Core Natural Resources, Inc. Q4 FY2025 Earnings Call

Good morning, ladies and gentlemen, and welcome to the Core Natural Resources, Inc. Fourth Quarter 2025 Earnings Call. This call is being recorded on Thursday, February 12, 2026. I would now like to turn the call over to Deck Slone, please go ahead.

Good morning from Canonsburg, Pennsylvania, everyone, and thanks for joining us today. Before we begin, let me remind you that certain statements made during this call, including statements relating to our expected future business and financial performance may be considered forward-looking statements according to the Private Securities Litigation Reform Act. Forward-looking statements, by their nature, address matters that are to different degrees uncertain. These uncertainties, which are described in more detail in the annual and quarterly reports that we file with the SEC, may cause our actual future results to be materially different than those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements, whether as a result of new information, future events, or otherwise, except as may be required by law. I'd also like to remind you that you can find a reconciliation of the non-GAAP financial measures that we plan to discuss this morning at the end of our press release, a copy of which we have posted in the Investors section of our website at corenaturalresources.com. Also participating on this morning's call will be Jimmy Brock, our Chairman and CEO; Mitesh Thakkar, our President and CFO; and Bob Braithwaite, our Senior Vice President of Marketing and Sales. After some formal remarks from Jimmy and Mitesh, we will be happy to take questions. With that, I'll now turn the call over to Jimmy.

Thank you, Deck, and good morning, everyone. 2025 was a momentous year at Core Natural Resources. On January 14, we completed the transformational merger that formed Core and immediately turned our full focus on establishing a strong and fully integrated platform for long-term growth and success. Above all, we directed our attention to three priorities: capturing the tremendous value driving synergies created by the combination; laying the foundation for operational excellence across our three major operating segments; and establishing a unified safety-driven culture. I'm pleased to report that we have made significant progress on all fronts. The integration process is nearly complete. We are operating as a single cohesive unit, and we have set the stage for a step change in our operational execution. In short, here at the outset of our second year as a combined company, I am confident that we are now ready to deliver on Core's potential. Now let me spend a few minutes on two key developments that are pivotal to our dramatically improved 2026 operational outlook. The first of these developments is the resumption of longwall mining at Leer South. As you know, Leer South experienced a combustion event early in 2025, an event that prevented the longwall from operating for nearly the entire year and resulted in approximately $100 million in fire suppression and idling costs. I'm pleased to report that since restarting the wall in mid-December, Leer South has returned to normal operations. During the first month of the year, the mine achieved its production target, and we are now focused on achieving even stronger execution going forward. As anticipated, mining conditions in the current district are highly favorable, and I fully expect Leer South to begin to showcase its status as a premier world-class longwall mine. The second development of note is the completion of the transition to the B seam at West Elk. If you recall, in recent years, West Elk had been mining in the last remaining panels of the E seam, where mining conditions were suboptimal. In 2025, we began transitioning to the B seam where conditions are significantly more advantageous and experienced a slower-than-expected startup in that new seam as we addressed elevated methane levels and an influx of water. As of December, these issues are behind us, and West Elk has begun running at very high productivity levels. The conditions in the B seam are exactly as advertised, and we are expecting a very strong operational performance in 2026. Our focus now is expanding the customer base for this high-quality coal given the step-up in the mine's production capabilities. Despite the operational challenges and the soft market environment we discussed earlier, Core still displayed some of the value-driving attributes that make the company's outlook so compelling. As you will recall, in February, the Core Board deployed a capital return framework targeting the return of approximately 75% of free cash flow, with a significant majority of that return directed to share repurchases, complemented by a sustained quarterly dividend of $0.10 per share. During 2025, Core returned a total of $245 million to stockholders via this program, which constituted nearly 100% of free cash flow generation. Roughly $224 million of that total was directed to share repurchases, an effort that resulted in the buyback of around 6% of the company's shares outstanding. Given the headwinds we have already discussed, that's an impressive achievement and underscores Core's great cash-generating potential even in less than ideal circumstances. Needless to say, we believe there is great upside for even more substantial returns now that the operating platform is at full strength and given the recent signs of strengthening market environment. Now I'd like to discuss some of the many highlights on the public policy front, where the current administration continues to champion coal as a baseload fuel and critical mineral. The One Big Beautiful Bill Act, which was signed in July, contained numerous provisions supporting coal's critical role in the U.S. energy equation and seeking to ensure the long-term health of the coal industry. Among those provisions, the new law established a production tax credit for coal that is suitable for use in the production of steel, markedly reduced the royalty rates for federally-leased coal, and eliminated some of the financial support for intermittent resources that have done little to fortify America's need for 24/7 baseload power. In addition to the One Big Beautiful Bill, the current administration has employed Section 202C of the Federal Power Act to delay, perhaps indefinitely, the planned retirements of coal-fired generation units in a growing number of states, including Michigan, Colorado, Indiana, and Washington. Given the upsurge in power demand precipitated by the AI data center build-out, we view the administration's efforts on this front as farsighted and prudent. The administration also launched a comprehensive effort to address the slew of regulations put in place by the previous administration to force the closure of coal-fired plants. In addition, the U.S. Department of Energy is making funding available to facilitate the modernization of the U.S. coal fleet to ensure that coal plays a central stabilizing role in the U.S. power markets for a long time into the future. We're hopeful that the current tranche of funding is the first of many. Additionally, we're also enthusiastic about the administration's efforts to support the development of a domestic rare earth elements industry with some federal funding directed toward opportunities in the coal fields. We continue to monitor how such programs can apply to Core. Finally, the administration recently reinstated the National Coal Council, which provides another channel for ongoing in-depth dialogue between coal producers, including Core, and policymakers. I am serving as Vice Chair of the Council and plan to devote significant time and attention to this important role going forward. Now let me turn the call over to Mitesh to provide the marketing and financial updates.

Thank you, Jimmy, and good morning, everyone. Let me start by providing an update on our financial performance. This morning, we reported our 4Q '25 and full year 2025 financial results. For 4Q '25, we reported a net loss of $79 million or $1.54 per dilutive share and adjusted EBITDA of $103 million. The reported 4Q '25 adjusted EBITDA includes $25 million of Leer South fire and idle costs and $11 million of West Elk idle costs, partially offset by $24 million of insurance recovery related to the FSK bridge collapse. In the quarter, we spent $81 million on capital expenditures and generated $27 million in free cash flow. For 2025, we reported a net loss of $153 million or $2.98 per diluted share and adjusted EBITDA of $512 million. Our reported adjusted EBITDA includes the impact of $101 million related to Leer South fire and idle costs and $11 million related to West Elk idle cost, partially offset by insurance recovery of $43 million. 2025 was a milestone year for Core, being the first operating year as a combined company. As Jimmy mentioned earlier, we managed through this challenging year, both on the operational and pricing front, while still being able to return capital to our shareholders. We also had several accomplishments that were masked amongst those challenges. For instance, we had tremendous success in integrating the two companies, streamlining the management teams, and exceeding the synergy targets. We also leveraged a strong partnership with our financing partners to create a sustainable and robust capital structure that allows for strong capital returns and growth optionality. Now let me update you on the marketing front. In the domestic market, the current administration has supported several Core-focused initiatives, as Jimmy mentioned. These policy shifts have laid the groundwork for a stable regulatory and demand landscape, allowing ongoing investments in coal-fired power plants and delayed retirements. In 2025, there were approximately 16 gigawatts of coal capacity announced for retirement. However, we estimate only about 4 gigawatts were actually retired. On the usage side for 2025, we estimate that total U.S. utility coal consumption was up 12% compared to 2024. In the PJM and MISO area specifically, we estimate coal-fired generation to have risen over 19% and 15%, respectively, when compared to 2024. According to the PJM Resource Adequacy Planning Department, over the next 10 years, the net energy load is projected to grow at an average rate of 5.3% per year compared to expectations of less than 1% in 2022. This forecast, as well as favorable support from the administration, provides an attractive backdrop for domestic coal demand for years to come. One of the areas of growth that we have mentioned over several years is the upsurge in power demand stemming from the build-out of new data centers. By 2030, it is expected that global data centers will see a 14% compound annual growth rate, resulting in approximately 100 gigawatts of new data centers. Of this global demand, the Americas are expected to account for approximately 50% of data center capacity and to experience an expected compound annual growth rate of 17% to 2030. This data center boom is stemming largely from AI, which is estimated to represent over half of the data center's workload. On the international coking front, heavy rainfall disrupted the Australian metallurgical coal supply. Starting in early January and continuing into February, both production and shipments were negatively impacted by flooding, which has caused a decrease in metallurgical supply in the export market. As such, we have seen an increase in PLV benchmark prices since the beginning of December, with PLV prices up by approximately 25% to around $250 per metric ton. Globally, according to the IEA, estimated global coal demand rose again in 2025 by approximately 0.5% to 8.9 billion metric tons. The uptick in global coal demand last year is now part of a multiyear pattern. This market landscape lays the backdrop for our contracting progress. Since 3Q '25, our marketing team has further expanded our contract book for 2026. We added approximately 7 million tons each to our sold positions in the high CV thermal and PRB segments, bringing our contracted positions to 24 million tons and 47 million tons, respectively. Our metallurgical segment has nearly 7 million coking tons contracted for 2026 with approximately 2.4 million tons priced. Of our priced coking coal tons, approximately 2 million tons are in the domestic market, the vast majority of which were high wall. Now let me provide our outlook for 2026. Starting with the high CV thermal segment, we are expecting 30 million to 32 million sales tons, of which 76% are contracted at the midpoint. Of those committed and called tons, we project coal revenue to be over $57 per ton. We expect the average cash cost of coal sold for 2026 to be $38 to $39.50 per ton, an improvement versus 2025 levels. For the metallurgical segment, we are expecting coking sales between 8.6 million and 9.4 million tons. On the committed tons that are priced, we are expecting average Core revenue of approximately $120 per ton. As the metallurgical market strengthens due to the reduced Australian supply, we are encouraged by our ability to take advantage of this uptick in pricing for our committed and open tons. We expect an average cash cost of coal sold of $88 to $94 per ton, reflecting normalized performance at Leer South versus 2025 levels. Within this guidance, we layered in our expected benefits from the One Big Beautiful Bill that Jimmy discussed earlier; our cash cost guidance range for our high CV thermal and metallurgical segments includes the benefit of the 45X tax credit. It should be noted that this credit is applied in the year that the product is sold, but the cash benefit is received during the year in which the tax return is filed. As such, we anticipate recognizing the benefits of the credits in 2026 cash costs, but we will not receive the cash effect until 2027. For the PRB segment, we expect sales of between 47 million and 50 million tons, with 47.4 million tons contracted at an average coal revenue of approximately $14.15 per ton. We expect an average cash cost range of $13 to $13.50 per ton. On the capital expenditure front, for 2026, we expect a range of $325 million to $375 million. This capital expenditure range includes approximately $300 million to $350 million tied to maintenance-related spending, while the balance is earmarked for various growth initiatives, including investments in critical minerals, battery technology, aerospace and defense, and other innovative coal-related products. Lastly, we expect cash-based SG&A to be between $85 million and $100 million. As stated at the time of the merger announcement, we anticipate a longer-term cash-based SG&A to be approximately $90 million, which aligns with the current midpoint of our guidance. In summary, when comparing 2026 versus 2025, there are several positives to look forward to from a financial perspective. First, we do not expect to incur any idling cost across the high CV thermal and metallurgical segments after incurring $112 million of such costs in aggregate in 2025. Second, we anticipate receiving additional insurance proceeds for Leer South during 2026, which is expected to outpace 2025 levels. Third, we expect to only incur approximately $10 million in merger-related expenses in 2026 compared to $66 million in 2025. Finally, and most importantly, we anticipate strong operational performance at Leer South and West Elk mines, which was not the case in 2025. With that, let me provide a quick update on rare earth elements and critical materials. Since our last earnings call, our innovations group has continued to advance our efforts on the rare earth elements and critical materials front. In the PRB, we have drilled additional Core holes at strategically selected locations. Initial lab results are consistent with our previous findings showing enriched ash basis rare earth elements concentrations near the coal seam margins. In Northern App, we have been working with Virginia Tech and L3 Process Technologies to develop a concentration and create an extraction strategy for the PMC, and we recently entered into an exclusive option to license Virginia Tech's technology. We expect to have additional updates on our efforts in the Eastern and Western United States in the coming months. We continue to make further progress on the coal-based battery materials front as well as on our aerospace and defense tooling and parts initiatives. Our innovations team is rapidly building a platform focused on disruptive solutions for our nation's most pressing national security needs. Now let me pass it back to Jimmy for some quick closing remarks before we open the call for Q&A.

Thank you, Mitesh. In closing, for 2026, we will be focused on a few key areas. The first and most important priority for us in 2026 is regaining and strengthening our operating excellence and performance. We will continue to focus on running every operation safely and efficiently while reducing costs across the board as implied by our guidance. As we put the Leer South incident and the West Elk delay behind us, we will migrate our focus to finding additional areas to optimize and drive efficiency improvements across the operations. Second, as Mitesh laid out, we expect to see strong positive momentum from an earnings perspective related to 2025, underpinned by strong operating performance as well as significant reduction in margin-related expenses and an increase in insurance recovery compared to 2025. Third, we will continue to support the current administration and its efforts to preserve and upgrade the U.S. coal fleet, expand U.S. coal exports and ensure the long-term health and viability of the U.S. coal industry. Fourth, we will continue to advance our efforts in the growth areas of rare earth and critical materials with a prudent capital allocation strategy. Last but not least, our employees. Throughout the organization in 2025, we effectively worked together to mitigate the effect of the Leer South incident as much as possible. The team successfully managed cost and ensured each operation did its part in running as efficiently and safely as possible. I am grateful for our team members' dedication and pleased with how this challenging year was managed. I want to thank all our employees for their dedication and hard work, which carried us through a very turbulent 2025. I specifically want to thank all our corporate employees who worked hard and spent countless hours streamlining policies, procedures, and systems even as they grappled with the loss of their departing colleagues. With that, I will hand the call back over to the operator to begin the Q&A portion of our call. Operator, can you please provide the instructions to our callers?

We now have the first question. This comes from Nick Giles from B. Riley Securities.

My first question, just on the high CV committed and priced, $57 there, a few parts, but could you break this out just for the PAMC portion, maybe for comparison to legacy results? And then where are you seeing domestic netbacks today for PAMC coal? And how do you think about upside on the back of these positive developments?

Sure, Nick, it's Bob. Right now, we have roughly about 20.5 million of the 23.5 million tons that are committed or contracted for high CV, 2.5 million for PAMC. Right now, about 12 million of those, I'll say, are domestic, 8.5 million export. About 4 million of those are linked to API2. And again, the reason why we gave a fixed price versus a range is we have less variable contracts in 2026. But of the 4 million tons that are linked to API2, we used about a $97 API2 price when we put in that guidance. So January was over $99. We're over $100 today. So there's certainly some upside there. Our sensitivity, give or take, is roughly about $0.10 a ton both on the up and down. That leaves us, call it, 5.5 million, 6 million tons left to sell PAMC. Very excited about what we're seeing now. It's not only domestic. We are seeing some opportunities domestically as well on a spot basis due to the recent cold weather we experienced in January plus, as Mitesh and Jimmy both mentioned, the growth in power demand due to data centers. But I'm also encouraged by what we're seeing on the export front, specifically in India. A month ago, CFR India prices were in that $115, $120 range today, they're $125 to $130. So we have been seeing some improvement there and been able to capture some of that upside on some of these open tons.

So Nick, I would add that in addition to all those comments, look, last year, that 45 million tons increase in coal consumption really did pretty much chew up the latent capacity that was out there. So your question of where things might go. Look, it could start to get tight. If we see another year, another significant uptick in demand and coal consumption, you could start to see some upward momentum on those prices. Haven't seen it fully yet, but expect that to come.

Guys, I appreciate all that color. Maybe just as a follow-up on that. You've spoken about it before, but where are you seeing things in the outer years for the order book? I mean, has it really been a duration benefit? Are you seeing any upside potential in pricing in some of those outer years?

We are. If you look at our release this morning, we contracted over 38 million tons last quarter forward. And some of those contracts when it's far out is 2030. So our book is very well positioned. And I'll just tell you, in general terms, our pricing is in contango as we move out to the forward years.

Great. My second question is for Mitesh. You discussed some of the financial factors, like insurance recoveries and the 5x credit. Can you explain what this means for shareholder returns? Should we expect shareholder returns to be a bit more variable? I also have another question regarding CapEx, which saw an increase year-on-year. What was behind that?

Let me start by discussing the capital expenditures. We have Leer South fully operational now, which brings along maintenance capital expenditures related to it. As we mentioned in our press release, our spending is slightly increasing, particularly on rare earth and innovation projects, which is included in our guidance. Approximately $25 million of our overall capital expenditure guidance is allocated to improving efficiency in rare earth processes and addressing critical minerals efforts, including coal products. Regarding cash flow, we anticipate that our insurance proceeds will be greater next year compared to this year. To put it in perspective, we have two insurance claims: one related to the Baltimore Bridge and another associated with Leer South. We settled the Baltimore Bridge claim for a net amount of $40 million, of which $10 million was received in the first quarter of 2025 and $24 million was recorded in the fourth quarter of 2025, with the remaining $6 million expected to be recorded in the first quarter of 2026. For the Leer South claim, we have booked around $19 million in 2025, with another $10 million anticipated in the first quarter of 2026 due to firefighting expenses. Additionally, we expect a lost income claim exceeding $100 million. Overall, we feel optimistic about cash flow year-over-year, especially considering we will not incur nearly $112 million in idling costs that we faced in 2025. As we've stated previously, we will continue to prioritize share buybacks in our capital allocation strategy.

And Nick, for the shareholder return, as you well know, we had the formula whereas we returned 75% of our free cash flow to shareholders. If you look at 2025, not the best of years for us, we still returned probably 100% of our free cash flow or really close to it to shareholders. So we should have an opportunity here in 2026 as we hit our targets and going forward to even provide more. And we certainly will stick with the form that we have in place today, which is 75% of our free cash flow or better.

The next question comes from Chris LaFemina from Jefferies.

I'm trying to understand how unit costs are progressing. If we consider your unit cost guidance for 2026, it seems similar to what you projected for the first half of 2025. Although Leer South experienced a decline in the second quarter, does that indicate that costs will be significantly lower in 2026 compared to when the merger was finalized? You've indicated $150 million or more in synergies, along with a 45X tax credit. I realize these may be offset by lower prices in those contracts. However, I expected to see a more consistent downward trend in costs than what we are currently observing. My first question is about where those synergies appear in the P&L and whether they are a significant part of your 2026 guidance. Will costs decrease as the year progresses, making synergies a more prominent factor in subsequent quarters? For my second question, I'd like to focus on the synergies and their visibility in the P&L. Why are we now anticipating greater cost reductions for next year?

So Chris, I'll discuss the synergies while Jimmy will cover the cost aspects. Regarding synergies, we have previously outlined several key areas. One major area is related to headcount, which primarily impacts our SG&A expenses. Based on our cash guidance for SG&A and our actions thus far, you can reasonably conclude an improvement of nearly 40% in that area. Another significant aspect of synergies pertains to marketing and logistics, reflected in some of the byproduct credits and sales prices disclosed in our earnings release. On the last page of the release, there is a figure of $47 for byproduct credit associated with blending. In contrast, legacy Arch, lacking other products for blending, had been selling in the high 20s to low 30s, indicating a notable uplift of over $10. This contributes to our realization estimates. However, the full potential of these marketing and blending synergies may not be evident due to the overall market downturn since the merger, affecting both metallurgical and thermal coal prices. Consequently, as market prices decline, the blending-related synergies also diminish. Additionally, we've discussed financing and insurance-related synergies in the past, focusing on balance sheet realignment and liquidity improvements. On the operational side, supply chain is one element of synergy, though this is somewhat countered by unforeseen tariff impacts at the time of the merger announcement, resulting in a mixed outcome.

I'm just curious about whether part of those synergies are being offset by inflation, which I assume would have been at, right?

Correct.

Okay. But if we're thinking about cost into 2027, I know you haven't given guidance yet, but would you expect, all else equal, unit cost to be low in the first half of 2027 than they will be in the first half of 2026? In other words, is the impact of all these benefits going to increase over time? Or should we see most of it through the first half of 2026 and kind of flatline in there?

I believe that overall, in terms of synergy, we still have several IT systems that are not fully integrated. Therefore, I expect the second half to perform better than the first half. There will be a ramp-up as those systems are phased out. Additionally, it's important to keep in mind that the first half, especially the first quarter, is often affected by weather-related issues in logistics, whether involving railroads or terminal operations. This could lead to a more gradual improvement starting from the first quarter.

When we look at costs, particularly in relation to our guidance for 2026, it suggests that we expect cost improvements compared to 2025. Personally, I, along with our Chief Operating Officer and our operational team, will be intensely focused on unit costs now that our assets are operating at full capacity. We are optimistic about our potential. However, it is important to note that there have been maintenance costs linked to the longwall moves and some fixed costs due to lower production volumes. As we approach 2026, I believe we will concentrate on achieving and possibly exceeding our targets. Therefore, I anticipate a more consistent decline in unit costs, improving each quarter as we monitor our mining activities. We are aware that the Leer mine has yielded the best results from the thickest seam. As we transition to a new area, we are uncertain about the exact yield, but we are confident it will still produce at a lower unit cost than we currently have. I am very enthusiastic about 2026, and despite 2025 being complicated with various cost calculations, I am excited about the potential for our operations in PAMC, the PRB, and the Leer complex on the metallurgical side.

That's really helpful. And just one more quick one on the markets, maybe a question for Deck, actually. What are you seeing in the high-vol market now with Leer South ramping back up? I mean that market is obviously really dislocated from the premium low-vol market and what's your expectation as to how those spreads will change over time? And what are you seeing right now in the market?

Actually, Chris, maybe Bobby will start with where we are at the moment, and then I'll share a few thoughts on the macro.

Yes. This morning, we announced that we have already contracted 6.7 million tons. The exciting part is that we have some connection to PLV, which indicates there are significant spreads between PLV indexes and U.S. East Coast indexes. We are noticing increased demand in the Asian markets, which typically operate on a fiscal year basis from April to March. We are currently in active negotiations for substantial volumes. I am optimistic about our ability to secure contracts, especially in relation to PLV prices. Looking ahead, we have about 2.3 million tons left to sell, with the majority being high vol, around 1.8 million tons, and approximately 500,000 tons being low-vol. I expect most of the high vol to be contracted in the Asian market. Additionally, if U.S. utilization rates continue to rise, which have been between 75% and 79%, we may see domestic opportunities as well. Overall, I am confident about our position. I believe the spreads will continue to narrow moving forward, although we are currently working to capitalize on the spread and align more closely with PLV.

Chris, regarding the spreads, historically from 2017 to mid-2024, the average spread between PLV and HVA was around $10. It's clear that the current spread has widened significantly, making it hard to justify a $90 gap based solely on value and use. As Bobby mentioned, we plan to maximize our commitments to PLV as much as possible, so there's a significant opportunity here. We anticipate this spread will reduce substantially. There are concerns about more high-vol A entering the market, which is a valid point since some mines are resuming operations. Currently, everything else is operating smoothly, but we should note that there will always be mines facing operational challenges. Typically, about 5% to 10% of the global mining fleet experiences some sort of issues, so it's unlikely that all capacity will come back online seamlessly. However, looking ahead to 2025, Australia will see a decrease of 6 million tons in exports, alongside a similar drop in the U.S., which provides a counterbalance to any new capacity. Additionally, Indian imports of coking coal rose by nearly 10 million tons in 2025, indicating positive trends. Overall, we expect the market to normalize soon, although we've faced some pressure through 2025 and are only just beginning to see encouraging signs.

The next question comes from Nathan Martin from The Benchmark Company.

Bob, a question for you. You mentioned earlier sensitivity to API2 prices for the high CV thermal segment. Any sensitivity you could provide for PJM West power prices or even pet coke that you could share?

For PJM, it's rather insignificant at the moment. We have a new contract with that particular customer at a fixed price. The base we are seeing now is considerably higher than what we've received in the netback. We also carried some volume into Q1. The sensitivity regarding this isn't completely irrelevant, but it doesn’t play a significant role as we look ahead to 2026 and 2027. On the pet coke side, recent prices have improved to around $125 to $130 CFR, resulting in a netback of approximately 6 back to the mine. In December, when pet coke prices were about $115 to $120, we were at the low 50s. This indicates a 10% to 15% improvement in our overall netback due to the rise in pet coke prices.

Okay. I appreciate that, Bob. Maybe one other one for you. Thinking about West Elk, can you talk a little bit about the marketing efforts for that coal, given the potential for additional production out you guys are in the B seam?

Yes. We have experienced significant improvements in coal quality, particularly in heating, since entering the B seam. The team has effectively developed this coal for utility customers, mainly in the East. Traditionally, we supplied coal to the industrial markets in the West and to export markets, which we still maintain. However, as we aim to produce over 5 million tons from West Elk, we are looking to increase our volume in the East. We have successfully secured four utility customers in that region, two of which are under contract, and the other two are in the trial phase. We are optimistic about securing substantial volumes for the utility sector in the East.

And just for reference, this is a business that is being developed 6 to 12 months ago, we didn't have any utility business in the east for West Elk coal. I think with the demand growth that we are seeing everywhere in terms of data center and AI, I think there's a lot of potential to benefit from that growth in the east, and we are very optimistic that we will be able to capture some of that growth out of West Elk.

The next question comes from George Eadie from UBS.

Sorry, my line dropped out, but maybe just a quick one, sorry, if this has been asked. But the 45X tax credit, confirming all PAMC is eligible and also West Elk and maybe the timing of the $100 million insurance to come still. Is that weighted to late in the year, would you expect?

Yes. So on the 45X credit, George, I think both the metallurgical segment and high CV thermal segment are going to benefit from it. And we have modeled it in our guidance. And then on the insurance proceeds, I think the way we'll file all our claims here in the first half. Now there is going to be a cadence we are going to start receiving, as I mentioned early on, we've started receiving some stuff in Q1, which I already mentioned. From a modeling perspective, I would assume that it's more second to fourth quarter loaded rather than first quarter, but we are getting some stuff. It's just timing and they go through the claim process and there's some back and forth. So again, we're trying to push as hard as we can, but sometimes, as you know, the insurance company also goes through their own due diligence process.

Yes. Okay. And then probably for Jimmy more so. But I mean 2025 wasn't the best year operationally with Leer South and West Elk in the more challenging sing. Like what tangible things have you guys done to give us more incremental confidence in the operational delivery for 2026? I mean volumes this year look good. There are some tailwinds helping on the cash cost front. But how do we gain conviction in delivery this year? And maybe a reminder as well, any operations in any challenging parts of the mine plan besides Leer?

No, I think that's what gives us so much excitement about 2026. As I mentioned earlier, all our assets are now operational. We've implemented several strategies that we believe will improve our costs moving forward, including changes to our schedule and adjustments in our production methods on certain walls, similar to what we did in previous years. Frankly, we're in excellent shape at West Elk, and we're very enthusiastic about that. While our production at the mine will depend on market conditions in transportation for West Elk, we're in a strong position to achieve high productivity levels. Leer South is back up and running, and I expect significant progress there. Of course, in mining, there are always occasional incidents, but overall, I feel very positive about Core in 2026 and beyond. We will continue to focus on cost structures, which will benefit us. As we transition Leer into the North district, we might encounter slightly better geology and potentially lower yield, but the team is fully committed to managing this and ensuring our longwall moves and production cadence align with our guidance—or even exceed it—what you can expect in 2026.

Yes, that's clear. And then the U.S. coal fleet capacity factor like this is getting a lot of attention and interest, but we haven't really seen it annualized much higher than 50%. We've had patches in the 70s with the weather and gas prices, bad things. But how do you guys think about this on a sustainable 6-month view? Like would we see 60% U.S. coal plate capacity. Is that a fair assumption for potential second half? Or is that still too aggressive?

So, George, as we mentioned, it's currently operating at about 49%. This is Deck. If you look back to the early 2000s, capacity factors were running between 70% and 72%, even while cycling down. They can definitely operate at higher levels than 49%. In fact, we observed them operating at 61% in January and February of 2025, proving their capability during the winter months despite a lot of cycling down. We strongly support the administration's initiatives to encourage investments aimed at revitalizing these plants. Even at present, we believe they can achieve much higher capacity factors. The numbers are straightforward; increasing from a 49% capacity factor to a 65% capacity factor could lead to a 50% rise in consumption, translating to an additional 200 million tons of coal usage without requiring significant changes to the fleet. We're excited about the potential direction this could take.

Yes. And George, one last thing I'll just add. I would say it's very encouraging is talking to a lot of our utility customers; investments are happening. And I think Deck mentioned that at the last point of his comments there is that these utilities are investing in their coal fleet, so they can continue to run at these higher capacity factors as this additional load comes online. So that's very encouraging.

And I'd add one final point, George. The current administration also really focused on not allowing additional coal-fired plants to close. They've used their 202C authority under the Federal Power Act to ensure that plants that maybe a year ago, two years ago, three years ago were viewed as an essential, non-essential are now being preserved. And I think it's going to become very clear very quickly that those plants are, in fact, needed with the power demand growth we're seeing. We talked about the overall growth. But in fact, we're going to see 3.5%, 4% power demand growth, you're going to need all that baseload capacity and more.

Just on the capacity factor, you think if I put in my U.S. thermal coal model, like 60% for the second half '26 or first half 2027, does that sound too aggressive to you for a half?

Probably not that fast. That's probably too fast to jump up to that level. But I think we get there. I think that's just over the next several years.

I think it's going to depend. There are several factors for that, the price of gas, what the demand is, all of those things. So I would say it will take a little longer than the second half of the year to get to 60%.