Operator: Our next question comes from Chris LaFemina with Jefferies.
Chris LaFemina : Hi. Thanks, guys. Thanks for taking my question. So I wanted to ask about Mine 7. But first, on the CapEx profile. So if we have $1 billion of total CapEx for Blue Creek, based on your 2024 guidance by the end of this year, you’ll have spent a little more than $700 million. Does that mean $300 million more in 2025? And then in addition to kind of general sustaining CapEx, looking at a 2025 CapEx budget of between $400 million and $500 million? Is that roughly correct?
Walter Scheller: That’s probably a little aggressive in ’25. I think you’ll have some of that spending will play out in ’26 in completion of the project. But that’s — you’re right, we’ll be up over 700 million by year-end and probably north of 200 million or so next year and finishing up in ’26.
Chris LaFemina : And is there a reason why you haven’t explicitly changed the CapEx guidance for Blue Creek? You’ve talked about the 25% inflation, but you haven’t actually formally adjusted the numbers. Are you working on specific contracts around that? Or are there other reasons why you might not have formally changed that number yet?
Dale Boyles: Well, that is the number pretty much, Chris. So mean that’s the math. But there are — gosh, just dozens of contracts that are yet to be signed to finish grading work and all kinds of different things. I mean we’re only just barely 2.5 years into this thing. So we’ve got a long way to go, and there’s hundreds of contracts on this thing. So right now, we’re just — that’s the trend, and that’s where we’re headed.
Walter Scheller: And I think that’s based on a current expectation in terms of inflation. And I think one of the reasons we haven’t given a real update is because we don’t — we can’t determine exactly what the inflationary pressures will be. So we’ve kind of left that. We recognize that, that could change in either direction right now.
Chris LaFemina : Understood. So my question on Mine No. 7. So at what point does the depletion of reserves there start to impact your production volume and unit costs? You have, what, 7 or 8 more years of production there? Is it later this decade, where you start to see kind of more cost pressures there and potentially lower volumes as a result of depletion? Or is it possible to even extend the life beyond that time frame?
Walter Scheller: Yes. Our life, actually, what we have right now is just in reserves, we’re probably at 13 years, I believe it is, and then resources goes beyond that. And we continue to look at what we have and what we can get to continue the total reserve for that coal mine.
Chris LaFemina: Okay, great. Thank you very much, good luck.
Operator: [Operator Instructions]. Our next question comes from Lucas Pipes with B. Riley Securities.
Lucas Pipes: Thank you very much, operator. Thank you for the follow-up question. I wanted to ask kind of on capital returns and how you think about that. Why not maybe do a little bit on the buyback side versus specialty, would be kind of interested how do you think about that? Thank you.
Dale Boyles: Yes. Look, it’s really nothing has changed there. Capital allocation priority is Blue Creek. And to the extent we have excess cash, we’ll continue to do it in the manner we have. I don’t see that changing until Blue Creek is up and running at the earliest. Again, we have significant state NOLs and all the rules and restrictions that I’ve talked about for the last 7 years still apply to those rules to the state NOLs, and we have about $900 million of state NOLs less. So we still got clearly a runway on some of these NOLs to utilize them. So again, right now, Blue Creek is the focus to the extent we have a little extra cash, we’ll spend that. So — and most likely it will be in a more like specials until we get further along with Blue Creek.
Lucas Pipes: That’s very helpful. And Dale, just to make sure I understood you right. You have about $900 million of state NOLs. And at the current level of profitability, called Q4. How long would you expect those NOLs to kind of last?
Dale Boyles: Well, that’s the $64,000 question there, Lucas, depends on what prices are and profitability over the next several years. So mean those NOLs go out until like 2034, something like that, it’s when they start expiring. So they have a long life on them right now. But if we have more profitable years like the last 2 years, we’ll burn through them really fast potentially with Blue Creek up and running.
Lucas Pipes: Got you. And so in terms of like, when I think about, call it, 2024 cash flow impact from the NOL. So like what is the kind of net impact on your effective tax rate? Like how much cash benefit are you seeing from the NOLs this year, 2024 versus not having them?
Dale Boyles: Well, I mean the benefit is basically what your state tax rate is 5%, 6%. So that’s your benefit on the state side.
Lucas Pipes: Got it. Got it. That’s very helpful. Thank you, thank you for that. And then maybe just one quick follow-up on the Blue Creek CapEx front. You mentioned earlier that lot of things are kind of still to be finalized. You have that range out of 25% to 30%. What gives you the confidence in that number given that you still have to finalize contractors and such, would appreciate the additional color? Thank you.
Dale Boyles: Yes. I think if you go out there and look at any construction index, you’ll see that labor supply of the materials pretty much been averaging that. And that’s what’s stuck in the sector. It’s easy to read the Wall Street Journal and say, well, it’s come down to 3.4%. Well, that has nothing to do with the mining sector where there’s been a tremendous increase in labor and supplies and materials. And just — we’ve talked about it over the last three years, just quarter-after-quarter of the inflation in this sector. So don’t see that changing. And it’s possible that we go through a period where there’s a little less inflation or there’s a little more. We just can’t predict it at this point. We only halfway into this same barely, and we still got a lot of runway to go.
This is not a handful of fixed price contracts. That’s just not the way these contracts are developed. No contractors are going to sit there and say, Well, I’m going to fix my steel prices at x and then they go wildly higher, and he’s just not going to do that. So you have those pass-throughs. And we try to limit that and work with them on those contracts, but there’s just a whole lot of things going on here to manage a project of this size. And it’s — and quite frankly, it would be kind of unwise of us to go say, as well, it’s going to be 968,538,000. I mean if anybody can predict that, then you’re a little bit of a fool. So yes, I think you’ve got to be reasonable as what can happen over the next 2.5, 3 years. And know that there’s going to be some changes.
But to the extent there is an update, we’ll give people an update. But we said, look, there is no update at this point. That’s the trend, and that trend continues.
Lucas Pipes: Well noted. I appreciate that. And maybe just to put a bow on it. With all of that, you feel 25% to 35% is the right range?
Dale Boyles: For now, yes.
Lucas Pipes: All right. Well, I appreciate it. Good luck. Thank you. All right.
Dale Boyles: All right. Thank you.
Operator: At this time, there are no further questions. I would like to turn the call back over to Mr. Scheller for any closing comments.
Walter Scheller: That concludes our call this afternoon. Thank you again for joining us today, and we appreciate your interest in Warrior.
Operator: Thank you. Thank you all for participating. You may now disconnect.
