heath Hill

The amount that's released from escrow was accounted for in 2016. It's not a commitment going forward.

Unidentified Analyst

Okay. I guess my next question is can you just talk a little bit about the stock compensation and SG&A and why was it different from '16 to '15?

Heath Hill

You look at the 10-K, we just have one award that was in 2016 that is on a cash accounting basis. That's a mark-to-market. So therefore, you experience the volatility and when you look at what our share price has done at the beginning of 2016 to where it ended the year, you had a significant change there and it's also a performance unit.

So, it's based on peer companies and total shareholder return. Lots of details and calculations. It's in the 10-K, but it's really the fact that most stock compensation is not so volatile. This one happens to be. This one award. So, there's information in the 10-K for that.

Unidentified Analyst

Okay. And then probably two more quick ones for me, one was this quarter it surprised me that your Cordero mine actually had more segments and year Antelope mine had less shipments. Can you maybe talk about the dynamics of why that is switched because what usually what the Antelope…

Colin Marshall

It was just the ebb and flow of how the utilities send the trades during the year, there was nothing that really picked up on that, it was just more of the Cordero trains came but they were a bit delayed in the year, but there was nothing significant in that.

Unidentified Analyst

Okay. And then last one for me would be you're kind of sitting a little over four times leverage now. When you think about just the PRB in general going forward and your competitors coming out with lower debt, everybody is going to probably enter the market with two times leverage and Alpha and Arch have much lower leverage since they're bankrupted.

How do you think about your position in the market going forward and do you think the industry has gotten more disciplined when it comes to price?

Colin Marshall

Well I think in terms of our position, I think we're very pleased with the financial transactions we undertook during the year and our position in that compared to 12 months ago, has considerably improved. In terms of one thing we're asked several times during the last year with peers going through Chapter 11 has anything changed operationally or in terms of the competition we face when we're selling our coal and the answer has always been no.

And there is no reason for that to change. It's a fiercely competitive business. What is happening I think is that demand has been driven down many years now. I think it's actually hopefully stabilized and maybe going up a bit now and I think then we can see supply hopefully relatively quickly but certainly will come into balance and then pricing will reflect a reasonable return will have to reflect to reasonable terms, so everyone can continue to invest in the business.

So I think we're going through that process at the moment and I think three is a bit more room to go because there is still overcapacity, but I think the things are coming into place and certainly if gases $3 or above, which seems to be where it settling at the moment than that means an awful lot of powder in the basin coal will be burn and therefore the pricing will have to justify investing to continue to be able to mine the coal.

Unidentified Analyst

All right. Thanks for taking the questions. Good luck in 2017.

Colin Marshall

Thank you, Ann.

Operator

Thank you. And we have a follow-up question from the line of Lucas Pipes from FBR & Company. Your line is open.

Lucas Pipes

Thank you very much for taking my follow-up questions there, mostly on the export side and first I wondered the 1.9 million tons that you contacted for export of what Newcastle price approximately would they equate to?

Colin Marshall

Well it was a mixture. Some of that was contracted last year and some I think last week or the week before. So, it's followed obviously in that period some of the price that have come down from above a 100 to round about 80, but as we always say, the actual whilst the Newcastle is a number that everyone can look at, we are pricing more closely followed the Kalimantan price in total and that's actually been pretty robust recently in terms of the discount or the difference with Newcastle.

So as the Indonesians appear to be having issues producing and the quality seems to be more and more of an issue, the demand for that coal certainly for us [Bream] Creek coal seems to be pretty strong. So, we're getting smaller discount relative to Newcastle than we might have had at other times.

Lucas Pipes

Okay. But if you were to say $90 Newcastle equivalent doing a typical conversions back to Newcastle just because that's the index most investors use, what that be with $90 way off the mark or in the right zip code?

Colin Marshall

I must say exactly that number I don't know, but you probably won't be too far off.

Lucas Pipes

Okay. That's helpful and then I wanted to follow up on couple earlier questions regarding export volumes mitigating the exposure, the fixed price on the export business. I'm confused because I think if I understand it correct Heath, you said earlier that $25 million, $26 million is not included in guidance but then if you're assuming in guidance 5 million tons of export volumes, at which rate I presume there's the 60 is a mute point, is that correct?

Heath Hill

Let's try it this way. I think if we're shipping 51 million is the maximum amount we pay over two years we don't ship any ton, so as to show you a number there, that's the maximum. If we ship…

Lucas Pipes

And let's say, you ship no tons, would that 51 million be reflected in your guidance or not?

Heath Hill

We're going to ship tons, so our guidance…

Lucas Pipes

Just kind of hypothetically, let's say there's no additional tons exported beyond the 1.9 million…

Heath Hill

Last year when we weren’t shipping, we included the take-or-pay that we were planning to pay in our guidance. So yes, I guess is the way, but we're planning to ship therefore 51 million. We don't pay any take-or-pay fees. We just pay the fee to move equipment.

Lucas Pipes

Okay. That's helpful. I appreciate that. So essentially even if you were not to -- if you were not to contract an additional ton over the next two years, then the guidance range would still be fully reflecting all those fixed charges?

Heath Hill

No, we're giving guidance midrange on 5 million export tons. So, if you take the 51 million and you divide it by two for simplicity, the amount that was related to 2017, effectively becomes logistics cost of product sold and then we're forecasting to have a margin in addition to those cost of product sold and that's what we're saying. Those margins on the 5 million tons get you to your contribution for logistics EBITDA.

Lucas Pipes

Perfect. Perfect. That's very clear. Great, I appreciate that. Now last question you've done great improvements on the balance sheet side over the last year and at the same time, the industry has changed and there are more and more often questions from investors regarding M&A. How do you think about the environment for consolidation and do you have any thoughts as it relates to the PRB at this time?

Heath Hill

I hope Lucas you won't be offended if I say that it wouldn't be sensible for me to comment on anything that might happen. I think I'd rather re-divest for the news.

Lucas Pipes

All right. Well, appreciate that and good luck.

Heath Hill

Thank you.

Operator

Thank you. And our next question comes from the line of John Bridges from JPMorgan. Your line is open.

John Bridges

Hi. Good evening, Colin and everybody. Congratulations on the results. I was just wondering -- I was interested in your confidence pm the 5 million tons of export even though if I look at the forward curve, then the price of Newcastle gets down to or even below your comfort level.

Is that a function of the interest of your customers in transacting and diversifying or is it related to the stronger Kalimantan price. How are you thinking about that confidence?

Heath Hill

Well, it's all of those items and also all the information seems to be coming out of China about reintroducing production limitations of days of burn. Indonesia is 120 odd shipped outside Kalimantan at the moment. They seem to be having some issues and increase domestic demand. Our recent business to the customers, they're very keen to buy our coal.

The one thing that's working against us is the strong U.S. dollars, but apart from that, everything is pretty positive and so I think we've looked at all that and I think we're pretty confident we'll be able to sell the coal. The thing is we flagged, we don't know exactly where the margin will be, but it would appear that will be the demand there what we like is a few more dollars on the price and I think that's not unreasonable at this time in the year.

John Bridges

Okay. And then there is probably totally academic and there's been so much going on in your accounts, I just wondered if anybody try to noodle what was the clean earnings would have been full Q4?

Heath Hill

I guess John when you say earnings, are you thinking about net income?

John Bridges

Yes, yes.

Heath Hill

Really the most substantial component of course when you take EBITDA down into net income, our depreciation had some odd accounting things again related to our reduction of the asset retirement obligation that was fairly substantial. I don't have an answer off the top, but we do have reconciliations to take net income and emphasize those points and as you review that, should you have any questions, happy to follow up with you.

John Bridges

Okay. Appreciate. Thanks a lot, and well done guys.

Heath Hill

Thanks John.

Operator

Thank you. And we do have a follow-up question from the line of Michael Goldenberg from Luminus Management. Your line is open.

Michael Goldenberg

Yes hi. I wanted to ask about the logistic guidance, whether you think that will be more or less even throughout the fourth quarter or even throughout the first, second half where it can be forward or backward?

Colin Marshall

I am sorry Michael, could you speak a bit…

Michael Goldenberg

When I think about the 25 million of EBITDA on export, is that going to be roughly evenly divided amongst quarters or do you expect it more front loaded or backloaded.

Heath Hill

They're backloaded. We had a ramp up period and in my comments offered, that we're expecting for midpoint ranges slightly higher price in the back half of the year.

Michael Goldenberg

On the export.

Heath Hill

Logistics prices, yes.

Michael Goldenberg

And then the second part that I wanted to ask you, so you have 53 out of 57-ton contract. You have a large part of the logistics business contract. Your EBITDA guidance though is 40 million wide, it seems to me that with the amount of certainty I'm confused as to why the relatively side gap.

Heath Hill

Okay. We try to point that out. It's two things. One is, we don't know the pricing on 3 million tons of the assumed exports and that can swing around a long way very quickly and the other point is whilst we've contracted the coal our memories are as long as 12 months, we remember that we contracted a lot of coal last year that didn't actually get shipped.

So, at this stage in the year, we felt it was appropriate to have a wider range of guidance because of the two major risks.

Colin Marshall

But we do also have the opportunity for in-year sales. It's just not factored in on the midpoint. It's the upside.

Heath Hill

Well, that's why we have the downside and upside.

Michael Goldenberg

Got it. Okay. Thank you. Congratulations.

Heath Hill

Thanks Michael.

Operator

Thank you. And our next question comes from the line of Mark Levin from Seaport. Your line is open.

Mark Levin

Thanks guys. Most of my questions have been asked and answered. I'll just ask more of a macro PRB related question, Colin, how much excess capacity, I think you referenced the PRB number around 400 million tons at the end of last year and I guess two years ago, and then this past year at about 318 million tons.

I think you referenced in the press release may be up 20 or 30 million tons or so in '17, it doesn’t look like there's much capital being thrown -- incremental capital being thrown and the industry looks like CapEx levels from some of the major producers aren't changing much. What do you think is a reasonable amount of capacity in the PRB or available capacity in the PRB if CapEx levels weren’t going to change much from where they are right now?

Colin Marshall

Well that really is the unknown at the moment. If we look at our operations, yes we could generate -- we could produce a fair bit more from the Cordero mine, 8400 mine that we brought back along in recent years, but Antelope, we probably would -- we would actually need a pretty strong pricing if we want to ship much to produce much more of that coal.

That our position, so it's certainly not that if you just go back to where you were a couple of years ago, because obviously strip ratio has increased, whole distance have increased and capital has been reduced and equipment some of it has not been replaced. Some has been commissioned.

That's our position. I presume it's similar for other producers in the basin, but we won't know when everyone needs a stronger price signal to be able to dig up the incremental next ton until it happens and that's the supply and demand -- if demand stabilizes or bounces up a bit then it's obviously a lot easier to find out where the demand come into balance then when it's been -- demand is being pushed down for five consecutive years, which is what we've been faced with. So, I don't know where it is, but I'm a lot more optimistic that we could actually find that position this year.

Mark Levin

So, you're of the view that we can't get back to let's say 375 or 400 million out of the basin with that more capital being spent.

Colin Marshall

I think that fare, but if you want to do with little capital, we would have to ship a lot more 8400 coal and there is not that much demand for 84 at the moment.

Mark Levin

That's a good segue. I apologize for not asking export-related questions, I live in the domestic side, but on the 8400 coal, it's still a rather substantial chunk of the basin. It has declined significantly over the last three to four years, no question about it, but it's still roughly a quarter to a third of what the basin's production is.

You've been in the PRB now for a long time, when you look out over the next -- if you look out over the next two to three, five years, what's your expectation for 8400? Does it maintain that similar level of share in the basin or do you think that 8400, the percentage of that contribution to the total basin will decline perhaps significantly?

Colin Marshall

Looking forward, I think what will happen there will be baseload, there will be a steady amount of 8400 coal and then as 8800 mine advance and their costs go up, then the price that will be needed to make it profitable to mine that coal will go up and that will then start dragging up the 8400 market and that's what we've seen historically.

I don't know, I think the point we're trying to make earlier is during that process at some stage, we believe that the demand of the Spring Creek coal will as an alternative when 8800 coal is requiring a higher price, we believe that the Spring Creek will take some of that demand, will be able to fill in there and also 8400 coal will be dragged up, but it'll probably have to be reduced production for a while to let the cost for 8800 to go up over a few years.

Mark Levin

So, you don't envision a scenario in which the 8800 is let's say 90%, 85%, 90% of the basement and 8400 is 10% or so. You don't see anything after accounting in.

Colin Marshall

No, I don't see that.

Mark Levin

Okay. Great. Thank you very much. Congrats particularly on the cost side with lower shipments, good job guys.

Colin Marshall

Thank you.

Operator

Thank you. And our next question comes from the line of Vinayak Labade from Yellow Mountain Capital. Your line is open.

Vinayak Labade

Hey, thanks Colin. Good job for this quarter. One question I had was regarding export market, how much is it driven more by the demand and pricing, was it all the problems you're having on the West Coast forced by shipping the coal?

Colin Marshall

The problems are getting build off potential export capacity. We're exporting through the Westshore Terminal which has it's 27 to 30 million ton capacity where we're planning to put 5 million plus short tons through this year. So, at the moment, that's the balance. The things you read about hold up support, they're about ports that would be built in a few years’ time at best.

Vinayak Labade

Got it. Very helpful. Thanks Colin.

Colin Marshall

Thank you.

Operator

Thank you. And we do have a follow-up question from the line of John Bridges from JPMorgan. Your line is open.

John Bridges

Yes, just wondered if part of your confidence on the 5 million is related to locking on some forward sales to protect the profitability. Have you been active in the forward market?

Colin Marshall

Well, now that you pointed out, the forward market isn’t actually very favorable to us unfortunately. We're obviously watching it but at the moment, one thing that is quite apparent is at the moment the Asians, particularly the South Koreans are buying quarter by quarter more so than they did a few years ago.

So, the opportunity -- one of the reasons why the price is weaker out there is there isn’t much activity to actually set a price. So, if the price went up higher, we would absolutely look at potentially putting in some hedges as we did previously and which worked very well for us, but they don't support that at the moment, the forward curve doesn’t support that.

John Bridges

Okay. Got it. Thanks a lot.

Operator

Thank you. And our next question comes from the line of [John] from KMS Investments. Your line is open.

Unidentified Analyst

Good afternoon, Colin and Heath. Thank you for your time today. I just had a quick follow-up question as I recall the previous port and rail agreement, you guys have done a great job in reducing the near-term cash take-or-pay requirements, but there is a fairly large balloon in the out years and those out years from 2019 to 2024 was fairly healthy.

Based on what I heard on your comments and what I read in the press release, it appears that all of that balloon obligation is gone. Am I understanding that correctly and the 51 million is kind of the worst-case scenario associated with that?

Colin Marshall

The contracts that have ended, end of 2018 and the 51 million represents as we said, if we ship no coal, between now and then what we could potentially pay even though we're obviously not planning on that because we're planning on shipping, we have -- the agreement contemplates and extending through '19 and our expectation is they would go beyond that though there is no formal contract because the formal contract with capacity rights had an awful lot of obligations with it and that's what we removed.

Unidentified Analyst

And can you just -- I appreciate it. I just wanted to clarify that. Thank you very much.

Colin Marshall

No problem.

Operator

Thank you. And we do have a follow-up question from the line of [Ann from SBIC]. Your line is open.

Unidentified Analyst

Hi, thanks for taking the follow-up. I am just wondering on the Spring Creek mine, could you talk a little bit about why all of a sudden you think that you have domestic demand where in the past it was talked about that this mine people really didn't have interest and it was dirtier than other coal and why is that changed?

Colin Marshall

First of all, it's not dirtier than other coal, it's actually very low Sulphur. The issue is because of low ash, the ash could have relatively high sodium levels in it which wouldn't work in all boilers. In other words, restricted the market of customers who wear through in the front of the queue to burn it.

And also, it's geographic positions and also the basin made its travel to the south obviously disadvantage compared to sudden PRB mine. So, those are the main issues. The important point is that as utilities are looking around their medium to long term coal supply for the coal plants that they plan to keep open, they can see that there is certainly until -- that there is currently a moratorium on leasing is also potentially very high access to coal become difficult and maybe that the prices that leases could go full could be restricted the amount that is actually available to be sold in -- or available to mine in a few years’ time.

And we're talking to them about Spring Creek where we've got 300 million tons leased at Spring Creek. We've got the 300 million tons of Youngs Creek and there is 1.4 billion tons of coal on the coal reservation that we have options over. You put that all together under significant long-term supply of high BTU coal that they're keen to at least understand where that could fit in the future fuel plans.

Unidentified Analyst

And then talking about the expansion of the big metal in Youngs Creek, can you may be talk about, is there any additional cost on your side to get transportation up there and you guys have any idea what that would be?

Colin Marshall

If you look at our investor deck, we put some middle diagrams in there or maps of how the different coal is laid out around Spring Creek. Our initial plan would be to hold the coal the seven miles from the Big Metal or Youngs Creek to the existing Spring Creek load out facilities, which would give us the ability to reduce the capital involved in developing those coal deposits.

If demand went further, we would obviously be able to look at there is a place we could put a rail loop in if it was justified, but one of the important things about the Spring Creek complex is it potential offers us the ability to at relatively low capital to incrementally access this coal and develop it rather than having to start a whole new mine and I think that's one of the things that we've always -- has always attracted us to developing Spring Creek.

Heath Hill

Yes, and right now when it's laid out it would be pretty low cost coal at the time.

Unidentified Analyst

Okay. Thanks for taking the questions.

Operator

Thank you. [Operator instructions] We do have a question from the line of Adam Peterson from Alliance. Your line is open.

Adam Peterson

Thanks for taking the call. With the increases in both PRB and Newcastle coal prices, you guys doing a great job keeping the cost per ton low, self-bonding eliminations and the other positive developments. Have you guys been in discussions with the rating agencies and if so, how have they gone and any sort of feedback you could give us would be appreciated thank you.

Colin Marshall

The most report really was prior to some of our announced deals at the late part of the third quarter early fourth quarter. We always have conversations with the rating agencies, but again we'll go back and we'll refresh now that we've provided both year-end results and guidance for 2017 and expect to be having conversations. Can't influence their process at all. They did just recently issue a report, but I think we do have some points to bring to their attention.

Adam Peterson

Great. Thank you and great job.

Operator

Thank you. And we do have a question from the line [Gabe]. Your line is open.

Unidentified Analyst

Good afternoon. Thanks for taking my call, my question, excuse me. Just curious there's not been much talk about with regards to the impact of the new administration and what potential policies that they’ll have. I think mainly in the way of improving export terminals in the future where you guys have interest. Any indications or views at this point as to how that might develop in the coming months?

Colin Marshall

I would say honestly no. There is obviously, this administration appears to be more favorable. I think some of the things that were coming such as the Stream Protection Rule should be stopped as all the indication that will get signed. So, we certainly think things will stop getting bad at the rate they were or restricting it at the rate they were.

In terms of the actual West Coast ports, I think you got to recognize an awful lot of the permits and different things are actually locally issued and some of the opposition to those is local. So, I think it's too early to say that clearly things will certainly be built and everything will be easy.

It's obviously very fluid situation at the moment for everyone working out how the administration is going to work, but I think the immediate impact is in terms of stopping some of the more restrictive things that were absolutely in the pipeline and that'll be a welcome relief, but in terms of actually making life easier to mine I think we'll have to wait and see how that develops.

Unidentified Analyst

Okay. Thank you.

Colin Marshall

Thank you.

Operator

Thank you. At this time, I am showing no further questions. I would like to turn the call back over to Colin Marshall for closing remarks.

Colin Marshall

Okay. Well, thank you for taking the time for listening to the call and to our call and for all your questions. We do appreciate the interest in Cloud Peak Energy. Obviously, we're sure that 2017 will be a challenging year, but it currently does look to be a lot more favorable than 2016. And so, with that, once again thank you for your interest and so we'll look forward to updating you on progress during the first quarter results in April. Thank you.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you many now disconnect. Everyone have a great day.

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