John Drexler: Michael, I’ll start out here, I’m sure a few others will weigh in, but real proud of, of the team in the Powder River Basin and the way they’ve managed in that declining market environment. And as you know, you don’t have to go back that far, a decade, decade-plus where we were, mining out of the Powder River Basin, well in excess of 100 million tons on an annual basis. So the team has done an incredible job modifying the mine plans effectively, managing production and still maintaining a very healthy margin and managing the cost structure, which as you know, is difficult in our business as volumes are declining. It’s hard to predict where things are going to go. But we continue to see that trend downward. The team’s very focused on being in that position to maintain those costs and maintain those margins to generate cash.
All through that cycle, we have done an outstanding job of managing the reclamation footprint. We’ve been shrinking the profile of the operations. You can look at Coal Creek, where we still have some modest volume, where it makes economic sense to do so. Yet, we’ve roughly closed, 80% to 90% of that operation, and quite frankly essentially, fully reclaimed it. So real proud of the team there. When opportunities present themselves in the market, the team has responded very well, to optimize the production with the fleet of equipment that we kind of essentially shrunk down to. And we would expect that there may be those types of opportunities as we go forward, and we’ll fully be prepared to execute on those as we go ahead.
Paul Lang: Mike, as I look at the PRB, I still have a relative positive view. I mean, I think we’re set up well. I think the key to success with PRB is being very flexible. We’ve been — we’ve done a very good job of cutting our costs, as we’ve dropped production, and kept the margins in a fairly good line. Going forward, the key to future success is going to be the same. Watching costs and being very careful about the capital we put in. But I feel pretty good. We got pretty good clarity in the next five years. And at the end of the day, the thermal mine reclamation fund was created just a real easy option for us out there. And I think we’re set up to play it well. The team out there has done a great job, and I still have a little bit of optimism for the operation.
Deck Slone: Mike it’s Deck. And look the fact is, we think that in the end results, the domestic market is going to continue to decline. But we are absolutely prepared. If we get a period of time where we get a bit of a plateau, and it stabilizes, we’re ready for that. But the fact is that the coal fleet does continue to age. Natural gas prices right now remain low. We’re still seeing those systematic steady sort of coal plant closures each year, but there’s still a significant market. So we are taking advantage of that. As Paul said, we certainly believe we can for the next five years plus, but in the end, we still think we prepared appropriately for right now, what you’d have to say is continuing declines over the next decade.
Michael Dudas: Those are great observations. I appreciate that. And just a quick follow up, Paul, or for the group met coal prices here, High Vol A its risen quite nicely here the last several weeks, in the midst of maybe some steel production down or what have you. You get a sense for your customer base and how you’re looking at your export shipments next year that is some reality to that. And there’s reason for that, or is it a short term blip. Just is there a sense of maybe some better momentum because of the limited supply that we’ve seen, or is there the expectation that some more pig iron might come into the marketplace next year firing some of your — some of the coals?
Paul Lang: Yeah, I’ll let John follow up with the more direct contact with customers. But I think it’s all of the above that you’ve mentioned. There is no question that the current market is under — the supply is very tight. The underinvestment in the coal sector is really rearing its head. As I noticed my comments, hot steel production is down 1% this year, was down 10% last year, but at the same time, coal prices held up. 7, 8, 9, 10 years ago, this would have been, a big dip in coal prices. And I think there is also a little bit of hope on the macro side, but we’re not counting on it. These are extremely good prices at current levels. 277 makes for a very good netback for us, particularly with our cost structure. And I think if the customer continuing to willow [ph] down our North American exposure, last year was at about 20%.
It’s looking like this year it’s going to be about 15. And look, there’s a lot of value to shipping coal in North America as far as logistics, but at the discounts that were being requested, and those that we understand were settled, we’re quite happy with where we ended up.
John Drexler: So Michael, I agree 100%, with Paul on one of the biggest drivers here is just the challenges you see across the supply, both near term, if you just look at it, so many of the announcements that we’ve seen here, even recently, and the challenges that the industry faces, quite frankly, around the world. And then longer term, in how that’s going to continue to play out for something for steel, that clearly we’ve got our views that there’s going to be comfortable demand for decades to come. So we feel real good about that, as we deal with our customers, I think the one thing I’ll add, very proud of our marketing team and the efforts and success that they’ve had with our customers in the international market, especially new markets for us such as Asia, in getting the product there, getting the qualities of the product, realize the benefits.
And that puts us in a position going forward that value and use of our product in those markets puts us into those blends, and then allows us to continue that as we continue to move forward as well. So we feel good with where things are going.
Deck Slone: And like I would — it’s Deck and look, I would add that, in mid July, we actually saw HVA prices drift down to $200 or so. At that level, you started to see rationalization, which certainly suggests that, given the marginal cost of production that there is support, at some level around that $200 mark. Now that’s not perfect, and you can dip below that level for some period of time. But it certainly feels like there’s support at that level. And then in fact, since that time obviously we’ve jumped a good bit and we’re 277. Interestingly PLV, premium low vol out of Australia and off the Queensland Coast is more than $70 higher than that. So not to suggest that 277 isn’t a great number. It is we don’t need a higher number than that.
But right now, what has typically been a $7 spread, between PLV and HVA, over the past seven years is a $70 spread. So you can see that there’s still that sort of pressure on pricing, as Paul said. Supply sort of highly constrained, and we think there is the opportunity to minimum to close that differential. Now how that gets closed remains to be seen. And also just a reminder that look over the — since 2010, the average price the seaborne market has been $238. So again, I think the world has changed a good bit, because of the supply constraints, the pressures we continue to see in the various jurisdictions around ESG and regulatory constraints. The under investment. So we’re pretty constructive on the outlook sort of longer term.
Michael Dudas: Well done, guys. Thank you.
John Drexler: Thank you, Mike.
Operator: [Operator Instructions]. The next question comes from Lucas Pipes of B. Riley. Please go ahead.
Lucas Pipes: Thank you very much, operator. Good morning, everyone. My first question is on DTA. One of your peer at the terminal mentioned that there’s a need for long range capital improvement projects. And I wondered if you could maybe speak to, one what sort of capital improvement projects may be necessary and what cost may be necessary. And then two, just kind of more broadly, how strategic is DTA to you? Would appreciate your perspective on that. Thank you.
John Drexler: Lucas, I’ll start out here. Just as reminder, DTA, we have a 35% ownership interest in that asset. It is a strategic asset for us. But it has more than sufficient capacity for us to meet our needs. Right now we’re using about 3 million tons of that capacity. That leaves us probably with an excess of 2 million tons. DTA is an asset, like all assets that needs to have capital evaluation. We are working with DTA to evaluate those capital needs, where necessary, where economic, we’ll make sure we’re committing to that capital, where we’ve got unique opportunities with our excess capacity, kind of given where we see the market for that throughput. We can recover a lot of the additional capital that may be required as we go forward with the throughput capacity that goes through there.
