Q1 2024 Arch Resources Inc Earnings Call

Participants

Deck Slone; Senior Vice President - Strategy and Public Policy; Arch Resources Inc

Paul Lang; Chief Executive Officer, Director; Arch Resources Inc

John Drexler; President; Arch Resources Inc

Matthew Giljum; Chief Financial Officer, Senior Vice President; Arch Resources Inc

Lucas Pipes; Analyst; B. Riley Securities, Inc.

Nathan Martin; Analyst; The Benchmark Company LLC

Katja Jancic; Analyst; BMO Capital Markets (US)

Michael Dudas; Analyst; Vertical Research Partners LLC

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to the Arch Resources Incorporated first quarter 2024 earnings call conference call. At this time, all lines are in listen only mode following the presentation, we will conduct a question-and-answer session. If at any time during this call you require a muted assistance, please press star zero for the operator. This call is being recorded on Thursday, April 25 to 2024.
I would like to turn the conference over to Deck Slone, Senior Vice President of Strategy. Please go ahead.

Deck Slone

Good morning, from St. Louis and thanks for joining us today. Before we begin, let me remind you that certain statements made during this call, including statements relating to our expected future business and financial performance may be considered forward-looking statements according to the Private Securities Litigation Reform Act. Forward-looking statements by their nature address matters that are to different degrees uncertain. These uncertainties, which are described in more detail in the annual and quarterly reports that we file with the SEC may cause our actual future results to be materially different than those expressed in our forward-looking statements, and we do not undertake to update our forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by law.
I'd also like to remind you that you can find a reconciliation of the non-GAAP financial measures that we plan to discuss this morning at the end of our press release, a copy of which we have posted in the Investors section of our website at Arch RSU. dot com. Also participating on this morning's call will be Paul Lang, our CEO, John Drexler, our COO and Matt Giljum, our CFO. After our formal remarks, we'll be happy to take questions that I'll now turn the call over to Paul.

Paul Lang

We appreciate your interest in Arch. I'm glad you could join us on the call this morning. I'm pleased to report that during the first quarter, March continued drive from our consistent and proven plan for long-term value creation and growth. Despite some headwinds during the quarter just ended, our team achieved an adjusted EBITDA of $103 million and generated $83 million of discretionary cash flow delivered a $56 per ton cash margin in our core metallurgical segment, underscoring the durability of our cash-generating capabilities across a wide range of market environments reduced our outstanding share count by 3%, which included 315,000 shares associated with the unwinding of the capped call instruments and the repurchase of an additional 95,000 shares declared a quarterly cash dividend of nearly $21 million or $1.11 per share payable in June and perhaps most importantly, extended our industry leadership and sustainable has the state of West Virginia named Leer and Leer South Cone recipients of the state's top safety and all at Leer South with the state's comp environment as we've noted many times in the past, our capital return program is the centerpiece of value propositions. So we've now deployed more than $1.3 billion in this program since its relaunch. And furthermore, in 2022 figure equivalent to 46% of our current market capitalization of period of just over two years.
Breaking that down further, we paid $727 million or nearly $39 per share in dividends over that time frame, while reducing our share count by 3.5 million shares or roughly 16% versus the fleet level in May 2022. As indicated, this last component for systematic reduction in our share count has taken center stage because we're sitting with our intense focus. We've already made significant progress on this front over the last two years, reducing the share count from 21.9 million shares in May 2020 to 18.4 million shares to go along with this, we believe will position the company to drive even greater progress in the quarters ahead through our efforts to streamline our capital structure over the last two years, including the retirement of our convertible debt, the elimination of home loans and the recent liquidation of ARCap, Paul and our decision to build a substantial cash balance to facilitate the opportunistic buying of our shares during Morgan programs to ensure we believe sales are set for ongoing investments in Arch's compelling long-term prospects. We have a strong and sustainable share repurchase program.
Turning to the coal market dynamics, after declining steadily throughout the first quarter, seaborne coking coal prices appear to have found a base of the last two weeks kind of beginning to show signs of a rebound at present plants and processing High-Vol A. coking at $220 per metric ton as has been the US East Coast versus an average of $285 per metric ton on the same basis just last December. It's worth noting that despite the relative market softness year to date, certain demand fundamentals appear generally supportive. For instance, global hot metal output through the world, excluding China, was up 2% during the first three months of the year. While China's imports of high-quality seaborne coking coal continue to trend higher, counterbalancing those positive indicators.
The supply side has recovered modestly year-to-date with Australian and U.S. coking coal exports rebounding sudden much, albeit to levels significantly below their respective mix. It's important to point out a world class competitor with a first quartile cost growth. Arch is exceptionally well positioned to manage through extended periods of market weakness, perhaps still driving value for shareholders. In fact, periods of market weakness can be healthy and our needs by differentiating the stronger offering, reinforcing the fact that this is the commodity cycles and ebbs and flows and being a low cost producer. And thus perhaps, but we also continue to believe that our long-standing faces that underinvestment ESG related constraints will continue to support the constructive long-term supply demand balance global coking coal market effect. Those dynamics could spur a quick recovery in such markets.
Global economic conditions start to strengthen our major economies Brazil, we increased nurse through in-person similar spend. And it's also worth noting that recent price declines may are we taking a toll on high high cost U.S. offerings in recent weeks several small coking coal mines, bridal section pursues production entirely. Currently the market is challenged.
Turning now to the thermal markets. U.s. fundamentals remain challenged and for natural gas trading below $2 per million at Henry Hub and utility stockpiles at historically high levels. After Brian Leonard, please. Macro factors in turn drove an estimated 10% decline in domestic thermal coal production from a quarter-over-quarter basis.
On a more positive note, the seaborne thermal market has rebounded some cost Newcastle price standing at $130 per metric ton and APR 219 metric ton due in part to this improvement in the price environment for US thermal coal exports were up roughly 26% for the first two months of 2024 compared to 2023.
So looking ahead, we're sharply focused on driving continuous improvements across our operating platforms forward. Our ongoing value generated capital returns to shareholders at the same time, we'll continue to capitalize on the strategic optionality afforded to us by our ownership interest in maybe expanding terminals as we navigate through the crisis.
The Francis Scott Key bridge collapse of the Port of Baltimore. While the closure report should not have any impact on production or more likely constrain second quarter cautious somewhat annually return and due to capital returns. However, we expect the impacts to be timing related at all to propose appropriate proportion of Baltimore reopened.
Verizon, just flicking effective cash flow is merely the way there's a lot call it what we say in many respects, Arch's built for periods such as this for our low cost position and high-quality products afford us the ability to generate substantial cash flows despite softer market, while at the same time, we believe we're equally well positioned to capitalize on the situation dependent turn even more robust about fast to our shareholders in the markets recover.
With that, I'll turn the call over to John Drexler for further discussion of our operational performance in Q1.

John Drexler

And thanks, Paul, and good morning, everyone. That Paul just discussed, we are seeing successfully navigated through significant disruptions from logistics chain and a weakening market environment during Q1, while still delivering substantial amounts of discretionary cash flow production levels for our core metallurgical segment were less than ratable for him. More guidance perspective for portfolio is currently transitioning into increasingly favorable geologic conditions, and we expect good momentum as we progress through the year in the first quarter, our four metallurgical segment once again delivered a first quartile cost performance and generated nearly $130 million in adjusted EBITDA despite less than ratable out for semi from longwall moves at both try and use a typical geologic variability issues I would characterize as just mine included in this latter category.
We lost seven days of longwall production in Palermo during Q1 had an estimated impact of around 70,000 tons due to our efforts to coordinate the longwall start-up with the local utilities relocation, Apollo similar to be under while the steps we took on that front resulted in our receipt of a $9.1 million payment, which was recorded as other income. We estimate that the lost tonnage inflated our Q1 metallurgical segment costs by close to $2 per ton. Even with that impact, the segment's average cash cost came in at $94 per tonne, which was modestly above the high end of our full year guidance range.
So still top tier when compared to other U.S. coking coal producers has indicated our coking coal mines are transitioning into increasingly favorable geology. And as a result, we remain comfortable with our full year guidance and the cash cost midpoint of $89.50 per ton in the thermal segment the West Elk mine continued to operate efficiently and generated solid adjusted EBITDA, even as it continued to ship under several legacy contracts with dampens netbacks. Rare autoimmune Basin assets also operated efficiently, but gross cash in spite of that fact due to the rapidly improving domestic thermal demand environment.
In short, we ended the year stripping at a pace consistent with the 55 million tonne per year sales volume levels. We are currently anticipating 2024 shipments that could be as much as $10 million lower demand. As a result, the PRB operated in the red in Q warm counterbalancing the solid performance at Roxboro. On a more positive note, we expect to capitalize on the excess stripping completed in the PRB in the year's back half and as in the past to preserve value by negotiating additional out year comment in exchange for any customer requested deferrals.
Looking ahead, we continue to be encouraged by the general progression of our coking coal operations. Leer South is currently operating in a good productive pace and is well on track in our view to achieve the $3 million ton annual production figure we have targeted for the mine for 2024. Moreover, the development work we are currently doing in District two is serving to reinforce our confidence in the much enhanced geologic conditions we expect to encounter them. As previously discussed. Our drilling data as well as our experience in the early development work in that district suggests a material we favor coal seam, more favorable profitability overall in District two, which would prove beneficial when we begin longwall mining there in the fourth quarter.
I will say again at a time when many other operations are wrestling with the migration to less advantageous and higher cost reserves. We are fortunate to be moving in the opposite direction that we are now let's spend a few minutes discussing the closing of the shipping channel in Baltimore following the tragic bridge collapse there. As we have discussed, we typically ship the majority of our later in Leer South export volumes for roughly half of our coking coal volumes overall via the Curtis Bay terminal in Baltimore. With the channel closed, we are having to direct volumes elsewhere, and I'm pleased to report that the team is doing a terrific job on that front and remains focused on maximizing our shipments using alternative routes.
Of course, our strategic investment in Dominion Terminal associates in Newport News has been pivotal to vital to our success on that front, as has been the great support we have received from our railcar while we continue to work around capacity constraints a detailing, we believe we will be able to achieve sales volumes in the range of 1.9 million to 2.2 million tons in Q2, depending on the exact timing of the channel reopening. It is currently projected for the end of May according to the U.S. Army Corps of Engineers, that volume level would put us at around 4 million tonnes in the first two quarters, suggesting a little over a 2.4 billion tonne quarterly run rate in the year back in given our available alternative logistics in stockpile divestments. We do not expect any impact to our production levels at the mines due to our due to the port outage and continue to view our prior volume guidance. Well, the 8.6 million to 9 million tonnes is achievable.
Before passing the baton to Matt, let's spend a few minutes discussing the team's exemplary achievements in the sustainability arena. As you know, we firmly believe that a culture of safety and environmental stewardship is essential for long-term success in our business. During Q1, Arch's subsidiary operations achieved an aggregate total lost time incident rate of 0.62 incidents per 200,000 employee hours worked, which was more than three times better than the industry.
On the environmental front, the company again recorded zero environmental violations of this, that group as well as Zero Water Quality experiences across all of our subsidiary operations, highlighting the team's excellent work with the state of West Virginia recently named the leader in Leer South mines, coal recipients of the governor's milestone or Safety Award, the state's highest season in addition to Mount Laurel line leaders know Lear Leer, South and multiple preparation plants were each honored with the Mountaineer Guardian award received yet in the environmental arena, Mirasol claimed everyone's abroad, the state's highest honor for environmental energy, Melior and Leer South were honored with additional environmental excellence. On behalf of the Board and the senior management team, I want to commend the entire workforce for their deep commitment to excellence and these essential areas are personal.
With that, I will now turn the call over to Matt for some additional color on our financial results.

Matthew Giljum

Thanks, John. Good morning, everyone. Let's begin with a discussion of first quarter cash flows and liquidity. Operating cash flow totaled $128 million in Q1, which included a working capital benefit of $19.7 million. While we had anticipated working capital to build in the period to decline metallurgical prices over the course of the quarter, combined with lower thermal shipping volumes, resulted in a meaningful drawdown of accounts receivable. Capital spending totaled $45 million and discretionary cash flow was $83 million.
Turning to the balance sheet, we ended March with cash and short-term investments of $340 million, essentially flat with 1231 levels. As we discussed in last quarter's call, we closed on a $20 million term loan in Q1, largely use those proceeds to retire the old one to make other debt amortization resulting in end of quarter debt, $146 million, which was only modestly higher than year-end levels. Current net cash position was $174 million at March 31st, and our liquidity was $442 million, which remain above target levels.
Turning now to the capital return program. We continue to execute on our two-pronged approach, systematically reducing the share count, also paying a meaningful dividend, starting with the share count through a combination of the capped call on one in share repurchases, we retired 410,000 shares during the quarter. The cap call unwind, which made up over 75% of that total was equivalent to a share repurchase of nearly $53 million without any cash outlay in the quarter.
We also repurchased 95,000 shares in the open market in Q1 and in total, have now retired over 2.5 million shares at an average price of 139 since we relaunched the program that combined with the retirement of the convertible debt has reduced our fully diluted share count by 3.5 million shares is this recent High Point in 2022. Our share count reduction as our priority dividend remains a significant component Clarksons value proposition, as I turn the quarterly dividend of $1.11 per share to date, bringing the total dividends to nearly $39 per share since the beginning of 2022. The upcoming dividend will be paid on June 14th to stockholders of record as of May May 31st.
Next, I wanted to provide some additional detail around Paul's comment on Q2 capital returns, not just provided an excellent overview of our approach to managing our export metallurgical shipments. While our Baltimore part of them remain closed from a timing standpoint, as you would expect, much of April to date has been focused on redirecting activity away from Curtis stake in CMDTA. and other alternatives. But the net result being export shipments heavily weighted towards the latter half of the quarter.
Additionally, we expect a further seasonal step-down in thermal volumes in Q2, foreseeing modest improvement as we get into the summer. As a result, we currently expect a significant working capital increase in Q2 and that operating cash flows and discretionary cash flows will be at levels that will offer significant share repurchases in the quarter. We believe this strictly as a timing issue, and we anticipate cash flows and capital returns to normalize as we get to Q3 as a final point. While we expect second quarter volumes in both segments to be lower than revenue as compared to guidance levels, we expect stronger performance in the second half of the year and I'll maintain our full year operating and financial guidance.
Now we are ready to take questions. Operator, I will turn the call back over to you.

Question and Answer Session

Operator

Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the number one on your touchtone phone. You will hear a prompt that your head has been raised. Should you wish to decline from the polling process, please press the star followed by the number two. If you are using a speakerphone, please lift your handset before pressing any keys. One moment, please, for our first question. Your first question comes from Lucas Pipes from B. Riley Securities. Please ask your question.

Lucas Pipes

Thank you very much, operator, and good morning, everyone. Wanted to I wanted to I wanted to I wanted to start with a strategic question. So when I went when I kind of think back over the last couple of years, there were a number of kind of unexpected issues at Curtis Bay on disruption, West Elk geology, Leer, South geology, and then obviously the recent tragedy in Baltimore, your strategy has been focused on kind of large productive mines and you focused on on these core assets. And I would expect mean reversion and from top from from to the events of the recent years, but is there a case to be made? And how do you think about ARM adding more geographic or other diversification to the portfolio?

Paul Lang

I think you know, I think that's just a question of focus. And I think I've told people many times over year growth. I think back in growth, 2012, we have operating 38 buyers now for us, we found it was not the easiest thing to say, but I think there's others that are doing well for us where we have found our sweet spot. I think is operating very well, very efficient, very low cost mines, and those does come with a certain degree of exposure. But by and large, I think there's you expect within this group continue to improve things for your stock. I think when you were doing what we said are growing growing in future, I think more importantly, what you'll see is that we'll look at our maintenance CapEx, you know, status quo the next 10 years?
Yes, our CapEx is going to be much lower some of our peers and operating line Smartphone plus that's kind of a little bit of the offset to that very issue. You're talking about about three and more spread out. So Deck, I noticed you have any thoughts on that?

Deck Slone

Some others with that stack and such with the addition of Leer South, obviously, you know, we were endeavoring to address just that. I think we've done that to a meaningful degree, of course, is not you know, it's not going to be perfect diversification, but to a meaningful degree. And I think DTA underscores what you just described, which is we know the investment we made to expand our investment actually a DTA several years ago is really paying dividends today. So we certainly are aware of that need to make sure that we have flexibility that we can be nimble, but we do have alternate routes and and multiple production sources that are consequential. We have two big horses now rather than just one and it has an assignment as an example. So we have taken meaningful strides again. I think that's paying dividends significantly right now. And we think about how much volume we expect to move in Q2 despite the fact that Curtis Bay is right now out of the market. So but that becomes.

Lucas Pipes

Thank you very much for those comments. On the thermal side, it looks like you pre-strip, though quite quite a bit into PRP given given the market conditions. So for Q2 and what would you expect on this to mean I'm confident I'd assume there'd be a pretty sharp reversal. So if you could kind of walk through the implications on that on the cost side.
Also on the volume side for Q2, I would appreciate that. And then, Matt, I think you mentioned there at the end of your comments that working capital will be a use in Q2 and you'd expect that to reverse later in the year, you have been very tactical in the past with some pursuit of share repurchases. Could this be a period right now where even even though cash flows may be temporarily restricted? Are you continue to two to lean in given giving a very bullish long-term outlook on on met coal prices? Thank you very much.

John Drexler

It's John Drexler. I'll start out with a discussion on the on the thermal side in the PRB, as we described in our prepared remarks, the team there is prepare for stripping level that was meaningfully above what we've seen here start to play out at the beginning of the year. Obviously, the winter was less than ideal. We are seeing gas prices that are displacing electric generation from coal, just a lot of pressures and everybody's been feeling is that what I'm real proud of is the team out at in PRB does a fabulous job. They've been through this before they know what we do.
Unfortunately, it's not something that just happens overnight, but they're in the process right now of adjusting schedules, eliminating overtime, managing headcount and laying down equipment doing all of the things that we've done and we've done successfully in the past, typically take several quarters. As we discussed, we have created some pit inventory. We stripped higher than what was shipped. But as we realign the operation moving forward, we'll get that benefit. And we've seen 50% growth essentially in our pit inventory that we'll benefit from in future quarters.
But as you look at the second quarter from a seasonality perspective, there's typically a lot of pressure in that historically in Q2 anyway, business bringing in the shoulder season so Q2 may be another challenging one as well. But the team right now is actively implementing all of the measures that we've done successfully in the past. We'll be working to control those costs minimizing the negative impact in Q2, and we'll expect to benefit from that and get back to cash positive here as we work through the remainder of the year. In our 2020 growth a little bit in the past.

Deck Slone

Lucas, when we look back and can certainly see those periods when we do sort of flip over to shipping more than we strip, you can see the margin expansion. Now, obviously, there's some headwinds out there on the thermal side. Stockpiles are very high.
Gas prices are low. So we'll see how that manifests itself, but that can be pretty powerful when we do move to that point where we're shipping more than the strip as opposed to the headwind we had in Q1 we'll have again in Q2, which is stripping more than we ship. So we certainly are feeling optimistic about the second half, but we'll also have to watch and see what happens with thermal demand overall focused on the area of question regarding the share repurchases.
But we clearly expect a working capital build this quarter harder to predict this quarter probably than most just given all the uncertainties around how the export shipments will be diverted and where those will end up. But I'm saying the same given the shift in volumes to the latter half of the quarter that we'll see that build as it relates to the share repurchase program. And clearly the last point and built up a nice bit of cash on our balance sheet to be opportunistic if the share price moves in a way that we think it's very opportunistic to be in the market this quarter, I think you'll see that, but clearly, that was meant to be four times when the cycle really moved against us when the long term fundamentals didn't necessarily do so far. And so I think we'd probably be more likely to continue to hold that cash. I'm absent a particularly good opportunity for buybacks.

Lucas Pipes

Thank you very much for all of your color alarm continued Best of luck.

Paul Lang

Thanks, Lucas.

Operator

Your next question comes from the line of Nathan Martin from Benchmark Company. Please ask your question.

Nathan Martin

Hey, good morning, guys. Thanks, operator. Just maybe sticking with the thermal segment. Just real quick. I mean, obviously, you guys just highlighted the high stockpiles, low nat gas prices mild winter for the most part, though. So what gives you the confidence that you can still hit your full year thermal shipment guidance on targets or how are conversations going with customers? Maybe I think previously you mentioned we could see another 5% to 10% of those contracted tons rollover into 2025.
And then maybe separately, you highlighted another negative contribution in the PRB likely for the second quarter. But is there an opportunity to have an overall positive comp contribution from the segment that Thermal segment on based on how you think West Elk will perform?

John Drexler

Yes, Nathan, the goal here and obviously we believe over the course of the year, we're going to have the third segment, the cash-positive position of both West Elk and the PRB as we move forward. We talked about this on the last call we talked about in the prepared remarks, we're essentially committed in the PRB to higher levels from what we're indicating in the thermal shipment levels and the expectation is that we're going to continue to see push and I applaud the marketing team in their efforts to manage that when you have essentially significantly high stockpiles, the inability of utilities to take any more coal.
We found ways and opportunities here our rollover tons, not just to preserve value of those tons that are rolling over but to actually create value was well, we did that successfully in 2023, and the team is already focused on that and working through those types of opportunities as we move forward here. So yes, we could see in our ongoing pressure, we could see in our shipments continue to be challenged. But once again, with the work that's being done at the operation to realign for the expected shipment levels moving forward, given the work that the marketing team is doing, we do expect to get back to cash positive as we get to the back half of the year.

Paul Lang

It's Paul. I think one thing that gives me comfort as I look back from that John and the team in the Powder River Basin, we have just done an amazing job your last five, six years from responding to the market up and down because big buying notes for 50 million tons of your buying doesn't change overnight. We have in this case, we've done a very good job over the years, responding to these changes in market and most of all locations that has to do a flight from would be the one I would fit, and I think Bill does a good job.

Deck Slone

And just on the granularity of the numbers. Look, right now, we could foresee potentially shifting as low as 45 million tons out of the PRB, you add 1 million tons at West Elk and the thermal byproduct nice, you're looking at 50 million, which at the low end of that range. And again, we may ship more than that. But right now, we continue to see value in working with customers deferring shipments if they need to defer them and they will do the math to get some linked dealing in an environment where stockpiles are very high out there, getting sort of went out of business could be challenging, but using this opportunity to work with customers to get laying the name multiples of volumes in oh, in terms of really for a long time, potentially getting additional volume beyond that one-time in out years. It's a real opportunity. And so we're going to be strategic about it. But I do think that 50 to 56 million encompasses a reasonable range for where we would expect we are in almost anything.

Nathan Martin

Appreciate all the color there, guys. Maybe shifting over to the Met segment. John, I know you touched on some of this in your prepared remarks, but clearly, Lear, you had a weak production quarter, I think one of the weakest in five plus year. So do you expect that to kind of return to the typical, call it 1 million tonne per quarter kind of run rate post the power line relocation, you mentioned, I believe you also previously said the mine should be moving in the ticker seeing So great to get more color there. And then related or how should we think about the second quarter Met segment cost per ton, at least directionally from the first quarter. It seems like if we remove that $2 per ton from the powerline relocation that you called out, maybe things should improve, but would be great to get your thoughts.

John Drexler

Yes, good questions. And we'll start with Leer and kind of some of the commentary around that. So the power line relocation came at the end of our longwall move, we have the rights to subside. The panels that we mine. There was a power line, ours that came across that the local utility requested that they wanted a little more time to shore up those towers. We were compensated for that $9.1 million that we recorded in other income. But clearly delaying the start-up of the longwall is impacting 70,000 tonnes to one tonne impact. Of course, as we move forward, we describe other things as well. You know, you can have geologic variability at the end of the day, immaterial in the grand scheme of things. So you might have had an impact or do a few things there. Those are all things that we manage each and every day and don't expect without any longer-term impact.
So yes, absolutely. We are confident we are going to get back on track. It is going to be heading into some difficult the panels that it's going to continue to mine here for the remainder of 2014. We touched on their South this well. It went through move. And so all of the teams do a fantastic job with four longwall moves. We don't typically end up talking much about them, but it was a little bit of an impact for Leer South. But once again, the opportunity that Leer South is as we transition out of district one in the district to in the beginning of the fourth quarter of this year, we're going to see a meaningfully improved coal seam thickness somewhere in the range of 15% to 20% thicker than what we've experienced here since the longwall started in District one. So we feel really good about that.
Moving forward. So once again, we'll manage that and expect volumes to improve as we go forward is related to costs. Obviously, you're impacted by the volumes. So we expect improvement in the costs. As we move forward into Q2, we would expect somewhere getting back into the mid 80, $86 a tonne type ranges as we go forward according to our plans I'm moving parts.

Nathan Martin

Very helpful, John, appreciate that. And then maybe just one more, if I may. Paul, you mentioned I think according to some market sources or small coking coal mines may have idled, do you think we need more of this to support or even drive US met coal prices higher? Maybe where do you guys peg the marginal cost met coal ton these days?

Paul Lang

Nate, I think silver resource of our same volumes. We're doing a lot of people showing up the door looking for jobs. So it's a pretty direct power Dana, I think, well, if I look at a marginal cost and I think we've talked about this many times, we look at Younger most of our peers or even call it about one 10 to 1 20 range in mind, Rick, probably plus or minus 10 or 15. And that now we are right at the marginal cost of this 220 and our high raw material price. We have to remember that some of those bonds were not producing High-Vol A. or producing high-vol B restaurant products. So I think that's what you're seeing is the need for marginal volumes right on the edge of starting to drop out and not it's just a general slowdown across East to grow. Frankly, I don't wish harm on anybody, but no news is good for the industry. I think it is keeping things in check scale, northward, build for those. I think we're low cost. We have a high-quality product. But I think in another quarter or two, this would not be bad.

Deck Slone

So Nate, we've been looking at $195 a high-vol B minus and Parametric in the vessel on US East Coast. Now if you look through and I'll agree with that assertion, that the marginal cost reduction might be in that sort of one 35, even one 40 range, one 95, high-vol B Parametric back down to our, which include around rate something, you know, something there that makes that marginal producer cash negative at this point and well, but we've only seen some very small indications of rationalization and the prices have been at these levels for a very brief time. So certainly, we believe this is going to be weighing on some of this higher cost operations if it persists.
I would also add that you're seeing the same thing in Australia as we continue to see news out of Australia, the way in which the mining costs continuing to increase the pressure related to the royalty, the significant sustaining CapEx you're seeing from, I would say, PRB and sort of the same same issue with PLD saying it to 40 today. And if you're getting straight PLV., you know, and you are a premium producer, you're making some cash. But I would say the marginal cost producers, our struggling an awful lot of them are not producing premium waiver there for producing mid-vol product where they're producing a sudden heart or semi soft. So are these do feel these current prices still very supportive. And the good news for us, there was a first quartile producer related cash in this environment and so on in our past. But as we look further out, we do believe there's potential for some work.

Nathan Martin

Very helpful, guys. Appreciate it. Best of luck in the second quarter.

Operator

Your next question comes from the line of Roger transit from BMO. Capital Markets. Please ask your question.

Katja Jancic

Hello. Thank you for taking my questions. First, on the met coal guide for second quarter. Can you talk a bit more what would bring you to the lower versus the higher end of that category?

Matthew Giljum

Katja, you look at big volumes in that segment, they're very dependent on investments, right? So short times 80,000 tonne vessel very quickly, three or four vessels, you know, essentially covers that range and that spread that we have here. Clearly, the impact of the Baltimore bridge in the collapse and the lack of access from Curtis Bay is significant. As we've indicated, the logistics team working with our partners of utilizing the strategic investment of DTA. We've done a fantastic job of redirecting the coal flows so far.
Those are going very well from a lot of what is encompassed in that range is going to be dependent on when the Army Corps of Engineers is able to get that big channel reopen and get the flow of coal going again, that range encompasses our assumption that based on what they're saying, but this opens back up sometime towards the end of May. And clearly, there will be a lot of additional logistic considerations whenever it reopens, and we'll continue to manage that. But that's why we've got a little bit of a wider range from once again, it's just going to be dependent on timing. But as we sit here right now, we feel good that given the good start, we've had managing everything since the bridge did collapse, but we're going to be able to hit within that range.

Deck Slone

And kind of just as Matt referenced, it is a heavy gene scheduled. So some of that can just come down to know that last leg can that last 10-day Logan window and what gets what gets out. But now around the fact that we're not going to point to, I think, underscores just how well the team is moving to redirect for Boeing?

Paul Lang

Yes. I think a simple way to think about Newport News, it's about 300 problems further rent and Curtis Bay. So if you think about we got a sense that oh six trains and vessels plus or minus 5 to 300 miles, that's essentially additional rail capacity and the strain that it's under. So the timing the Curtis Bay reopening is pretty significant in scale we prior to rollout or either way with Curtis Bay.

John Drexler

And as far as our margins 90, I'll add to that is to kind of wrap up that discussion do working with our rail service provider. They've done a wonderful job. That's a big shift for them in realigning kind of their flows of trains and power and move people. So they've done a great job working to support and be responsive to everything that's happened with the driving from a collapse of the grid.

Deck Slone

And finally, maybe one one final point on this, which is the fact is it's all said it too much. So I mean, for the longer haul for rate is not that different. Now we do get new rates fairly equivalent, I will say from Curtis Bay are included in the rate is the transfer of if we go to EBITDA where we are, we're charging ourselves there on. So maybe we could say it's a $3 differential, but it's not that significant. We actually had some advantages when moved to DTA on some opportunities, blending storage et cetera, that was useful to us. So it actually ends up being an hour and move that, yes, we're quite comfortable with it, but it is going good change.

Katja Jancic

And then let's say, I know you mentioned maybe a week or two delays or in reopening does make a difference. But what is we see further delays? Potentially what happens? What are your options?

John Drexler

Yes, probably we will clearly we will continue to execute on the opportunity to continue to move coal through midyear, so that best primary and that can be extended and expanded meaningfully if it is a longer delay on the bridge. The team is also doing a fantastic job of looking at other alternatives and ways to move the coal on reaching midstream we can get closer to the river and take it south down to the Gulf and they're evaluating opportunities actually to get coal barges. And I through three four in the shallow draft of the Port of Baltimore and mainstreaming there as well.
So they're evaluating those types of opportunities now where hopefully we don't have to lean on any of those in a meaningful way, but clearly we can we can continue to manage if this is an extended impact. I'll share with you every update we get through the Army Corps of Engineers has has remained confident on that opening date on some of the shallow channel work that they've done, it actually will be opening a little bit earlier than what they had been indicating and so we feel confident that they're going to continue to work to hit those schedules and we'll be hitting them. But clearly, if something else happens, we're prepared and ready and actively looking at if it does get extended how we're going to mean.

Katja Jancic

Okay. And then maybe just to confirm, did you say that costs on the met side in the second quarter are going to be 86.

John Drexler

So for time being, let's call it, let's call it somewhere in the mid to high 80 range, actually that's you know that it is that's all going to be dependent on volumes and shipment levels and will be impacted even even with the range of the shipment levels being described.

Deck Slone

1.9 to 2.2, certainly that being kind of the key areas like the 87 nine to guidance we provide for the U.S. field, probably we are still are we still feel very comfortable obviously, the 94 was was a little high for Q1. We do believe as we go from here that you're going to see us sort of move towards the sort of the middle of that range and maybe performed a little better, but we still feel very comfortable with that.

Katja Jancic

And just one more on Mirasol. Are you still expecting around 3 million tonnes this year and then higher next year? Is that still fair?

John Drexler

Yes, back to you that. Yes, we are, as we described Leer South, we are very confident this year that we're going to be in the 3 million tons. And then once again, the real benefit occurs in the fourth quarter when when we move the district two, where the coal is in the 15% to 20% thicker attachment allow additional reduction in volume that would carry over into 25.

Deck Slone

Clearly, NBO for consulting to lending to think about it would be from a sort of a regular cadence perspective. Look, we were lower than ratable in Q. one Q. two Q. three. We would expect to be around ratable understanding there's always variability here and then Q4 higher than ratable will bring us into that's worth 3 million ton per year range based on that gain.

Katja Jancic

Perfect. Thank you so much.

Operator

Your next question comes from the line of Michael Dudas from Vertical Research. Please ask your question.

Michael Dudas

Good morning, gentlemen, Michael, but on the Asian region as well as London global met coal prices and some of those, it's called the supply coming out of the US and also elsewhere --

John Drexler

You're a little light. I don't know if there's a way to ramp up that volume.

Michael Dudas

Could you hear me better now?

John Drexler

Yeah.

Michael Dudas

Thank you. I'm just wondering how you're your global net customer base is feeling relative to some of the dynamics going on globally on a demand front and maybe even towards like the high high-volume market and how you see that playing out, especially maybe going into next year. So given the tightness that could occur in your high quality product, is there a continued or are you shifting some of that interest levels to certain other regions or countries are always talking about India being very aggressive and have some opportunity for China. Maybe give a little sense of how that's flowing through from your from your marketing Yes, multi-instance per stack and thanks for that.

Deck Slone

And we've talked a lot about this and our continuing shift towards Asia and an absolutely we are seeing interest continuing to grow from from new customers, new projects in Asia. Look, it's not like they're out there buying with greater urgency right now, and you've seen that in the price. But in terms of the outreach reengagement that continues to grow, and we're talking to our multiple and sort of potential new customers right now who are interested in not just now spot deal, but are interested in term business. So we do feel good about that and probably look at the overall fundamentals on We in fact, is that hot metal production and call reference. And whilst clearly China is up about 2% year to date. That's nothing. We know how relevant it has, certainly, but rather than where we were last year, bumping along the bottom in terms of hot metal output globally rather than where we were in 2022, it was down 10% or so.
But we do see signs of life. We do feel like there are some positive indications. Chinese imports are we are continuing to be strong in China, their Boards of particularly high-quality seaborne coking coal. So we say we assume China was up 10 million tonnes in terms of imports of seaborne coal last year and really stepping up again through the first three months of 2020. For now, I would say they are to know Raleigh interest from some of the world's largest steelmakers in U.S. volumes and our volumes in particular.
And we asked about High-Vol A., we certainly think there's a new role for High-Vol A. playing out there in a way that facilitates a better, a better flow product when you're when you're using a lot of disparate products, the fact is a lot of these customers actually just wasn't for high CSR colon and we can give them high CSR. So no High-Vol A. right now is there is still continuing to be sort of in meaningful demand, recognizing again, that the buyers at this moment are still encouraging to see that the level of interest it's significant. So I think most importantly, we do continue to see those new blast furnaces are being built in Asia actually come online and outreach to us about acquiring those either in the and maybe what are the longer-term fit and Michael, I'll add to that, that specifically with customers in the High-Vol A. product, they the marketing team does a fantastic job of developing the relationships and then technically marketing that product right.

John Drexler

It's still relatively new in the region from they've done a fantastic job of getting it introduced once customers start using it there. They view it as a very favorable product something that then bring that repeat buyers for that specific product. And so we feel really good about the portfolio. That product continues to get introduced and accepted, and we expect it to continue to grow as we move forward from in that fast developing ranging from Epson and Avago's.

Paul Lang

Part of the simple answer is I look year over year, we've added a significant number of new customers in Asian marketing team has done a great job. But when I really judge it as these are quality, customers also use our large steel mills and there are ones being built between Indonesia and Vietnam and Malaysia, and we're not selling the broker side. I feel very strong about the position we're taking in Asia.

Deck Slone

We're really building out that business that you're seeing by the quality customers from picking up in the magic one final point, just on the supply side, which you sort of alluded to where it is going to come from. If you look back sort of the three big suppliers in the seaborne market, Australia, the U.S. and Canada through the supply of high quality coking coal on an aggregate peaked in 2014 tons were down 45 million tonnes in those three countries in aggregate are down 45 million tonnes since 2014. So certainly the demand is there now and we see demand grow and we see no supply constraints, conceivably the name manifest themselves. So again, pretty constructive on a long-term view. You know, as we always say, we don't need a real long term sort of demand story because the fact is we are first quartile cost producer, but here's what we see playing out. You might be on mute right now.

John Drexler

Operator, you may have other --

Michael Dudas

Oh, yes, no. I'm sorry. No, thanks for. Thanks for that, that I just mentioned that there will be investment. You guys made into the sales force and marketing team in that region, certainly going to pay benefits since I'm sure we're seeing that right now. Thanks, guys.

John Drexler

Yes, thank you.

Operator

So there are no further questions at this time. I would like to turn the call over back to Mr. Paul Lang, CEO.

Paul Lang

Please continue on both new room for growth. As I noted earlier, we're sharply focused on driving continuous improvement across our operating cost programs. Total value generate better returns, especially as we lean towards where the emphasis on share repurchase. But we believe the current market softness impacting the highlights.
The value of our low-cost coking coal portfolio has added five substantial discretionary cash flow in Q1. Following the same time, the tragedy in Baltimore showcase. So enabled us as well as the capabilities are simply addressing such serious situations from a timing basis. With that, operator, we'll conclude the call and we look forward to reporting the growth in July. Stay safe and healthy.

Operator

That concludes today's conference call. Thank you for your participation. You may now disconnect.