WARRIOR MET COAL INC

Previous wording

The following discussion and analysis provides a narrative of our results of operations and financial condition for the three months ended March 31, 2024 and March 31, 2023. You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes appearing in this Form 10-Q and the audited financial statements for the year ended December 31, 2023 included in our Annual Report on Form 10-K for the year ended December 31, 2023 (the "2023 Annual Report"). Some of the information contained in this discussion and analysis or set forth elsewhere in this Form 10-Q, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, our actual results could differ materially from the results described in, or implied by, the forward-looking statements contained in the following discussion and analysis. Please see“Forward-Looking Statements.”

Current wording

The following discussion and analysis provides a narrative of our results of operations and financial condition for the three and six months ended June 30, 2024 and June 30, 2023. You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes appearing in this Form 10-Q and the audited financial statements for the year ended December 31, 2023 included in our Annual Report on Form 10-K for the year ended December 31, 2023 (the "2023 Annual Report"). Some of the information contained in this discussion and analysis or set forth elsewhere in this Form 10-Q, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, our actual results could differ materially from the results described in, or implied by, the forward-looking statements contained in the following discussion and analysis. Please see“Forward-Looking Statements.”

Previous wording

We sell substantially all of our steelmaking coal production to steel producers. Steelmaking coal, which is converted to coke, is a critical input in the steel production process. Steelmaking coal is both consumed domestically in the countries where it is produced and exported by several of the largest producing countries, such as China, Australia, the United States, Canada and Russia. Therefore, demand for our coal will be highly correlated to conditions in the global steelmaking industry. The steelmaking industry’s demand for steelmaking coal is affected by a number of factors, including the cyclical nature of that industry’s business, technological developments in the steelmaking process and the availability of substitutes for steel such as aluminum, composites and plastics. A significant reduction in the demand for steel products would reduce the demand for steelmaking coal, which would have a material adverse effect upon our business. Similarly, if alternative ingredients are used in substitution for steelmaking coal in the integrated steel mill process, the demand for steelmaking coal would materially decrease, which could also materially adversely affect demand for our steelmaking coal.

Current wording

We sell substantially all of our steelmaking coal production to steel producers outside of the United States. Steelmaking coal, which is converted to coke, is a critical input in the steel production process. Steelmaking coal is both consumed domestically in the countries where it is produced and exported by several of the largest producing countries, such as China, Australia, the United States, Canada and Russia. Therefore, demand for our coal will be highly correlated to conditions in the global steelmaking industry. The steelmaking industry’s demand for steelmaking coal is affected by a number of factors, including the cyclical nature of that industry’s business, technological developments in the steelmaking process and the availability of substitutes for steel such as aluminum, composites and plastics. A significant reduction in the demand for steel products would reduce the demand for steelmaking coal, which would have a material adverse effect upon our business. Similarly, if alternative ingredients are used in substitution for steelmaking coal in the integrated steel mill process, the demand for steelmaking coal would materially decrease, which could also materially adversely affect demand for our steelmaking coal.

Previous wording

U.S. inflation remains at 3.5%, driven by increased energy and food costs, supply constraints and strong consumer demand. While inflation is expected to ease in the overall economy for the remainder of 2024, we have not seen it easing in the coal mining industry and expect that inflation will continue to negatively impact our profitability, as we expect inflation to remain high for steel prices, freight rates, labor and other materials and supplies. Specifically, we have experienced inflationary cost increases ranging from 25% to 35%, primarily in relation to labor, construction materials, and certain equipment. In addition, we have experienced inflation in the costs of belt structure, roof bolts, cable, magnetite, rock dust and other supplies, plus labor and parts on equipment repair and rebuilds.

Current wording

U.S. inflation remains at approximately 3%, driven by increased energy and food costs, supply constraints and strong consumer demand. While inflation is expected to ease in the overall economy for the remainder of 2024, we have not seen it easing significantly in the coal mining industry and expect that inflation will continue to negatively impact our profitability, as we expect inflation to remain high for steel prices, freight rates, labor and other materials and supplies. Specifically, we have experienced inflationary cost increases ranging from 25% to 35%, primarily in relation to labor, construction materials, and certain equipment. In addition, we have experienced inflation in the costs of belt structure, roof bolts, cable, magnetite, rock dust and other supplies, plus labor and parts on equipment repair and rebuilds.

Previous wording

The global seaborne metallurgical coal market deteriorated at the end of February 2024, primarily driven by softening demand in India and China combined with increased supply driven by strong production from Australia. These factors resulted in a $100 price decline in the Platts Index. While global met coal prices did decline sharply during the month of March 2024, they appear to have reached a floor. As of April 16, 2024, the Platts Index price for premium LV coal is $252.33 per metric ton. According to the World Steel Association short range outlook, steel demand forecast for 2024 is expected to increase 1.7% and 1.2% in 2025. The increase in steel demand is led in large part to increased demand from India of 8% over 2024 and 2025, driven by continued growth in all steel using sectors and continued strong growth in infrastructure investments. The increase in steel demand in India is offset by a forecasted decrease in steel demand in China driven by the decline in real estate investments.

Current wording

The global seaborne metallurgical coal market deteriorated at the end of February 2024, primarily driven by softening demand in India and China combined with increased supply driven by strong production from Australia. Prices remained rangebound for much of the second quarter 2024 due to the increased supply from Australia combined with an off-season weak demand phase. As of July 16, 2024, the Platts Index price for premium LV coal is $234.00 per metric ton. Per Wood Mackenzie global metallurgical coal short-term outlook released in June 2024, steelmaking coal supply is expected to be constrained in the third quarter of 2024 driven by Australian mine longwall moves, Australian railway maintenance and recent mine fires. On the demand side, Wood Mackenzie is forecasting India steel demand to increase as it enters its post-monsoon stocking season and announces its new government infrastructure spending plan combined with potential increased demand from China driven by more stimulus measures in the property sector. According to the World Steel Association short range outlook, steel demand forecast for 2024 is expected to increase 1.7% and 1.2% in 2025. The increase in steel demand is led in large part to increased demand from India of 8% over 2024 and 2025, driven by continued growth in all steel using sectors and continued strong growth in infrastructure investments. The increase in steel demand in India is offset by a forecasted decrease in steel demand in China driven by the decline in real estate investments.

Previous wording

Our Collective Bargaining Agreement ("CBA") with the labor union representing certain of our hourly employees expired on April 1, 2021 and the labor union initiated a strike after an agreement on a new contract was not reached. As a result of the strike, we initially idled Mine No. 4 and scaled back operations at Mine No. 7. In the first quarter of 2022, we restarted operations at Mine No. 4. On February 16, 2023, the labor union representing certain of our hourly employees announced that they were ending the strike and made an unconditional offer to return to work. We incurred business interruption expenses of approximately $0.2 million for the three months ended March 31, 2024, which represent ongoing legal expenses associated with ongoing labor negotiations. We incurred $4.2 million for the three months ended March 31, 2023, which represent non-recurring expenses that were directly attributable to the labor strike for incremental safety and security, labor negotiations and other expenses. These expenses are presented separately in the Condensed Statements of Operations. The Company continues to engage in good faith efforts with the labor union to reach an agreement on a new contract.

Current wording

Our Collective Bargaining Agreement ("CBA") with the labor union representing certain of our hourly employees expired on April 1, 2021 and the labor union initiated a strike after an agreement on a new contract was not reached. As a result of the strike, we initially idled Mine No. 4 and scaled back operations at Mine No. 7. In the first quarter of 2022, we restarted operations at Mine No. 4. On February 16, 2023, the labor union representing certain of our hourly employees announced that they were ending the strike and made an unconditional offer to return to work. We incurred business interruption expenses of approximately $0.1 million and $0.3 million for the three and six months ended June 30, 2024, which represent ongoing legal expenses associated with ongoing labor negotiations. We incurred $3.5 million and $7.8 million for the three and six months ended June 30, 2023, which represent non-recurring expenses that were directly attributable to the labor strike for incremental safety and security, labor negotiations and other expenses. These expenses are presented separately in the Condensed Statements of Operations. The Company continues to engage in good faith efforts with the labor union to reach an agreement on a new contract.

Previous wording

We define Segment Adjusted EBITDA as net income adjusted for other revenues, cost of other revenues, depreciation and depletion, selling, general and administrative, business interruption, interest income (expense), net, income tax expense, other income and certain transactions or adjustments that the Chief Executive Officer, our Chief Operating Decision Maker, does not consider for the purposes of making decisions to allocate resources among segments or assessing segment performance. Segment Adjusted EBITDA is used as a supplemental financial measure by management and by external users of our financial statements, such as investors, industry analysts, lenders and ratings agencies, to assess:

Current wording

We define Segment Adjusted EBITDA as net income adjusted for other revenues; cost of other revenues; depreciation and depletion expense; selling, general and administrative expenses; business interruption expenses; interest income, net; income tax expense; other income and certain transactions or adjustments that the Chief Executive Officer, our Chief Operating Decision Maker, does not consider for the purposes of making decisions to allocate resources among segments or assessing segment performance. Segment Adjusted EBITDA is used as a supplemental financial measure by management and by external users of our financial statements, such as investors, industry analysts, lenders and ratings agencies, to assess:

Previous wording

We produced 1.9 million metric tons of steelmaking coal for the three months ended March 31, 2024 compared to 1.6 million metric tons for the three months ended March 31, 2023, representing a 17% increase. The increased production drove an increase in sales as both Mine No. 4 and Mine No. 7 operated at higher capacity levels in the first quarter of 2024 compared to the first quarter of 2023, driven by the employees returning from the labor strike beginning in the second quarter of 2023.

Current wording

We produced 2.0 million metric tons of steelmaking coal for the three months ended June 30, 2024 compared to 1.7 million metric tons for the three months ended June 30, 2023, representing a 13% increase. The increased production drove an increase in sales as both Mine No. 4 and Mine No. 7 operated at higher capacity levels in the second quarter of 2024 compared to the second quarter of 2023.

Previous wording

Sales for the three months ended March 31, 2024 were $498.0 million compared to $500.5 million for the three months ended March 31, 2023. The $2.5 million decrease in sales was primarily driven by a $48.9 million decrease in sales related to a $25.34 per metric ton decrease in the average net selling price per metric ton of steelmaking coal offset partially by a $46.5 million increase in sales due to a 9% or 0.2 million metric ton increase in steelmaking coal sales volume. The 9% increase in sales volumes was driven by higher production from both Mine No. 4 and Mine No. 7 operating at higher capacity levels in 2024 compared to 2023, driven by the employees returning from the labor strike beginning in the second quarter of 2023. The average net selling price of our steelmaking coal decreased 9% from the $283.24 per metric ton in the first quarter of 2023 to $257.90 per metric ton.

Current wording

Sales for the three months ended June 30, 2024 were $390.4 million compared to $371.0 million for the three months ended June 30, 2023. The $19.4 million increase in sales was primarily driven by a $66.9 million increase in sales due to a 18% or 0.3 million metric ton increase in steelmaking coal sales volume offset partially by a $47.6 million decrease in sales related to a $24.98 per metric ton decrease in the average net selling price per metric ton of steelmaking coal. The 18% increase in sales volumes was driven by higher production from both Mine No. 4 and Mine No. 7 operating at higher capacity levels in 2024 compared to 2023. The average net selling price of our steelmaking coal decreased $24.98 from the $230.03 per metric ton in the second quarter of 2023 to $205.05 per metric ton in the second quarter of 2024.

Previous wording

For the three months ended March 31, 2024, our geographic customer mix was 44% in Europe, 38% in Asia and 18% in South America. For the three months ended March 31, 2023, our geographic customer mix was 53% in Europe, 23% in South America, 21% in Asia and 3% in the United States. Our geographic customer mix typically varies each period based on the timing of customer orders and shipments.

Current wording

For the three months ended June 30, 2024, our geographic customer mix was 39% in Europe, 37% in Asia, 23% in South America and 1% in the United States. For the three months ended June 30, 2023, our geographic customer mix was 47% in Europe, 33% in Asia, 19% in South America and 1% in the United States. Our geographic customer mix typically varies each period based on the timing of customer orders and shipments.

Previous wording

Other revenues for the three months ended March 31, 2024 were $5.5 million compared to $9.2 million for the three months ended March 31, 2023. Other revenues are comprised of revenue derived from our natural gas operations, gains on sales and disposals of property, plant and equipment and land, changes in the fair value of our natural gas swap contracts, as well as earned royalty revenue. The $3.7 million decrease in other revenues is primarily due to a decrease in the Southern Louisiana natural gas price average of $0.82 per Million British Thermal Unit ("MMBtu") or 34% combined with a decrease in sales volumes of 6% for the three months ended March 31, 2024 as compared to the prior year comparable period.

Current wording

Other revenues for the three months ended June 30, 2024 were $6.1 million compared to $8.6 million for the three months ended June 30, 2023. Other revenues are comprised of revenue derived from our natural gas operations, gains on sales and disposals of property, plant and equipment and land, changes in the fair value of our natural gas swap contracts, as well as earned royalty revenue. The $2.5 million decrease in other revenues is primarily due to a decrease in sales volume of 10% as the Southern Louisiana natural gas price average per Million British Thermal Unit ("MMBtu") remained relatively consistent for the three months ended June 30, 2024 as compared to the prior year comparable period.

Previous wording

Depreciation and depletion expenses were $40.0 million, or 7.9% of total revenues, for the three months ended March 31, 2024, compared to $37.2 million, or 7.3% of total revenues for the three months ended March 31, 2023. The $2.8 million increase in depreciation and depletion is primarily driven by an increase in met coal sales volume as depreciation and depletion is first capitalized into coal inventory and relieved when the tons are sold.

Current wording

Depreciation and depletion expenses were $38.1 million, or 9.6% of total revenues, for the three months ended June 30, 2024, compared to $30.6 million, or 8.0% of total revenues for the three months ended June 30, 2023. The $7.6 million increase in depreciation and depletion is primarily driven by an increase additional assets placed into service and an increase in met coal sales volume as depreciation and depletion is first capitalized into coal inventory and relieved when the tons are sold.

Previous wording

Selling, general and administrative expenses were $18.7 million, or 3.7% of total revenues, for the three months ended March 31, 2024, compared to $14.5 million, or 2.8% of total revenues, for the three months ended March 31, 2023. The $4.1 million increase in selling, general and administrative expenses for the period is due to an increase in employee related expenses.

Current wording

Selling, general and administrative expenses were $15.4 million, or 3.9% of total revenues, for the three months ended June 30, 2024, compared to $13.2 million, or 3.5% of total revenues, for the three months ended June 30, 2023. The $2.2 million increase in selling, general and administrative expenses for the period is due to an increase in employee related expenses.

Previous wording

Business interruption expenses were $0.2 million and $4.2 million for the three months ended March 31, 2024 and 2023, respectively. The decrease in business interruption expenses is due to the end of the labor strike that the labor union initiated on April 1, 2021 in February 2023. The expenses in the three months ended March 31, 2024 represent ongoing legal expenses associated with labor negotiations and the expenses in the three months ended March 31, 2023 represent non-recurring expenses that were directly attributable to the labor strike for incremental safety and security, legal and labor negotiations and other expenses.

Current wording

Business interruption expenses were $0.1 million and $3.5 million for the three months ended June 30, 2024 and 2023, respectively. The decrease in business interruption expenses is due to the end of the labor strike on February 16, 2023 that the labor union initiated on April 1, 2021. The expenses in the three months ended June 30, 2024 represent ongoing legal expenses associated with labor negotiations and the expenses in the three months ended June 30, 2023 represent non-recurring expenses that were directly attributable to the labor strike for incremental safety and security, legal and labor negotiations and other expenses.

Previous wording

Interest expense was $1.1 million, or 0.2% of total revenues, for the three months ended March 31, 2024, compared to interest expense of $7.4 million, or 1.5% of total revenues, for the three months ended March 31, 2023. The $6.3 million decrease is due to the early retirement of debt in August 2023.

Current wording

Interest expense was $0.9 million, or 0.2% of total revenues, for the three months ended June 30, 2024, compared to interest expense of $5.5 million, or 1.4% of total revenues, for the three months ended June 30, 2023. The $4.5 million decrease is due to the early retirement of our Notes (as defined below) in August 2023 and maturity of financing leases.

Previous wording

Interest income was $8.2 million, or 1.6% of total revenues for the three months ended March 31, 2024, compared to $8.9 million, or 1.7% of total revenues for the three months ended March 31, 2023. The $0.7 million decrease was primarily driven by a decrease in invested cash balances.

Current wording

Interest income was $9.2 million, or 2.3% of total revenues for the three months ended June 30, 2024, compared to $11.6 million, or 3.1% of total revenues for the three months ended June 30, 2023. The $2.4 million decrease was primarily driven by a decrease in invested cash balances.

Previous wording

For the three months ended March 31, 2024, we recognized income tax expense of $19.1 million compared to income tax expense of $29.1 million for the three months ended March 31, 2023. The $9.9 million decrease in income tax expense is primarily driven by a decrease in pre-tax income. We estimated our annual effective tax rate and applied this effective tax rate to our year-to-date pretax income at the end of the interim reporting period. The $19.1 million income tax expense for the three months ended March 31, 2024, includes a benefit related to depletion and Internal Revenue Code ("IRC") Section 250 Deduction: Foreign-Derived Intangible Income ("FDII"). The Tax Cuts and Jobs Act ("TCJA") was enacted on December 22,

Current wording

For the three months ended June 30, 2024, we recognized income tax expense of $8.5 million compared to income tax expense of $14.5 million for the three months ended June 30, 2023. The $6.0 million decrease in income tax expense is primarily driven by a decrease in pre-tax income. We estimated our annual effective tax rate and applied this effective tax rate to our year-to-date pretax income at the end of the interim reporting period. The $8.5 million income tax expense for the three months ended June 30, 2024, includes a benefit related to depletion, Internal Revenue Code ("IRC") Section 250 Deduction: Foreign-Derived Intangible Income ("FDII") and Section 45l Deduction: Marginal Well Credit. The Tax Cuts and Jobs Act ("TCJA") was enacted on December 22, 2017 and enacted IRC Section 250 Deduction: FDII, which provides for, among other things, a deduction of 37.5% with respect to foreign-derived intangible income, which reduces the statutory tax rate from 21% to 13.125%. Beginning in 2026, the deduction is reduced from 37.5% to 21.875% of foreign-derived intangible income. The Marginal Well Credit is a production-based tax credit that provides a credit for qualified natural gas production and is phased out when natural gas prices exceed certain thresholds.

Previous wording

Other income was $0.2 million for the three months ended March 31, 2023 and represents proceeds received associated with the Chapter 11 Cases from Walter Energy, Inc.

Current wording

Other income for the six months ended June 30, 2023 of $0.2 million represents proceeds received from the Chapter 11 Cases from Walter Energy, Inc.

Previous wording

Our sources of cash have been steelmaking coal and natural gas sales to customers, proceeds received from the Notes (as defined below) and access to our ABL Facility. Historically, our primary uses of cash have been for funding the operations of our coal and natural gas production operations, working capital, our capital expenditures, our reclamation obligations, payment of principal and interest on our Notes, professional fees and other non-recurring transaction expenses. In addition, we used available cash on hand to repurchase shares of common stock and to pay our quarterly and special dividends, each of which reduces or reduced cash and cash equivalents.

Current wording

Our sources of cash have been steelmaking coal and natural gas sales to customers, proceeds received from the Notes and access to our ABL Facility. Historically, our primary uses of cash have been for funding the operations of our coal and natural gas production operations, working capital, our capital expenditures, our reclamation obligations, payment of principal and interest on our Notes, professional fees and other non-recurring transaction expenses. In addition, we used available cash on hand to repurchase shares of common stock and to pay our quarterly and special dividends, each of which reduces or reduced cash and cash equivalents.

Previous wording

Going forward, we will use cash to fund debt service payments on our Notes, the ABL Facility and our other indebtedness, to fund operating activities, working capital, capital expenditures, our reclamation obligations, professional fees and other non-recurring transaction expenses and strategic investments, the development of Blue Creek, and, if declared, to pay our quarterly and/or special dividends. Our ability to fund our capital needs, including the development of Blue Creek, going forward will depend on our ongoing ability to generate cash from operations and borrowing availability under the ABL Facility, and, in the case of any future strategic investments, capital needs, the development of Blue Creek, or special dividends financed partially or wholly with debt financing and our ability to access the capital markets to raise additional capital.

Current wording

Going forward, we plan to use cash to fund debt service payments on our Notes, the ABL Facility and our other indebtedness, to fund operating activities, working capital, capital expenditures, our reclamation obligations, professional fees and other non-recurring transaction expenses and strategic investments, the development of Blue Creek, and, if declared, to pay our quarterly and/or special dividends. Our ability to fund our capital needs, including the development of Blue Creek, going forward will depend on our ongoing ability to generate cash from operations and borrowing availability under the ABL Facility, and, in the case of any future strategic investments, capital needs, the development of Blue Creek, or special dividends financed partially or wholly with debt financing and our ability to access the capital markets to raise additional capital.

Previous wording

Our total liquidity as of March 31, 2024 was $801.3 million, consisting of cash and cash equivalents of $693.9 million and $107.4 million available under our ABL Facility. As of March 31, 2024, no loans were outstanding under the ABL Facility and there were $8.7 million of letters of credit issued and outstanding under the ABL Facility.

Current wording

Our total liquidity as of June 30, 2024 was $816.4 million, consisting of cash and cash equivalents of $709.0 million and $107.4 million available under our ABL Facility. As of June 30, 2024, no loans were outstanding under the ABL Facility and there were $8.7 million of letters of credit issued and outstanding under the ABL Facility.

Previous wording

During the first quarter of 2023, we repurchased in the open market and extinguished approximately $8.0 million principal amount of our Notes at a discount to par value. The discounts to par value and the interest expense savings from this open-market purchase is estimated to be approximately $4.0 million through the maturity of our Notes. In connection with the extinguishment of our Notes, we recognized a loss on early extinguishment of debt of $0.1 million which is included in interest expense in the Condensed Statements of Operations.

Current wording

During the first quarter of 2023, we repurchased in the open market and extinguished approximately $8.0 million principal amount of our Notes at a discount to par value. In connection with the extinguishment of our Notes, we recognized a loss on early extinguishment of debt of $0.1 million which is included in interest expense in the Condensed Statements of Operations.

Previous wording

We are responsible for medical and disability benefits for black lung disease under the Federal Coal Mine Health and Safety Act of 1969, as amended. Beginning on April 1, 2016 through May 31, 2018, we were insured under a guaranteed cost insurance policy, through a third-party insurance carrier, for black lung claims raised by any employee subsequent to the acquisition of certain assets of Walter Energy. Beginning on June 1, 2018 through May 31, 2020, we had a deductible policy where we are responsible for the first $0.5 million for each black lung claim. Since June 1, 2020, we have a deductible policy where we are responsible for the first $1.0 million for each black lung claim.

Current wording

We are responsible for medical and disability benefits for black lung disease under the Federal Coal Mine Health and Safety Act of 1969, as amended. Beginning on April 1, 2016 through May 31, 2018, we were insured under a guaranteed cost insurance policy, through a third-party insurance carrier, for black lung claims raised by any employee subsequent to the acquisition of certain assets of Walter Energy. Beginning on June 1, 2018 through May 31, 2020, we had a deductible policy where we are responsible for the first $0.5 million for each black lung claim. From June 1, 2020 through May 31, 2024, we had a deductible policy where we are responsible for the first $1.0 million for each black lung claim. Beginning June 1, 2024, we have a deductible policy where we are responsible for the first $2.0 million for each black lung claim.

Previous wording

In addition, in connection with the acquisition of certain assets of Walter Energy, we assumed all black lung liabilities of Walter Energy and its U.S. subsidiaries incurred prior to March 31, 2016, for which we are self-insured. We have posted $18.6 million in surety bonds and $9.1 million of collateral recognized as short-term investments in addition to maintaining a black lung trust of $2.1 million that was acquired from Walter Energy. We received a letter from the U.S. Department of Labor ("DOL") on February 21, 2020 under its new process for self-insurance renewals that would require us to increase the amount of collateral posted to $39.8 million, but we have appealed such increase. We received another letter from the DOL on December 8, 2021 requesting additional information to support our appeal of the collateral requested by the DOL. On February 9, 2022, the DOL held a conference call with representatives from the Company related to our appeal. On July 12, 2022, we received a decision on our appeal from the DOL lowering the amount of collateral required to be posted from $39.8 million to $28 million. We appealed this decision. In addition, on January 19, 2023, the DOL proposed revisions to regulations under the

Current wording

In addition, in connection with the acquisition of certain assets of Walter Energy, we assumed all black lung liabilities of Walter Energy and its U.S. subsidiaries incurred prior to March 31, 2016, for which we are self-insured. We have posted $18.6 million in surety bonds and $9.3 million of collateral recognized as short-term investments in addition to maintaining a black lung trust of $2.1 million that was acquired from Walter Energy. We received a letter from the U.S. Department of Labor ("DOL") on February 21, 2020 under its new process for self-insurance renewals that would require us to increase the amount of collateral posted to $39.8 million, but we have appealed such increase. We received another letter from the DOL on December 8, 2021 requesting additional information to support our appeal of the collateral requested by the DOL. On February 9, 2022, the DOL held a conference call with representatives from the Company related to our appeal. On July 12, 2022, we received a decision on our appeal from the DOL lowering the amount of collateral required to be posted from $39.8 million to $28 million. We appealed this decision. In addition, on January 19, 2023, the DOL proposed revisions to regulations under the Black Lung Benefits Act governing authorization of self-insurers. The proposed rules requires, among other requirements, all self-insured operators to post security equal to 120 percent of their projected black lung liabilities.

Previous wording

In the ordinary course of our business, we are required to provide surety bonds and letters of credit to provide financial assurance for certain transactions and business activities. Federal and state laws require us to obtain surety bonds or other acceptable security to secure payment of certain long-term obligations including mine closure or reclamation costs and other miscellaneous obligations. As of March 31, 2024, we had outstanding surety bonds and letters of credit with parties for post-mining reclamation at all of our mining operations totaling $45.3 million, $18.6 million as collateral for self-insured black lung related claims and $5.2 million for miscellaneous purposes.

Current wording

In the ordinary course of our business, we are required to provide surety bonds and letters of credit to provide financial assurance for certain transactions and business activities. Federal and state laws require us to obtain surety bonds or other acceptable security to secure payment of certain long-term obligations including mine closure or reclamation costs and other miscellaneous obligations. As of June 30, 2024, we had outstanding surety bonds and letters of credit with parties for post-mining reclamation at all of our mining operations totaling $45.8 million, $18.6 million as collateral for self-insured black lung related claims and $5.2 million for miscellaneous purposes.

Previous wording

Refer to the respective notes to our audited financial statements for the year ended December 31, 2023 included in our 2023 Annual Report for further information about our credit facilities and long-term debt (Note 13), commitments and contingencies (Note 15), asset retirement obligations (Note 8), black lung obligations (Note 10), lease payment obligations (Note 14), share repurchase programs (Note 16) and derivative instruments (Note 17).

Current wording

Refer to the respective notes to our audited financial statements for the year ended December 31, 2023 included in our 2023 Annual Report for further information about our credit facilities and long-term debt (Note 13), commitments and contingencies (Note 15), asset retirement obligations (Note 8), black lung obligations (Note 10), lease payment obligations (Note 14), stock repurchase programs (Note 16) and derivative instruments (Note 17).

Previous wording

Cash balances were $693.9 million and $738.2 million at March 31, 2024 and December 31, 2023, respectively.

Current wording

Cash balances were $709.0 million and $738.2 million at June 30, 2024 and December 31, 2023, respectively.

Previous wording

Net cash flows from operating activities consist of net income adjusted for noncash items, such as depreciation and depletion of property, plant and equipment and mineral interests, deferred income tax expense, stock-based compensation, amortization of debt issuance costs and debt discount, accretion of asset retirement obligations, mark-to-market (gains) losses on gas hedges and changes in net working capital.

Current wording

Net cash flows from operating activities consist of net income adjusted for noncash items, such as depreciation and depletion of property, plant and equipment and mineral interests, deferred income tax expense, stock-based compensation, amortization of debt issuance costs and debt discount, accretion of asset retirement obligations, mark-to-market gain on gas hedges and changes in net working capital.

Previous wording

Net cash provided by operating activities was $104.1 million for the three months ended March 31, 2024, and was primarily attributed to net income of $137.0 million adjusted for depreciation and depletion expense of $40.0 million, deferred income tax expense of $2.9 million, stock based compensation expense of $9.2 million, accretion of asset retirement obligations of $1.3 million, amortization of debt issuance costs and debt discount of $0.4 million, and an increase in our net working capital of $85.8 million since December 31, 2023. The increase in our working capital was primarily driven by increases in accounts receivable due to higher sales volumes and the timing of sales partially offset by the draw down of inventories.

Current wording

Net cash provided by operating activities was $251.0 million for the six months ended June 30, 2024, and was primarily attributed to net income of $207.7 million adjusted for depreciation and depletion expense of $78.2 million, stock based compensation expense of $14.2 million, deferred income tax expense of $6.8 million, accretion of asset retirement obligations of $2.6 million, amortization of debt issuance costs and debt discount of $0.8 million, and an increase in our net working capital of $57.1 million since December 31, 2023. The increase in our working capital was primarily driven by increases in accounts receivable due to higher sales volumes and the timing of sales partially offset by increased accounts payable due to timing of payments.

Previous wording

Net cash provided by operating activities was $192.9 million for the three months ended March 31, 2023, and was primarily attributed to net income of $182.3 million adjusted for depreciation and depletion expense of $37.2 million, deferred income tax expense of $29.1 million, stock based compensation expense of $7.7 million, accretion of asset retirement obligations of $0.9 million, amortization of debt issuance costs and debt discount of $0.7 million, non-cash mark-to-market gain on gas hedges of $0.5 million, and an increase in our net working capital of $69.0 million since December 31, 2022. The increase in our working capital was primarily driven by increases in accounts receivable and decreased accrued expenses and accounts payable offset partially by a decrease in inventories. The increase in trade accounts receivable reflects higher sales volumes and the timing of sales and the decrease in inventories is due to greater sales volumes than production. The decrease in accrued expenses and accounts payable is due to the timing of payments.

Current wording

Net cash provided by operating activities was $317.4 million for the six months ended June 30, 2023, and was primarily attributed to net income of $264.4 million adjusted for depreciation and depletion expense of $67.8 million, deferred income tax expense of $37.9 million, stock based compensation expense of $12.3 million, accretion of asset retirement obligations of $1.9 million, amortization of debt issuance costs and debt discount of $1.2 million, and an increase in our net working capital of $75.8 million since December 31, 2023. The increase in our working capital was primarily driven by increases in accounts receivable and increased accrued expenses and accounts payable. The increase in trade accounts receivable reflects higher sales volumes and the timing of sales and the increase in accrued expenses and accounts payable is due to the timing of payments.

Previous wording

Net cash used in investing activities was $101.7 million and $85.0 million for the three months ended March 31, 2024 and 2023, respectively, primarily due to purchases of property, plant and equipment and mine development. Capital expenditures during the three months ended March 31, 2024 for the development of Blue Creek was $68.5 million. The prior year period also includes $2.4 million cash paid to acquire the remaining ownership interest in gas wells owned by an independent third party.

Current wording

Net cash used in investing activities was $223.3 million and $232.4 million for the six months ended June 30, 2024 and 2023, respectively, primarily due to purchases of property, plant and equipment and mine development. Capital expenditures during the six months ended June 30, 2024 for the development of Blue Creek were $152.6 million and capital expenditures during the six months ended June 30, 2023 for the development of Blue Creek were $125.6 million. The prior year period also includes $2.4 million cash paid to acquire the remaining ownership interest in gas wells owned by an independent third party.

Previous wording

Net cash used in financing activities was $46.7 million for the three months ended March 31, 2024, primarily due to the payment of regular quarterly and special dividends of $30.6 million, payments for taxes related to net share settlement of equity awards of $11.8 million and finance lease obligations of $4.3 million. Net cash used in financing activities was $74.8 million for the three months ended March 31, 2023, primarily due to the payment of regular quarterly and special dividends of $50.0 million, retirements of debt related to our senior notes of $8.0 million and principal repayments of finance lease obligations of $7.6 million.

Current wording

Net cash used in financing activities was $56.9 million for the six months ended June 30, 2024, primarily due to the payment of regular quarterly and special dividends of $36.2 million, payments for taxes related to net share settlement of equity awards of $11.8 million and principal repayments of finance lease obligations of $8.9 million. Net cash used in financing activities was $87.1 million for the six months ended June 30, 2023, primarily due to the payment of regular quarterly and special dividends of $53.7 million, principal repayments of finance lease obligations of $16.2 million, payment for taxes related to net share settlement of equity awards of $9.2 million and retirements of debt related to our Notes of $8.0 million.

Previous wording

On May 17, 2017, the Board adopted the Capital Allocation Policy of paying a quarterly cash dividend of $0.05 per share. In February 2022, we announced that the Board approved an increase in the regular quarterly cash dividend by 20%, from $0.05 per share to $0.06 per share. In February 2023, we announced that the Board approved an increase in the regular quarterly cash dividend by 17%, from $0.06 per share to $0.07 per share. On February 9, 2024, we announced the Board approved an increase in the regular quarterly cash dividend of 14% from $0.07 per share to $0.08 per share and declared a special cash dividend of $0.50 per share. Our strategy continues to be focused on optimizing our capital structure to improve returns to stockholders, through special cash dividends, while allowing flexibility for us to develop our strategic growth project Blue Creek. We intend on returning cash to stockholders in stronger price markets where we are generating significant amounts of cash flow, and less cash to stockholders during weaker markets. We also intend on using stock repurchases when there is no short- or long-term use for additional cash that will deliver meaningful value to stockholders. We have paid a regular quarterly cash dividend every quarter since the Board adopted the Capital Allocation Policy.

Current wording

On May 17, 2017, the Board adopted the Capital Allocation Policy of paying a quarterly cash dividend of $0.05 per share. In February 2022, we announced that the Board approved an increase in the regular quarterly cash dividend by 20%, from $0.05 per share to $0.06 per share. In February 2023, we announced that the Board approved an increase in the regular quarterly cash dividend by 17%, from $0.06 per share to $0.07 per share. On February 9, 2024, we announced the Board approved an increase in the regular quarterly cash dividend by 14% from $0.07 per share to $0.08 per share and declared a special cash dividend of $0.50 per share. Our strategy continues to be focused on optimizing our capital structure to improve returns to stockholders, through special cash dividends, while allowing flexibility for us to develop our strategic growth project Blue Creek. We intend on returning cash to stockholders in stronger price markets where we are generating significant amounts of cash flow, and less cash to stockholders during weaker markets. We also intend on using stock repurchases when there is no short- or long-term use for additional cash that will deliver meaningful value to stockholders. We have paid a regular quarterly cash dividend every quarter since the Board adopted the Capital Allocation Policy.

Previous wording

During the three months ended March 31, 2024, we have paid $30.6 million of regular quarterly and special cash dividends under the Capital Allocation Policy.

Current wording

During the six months ended June 30, 2024, we have paid $36.2 million of regular quarterly and special cash dividends under the Capital Allocation Policy.

Previous wording

Our capital expenditures were $99.7 million and $68.2 million for the three months ended March 31, 2024 and March 31, 2023, respectively. Capital expenditures for these periods are primarily related to investments required to develop Blue Creek and Mine No. 4 North as well as expenditures necessary to maintain our property, plant and equipment. Capital expenditures for the development of Blue Creek for the three months ended March 31, 2024 were $68.5 million and $434.5 million has been spent on this project to date. Our deferred mine development costs were $2.0 million and $14.5 million for the three months ended March 31, 2024 and March 31, 2023, respectively, and relate to the development of Blue Creek and Mine No. 4 North.

Current wording

Our capital expenditures were $210.7 million and $204.3 million for the six months ended June 30, 2024 and June 30, 2023, respectively. Capital expenditures for these periods are primarily related to investments required to develop Blue Creek and Mine No. 4 North as well as expenditures necessary to maintain our property, plant and equipment. Capital expenditures for the development of Blue Creek for the six months ended June 30, 2024 were $152.6 million and$518.6 million has been spent on this project to date. Our deferred mine development costs were $12.6 million and $25.7 million for the six months ended June 30, 2024 and June 30, 2023, respectively, and relate to the development of Blue Creek and Mine No. 4 North.

Previous wording

In 2023, we focused on the slope, return shaft, service shaft, bathhouse, warehouse, and substations. Also, in 2023, we initiated important and highly beneficial project scope changes that will require incremental capital expenditures over the life of the project while lowering operating costs, increasing flexibility to manage risks, and making better use of multi-channel transportation methods. While we originally planned on a single channel to transport coal from the Blue Creek mine via an overland belt to a third-party owned and operated barge loadout facility, we now plan to build a belt conveyor system to a railroad loadout to transport the majority of the coal. We expect this change to de-risk the single channel to market, lower operating costs and move volumes faster to the port. We will also plan to build and operate a barge loadout ourselves rather than utilizing a third-party provider. We believe that the potential economic benefits associated with this scope change should provide us with an inherently robust and cost competitive outbound logistics model that will provide additional flexibility to manage alternative transportation methods.

Current wording

In 2023, we focused on the slope, return shaft, service shaft, bathhouse, warehouse, and substations. Also, in 2023, we initiated important and highly beneficial project scope changes that will require incremental capital expenditures over the life of the project while lowering operating costs, increasing flexibility to manage risks, and making better use of multi-channel transportation methods. While we originally planned on a single channel to transport coal from the Blue Creek mine via an overland belt to a third-party owned and operated barge loadout facility, we are now constructing a belt conveyor system to a railroad loadout to transport the majority of the coal. We expect this change to de-risk the single channel to market, lower operating costs and move volumes faster to the port. We are also constructing and will operate a barge loadout ourselves rather than utilizing a third-party provider. We believe that the potential economic benefits associated with this scope change should provide us with an inherently robust and cost competitive outbound logistics model that will provide additional flexibility to manage alternative transportation methods.

Previous wording

The inclusion of the benefits and incremental capital expenditures relating to these specific scope changes did not have a material impact on the project economic metrics of net present value and internal rate of return and did not change the project timeline. In addition, we have experienced inflationary cost increases ranging from 25% to 35%, primarily in relation to labor, construction materials, and certain equipment. Inflationary pressures are expected to continue during the remainder of the project development period. While cost inflation has impacted the cost of the project, these inflationary pressures are expected to be offset by an inflationary increase in the long-term price assumption for steelmaking coal.

Current wording

The inclusion of the benefits and incremental capital expenditures relating to these specific scope changes did not have a material impact on the project's economic metrics of net present value and internal rate of return and did not change the project timeline. In addition, we have experienced inflationary cost increases ranging from 25% to 35%, primarily in relation to labor, construction materials, and certain equipment. Inflationary pressures are expected to continue during the remainder of the project development period. While cost inflation has impacted the cost of the project, these inflationary pressures are expected to be offset by an inflationary increase in the long-term price assumption for steelmaking coal. There have been no changes to the reset baseline total project cost since that initial disclosure in 2023. The reset baseline total project cost ranges from $995 million to $1.075 billion.

Previous wording

In 2024, we plan to continue to make significant progress on the major components for seam access, surface infrastructure and coal transportation, which include the production slope, service shaft, ventilation shaft, continuous miner development, material handling belts, and run of mine belts. We are also focused on increasing the headcount at Blue Creek by approximately 100 employees.

Current wording

In 2024, we plan to continue to make significant progress on the major components for seam access, surface infrastructure and coal transportation. During the second quarter of 2024, we completed on schedule major components for seam access, which includes the production slope, service shaft and ventilation shaft and fan. The next major step is completing the installation of the service cage and the slope belt. This will allow for the initial development of the longwall panel with the first continuous miner unit expected to begin in the third quarter of 2024. On the surface infrastructure components, we completed the construction of the bathhouse, warehouse, and critical electrical substations and made significant progress on the construction of the preparation plant. On the coal transportation components, the construction of the run of mine and clean coal belt structures and the rail and barge loadouts remain on schedule. We are also focused on increasing the headcount at Blue Creek by approximately 100 employees by the end of year. We continue to work closely with contractors and vendors to overcome supply chain and labor shortages in the mining industry. To date, we have not incurred any significant barriers to keep us from hitting our targets.

Previous wording

We have invested approximately $434.5 million project to date, including $68.5 million in the first quarter of 2024. We expect to spend $325 to $375 million in 2024 on the continued development of Blue Creek and of the remaining capital expenditures, we generally expect to spend approximately 70% in 2025 and 30% in 2026.

Current wording

We have invested approximately $518.6 million project to date, including $152.6 million in the first half of 2024. We expect to spend $325 to $375 million in 2024 on the continued development of Blue Creek and of the remaining capital expenditures, we generally expect to spend approximately 70% in 2025 and 30% in 2026.

Previous wording

In the ordinary course of our business, we are required to provide surety bonds and letters of credit to provide financial assurance for certain transactions and business activities. Federal and state laws require us to obtain surety bonds or other acceptable security to secure payment of certain long-term obligations including mine closure or reclamation costs and other miscellaneous obligations. As of March 31, 2024, we had outstanding surety bonds and letters of credit with parties for post-mining reclamation at all of our U.S. mining operations totaling $45.3 million, for collateral for self-insured black lung related claims totaling $18.6 million and for miscellaneous purposes totaling $5.2 million.

Current wording

In the ordinary course of our business, we are required to provide surety bonds and letters of credit to provide financial assurance for certain transactions and business activities. Federal and state laws require us to obtain surety bonds or other acceptable security to secure payment of certain long-term obligations including mine closure or reclamation costs and other miscellaneous obligations. As of June 30, 2024, we had outstanding surety bonds and letters of credit with parties for post-mining reclamation at all of our U.S. mining operations totaling $45.8 million, for collateral for self-insured black lung related claims totaling $18.6 million and for miscellaneous purposes totaling $5.2 million.