Tenaya Therapeutics Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
April 27, 2023

There are 7 speakers on the call.

Operator

Day, and welcome to the Peabody First Quarter Earnings Conference Call. All participants will be in a listen only mode. Please note this event is being recorded. I would now like to turn the conference over to Carla Kinray, Vice President of Investor Relations. Please go ahead.

Speaker 1

Good morning, and thank you for joining Peabody's earnings call for the Q1 of 2023. With me today are President and CEO, Jim Grech and CFO, Mark Sperbeck. Within the earnings release, you'll find our statement on forward looking information as well as the reconciliation of non GAAP financial measures. We encourage you to consider the risk factors referenced there along with our public filings with the SEC. Now I'll turn the

Operator

call over to Jim.

Speaker 2

Thanks, Carla, and good morning, everyone. In the Q1 of 2023, Peabody's diverse portfolio produced another strong quarter of financial results. For the past 18 months, we have aggressively been deleveraging our balance sheet of a fixed dividend component, share repurchases and variable dividends. We are starting a program with a heavy weighting toward share repurchases and expect to transition to a plan including share repurchases, variable dividends and fixed dividends. Before I expand on the markets and operations, I would like to thank our global employees for their continued focus on working safely and efficiently.

Speaker 2

Without the dedication of our talented workforce, we would not be in the strong financial position we are in today. Now turning to global coal markets. Global thermal coal prices stabilized in March and recently showed improvement amid supply disruptions in Colombia, South Africa and ongoing strong demand from India, China and ASEAN countries, although shoulder season conditions and healthy fuel stocks or influencing demand elsewhere. China has ended its unofficial ban of Australian coal imports, providing additional demand for Australian thermal coal, which has resulted in Australian import rates of over 4,000,000 tonnes per month. Domestic coal production and renewable generation have been strong to start the year.

Speaker 2

However, import demand has been higher year over year as overall coal demand has been strong. While it is early in the year, the Q1 of 2023 run rate of imports This closed an all time high of approximately 400,000,000 tons. India too has shown signs of improved economic Activity early in 2023, resulting in increased power demand and elevated coal imports, despite elevated domestic production. Overall, demand for seaborne thermal coal is robust and supply remains constrained across the globe. However, we acknowledge that lower LNG prices and high coal inventory levels in Europe are short term headwinds in terms of pricing across the globe.

Speaker 2

Within the seaborne metallurgical coal market, the quarter was characterized by ongoing volatility As global macroeconomic turbulence counteracted improving demand and further weather induced supply disruptions in Australia. Net coal price volatility continued and early March increases eroded in the second half of the month amid macroeconomic sentiment To the lowest level since mid January, albeit remaining healthy at around $2.50 per metric ton for headline hard coking coal. In United States this quarter, natural gas prices have weakened further due to near record gas production levels. U. S.

Speaker 2

Natural gas prompt prices are approximately $2.25 per MMBtu. EIA is currently forecasting Henry Hub Natural Gas spot prices to increase above $3 per MMBtu during the second half of twenty twenty three in response to higher feed in volumes to LNG exports, while natural gas production rates remain flat. Overall, near term demand for U. S. Thermal coal is expected to be muted as a result of low gas prices and stronger renewable generation.

Speaker 2

However, as summer weather brings stronger total load demand and increased LNG export pressured gas prices, Coal demand has the potential to increase in the second half of twenty twenty three. Now moving on to our operating segments. Our Seaborne Thermal segment's 1st quarter exports were stronger than anticipated due to better than expected production out of Wolfenjang as a result of more efficient mine sequencing and Wambo open cut as a result of improved productivity. Cash cost per tonnes were lower than anticipated due to the increased coal production as well as lower overall spend. Our seaborne met production was down from the 4th quarter due to lower volumes at Shoal Creek and rail and transport congestion on Australia due to heavy rains earlier in the year.

Speaker 2

On March 29, 2023, the Shoal Creek Mine experienced and the J2 longwall panel, A fire involving void fill material utilized to stabilize the roof structure of the mine. All mine personnel were safely evacuated from the mine. MSHA has allowed mine rescue equipped personnel into the mine at various times to assess the situation and perform work in preparation for On April 26, MSHA approved the temporary sealing program limited to only the affected underground area, which consists of the J2 panel and previously mined J1 panel. In North Goonyella, we continue to advance redevelopment efforts and Expect to spend approximately $120,000,000 as planned in 2023. As a reminder, North Goonyella is a premium grade hard coking coal longwall operation in Queensland, Australia with over 70,000,000 tons of reserves.

Speaker 2

This operations grade of coking coal is considered to be the cornerstone of coking coal feedstocks globally. North Goonyella is expected to meaningfully increase Peabody's metallurgical coal production and generate approximately 25% returns at historical long term prices in this initial phase. In the U. S, PRB sales volumes recovered due to higher customer nominations and better rail performance. We are able to pull forward some maintenance into the Q1 to improve truck availability and lower costs for the remainder of 2023.

Speaker 2

Our other U. S. Thermal mines continue to perform well as expected. We are still essentially fully committed at our U. S.

Speaker 2

Domestic operations for 2023 and the railroads are showing improvement in their service levels. While we are sold out, We are working with our customers to be responsive to their needs, while retaining the value in our contracts. Our guidance reflects our current assessment of sales going forward, taking into account the current U. S. Market conditions.

Speaker 2

I'll now turn it over to Mark to cover the financial details. Thanks, Jim.

Speaker 3

In the Q1, we recorded net income Attributable to common stockholders of $269,000,000 or $1.68 per diluted share and adjusted EBITDA of 391,000,000 a nearly 20% increase from the prior year quarter. We reported operating cash flow of $386,000,000 And had $892,000,000 of cash at March 31, after completing the pre funding of all long term mine closure and reclamation and adjusting cash collateral for other performance obligations. More importantly, we delivered on our commitments to amend the surety agreement eliminate the bank letter of credit facility. With our balance sheet initiatives complete, we were pleased to announce a comprehensive shareholder return program. The Board has authorized a $1,000,000,000 share buyback program and implemented a regular quarterly cash dividend of 0.75 will result in $170,200,000 being returned to shareholders, including nearly $160,000,000 for share buybacks or about 6,600,000 shares at the current price, better than 4.5% of outstanding common shares.

Speaker 3

Turning now to the Q1 segment results. Seaborn Thermal recorded $164,000,000 of adjusted EBITDA. As expected, Export shipments were lower than the prior quarter due to a longwall move at Wambo, but exceeded expectations by 300,000 tons due to higher than anticipated production from both Wilpin Yonge and the Wambo Open Cut joint venture. Higher production rates Help drive cost to a lower than expected $51 per ton. With the winding down of the legacy hedge program, We realized an average export price nearly the same as the 4th quarter despite a 33% decline in the average Newcastle benchmark.

Speaker 3

Overall, the segment reported a 47% adjusted EBITDA margin. The Seaborne Metallurgical segment generated 90,800,000 of adjusted EBITDA. As expected, volumes were lower than the prior quarter due to heavy rains in Queensland and the challenging conditions at Shoal Creek. The average realized price was flat quarter over quarter, while cost increased to $151 per ton due to lower production, resulting in adjusted EBITDA margins of 31%. The U.

Speaker 3

S. Thermal mines delivered $100,000,000 of adjusted EBITDA, 21% better than the prior quarter despite challenging market conditions. The PRV mines generated $35,800,000 of adjusted EBITDA. Revenue per ton was a record $13.89 as we continue to benefit from the roll off of lower price contracts. 22,000,000 tons were shipped on forecast while cost of $12.26 per ton were above expectations as we opportunistically pulled certain equipment repair costs forward into the Q1.

Speaker 3

The other U. S. Thermal mines delivered $4,200,000 of adjusted EBITDA. Production and costs were both in line with expectations resulting in adjusted EBITDA margins of 26%. Now turning to the balance sheet.

Speaker 3

At March 31, we had $892,000,000 of cash. During the quarter, in connection with the surety amendment and elimination of the bank letter of credit facility, we increased restricted cash and collateral to $937,000,000 including $760,000,000 for reclamation and mine closure and $177,000,000 for other performance obligations such as long term port and rail commitments, Lack lung workers' compensation and legacy pension requirements. Importantly, the revised surety agreement eliminates a substantial liquidity risk by establishing a collateral cap of 56% of the bonded amount and guarantees Peabody's access to 3rd party bonding through December 31, 2026. Combined, we believe we have positioned Peabody with the best balance sheet in the industry, free from uncertain credit markets and built to withstand market cycles. Looking forward, we will remain maintain rigorous discipline to capital allocation, Expecting to return at least 65% of available free cash flow to shareholders, while never risking the company's financial resiliency.

Speaker 3

Lastly, let's turn to our outlook. Our full year guidance remains unchanged with updates limited only to priced positions. As a reminder, Shoal Creek was transitioning in 2023 until production ramped up later in the year with better conditions. Currently higher than anticipated production from Metropolitan is partially offsetting lost production from Shoal Creek. For the Q2, we are expecting improvements in our seaborne segment's performance and another consistent reliable quarter from the U.

Speaker 3

S. Thermal segments. Seaborne thermal export volumes are expected to be 500,000 tons higher as Wambo Underground completed a longwall move in the Q1 And Wilpinion continues to produce at 1st quarter's heightened levels. Approximately 1,000,000 tons are priced on average at 243 and 1,200,000 tons of high ash product and 400,000 tons of Newcastle product are unpriced. Costs are expected to remain at $50 to $55 per ton.

Speaker 3

Seaborne metallurgical volumes are projected to be 400,000 tons higher as CMJV shipments recover from the impacts of heavy rains that impacted logistics in Queensland during the Q1. About 500,000 tons are priced on average at 244 and remaining tons are expected to achieve 75% to 80% of prevailing hard coking coal prices. Costs are expected to decline to $135 to $145 per ton. In the PRB, we are projecting shipments of 21,000,000 tons, priced on average at $13.70 and costs are expected to be $12 per ton. Full year price volumes of 91,000,000 tons are now 1,000,000 tons less than previous expectations, better reflecting at an average price of $52.50 and cost of $41 per ton.

Speaker 3

Full year price volumes of 18,000,000 tons are also now 600,000 tons less. We previously anticipated annual cash interest payments of $60,000,000 inclusive of surety bond fees. With a substantial increase in restricted cash and collateral, generating a conservative U. S. Treasury like yield, we no longer anticipate significant net cash interest for the year.

Speaker 3

In summary, the company continued to generate substantial free cash flow. We amended and extended the surety agreement. We positioned Peabody with the most resilient balance sheet in the industry. We initiated a robust shareholder return program and continue to invest in long term growth at North Goonyella. I'd now like to turn the call over for questions.

Speaker 3

Operator?

Operator

We will now begin the question and answer session. At this time, we will pause momentarily to assemble our roster. The first question today comes from Lucas Pipes with B. Riley. Please go ahead.

Speaker 4

Thank you very much, operator. Good morning, everyone, and congratulations on the commencement of the capital return program. That's a job really well done. My first question is in regards to the cadence of met coal Shipments over the course of this year and then also the cadence of your met coal costs. So when I kind of back into the full year guidance Versus what you've done in Q1 and what your outlook is for Q2, we're looking at a pretty meaningful ramp up in volumes And concurrent decline in costs.

Speaker 4

And I just wondered if you could provide a little bit more color as to the key drivers there where you would Expect volumes to ramp up within your portfolio. Thank you very much for your color on that.

Speaker 3

Good morning, Lucas. Thanks for the comments on the shareholder return program. We're excited to finally kick that off. You're right, as we At the beginning of the year, the Q1 was going to be less than ratable and our lowest production quarter for the year. We do expect that to consistently improve Largely given improved performance at the CMJV as well as the Wambo Underground was Undergoing a longwall move in the Q1.

Speaker 3

So that really drove Q1 volumes lower. We're still On target in our range for a seaborne met. Clearly, with some uncertainty around Shoal Creek, There's a potential to be at the lower end of that range, but

Speaker 4

we'll

Speaker 3

see how that plays out through the remainder of the year.

Speaker 4

Thank you for that. And on Shoal Creek, the temporarily sealed section is that Surrounding the existing operating longwall at Shoal Creek or would that be adjacent to it? I'm just trying to get a better sense for Where the affected areas are and what it could mean for production over the course of this year? I know you have a second longwall on schedule for Later this year, any comments regarding the start of that one? Thank you very much for your color on it.

Speaker 2

Yes. Hi, Luke. It's good to hear from you again. And I'll talk about the ceiling and then the other longwall. But I just want to start out by saying that safety It dictates every step that we take forward at Shoal Creek and we're working very closely with MSHA in this regard.

Speaker 2

And because that's our top priority, the path forward That I'll talk about here can have a lot of variability as we react to conditions in the mine. And if needed, we will reset our path to the safest way to See, but I will say that the conditions at the mine have been relatively stable, which has been great. So with that in mind and the potential for variability, our current path forward right now is as you said, we're going to put in temporary seals, Which they can be put in very quickly and there's not as extensive a construction process as a more substantial set of seals. And because of that putting them quickly, we can also pick out a localized area of the mine to do that with, Which as you said Lucas, that's just in the J2 panel and the seals will cut off the J2 panel and the already mined J1 panel area. And so, we are in the mine actively doing that right now.

Speaker 2

I will say that Emsha under mine rescue apparatus and attended by mine rescue personnel. We have been in the mine numerous times since the incident has occurred. So again, I'm going to get back to the relatively stable conditions in the mine. So we're putting the seals in and in this localized area. If all continues to go well, we expect those temporary seals to be put in today, finalized today.

Speaker 2

And then the plan after that to going forward is to then flood the area with nitrogen, with the goal of eliminating any existing sources of So this whole process could take a few weeks to getting the seals in, putting the nitrogen in And getting, MSHA and us both getting comfortable with the conditions in the mine. After that, We're going to work with MSHA to assess the situation and with MSHA's guidance how best to safely proceed in the mine. But the key to the new longwall coming into the mine, Lucas, as you've noted is the seals that we have, the Have access hopefully to the rest of the mine, which is most importantly the El Panel area. So the El Panel area, we've already the development is complete All ready for the new longwall and we are on schedule as we have been the same schedule to arrive sometime in Q3 And get into much better mining conditions in the J panel. So again, a lot of variability, The plan is contained isolated to the J1 and J2 still have access to the rest of the mine, most importantly the L panels Where development is done and then the new longwall will come in the Q3.

Speaker 2

So that's the outlook as it stands at the moment, Lucas, of course, subject to change, but that's where we're at right now.

Speaker 4

That is a lot of color. I appreciate that. I'll turn it over for now. Thank you very much.

Speaker 1

Next question please.

Operator

The next question comes from Nathan Martin with The Benchmark Company. Please go ahead.

Speaker 5

Hey, good morning, everyone. And I'll echo Lucas' comments. Congrats on getting the surety agreements completed and then pivoting to shareholder returns.

Speaker 3

Thanks, Nathan.

Speaker 5

Maybe Mark for you, in regards to the available free cash flow You guys laid out this morning. How should we think about modeling that non controlling interest and restricted cash line item going forward? Is The expectation that they might be fairly consistent or could they be lumpy, excuse me, any guidance there would be very helpful. Thanks.

Speaker 3

Sure. Two things. First, on the distributions to non controlling interest, that's a minority interest in the Wambo complex, 25%. So that will be variable based on results from the Wambo mine. And then on the restricted cash and collateral, With the progress we made in the Q1, we're fairly comfortable with that number.

Speaker 3

There is some variability. We'll certainly manage it. But we don't expect significant changes right now outside of a change in law. New bonding requirements are also a possibility that would increase But don't expect significant changes in that restricted cash and collateral here in the immediate future.

Speaker 5

Got it. So that $40,000,000 run rate plus or minus is a good way to think about that then?

Speaker 3

Yes. No, the just to be clear, Nathan, the month we have on the balance sheet now is good. And I'm not expecting an increase Here over the next couple of quarters and we'll look to continue to manage that throughout the year. But the biggest risk is changes to The laws and regulations.

Speaker 5

Okay. Got it. So Mark, to be clear that $43,000,000 is in your calculation of available Dash, free cash flow, debt probably goes closer to 0, so you don't expect a change in the overall number.

Speaker 3

That's right. I don't expect a significant change over the next couple of quarters.

Speaker 5

Got it. Okay. Makes sense. Appreciate that clarification. And also I have you, can we touch again on the other operating cost line item?

Speaker 5

I know I've asked about the last couple of quarters, they've been running at $30,000,000 a quarter. In the back half of last year, you had mentioned you expect another decent quarter. Again, it was actually up $26,000,000 quarter over quarter, it looks like, Maybe driven by some sales of logistics capacity you guys called out, but it'd be great to get your thoughts on how that line could look over the next few quarters.

Speaker 3

Sure. You're right. The sale or assignment of excess port and rail capacity, that was a one time gain of $19,000,000 in the Q1. I wouldn't expect that to repeat. And then the other big item was about $34,000,000 in trading operations.

Speaker 3

You referenced the previous two quarters that was basically realizing higher prices in some of the hedged tons And the delay in the delivery of the physical tons and it was an improving price environment, we actually had gains there. Those were real and consistent with our operations. In the Q1 of this year, that $34,000,000 gain is largely based on some Coal purchases that Coltrane made as part of our blending operations. They were able to sell that at prices realize prices higher Then what they purchased those holes at, that's a timing thing. And with the declining price environment we've experienced here in the Q1, We expect that to reverse here in the Q2.

Speaker 3

So that's kind of a one time thing that will reverse out in the next quarter or 2.

Speaker 5

So, to wrap that up, maybe that $50,000,000 plus this quarter kind of gets Closer to $0,000,000 to $5,000,000 Just any indication on an absolute value?

Speaker 3

Yes, that's right. If you normalize those two items, that's We include like some of our past mining obligations in there. There's some corporate and other stuff in there, but pretty modest in the cold trading from a blending operations. I think that 5,000,000 Number is something that we've targeted before.

Speaker 5

Great. Appreciate that color. And then Maybe guys, finally, could we get some additional thoughts on the domestic thermal coal market here? I think there were some comments in your prepared remarks. But Specifically, how are you seeing your customers stockpiles?

Speaker 5

Are you having any deferral discussions at this point? And maybe as we look 24, you gave us some numbers previously around PRV and other thermal commitments. Could we get an update there and maybe any thoughts on pricing? Appreciate it.

Speaker 2

Yes. Hi, Nate. Good morning. So, the current guidance that we've put out reflects The current market dynamics and results of the discussions with our customers right now. So, as As you probably know, our position for 2023 is sold out.

Speaker 2

So, as our customers have different demands or different needs, we work with them to be responsive to that while we still retain the full value of our contracts. But again, with all that said, and any expected changes, that's all reflected In our current guidance. As far as 2024, on the PRB, we're about 85% Sold position and about 70% sold in our other position. So we got a very strong Sales book for next year already in place and we don't we haven't given up price guidance yet on any of those positions.

Speaker 5

Got it. And then how would you describe maybe, Jim, the rail service you're seeing in the U. S. Right now? Is that driving any of the expected quarter Quarter decline in U.

Speaker 5

S. Thermal shipments or is that more market driven or any thoughts there?

Speaker 2

Nate, so far, I would say for this year, January February,

Speaker 3

we're

Speaker 2

Tough operations for the railroads, the service challenges they had along with some really challenging weather Made for some pretty rough numbers for us, but March was a significant improvement and we've seen that same level of service so far in April. So, we're feeling a lot better about the rail service out west and their ability to meet the customer demands going forward. So Big improvement there. So now my view on it is going forward it's going to be more a fluctuation of market demand and the customer pull dictating the flow of the coal

Speaker 5

Great. Appreciate your comments and thoughts Jim and Mark as well. I'll leave it there.

Operator

The next question comes from Katya Janzik with BMO. Please go ahead. Hi. Thank you for taking my question. Maybe going back to the capital return framework, you have nearly $900,000,000 of cash, which I assume is unrestricted on the balance sheet.

Operator

Could any of that be used potentially for the maybe buybacks or special dividends later in the year?

Speaker 3

Hi, Katya and congratulations to you. With regard to the cash in the balance sheet, as we mentioned previously, We're going to maintain substantial liquidity in the balance sheet to weather the volatile pricing cycles in a credit challenged industry. The way I look at this, this represents the opportunity cost or the call option premium for the free cash flow yield that Peabody generates in the current price cycle. We've always mentioned that the shareholder returns There'll be a minimum of 65% of available free cash flow, but it is on a forward looking basis. We're real comfortable Given the current market conditions, where we're at from a liquidity standpoint in that $800,000,000 to $1,000,000,000 range.

Operator

Okay. Maybe just on the second half of the year, when you're planning to have a more balanced capital return framework, Can you talk about is this going to be 50% variable dividend, 50% share buybacks or how should we think about that?

Speaker 3

Yes, I think certainly it's at the Board's discretion. We're starting with a very heavy focus on share buybacks given the current free cash flow yield. But we do look to probably transition to a more balanced approach between dividends and buybacks going forward. It's going to be at the Board's discretion, but But a fifty-fifty split is something that we may achieve at some point.

Operator

Okay. Thank you very much.

Speaker 3

Thank you.

Operator

Next question? The next question comes from Michael Dudas with Vertical Research Partners. Please go ahead.

Speaker 6

Hi. Good morning, everyone.

Speaker 1

Good morning.

Speaker 6

Jim, the Wondering if you could share your views. There's been a wee little bit of consolidation and activity in the global mining space, especially in the coal sector In Australia and elsewhere, so I just want to share your views on how you're seeing that play out, what are your thoughts about it? And As you've recapitalized, you've done a terrific job on getting the company's balance sheet is where it is, maybe reiterate your thoughts on how Peabody may or may not

Speaker 2

And Michael, well, first off, thanks for getting on the call. It's great to hear from you again. The as far as Peabody and what we look at as far as potential M and A, We stated before and it's still the case that our focus is on the seaborne markets and assets that serve the seaborne markets, More heavily focused on metallurgical, but if there's a good thermal play out there, we take a look at it. But our main focus is seaborne metallurgical That is where we're looking. Yes, and there has seemed to be some uptick in M and A activity out there, A lot of discussions going on.

Speaker 2

To me, it hasn't what hasn't changed though, Michael, is the availability of financing to do deals, right? It seems to me that to do deals, right? It seems to me that you're looking at scenarios where people have to use equity or cash on hand or cash they generate Because of the financing or attractive financing isn't really there. So while there is an uptick in activity, I still think the challenge that people are going to have is again How to do the financing for some of these assets. Michael, did I answer all the questions that you asked?

Speaker 6

No, that's very helpful. That makes quite a bit of sense because there are those dynamics on capital, which of course is probably going to lead to a Much tighter market for global thermal and met coal in the future. So my second part of my question would be, maybe Jim, as you assess How your customers are reacting, looking at obviously a very volatile market, but as you look forward into later this year, maybe into next, Are you more encouraged or cautious about the direction of demand and maybe pricing in the markets for The quality of thermal and met that you guys ship into the market?

Speaker 2

Yes. I'd say on a global scale, We're more encouraged, not just later this year, next year, but I'll just say going through the rest of the decade. That's being Michael, just to oversimplify it, a fact of supply and demand. We see demand growing both in thermal and metallurgical On the seaborne markets and the constraints to supply growth that have been there are still there, access to new capital, permitting, ESG pressures, lack of hiring employees. So while the volatility is going to be there in the pricing, as See right now there's some maybe downtick in demand because of weather or some excess gas on the market.

Speaker 2

The underlying fundamentals This year and next year through the decade are still really strong and the fact that we think demand is going to be growing and supply is going to have a hard time responding to it.

Speaker 6

Thanks, Jim. Thanks for your thoughts.

Speaker 2

Thanks again, Michael, for getting on the call.

Operator

The next question is a follow-up from Lucas Kite with B. Riley. Please go ahead.

Speaker 4

Thank you very much, operator. Thank you very much for taking my follow-up questions. And Jim, the first one I wanted to touch on is just kind of the State of the medical market today, it softened a bit. Price is still strong by historical standards, but I wondered if you could Shed a little bit of light on what you're seeing from your customers in the various geographies, and what you think is causing this Thank you very much.

Speaker 2

Yes, I'll break that into 2 parts of the answer, sort of shorter term and longer term. In the shorter term, what we saw was China, the exports of steel out of that really flooding the market here in the 1st few months of the year. And we've seen that pull back significantly now as you're getting into there's a lot of domestic growth going on in China and the demand for steel As we're already seeing less exports of steel from China and more use for internal consumption of it. So that goes with a need for more coal imports into China and being less steel out on the market from China Opens away for other countries now to be pushing their product out there. So we've seen the dip in the prices still at a very healthy price at around $2.50 but we think the conditions are there now with what we see with China and its steel production For production in other countries to fill that void on the international market.

Speaker 2

So there's potential there for strength With that, and then again, longer term, Again, I'll just go back to the same supply demand dynamic that I mentioned with Michael and that seeing again Not very quick response from the supply side if at all and as demand increases, having that Out of balance equilibrium in the supply and demand side on the international met markets.

Speaker 4

I appreciate that. Thank you. And then switching topics, A little bit of a complicated question, but as much detail as you could provide, I would appreciate. When I think about your Restricted cash, defusing the reclamation liability effectively, but then also the larger bonding requirement at the Minimum liquidity requirement that comes with that. So over time, I would expect kind of Both the NPV and the bonding requirement to come down, and this should unlock a Fair bit of capital, but first, can you comment on kind of the expected pace of those declines?

Speaker 4

And then what sort of Reclamation costs would be associated on the other side of it, as you reclaim land and return mined areas to their original state. So again, just trying to get a sense for the NPV of that liability, how it may change and Also the bonding requirement, how capital might be unlocked there? Thank you very much for your color on this.

Speaker 3

Certainly, Lucas. I guess I'll start with the first question. The collateral cap on the surety program is a percentage of what is currently bonded. It's a little bit different By individual market and by characteristics of the bonds they've written, but it's 56%. You are correct.

Speaker 3

As bonds are released After work is completed, that would naturally come down. So that will be completely dependent upon New bonding requirements and new operations. So we have not seen a significant change in that amount From a GAAP liability perspective over the last several years, and I don't expect to see one going forward for the next several years either. The total bonding has come down recently, but I expect it to be pretty stable Going forward. And then as far as the expense that goes on, we have guided to $60,000,000 to $70,000,000 of kind of ARO cash spend.

Speaker 3

That's been pretty consistent over the last several years and I'd expect that to continue.

Speaker 4

Got it. So over the next few years, in a nutshell, we shouldn't expect meaningful changes Either on the bonding requirement or the present value that you have cash collateralized of that amount. Is that right?

Speaker 3

That's correct, Lucas. Again, that $900,000,000 plus number we have in the balance sheet for total restricted cash and collateral, I'm not expecting to see significant Changes going forward. If there's changes in laws or some additional new bonding requirements, then that could go up. But we'll do our best to offset that by completing reclamation work and continuing to get bond releases.

Speaker 4

Got it. That's very helpful. I appreciate that, Mark. Thank you for the color. And then just to go back to Shoal Creek one more time.

Speaker 4

With the temporary seal program being initiated, is that due to an abundance of caution or Have there been signs of lingering hotspots, for example, underground that caused this measure to be Thank you very much.

Speaker 2

Yes. I see the readings while they have been very Stable at the mine have not been 0 when it comes to like levels of hydrogen or CO. So This is and so we're putting the temporary seals in again with MSHUD to make sure that It is a safe environment for us to get into access the rest of the mine and hopefully back to this area here. So I don't know if I call it an abundance of caution, Lucas. We're comfortable with this approach and working with MSHA on it.

Speaker 2

So The temporary seals, I think are a good indication, yes, that we get to get in there quickly And localize the area where it's at. So I guess I'd leave it at that.

Speaker 4

No, no, that's helpful. Thanks again for all the color and best of luck.

Speaker 2

Thank you, Lucas.

Operator

There are no further questions So I would like to turn the conference back over to Mr. Jim Grech for any additional or closing remarks.

Speaker 2

I'd like to thank you all for joining us today, and I'd especially like to thank our employees for remaining focused on safety and for continuing to execute on our various initiatives. Also like to thank our customers, investors, insurance providers and vendors for your continued support. Operator, that concludes our call.

Operator

Thank you. That does conclude today's teleconference. We do appreciate your participation. You may now

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