The Clinch Resources. I am Peter Gastreich from the Natural Resources and Sustainable Investing teams at Water Tower Research. I am very pleased to be joined by two members of the Clinch senior team, including Brett Young, who is Chief Financial Officer and Director, and Bobby Gaylor, the Executive Vice President of Investor Relations and Capital Markets. Brett, Bobby, welcome back. Thanks for stopping in, and it is great to see you.
Great. Thanks for having us again, Krista and Peter, and it is great to be here.
Thank you for having us back. Thank you.
Gentlemen, just bear with me for a moment on a few housekeeping items here. First of all, Clinch's safe harbor statements can be found on the investor tab of the company's website, and I would encourage you to review those. We welcome your questions. Please put them in the chat box as they occur to you. Anything we do not reach will be passed on to the Clinch team and addressed in our forthcoming management series report. Finally, and very important, if you would like to request a meeting with the management team, you can register that interest through the conference portal. With that, let us get started. Bobby, let us start with you at the top. Many investors listening today may be new to the story of Clinch.
Could you walk us through what the company owns in West Virginia, what you produce, and how you characterize the strategy that you are executing right now at the company?
Of course. Clinch Resources IPO'd on the Toronto Stock Exchange back on March 20th, and we possess 111 million tons of reserves and a 43-101 report of high-quality metallurgical coal spanning over 54,000 acres in both Wyoming and Mingo counties in West Virginia. We are currently in production and have made our first sales. We have company-owned wash plant and load out on the Norfolk Southern line. Additionally, we have a 39% ownership in an asset called JJ Resources, which is the old Sewell Mountain complex, which is well-known worldwide for its single seam source of mid-vol metallurgical coal, which is, again, the most coveted coal on the planet. That is a brownfield reserve that is currently in the process of getting re-cranked back up from the ground up. So we hope to be able to enjoy over the next couple of years as that comes back online.
Our surface mine is Lanes Branch, and it is in production. We currently have had our first sales from Lanes Branch, and we are ramping up production from Lanes Branch and soon be moving into our first underground mine here very shortly.
Brett, met coal sometimes gets lumped wrongly by investors with thermal coal. The two are, of course, very, very different. It is not obvious to everybody, but it should be. It is a very, very important distinction. What does it mean when we say that met coal is a chemical feedstock rather than a fuel? What is happening on the global supply side of met coal that makes this a particularly interesting moment to be a U.S. producer?
Sure. Metallurgical coal is a critical raw material for primary steel production, which is used in infrastructure projects, bridges, defense, and aerospace. It was recently added to the U.S. List of Critical Minerals with the U.S. government and the current administration recognizing the strong importance of metallurgical coal. Recently, some of the studies we've looked at have a 20 million deficit of supply demand because of the growing demand for steel globally. That's starting to show up in the pricing with forward curves up over 10% over the last three months. That deficit we're starting to see in pricing as the supply chain is constrained with under development, overburdened with permitting issues in a lot of the Western countries. It's a really strong market that we're very excited to be taking part in.
Brett, based on your current surface spread operations in addition to the preexisting acquisition of a wash plant and load out, how has the acquisition of brownfield assets and the operations at Lanes Branch positioned the company on cost relative to the industry?
We purchased all of our assets and reserves without any legacy liabilities. Since we don't carry any legacy liabilities as a new producer, it really makes us much more cost-effective not having to deal with pension issues and other legacy costs. Based on our current estimate, we believe once we're fully ramped- up, our cost of production will be in the lowest quartile globally.
Bobby, turning to you on the production ramp. That's now underway. According to your disclosures, Lanes Branch surface is producing, a highwall miner has been mobilized, and in August, you announced a second equipment spread. Can you take investors through the sequence from here and Clinch's catalysts on through the remainder of 2026?
Absolutely. It's a step process as we add each surface spread, as we add the highwall miner, which is on-site and I believe went to work actually end of last week. Our target at Lanes Branch is to grow to 80,000 tons a month of production by the end of October or sooner via the two surface spreads and the highwall miner. Simultaneous to all this going on right now is that we're getting our first underground mine rehabbed and ready to go. We hope to have Mine 8 online shortly, which will be a continuous miner, which will add another 40,000 to 50,000 tons of production to our mix. Then we're starting the process of getting our second underground mine, Mine 3, rehabbed into production. That will come online probably towards the end of fourth quarter. Again, that adds another 40,000 to 50,000 tons a month.
This is how we are migrating over the balance of 2026 to a run- rate that our focus is on our run- rate for 2027 to get to a 2 million ton per year full- year production. This is how we are step-by-step adding each mine, each spread of equipment to grow to that monthly number of 170,000, 180,000, 190,000 tons a month to hit that 2 million target for 2027.
Brett, your first coal has been sold and a seaborne cargo follows. Let's talk about your Astor marketing model. Astor Resources gives you an in-house marketing arm rather than selling through intermediaries. How does that change what Clinch captures on every ton? What are the early conversations with steel mills and other end users telling you about the demand for this coal?
Very strong. We're ramping- up our contracting period right now for next year, so we are in multiple discussions domestically and globally with steel producers and the specialty carbon market producers as well. Going back earlier, discussing being a lower cost producer. By doing our own marketing and finding the best customer base and not simply selling through third party traders and intermediaries, we can extract a much higher sales price with lower marketing costs and lower transportation costs by targeting domestic customers.
Brett, in our past conversations, you've described specialty carbon as the most underappreciated part of the Clinch story. Can you help investors understand who these buyers are, what do they need from the coal chemistry, and why does that coal price differently from the blast furnace coal?
Certainly. You first need to have the quality of the reserves, and we certainly have that to be in the market. You need to have a lower ash product, and be able to produce it consistently. We're demonstrating that right now to the market with our surface production. That's critical. Secondly, you have to be able to service those customers very consistently in terms of very stringent demands for those products in terms of chemical ash chemistries, what's in the ash. It's a very technical sale and we've hired a great team to make those technical sales, and we have the expertise to execute our business plan. Those markets primarily globally go into silicon metal. Silicon metal uses it as a carbon reductant, in their smelting operations. Silicon metal is then sold into silicones and polysilicon for chip production and solar power.
As being a critical raw material supplier into the steel industry, we also view ourselves as being a critical carbon supplier into the specialty markets. Additional specialty markets are your ferroalloys, which are your ferrosilicon, your ferrochrome, and your ferromanganese, which go into premium grade steel product and alloys, especially for the defense industry, for military operations. We'd like to be part of that supply chain. Also, you have water treatment for activated carbon, and then you have the industrial sector, industrial boilers, and the industrial specialty market. So we're targeting the higher- end of the specialty market and we're just starting our contract negotiations now that we're in production.
The met coal being added to the U.S. critical mineral list last November is also an important part of the story. Bobby, how should we think about what that designation means for Clinch?
Good question. For me personally, it means we have gone from being targeted to protected. Finally, Washington, D.C. has recognized the critical importance of metallurgical coal for not just defense applications, which obviously is a big focus right now with everything that is going on globally, but also for critical infrastructure. If you want to grow an economy, you have got to have critical infrastructure, strong buildings, bridges, et cetera. That is all used high tensile strength, virgin steel.
It also means that we are opened up and qualify for pots of money out of the U.S. government, and specifically in our situation now, the Department of Defense, Department of War, whatever they are calling it this week, of very long-term, low interest rate money that will help us expand our production, help us hire third parties to extract these critical minerals, which we have in our gob piles currently, that they have a high level of interest in. We have done some testing. We have over 17 of these critical minerals. Four or five of them at a scale of high interest to the Department of Defense. So it opens us up for pots of money to be able to help get what they want, which is to reshore these critical minerals in production.
We have already had discussions with third party intermediaries that help you go through this very daunting process of working with the government, and we are going to certainly go after everything we can get.
Brett, does that designation help you when it comes to permitting and project timelines?
Certainly does. It allows us to execute our business plan and expand our current permits as we grow our production. It allows us to have definitive timelines on our current projects and our future development projects, including JJ Resources.
That is a good segue. Regarding JJ Resources, Clinch holds equity stake there. That controls the Sewell Mountain project, and that is, of course, one of the most recognized coking seams in the world. Brett, really, what was it that attracted the company management to that seam, and how should investors think about the timeline and the funding path for bringing that into production?
It is really one of the highest quality production seams globally. It is a very high-quality specialty product. It is a very high-quality mid-vol product for the steel industry. The management team, including our CEO, Jon Nix, has been developing and working on this project for over eight years now. We have been diligently, including myself, the current CEO, Christopher Aluma, knows this project intimately. Finally, now that the IPO has occurred, it has given us the ability and the ability to raise the capital to fully develop JJ Resources. We hope we will be making some announcements around JJ. We own 39% as Clinch Resources, and we hope to be making some very positive announcements later this year on the JJ Resources project.
Turning to the financial position and funding strategy. You are turning into cash generation here. Walk us through how the remaining development gets funded and how are you thinking about the capital structure from here?
Sure. We are currently ramping- up production, as you said, ramping- up revenues and cash flows. We have a convertible note outstanding. We are looking at possibly issuing a little bit more convertible note. Really what that would be used for is to accelerate our development and our business plans. We are always looking at equipment financing opportunities in the best and the most efficient ways to finance our balance sheet and the company.
Okay, great. Maybe we can move on to some of the key signposts, and you touched on this a little bit earlier, Bobby, in terms of the production. In looking out over the next several quarters, what are the milestones that you would point to investors to as evidence that this ramp is on track and the strategy is being executed?
Yeah, I would describe that as focused on and seeing these additional spreads of equipment go to work at Lanes Branch, which is happening right now. The opening of Mine 8, which adds significant tonnage to our production, which should begin very shortly, in very near- term. Then behind that, you got the opening of underground Mine 3 and underground Mine 6. So those are the key milestones that internally that we are working towards every day. This helps us migrate again to get to that north of 150,000 to 180,000 tons a month, which gets us on that path to do 2 million tons + in 2027. This was a year about, A, going public, getting the capital, securing the equipment. It is hard to do the production without the CAD 30 million + worth of equipment. We have all that. It is in situ, and it is working.
We have got the equipment to hit these numbers, and now it is about rehabbing and bringing back online these underground mines, expanding Lanes Branch, and that is what we are working on every day.
Okay, great. Well, Brett, Bobby, we have had a pretty comprehensive overview here and discussion. Is there anything that we have missed today, or would either of you like to provide some closing remarks?
Yes. Based on the milestones that Bobby just addressed, just remember, all of our projects are fully permitted. We have no hurdles ahead of us. They have formerly produced, and they have produced significant volumes with very high quality that is known in the marketplace. We do not have any permitting or project hurdles other than deploying the capital, hiring great staff. We have hired a great group that are currently at Lanes Branch and working on opening Mine 8. Just wanted to let people know that there is no obstacles in our way.
Okay, great. Well, Brett, Bobby, thank you both. It is always a pleasure, always a great conversation when you are in the room, and we appreciate you spending time with investors today.
Thank you, Peter. It has been great to see you again.
Excellent. Thank you, Peter, for having us.
Thank you to everyone who joined us for this session. If we did not get to your question or you would like to arrange a meeting with Clinch Management, please indicate that through the conference portal. Additional research and content on Clinch Resources is available at our website, watertowerresearch.com, and on major research aggregators like Bloomberg and FactSet. You will find our financial forecast and a due diligence package that will help you get up to speed on Clinch. Also for anyone taking meetings, it is a good way to prepare. WTR's platform is entirely open access to all investors, so please have a look at that. We have another session beginning shortly, so stay with us.