Earnings Call Transcript - HCC Q4 2020

Operator, Operator

Good afternoon. My name is Vaishnavi and I will be your conference operator today. At this time, I would like to welcome everyone to the Warrior Met Coal Fourth Quarter and Full Year 2020 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. This call is being recorded and will be available for replay 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 of 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 fourth quarter and full year 2020 results. After my remarks, Dale will review our results in additional detail, then you'll have the opportunity to ask questions. The fourth quarter continued to present a challenging market environment as the disruptive impact from the COVID-19 pandemic remained evident throughout the U.S. and global economies. Although the steel and met coal industries operated below their normal yearly levels, we saw volumes stabilize with existing customers in our key markets as producers continued to increase their operating rates. Despite these challenging headwinds, especially on met coal pricing, we were pleased to be free cash flow positive for the third consecutive quarter in a row. We remain focused on preserving cash and liquidity while managing the aspects of the business that we can control. Importantly, we achieved our lowest annual cash cost per short ton since going public. At the same time, we carefully balanced our spending on long-term CapEx investments to keep us uniquely well-positioned to benefit from the eventual recovery in steel production, met coal demand, and pricing. We continue to take the necessary measures to adjust our workplace environment to comply with social distancing and personal hygiene guidelines set forth by various health organizations to protect the health and safety of our employees while maintaining our operations. We continue to operate our mines as a critical infrastructure business in the state of Alabama, and I would like to thank all of our employees for their hard work and resilience during these challenging times. We've been fortunate to keep our people employed during this unprecedented period, whereas others in the industry have had to idle their operations and furlough employees. Our fourth quarter played out largely as expected, with the exception of taking advantage of additional spot volume opportunities into China. As the Chinese ban on Australian coals played out in the fourth quarter, we were able to monetize our higher than normal inventories. We successfully attracted new Chinese customers during the fourth quarter, which partially offset some of the impact of the depressed pricing environment experienced in our natural markets. Unfortunately, some of these Chinese cargoes were sold early in the fourth quarter just as the CFR index was beginning to rise. From a market perspective, the most consequential theme of the fourth quarter was, without a doubt, the Chinese ban on select Australian commodities, including met coal. While we were cognizant of this situation coming into the quarter, the impact of the ban became apparent in early November as a large number of vessels were building up along the Chinese coast without being allowed to unload. As this new reality settled in, Chinese buyers scrambled to initiate discussions with alternative sourcing options, including U.S.-based supply. The Russia transact, coupled with additional complications such as a slowdown in the importation of landborne coal from Mongolia and tightness in their domestic met coal markets, created a significant distortion in the met coal indices, which persists today. Premium low-vol CFR China-based indices have decoupled from premium low-vol FOB Australian indices; increasing from their normal spread of $8.00 to $12.00 per metric ton to over $100 per metric ton at the end of the fourth quarter. The increasing differential was primarily driven by two opposing forces. First, Chinese customers rushed to secure the limited supply of non-Australian premium coals; and second, the Australian supply that is normally reserved for China was being offered to well-supplied markets, such as Europe and South America. Despite the distorted met coal pricing conditions, we were generally pleased with global steel fundamentals. Global pig iron production, as reported by the World Steel Association, continued to show an ongoing recovery in steel demand for most regions outside of China, while China achieved another record-breaking year. The full year, global pig iron production was down less than 1%, which is quite remarkable given the severity of the impact of COVID-19 on the world's economy. The global result is largely due to China's impressive production of 887 million metric tons of pig iron, equivalent to a year-over-year increase of 4.3%, while the rest of the world was down 9.6% for the same period. We also entered the fourth quarter with reservations about pricing, which turned out to be true. The absence of clarity concerning Chinese import quotas, the Chinese ban on Australian coals and the perception of a well-supplied market kept all major indices tightly range bound for most of the quarter after the early rapid decrease. The Platts Premium Low Vol FOB Australian index price began the quarter at a high of $139 per metric ton and fell to a low of $97 per metric ton during the fourth quarter; averaging $108 per metric ton for the entire quarter. Sales volumes in the fourth quarter were 2.2 million short tons compared to 1.7 million short tons in the same quarter last year. These results were ahead of expectations set out on our last earnings call for volumes at the midpoint of our second and third quarter volumes, which was around 1.7 million short tons. Our sales by geography in the fourth quarter were 49% into Europe, 20% into South America, and 31% into Asia. These higher volumes were a nice rebound from the lower volumes in previous quarters. Production volume in the fourth quarter of 2020 was 1.8 million short tons compared to a similar amount in the same quarter of last year. This aligns with our thinking on our third quarter earnings call, where we said we expected to better match our sales and production volumes in the second half of 2020 and take advantage of opportunities if they met profitability thresholds. As planned and previously communicated, inventories remained elevated at the end of the fourth quarter compared to pre-pandemic levels, total inventory levels decreased 515,000 short tons to one million short tons at the end of the fourth quarter; primarily due to the monetization of spot volume opportunities into China. We expect our inventory levels to temporarily remain elevated, which will help us mitigate the risk that our mines may be disrupted or shut down by a widespread COVID-19 outbreak among our workforce. The higher than normal inventory levels will allow us to capitalize on spot market opportunities. Our gross price realization for the fourth quarter of 2020 was 102% of the Platts Premium Low Vol FOB Australian index price and was higher than the 97% achieved in the prior year period. Our better gross price realization was primarily due to a higher percentage of our sales being exposed to spot sales with lower relativities due to a fundamental oversupply in the marketplace. Our spot sales volume in the fourth quarter was approximately 50% of the total volumes compared to a normal expectation of approximately 20%. The Company spent $29 million on capital expenditures and mine development costs during the fourth quarter compared to $34 million in the same period last year. This is a 14% decrease in spending quarter-over-quarter. We will continue to balance our free cash flow and liquidity preservation against maintenance and discretionary capital spending as we navigate the effects of the COVID-19 pandemic. I will now ask Dale to address our fourth quarter results in greater detail.

Dale Boyles, CFO

Thanks, Walt. Our fourth quarter continued to be about balancing competing priorities as it had been throughout most of 2020. We ran the mines without idling or laying off employees while keeping our costs low in an extremely depressed and challenging price environment. At the same time, we continued to make significant CapEx and mine development investments. Our ability to generate positive free cash flow in the fourth quarter was an important testament to the success of this balancing act. For the fourth quarter of 2020, the Company recorded a net loss on a GAAP basis of approximately $34 million or a loss of $0.66 per diluted share compared to a net income of $21 million or $0.41 per diluted share in the same quarter last year. Non-GAAP adjusted net loss for the fourth quarter was $0.63 per diluted share compared to $0.32 of income per diluted share in the same quarter of 2019. Adjusted EBITDA was $9 million in the fourth quarter of 2020 as compared to $45 million in the same quarter last year. The quarterly decrease was primarily driven by a 22% decrease in average net selling prices; partially offset by higher sales volumes. Our adjusted EBITDA margin was 4% in the fourth quarter of 2020 compared to 22% in the same quarter last year. Total revenues were approximately $212 million in the fourth quarter of 2020 compared to $205 million in the same quarter last year. This increase was primarily due to the 33% increase in sales volumes, partially offset by a 22% decrease in average net selling prices and a weaker market environment due to the impact of COVID-19. The Platts Premium Low Vol FOB Australian index price averaged $32 per metric ton lower or down 23% in the fourth quarter of 2020 compared to the same quarter last year. After the early decrease at the beginning of the quarter, the index price remained range bound for most of the fourth quarter, averaging $108 per metric ton and hitting a low point of $97 per metric ton. Demurrage and other charges reduced our gross price realization to an average net selling price of $94 per short ton in the fourth quarter of 2020 compared to $120 per short ton in the same quarter last year. Mining cash cost of sales were $190 million or 92% of mining revenues in the fourth quarter compared to $142 million or 72% of mining revenues in the same quarter of 2019. The increase of $48 million or 34% in cash cost of sales was primarily attributable to two factors; the 33% increase in sales volumes, and tighter cost management in 2020; partially offset by a 22% decrease in average net selling prices. Cash cost of sales per short ton, FOB port, was approximately $86 in the fourth quarter and approximately the same amount in the same period of 2019. While the cost per ton in both quarters was the same, met coal prices were 22% lower in the fourth quarter of 2020. Cash costs and price-sensitive costs, such as wages, transportation and royalties that vary with met coal pricing were lower in the fourth quarter. However, they were offset by higher production cost per ton. Production costs per ton were higher due to our decision to slow production in order to preserve cash in the fourth quarter. SG&A expenses were about $8 million or 3.7% of total revenues in the fourth quarter of 2020 and were 2% lower than the same quarter last year, primarily due to lower professional fees and employee-related expenses. Depreciation and depletion expenses for the fourth quarter of 2020 were $39 million. The increase quarter-over-quarter was primarily due to a higher amount of assets placed in service and higher spending levels. Net interest expense was about $8 million in the fourth quarter and included interest on our outstanding debt plus amortization of our debt issuance costs associated with our credit facilities, partially offset by interest income. This was approximately $2 million higher compared to the same period last year, primarily due to incremental borrowings on our ABL facility this year and lower returns on cash balances. We recorded a noncash income tax benefit of $11 million during the fourth quarter of 2020 compared to a benefit of $3 million in the same quarter last year. This quarter's tax benefit is attributed to the pretax loss and additional marginal gas well credits from our gas businesses. Turning to cash flow. During the fourth quarter of 2020, we generated over $1 million in positive free cash flow, which resulted from cash flows provided by operating activities of $30 million, less cash used for capital expenditures and mine development cost of $29 million. Free cash flow in the fourth quarter of 2020 was positively impacted by a $20 million decrease in net working capital. The decrease in net working capital was primarily due to a decrease in inventory on higher sales volume and our decision to slow production this quarter. Operating cash flows were higher in the fourth quarter of 2020 compared to the same quarter last year, primarily due to higher sales volumes. Cash used in investing activities for capital expenditures and mine development costs was $29 million during the fourth quarter of 2020 compared to $34 million in the same quarter last year. We continue to rationalize spending versus investing in long-term projects that will benefit the Company in the future. Specifically, the Company spent $13 million or 47% less on CapEx in the fourth quarter of 2020 compared to the same period last year, which was partially offset by higher spending on mine development costs. For the full year of 2020, our sustaining CapEx spending was approximately $60 million, which was $29 million less than the prior year. Because our mines are well capitalized and generate significant cash flows, we can continue to invest in our business even in challenging price environments. We spent $27 million on discretionary CapEx in 2020 or approximately 31% of total CapEx. Free cash flow for the full year could have been that much higher had we chosen to suspend those discretionary investments during the pandemic. Cash flows used by financing activities were $6 million in the fourth quarter of 2020 and consisted primarily of payments for capital leases of $3 million and the payment of the quarterly dividend of $3 million. We continued to focus on cash preservation and total liquidity during the quarter, and our balance sheet remains strong with a leverage ratio of 1.9x adjusted EBITDA. In addition, we have adequate liquidity as we have shed our fixed cost legacy liabilities and today have a low and variable cost structure with no near-term debt maturities. Our total available liquidity at the end of the fourth quarter was $244 million, consisting of cash and cash equivalents of $212 million and $32 million available under our ABL facility, net of borrowings of $40 million and outstanding letters of credit of approximately $9 million. Now turning to our outlook. Due to the ongoing uncertainty related to the COVID-19 pandemic, the Chinese ban on Australian coal and other potentially disruptive factors, we will not be providing full year 2021 guidance at this time. We expect to return to providing guidance once there is further clarity on these issues. We continue to evaluate the impact of COVID-19 and these other potentially disruptive factors on our business, although we believe that it is premature to speculate on when the economies of the countries in which our customers are located will reopen on a sustained basis and lead to a return of normalized demand for met coal. We continue to appropriately adjust our operational needs, including managing expenses, capital expenditures, working capital, cash flows, and liquidity. We have delayed the development of the Blue Creek project until at least the summer of 2021. This decision was not based on changes in the perceived value of the project but rather on our short-term focus of preserving cash and liquidity. Our stock repurchase program also remains temporarily suspended. 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 would like to make some final comments. While we understand the immediate consequences of the Chinese ban on Australian coal, we've adjusted our operations under these circumstances. We still do not have a clear view of how the trade of seaborne met coals will return to normal efficient market conditions. We expect that China will allow some level of Australian premium coals to be imported sooner rather than later, but we remain cautious in predicting how and when China will act. For now, it's prudent to stay close to our long-term customers while strategically placing some spot volumes into China to capture the benefits of the temporary pricing distortions and continuing to build brand recognition for our premium coals in China. Most steel producers in Europe and South America have increased production and restarted idle blast furnaces. However, some countries in which we do business have again temporarily shut down their economies due to a recent rise in new COVID-19 cases and new variants of the virus. While we believe that demand for our products should remain stable throughout our portfolio for the next few quarters, we also believe that price volatility will present the greatest uncertainty for the short term. As previously mentioned, we expect that our current inventory levels will remain elevated as we intend to adjust production rates in accordance with demand and as we manage potential disruption risks due to COVID-19. Of course, if the opportunity to sell additional volume while meeting our profitability threshold materializes, we would expect to see a more rapid decrease in our inventory levels. We plan to balance Chinese spot volume opportunities with existing commitments to our long-term customers. Just one last point I would like to remind everyone of, as we've previously disclosed, our union contract is set to expire on April 1. We believe that we have a good relationship with our union workforce and have done our best to do right by them. We are in negotiations with the union for a new contract. At this time, we cannot comment any further on any potential terms of a new contract. Finally, I have repeated a simple mantra a number of times both before enduring this pandemic; it's worth repeating again. The five important reasons our business is well positioned to weather any prolonged economic or disruptive challenge. One, our highly talented workforce is committed to safely and efficiently driving results. Two, we maintain one of the world's highest quality met coal portfolios and have strong long-term customer relationships. Three, we have a strong balance sheet and adequate liquidity. Four, our low and variable cost structure enables us to drive high margins and free cash flow across most business environments. And five, we've made significant investments in our operations over the past few years, allowing us to now reduce capital expenditures as needed without significantly impacting our operations. As a result of these factors, I'm confident that we will emerge from these ongoing uncertainties ready to achieve our long-term growth potential. With that, we'd like to open the call for questions. Operator?

Operator, Operator

The first question comes from David Gagliano with BMO Capital Markets. Please go ahead.

David Gagliano, Analyst

Thanks for taking my question. I appreciate the challenges associated with providing full-year color in this environment. I'm just wondering, though, can you give us some color on the first quarter, get more past halfway through the first quarter? Can you give us a sense on volumes and pricing and costs?

Walt Scheller, CEO

So the operations are running as expected. We've discussed frequently how our coal is priced and it's still being priced that way for our standard customers. And things are going out kind of as we expected, but that's about as much clarity as I can give you.

David Gagliano, Analyst

Okay. And just to drill down a little bit more on what you expected in the first quarter when you say as expected, what are you expecting in the first quarter for volumes?

Walt Scheller, CEO

You can look at our last year or two and see how we've run, and that's kind of how we expect to operate. Okay. And then in terms of spot sales, at this point, how many times have you sold in the spot market in the first quarter or for delivery in the first quarter into China? I'm not getting into that level of detail, David.

Operator, Operator

The next question comes from Lucas Pipes with B. Riley Securities. Please go ahead.

Lucas Pipes, Analyst

I wanted to get a sense of committed volumes for 2021. I appreciate that you don't want to put out a number for the full year, but you typically layer in commitments into Europe, South America, etc., and then if you could also add where you typically stand kind of on a percentage basis versus capacity on the committed side, that would be very helpful.

Dale Boyles, CFO

Well, I guess, in the previous few quarters, Lucas, our spot sales have been running about 50% of our quarterly volumes because of the pandemic and most of the shutdowns that occurred. As those geographies are improving, some of those countries have kind of stepped back as well with the new cases and the new variants of this virus. So it's hard to say exactly on the committed volume because of the spot volume as well. But we expect to improve more above that 50-50 ratio as we move forward this year. The whole market disruption with China and what's going on there with that ban, we can try to take advantage of those opportunities when we can, but we still want to make sure that we fulfill everything with our customers. So I don't want to get into the committed right at this point because that can change very quickly. And our contracts do roll over from year-to-year. So I just want to say that, look, we're going to be improving on that 50-50 ratio as we've been for the last three quarters, I believe it is.

Lucas Pipes, Analyst

Yes, yes. No, that's appreciated. Thank you, Dale. Higher-level question, follow-up question on marketing in this environment, kind of big picture, isn't this a time for someone like you to gain share in the market? I mean if Australia is kind of shut out of the Chinese market, you continue to hold transportation logistical advantages into Europe, Latin America, why not run flow out? And kind of based on where prices are today, I would have you running a positive contribution margin every time you sell. So kind of just big picture philosophically, why not run full out here?

Walt Scheller, CEO

There are millions of tons of Australian coal waiting off the coast of China. China's refusal to allow the import of this coal does not mean it isn't being produced in Australia. The supply and demand situation remains relatively balanced. We've also seen some Australian coal shipments reaching both Europe and South America. When we have had the chance to export our coal to China, it has helped us establish brand recognition for our products from mine four and mine seven, as we haven't previously sold our coal in that market. Currently, the market isn't drastically undersupplied. As of a few weeks ago, around four million tons of Australian coal were still off China's coast.

Lucas Pipes, Analyst

That's helpful. I have one final follow-up before returning to the queue. We're examining various prices globally, including delivery in China, FOB Australia, and FOB East Coast. Are those prices representative for you, or do you think that, given the inventories of Australian coal outside of China, some of these prices may not be accurate? To be frank, I find it a bit confusing that, despite an improving index for several weeks now, there’s still hesitation to provide more volume details. It seems like it would be quite profitable at these prices. I would appreciate more insight on pricing in the current market.

Walt Scheller, CEO

Well, as we look at it, the ability, when we sell into our customers in both Europe and South America, that coal is sold based on the FOB Australian price. And we expect to be able to fully achieve those prices based on whatever our particular contract is for a particular customer, whether it's two weeks, three weeks, four weeks of average pricing previously. And with what's going into China, while it's CFR, again, I don't know, China is not always fully active in the market and these CFR prices may be on very, very small volumes.

Dale Boyles, CFO

I think the same thing happened with the East Coast price as well.

Operator, Operator

The next question comes from Chris Terry with Deutsche Bank. Please go ahead.

Chris Terry, Analyst

I just wondered if I could ask a little bit on the costs for the quarter. The $86 was $5.00 or $6.00 higher than what we had. Appreciate you sold out of inventory. Just wondered if you could talk about how you see that. I know you're reluctant to talk too much about 2021, but maybe just some of the moving parts. I guess it was just that inventory that was the main contributor to the higher costs in the quarter? I wondered if you could give some details.

Walt Scheller, CEO

Well, if you look at our average cost of sales for the last five years, we've been between $90 and $95 per metric ton. And that's kind of where we continue to be. Last quarter was exceptional in Q3. And we expect to be able to operate in that same level year after year and quarter after quarter. Now in any particular quarter, we're going to have some blips. And for instance, in the fourth quarter, there's an awful lot of fixed costs associated with these mines. And when we intentionally drop back the number of days we operate and the number of tons we produce, the fixed cost gets spread across fewer tons. So we're going to see a higher cost per ton number.

Dale Boyles, CFO

In the third quarter, the figures were unusually low, with the price around $78 a ton, which is not typical. This set the stage for a significant rebound due to various factors. Additionally, our high inventory levels complicate things, as much of what we sold in the fourth quarter was actually mined in the third quarter, leading to some overlap in inventory management. This adds to the complexity of our situation. However, we have historically operated within a range of low to mid $80 per ton.

Chris Terry, Analyst

Yes. Okay. That's clear. And then in terms of 2021, how many longwall moves do you have due? And maybe you could just talk a little bit about your expectations on a CapEx range?

Walt Scheller, CEO

No, we have three, possibly a fourth longwall move. In terms of CapEx, my expectation is you should see, again, us probably in similar levels to we've been in previous years where we've budgeted between $100 million and $120 million.

Chris Terry, Analyst

Okay. And then just coming back to the inventory level you've got now and keeping that ready in case anything was to happen around COVID. I wondered if you could just talk a little bit about that, like, what level do you have to keep versus opportunities that come up in the spot market? I'm just trying to understand that million tons, can you take it down to half a million and still be comfortable? Or what's the opportunity in that million tons you've got in inventory?

Walt Scheller, CEO

I think for us, the really low inventory levels are when we get below 250,000 tons, that's really below where we want to be. Optimum, I would say, is somewhere in the 350 to 450 range.

Operator, Operator

The next question comes from Matt Farwell with Roth Capital. Please go ahead.

Matt Farwell, Analyst

I have a question regarding China. Considering the high CFR prices in China, how should we view the realizations from the mine compared to Australia, particularly with the low-vol premium of $100 per ton and the increased logistics costs? I'm looking for a rough way to estimate this. Additionally, your commentary on exports to China seems quite unique. It appears that less than 5% of the volumes might reach China this year. Could you provide some insight on that estimate?

Dale Boyles, CFO

I'll handle the first one there. As far as the realizations, obviously, I can't predict that without having actual volumes. But as we said in our prepared comments, look, we're going to try to take advantage of the opportunities, if we can. But first and foremost, it's our long-term customers. We have to make sure that we service our long-term customers that are here today and been with us for 20-plus years, and a Chinese customer comes today and is gone tomorrow. So we have to balance that and make sure we meet that demand. So I can't really predict the actual transactions that might occur this year other than just say, look, we'll try to take advantage of any spot volume opportunities at some of those CFR prices into China, if we can do that.

Walt Scheller, CEO

And as far as the second part of the question, I think Dale's answer really captures that as well and that we're first going to take care of our long-term customers, and then we'll look at spot opportunities, determine where our best opportunities are and go after that realization.

Operator, Operator

The next question comes from Nathan Martin with the Benchmark Co.

Nathan Martin, Analyst

Most of the topics I was looking to dig into have been touched on. Maybe just to follow up real quick on that CapEx question. Obviously, you guys did a great job bringing down sustaining CapEx in 2020 to that $60 million level. I think, Dale, you made the comment that, and Walt as well, that the mines have been well capitalized over the last few years. Do you feel like that number is something that you could sustain going forward into 2021, if necessary? That would be my first question.

Dale Boyles, CFO

Yes, in 2021, yes. It's not a long-term sustainable number, but yes, we could do that in 2021.

Nathan Martin, Analyst

Okay. Great. And then quickly, kind of going back to the CFR China story. I'm just curious, guys, what is a reasonable number right now that you're seeing maybe out there for ocean freight from mobile to China?

Dale Boyles, CFO

I think it was in the $40 range, let me check. Yes, $40 to $50 range, a ton.

Nathan Martin, Analyst

Okay. Got it. I appreciate that, too. And then finally, just a little housekeeping question. Dale, you were mentioning the volumes in 2020, I think, were down 7% roughly year-over-year. And then you made a comment about, I think, 2021, and you said the numbers will be roughly the same. Did you mean roughly the same maybe as 2020 from a sales perspective on an absolute basis, is that what you're getting at?

Dale Boyles, CFO

Yes. I believe the volume could be similar to what we saw in 2020, but that largely depends on how quickly our customers can resume their operations. There's been a lot of discussion around this, but we need to see it play out. I think that volume range is reasonable, but we need more clarity from our customers regarding their actual run rates for the year. And just one final one, going back to the CapEx. I know you obviously just pointed out the 4 North portal project, etc., or where you would expect to spend most of your discretionary dollars this year. Any color you can provide on how much is left to spend on those projects?

Walt Scheller, CEO

I think we're about halfway through the mine four capital needed for that project. We're capitalizing some of the development. It also includes a bunker that will be built underground. So it's a sizable project. It's bigger than just putting a portal in. So we're about halfway. I think it was 80-ish.

Dale Boyles, CFO

Yes, it's around the mid-80s for the total.

Operator, Operator

Next question comes from Len Hen with HITE.

Unidentified Analyst, Analyst

I would like to ask about the Blue Creek project. From now until summer, what would make you feel comfortable with the project at that time? What do you want to see—price, inventory, supply and demand? What are your thoughts on what you would like to see?

Walt Scheller, CEO

I assume you're asking about starting the Blue Creek project. We need to have more clarity regarding the ongoing COVID issues to better understand demand. Additionally, we hope to see stable pricing. We recently had some contract negotiations, and we require clarity on those matters before we can commit significant resources to the project.

Unidentified Analyst, Analyst

Got it. We've heard a lot of talk regarding the coal industry from the new administration. I understand there's potential profit for thermal coal. However, do you feel there are any potential negative impacts on your business, perhaps from increased costs or decreased demand? Can you share what you're observing in relation to the administration's approach?

Walt Scheller, CEO

Well, it's a bit early to determine, but some of the federal land leasing moratoriums specifically excluded metallurgical coal, or all coal, really. So at this moment, it's difficult to say what their expectations are aside from that, which doesn't affect us. We have no information, and we can't make predictions at this time.

Unidentified Analyst, Analyst

And then just for clarify, you don't have any federal lands do you?

Walt Scheller, CEO

Well, we do lease some federal land. Yes.

Unidentified Analyst, Analyst

You do lease federal lands? So is for your existing or for your new projects?

Walt Scheller, CEO

It would be both.

Operator, Operator

Next question is a follow-up from David Gagliano with BMO Capital Markets.

David Gagliano, Analyst

I think a lot of my questions have now been asked. But I guess I just had two quick follow-ups. First of all, just on the longwall moves, is there any particular quarter where they're chunkier than other quarters?

Walt Scheller, CEO

No, no, they're pretty much spread throughout the year.

David Gagliano, Analyst

Okay. And then just on the union negotiations and contract, can you just give us some context? So when was that contract last negotiated?

Walt Scheller, CEO

Five years ago from this coming April 1.

David Gagliano, Analyst

Okay. So obviously, things were quite different then. One of the pieces of the prior contract, I believe, was wages that were tied to prices in some respect. And is that still likely to be the structure moving forward? Or is that part of the negotiation?

Walt Scheller, CEO

That will be part of the negotiation. But interestingly, prices stayed robust enough that wages stayed constant from that standpoint throughout the contract. We never hit a trigger.

Operator, Operator

At this time, there are no further questions. I will now turn the call back over to Mr. Scheller for any comments.

Walt Scheller, CEO

That concludes our call this afternoon. Thank you again for joining us today. We appreciate your interest in Warrior Met Coal.

Operator, Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.