Ramaco Resources, Inc. Q3 FY2020 Earnings Call

Good morning, ladies and gentlemen and welcome to Ramaco Resources Inc Third Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instruction will follow at that time. As a reminder, this conference call may be recorded. I would now like to turn the conference over to your host today, Mr. Jeremy Sussman, Chief Financial Officer. Sir, the floor is yours.

Thank you. On behalf of Ramaco Resources, I'd like to welcome all of you to our third quarter 2020 earnings conference call. With me this morning is Randy Atkins, our Executive Chairman; and Mike Bauersachs, our President and CEO. Before we start, I’d like to share our normal cautionary statement. Certain items discussed on today’s call constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent Ramaco's expectations concerning future events. These statements are subject to risks, uncertainties and other factors, many of which are outside of Ramaco's control, which could cause actual results to differ materially from the results discussed in the forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and except as required by law, Ramaco does not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Lastly, I’d encourage everyone on the call to go on to our website, ramacoresources.com and download today’s investor presentation under the events calendar. With that said, let me introduce our Executive Chairman, Randy Atkins.

Thank you, Jeremy. I suspect, like many of us, we had a long night last night, and it's probably going to be a long few days. But as always, I’d like to thank everyone for joining us today to talk about our third quarter results. Like many of our peers, we’ve come through this quarter, which has been marked by continued market softness and wide uncertainty as we approach 2021. As you saw in our release, this quarter was clearly not exemplary from a financial perspective, but it has positioned us to end 2020 perhaps in the strongest financial condition we’ve been in from a liquidity standpoint, and with some very hopeful markers on sales and marketing for the years ahead. I’m going to let Jeremy drill down on our financial individual metrics for Q3, but it’s almost as if we had a tale of two quarters in three months. July and August continued to show the effects of market weakness that's plagued the industry since COVID-19 hit at the end of the first quarter. September, however, turned out to be a particularly strong sales month for the month, the quarter, and it has carried that forward. This has created some very positive momentum for us. First, we’re going to have two record export quarters for sales; second, we now have new acceptance of our calls into some export markets that we have not tapped before; and third, this has enabled us to end the year with what we believe will be the strongest liquidity position we have had at any year-end. Let me focus on that last point for a second. Since COVID-19 hit in the first quarter, we have been focused all year on maintaining and building liquidity as a firewall against the overall market and operating confusion, which has gripped, not only us, but every industry. I can assure you that up until last month, if you had bet me that we would end the year with both this level of liquidity and our revolver completely paid down, you would have won a very good bottle of Kentucky product from me. We’re also on track to produce a modest level of free cash flow for this year, excluding growth capital expenditures. And we’re hopeful we build on this progression into 2021, to the point of perhaps being in a position to consider a dividend at some point next year. Again, I want to stress we will be in a small club in the coal space by ending the year with more cash than we began this year. I’d also like to spend a moment and make some comments on the general markets and how we’ve approached them this year and how we’re going to look forward into 2021. As many of you know, we have traditionally weighted our coal sales domestically. Logically, as a new company, we wanted to get into as many domestic blends as we could before we started to build any kind of an export book. This year, we found certain larger domestic steel companies were particularly unreliable. They canceled higher-priced contracted tons and pretty much forced our hand to look overseas for 2021. So I am somewhat happy to say that we have now booked almost 800,000 tons of new export sales for 2020 and 2021 within the last 60 days, and many of these sales are to first-time customers. Indeed, the last quarter of this year will be our strongest sales quarter we have ever had. Of our overall projected 2020 sales of about 1.8 million tons, almost 50% of that will be export for the first time. And we're projected to end the year at an average sales price of roughly about $86 a ton. For 2021, we have now sold roughly 1.1 million tons for North American delivery at about $84 per ton, all of which is high-vol. We were unwilling to place more domestic tons into September at what we perceive as still fire sale prices and into a market which is now starting to show some signs of life. We expect to have as much as another 1 million-plus tons available in 2021 to place into these higher, hopefully, higher-priced export markets. Indeed, we just greenlighted at our last board meeting a week ago, a small 250,000 ton low-vol Pocahontas 4 Seam near our Berwind complex, which we are calling Triad. Mike is going to speak a little bit more on that in a moment. It's about a $1.5 million capital expense spend, and we’ll operate with mine costs in the mid-70s. We’ll speak about it more, but we regard that mine as somewhat of a bridge for our low-vol product until we’re willing to continue the larger Berwind slope when we feel the low-vol markets then stabilize. I will close with some brief reflections on the state of the markets. Met coal is simply a proxy for steel, which is, in turn, a proxy for GDP. Domestically, from the start of the third quarter until the end, U.S. Steel capacity has risen from 50% to 70%. This is on the back of both strong auto sales and significantly stronger housing markets driven by low interest rates. With third quarter GDP up almost 40%, we do not think that trend is going away. And overseas, China, as always, continues to be somewhat inscrutable. But they are sitting on about a $70 per ton arbitrage right now between export and domestic met prices. This is probably set to correct sometime within the next 90 days. And when it does, all benchmark prices should move forward and hopefully, upward. Europe, of course, is still a question mark because of the recent wave of COVID outbreak. But it still had a 13% positive bump in third quarter GDP. South America, after two quarters of contraction, also seems to be rebounding, and we’re seeing some strong interest in met coal from Brazil. So to close, this year has once again proven the fragility and uncertainty of the markets in general. With that said, we’re poised to end the year in a very strong financial condition from a balance sheet perspective. And hopefully, 2021 will hold much greater promise for the met markets, and also, of course, for a higher level of earnings for us. So at this point, I’m going to turn the floor back to Jeremy to provide us some of the financial milestones for the quarter.

Thank you, Randy. In terms of third quarter 2020 financial highlights, I'm going to try and break it into two areas. First, overall metrics; second, liquidity on our balance sheet. To begin with, I believe the metrics do not tell the real story of the third quarter from our perspective. Overall, third quarter 2020 EPS revenue and adjusted EBITDA were all down from a year ago. We will have company here, as I suspect every public coal company will be reporting substantially lower earnings this quarter. This is, of course, due to the fact that benchmark pricing fell by almost 30% year-over-year between Q3 2019 and Q3 2020 on the back of COVID-19 demand-related concerns. Losing roughly 90,000 tons have already contracted at $91 per ton priced annual business in the third quarter to force majeure hurt us in all three phases: volume, costs and, of course, pricing. In total, Q3 adjusted EBITDA of $0.6 million was negatively affected by $2.6 million from higher-priced contracted business getting resold into the spot market. While we were successful in reselling this coal, it was, of course, done at spot prices, which were hitting a multiyear low during the quarter. However, as Randy touched on, we are able to place almost 800,000 tons of new 2020 and 2021 sales into the international market in the last 60 days or so, which gives us some excellent momentum heading into the end of the year. On the cost front, in July and August, we were negatively affected by having extremely high inventories. We effectively produced for just half of the month in July, given the combination of the July 4 holiday week as well as an extra week furlough to manage stockpiles. Based on stronger sales, our costs returned to a more normalized level in the low to mid-60s per ton range at Elk Creek in September. Our stronger sales let us run the mines at capacity, given that we literally shipped as much coal in September as we did in July and August combined. Based on our current book of business for Q4, we would expect to build on the momentum we saw in September from an overall cost and production standpoint, though this, of course, will be partially offset by the normal Thanksgiving and Christmas week holidays. One other thing to keep in mind on the met financial front. When comparing results to the second quarter, I would note that other income fell from $8.5 million in Q2 to $1.7 million in Q3. Q2 contained $7.3 million of other income related to the anticipated forgiveness of funding under the payment protection program. I now want to shift to another positive impact of our strong September and October sales, and that is liquidity in our balance sheet. I will start with capital expenditures. Earlier in the year, we noted that because of COVID-19 related uncertainty in the market, we stopped all major growth projects. And due to timing, we expected that we would finally see CapEx at pure maintenance levels in Q3. I can proudly say that we achieved that goal with Q3 CapEx coming in at $2.5 million, which compared to $9.1 million in Q2. Fourth quarter CapEx should come in closer to Q3 than in the first half of the year, with a small creep due to CapEx associated with the $1.5 million Triad mine. Now the key credit metric that we are especially proud of is our trailing 12-month net debt to adjusted EBITDA ratio. Simply put, this remains among the best in the industry at under 0.7 times as of September 30. Now in terms of liquidity, this stood at $20.7 million at the end of the third quarter. While this is down from June 30, I’d remind everyone that working capital has been a roughly $10 million use of cash through the first three quarters of 2020 on the back of meaningful inventory and accounts receivable builds. We expect Q4 working capital to be a meaningful source of cash. Based on the combination of strong September shipments, which led to an unusually large accounts receivable balance at the end of Q3, as well as record anticipated fourth quarter shipments of over 500,000 total tons, year-end 2020 liquidity is anticipated to be above $30 million. This is roughly in line with June 30 levels and compares to $22 million at the end of 2019. As Randy noted in his remarks in the press release, we are likely the only publicly traded met coal producer that should be able to say we ended the year with more liquidity than we began with. This was accomplished without pledging our mining complex or issuing new dilutive equity. Simply put, we will end the year in a very strong position from a liquidity standpoint. I would now like to turn the call over to our President and CEO, Mike Bauersachs.

Thank you, Jeremy. The third quarter of 2020 was substantially impacted by the worldwide pandemic. COVID-19 continues to impact our operations. To date, we had nine of our employees diagnosed with the virus. Fortunately, none of these employees had serious cases and all are back at work. Ramaco continues to keep hand sanitizing, social distancing and personal protective equipment policies in place. We continue to adopt best practices as well as comply with any change in guidelines from the CDC and our state and local health departments; maintaining a healthy and safe work environment is our top priority. To add a bit of granular comments to Randy's market commentary, over the course of the third quarter, our North American customers displaced approximately 200,000 tons out of 2020. And these lost tons due to their above market prices will obviously weigh on our financial results for the remainder of the year. While we could allow the realities of losing these tons to dominate the script for Q3, that is fortunately not the case. The third quarter became the quarter when we transitioned to a more balanced company from a sales perspective due to restocking by customers, combined with intense marketing efforts that were already underway; we’ve been able to place over 400,000 tons of seaborne volumes into the Atlantic basin in the back half of 2020. While the pricing for much of the new international volume during the second half is less than desirable, it is influenced by a couple of large shipments of semi-soft high volatile coal, a new product offered from our Elk Creek complex. This allows us to better utilize a portion of our production mix at Elk Creek, which do not meet typical metallurgical specifications. Selling these tons as semi-soft metallurgical coal, while priced lower than our typical product, is far better than marketing them into otherwise weaker markets. During the third quarter, our mines operated at productivity levels exceeding our targets and better than the same period in 2019. Unfortunately, due to the aforementioned displacement of shipments, the utilization of our operations has been severely curtailed. At our underground operations alone, we have over 25% fewer underground shifts than our original budget and almost 13% fewer shifts than the same period last year. This has resulted in losing production of nearly 300,000 tons, split between the second and third quarters of 2020. The production cuts occurred in the form of additional furlough periods in July. Due to elevated clean coal inventory levels at Elk Creek, we were also forced to briefly idle our preparation plant for a portion of a week during August. Fortunately, since the start of September, we've been able to move tons in a more balanced manner. Operationally, the Elk Creek mines and facilities are back to near full capacity by the end of the third quarter. As Jeremy also mentioned, the impact of lower incremental costs on these additional tons can be clearly seen in our cost performance. Continuing to operate at these levels allows us to reduce inventories, providing us with more flexibility going into the first quarter of 2021, which will be challenging due to the substantial amount of Lakes business we have placed for next year. At our Knox, Creek and Berwind operations, we have not returned to pre-pandemic production levels. We are staffing the Berwind 3 mine at a little more than care and maintenance levels. Production is continuing at the mine to fulfill 2020 term business as well as to complete development of airways required for long-term ventilation of the larger Berwind Pocahontas 4 reserve. As mentioned in the press release, we are acting on one of the items that we have in our internal lineup, the Triad mine in the Pocahontas 4 seam. It has a short-term life that can be developed with very little capital. It has the opportunity due to advantaged coal heights, minimal out of seam dilution and substantially higher plant recoveries to make a sizable contribution to earnings in 2021. This coal is projected to have petrographic characteristics similar to our future Berwind production, allowing it to be a source for test shipments. We will begin excavation and construction in the fourth quarter; low-vol production will transition from the Berwind mine to the Triad mine likely in the first quarter. I do want to take a moment to recognize our high-vol miner operation at Elk Creek. It received the National Mining Association Sentinels of Safety award, which recognizes coal and mineral mining operations for recording the most hours in a calendar year without a single lost time injury. It was one of just 20 mining operations in the United States, six of which were coal mines to receive the award for its performance in 2019. This operation is also a great example of a safe mine also being productive. This operation continues to be amongst the most productive and low-cost mines in the Ramaco organization. We applaud their efforts and the rest of the employees at Elk Creek for showing that safety is everyone's responsibility. During the third quarter, Ramaco resources joined with a number of other metallurgical coal producers to transform the Virginia Coal and Energy Association into the Metallurgical Coal Producers Association. We believe that it is important to differentiate what we do as an industry and the positive impacts we have on society in general and the environment. We think that this effort is well-timed as everyone in the space is facing unprecedented challenges; well documented challenges like the lack of access to capital markets and difficult insurance markets are impacted by the perception of our business. We hope that this effort and other parallel efforts will help us turn the tide on how metallurgical coal mining is viewed not only by our stakeholders, but the general public. In summary, we remain cautiously optimistic that the worst of the COVID impacts are behind us. We've taken clear steps forward to diversify our customer base and look forward to further cementing some of those relationships during the fourth quarter and early 2021. Thanks to everyone who is participating in this call, especially those who continue to cover METC. I would now like to turn things back to Randy in advance of taking questions.

Great. Thanks, Mike, for the round up. So moderator, we will turn it back to you to address any questions that the audience might have.

Our first question comes from Mark Levin from the Benchmark Company. Your line is open.

I have a couple of quick questions. As we look at the fourth quarter, it seems like you are expecting a record shipment quarter. Does that suggest that costs will be lower compared to the previous quarter? Additionally, I believe you mentioned a full year price, and I want to confirm that to figure out the price for the fourth quarter. Could you provide any insights? You've shared some thoughts on production and pricing, so I’m curious about the transition from the third to the fourth quarter.

So Mark, this is Randy, and thanks for your question. Let me break that down in sort of two parts. So in terms of costs, we had, as I said, kind of a pretty challenging July and August, which caused our costs to be higher and production to be lower. And as we've been able to ramp production, which we continue to feel will be much stronger in Q4, then obviously, our costs have come down. And as far as pricing, Jeremy, you want to talk about it?

So Randy mentioned in his prepared remarks, we kind of project to end the year at close to $86 a ton. Mark, the way I think about it is we've given you our 2020 committed sales volumes as we clearly note, that includes everything, including what's been force majeure. So when you kind of take into account the moving parts, including what's been force majeure, what's been resold in index, and where the index is today, I think that's kind of how we're getting to that number.

And I'm going to ask the requisite 2021 question, although I know you guys have not provided guidance. But just if we were to assume that met prices remained under pressure, and hopefully, that will not be the case, hopefully, they will rebound in the first quarter. But just for the sake of argument, if net prices stayed depressed or around where they are right now, any idea of how you think CapEx would look next year? And then, I guess, as a corollary, if the market recovered, let's say, in the range of $145 to $150, what might CapEx look like under that scenario?

To address your last question first, we have this small mine called Triad that we will begin investing in this quarter, which will carry into the first quarter of next year. In terms of capital expenditures, we are maintaining current levels aside from that. The larger expenditure for us is the continuation of the Berwind slope, which we will proceed with after seeing stabilization in the low-vol markets, representing an investment of over $10 million to reach production in the fourth quarter. We won't start that project until the low-vol market shows some decent stability. There are many variables affecting the low-vol metrics right now, making the situation somewhat unpredictable. However, we are entering new low-vol markets overseas that we have not worked in before, which gives us hope for stabilization in 2021, both domestically and likely not needing to focus on that until next summer or early fall. Meanwhile, we are eager to see how our low-vol products perform in the export markets.

Yes, that’s perfect, Randy. I have a follow-up question regarding SG&A. It increased, and I noticed that expanding the internal sales team contributed to this. Should we consider this quarter's SG&A run rate as something to annualize or as a new benchmark moving forward?

I'll let Jeremy take that.

Yes. So Mark, I believe that what you suggested for Q4 is probably reasonable. However, there is some overlap to consider. I think it is fair for Q4, but I don’t want to provide specific predictions for next year. I wouldn’t annualize it for next year since there will be some items that expire.

Randy, with respect to your comments that you could be in a position to return some capital to shareholders next year. Just curious if you could expand on that. What would you need to see? I mean, clearly, given the liquidity position and if you're going to run a maintenance CapEx, you should be fairly free cash-generative. If you could just kind of outline your thoughts and potential timing on that?

Sure. So we've said in the past, Curt, as you know, we hope to grow up, so to speak, and be up probably four or five years out from our IPO and be in a posture that we’re throwing off some free cash because we've got a very low debt structure, of course, and we have low-cost structure. And sort of those hallmarks, I think, are beginning to bear fruit as we mature our portfolio and start to get into slightly higher numbers of production. So without trying to get over my skis in terms of what our forward projections for 2021 are, the market, of course, can move around quite a bit on us. But we have some scenarios where we would end the year next year with some pretty decent free cash flow. And in terms of looking to what we would do with that, I think we always look at sometime around the third quarter to sort of look as to what we want to do for the balance of the year. I would expect sometime in the September, October period of next year, we would consider what it is we might want to do, depending on how we look financially. But the nice thing is to have free cash and with a little bit of luck, knock on wood, we’ll be in a very good position next year to at least be able to make that decision one way or the other.

That's great to hear. And then on Triad, is the expectation that you could run close to the 250,000 ton rate all of next year? Or is it more back-end loaded because you're going to have a ramp-up in 1Q?

Yes, sure. We're going to have a couple of options. I mean, a lot of it comes down to what kind of shifts we run and those sort of things. Our objective would be to run it all. Obviously, that would help cost structures and everything else. And it's critical that we get that coal out in the market to do test shipments in advance of the Berwind slope. So the objective would be to run it all. The good thing is that with the conditions that we have to have a reasonable cost structure, we don’t have to, so it’s one of the reasons why it made sense to pull the trigger. We could run a little over half of those tons over the last three quarters if we choose to. So lots of flexibility there.

Yes. And Curt, just to put sort of an underline on what Mike just said. When we looked at placing low-vol for the 2021 domestic market, we kind of pulled back and said, look, we don’t really think the price structure that we're looking at here in September, early October of this year is going to be reflective of what full 2021 is going to look like. So we deliberately decided to scale back what we were potentially capable of putting into the domestic market because we want to save some of that. No sense in selling your coal for a cheaper price than what you think, hopefully, the market will look like somewhere in the next curve of the next four to six months.

Yes, agreed. Makes sense. And then, I guess, with respect to the export market. You commented that you have roughly, I think, 1 million tons available for export. And then you also commented that in the last 60 days, you sold 800,000 tons, which is sort of a mix. Can you comment at all on what your export book looks like today for 2021 in terms of volume and price?

Sure. I'll let Jeremy take that one.

Yes. So Curt, I think when we talk about the 800,000 tons, just to clarify our remarks, that includes the back half of 2020, of course, in the spot market and then some fixed price business for 2021. So I think we've given kind of an overall pricing for 2021 of $84 a ton. I don't think we want to necessarily at this point get into a breakdown of the various regions. But needless to say, right now, it’s a very good sign, at least when I look at where we were a year ago versus where we are today, we’re certainly, as Randy noted, breaking into new markets that we haven't broken into before.

Yes. And I think, Curt, the most encouraging thing for me is as I said in my remarks, we’ve traditionally been a domestic house. We placed practically 80% to 90% of our tons in various years in the domestic markets. And as a result, we really haven't had much of an export book. Well, literally, within the last few months, we have gotten trial shipments into some markets and with some customers that we frankly did not have before. As a result, we're kind of hopeful that some of those foreign export steel groups are now saying, well, we want to look at Ramaco coal on par with some of the more established domestic producers, which we think is a very good thing, at least as far as our future export book looks like.

Are you trying to market this as more of a pure high-vol to replace low-vol, or is it more of an AB blend? It seems there is a growing global appetite for coal blends that accept high-vol, higher-vol AB types. Traditionally, it has mainly been Europe that purchased this type of coal; would that be a fair assessment?

Yes, I believe that's a valid point. Our coal is quite similar to a pure AB blend. Different export customers have varying perspectives; some view it as an A, others as a blend, and some as a B. It really depends on the specific market and their blend requirements. We have a coal product that is suitable for many markets, which benefits us. While we are not a significant low-vol producer at the moment, once we implement Berwind, we expect to achieve a better balance regarding our overall quality. This will provide us with additional opportunities moving forward.

I know it's early, but I have another question on 2021 and wanted to hone in a little bit on the cost side. Just based on your response to the prior questions on Triad. We kind of assume for an average cost, the kind of mid-70s on Triad and then kind of mid-60s on your remaining production on Elk Creek to come up with a reasonable kind of weighted average, but would you say that there are a couple of other considerations here you should?

I'll let Jeremy start on that.

Yes. I think with Triad, we've provided the numbers since it's a new mine, and you need to model it. As for Elk Creek, it depends. Costs should trend in the direction you're suggesting. The biggest variable is running the mines more efficiently. This year, in Q1, we demonstrated what the costs could look like in the low-60s when operating the mines well, and that's likely at a higher realized price, resulting in higher royalties than what we currently have locked in. However, this is the coal business. COVID impacted everyone in the industry this year, limiting efficiency and causing a loss in economies of scale. Overall, we are engaged in a detailed planning session over the next month or two, and I anticipate we will provide more official guidance during our next discussion. Directionally, I believe you are on the right track in your thinking year-over-year.

Could you provide more details on how we should view the decision between exports and staying in the domestic market? Is it that the pricing in the domestic market was unappealing during our summer negotiations amid the pandemic, or is it possible that the market is contracting due to shifts in the steel industry? Please elaborate on what factors are influencing your sales strategy.

Yes, I’ll make a comment, and then I’ll let Mike also chime in here. It's primarily a timing issue. As you know, when we entered the traditional domestic sales season around August and September, we were coming off a July and August marked by very low demand in the domestic markets due to COVID and the overall uncertainty in the country. At that moment, steel companies domestically had the leverage to maintain low prices without offering significant benefits. Many even canceled contracts at higher prices, which was frustrating for us. We took a step back and realized we had solid prospects. By September, as we finalized contracts, the market was starting to recover. We considered whether to accept low prices to drive volume now or to hold off a bit. Fortunately for Ramaco, we don't face the same pressures as some competitors. We don't have significant interest obligations, and our cost structure is quite favorable. We concluded that 2021 would likely present better opportunities, so we adjusted our strategies accordingly. Mike, do you want to add anything?

Yes, I'll jump in a little bit. I do think that the comment about the markets shrinking is certainly true; we believe it will be true, just especially with some of the consolidation and things we're seeing. So it's another thing that we kept in mind as we continue to push our products overseas. We've had at least one domestic customer that we've had firm business with that for two years in a row, we’ve had pushback on those volumes. So a lot of the things pointed to having a bigger piece of the pie overseas. And indeed, as all of these domestic discussions were going on, we were getting momentum. And I think the momentum that continued to build helped us make the decision to pull back a bit. And certainly, as we've seen, and you'll see in the fourth quarter as we ship, it's a big change for us. And frankly, having more diversity, I think, is good. So hopefully, that momentum continues into next year. And if you just look at the numbers, maybe we could be at 60/40 in favor of domestic or closer to 50%. We'll just kind of see how it goes.

I think a lot of them have been covered. I just have some assumption questions for clarification purposes. For 2021, the commentary for volumes was, obviously, $1.1 million committed and priced in North America. And then I think in the press release, you said around 1 million tons open for the export market or left for the export market. So is that a reasonable assumption for 2021 total volumes now, of about 2.1 million tons? Or should we be thinking about something else?

That’s a fair number, David.

Okay. And then just on the Triad mine. I may have missed this. Is it expected to basically be like kind of a quick hitter here where we get 250,000 tons of production in 2021, is that the number?

Well, I think the beauty of the Triad is it's a low-cost operation for us. We can somewhat have it modulated in terms of production to produce at all in 2021, if we think the markets justify. We want to kind of slow-walk it. We can do that. I mean, it's not a lot of production, but at the same time, we can make a very nice margin on it, given its cost structure and it's capital expenditures. So we’ll just wait to see how 2021 begins to play itself out. We saw a spike. We can dial it up. If we see markets contract, we can dial it down.

For the fourth quarter, can you help me understand the details? The slides indicate that your sales book has 2 million tons committed, with 1.8 million tons priced at an average of $88. The over 500,000 tons in the fourth quarter suggests around 1.7 million tons. Is it correct to assume that approximately 200,000 tons are being deferred or will not materialize from the 1.8 million tons that are committed and priced at a fixed price of $88?

Yes. We've said it, and I think in our earlier public statements, David, that we had a round number of about 200,000 tons, as you correctly point out, that we had in force majeure, principally to two customers. And those were, frankly, nicely priced tons in the low mid-90s, and they decided to just cancel them and walk away based on their perceptions of their operating situation of COVID. And so that was 200,000 tons. We then had to replace out into the markets, needless to say, at much lower prices.

Speakers, I’m showing no further questions at this time. I would like to turn the conference back to Mr. Randall Atkins.

Okay. Thank you so much. Well, again, as always, we deeply appreciate you all being on the call today and your attention to us, and we will look forward to having our next call. I guess it will be next year. And I have a feeling the rest of this year is going to be a pretty interesting one. So best of luck to all. Thank you.

Thank you, speakers. Ladies and gentlemen, this concludes today’s conference call. Thank you all for joining. You may now disconnect.