Earnings Call Transcript
Warrior Met Coal, Inc. (HCC)
Earnings Call Transcript - HCC Q2 2023
Operator, Operator
Good afternoon. My name is Keith, and I will be your conference operator today. At this time, I would like to welcome everyone to the Warrior Second Quarter 2023 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. This call is being recorded and will be available on the company's website. Before we begin, I have been asked to note that today's discussion may contain forward-looking statements, and actual results may differ materially from those discussed. For more information regarding forward-looking statements, please refer to the company's press release and SEC filings. I have also been asked to note that the company has posted reconciliations of the non-GAAP financial measures discussed during this call in the tables accompanying the company's earnings press release located on the Investors section of the company's website at www.warriormetcoal.com. In addition to the earnings release, the company has posted a brief supplemental slide presentation to the Investors section at its website at www.warriormetcoal.com. Here today to discuss the company's results are Mr. Walt Scheller, Chief Executive Officer; and Mr. Dale Boyles, Chief Financial Officer. Mr. Scheller, you may begin your remarks.
Walt Scheller, CEO
Thanks, operator. Hello, everyone, and thank you for taking the time to join us today to discuss our second quarter 2023 results. After my remarks, Dale will review our results in additional detail, and then you'll have the opportunity to ask questions. We were pleased to deliver another strong quarter, in which we were able to leverage our operational excellence to grow sales and production volumes by 15% over last year's second quarter, which, as you may remember, set record highs for several metrics, including coal pricing. The big change to note from a year ago at this time is that hard coking coal pricing is 46% lower, which resulted in a decreased average net realized selling price for our premium coal in the second quarter of 48%. In contrast to this softening during the quarter, we saw a positive improvement in the performance of our logistics partners, including continued progress in logistic upgrades at the McDuffie terminal. Most importantly, the significant overhaul to ship loader number one belt structure discussed last quarter, which was out of service for most of the second quarter, has now been completed. The result of this and other improvements to the terminal means that most of our outbound logistics metrics are returning to normal ranges, allowing our vessels to be loaded within schedule and deliver to our customers on time. However, the overhaul timing and severe weather disruptions slightly impacted our vessel loadings in the second quarter. Nonetheless, the export terminal remains a long-term work in progress, and we remain committed to working with the Alabama State Port Authority to achieve a beneficial outcome. Looking at demand, output from the global steel producers was largely in line with our expectations for the second quarter. Most steel-producing regions experienced stable output, although below the previous year's comparable results. Global steel prices have pulled back from their highs in April, indicating softer demand emerging from certain segments. The premise of a broader economic recovery in China has yet to deliver material results as the country has struggled to find ways to stimulate its property sector and domestic consumption. As a result, despite strong production metrics during the quarter, we expect Chinese steel production to be lower in the second half of the year to be in line with China's stated goal of lower year-over-year output. During the second quarter, the supply of steelmaking coal, mainly coming from Australia, saw a noticeable improvement as evidenced by the increased flow of seaborne coal. Favorable weather in Australia and better-performing logistics in the US contributed to the improved supply of steelmaking coal. However, year-to-date, exports from Australia continued to trail the same period last year, primarily due to a very weak first quarter this year. Mongolian exports continue to outperform expectations with significantly higher volumes than the previous year's results. Our primary pricing index, the PLD FOB Australia, declined by $62 per short ton over the course of the quarter. Most of the correction occurred in April, while the index remained range-bound for the last two months of the quarter. The index closed the quarter at $211 per short ton, which represents about a 22% correction from a high point in April and about a 40% correction from its highest point established in February. Similarly, the PLV CFR China Index corrected heavily in the first part of the quarter from $286 per short ton to approximately $203 per short ton, where it remains stable for the remainder of the quarter. According to the World Steel Association monthly report, global pig iron production increased by approximately 1% in the first six months of 2023, as compared to the same period last year. The production increase was mainly driven by strong results from Chinese production, which grew by 2.7% during the period. Additionally, India continued its higher trend by growing 6.8% during the period. Our second quarter sales volume of 1.8 million short tons was 15% higher than the comparable quarter last year. The increase was driven by the improved performance of our rail transportation provider in the McNulty terminal, which enabled us to export more product. In addition, better-than-expected production drove an increase in sales volume for the quarter. Our sales by geography in the second quarter breaks down as follows: 47% into Europe and South America, 33% into Asia, and only 1% into the US. The increase in Asian sales was primarily driven by spot volume sold into China during the second quarter. Production volume in the second quarter was better than expected and totaled 1.9 million short tons compared to 1.7 million short tons in the same quarter of last year, representing a 15% increase. This is the highest quarterly production output since the first quarter of 2021. Both mines operated at higher capacity levels in this quarter, with a 54% higher headcount compared to the prior year's comparable quarter. In addition, we began to see the impact on production of the eligible employees that returned to work from the labor strike, although we expect the full impact of their return to show up over the second half of this year. This should also improve our production cost per short ton. The higher production over sales volume in the second quarter drove our coal inventory up to 760,000 short tons from 659,000 at the end of the first quarter. Now that our logistics partners and the terminal are performing better than in the recent past, we expect to draw down inventory over the second half of this year. We were pleased to welcome back the approximately 250 eligible union representative workers that returned to work during the second quarter, while we negotiate in good faith toward a new labor contract. This addition to our workforce should also drive incremental production and sales volumes of approximately 500,000 short tons, primarily occurring in the second half of this year, as reflected in our recently revised guidance. During the second quarter, we spent $147 million on CapEx and mine development. CapEx spending was $136 million, which included $97 million on the Blue Creek project, which I'll discuss more in a moment. At the halfway point of the year, we've spent about 45% of our midpoint of targeted CapEx spending for the year. Mine development spending was $11 million during the second quarter. We expect the development of mines to be completed in the third quarter. Turning to the development of our world-class Blue Creek asset, during the second quarter, we continued to make substantial progress on the project, and I'm pleased to share that our work remains on schedule. As you may remember, we re-launched the development of Blue Creek mine in May 2022. At that time, the company estimated total capital expenditures for the project to range from $650 million to $700 million over the projected five-year development period. This estimate was derived in late 2021 based on engineering feasibility studies and the best available information at the time, with the understanding that the company would be able to better understand the needs of the project as development continued. Since then, based on further information and changed circumstances from the initial assumptions, the company has continued to refine and de-risk the project to enhance the value-generating ability at Blue Creek, including making the project scope changes that should result in lower operating costs, increased flexibility to manage risks, and the availability of multi-channel transportation methods. These changes will require incremental capital expenditures, a compelling investment, which we are confident will enhance the value-creating potential of a completed Blue Creek. We do not believe these changes will impact the timeline of the project. Let me share some details on the new scope of work. While we originally planned to transport coal from Blue Creek mine by an overland belt to a third-party owned and operated barge load-out facility, we now plan to build a belt conveyor system to a railroad load-out to transport the majority of the coal, which we expect will result in lower operating costs and move volumes faster to the port. We will also build and operate a barge load-out ourselves rather than utilizing a third-party provider. This change in scope is expected to increase the total capital expenditures from the Blue Creek mine by approximately $120 million to $130 million over the remainder of the project development period. We believe that the potential economic benefits associated with this scope change should provide Warrior with an inherently robust and cost-competitive outbound logistics model that will provide additional flexibility to manage multi-channel transportation methods. In addition, the company has experienced inflationary cost increases ranging from 25% to 35% in both operating expenses and capital expenditures for its existing mining operations since late 2021. The company is also experiencing inflationary pressures at Blue Creek, especially in relation to labor, construction materials, and certain equipment that is expected to continue during the remainder of the project development period. As a number of key material contracts are currently being negotiated and due to uncertainty regarding future inflation rates, the company is not providing an estimate of the impact of inflation at this time. However, as the company negotiates and enters into contracts for larger project components, the company expects that more information will become available to allow it to provide revised guidance. While cost inflation has impacted the cost side of the equation and the project economics, these inflationary pressures are expected to be offset by an inflationary increase in the long-term price assumption for steelmaking coal. Subject to the considerations discussed above, our revised estimate of capital expenditures in 2023 for the development of Blue Creek mine is approximately $250 million to $300 million and is subject to change. The increase in the 2023 capital expenditures estimate is primarily driven by the change in transportation scope discussed previously. The company currently expects development spending at Blue Creek to be the highest in 2023 and 2024, with 2024 being a similar amount to 2023 that is subject to change. I'll now ask Dale to address our second quarter results in greater detail.
Dale Boyles, CFO
Thanks, Walt. For the second quarter of 2023, the company recorded net income on a GAAP basis of $82 million or $1.58 per diluted share, representing a significant decrease over the record-setting net income of $297 million or $5.74 per diluted share in the same quarter of last year. Non-GAAP adjusted net income for the second quarter, excluding the non-recurring business interruption expenses, was $1.63 per diluted share. This compares to an all-time record high of adjusted net income of $5.87 per diluted share in the same quarter of 2022. These decreases quarter-over-quarter were primarily driven by the softening steelmaking coal market since the record highs that we saw in the second quarter of 2022. We reported adjusted EBITDA of $130 million in the second quarter of 2023, compared to an all-time record-setting $431 million in the second quarter of last year. The quarterly decrease was primarily driven by the 48% lower average net realized selling prices of our steelmaking coal and a softening coal market, additional employee-related costs due to higher headcount, and the cumulative impact of inflation on supplies and electricity. These were partially offset by the 15% increase in sales volume. Our adjusted EBITDA margin was 34% in the second quarter of 2023, compared to 69% in the same quarter of last year. Total revenues were $380 million in the second quarter of 2023 compared to $625 million in the second quarter of last year. This 39% decrease was primarily due to the 48% lower average net realized selling prices of our steelmaking coals, offset partially by the 15% increase in sales volume. Other revenues were higher in the second quarter of 2023, primarily due to the fact that the prior year included a mark-to-market loss of $15 million on our gas hedges. In addition, gas revenues were lower in the second quarter of this year due to a 70% decrease in natural gas prices. The Platts Premium Low Vol FOB Australian Index price on average was $184 per short ton lower in the second quarter of 2023, compared to the same quarter of last year. The index price averaged $220 per short ton for the second quarter. Demurrage and other charges reduced our gross price realization to an average net selling price of $209 per short ton in the second quarter of 2023, compared to $404 per short ton in the same quarter of last year. Demurrage and other charges were $9 million lower, compared to last year's second quarter, of which demurrage was the largest decrease of $6 million. Higher demurrage and other charges in the second quarter of last year were the result of temporary delays in vessel loadings, due to severe weather and port congestion. Cash cost of sales were $229 million or 62% of mining revenues in the second quarter, compared to $190 million or 30% of mining revenues in the second quarter of 2022. Of the $39 million increase in cash cost of sales, $29 million was due to the 15% increase in sales volumes and $10 million was attributed to higher production costs, primarily on higher headcount plus 15% higher production volumes and the impact of inflation. Our headcount was 54% higher this second quarter compared to last year due to a focus on hiring workers during the labor strike and partly related to the workers that returned from the labor strike in the second quarter of this year. Production costs include the wages, onboarding, and training costs associated with the workers that returned over the quarter, and we should see an improvement in our cost per ton later this year as we get the incremental volumes. Production accounted for approximately $3 million of the higher cost or $1.50 per short ton resulting from higher costs for supplies and electricity. Cash cost of sales per short ton, FOB port, was approximately $129 in the second quarter compared to $123 in the second quarter of 2022. While premium steelmaking coal prices were 46% lower in the second quarter of this year compared to last year, our average net realized selling prices were 48% lower. This resulted in lower transportation and royalty costs on a per ton basis, which were offset by higher wages and employee benefits on a 54% higher headcount that drove higher production volumes and associated production costs such as supplies, repairs, and maintenance. Transportation and royalty costs were 41% of our cash cost per ton in the second quarter compared to 54% in the same quarter last year. Despite the higher production costs and inflation, cash margins were $80 per short ton in the second quarter. SG&A expenses were about $13 million, or 3.5% of total revenues in the second quarter of 2023, and were slightly higher than last year's second quarter, primarily due to an increase in employee-related expenses. The interest income earned on our cash investments well exceeded the interest expense on our outstanding notes and equipment leases during the second quarter of 2023, primarily due to our high cash balances and good investment returns. Our second quarter income tax expense reflects an income tax benefit for depletion expense and foreign-derived intangible income. During the second quarter, we incurred incremental non-recurring business interruption expenses of $4 million, which were lower by 44% than last year. The decrease is primarily due to the end of the labor strike. These non-recurring expenses were primarily for incremental safety and security, legal, labor negotiations, and other expenses. We expect to incur ongoing legal expenses associated with the ongoing labor negotiations. Turning to cash flow. During the second quarter of 2023, free cash flow was a negative $22 million, primarily due to the higher Blue Creek CapEx spending. This was the result of cash flows generated by operating activities of $125 million, less cash used for capital expenditures and mine development costs of $147 million. Free cash flow in the second quarter of 2023 was negatively impacted by a $7 million increase in net working capital from the first quarter of 2023. The increase in net working capital was primarily due to an increase in inventories as a result of higher production, combined with lower accrued expenses. Despite the higher capital spending associated with the Blue Creek project to date, we have generated free cash flow of $87 million, of which $46 million was returned to stockholders in the form of a special dividend earlier this year on top of the regular quarterly dividends. Our total available liquidity at the end of the second quarter was $951 million, representing a decrease of $35 million or 4% over the record high first quarter and consisted of cash and cash equivalents of $827 million and $123 million available under our ABL facility. As Walt described earlier, the multichannel transportation scope change for the new Blue Creek mine is expected to provide flexibility, optionality, and to derisk a single mode of transporting our coal down the river. In addition, we expect to benefit from a reduction in total transportation costs from not using a third party to build and operate the barge load-out and move the coal faster to the port. The incremental capital of $120 million to $130 million for the total scope changes did not have a material impact on the original project economics of NPV and IRR at the illustrative $150 net coal price. We have spent approximately $173 million on the project to date and have sufficient liquidity on hand to cover the expected $250 million to $300 million to be spent in 2023. While the scope changes will require additional capital expenditures, we believe our strong cash flow generation and current available liquidity, as well as the ability to finance a portion of the total expenditures through equipment leases, allows us to be opportunistic as we evaluate any additional funding options for Blue Creek with the goal of maintaining an efficient and low cost of capital. Finally, turning to our outlook and guidance for 2023. We believe we are on track to achieve our revised targets as outlined in the outlook section of our earnings release. I'll now turn it back to Walt for his final comments.
Walt Scheller, CEO
Thanks, Dale. Before we move on to Q&A, I'd like to make some final comments. Looking ahead to the second half of 2023, our expectations remain consistent with the previous quarter. We believe steel production will remain vulnerable to the risk of contracting industrial output, and we believe the world's largest producer in China will temper its production in the second half to meet its target of lower year-over-year production. Still making coal supply should remain relatively stable for the same period. As such, we view our markets as being largely balanced and with the ability to absorb changes in demand or supply without resulting in large price swings. We expect spot activity in our natural markets to remain subdued, leading us to redirect more of our spot volume towards Southeast Asia CFR based opportunities. For Warrior, we expect 2023 to be a significant turning point in the development of our world-class Blue Creek mine, which we expect will result in creating some significant long-term stockholder value. Over the course of the rest of the year, we expect to begin groundbreaking for the larger infrastructure components such as the new coal preparation plant, house of mine offices, overland belt, and the rail and barge load outs. We're extremely excited about this organic growth project, which we expect to be transformational for Warrior and allow us to build upon our proven track record of creating value for our stockholders. As we have previously indicated, we expect the first development tons from continuous miner units at Blue Creek in the third quarter of 2024, with the longwall scheduled to start up in the second quarter of 2026. With that, we'd like to open the call for questions. Operator?
Operator, Operator
Yes. Thank you. At this time, we will begin the question-and-answer session. The first question comes from Lucas Pipes with B. Riley Securities.
Lucas Pipes, Analyst
Thank you very much, operator. Good afternoon, everyone. Walt and Dale, my first question is on the change of scope around Blue Creek. Just back of the envelope, it came out with a roughly $7 or so cost reduction per ton at the port, thanks to transportation savings. Is that the right way to think about it? And any comments on the economics? Thank you very much.
Dale Boyles, CFO
Well, I'm not sure how you got to your $7. But yes, as I said in my prepared remarks, we originally were going to use a third-party to own and operate as well as build the barge load-out. So the cost associated with that really offset all the incremental CapEx pretty much to make it neutral on the overall project economics.
Lucas Pipes, Analyst
Got it. The $7 figure was derived from taking the midpoint of the $120 million to $130 million range, based on a return rate similar to Blue Creek. I arrived at this number quickly. Changing topics, you increased inventory during the second quarter. McDuffie made some progress; could you provide an update on the terminal's current status since improvements began during the second quarter, and discuss the pace of inventory destocking for the second half of the year? Thank you.
Walt Scheller, CEO
The biggest event was the work on the number one loader. Once that was completed, it significantly enhanced their performance rates, more than doubling their capacity to load vessels. Getting that back online, along with improvements in belt availability and overall port operations, has led to substantial incremental improvements. We are now seeing load rates comparable to our peak production levels, and we believe they are back to where they need to be. There's still potential for further improvement as we work towards bringing Blue Creek online at full production. While the current rates are acceptable, we are focused on achieving better performance to enable Blue Creek to operate efficiently and sell coal.
Lucas Pipes, Analyst
That's helpful. Thank you. And then one last one for me before I jump back in the queue. You noted in the press release that you will seek to optimize your capital structure to improve returns to stockholders. Could you comment on what optimization you may have in mind? Is that reducing leverage or increasing capital returns? Just wondered if you could elaborate on what you meant with optimizing your capital structure? Thank you.
Walt Scheller, CEO
Yeah. Thanks, Lucas. I mean, that's really all in composite of the things you just mentioned, looking at potential debt paydown as we benefited the last 1.5 years of these really high prices. We are well-positioned to not only fund Blue Creek but pay capital returns during the development, as well as pay down debt. So we're just looking at what makes sense at the time and make sure that we're well-positioned to spike Blue Creek, the spending there. So we're trying to accomplish a little bit of all those things and just being really positioned for the future.
Lucas Pipes, Analyst
All right. Dale, Walt, I really appreciate the color, and best of luck. I'll jump back in the queue.
Walt Scheller, CEO
Thank you.
Dale Boyles, CFO
Thanks.
Operator, Operator
Thank you. And the next question comes from Nathan Martin with Benchmark.
Nathan Martin, Analyst
Thanks, operator. Good afternoon, guys. Thank you for taking my questions.
Walt Scheller, CEO
Sure.
Nathan Martin, Analyst
Maybe a quick one to start as it relates to the new transportation initiatives at Blue Creek, which railroad load out are you guys going to be building your conveyor system to?
Walt Scheller, CEO
We'll be developing a rail load out a little west from the mine. We really haven't given any of that public information, have made any of that information public yet. A lot of that is still under negotiation. So we just haven't finalized the terms of these agreements. It’s a little premature. We have enough to know that the additional cost is going to take, but this is a really good opportunity to derisk this project and to have multiple transportation modes rather than put 5 million tons on the rework; we have the ability to do both now.
Nathan Martin, Analyst
Yes. No, that makes sense. I was just curious if it was going to be CSX, since I know they've served your mines now if there was optionality where you guys are looking to build that new load out?
Walt Scheller, CEO
The Blue Creek mine and our existing facilities.
Nathan Martin, Analyst
Okay. Great. Maybe looking at the quarter real quickly then, realized price per ton, a little lower than anticipated, similarly lower than your historical average utilization versus the quarterly benchmark. Any color you guys could provide there? Was it a mix thing, was different indices, timing to merge? Just any additional thoughts would be helpful.
Walt Scheller, CEO
I think we had our spot volumes were above what would be considered normal and the CFR sales versus FOB sales were probably a little higher. And between those two, it dropped the realization a bit.
Nathan Martin, Analyst
Thank you, Walt. I appreciate your comments on the market in your prepared remarks. I'd like to hear your thoughts on the recent increases we've seen in net prices, particularly the rise in the CFR China price, which has gone up by about $30 or more last month. You mentioned some spot business to China, suggesting that this market may have become more attractive. It would be helpful to get your insights on how you are managing your export mix moving forward. Thank you.
Walt Scheller, CEO
I think our export mix, I think we've shifted a bit and remain shifted a bit from what was traditional, where we were in the mid-50s going into Europe. I think we'll see that number down a little bit, and we'll continue to see Asia make up a higher percentage. And part of that is due to the fact that we've just moved into a new mining area at mine number 4, in which the quality changes a little bit, so that the customer mix will change a little bit with that. So for right now, we expect to be moving a little more into Southeast Asia.
Nathan Martin, Analyst
Okay. Could you elaborate a little bit on the quality mix change there, Walt?
Walt Scheller, CEO
We've previously discussed our shift from the Southwestern or Southeastern area of the coal mine to the Northwestern part, where there is a slight increase in volatility and it's closer to a high volatility A than before. We understand the quality and have been coordinating with our customers about this change. It resembles the coal quality and demand from around 2014 when we were operating in a similar region.
Nathan Martin, Analyst
Got it. Very helpful. And then maybe one final one. It would be great to get your thoughts on the possible cadence of shipments here in the back half of the year 3Q, 4Q. Any expectation for one quarter to outperform versus the other? You talked about probably drawing down some inventory. Do you expect that to kind of be ratable? And then also, I know you've got a couple of long moves, I think, two in Q3 and one in Q4?
Walt Scheller, CEO
I think it will be ratable. I think the only caveat there is weather. We're moving into hurricane season, and it's easy to have some days or a week or so where the port struggles a bit due to adverse weather, so that can affect the quarter pretty easily, especially if it happens around the end of the quarter. But I would expect it to be kind of consistent performance right now.
Nathan Martin, Analyst
Great. Very helpful, guys. I appreciate the time and best of luck in the second half.
Walt Scheller, CEO
Thank you.
Dale Boyles, CFO
Thanks, Nathan.
Operator, Operator
Thank you. The next question comes from Alex Hacking with Citi.
Alex Hacking, Analyst
Yes. Afternoon, and thanks for the time. So on the Blue Creek, you talk about the CapEx and inflationary pressures that we've seen since the project was originally scoped. I mean, should we be thinking about that original budget of, I think it was 650 to 700, potentially being 20% to 30% higher, like another $150 million, or am I thinking about that completely wrong? Thanks.
Dale Boyles, CFO
Well, that was to what our original expectations were, and that's the inflation we've seen across the board in our operations. And the new project is not immune to it. Now we can't project where we'll end up with that. But to date, as we're looking at it, that's where our inflationary pressures have been.
Alex Hacking, Analyst
Okay. Got it. Just wanted to make sure I was interpreting correctly. And then I guess on the development tons that are going to start coming out next year, I'm not sure if you've quantified that for 2024 and 2025 and a really basic question, what's the accounting treatment of those development tons if it's a material amount to be sold? Thanks.
Dale Boyles, CFO
We expect to begin producing tons in the middle of next year. However, it's important to note that we need to build a preparation plant and establish a method to transport those tons to market. We are currently evaluating whether it would be more beneficial to stockpile the material, clean it, and sell it immediately, although this option will be more expensive due to different transportation costs compared to what they'll be once our transportation methods are fully operational. We are still assessing the most effective way to manage that coal, and this will take some time.
Alex Hacking, Analyst
Okay. What's the current sort of expectation for the timing of the prep plant?
Dale Boyles, CFO
The tone of the prep plant is believed to be in the mid-20s to mid-25 range. We anticipate that in the second and third quarters, it will be around 25, and we think the plant might also be at that level.
Alex Hacking, Analyst
All right. Thanks. Very helpful.
Walt Scheller, CEO
Thank you.
Operator, Operator
Thank you. And the next question is a follow-up from Lucas Pipes with B. Riley Securities.
Lucas Pipes, Analyst
Thank you very much, operator. Thank you for taking my follow-up questions. It's back to Blue Creek. So just to make sure I understand the 25%, 35% inflationary comment right. That is separate or in addition to the additional scope and the transportation expenditures you outlined. Is that right?
Walt Scheller, CEO
That's correct.
Lucas Pipes, Analyst
We take the original estimate, apply our range of 25% to 35%, and then add the transportation cost on top of that for a rough ballpark figure.
Walt Scheller, CEO
Yes, the scope changes on top of that, yeah.
Lucas Pipes, Analyst
Thank you. Thank you for that. And then I want to follow up on the capital structure optimization. Dale, you mentioned you may reduce leverage. Are you looking at refinancing the debt, or is maybe a preferred way to reduce the cash balances, just pay off some debt with the cash that you have on the balance sheet? Just I'm trying to get a little bit better understanding for how you're thinking about that optimization.
Dale Boyles, CFO
Well, that's certainly an option. But look, we've accumulated quite a bit of cash as we talked about the inflation, the future of Blue Creek. We're trying to balance those things, and we paid some additional capital returns this year. So we definitely don't want to put ourselves in a bad position with the remainder of Blue Creek. We're just months 15 months, 16 months into the project. So, but at the same time, we're looking at every piece of the capital structure. We're looking at debt, how do we position ourselves better. So should we pay some down now or pay it down later? So it's a little of all those things. So we're not leaning toward either one too much, but that could change. We would like to keep our options open and execute the best one for the company.
Lucas Pipes, Analyst
That's helpful. Now are there call premiums to think about prepayment penalties, things like that?
Dale Boyles, CFO
Yes, there are. So we have to think about all those and where we stand with total cash and total liquidity spending almost $0.5 billion in capital this year is a pretty significant concern. So you have to think about that as well.
Lucas Pipes, Analyst
That's all very helpful. And then another one on this balance sheet. Can you remind us what your targets are through the development of Blue Creek for minimum liquidity, minimum cash?
Dale Boyles, CFO
Well, we haven't changed those. I think we set a minimum liquidity of $250 million once the project started. Most of that will be cash, and that's where we would say. And we've been well ahead of that, which have been very fortunate to have accumulated so much cash with high prices, especially last year and such a record-setting quarter.
Lucas Pipes, Analyst
Thank you very much, Dale, for all the additional detail. Again, best of luck, Walt, and Dale.
Walt Scheller, CEO
Thank you.
Dale Boyles, CFO
Thank you.
Operator, Operator
Thank you. And this concludes the question-and-answer session. I would like to turn the floor to Mr. Scheller for any closing comments.
Walt Scheller, CEO
That concludes our call this afternoon. Thank you again for joining us today, and we appreciate your interest in Warrior.
Operator, Operator
Thank you. As mentioned, the conference has now concluded. Thank you for attending today's presentation, and you may now disconnect your lines.