I think it’s very possible that we will end up right as the thing’s ready to go. It’s all got a nice box with a bow on it. You sell it to somebody who’s in the business of owning and operating these things over the long term, including constructing them. Do we keep to we keep it ownership interest in some way in those? We could. It could be an ownership interest in the solar farm itself. It could be – we retain the land and collected lease payment. There’s a whole bunch of ways we could we could think about this. I do know when you get into big solar farms the capital can be very, very substantial and given our desire to protect the daylights out of our balance sheet, we’re not going to bite off something that’s bigger than we’re comfortable dealing with.
Doug Weiss: That makes a lot of sense. Actually one left a quick one is just on the boiler. I think in your filing, you said second half, you think it’ll be repaired. Do you have pretty good visibility or are you just kind of watching along with everyone else?
J.C. Butler, Jr.: We’re next door. The mine is next door to the power plant. So we have great relationship with the folks over at the power plant. Because of the nature of the operation, 100% of their fuel comes from our mine. They’re our only customer. So it makes it very important to have a close, transparent relationship. So our folks on the scene stay in close touch with the people over at the power plant. And I think everybody feels good about the progress that’s being made. It’s really our customer’s project, so I don’t want to say that much about it because it’s their disclosure, not ours. But it’s progressing nicely, and we feel good about it. I think they feel good about it.
Operator: Your next question comes from Nachi Kansi [ph] with Cyasn [ph].
Unidentified Participant: Picking up where that last question left off, just a few questions on Mississippi. Can you provide an update on the financial health of your customer over there? Have they emerged from whatever restructuring they were in? What’s the strength of their balance sheet?
J.C. Butler, Jr.: From what I understand from Southern’s disclosures, that’s all been settled. What you’re talking about is the restructuring with the bondholders.
Unidentified Participant: Right.
J.C. Butler, Jr.: Correct? Yep. And that’s been resolved. I think Southern disclosed that a couple quarters ago. Maybe three quarters, four quarters ago.
Unidentified Participant: What I’ve seen in Southern’s disclosures is that they’re not putting any additional capital into it. And there was certainly no cash reserve in the business prior to restructuring. So what I’m trying to understand is how strong is your counterparty in its ability to maintain a position of buying the amount of lignite you guys want them and project them to buy for the next several years?
J.C. Butler, Jr.: Well, I think the ultimate – I think the real question is, does TVA need the electrons? And if you look at TVA’s latest Q, which was just recently filed, they’ve had record demand for electrons because that ultimately is how this plays out. And TVA has tremendous need. We see that through the operation of the power plant. And, ultimately, if TVA needs the electrons, they’re going to buy them from the plant and that means that the plant needs coal in order to fuel the plant.
Unidentified Participant: Well, someone’s going to have to put in capital, right? Are you saying that the TVA might actually put in capital for repairs or for ongoing CapEx [Multiple Speakers] think about?
J.C. Butler, Jr.: I’m not privy to the details, but my understanding is there’s a provision in the waterfall with respect to the mechanics of the bond that provides for capital that’s needed for maintenance and repairs.
Unidentified Participant: Gold bond, right. I’m trying to understand the whatever the new bonds structure is, which I am not privy to. I’m trying to understand.
J.C. Butler, Jr.: We’re not privy to the terms of that agreement.
Unidentified Participant: I appreciate your comments at the beginning about the mercury standard. My understanding from some of the technical documents that EPA put out, and as you stated, its prepublication, is that EPA was actually predicting a relatively low additional OpEx requirement at Red Hills. It was under a million a year. Your comments suggest that actually sort of judicial relief of some sort, a pretty pessimistic outlook on compliance across – I was just trying to square those two, and is the truth somewhere in the middle? Or how should I think about that?
J.C. Butler, Jr.: I think the whole thing is subject to massive litigation. One, the rules aren’t final yet. And two, I think this is going to be litigated, just like prior EPA rules have been litigated. There was an interesting piece in The Journal yesterday about – at least I read it online last night, and I assume it was a yesterday article, about the challenges that the rules face.
Unidentified Participant: There’s no question of litigation. I agree with you that, but the mercury standards that are in effect for non-lignite coal-fired power plants are, in fact – they have survived. That was a decade ago.
J.C. Butler, Jr.: Correct.
Unidentified Participant: So I guess what I’m trying to understand is, what is – tons of uncertainty, of course, on how the courts will look at this and future administrations, of course, might look at this very differently as well, but trying to understand what the actual cost of compliance might be at your customer, even like ballpark order of magnitude? Like, is it tens of thousands, tens of millions, somewhere in between?
J.C. Butler, Jr.: I think it would be inappropriate for me to publicly speculate on information that I don’t know. We don’t operate any power plants. I’m not privy to that kind of information.
Unidentified Participant: Last question. So there was the $6 million impairment charge in the last quarter. Can you help me understand, thinking of the Mississippi business and core asset, which is this long term sales agreement, how much of the book value of that asset went away with that $60 million impairment charge? Does that question make sense. Is the asset half the size that I used to think it was? Is it 90% of the size I used to think that was?
J.C. Butler, Jr.: Liz and I are looking at each other trying to think about?
Elizabeth Loveman: I think you could see the coal supply agreement – I think you’re talking about that the intangible related to the coal supply agreement?
J.C. Butler, Jr.: Are you talking about all the asset?
Unidentified Participant: I’m talking about the enterprise value of the Mississippi business, basically. How much smaller is it than it was in the quarter?
J.C. Butler, Jr.: I think we’ve never disclosed the asset value related to a specific.
Elizabeth Loveman: In our risk factor and the 10-K previously, we said our assets to risk around $130 million. And we took $5 million.
Unidentified Participant: When you were determining the – this is going back a quarter, I’m sorry. But when you were looking at the financials and deciding how much to write off, was it primarily the relatively short term decrease in sales that factored into that overall $60.8 million figure or was it also additional thinking around the life of that agreement?
J.C. Butler, Jr.: The trigger was the December, I think it was 15th, issue with the power plant. And as we’re sitting there at year-end, you have this big event at the plant which nobody at that moment in time can assess exactly the extent of the damage or what it’s going to take to repair it, it, of course, calls into question what will our near term deliveries be? Like, pretty quickly figured out that they could operate the plant they believed on one boiler. We know they can, but they didn’t see any other reasons related to this incident to prevent that. So as we looked at the situation where we could have an extended period of time where there’s reduced deliveries to the plant, given the fact that a mining operation is largely a fixed cost operation that affects our economics pretty significantly, as we’re seeing, so it’s really that trigger with respect to the near term when you think about NPV of an asset.
Because near term dollars count more than far out the future dollars. Then, of course, you had to go through the all the GAAP required exercise to figure out your impairment. But it was the short term effect of that that really triggered this assessment.
Unidentified Participant: I think last question, how should I think about the match rule with respect to your other unconsolidated operations? Is there a different way I should think about that compared to the Mississippi situation?
J.C. Butler, Jr.: Match rule doesn’t apply to our mines. It applies to our customers power plants. And those are all lignite powered power plants. So each of them, of course, have their own technologies with respect to their boilers and their environmental controls. And I think each of them will be assessing these independently.
Operator: And your next question comes from John Huber with Sabre Capital.
John Huber: This has been a great call a lot of good education and I appreciate the history and some of the Minerals Management history there was quite interesting. My question is on that business. I follow a few other royalty companies. And I think the market for the minerals has been quite – it’s been quite competitive over the last few years. And I’m just wondering if you guys share that view? And if so, I’m wondering kind of what advantage you guys have like, what kind of networks do you have? What advantage do you think gives you guys the ability to earn the returns that you’re generating, which, according to what I’m looking at, I’m looking at like $68 million of investment capital over the last few years. And I think you did around $19 million in profits. So that looks like a pretty good return. So I’m just kind of wondering how you guys are viewing your advantage in what I think is a pretty competitive market right now.
