Warrior Met Coal, Inc. (NYSE:HCC) Q4 2023 Earnings Call Transcript

Warrior Met Coal, Inc. (NYSE:HCC) Q4 2023 Earnings Call Transcript February 14, 2024

Warrior Met Coal, Inc. misses on earnings expectations. Reported EPS is $2.49 EPS, expectations were $3.16. Warrior Met Coal, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good afternoon, and welcome to the Warrior Fourth Quarter and Full Year 2023 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions]. This call is being recorded and will be available for replay on the company’s website. Before we begin, today’s discussion may contain forward-looking statements, and actual results may differ materially from those discussed. For more information regarding forward-looking statements, please refer to the company’s press releases and SEC filings. The company has posted reconciliations of the non-GAAP financial measures discussed during this call in the tables accompanying the company’s earnings press release located on the Investors section of the company’s website at www.warriormetcoal.com.

In addition to the earnings release, the company has posted a brief supplemental slide presentation to the Investors section of its website at www.warriormetcoal.com. Here today to discuss the company’s results are Mr. Walt Scheller, Chief Executive Officer; and Mr. Dale Boyles, Chief Financial Officer. I would now like to turn the conference over to Mr. Scheller. Please go ahead.

Walter Scheller: Thanks, operator. Hello, everyone, and thank you for taking the time to join us today to discuss our fourth quarter and full year 2023 results. After my remarks, Dale will review our results in additional detail, then you will have the opportunity to ask questions. Our fourth quarter results reflect the culmination of a highly productive year for Warrior where we made meaningful progress on our strategic priorities to build significant sustainable stockholder value, and we were very pleased to end the year on a strong note. We met or exceeded both sales and production volume targets for the year, recording a 34% increase in sales volumes and a 21% increase in production volumes. These are run rates not seen since 2020.

We also achieved record high annual production at Mine 4 of 2.5 million short tons. Our cash generation from operating activities was exceptionally strong allowing us to fund a record high amounts of capital expenditures and mine development. We further strengthened our balance sheet with the early retirement of debt. As a quick aside, there is one fourth quarter metric, total sales volume that could have been better by 129,000 short tons at our last two customers’ vessels made it to the terminal on time as scheduled. These contracted shipment delays lowered our adjusted EBITDA by approximately $23 million for the fourth quarter. We know that some investors put a significant amount of emphasis on the MSHA production data equaling sales volumes, which can lead to expectation differences.

So it’s important to understand the impact of timing differences here and our strategic focus. Our purchase spot volumes is working quite well. As we indicated on our third quarter earnings call, we took a more strategic approach to selling spot volumes in the fourth quarter. Our goal is to leverage our high-quality brands, maximizing our cash margins and build inventories for optimal logistical operations as we prepare for 2024. As a result, we increased our margin per short ton by 63% from $70 in the third quarter to $114 in the fourth quarter. In addition, we anticipate that this strategic approach of leveraging our high-quality steelmaking coal to maximizing our cash margins will benefit us in 2024, as we expect our spot volume to be lower with higher contracted volumes.

I’ll share more about our 2024 outlook in a little later. First, let’s discuss the steel and steelmaking coal markets during the fourth quarter. As expected, steel output from China continued to slow down during the quarter, but net exports from the country remain higher than usual. The additional volumes from China found their way into different geographies, impacting the domestic markets of some customers and putting pressure on steel prices. Demand from India was strong, and customers in India continued to indicate an interest in developing relationships with U.S.-based producers like Warrior. Although overall demand was stable from our contracted customers, we continue to see very little spot activity in our traditional markets compared to India, China and Southeast Asia where spot demand remained more active.

We also experienced higher than normal freight rates for our deliveries into the Pacific Basin due to a combination of market, logistical and geopolitical factors. The availability of premium steelmaking coals like our Mine 7 Low Vol product remained tight during the quarter compared to the availability of second-tier steelmaking coals like our Mine 4 High Vol A product. This was evidenced by the price relativity between both qualities, which remains lower compared to previous years. For example, in 2022, second-tier steelmaking coals traded at price relativities in the low to mid-90s, whereas 2023 price relativities were closer to the mid-80s. Russian steel making coal exports into China and India have remained at historic highs and showed no signs of slowing down.

Likewise, in protocol for Mongolia into China remained strong, having secured its spot as the largest source of imported coals for the country. U.S. steelmaking coal exports in the Pacific Basin continues to increase as more suppliers target the growth markets of India and Southeast Asia. We expect that 2023 will be a record year for U.S. exports into India as well as for exports into Indonesia, Malaysia, and Vietnam. Although U.S. exports into China are lower than highs observed in 2021 during the ban of Australian coal imports, they remain strong compared to historical averages. The major indices were fairly stable throughout the fourth quarter with the exception of some upward volatility in October. Our primary index, the PLV FOB Australia ended the fourth quarter at $294 per short ton which was $8 lower than its October 1 value.

In sharp contrast, the PLV CFR China increased by $47 per short ton during the same period, closing the fourth quarter at a price of $301 per short ton. It’s worthwhile pointing out that the East Coast High Vol A price averaged $255 per short ton during the fourth quarter, which is one of the primary indices used to price our Mine 4 High Vol A product. According to the World Steel Association monthly report, global pig iron production increased by approximately 0.5% for the full year of 2023 as compared to the prior year. The positive growth was mainly driven by higher Chinese steel production, which grew by 0.1% in 2023. India steel production, although lower in absolute terms compared to China continued to grow at impressive rates, increasing by 7.3% for the same period.

Most other large steel producing regions of the world experienced production declines compared to 2022. Now turning back to our results. Our fourth quarter sales volume of 1.5 million short tons was 6% higher than the comparable quarter last year. The increase was primarily driven by the additional production volumes due to the end of the labor strike, the improved performance by our transportation partners and the McDuffie Terminal, which enabled us to export more product last year. Our sales by geography in the fourth quarter breaks down as follows; 56% into Europe, 16% into South America, 25% into Asia and 3% into the U.S. markets. As we’ve previously noted, demand from the Asian spot markets have been growing this year, resulting in full year agent sales up 9% year-over-year to 29% of total sales, while European sales are down 12% year-over-year to 48% of total sales, primarily due to weak spot markets.

Our spot volumes, 38% in the fourth quarter, which was much lower than the 44% in our third quarter, as we took a more strategic approach to selling our premium products into the spot markets to maximize margins. As we previously indicated, our spot volume was higher in 2023, primarily due to the incremental volume resulting from the end of the labor strike earlier last year and, to a lesser extent, the change in mine force quality from the Mid Vol to a High Vol A product in the second half of the year. With these dynamics in mind, it’s important to understand pricing in the Pacific markets and how it differs from our traditional spot markets, depending on market conditions. Typically, the Pacific markets are priced based on a CFR basis rather than the PLV FOB Australia basis which is more common in our traditional markets.

The freight differential was borne by the supplier on a CFR basis whenever the buyer has market leverage, which was the case in the fourth quarter. Turning now to other details on our fourth quarter performance, production volume in the fourth quarter was better than expected and totaled nearly 2 million short tons compared to 1.5 million short tons in the same quarter 2022, representing a 34% increase. This was the highest quarterly production output since the first quarter of 2021 and contributed to a record-setting year for Mine 4. Twelve months operated at higher capacity levels in this quarter and for the year as a result of the additional employees returning from the labor strike, increasing production volumes 21% year-over-year. Our headcount was 36% higher at the end of this year compared to the prior year.

The higher production over sales volume in the fourth quarter drove our coal inventory up to 968,000 short tons from 489,000 short tons at the end of the third quarter. We’re well positioned heading into 2024 to create incremental value from the global demand for our premium products in the current high price environment. During the fourth quarter, we spent $182 million on CapEx and mine development. CapEx spending was $181 million, which includes $128 million on the Blue Creek project which I’ll discuss more in a moment. Mine development spending on Blue Creek project was almost $2 million during the fourth quarter. Moving on to the development of a world-class Blue Creek growth project, during the fourth quarter, we continued to make excellent progress on the project, and I’m pleased to share that our work remains on schedule and within the cost estimates we outlined previously last year.

During the fourth quarter, we continued to make progress on the production slope, service shaft, ventilation shaft, which will be fully connected in the second half of 2024 to allow continuous miners to start development. In addition, we continue to make good progress on the construction of the preparation plant, the mine belt structure, the bathhouse, the warehouse and developing the rail and barge load-out sites during the fourth quarter. Capital expenditures for the development of Blue Creek were $128 million for the first quarter and $319 million for the full year. We’ve spent $366 million on the development of Blue Creek since the beginning of the project. We remain on-track for the first development tons from Blue Creek’s continuous monitor units in the third quarter of 2024 and the longwall scheduled to start up in the second quarter of 2026.

We’re extremely excited to begin the journey of producing coal from this new asset later this year. We expect approximately 200,000 short tons of production of High Vol A, steelmaking coal from the continuous monitoring units in 2024. Since the new preparation plant will not be operational until sometime in the middle of 2025, we do not anticipate selling any of those tons until 2025, due to the incremental cost to transport the tons to another preparation plant to be washed. I’ll now ask Dale to address our fourth quarter results in greater detail.

Dale Boyles: Thanks, Walt. For the fourth quarter of 2023, the company recorded net income on a GAAP basis of $129 million or $2.47 per diluted share, representing a 29% increase over the net income of $100 million or $1.93 per diluted share in the same quarter of 2022. Non-GAAP adjusted net income for the fourth quarter, excluding the nonrecurring business interruption and other expenses, was $2.49 per diluted share. This compares to adjusted net income of $1.90 per diluted share in the same quarter of 2022. These increases quarter-over-quarter were primarily driven by 6% higher sales volumes and a 3% higher average net selling price, which were offset partially by lower results from our gas businesses. We reported adjusted EBITDA of $164 million in the fourth quarter of 2023 compared to $148 million in the same quarter of 2022.

Our adjusted EBITDA margin was 45% in the fourth quarter of 2023 compared to 43% in the same quarter of 2022. These increases were driven primarily by the previously mentioned higher sales volumes and higher average net selling prices, offset partially by the lower results from our gas businesses. Total revenues were $364 million in the fourth quarter compared to $345 million in the fourth quarter of 2022. This increase was primarily due to the 6% increase in sales volume, plus a 3% increase in average net selling prices and lower demurrage and other charges. The merge and other charges were $3 million lower compared to 2022’s fourth quarter. As you may remember, the higher demurrage and other charges in the fourth quarter of 2022 were the result of temporary delays in vessel loadings, due to severe weather and port congestion.

Emerge and other charges reduced our average net selling price to $235 per short ton in the fourth quarter of 2023 compared to $227 per short ton in the same quarter of 2022. Other revenues primarily from our gas businesses were 72% lower in the fourth quarter of 2023, primarily due to a 55% decrease in natural gas prices between the periods. The Platts premium Low Vol FOB Australian index price was relatively stable for much of the fourth quarter. The index price averaged $303 per short ton for the fourth quarter which on average, was $50 per short ton higher compared to the same quarter of 2022. We primarily target pricing our Mine 7 premium product from this index, which represents about 70% of our volumes. While Mine 4 High Vol A product, which is about 30% of our volumes, we primarily target using the East Coast High Vol A index price for our traditional markets.

As we mentioned, we transitioned Mine 4 from a Mid Vol to a High Vol A product in the second half of 2023. As a result of the demand and balances between the Pacific and Atlantic basins this past year, we have at times used other indices to price our Mine 4 High Vol A product such as the CFR China Index, CFR India Index or the Low Vol HCC Index and price relativities between these indices and the PLV FOB Australia, can be and have been significantly different depending upon market conditions. In addition, as noted earlier, the Pacific Basin markets usually require the producer to cover the freight cost to these markets, which lowers our average net selling prices. Cash cost of sales in the fourth quarter of 2023 was $185 million or 51% of mining revenues compared to $179 million or 54% of mining revenues in the fourth quarter of 2022.

Of the net $6 million increase in cash cost of sales, $10 million was due to the 6% increase in sales volumes offset partially by $4 million of lower transportation costs due to timing. Our headcount was 36% higher at the end of 2023 compared to last year, due to a focus on hiring workers during the labor strike and the addition of employees who return from the labor strike in the second quarter of 2023. Cash cost of sales per short ton, FOB port, was approximately $121 in the fourth quarter compared to $123 in the fourth quarter of 2022. Transportation and royalty costs were slightly lower in the fourth quarter this year as compared to the same quarter of 2022. Our cash cost of production per short ton was slightly higher in the fourth quarter as compared to the same quarter 2022, despite the incremental cost associated with the 36% higher headcount.

SG&A expenses were about $13 million or 3.6% of total revenues in the fourth quarter of 2023 and were slightly higher than 2022’s fourth quarter of 3.4%, primarily due to an increase in employee-related expenses. The interest income earned on cash investments will exceed the interest expense on outstanding notes and equipment leases during the fourth quarter of 2023, primarily due to lower interest expense from the early retirement of nearly 50% of our senior secured debt in the third quarter of 2023. Our fourth quarter income tax expense reflects expense on pre-tax income and includes an income tax benefit for depletion expense and foreign-derived intangible income. Turning to cash flow, during the fourth quarter of 2023, free cash flow was $63 million, this was a result of cash flows generated by operating activities of $245 million, less cash used for capital expenditures and mine development of $182 million.

Free cash flow was $34 million lower than 2022’s fourth quarter, primarily due to higher Blue Creek CapEx spending. Free cash flow in the fourth quarter of 2023 was positively impacted by a $90 million decrease in net working capital from the third quarter. The decrease in net working capital was primarily due to a decrease in accounts receivable on lower sales volumes, partially offset by higher inventories and lower net accounts payable and accrued expenses. Despite the higher capital spending associated with the Blue Creek growth project, this year, we generate full year free cash flow of $176 million, of which $61 million has been returned to stockholders in the form of a special dividend earlier last year on top of the regular quarterly dividends which increased 17% last year.

Our total available liquidity at the end of the fourth quarter of 2023 was $846 million, representing an increase of $36 million over the third quarter and consisted of cash and cash equivalents of $738 million and $107 million available under our ABL facility. The fourth quarter of 2023 kept off a robust year of building stockholder value as full year volumes returned to levels not seen since 2020. And market pricing for our premium products was high. This combination led to another year of strong cash flow generation from operations of over $700 million that enabled us to fund an all-time record high amount of capital expenditures and mine development of $525 million for the future growth of our business. It also allowed us to retire early $162 million or nearly 50% of our senior secured debt.

These results demonstrate the significant cash flow generation of our existing operations that we expect to grow tremendously in the near future with the addition of our new Blue Creek mine. Now let’s turn to our outlook and guidance for the full year 2024. We expect the demand from our contracted customers to remain stable, while we also expect spot demand to continue to be stronger in the Pacific Basin compared to our traditional markets in the Atlantic. We will continue to pursue our successful strategy of focusing on contracted customers with value-add to spot activity. We believe the current tightness in the supply of premium coals like our Mine 7 Low Vol will persist for some time, which should support higher pricing relative to the second tier steelmaking coals.

Our full year outlook encompasses this favorable landscape, and we believe 2024 should be another strong operational year for Warrior primarily driven by higher volumes. We expect sales volumes may exceed production volumes using the midpoint of the ranges by up to 0.5 million short tons in 2024 as we take advantage of market pricing and the higher inventories on hand. We anticipate our contract to spot volume ratio will be better in 2024 than last year at about 75% contract and 25% spot. This compares to 59% contract and 41% spot in 2023. In addition, we expect to hire approximately 250 new employees in 2024 to fill in gaps in the existing mines and ramp up our hiring for the Blue Creek mine later this year. Inflationary cost in the mining sector continues to persist and pressure cost structures for labor, supplies, materials and equipment purchases.

These additional costs are expected to drive up our cost per short ton in 2024 as outlined in our targeted range for cash cost per short ton. Lastly, after considering our total liquidity and our favorable outlook for 2024, we recently announced that the Board of Directors has decided to increase the regular quarterly dividend by 14%. We expect to distribute the dividend on February 26. This marks the third consecutive year the company has raised its quarterly dividend while developing its world-class Blue Creek reserves. In addition, we recently announced our plans to distribute a special cash dividend of $0.50 per share in March, demonstrating our continued commitment to returning excess cash to stockholders while driving long-term growth of the business.

I’ll now turn it back to Walt for his final comments.

Walter Scheller: Thanks, Dale. Before we move on to Q&A, I’d like to make some final comments. As Dale just noted, we have a favorable outlook for 2024 as orders from customers in our traditional markets suggest stable demand for our coals for at least the first half of the year, while we expect markets like India and Southeast Asia to continue to experience an increasing demand with new projects coming online. We’re closely monitoring the dual logistical challenges posed by low water levels in the Panama Canal system as well as the geopolitical tensions in the Red Sea. For now, the impact for Warrior has been higher freight costs, especially in the Asian markets, which continue to be above historic averages, while the impact of some of our customers has been longer transit times.

It’s difficult to predict that this will improve or deteriorate during the next few quarters. We believe its steelmaking coal pricing will remain bifurcated as the availability of premium Low Vol steelmaking coal should stay tighter than the availability of second-tier steelmaking coals. As such, we believe the lower price relativities of the second-tier steelmaking coals will continue for the near future and also depend upon the geography of spot volumes. While we are well prepared to address a variety of market conditions, we are also extremely excited and laser-focused on the disciplined development of our world-class Blue Creek reserves. We expect another year of high capital spending on the project ranging from $325 million to $375 million which can be funded out of cash on our balance sheet if the market should turn unfavorable in 2024.

As I mentioned earlier, we continue to make excellent progress in developing Blue Creek. We are on track for the first development tons from the continuous miner units in the third quarter of 2024, with the Low Vol scheduled to start up in the second quarter of 2026. We expect approximately 200,000 short tons of production of High Vol A product from the continuous miner years in 2024. This raw coal production has been included in our production guidance. In conclusion, our full year outlook encompasses a favorable landscape, and we see 2024 representing another strong year of operational success and growth capital deployment, driven by expected higher steelmaking coal production and sales. With that, we’d like to open the call for questions.

Operator?

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Q&A Session

Operator: Thank you. [Operator Instructions]. And our first question comes from Lucas Pipes of B. Riley Securities. Please go ahead.

Lucas Pipes: Hi. Thank you very much, operator. Good afternoon, everyone. My first question, Walt and Dale, is on the sales mix for 2024. I wondered if you could maybe provide a rough breakdown of anticipated sales kind of on a percentage proportional basis, High Vol A, FOB port, PLV FOB port and then also High Vol A PLV kind of CFR China so we can get a better sense of how these higher freight costs impact realizations. Thank you very much.

Walter Scheller: Well, generally, I’ll start with the — our expectation is with Mine 7, we’re probably 70% to 80% contracted, and those will all be sold FOB port. The remaining 20% to 30% will be spot tons. And those could go either into our traditional markets to those customers or end up going into some of the markets where we have the CFR issue going into Asia. For Mine 4 we’re, I think, about 55% contracted this year some of it into traditional markets. But I would say for Mine 4, you’re probably going to look at least 50% of that coal going into CFR sales. I think in total, you’re probably 70% Mine 7, 30% Mine 4 tons. If all that — I’ve answered your question, I hope so.

Lucas Pipes: There were a lot of helpful titbit in there, I may follow up on some of it. But I want to circle back on Mine number 4. Kind of — it sounds like a High Vol A product today, does that cover — does that description cover all of the output of Mine number 4? And should we kind of think of, call it, a Platts or similar index as the best approximation for FOB pricing for Mine 4 today?

Dale Boyles: Yes. Luke, this is Dale. Yes, that is pretty much a High Vol A product now. And it transitioned in the second half. And I think it’s about 30% of our volume, and we typically target the East Coast High Vol A index for our traditional markets. Now when you go into the spot markets, it could be a combination of those different indices outlined in March, which is — it just depends on where it’s going, geography-wide these days. So the markets have really changed with a lot of demand coming at Pacific basins this time over the last six months, and we see that as kind of the future is where a lot of demand is going to continue to come. So we’re probably looking at about 65% of our volume going into the Pacific Basin in ’24 and about 35% into our traditional Atlantic markets, just in total.

Lucas Pipes: Very, very helpful. Thank you for that. I’ll squeeze one in here on the sales side. In terms of the cadence of shipments in 2024, could you provide a little bit of color. It sounded like you had some tons delayed here at the end of Q4. I’d assume they come through in Q1, so maybe Q1 is a bit of a stronger shipment quarter. But would appreciate if you could frame that up. And when I think — or when we think more at a high level about the production output in Q4 versus tons sold. Is that a reflection of weakness in your traditional markets? Or were there any other complications moving those tons? Thank you very much.

Walter Scheller: All the contracted tons moved to those customers as expected. What we did, as we said, in the third quarter, we moved more into the spot market, and we decided in the fourth quarter to take a little more strategic approach and maximize margins. So we held off on any business that we felt that would hinder that. So that’s how we ended up there. In terms of cadence for sales, Lucas, the problem with that is, in any given quarter, you can have something happen in one week at the end of the quarter that can adjust that downward by as much as 200,000 tons. I think the best — we try to match production and sales, but that’s about — I can’t give you much more guidance than that. And if you look for the year, we kind of give you what we think for the year, but I can’t tell you which quarter any reduction in inventories will come in.

Dale Boyles: Yes. We’re just — we’re really focused, Lucas, on just what the year is and the quarters just kind of fall because the ships arrive and as complications arise with bad weather to port and everything, that’s less important to us than our full year targets. We really don’t manage to the quarter results. We manage long term.

Lucas Pipes: Understood. Understood. No, that’s helpful. So maybe to just put it a little differently to help me with the modeling. You have 1 longwall move in Q1. So kind of fair to assume that production may be touch lighter than in Q4. And then you mentioned you’re looking to match sales with production. Has that occurred for Q1? Are you currently matched?

Walter Scheller: We’re right on target for where we wanted to be year-to-date.

Lucas Pipes: And with the longwall move kind of slightly less than Q4 and production makes sense?

Walter Scheller: It does make sense.

Lucas Pipes: All right. Well, this is this is helpful, thank you. I’ll turn it over

Operator: Thank you. Our next question comes from Nathan Martin with the Benchmark Company. Apologies, our next question comes from Katja Jancic with BMO Capital Markets.

Katja Jancic: Hi. Thank you for taking my questions. First, starting on the Blue Creek CapEx. The original project cost is about $700 million. And then adding the scope gets you to $820 million to $830 million. Now on top of that, there is inflationary pressure. So I get up to about $1 billion. Are my calculations correct?

Dale Boyles: That’s the general trend. And there’s really been no update or change to those initial updates that we had back in the summer. So yes, target inflation. We haven’t seen any reduction in labor, materials, supplies, equipment purchases, that inflation is pretty much stuck in this sector. It depends on what particular item, but a range of 25% to 35%. So if you just take the midpoint, 30% on your $700 million plus $130 million scope change, you’re right around $1 billion.

Katja Jancic: Okay. And I think, Dale, you said you’re going to be hiring more miners later in the year for Blue Creek. Is that already included in your cost guide?

Dale Boyles: Yes.

Katja Jancic: And how many miners do you have to add this year?

Dale Boyles: We’re adding in total 250 to the company and somewhere around 100-ish for Blue Creek of that.

Katja Jancic: Thank you, all. I’ll hop back into the queue.

Operator: Thank you. And our next question comes from Nathan Martin with The Benchmark Company.

Nathan Martin: Thanks, operator. Guys, can you hear me okay now?

Operator: Yes.

Nathan Martin: What I was trying to say is, Dale, I think you were talking again to Lucas’ questions around logistics and obviously, you guys pointed out the 2 late vessels in the fourth quarter, affecting shipments there. You mentioned, I think, low water in the Panama Canal, Red Sea issues. We also have the Demopolis lock outage right now. So I guess it would be great to hear how these are not affecting Warrior. Obviously, it sounds like transportation costs are elevated, but how you guys are working through around some of these issues?

Walter Scheller: The issue around Demopolis has not impacted us. To date, we have — our rail service has been very, very strong. We hope that continues. And we have other options to get the coal to market if we start to run into issues with the rail. Our expectation of Demopolis right now, the core of engineers has been down there, looked at the problem, they’re estimating may start up in Demopolis. I don’t know if that’s reasonable or not, but we’re making sure that we have options to get our coal to market otherwise in terms of the increased cost that we were talking about for if we’re talking about CFR. It’s just the — with the potential additional distances coal has to travel, transportation costs are just up and it’s also with the issues in the Red Sea, it’s caused freight costs to go up considerably.

Nathan Martin: Appreciate that, Walt. And then maybe sticking with the cost for a second. Again, you just mentioned, obviously, that the $125 to $135 cost per ton guidance for the year, include some of that additional labor. Just curious, is there a net price or net price range that you guys are assuming in that full year cost guidance range?

Dale Boyles: Yes. We’re around between 250, 260 gross index. PLV index.

Nathan Martin: Very helpful, Dale. I appreciate that. And then maybe just one more kind of going back to the capture rate, and you guys had a good idea. I’m sure the guys did a great job kind of explaining the shifts you’ve seen contract to spot back to maybe a normal higher level of contract coal this year versus 23%. Also talked about obviously the High-Vol A shift at the Mine 4. But with the increase in Pacific Basin sales you guys called out versus typical Atlantic markets, how should we think about your capture rate going forward? As the last few quarters, it has lagged and been below your kind of historical level, let’s call it, 90% plus or minus?

Dale Boyles: Yes. I think, Nathan, it’s a little hard to predict just given all the different things that are happening. But what we’re targeting is, call it, 85% to 90% of the PLV index. It’s to do something simple because, obviously, with Mine 4 pricing and all these other indices you get a different result than it doesn’t price off the PLV anymore. So — and that’s been exacerbated by those price relativities that we talked about earlier where they were closer to the 90s, mid-90s, now they were more like in the 80s this past year. So some of that has been the demand imbalances, some of the supply issues. But we think those relativities will come back, it just might take a little time. But think of it as 85 to 90 when we try to maximize our margins like we did in the fourth quarter where we increased our margin 63% from Q3.

Nathan Martin: Not a deal. Appreciate that. I’ll leave it there. Best of luck to you guys in 2024 Thank you.

Dale Boyles: Thanks.