# Warrior Met Coal, Inc.: Form 10-Q for the period ended Sep 30, 2024

- Company: [Warrior Met Coal, Inc.](/companies/hcc.md) (CIK 1691303)
- Form: 10-Q
- Filed: 2024-10-30
- Accepted by EDGAR: Oct 30, 2024, 16:44 ET
- Period: 2024-09-30
- Accession: 0001691303-24-000037
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1691303/000169130324000037/hcc-20240930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1691303/000169130324000037/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-07-01 to 2024-09-30 | $327.7m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Revenue | 9 months, 2024-01-01 to 2024-09-30 | $1.23bn | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Cost of revenue | 3 months, 2024-07-01 to 2024-09-30 | $231.6m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2024-01-01 to 2024-09-30 | $778.5m | us-gaap:CostOfGoodsAndServicesSold |
| Selling, general and administrative | 3 months, 2024-07-01 to 2024-09-30 | $11.4m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2024-01-01 to 2024-09-30 | $45.5m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2024-07-01 to 2024-09-30 | $39.1m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2024-01-01 to 2024-09-30 | $259.1m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-07-01 to 2024-09-30 | $1.4m | us-gaap:InterestExpenseNonoperating |
| Interest expense | 9 months, 2024-01-01 to 2024-09-30 | $3.5m | us-gaap:InterestExpenseNonoperating |
| Income tax | 3 months, 2024-07-01 to 2024-09-30 | $4.6m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2024-01-01 to 2024-09-30 | $32.2m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-07-01 to 2024-09-30 | $41.8m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2024-01-01 to 2024-09-30 | $249.5m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-07-01 to 2024-09-30 | $0.80 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2024-01-01 to 2024-09-30 | $4.78 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-07-01 to 2024-09-30 | $0.80 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2024-01-01 to 2024-09-30 | $4.78 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-07-01 to 2024-09-30 | 52,394,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2024-01-01 to 2024-09-30 | 52,221,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2024-01-01 to 2024-09-30 | $313.2m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Dividends paid | 3 months, 2024-07-01 to 2024-09-30 | $4.2m | us-gaap:PaymentsOfDividends |
| Dividends paid | 9 months, 2024-01-01 to 2024-09-30 | $40.5m | us-gaap:PaymentsOfDividends |
| Cash and equivalents | at 2024-09-30 | $583.2m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-09-30 | $972.1m | us-gaap:AssetsCurrent |
| Total assets | at 2024-09-30 | $2.58bn | us-gaap:Assets |
| Current liabilities | at 2024-09-30 | $167.3m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-09-30 | $493.6m | us-gaap:Liabilities |
| Long-term debt | at 2024-09-30 | $153.5m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2024-09-30 | $0 | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2024-09-30 | $2.09bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 73,645 characters.

*The following discussion and analysis provides a narrative of our results of operations and financial condition for the three and nine months ended September 30, 2024 and September 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.”*

### Overview

We are a U.S.-based, environmentally and socially minded supplier to the global steel industry. We are dedicated entirely to mining non-thermal metallurgical ("met") steelmaking coal used as a critical component of steel production by metal manufacturers in Europe, South America and Asia. We are a large-scale, low-cost producer and exporter of premium quality met coal, also known as hard coking coal (“HCC”), operating highly-efficient longwall operations in our underground mines based in Alabama, Mine No. 4 and Mine No. 7.

As of December 31, 2023, based on a reserve report prepared by Marshall Miller & Associates, Inc. ("Marshall Miller"), Mine No. 4 and Mine No. 7, our two operating mines, had approximately 82.9 million metric tons of recoverable reserves and our undeveloped Blue Creek mine contained 67.6 million metric tons of recoverable reserves and 39.7 million metric tons of coal resources exclusive of reserves, which total 107.3 million metric tons. As a result of our high-quality coal, our Mine No. 7 steelmaking coal realized price has historically been in line with, or at a slight discount to, the Platts Premium Low Volatility ("LV") Free On Board ("FOB") Australia Index Price ("Platts Index"). Our Mine No. 4 steelmaking coal transitioned in the second half of 2023 from a Mid Volatility ("MV") to a High Volatility A ("HVA") quality that typically trades at a larger discount to the price of coal from Mine No. 7. We now primarily target the East Coast High Vol A indices price for our Mine No. 4 coal. Our steelmaking coal, mined from the Southern Appalachian portion of the Blue Creek coal seam, is characterized by low sulfur, low-to-medium ash, and Low Vol to High Vol. These qualities make our coal ideally suited as a coking coal for the manufacture of steel.

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.

### Recent Developments

U.S. inflation is currently at approximately 2.4%, driven by increased energy and food costs, supply constraints and strong consumer demand. While inflation in the overall economy has eased in the last twelve months, we have not seen it easing significantly in the coal mining industry. We 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.

During the third quarter of 2024, high-quality steelmaking coal prices reached a three-year low driven by a confluence of weaker demand, excess Chinese steel exports in our customers' markets, and ample availability of steelmaking coals. As of October 11, 2024, the Platts Index price for premium LV coal was $207.00 per metric ton. Per the Wood Mackenzie global metallurgical coal short-term outlook released in September 2024, premium LV coal is expected to remain rangebound between $170.00 and $200.00 per metric ton for the remainder of the year. This expectation is in large part driven by additional Chinese stimulus measures and the end of India's monsoon season, combined with the fact that the premium LV coal price now cuts into the cost curve and approximately 13% of hard coking coal supply is making a negative margin at $180 per metric ton.

While we expect steelmaking coal prices to improve slightly in the fourth quarter, we believe the pricing environment will remain under pressure due to the persistent weakness in the global steel markets and delayed infrastructure spending in India.

### Collective Bargaining Agreement

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 $0.4 million for the three and nine months ended September 30, 2024, which represent ongoing legal expenses associated with ongoing labor negotiations. We incurred $0.3 million and $8.1 million for the three and nine months ended September 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.

### How We Evaluate Our Operations

Our primary business, the mining and exporting of steelmaking coal for the steel industry, is conducted in one reportable business segment: mining. All other operations and results are reported under the “All Other” category as a reconciling item to consolidated amounts, which includes the business results from our sale of natural gas extracted as a byproduct from our underground coal mines, royalties from our leased properties and the business results related to the Blue Creek mine development. Our natural gas and royalty businesses do not meet the criteria in ASC 280, *Segment Reporting*, to be considered as operating or reportable segments.

Our management uses a variety of financial and operating metrics to analyze our performance. These metrics are significant factors in assessing our operating results and profitability and include: (i) Segment Adjusted EBITDA (as defined below), a non-GAAP financial measure; (ii) sales volumes and average net selling price, which drive coal sales revenue; (iii) cash cost of sales, a non-GAAP financial measure; and (iv) Adjusted EBITDA, a non-GAAP financial measure. The following table presents supplementary data on a historical basis for each of the periods indicated.

*(in thousands)*

|  | For the three months ended September 30, 2024 | 2023 | For the nine months ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Segment Adjusted EBITDA | $88,346 | $156,512 | $429,877 | $564,954 |
| Metric tons sold | 1,688 | 2,048 | 5,523 | 5,429 |
| Metric tons produced | 1,739 | 1,808 | 5,570 | 5,149 |
| Average net selling price per metric ton | $189.54 | $203.56 | $218.79 | $237.32 |
| Cash cost of sales per metric ton | $136.10 | $126.36 | $140.07 | $132.49 |
| Cost of production % | 66% | 62% | 63% | 60% |
| Transportation and royalties % | 34% | 38% | 37% | 40% |
| Adjusted EBITDA | $78,492 | $145,780 | $394,634 | $535,167 |

### Segment Adjusted EBITDA

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; loss on early extinguishment of debt; other expense 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:

- our operating performance as compared to the operating performance of other companies in the coal industry, without regard to financing methods, historical cost basis or capital structure;
- the ability of our assets to generate sufficient cash flow to pay dividends;
- our ability to incur and service debt and fund capital expenditures; and
- the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities.

### Sales Volumes and Average Net Selling Price

We evaluate our operations based on the volume of coal we can safely produce and sell in compliance with regulatory standards, and the prices we receive for our steelmaking coal. Our sales volume and sales prices are largely dependent upon the terms of our annual steelmaking coal sales contracts, for which prices generally are set on daily index averages on a quarterly basis. The volume of steelmaking coal we sell is also a function of the pricing environment in the international met coal markets and the amounts of LV and HVA coal that we sell. We evaluate the price we receive for our steelmaking coal based on our average net selling price per metric ton.

Our average net selling price per metric ton represents our coal net sales revenue divided by total metric tons of coal sold. In addition, our average net selling price per metric ton is net of demurrage and quality specification adjustments. We normally compete on a delivered basis when negotiating contract and spot transactions with our global customers. However, depending on market dynamics and other circumstances, the burden of ocean freight may be borne entirely by the supplier, shared between both partners, or assumed entirely by the customer. In the instance when we are responsible for the freight, the freight costs will reduce our net sales revenues and impact our net selling price realizations.

### Cash Cost of Sales

We evaluate our cash cost of sales on a cost per metric ton basis. Cash cost of sales is based on reported cost of sales and includes items such as freight, royalties, manpower, fuel and other similar production and sales cost items, and may be adjusted for other items that, pursuant to accounting principles generally accepted in the United States ("GAAP"), are classified in the Condensed Statements of Operations as costs other than cost of sales, but relate directly to the costs incurred to produce met coal and sell it FOB at the Port of Mobile in Alabama. Our cash cost of sales per metric ton is calculated as cash cost of sales divided by the metric tons sold. Cash cost of sales 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:

- our operating performance as compared to the operating performance of other companies in the coal industry, without regard to financing methods, historical cost basis or capital structure; and
- the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities.

We believe that this non-GAAP financial measure provides additional insight into our operating performance, and reflects how management analyzes our operating performance and compares that performance against other companies for purposes of business decision making by excluding the impact of certain items that management does not believe are indicative of our core operating performance. We believe that cash cost of sales presents a useful measure of our controllable costs and our operational results by including all costs incurred to produce met coal and sell it FOB at the Port of Mobile in Alabama. Period-to-period comparisons of cash cost of sales are intended to help management identify and assess additional trends that potentially impact us and that may not be shown solely by period-to-period comparisons of cost of sales. Cash cost of sales should not be considered an alternative to cost of sales or any other measure of financial performance or liquidity presented in accordance with GAAP. Cash cost of sales excludes some, but not all, items that affect cost of sales, and our presentation may vary from the presentations of other companies. As a result, cash cost of sales as presented below may not be comparable to similarly titled measures of other companies.

The following table presents a reconciliation of cash cost of sales to total cost of sales, the most directly comparable GAAP financial measure, on a historical basis for each of the periods indicated.

*(in thousands)*

|  | For the three months ended September 30, 2024 | 2023 | For the nine months ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Cost of sales (exclusive of depreciation and depletion) | $231,598 | $260,376 | $778,489 | $723,458 |
| Asset retirement obligation accretion | (702) | (540) | (2,107) | (1,619) |
| Stock compensation expense | (1,152) | (1,049) | (2,777) | (2,531) |
| Cash cost of sales | $229,744 | $258,787 | $773,605 | $719,308 |

### Adjusted EBITDA

We define Adjusted EBITDA as net income before interest income, net, income tax expense, depreciation and depletion, non-cash asset retirement obligation accretion, non-cash stock compensation expense, other non-cash accretion, mark-to-market gain on gas hedges, business interruption, loss on early extinguishment of debt and other income. 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:

- our operating performance as compared to the operating performance of other companies in the coal industry, without regard to financing methods, historical cost basis or capital structure; and
- the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities.

We believe that the presentation of Adjusted EBITDA in this report provides information useful to investors in assessing our financial condition and results of operations. The GAAP measure most directly comparable to Adjusted EBITDA is net income. Adjusted EBITDA should not be considered an alternative to net income or any other measure of financial performance or liquidity presented in accordance with GAAP. Adjustments exclude some, but not all, items that affect net income and our presentation of Adjusted EBITDA may vary from that presented by other companies.

The following table presents a reconciliation of Adjusted EBITDA to net income, the most directly comparable GAAP financial measure, on a historical basis for each of the periods indicated.

*(in thousands)*

|  | For the three months ended September 30, 2024 | 2023 | For the nine months ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Net income | $41,766 | $85,382 | $249,467 | $349,753 |
| Interest income, net | (7,257) | (7,273) | (22,616) | (14,922) |
| Income tax expense | 4,607 | 16,841 | 32,248 | 60,439 |
| Depreciation and depletion | 36,642 | 34,020 | 114,815 | 101,783 |
| Asset retirement obligation accretion (1) | 1,302 | 990 | 3,897 | 2,886 |
| Stock compensation expense (2) | 874 | 2,258 | 15,061 | 14,533 |
| Other non-cash accretion (3) | 451 | 414 | 1,353 | 1,241 |
| Mark-to-market gain on gas hedges (4) | — | — | — | (1,227) |
| Business interruption (5) | 107 | 347 | 409 | 8,101 |
| Loss on early extinguishment of debt (6) | — | 11,699 | — | 11,699 |
| Other expense (7) | — | 1,102 | — | 881 |
| Adjusted EBITDA | $78,492 | $145,780 | $394,634 | $535,167 |

(1) Represents non-cash accretion expense associated with our asset retirement obligations.

(2) Represents non-cash stock compensation expense associated with equity awards.

(3) Represents non-cash accretion expense associated with our black lung obligations.

(4) Represents mark-to-market gain recognized on gas hedges.

(5) Represents business interruption expenses associated with the labor strike.

(6) Represents a loss incurred in connection with the early extinguishment of debt (see Note 5 of the "Notes to Condensed Financial Statements" in this Form 10-Q).

(7) Represents expenses incurred in connection with a ransomware attack.

### Results of Operations

### Three Months Ended September 30, 2024 and 2023

The following table summarizes certain unaudited financial information for these periods.

*($ in thousands)*

| Revenues: | For the three months ended September 30, 2024 | % of Total Revenues | 2023 | % of Total Revenues |
| --- | ---: | ---: | ---: | ---: |
| Sales | $319,944 | 97.6% | $416,888 | 98.4% |
| Other revenues | 7,776 | 2.4% | 6,599 | 1.6% |
| Total revenues | 327,720 | 100.0% | 423,487 | 100.0% |
| Costs and expenses: |  |  |  |  |
| Cost of sales (exclusive of items shown separately below) | 231,598 | 70.7% | 260,376 | 61.5% |
| Cost of other revenues (exclusive of items shown separately below) | 8,854 | 2.7% | 9,855 | 2.3% |
| Depreciation and depletion | 36,642 | 11.2% | 34,020 | 8.0% |
| Selling, general and administrative | 11,403 | 3.5% | 11,138 | 2.6% |
| Business interruption | 107 | —% | 347 | 0.1% |
| Total costs and expenses | 288,604 | 88.1% | 315,736 | 74.6% |
| Operating income | 39,116 | 11.9% | 107,751 | 25.4% |
| Interest expense | (1,422) | (0.4)% | (3,418) | (0.8)% |
| Interest income | 8,679 | 2.6% | 10,691 | 2.5% |
| Loss on early extinguishment of debt | — | —% | (11,699) | (2.8)% |
| Other expense | — | —% | (1,102) | (0.3)% |
| Income before income tax expense | 46,373 | 14.2% | 102,223 | 24.1% |
| Income tax expense | 4,607 | 1.4% | 16,841 | 4.0% |
| Net income | $41,766 | 12.7% | $85,382 | 20.2% |

Sales and cost of sales components on a per unit basis were as follows:

| Met Coal (metric tons in thousands) | For the three months ended September 30, 2024 | 2023 |
| --- | ---: | ---: |
| Metric tons sold | 1,688 | 2,048 |
| Metric tons produced | 1,739 | 1,808 |
| Average net selling price per metric ton | $189.54 | $203.56 |
| Cash cost of sales per metric ton | $136.10 | $126.36 |

We produced 1.7 million metric tons of steelmaking coal for the three months ended September 30, 2024 compared to 1.8 million metric tons for the three months ended September 30, 2023, representing a 3.8% decrease. The decreased production is primarily due to us operating at lower capacity levels in the third quarter of 2024 compared to 2023 due to anticipated lower sales volumes discussed in further detail below.

Sales for the three months ended September 30, 2024 were $319.9 million compared to $416.9 million for the three months ended September 30, 2023. The $96.9 million decrease in sales was primarily driven by a $73.3 million decrease in sales due to a 17.6% or 0.4 million metric ton decrease in steelmaking coal sales volume and a $23.7 million decrease in sales related to a $14.02 per metric ton decrease in the average net selling price per metric ton of steelmaking coal. The 17.6% decrease in sales volumes was driven by us being selective with spot sales and exercising patience while we wait for market conditions to improve. The average net selling price of our steelmaking coal decreased $14.02 from $203.56 per metric ton in the third quarter of 2023 to $189.54 per metric ton in the third quarter of 2024.

For the three months ended September 30, 2024, our geographic customer mix was 44% in Europe, 41% in Asia, 15% in South America and 1% in the United States. For the three months ended September 30, 2023, our geographic customer mix was 45% in Asia, 36% in Europe and 19% in South America. Our geographic customer mix typically varies each period based on the timing of customer orders and shipments.

Other revenues for the three months ended September 30, 2024 were $7.8 million compared to $6.6 million for the three months ended September 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 and earned royalty revenue. The $1.2 million increase in other revenues is primarily due to an increase of royalty income offset partially by a decrease in the Southern Louisiana natural gas price average per Million British Thermal Unit ("MMBtu") of 15% for the three months ended September 30, 2024 as compared to the prior year comparable period.

Cost of sales was $231.6 million, or 70.7% of total revenues, for the three months ended September 30, 2024, compared to $260.4 million, or 61.5% of total revenues for the three months ended September 30, 2023. The $28.8 million decrease is primarily driven by a $45.5 million decrease due to a 0.4 million metric ton decrease in steelmaking coal sales volume offset partially by a $16.4 million increase due to a $9.74 per metric ton increase in cash cost of sales per metric ton due to an increase in production costs driven by increased headcount and supply costs. For the three months ended September 30, 2024, cost of production represented 66% of cost of sales and transportation and royalties accounted for approximately 34% compared to cost of production of 62% and transportation and royalties of 38% for the three months ended September 30, 2023.

Depreciation and depletion expenses were $36.6 million, or 11.2% of total revenues, for the three months ended September 30, 2024, compared to $34.0 million, or 8.0% of total revenues for the three months ended September 30, 2023. The $2.6 million increase in depreciation and depletion is primarily driven by an increase in additional assets placed into service partially offset by a decrease in met coal sales volume as depreciation and depletion is first capitalized into coal inventory and relieved when the tons are sold.

Selling, general and administrative expenses were $11.4 million, or 3.5% of total revenues, for the three months ended September 30, 2024, compared to $11.1 million, or 2.6% of total revenues, for the three months ended September 30, 2023. The $0.3 million increase in selling, general and administrative expenses for the period is due to an increase in employee related expenses.

Business interruption expenses were $0.1 million and $0.3 million for the three months ended September 30, 2024 and 2023, respectively. These expenses represent ongoing legal expenses associated with labor negotiations.

Interest expense was $1.4 million, or 0.4% of total revenues, for the three months ended September 30, 2024, compared to interest expense of $3.4 million, or 0.8% of total revenues, for the three months ended September 30, 2023. The $2.0 million decrease is due to the early retirement of $146.1 million of our $350.0 million in aggregate principal amount of 7.875% senior secured notes due 2028 (the "Notes") in September 2023, maturity of financing leases and the capitalization of interest associated with the development of Blue Creek.

Interest income was $8.7 million, or 2.6% of total revenues for the three months ended September 30, 2024, compared to $10.7 million, or 2.5% of total revenues for the three months ended September 30, 2023. The $2.0 million decrease was primarily driven by a decrease in invested cash balances and lower rates of return earned on our investments.

Loss on early extinguishment of debt for the three months ended September 30, 2023 of $11.7 million represents a premium paid to early retire $146.1 million of our Notes, accelerated amortization of debt discount and fees incurred in connection with the transaction.

Other expenses for the three months ended September 30, 2023 of $1.1 million, or 0.3% of total revenues, primarily represents non-recurring expenses incurred in connection with a ransomware attack.

For the three months ended September 30, 2024, we recognized income tax expense of $4.6 million compared to income tax expense of $16.8 million for the three months ended September 30, 2023. The $12.2 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 $4.6 million income tax expense for the three months ended September 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.

### Nine Months Ended September 30, 2024 and 2023

The following table summarizes certain unaudited financial information for these periods.

*($ in thousands)*

| Revenues: | For the nine months ended September 30, 2024 | % of Total Revenues | 2023 | % of Total Revenues |
| --- | ---: | ---: | ---: | ---: |
| Sales | $1,208,366 | 98.4% | $1,288,412 | 98.1% |
| Other revenues | 19,389 | 1.6% | 24,409 | 1.9% |
| Total revenues | 1,227,755 | 100.0% | 1,312,821 | 100.0% |
| Costs and expenses: |  |  |  |  |
| Cost of sales (exclusive of items shown separately below) | 778,489 | 63.4% | 723,458 | 55.1% |
| Cost of other revenues (exclusive of items shown separately below) | 29,491 | 2.4% | 32,803 | 2.5% |
| Depreciation and depletion | 114,815 | 9.4% | 101,783 | 7.8% |
| Selling, general and administrative | 45,452 | 3.7% | 38,826 | 3.0% |
| Business interruption | 409 | —% | 8,101 | 0.6% |
| Total costs and expenses | 968,656 | 78.9% | 904,971 | 68.9% |
| Operating income | 259,099 | 21.1% | 407,850 | 31.1% |
| Interest expense | (3,458) | (0.3)% | (16,313) | (1.2)% |
| Interest income | 26,074 | 2.1% | 31,235 | 2.4% |
| Loss on early extinguishment of debt | — | —% | (11,699) | (0.9)% |
| Other expense | — | —% | (881) | (0.1)% |
| Income before income tax expense | 281,715 | 22.9% | 410,192 | 31.2% |
| Income tax expense | 32,248 | 2.6% | 60,439 | 4.6% |
| Net income | $249,467 | 20.3% | $349,753 | 26.6% |

Sales and cost of sales components on a per unit basis were as follows:

| Met Coal (metric tons in thousands) | For the nine months ended September 30, 2024 | 2023 |
| --- | ---: | ---: |
| Metric tons sold | 5,523 | 5,429 |
| Metric tons produced | 5,570 | 5,149 |
| Average net selling price per metric ton | $218.79 | $237.32 |
| Cash cost of sales per metric ton | $140.07 | $132.49 |

We produced 5.6 million metric tons of steelmaking coal for the nine months ended September 30, 2024 compared to 5.1 million metric tons for the nine months ended September 30, 2023, representing an 8% increase. The increased production drove a slight increase in sales as both Mine No. 4 and Mine No. 7 operated at higher capacity levels in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.

Sales for the nine months ended September 30, 2024 were $1,208.4 million compared to $1,288.4 million for the nine months ended September 30, 2023. The $80.0 million or 6.2% decrease in sales was primarily driven by a $102.3 million decrease in sales related to a 7.8% or $18.53 per metric ton decrease in the average net selling price per metric ton of steelmaking coal offset partially by a $22.3 million increase in sales due to a 1.7% or 0.1 million metric ton increase in steelmaking coal sales volume. The 1.7% increase in sales volumes was driven by increased production due to both Mine No. 4 and Mine No. 7 operating at higher capacity levels combined with improved performance by our rail transportation provider and the McDuffie Terminal.

For the nine months ended September 30, 2024, our geographic customer mix was 43% in Asia, 39% in Europe, 17% in South America and 1% in the United States. For the nine months ended September 30, 2023, our geographic customer mix was 46% in Europe, 34% in Asia, and 20% in South America. Our geographic customer mix typically varies each period based on the timing of customer orders and shipments.

Other revenues for the nine months ended September 30, 2024 were $19.4 million compared to $24.4 million for the nine months ended September 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 $5.0 million decrease in other revenues is due to the decrease in the Southern Louisiana natural gas price average of $0.52 per MMBtu or 19% and a decrease in sales volume for the nine months ended September 30, 2024 as compared to the prior year comparable period.

Cost of sales (exclusive of items shown separately below) was $778.5 million, or 63.4%, of total revenues, for the nine months ended September 30, 2024, compared to $723.5 million, or 55.1% of total revenues for the nine months ended September 30, 2023. The $55.0 million increase is primarily driven by a $41.9 million increase due to an increase in cost of production primarily driven by increased labor costs, increased supply costs and increased transportation costs due to multiple failures of lock and dam systems that have prevented us from barging coal for the majority of this year combined with a $12.4 million increase due to a 2% or 0.1 million metric ton increase in steelmaking coal sales volume. For the nine months ended September 30, 2024, cost of production represented 63% of cost of sales and transportation and royalties accounted for approximately 37% compared to cost of production of 60% and transportation and royalties of 40% for the nine months ended September 30, 2023.

Depreciation and depletion expenses were $114.8 million, or 9.4% of total revenues, for the nine months ended September 30, 2024, compared to $101.8 million, or 7.8%, for the nine months ended September 30, 2023. The $13.0 million increase in depreciation and depletion is primarily driven by additional assets placed into service and a 1.7% or 0.1 million metric ton increase in steelmaking coal sales volume as depreciation and depletion is first capitalized into coal inventory and relieved when the tons are sold.

Selling, general and administrative expenses were $45.5 million, or 3.7% of total revenues, for the nine months ended September 30, 2024, compared to $38.8 million, or 3.0% of total revenues, for the nine months ended September 30, 2023. The $6.6 million increase in selling, general and administrative expenses for the period is due to an increase in employee related expenses.

Business interruption expenses were $0.4 million and $8.1 million for the nine months ended September 30, 2024 and 2023, respectively. These expenses decreased compared to the prior period primarily due to the end of the labor strike on February 16, 2023 that the labor union initiated on April 1, 2021. The expenses for the nine months ended September 30, 2024 represent ongoing legal expenses associated with the labor negotiations and the expenses in the nine months ended September 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.

Interest expense was $3.5 million, or 0.3% of total revenues, for the nine months ended September 30, 2024, compared to $16.3 million, or 1.2% of total revenues, for the nine months ended September 30, 2023. The $12.9 million decrease was primarily driven by a decrease in interest expense due to the early retirement of our Notes in September 2023, an increase in capitalized interest associated with the Blue Creek project and maturity of financing leases.

Interest income was $26.1 million, or 2.1% of total revenues for the nine months ended September 30, 2024, compared to $31.2 million, or 2.4%, of total revenues for the nine months ended September 30, 2023. The $5.2 million decrease was primarily driven by a decrease in invested cash balances and lower rates of return earned on our investments.

Loss on early extinguishment of debt for the nine months ended September 30, 2023 of $11.7 million represents a premium paid to early retire $146.1 million of our Notes, accelerated amortization of debt discount and fees incurred in connection with the transaction.

Other expense for the nine months ended September 30, 2023 of $0.9 million represents non-recurring expenses incurred in connection with a ransomware attack offset partially by proceeds received from the Chapter 11 Cases from Walter Energy, Inc.

We recognized income tax expense of $32.2 million and $60.4 million for the nine months ended September 30, 2024 and September 30, 2023, respectively. The 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 $32.2 million income tax expense for the nine months ended September 30, 2024 includes a benefit related to depletion, IRC Section 250 Deduction: FDII and Section 45l Deduction: Marginal Well Credit. The 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. 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.

### Liquidity and Capital Resources

### Overview

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.

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, 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.

Our ability to generate positive cash flow from operations in the future will be, at least in part, dependent on continued stable global economic conditions.

Our total liquidity as of September 30, 2024 was $746.4 million, consisting of cash and cash equivalents of $583.2 million, long-term investments of $49.7 million and $113.5 million available under our ABL Facility. As of September 30, 2024, no loans were outstanding under the ABL Facility and there were $2.5 million of letters of credit issued and outstanding under the ABL Facility.

During the first quarter of 2023, we repurchased in the open market and extinguished approximately $8.8 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. In addition, in the third quarter of 2023, we retired approximately $146.1 million of our Notes and recognized a loss on early extinguishment of debt of $11.7 million, which represents a premium paid to retire the debt, accelerated amortization of debt discount, net and fees incurred in connection with the transaction.

In the future, we may, at any time and from time to time, seek to retire or purchase additional Notes in open-market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will be upon such terms and at such prices as we may determine, and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions, if any, and other factors.

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 under which we were 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 under which we were 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.

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 $9.4 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 require, among other requirements, all self-insured operators to post security equal to 120 percent of their projected black lung liabilities.

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 September 30, 2024, we had outstanding surety bonds and letters of credit with parties for post-mining reclamation at all of our mining operations totaling $46.3 million, $18.6 million as collateral for self-insured black lung related claims and $5.2 million for miscellaneous purposes.

We believe that our future cash flows from operations, together with cash on our balance sheet and proceeds from the borrowings under our ABL Facility, will provide adequate resources to fund our debt service payments and planned operating and capital expenditure needs, including the development of Blue Creek, for at least the next twelve months and beyond.

The Company's principal contractual commitments include repayments of long-term debt and related interest, potential minimum throughput payments associated with our rail and port providers, asset retirement obligation payments, black lung obligation payments, payments on various coal and land leases, payments under financing lease obligations and payments associated with our natural gas swap contracts. Currently, there are no known trends or expected changes anticipated in future periods that would not be indicative of past results for our contractual commitments.

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).

If our cash flows from operations are less than we require, we may need to incur additional debt or issue additional equity. From time to time, we may need to access the long-term and short-term capital markets to obtain financing. Our access to, and the availability of, financing on acceptable terms and conditions in the future will be affected by many factors, including: (i) our credit ratings, (ii) the liquidity of the overall capital markets, (iii) the current state of the global economy and (iv) restrictions in our ABL Facility, the indenture governing the Notes (the "Indenture"), and any other existing or future debt agreements. There can be no assurance that we will have or continue to have access to the capital markets on terms acceptable to us or at all.

### Statements of Cash Flows

Cash balances were $583.2 million and $738.2 million at September 30, 2024 and December 31, 2023, respectively.

The following table sets forth, a summary of the net cash provided by (used in) operating, investing and financing activities for the period (in thousands):

|  | For the nine months ended September 30, 2024 | 2023 |
| --- | ---: | ---: |
| Net cash provided by operating activities | $313,241 | $456,018 |
| Net cash used in investing activities | (395,807) | (344,752) |
| Net cash used in financing activities | (64,987) | (253,935) |
| Net decrease in cash, cash equivalents and restricted cash | $(147,553) | $(142,670) |

27

### Operating Activities

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 expense, amortization of debt issuance costs and debt discount, accretion of asset retirement obligations, loss on early extinguishment of debt and changes in net working capital.

Net cash provided by operating activities was $313.2 million for the nine months ended September 30, 2024, and was primarily attributed to net income of $249.5 million adjusted for depreciation and depletion expense of $114.8 million, stock based compensation expense of $15.1 million, deferred income tax expense of $3.4 million, accretion of asset retirement obligations of $3.9 million, amortization of debt issuance costs and debt discount of $1.2 million, and an increase in our net working capital of $52.6 million since December 31, 2023. The increase in our working capital was primarily driven by increases in accounts receivable due to higher sales volumes.

Net cash provided by operating activities was $456.0 million for the nine months ended September 30, 2023, and was primarily attributed to net income of $349.8 million adjusted for depreciation and depletion expense of $101.8 million, deferred income tax expense of $52.4 million, stock based compensation expense of $14.5 million, loss on early extinguishment of debt of $11.7 million, accretion of asset retirement obligations of $2.9 million, amortization of debt issuance costs and debt discount of $1.7 million, and an increase in our net working capital of $84.6 million since December 31, 2022. The increase in our working capital was primarily driven by an increase in accounts receivable and a decrease in accrued expenses offset partially by a decrease in inventories. The increase in trade accounts receivable reflected higher sales volumes and the timing of sales and the decrease in inventories is due to greater sales volumes than production.

### Investing Activities

Net cash used in investing activities was $395.8 million and $344.8 million for the nine months ended September 30, 2024 and 2023, respectively, primarily due to purchases of property, plant and equipment, purchases of long-term investments and mine development. Capital expenditures for the development of Blue Creek were $246.4 million and $191.3 million for nine months ended September 30, 2024 and 2023, respectively. The current year also includes the purchase of $49.7 million of long-term investments. The prior year period includes $2.4 million cash paid to acquire the remaining ownership interest in gas wells owned by an independent third party.

### Financing Activities

Net cash used in financing activities was $65.0 million for the nine months ended September 30, 2024, primarily due to the payment of regular quarterly and special dividends of $40.5 million, principal repayments of finance lease obligations of $12.7 million and payments for taxes related to net share settlement of equity awards of $11.8 million. Net cash used in financing activities was $253.9 million for the nine months ended September 30, 2023, primarily due to retirements of debt related to our Notes of $162.4 million, payment of regular quarterly and special dividends of $57.4 million, principal repayments of finance lease obligations of $25.0 million and payment for taxes related to net share settlement of equity awards of $9.2 million.

### Capital Allocation Policy

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.

The Capital Allocation Policy states the following: In addition to the regular quarterly dividend and to the extent that the Company generates excess cash that is beyond the then current requirements of the business, the Board may consider returning all or a portion of such excess cash to stockholders through a special dividend or implementation of a stock repurchase program. Any future dividends or stock repurchases will be at the discretion of the Board and subject to consideration of a number of factors, including business and market conditions, future financial performance and other strategic investment opportunities. The Company will also seek to optimize its capital structure to improve returns to stockholders while allowing flexibility for the Company to pursue selective strategic growth opportunities that can provide compelling stockholder returns.

During the nine months ended September 30, 2024, we have paid $40.5 million of regular quarterly and special cash dividends under the Capital Allocation Policy.

### Regular Quarterly Dividend

On February 9, 2024, our Board approved an increase in the regular quarterly cash dividend by 14% and declared a regular quarterly cash dividend of $0.08 per share, totaling approximately $4.2 million, which was paid February 26, 2024, to stockholders of record as of the close of business on February 20, 2024.

On April 25, 2024, our Board declared a regular quarterly cash dividend of $0.08 per share, totaling approximately $4.2 million, which was paid May 13, 2024, to stockholders of record as of the close of business on May 6, 2024.

On July 26, 2024, our Board declared a regular quarterly cash dividend of $0.08 per share, totaling approximately $4.2 million, which was paid August 13, 2024, to stockholders of record as of the close of business on August 6, 2024.

On October 25, 2024, our Board declared a regular quarterly cash dividend of $0.08 per share, totaling approximately $4.2 million, which will be paid November 12, 2024, to stockholders of record as of the close of business on November 5, 2024.

### Special Dividend

On February 13, 2023, our Board declared a special cash dividend of $0.88 per share, totaling approximately $46.4 million, which was paid on March 7, 2023 to stockholders of record as of the close of business on February 28, 2023.

On February 9, 2024, our Board declared a special cash dividend of $0.50 per share, totaling approximately $26.3 million, which was paid on March 7, 2024 to stockholders of record as of the close of business on March 1, 2024.

### ABL Facility

The ABL Facility will mature on December 6, 2026. As of September 30, 2024, no loans were outstanding under the ABL Facility and there were $2.5 million of letters of credit issued and outstanding under the ABL Facility. At September 30, 2024, we had $113.5 million of availability under the ABL Facility.

Revolving loan (and letter of credit) availability under the ABL Facility is subject to a borrowing base, which at any time is equal to the sum of certain eligible billed and unbilled accounts, certain eligible inventory, certain eligible supplies inventory and qualified cash, in each case, subject to specified advance rates. The borrowing base availability is subject to certain reserves, which may be established by the agent in its reasonable credit discretion. The reserves may include rent reserves, lower of cost or market reserve, port charges reserves and any other reserves that the Agent determines in its reasonable credit judgment to the extent such reserves relate to conditions that could reasonably be expected to have an adverse effect on the value of the collateral included in the borrowing base.

Borrowings under the ABL Facility bear interest at a rate equal to either (i) the Secured Overnight Financing Rate ("SOFR"), plus a credit adjustment spread, ranging currently from approximately 11 bps to 43 bps depending on the interest period selected by us, or (ii) an alternate base rate plus, in each case of the foregoing (i) and (ii), an applicable margin, which is determined based on the average availability of the commitments under the ABL Facility, ranging currently from 150 bps to 200 bps or 50 bps to 100 bps, respectively. In addition to paying interest on the outstanding borrowings under the ABL Facility, we are required to pay a fee in respect of unutilized commitments, which is based on the availability of the commitments under the ABL Facility, ranging from 25 bps to 37.5 bps. We are also required to pay a fee on amounts available to be drawn under outstanding letters of credit under the ABL Facility at a rate not in excess of 200 bps, and certain administrative fees.

The ABL Facility contains customary covenants for asset-based credit agreements of this type, including among other things: (i) requirements to deliver financial statements, other reports and notices; (ii) restrictions on the existence or incurrence of certain indebtedness; (iii) restrictions on the existence or incurrence of certain liens; (iv) restrictions on making certain restricted payments; (v) restrictions on making certain investments; (vi) restrictions on certain mergers, consolidations and asset dispositions; (vii) restrictions on certain transactions with affiliates; and (viii) restrictions on modifications to certain indebtedness. Additionally, the ABL Facility contains a springing fixed charge coverage ratio of not less than 1.00 to 1.00, which ratio is tested if availability under the ABL Facility is less than a certain amount. As of September 30, 2024, we were not subject to this covenant. Subject to customary grace periods and notice requirements, the ABL Facility also contains customary events of default.

We were in compliance with all applicable covenants under the ABL Facility as of September 30, 2024.

### Senior Secured Notes

On December 6, 2021, we issued $350.0 million in aggregate principal amount of 7.875% senior secured notes due 2028 (the “Notes”) at an initial price of 99.343% of their face amount. The Notes were issued to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and to certain non-U.S. persons in transactions outside the United States in accordance with Regulation S under the Securities Act. We used the net proceeds of the offering of the Notes, together with cash on hand, to fund the redemption of all of our outstanding 8.00% senior secured notes due 2024 (the “Existing Notes”), including payment of the redemption premium in connection with such redemption.

The Notes will accrue interest at a rate of 7.875% per year from December 6, 2021. Interest on the Notes will be payable on June 1 and December 1 of each year, commencing on June 1, 2022. The Notes will mature on December 1, 2028.

### Offers to Purchase the Notes

On August 9, 2023, we commenced an offer to purchase (the “Restricted Payment Offer”), in cash, up to $150,000,000 principal amount of our outstanding Notes, at a repurchase price of 103% of the aggregate principal amount of such Notes, plus accrued and unpaid interest with respect to such Notes to, but not including, the date of repurchase (the “Restricted Payment Repurchase Price”). Concurrently with, but separate from, the Restricted Payment Offer, we commenced a cash tender offer (the “Tender Offer” and, together with the Restricted Payment Offer, the “Offers”) to purchase up to $150,000,000 principal amount of the Notes at a repurchase price of 104.25% of the aggregate principal amount of such Notes, plus accrued and unpaid interest to, but not including, the date of repurchase (the “TO Repurchase Price”). The Offers expired on September 7, 2023 (the “Expiration Date”).

### Restricted Payment Offer

As of the Expiration Date, $200,000 aggregate principal amount of the Notes were validly tendered and not validly withdrawn pursuant to the Restricted Payment Offer. Pursuant to the terms of the Restricted Payment Offer:

(1) an automatic pro ration factor of 49.5674% was applied to the $200,000 aggregate principal amount of the Notes that were validly tendered and not validly withdrawn in the Restricted Payment Offer (rounded down to avoid the purchase of Notes in a principal amount other than in integrals of $1,000), which resulted in $99,000 aggregate principal amount of the Notes (the “RP Pro-Rated Tendered Notes”);

(2) we accepted all $99,000 aggregate principal amount of the RP Pro-Rated Tendered Notes for payment of the Restricted Payment Repurchase Price in cash; and

(3) the remaining balance of $101,000 aggregate principal amount of the Notes tendered that were not RP Pro-Rated Tendered Notes were not accepted for payment and were returned to the tendering holder of the Notes.

We consummated the Restricted Payment Offer on September 8, 2023.

Accordingly, pursuant to the terms of the Indenture, we will have the ability from time to time in the future to make one or more restricted payments (the "Proposed Restricted Payment") in the form of special dividends to holders of our common stock and/or repurchases of our common stock in the aggregate amount of up to $299,901,000 consistent with the terms of the Capital Allocation Policy adopted by our Board. Any future Proposed Restricted Payments will be at the discretion of the Board and subject to a number of factors and there can be no assurance that we will make any Proposed Restricted Payments in the future.

### Tender Offer

As of the Expiration Date, $294,770,000 aggregate principal amount of the Notes were validly tendered and not validly withdrawn pursuant to the Tender Offer. Pursuant to the terms of the Tender Offer:

(1) an automatic pro ration factor of 49.5674% was applied to the $294,770,000 aggregate principal amount of the Notes that were validly tendered and not validly withdrawn in the Tender Offer (rounded down to avoid the purchase of Notes in a principal amount other than in integrals of $1,000), which resulted in $146,002,000 aggregate principal amount of the Notes (the “TO Pro-Rated Tendered Notes”);

(2) we accepted all $146,002,000 aggregate principal amount of the TO Pro-Rated Tendered Notes for payment of the TO Repurchase Price in cash; and

(3) the remaining balance of $148,768,000 aggregate principal amount of the Notes tendered that were not TO Pro-Rated Tendered Notes were not accepted for payment and were returned to the tendering holder of the Notes.

We consummated the Tender Offer on September 11, 2023.

In connection with the payments for the RP Pro-Rated Tendered Notes and the TO Pro-Rated Tendered Notes, we recognized a loss on early extinguishment of debt of $11.7 million during the three and nine months ended September 30, 2023.

### Capital Expenditures

Our mining operations require investments to maintain, expand, upgrade or enhance our operations and to comply with environmental regulations. Maintaining and expanding mines and related infrastructure is capital intensive. Specifically, the exploration, permitting and development of met coal reserves, mining costs, the maintenance of machinery and equipment and compliance with applicable laws and regulations require ongoing capital expenditures. The cost of our capital expenditures are also impacted by inflation and any prolonged inflation could result in higher costs and decreased margins and earnings. While a significant amount of the capital expenditures required at our mines has been spent, we must continue to invest capital to maintain our production. In addition, any decisions to increase production at our mines and the development of the high-quality met coal recoverable reserves at Blue Creek could also affect our capital needs or cause future capital expenditures to be higher than in the past and/or higher than our estimates.

To fund our capital expenditures, we may be required to use cash from our operations, incur debt or sell equity securities. Our ability to obtain bank financing or our ability to access the capital markets for future equity or debt offerings may be limited by our financial condition at the time of any such financing or offering and the covenants in our current or future debt agreements, as well as by general economic conditions and contingencies and uncertainties, that are beyond our control.

Our capital expenditures were $326.5 million and $310.8 million for the nine months ended September 30, 2024 and September 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 nine months ended September 30, 2024 were $246.4 million and $612.4 million has been spent on this project to date. Our deferred mine development costs were $19.5 million and $31.5 million for the nine months ended September 30, 2024 and September 30, 2023, respectively, and relate to the development of Blue Creek and Mine No. 4 North.

Our capital spending is expected to range from $435.0 million to $500.0 million for the full year 2024, consisting of sustaining capital expenditures of approximately $100.0 to $110.0 million and discretionary capital expenditures of approximately $335.0 to $390.0 million for the development of Blue Creek and Mine No. 4 North. Our sustaining capital expenditures include expenditures related to longwall operations, continuous miners, new ventilation, and bleeder shafts.

### Update on the Development of Blue Creek

On May 3, 2022, we announced the relaunch of the development of our Blue Creek mine, a strategic growth project that we expect will deliver significant future returns to stockholders. We believe that Blue Creek represents one of the few remaining untapped reserves of premium High Vol A steelmaking coal in the United States and that it has the potential to provide us with meaningful growth. We believe that the combination of low production costs and the high quality of the High Vol A steelmaking coal mined from Blue Creek, assuming we achieve our expected price realizations, will generate some of the highest steelmaking coal margins in the U.S., generate strong investment returns and achieve a rapid payback of our investment across a range of steelmaking coal price environments.

Our third-party reserve report indicates that, once developed, Blue Creek will produce a premium High Vol A steelmaking coal that is characterized by low-sulfur and high coke strength after reaction. High Vol A steelmaking coal has traditionally priced at a discount to the Australian Premium Low Vol and the U.S. Low Vol coals; however, we have observed extended periods in which they achieved a premium over these indices. We expect U.S. High Vol A coals will continue to become an important component of global steelmakers' coal blends due to their unique characteristics. In addition, we also expect that as the decade progresses, overall production and the supply of premium hard coking coals will be outpaced by the growth in demand coming from countries like India, Indonesia and Vietnam. This trend creates an opportunity for us to take advantage of favorable pricing dynamics driven by the projected tightness in supply and the desirable characteristics of our premium High Vol A steelmaking coal.

We believe that the execution risk of Blue Creek is lower than most projects of this size and nature due to utilizing highly experienced engineers with strong backgrounds in building new mines around the world to manage the project. The same highly experienced and knowledgeable engineers and familiar contractors who built mine infrastructure in recent years are being leveraged to build Blue Creek.

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 we expect 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.

The inclusion of the benefits and incremental capital expenditures relating to these specific scope changes are not expected to 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.

In 2024, we plan to continue to make significant progress on the major components for seam access, surface infrastructure and coal transportation. During the third quarter of 2024, we installed and commissioned the service cage, slope belt, slope car and raw coal belt, which allowed us to begin development of the initial longwall panel with the first continuous miner unit, producing 35 thousand metric tons during the quarter. We plan on adding two additional continuous miner units by the end of the year to continue the development of the longwall panel. On the surface infrastructure components, we continued to make significant progress on the construction of the preparation plant, which is projected to be online during the middle of 2025. On the coal transportation components, the construction of the 9.5 mile clean coal belt structure 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.

We have invested approximately $612.4 million project to date, including $246.4 million in the first nine months 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.

The project remains on schedule with the longwall scheduled to start up in the second quarter of 2026. We expect to ramp up production through the development of the project. Specifically, we expect to produce approximately 200 thousand metric tons in 2024, approximately 900 thousand metric tons in 2025, approximately 2.7 million metric tons in 2026 and approximately 4.4 million metric tons in 2027. We do not expect the tons produced in 2024 and 2025 of approximately 1.1 million metric tons to be sold until the second half of 2025 when the preparation plant comes online.

If we are able to successfully develop Blue Creek, we expect that it will be a transformational investment for us. We expect that the new single longwall mine at Blue Creek will have the capacity to produce an average of 4.4 million metric tons per annum of premium High Vol A met coal over the first ten years of production, thereby increasing our annual production capacity by approximately 60%. We expect the addition of Blue Creek to enhance our already advantageous position on the global cost curve, improve our profitability and cash flow generation, and cement our position as a leading pure play steelmaking coal producer.

### Critical Accounting Policies

The financial statements are prepared in conformity with U.S. GAAP, which require the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses in the period presented. Management evaluates these estimates and assumptions on an ongoing basis, using historical experience, consultation with experts and other methods considered reasonable in the particular circumstances. Nevertheless, actual results may differ significantly from management’s estimates.

Our most critical accounting estimates are those that are most important to the presentation of our financial condition and results of operations and require management’s most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. These estimates are based upon management’s historical experience and on various other assumptions that we believe are reasonable under the circumstances. Changes in estimates used in these and other items could have a material impact on our financial statements.

As of September 30, 2024, there have been no material changes to our critical accounting estimates as described in the "Critical Accounting Policies" in Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations in the 2023 Annual Report.

### Off-Balance Sheet Arrangements

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 September 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 $46.3 million, for collateral for self-insured black lung related claims totaling $18.6 million and for miscellaneous purposes totaling $5.2 million.

### Recently Adopted Accounting Standards

A summary of recently adopted accounting pronouncements is included in Note 2 of the "Notes to Condensed Financial Statements" in this Form 10-Q.

## Market risk

As filed, 3,920 characters.

### Commodity Price Risk

We are exposed to commodity price risk on sales of steelmaking coal. We typically sell most of our steelmaking coal under fixed supply contracts primarily with indexed pricing terms and volume terms of up to one to three years. Sales commitments in the steelmaking coal market are typically not long-term in nature, and we are, therefore, subject to fluctuations in market pricing.

We occasionally enter into natural gas swap contracts to hedge the exposure to variability in expected future cash flows associated with the fluctuations in the price of natural gas related to our forecasted sales. Our natural gas swap contracts economically hedge certain risk but are not designated as hedges for financial reporting purposes. All changes in the fair value of these derivative instruments are recorded as other revenues in the Condensed Statements of Operations. Historically, all of our derivative instruments were entered into for hedging purposes rather than speculative trading. As of September 30, 2024, the Company had no natural gas swap contracts outstanding.

We have exposure to price risk for supplies that are used directly or indirectly in the normal course of production, such as diesel fuel, steel, explosives and other items. We manage our risk for these items through strategic sourcing contracts in normal quantities with our suppliers. We historically have not entered into any derivative commodity instruments to manage the exposure to changing price risk for supplies.

### Credit Risk

Financial instruments that potentially subject us to a concentration of credit risk consist principally of trade receivables. We provide our products to customers based on an evaluation of the financial condition of our customers. In some instances, we require letters of credit, cash collateral or prepayments from our customers on or before shipment to mitigate the risk of loss. Exposure to losses on receivables is principally dependent on each customer’s financial condition. We monitor the exposure to credit losses and maintain allowances for anticipated losses. As of September 30, 2024 and December 31, 2023, the estimated allowance for credit losses was immaterial and did not have a material impact on the Company's financial statements.

### Interest Rate Risk

We are exposed to market risk from changes in interest rates. Our Notes have a fixed rate of interest of 7.875% per annum and are payable semi-annually in arrears on June 1 and December 1 of each year.

Our ABL Facility bears an interest rate equal to SOFR, plus a credit adjustment spread, ranging currently from 11 bps to 43 bps, or an alternate base rate plus an applicable margin, which is determined based on the average availability of the commitments under the ABL Facility, ranging currently from 150 bps to 200 bps or 50 bps to 100 bps, respectively. Any debt that we incur under the ABL Facility will expose us to interest rate risk. If interest rates increase significantly in the future, our exposure to interest rate risk will increase. As of September 30, 2024, assuming we had $116.0 million outstanding under our ABL Facility, a 100-basis point increase or decrease in interest rates would increase or decrease our annual interest expense under the ABL Facility by approximately $1.1 million.

### Impact of Inflation

We have exposure to inflation for supplies that are used directly or indirectly in the normal course of production, such as belt structure, roof bolts, cable, magnetite, rock dust and other supplies, plus labor and parts on repair and rebuild equipment. These inflationary pressures have contributed to rising costs for us and may continue to do so in the future. We are applying a number of different strategies to mitigate the impact of inflation on our operations, including placing purchase orders earlier, utilizing short-term contracts and leveraging our supplier relationships.

## Controls and procedures

As filed, 1,953 characters.

### Disclosure Controls and Procedures

As required by Rule 13a-15(b) under the Exchange Act, our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) under the Exchange Act) as of September 30, 2024. Based on the evaluation of our disclosure controls and procedures as of September 30, 2024, our Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2024, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and (2) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures.

### Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during our most recently completed fiscal quarter that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

### Limitations on the Effectiveness of Disclosure Controls and Procedures

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

## Risk factors

As filed, 930 characters.

There have been no material changes to the risk factors disclosed in “Risk Factors” in “Part I, Item 1A. Risk Factors” in our 2023 Annual Report. Our business, financial condition, operating results and cash flows can be impacted by a number of factors, any one of which could cause actual results to vary materially from recent results or from anticipated future results. In addition to the other information set forth in this Form 10-Q, you should carefully consider the risks discussed in “Part I, Item 1A. Risk Factors” in our 2023 Annual Report, which could materially affect our business, financial condition or future results. However, the risks described in our 2023 Annual Report are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also become material and adversely affect our business, financial condition and/or operating results.

Filed Oct 30, 2024.
Source: SEC EDGAR, the filing index for accession 0001691303-24-000037. Last ingested by Listed: Nov 4, 2026, 18:22 ET. No prices; not investment advice.