Thank you. Good morning, everyone, and welcome to our 2020 third quarter earnings call. I am Christina Kmetko, responsible for Investor Relations at NACCO Industries. Thank you for joining us this morning. I will provide a brief overview of our quarterly results and business outlook, after which I will open the call for your questions. Joining me today are J.C. Butler, President and Chief Executive Officer of NACCO and North American Coal, and Elizabeth Loveman, NACCO's Vice President and Controller. Yesterday, we published our third quarter 2020 results and filed our 10-Q. Copies of our earnings release and 10-Q are available on our website. For anyone who cannot listen to the entire call today, a recorded version of this webcast will be available on our website later this afternoon for about 12 months. Our following remarks, including answers to your questions, include forward-looking statements. These statements are subject to various risks and uncertainties that may cause actual results to differ significantly from those expressed in the forward-looking statements made today. These risks include, among others, matters described in our earnings release issued last night and our 10-Q and other filings with the SEC. We have no obligation to update these forward-looking statements until our next quarterly earnings conference call, if at all. Now, let me discuss our 2020 third quarter. First, I will cover our consolidated results and then highlight each segment. On a consolidated basis, our third quarter operating profit improved by 8.5% to $9.4 million, up from $8.7 million in 2019. This improvement was driven by several factors, primarily a reduction in our unallocated employee-related costs. Higher earnings from both our Coal Mining and North American mining segments also contributed to this improvement, although those segments' earnings were more than offset by a significant decline in the Minerals Management segment's earnings. Despite the improvement in operating profit, our consolidated net income fell to $8 million, or $1.14 per share, from $10.3 million, or $1.47 per share, last year. In the third quarter of 2019, we received an initial $2.7 million settlement related to a former joint venture in India. This year, we received the final settlement of $1 million. The $1.7 million difference in these settlements, along with a higher effective income tax rate, completely offset the improved operating profit discussed earlier. Now, turning to our segments. The Coal Mining segment’s operating profit increased modestly over the previous year, driven by improved earnings at the Mississippi Lignite Mining Company and lower employee-related costs. This was partially offset by decreased earnings from unconsolidated coal mining operations due to reduced customer demand and the termination of the Camino Real Fuels contract on July 1, 2020, which we discussed last quarter. In North American Mining, revenues and operating profit improved thanks to more tons delivered and favorable changes in customer requirements. In our Minerals Management segment, earnings fell significantly as the previous year benefited from a large number of new gas wells put into commission during 2018 and early 2019. This decrease was expected due to the natural decline we experience before stabilizing long-term production. Lower commodity prices this year have also contributed to the decline in Minerals Management's operating profit. Those are the key factors affecting our third quarter results. Now, let me turn to our outlook. I will provide insights on our expectations for the fourth quarter and full year 2020, as well as a high-level overview of our current expectations for 2021. While we are offering this early look at 2021, more details will be provided with the fourth quarter and full year 2020 earnings release once we have finalized our annual operating plan. In our Coal Mining segment, we expect fourth quarter 2020 coal deliveries to be comparable to the fourth quarter of the previous year. However, operating profit is expected to decrease, mainly due to a projected reduction in results at the Mississippi Lignite Mining Company, with anticipated increases in the cost per ton delivered and reduced earnings at unconsolidated mining operations. For the full year, coal deliveries and operating profit are expected to be lower than in 2019, primarily due to projected declines in earnings from our unconsolidated mining operations resulting from the termination of the Camino Real Fuels contract and decreased customer requirements. Changes in power plant dispatch have also contributed to the reduction in customer requirements. The power plant served by our Sabine mine has operated at a much lower rate this year compared to 2019. During the third quarter, the Sabine mine’s customer reduced its lignite coal requirements to between 1.4 million and 1.7 million tons annually, down from 2.6 million tons delivered in 2019. Additionally, on September 30, 2020, our Caddo Creek Resources customer entered into an agreement to sell their activated carbon manufacturing business, including the Marshall Mine, which Caddo Creek operates. The buyer indicated plans to close the mine, which delivered 200,000 tons in 2019. Caddo Creek has been contracted for mine reclamation activities. Looking ahead to 2021, we anticipate coal deliveries will be similar to 2020 based on current expectations of customer needs. However, operating profit for this segment is expected to decline compared to 2020, driven mainly by increased operating expenses and anticipated reductions in earnings from unconsolidated coal mining operations. The decrease in earnings at the unconsolidated operations is primarily due to reduced fee-based earnings at the closed Liberty Mine, as our mine reclamation activities have decreased. At our consolidated mining operations, we expect 2021 results to be similar across the board. A projected decrease in earnings at Mississippi Lignite Mining Company due to higher costs per ton of coal delivered in 2021 compared to 2020 is expected to be offset by reduced operational loss at Centennial. In our North American Mining segment, we expect fourth quarter 2020 limestone deliveries to rise moderately over the fourth quarter of 2019, resulting in a modest increase in total tons delivered for the full year compared to last year. Fourth quarter operating profit is expected to improve significantly over last year's fourth quarter due to favorable changes in the mix of customer requirements, but this improvement will likely be less significant than what we experienced in the first three quarters of this year. Consequently, the substantial increase realized recently compared to last year will not be replicated. Full year 2020 operating profit is expected to rise significantly over 2019. For 2021, we anticipate North American Mining’s operating profit to be comparable to this year based on existing customer contracts. However, we are pursuing various growth initiatives that, if successful, would positively impact future earnings. As mentioned earlier, last year's Minerals Management results included considerable royalty income, especially in the first half of the year, due to many new gas wells commissioned in 2018 and early 2019. Given the projected lower natural gas prices, fewer anticipated new wells, decreased commodity prices, and the natural production decline that typically occurs early in a well's lifecycle, we expect fourth quarter and full year 2020 royalty income to be significantly lower than 2019 levels. Consequently, royalty income from existing assets is also expected to decline substantially in 2021 compared to this year. While you can find capital expenditure figures for the other two segments in our 10-Q, let me take a moment to discuss our investment plans for Minerals Management. We are targeting around $15 million in mineral and royalty interest investments in the fourth quarter of 2020 and about $10 million next year, although the timing of those fourth quarter investments may shift into 2021. While we expect these investments to enhance earnings, the contributions from each investment will rely on the timing, scale, and stage of development of the acquired oil reserves. In summary, we anticipate both consolidated operating profit and net income in the fourth quarter of 2020 will decrease significantly compared to the same period last year, once excluding the impact of a $2 million unfavorable mine reclamation adjustment taken in last year’s fourth quarter. This decrease is being driven by lower results in our Coal Mining segment and an increase in income tax expenses, although this is partially offset by decreased unallocated employee-related costs. We also expect a significant decline in full-year 2020 consolidated operating profit and net income, mainly due to a substantial decrease in operating profit at Minerals Management in the first ten months of this year and the anticipated reduction in full-year earnings from the Coal Mining segment. We project an effective income tax rate in the range of 5% to 7%. Finally, we expect 2021 consolidated net income to experience a significant decrease from this year, stemming from diminished operating profit in the Coal Mining segment and reduced earnings in the Minerals Management segment, not accounting for any benefits from future acquisitions of additional royalty or mineral interests. The full-year 2021 effective income tax rate is expected to be negative 5% to negative 7%, based on the current earnings mix forecast. Shifting away from results expectations, let me briefly share cash flow information. We concluded the third quarter with consolidated cash of $97.6 million and debt of $23.1 million, compared to consolidated cash of $95.5 million and debt of $28.4 million at the end of the second quarter. Additionally, at the end of this quarter, we had $138 million available under our $150 million revolving credit facility. We believe maintaining a conservative capital structure and liquidity is crucial as we pursue strategic initiatives to grow and diversify amidst changing energy market trends. We expect cash flow, before financing activities, will be a significant cash outflow due to substantial capital expenditures and payments made in the first half of 2020 related to deferred compensation and other payroll liabilities. However, we predict that cash flow before financing activities will improve in 2021, resulting in solid cash generation compared to cash usage this year, though it’s still not expected to reach the levels seen in 2019. That concludes my specific outlook remarks. Before I open the call for questions, let me mention a couple of additional items that could influence the company moving forward. As noted in our earnings release, we initiated a voluntary retirement program for certain corporate employees in the fourth quarter. We expect to complete the program by December 31, 2020. However, the amount of savings and related one-time separation costs cannot be determined until participation levels are known. Lastly, I would like to discuss the pandemic. It remains a significant part of our daily lives and may become more so as cases continue to rise in the United States. Our mining operations have not yet been directly affected by the pandemic; however, the extent of future impacts will depend on numerous unpredictable factors and developments that could rapidly deteriorate our results, supply chain channels, and customer demand. Until effective treatments and vaccines for COVID-19 are available, we will work hard to minimize our employees' exposure to the virus. I would also like to express my gratitude to our workforce for their commitment to supporting our customers while diligently working to keep each other safe. Now, let me open the call for your questions.

I want to start with the voluntary retirement program. I was wondering if you could talk a little bit about how long have you been considering a program like this? And were there any specific events that led to this decision? Or is this more of a response to the shift in public opinion towards coal? Is it changes in the economics of wind versus coal with future regulations you think or might be expecting? Maybe if you could talk a little bit about that, that would be great.

Sure, thank you for the question. We always focus closely on our overhead costs, which is important for both businesses and personal life. This is something we monitor carefully. We evaluate and analyze it continuously. Our overhead costs are partly linked to the challenges we face in the coal segments. Earlier this year, we lost Camino Real due to a termination event involving our customer and their client. To a lesser degree, Caddo has now entered reclamation, which is relatively minor. Additionally, we are experiencing lower production levels at Sabine. It's clear that there are challenges in the coal segment. However, we should also consider the changing dynamics within our business. We've seen significant growth in our newer ventures over the past few years. North American mining is expanding quickly, and we've started to see early growth in our Minerals Management sector. We certainly expect this growth to continue with our new Minerals Management initiative, mitigation resources of North America. The expansion of these businesses will influence our overhead and general administrative needs. Considering these dynamics, we also reflect on the investments we've made in recent years in new tools and optimized usage of our software platforms. This has provided us with opportunities to operate our overhead more efficiently and at a lower cost. I believe this is a positive direction. Your question mentioned whether we've been contemplating this for a long time, and I would say we consistently evaluate our overhead structure. The current situation presents a combination of factors that suggest this is an ideal time to assess it.

Got it. Right. My next question would be you're planning to invest $25 million in mineral and royalty interest during 2020 and 2021. Are these most likely to be U.S. oil rights as opposed to anything foreign or primarily natural gas? And is your reason for making these kinds of investments purely about diversifying away from being just Utica natural gas? Or would you say the price decline in oil over the last year played a part in where you've chosen to focus your investments?

Yes. So this is one of our core growth platforms, our minerals management business. We, as you know, have a vast majority of our legacy investments that were made decades ago in the Marcellus and Utica. It's largely natural gas. And I think as we've stated publicly, we're looking to diversify what we own in the mineral space. So that means we will probably be investing in oil as opposed to natural gas. I will tell you that we're focused in the United States, not offshore at all. And we view this as a core part of diversification. I wouldn't say it's away from coal. I just look at our company and say, 'Gosh, any business does better when it has a diverse portfolio of customers and suppliers and business models and skill sets and sources of income.' The activities that we've been pursuing pretty aggressively over the last several years, and we intend to continue to pursue reflect that desire to grow and diversify, and create additional platforms that we think can successfully contribute to our business.

Got it. And then finally, I guess, maybe the question is, how do you want investors to think of NACCO? Are you a mining services company? Are you an energy stock? Are you a coal company? Basically, what industry would you tell an investor they are buying into when they purchase NACCO shares? Then I'll jump back in the queue.

Yes, thank you for the question. We are currently focused on improving how we define and communicate our identity. Historically, NACCO Industries has been known as the parent company for North American Coal, Hyster-Yale, and Hamilton Beach, but Hyster-Yale and Hamilton Beach are now separate entities. Today, NACCO Industries serves as the public parent of North American Coal, which includes a number of growing businesses, including its traditional coal operations. These growing businesses are beginning to resemble siblings rather than children in a typical organizational structure, prompting us to reconsider how we represent NACCO. To put it simply, we are a robust legacy coal business primarily operating in mining services, based on the structure of our management fee contracts, which comprise nearly all of our coal mining contracts. We operate one mine where we sell coal and profit from the margin. Our Limerock business began as a small operation aimed at maintaining and operating draglines and has now become the largest dragline operator in the United States. This venture has evolved into a growth platform providing mining services in both aggregates and sand. We also plan to develop a lithium mine under a management-fee model, reaffirming our position in the mining services sector. Additionally, we have two other businesses focused on minerals management, which revolves around royalty collection, representing a low-overhead investment model. There’s also our mitigation business, which emerged from our expertise in environmental reclamation at our coal operations. Ultimately, we aim to build a portfolio of businesses within the natural resources and mining services industry. However, clearly articulating this concept in a concise and compelling manner is still a work in progress. This includes reevaluating everything from marketing materials to potential partnerships and website design. Your question touches on a critical area for us, and I hope I’ve provided some insight into our current thought process.

I wanted to ask my first question about North American Mining. Now that the North American Mining division has positive operating earnings, do you anticipate experiencing operating leverage from the future revenue growth opportunities you are pursuing, or do you expect earnings to increase at the same rate as future revenue growth?

The answer depends on the mix of new business we bring in and the profit growth profile of any new project. Generally, we believe we have made the necessary investments in the administrative platform that supports our North American Mining business. Most of these investments have likely already been made, and we have the infrastructure to continue advancing that business. Therefore, I expect to see good operating leverage as we continue to grow. We believe we can expand significantly without incurring substantial additional overhead costs. We have our headquarters in the Miami area, along with a secondary warehouse and service center in Central Florida. If we establish another segment of business in the United States, we may consider setting up a satellite facility to serve several customers. However, that decision would come after we establish a foothold in that area, rather than being a preemptive investment. So, yes, I think there are good opportunities for the operating leverage you mentioned in that business, although there may be some incremental steps along the way.

Understood. My next question is about the minerals mining or Minerals Management investments that you're talking about making. So you mentioned making somewhere in the range of $25 million in investments over the next year. Can you speak at all to the types of return on investment that you're seeking from those sorts of investments, either in terms of ROI or payback period?

We have not disclosed our specific targets. Each type of mineral that we might acquire will have its own return profile based on factors such as gas or oil, the basin, and the stage of development. We may invest in undeveloped mineral reserves that have a reasonable likelihood of future development. We may invest in recently drilled wells that are yet to be completed. We may invest in some that were drilled and completed several years ago, which are lower and further out in their decline curve. But I would say that the business model we are trying to build is one that will deliver returns on capital that will be certainly in the teens. But that's going to take some time to build. We have our legacy operations with very little invested in them because those investments were made a long time ago. We've recently added three people in this business that are really driving us forward, and we've made some investments in technology and software tools to help them. It's really now about building out the platform that will eventually get us to a business where we expect to see very nice returns.

So are those direct investments in minerals or is it more similar to the $2 million investment where you've purchased public securities?

Yes. The $2 million purchase of public securities was a unique point in time when certainly public company stocks in the royalty space were beaten up. We feel that we were able to get a jump-start in our diversification efforts by making that investment. But that is not our primary interest. Our intent is to buy mineral interest or royalty interest, which is effectively the same as a mineral interest—it’s just one step removed. We intend to do that directly as opposed to through investments in public companies that are doing exactly the same thing that we're thinking about doing. That first investment was really an opportunistic jump-start as we saw it.

Okay. And so just to be clear, the Minerals Management segment, if you were to invest in, say, oil reserves, you don't have any plans to develop those reserves yourself, but simply to earn the royalties on them when partnering with another developer?

You're correct.

Becoming an oil or is it just the reserves?

I'm sorry, can you just say that last part again?

So the question is more structured, like are you becoming like an oil E&P company? Or are you just holding the reserves to seek the royalties basically?

We are owning the reserves to seek the royalties. In some instances, those will already be leased, in some instances, they will already be leased and developed, in some instances, they might not be leased yet.

Thank you very much for joining us. J.C., did you have any follow-up concluding remarks you wanted to make?

No, Christy, I just want to thank the callers for their questions.

Great. Thank you again for joining us today. We do appreciate your interest. And if you have any follow-up questions, my information is available on our earnings release, please feel free to give me a call. Thanks so much, and have a great day.

Thank you for participating in today's conference call. This call will be available for replay beginning at 11:30 a.m. Eastern Time today, November 3, through 11:59 Eastern Time, November 10, 2020. The conference ID for the replay is 1574089. Once again, the conference ID for the replay is 1574089. And the number to dial for the replay is (800) 585-8367. Once again, the number is (800) 585-8367. This concludes today's conference call. You may now disconnect.