Nathan Martin: Okay, John, just want to make sure that was clear for everyone. Appreciate that. And then I’ll be sticking with met for a second. Any thoughts guys on this historically widespread between U.S. East Coast and met coal, High-Vol A and the Aussie met coal especially given your high portion of mix to HVA production? And then, you know, how do you see that possibly affecting your realized price return in ’24? And what do you think it takes for the spread to kind of return closer to normal?
Deck Slone: Yes, Nate, it’s Deck. And let me take a shot at that and others can join. And obviously, we don’t have a perfect answer. This is a very wide differential. Historically, we think it’s too wide, we think it will close over time, because it creates significant arbitrage opportunity. But as you notice, the average over the past seven years between the average differential over the past seven years has been a $10 or so premium for premium low vol. Looking to make the argument that that the spread could really be assumed to be around $20. That’s the transportation differential between moving homes from the Australia into Japan versus the U.S. East Coast, into Japan. But the fact is, it’s more than $50 today. Yes, one of the things I would point to is, different products play different roles in coking coal blends.
And so, right now, as we discussed, as Paul noted, coking coal exports out of Australia are down 40 million tonnes, 40 million metric tons since 2016. And we continue to see operational challenges there. So there’s real pressure on availability of premium low vol, and premium low vol does have a very specific role that it plays in blends. And so look, I think there’s scarcity there, I would add the fact that this cost and royalties moving up in Australia, that also is supporting that higher premium low vol price. Not just say that’s justification, because again, we think this creates a significant arbitrage opportunity for us to sell our tonnes in the Asian market, rather than into the Atlantic market and for the Asian buyers to reach on the U.S. East Coast to pick up ton.
So, look, we still expect that, you know, that spread to contract. I do believe the fact that there are fewer U.S. producers who really have a lot of experience and exposure in Asia, as more U.S. producers get that exposure. I do think that creates more of an opportunity to see that, the collaboration of those two, those two prices. But look, we’re glad to see the higher PLV price, we absolutely believe you know that HVA the other U.S. East Coast prices should be pulled up over time by the scarcity there.
Paul Lang: I think one of the interesting things Nate is with Leer, we have that unusual ability for the U.S. and that we can compete closer to a PLV because of the CSR plastic properties of the coal. And because of that, we do get an opportunity to participate in that arbitrage. Look, it’s a little odd that I think Deck did a good summary of all the things that are going on that are creating. Right now, we have that ability to compete head to head and we’ll take advantage of it while it exists.
Deck Slone: And Nate, we are selling I mean, we are taking advantage of it in some instances. So there are times we’re selling, you know, tie to PLV, and other instances, it may be that we there are buyers in Asia who aren’t quite willing to pay that price, because they don’t need that full quality. So we can we can sell a lower quality product with a little more ash and take advantage of a blend between PLV and some of the other indices and still get a premium, the U.S. East Coast price. So, we absolutely are tapping into that and taking advantage. But it would be nice to see the entire East Coast market lift. I think again, that would take some of our competitors following suit and being able to sort of penetrate into Asia in the way we have.
Nathan Martin: Appreciated those comments, guys. And then maybe one final question, Paul, or maybe Matt just, as it relates to the discretionary cash flow. Again, you guys mentioned your decision to increase your cash position quarter to quarter, obviously affected share repurchases. I think you only spent about $3 million in the fourth quarter there. Now, talk is moving to heavier more opportunistic share repurchases. So I guess first, can you provide maybe just some more details behind your decision to build that cash during 4Q? I think the average share price was below where it has been a start the year here? And then second, should we expect the return of discretionary cash flow obviously other than dividend to continue to kind of bit lumpy? And then finally would you expect to increase your buyback authorization as you shift to the buying back more stock?
Paul Lang: So, Nate I think I’ll start this, but I think this probably a group effort. As I look back over the capital return program last few years, in fact, there’s very little that change, arguably Arch took the lead in this area, really set the standard could call. The fundamental premise of our shareholder return program is really pretty simple. And we live by it, and this is the shareholder’s money, and we’re going to return it. And we have shareholders that prefer dividends and we shareholders who prefer buybacks. And we’ve tried to be responsive. The decision to build $100 million on the balance sheet, totally unresponsive just from some of our shareholders, we thought we should really hold on to some dry powder, when we see pull backs in the market.
Like everybody in the commodities business, we experienced significant volatility. And I’d expect that to be the case in the future as well. Now, while we remain very constructive on the currency for coking coal market, our story in general, you know our story in general also. And I think you see that by our willingness to accept the capped call. When we see pullbacks, generally coincides with lower cash balances on the balance sheet. And that’s exactly what we’re trying to take advantage of. So, I look at our buybacks. The history of it has, I think, been pretty good stewards of the shareholder money, the 12 million shares we’ve bought back over the last six or seven years, we’ve averaged about $90. I think at this price environment, it’s a pretty good story.
And, we’re clearly not better at picking the timing on buying and selling to our investors, we want to be prudent on how we deal with the buyback program and building cash towards the upper end of the target. None of the goals trying to be a little more responsive.
Matthew Giljum: And, Nate, maybe just add a little bit to that. Just to give you a specific example, if you go back to the middle of last summer, we saw the stock price dip when the met prices dip. We are in the call it, $110 [ph] a share maybe a little lower. And you know, as we entered Q3 of that year, we were at minimum liquidity levels. So we had, you know, certainly we use the cash flow we were generating at the time to buy back, but if you look at our Q3 buybacks, you know, relatively weak and if we had had a little dry powder at that time, could really have done something more substantial. And that’s really the type of thing we’re trying to build in the ability to do today is really be able to take advantage of those times.
There’s going to be volatility in this industry. And, you know, we should be able to manage to take some of that volatility out of the trading for one, but also to take advantage of times when we think that the value has gotten a little lower than it really should be. So, I mean, I think that’s the right way to look at the cash bill. When you think about the part of your question regarding the lumpiness of capital returns, look, for better or worse, the cash flows are fairly lumpy, the way the business runs. And so there’s going to be some element of that. But hopefully, what we’ve done by buildings some cash here, is tried to smooth some of that out. And then as we look at the authorization, look, we’ll continue to watch that I wouldn’t be surprised if you’re in the next quarter.
So, we need to potentially refresh that authorization. But that’ll be a discussion we’ll have with the board when the time is right.
Nathan Martin: Very helpful, guys. Appreciate the time and best of luck in ’24.
Operator: Your next question will come from Alex Hacking with Citi. Please go ahead.
Alex Hacking: Yes, good morning. Can you hear me?
Paul Lang: Yes, Alex.
Alex Hacking: Okay. So I guess just coming back to Nate’s question on HVA pricing, because your gap is pretty wide, right, I think, FOB Australia, HCC was priced around $290 a shot ton in the fourth quarter, you know, you guys are realizing $195. $100 gap, right. And a lot of that has to do with the pricing of HVA. I guess how much of the issue there is with all the new supply because, Leer South ramped up. And it seems like mine number four in Alabama is also transitioned to HVA. Like, is that the fundamental problem that we’ve just had a big chunk of new supply and the markets struggling to absorb it, or is there something above and beyond that? Thank you.
Deck Slone: So, Alex, yes, I mean, look, I think the right way to think about the spread with PLV is right now it’s about a $53 differential. So, that is simply a function of sort of market conditions and the aspects we talked about. Now when you look at our average coking coal realization, the average HVA price in q4 was two $281. When you think about sort of the Arch blended portfolio, you know, we might be talking about, something more like sort $275 would have been sort of the average price that prevails. So you take that $275, and you say, okay, that’s $235 metric, of $250 short, is going to fit your real rate that’s $200. And then when we think about the fact we had North American volumes committed at 182, that were a fixed price for about 20% of our volumes, it kind of lands you right on top of that $196 number.
So look, I would say we’re really delivering on that U.S. East Coast HVA price, the U.S. East Coast prices, generally we’re capturing that realization fully. So, you know, we feel good about that. And I still believe that the best proxy for us going forward is that U.S. East Coast pricing. Even though as indicated, there’ll be instances when we try to move ton into Asia at the PLV price and instances where we can do that, or at a blended price in Asia. So look, we feel good about that. But I would say, back to the issue of sort of one the difference was between PLV and HVA. Again, some of those, some of those fundamentals that we discussed, certainly don’t view this as a new supply issue. U.S. production did bounce back about 5 million tonnes or exports bounce back about 5 million tonnes in 2023.
