Good morning, and welcome to the Contura Energy third quarter 2020 earnings call. All participants will be on listen-only mode. Should you need assistance, please signal the conference specialist by pressing the star key followed by zero. After todays presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. To withdraw your question, please press star then two. Please note that this event is being recorded. I would now like to turn the conference over to Emily O'Quinn, SVP Corporate Communications. Please go ahead.
Thanks, Ailey. Good morning, everyone. Before we get started, let me remind you that during our prepared remarks and the Q&A period, our comments relating to expected business and financial performance contain forward-looking statements, and actual results may differ materially from those discussed. For more information regarding forward-looking statements and some of the factors that can affect them, please refer to the company's third quarter 2020 earnings release and the associated SEC filing. Please also see those documents for information about our use of non-GAAP measures and their reconciliation to GAAP measures. Participating on the call today are Contura's Chairman and Chief Executive Officer, David Stetson, and Chief Financial Officer, Andy Eidson. Also participating on the call is Jason Whitehead, our Chief Operating Officer, who is available to answer questions on operations. With that, I'll turn the call over to David.
Thanks, Emily. Good morning everyone on the call, and thank you for joining us today. What an interesting and challenging year 2020 has given us. Just in the last few months, we have seen met prices dip to $105, spring back to $126, and just recently settle around $114. We've managed through the pain and hardship of the virus, assuring our teams have been well-protected as possible while still operating our business, dealing with economic implications and uncertainties in the domestic and international markets that we serve, and preserving our capital to strengthen our long-term sustainability. When we announced our first quarter operating results earlier this year, they were simultaneously praised and questioned as to whether our costs could be sustained at those levels. We reported our second quarter results reflecting lower cost.
Again, I heard that we had to prove our ability to sustain our cost performance in order to be considered one of the lowest cost producers in the metallurgical space. Well, as everyone has read this morning, I'm pleased to announce that we have another solid quarter to report on today. The Contura team continues to do a great job of being vigilant and flexible so we can adapt as necessary. As I said before, we choose to closely manage the business based on factors we can control, and this mindset has resulted in another solid quarter for Contura. Before I get into the details of the third quarter and our specific results, I want to briefly comment on last week's presidential election. Like the majority of the business community, we pay attention to politics. We seek to understand how election results may influence or impact our business.
Our goal in the way we manage our business is for our company to be successful regardless of who sits in the White House or which party controls Congress. I don't say this to diminish the importance of elections in any way because they are critically important to our democracy. We regularly engage in dialogue with elected officials at all levels to help inform them as to the importance of our products in manufacturing and the underpinning that they provide to a strong economy. However, election outcomes will never change the core principles that anchor our daily operations. Safety, responsibility, environmental stewardship, and continuous improvement will continue to drive our actions each and every day. We remain committed to those important aspects of who we are and how we operate.
Turning now to our quarterly results, which include adjusted EBITDA of $20 million a quarter, and the best cost performance on record for Central App - Met since the start of the company over four years ago. Andy will provide a more robust overview of the numbers after I finish my remarks. I have to congratulate Jason and his team on repeatedly exceeding expectations and at just $66.49 a ton for the quarter, managing to beat our prior record-setting net cost performance. Importantly, all this progress has occurred while keeping safety in the forefront at all times. I simply can't say enough about the job they've done this year. I'll briefly comment on our 2021 guidance and let Andy go into more detail.
We are pleased with our committed low-vol position in the Central App - Met segment, with 34% of the anticipated midpoint of our shipments locked in for next year. The average price per committed tons for the met-only portion of the segment is just over $86 a ton. We expect to continue our strong cost performance with Central App cost per ton anticipating the range of $68-$74. As for 2021 CapEx, we expect it to come in significantly lower than our spend in 2020 at a range of $80 million-$100 million. We project SGA for next year to be in the $45 million-$50 million range, which is slightly better than our 2020 expectations. In addition to closely managing our costs, we've been operating with a strong focus on cash preservation.
Not only to help us weather the effects of the pandemic, but also help us navigate the softness and recent volatility in the pricing of our products. As we predicted on our last call, the back half of 2020 has so far proven challenging, albeit with sporadic signs of optimism. We continue to believe we are doing what we can to manage through these challenges, and the guidance we are issuing today reflects our thinking about what 2021 will hold. I reiterate our prior statements from the second quarter call with regard to the long-term big picture strategy for Contura. We are accelerating our strategic exit from thermal coal mining, and we have made great strides in executing our strategic vision to become a pure-play metallurgical coal company, providing critical feedstock for the steel production.
As we discussed in prior quarters, our portfolio optimization efforts include bringing on some new met properties that are currently in development, or being prepared to run in the future while de-emphasizing or removing from our portfolio other mines that are mining out, uneconomic, or no longer offering synergistic value in terms of coal qualities, market demand or cost structure. Whenever there is a property that is idled or mined out, we look for opportunities to realign our coal processing workflows into fewer plants and to redeploy mine equipment to other locations in the company. These efforts allow us to tighten our cost structures and make the best use of existing capital in the organization. We regularly evaluate our portfolio and have been planning for the best utilization of our newer high-quality mines. We continue to be on track, or in some cases, even exceeding our expectations in that regard.
For example, Black Eagle is nearly finished with the corridor to the main reserve body, where we anticipate multi-section production next year. We have accelerated our 3rd section at Road Fork 52, with section three now expected in early December instead of first quarter of 2021. The surface infrastructure installation is almost complete for our Lynn Branch underground mine with intake and return shafts in place, belts installed, and the finishing touches being put on the track tunnel. We remain excited about these properties and we will keep you updated on their progress. Like our peers, Contura has closely watched the market landscape and the ebbs and flows of recent weeks. Pricing was soft throughout the better part of the quarter, then increased significantly before dropping meaningfully again in the recent weeks. Within the quarter, we received communication from customers either lifting or ceasing their force majeure notices.
We also negotiated agreements with certain customers to defer anticipated shortfall volumes from 2020 into 2021. We have largely seen limited impact of these circumstances to our metallurgical coal sale volume and production for the third quarter. Before I wrap up my prepared remarks, I want to congratulate our environmental and safety teams on another strong quarter of performance. Our environmental teams continued their near perfect water quality compliance rate and a significant reduction in violations against the rolling three-year average. Our safety teams ended the quarter with all metrics favorable to national average. Additionally, two of our Virginia subsidiaries were recently presented with the safety awards from the State Department of Mines, Minerals and Energy for reaching milestones of work hours without lost time accidents. Those are operations out of McClure Prep Plant, Long Branch Surface, and Long Branch High wall.
Congratulations to each member of these teams, and we look forward to your continued success. I will now turn the call over to Andy for some additional details on our financials.
Thanks, David. Good morning, everyone. As David commented on the multitude of uncertainties facing the world and our industry, our goal is to find ways to alleviate these risks in order to build a stronger, sustainable enterprise. Not to be redundant to what we've said in prior quarters, the way we believe this is best done is by focusing on the issues we've mentioned many times before. Effective cost management, matching of production with demand, and most importantly, the sharp focus on cash flows and cash preservation. To that end, if we take a closer look at our balance sheet and cash flows for the quarter, we ended the quarter with approximately $162 million in unrestricted cash. Our ABL is at capacity right now due to the market impact on our borrowing base, both through accounts receivable and inventory.
We have no additional availability there. Quarter-over-quarter, we did use approximately $77 million in cash. To dig into that a little bit, give you a better picture of the usage in the quarter. We did reduce our debt by more than $30 million to $598 million during the quarter. This debt reduction included ABL payment of approximately $12 million, $17.5 million in legacy payments related to the LCC Note, and a small term loan principal payment of $1.4 million. We also had $13 million in cash interest payments, and we paid an additional $30 million in other legacy payments. Those include such things as pension and some of the other legacy bankruptcy items that we've been clearing out. On top of those payments, we also provided roughly $19 million in additional cash collateral for surety bonding.
As we discussed a couple of quarters ago, it was a little bit of a harbinger of things to come, but the surety markets, insurance markets, all these peripheral markets that we have to deal with for services become even more challenging day by day. The third quarter for us was certainly no exception. We continue to see some benefit from our working capital, mainly inventory and accounts receivable, which provided a total of $30 million of cash in the third quarter and basically covering our CapEx for the quarter. Going back to the ABL for just a second. We had borrowed and drawn down against the ABL earlier this year in March. At quarter end, that facility was down to $18.4 million in outstanding borrowings. It had about $122 million of letters of credit outstanding as of the end of the quarter.
Subsequent to the quarter end, we paid an additional $15 million of the principal. The current outstanding borrowings on the ABL as of today is approximately $3.4 million. We've about worked that back down. Next, I wanted to give a quick update on a couple of tax-related items. We still anticipate that we'll receive our $66 million AMT credit monetization refund in the coming weeks. It has suffered from a couple of processing delays, but we feel pretty good that we may actually receive it at some point this week, but certainly in the next couple of weeks. Also in connection with the CARES Act, as we've mentioned previously, we still expect to defer approximately $14 million in payroll taxes until 2021 and 2022, with the total deferral amount distributed evenly across both years.
We anticipate an additional $70 million NOL carryback related tax refund in the back half of 2021. Moving to our financial results for the quarter. Our EBITDA increased $3 million quarter-over-quarter from $17 million to $20 million, despite the continued decline in market prices relative to the second quarter. The strong EBITDA performance was driven by another quarter of excellent cost containment, particularly in the CAPP - Met segment, where we reported the lowest full quarter cost since the inception of Contura of $66.49. The third quarter CAPP - Met costs were approximately $3.5 lower than the second quarter costs. If you kind of adjust Q2 for a more normalized run rate if you exclude the impact of our April furlough and other one-time type issues. On a three-quarter moving average basis, this is really a testament to the sustainability of some of these cost decreases we've seen.
Three-quarter moving average basis, our current average is $70.53, down more than $5 over the prior three-quarter moving average and down from a high of nearly $90 a ton. Again, David mentioned the performance of the operating team. Just when we think that Jason and the operating team have kind of hit their peak as far as cost reduction, they go and they drop a quarter like this on us and we have to come up with new words to describe it. That's just incredible work there. Overall, CAPP - Met generated $18 million of EBITDA during the quarter, basically flat with the prior quarter, while NAPP contributed $7 million of EBITDA. The CAPP - Thermal segment contributed more than $5 million of EBITDA in the quarter. Naturally, SGA expenses aren't allocated into the segment, to get the total, that would have to be added back in.
On the shipments and revenue front, our CAPP - Met shipments remained strong in the third quarter with total volumes of 3.3 million tons shipped. That's up about 100,000 tons from second quarter. A trend we've seen over the past couple of quarters, naturally, our revenues continue to be negatively impacted by a soft market, particularly in the export market, with our CAPP - Met realizations down approximately $8 a ton to around $74 a ton in the third quarter. CAPP - Thermal volumes were essentially flat with second quarter total shipments of around 600,000 tons and realizations improving to just under $58 a ton from $50 in the prior quarter. Prior quarter, we did have some cleanup of some lower quality thermal coal that impacted pricing.
We also had some customer mix issues, but I think third quarter realizations were more in line with Q1 as our customer mix got back to a more normal baseline. Northern App revenue improved as a result of higher volumes with prices effectively flat at $40 a ton. Our shipments were up by about 300,000 tons, 1.6 million tons all in. SG&A, excluding non-cash stock comp, one-time items was $13.5 million in the third quarter compared with $10 million in the second quarter. Our third quarter CapEx was down $13.7 million to just under $28 million. Looking at 2021, as David hit some of the high spots earlier, we do expect to ship a total of between 20.4 million and 22.2 million tons in 2021.
12.5 million tons to 13 million tons of that will be pure met flowing through the CAPP - Met segment, will be approximately 1 million tons to 1.5 million tons of thermal that will also be going through that segment as kind of tangential or incidental production. For the CAPP - Thermal segment, we're guiding to 1.3 million tons to 1.7 million tons and 5.6 million tons to 6 million tons of Northern App. The CAPP - Thermal reduction relative to 2019 is part of our ongoing and planned strategic focus toward moving toward a pure play met company. Based on the midpoint of our CAPP - Met guidance, the met-only portion of that is 34% committed and priced at $86.41, with an additional 27% committed but unpriced. The thermal portion of the CAPP - Met segment is 72% committed and priced at an average price of $62.11.
We're essentially fully committed and priced in CAPP - Thermal and Northern App at $57.17 and $40.43 respectively. Looking at cost for next year, we expect our CAPP - Met cost to be in the range of $68-$74 while CAPP - Thermal should come in between $45 and $49 per ton. NAPP is holding relatively static at $33-$37 a ton. SGA, excluding non-cash stock comp and one-time items, is forecast to be in the range of $45 million-$50 million. As you can see from David's earlier comment, we're expecting our 2021 CapEx to be significantly lower than where we were trending in 2020. We expect it to be near a more regular maintenance level of $80 million-$100 million as most of our growth at CapEx was spent in the past two years, and we don't have any large near-term projects to address.
Idle operations expenses are expected to be between $27 million and $33 million as we continue that aforementioned shift away from thermal coal production. Cash interest should come in roughly around between $51 million and $55 million in 2021, while DD&A is expected to be down meaningfully, in the range of $150 million to $175 million, mostly due to the previously announced impairments and write-downs in the second quarter. Finally, the cash tax rate should be near zero. Before we open up the call for Q&A, I want to briefly mention that we still don't have any meaningful updates from the Department of Labor on our appeal regarding collateral amounts for certain black lung obligations. Really don't have any updates to share there. However, once something conclusive is determined, we'll obviously share that information with you. With that, operator, we're ready to open the line for questions at this time.
I will now begin the Q&A session. To ask a question you may press star then one on your touch-tone phone. If you are using speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. Our first question today comes from Lucas Pipes with B. Riley Securities.
Good morning, everyone, congrats on the outstanding cost performance. Really great to see. I also want to thank you for the 2021 outlook at this point and all the encouraging updates included therein. My first question is on the cost side. You mentioned in the release and your prepared remarks a couple of drivers, productivity, labor cost, sourcing. Can you provide a little bit of a breakdown on what these various buckets contributed in terms of dollars per ton? These are maybe the third quarter of 2019, just so that we have a good sense for where the bulk of the savings came from. Thank you very much.
Hey, Lucas. It's Andy. That's a little bit of a tough one because we've had so much transition going on inside the portfolio. The biggest driver, and again, these overlap in significant fashion. Productivity really is the main driver here. It will obviously fall into separate buckets on your P&L, and that is where the labor and the supplies per ton improvements come from. We have seen slight reductions of each of those on an extended cost basis, but the real driver is just the amount of tons flowing through the system. I'm probably stealing a little bit of Jason's thunder here if it came up in another question. When you look at our portfolio from 2019 rolling into most of 2020, we had roughly 22 mines contributing to the portfolio.
That has continued to shift downward as we're consolidating production, optimizing outputs, taking higher cost mines out of the system to the point where when we get to probably the middle of next year, we'll have gone from 22 to 12 mines. Again, that's reflective of the kind of productivity improvements that we've seen really since Jason came on board, just re-envisioning the entire portfolio. I'm running around with the question to get to the answer, but it's really driven by the productivity impacts on those individual buckets.
Got it.
Rather than themselves.
Got it. That's very helpful. I'll turn over to my second question. It's in regards to your 2021 met coal volume outlook. It's very robust. Good to see. To get to the question, how do you feel about your sales book in regards to your sales outlook? Is the sales outlook, the shipment outlook for 2021 a reflection on the current forward curve on met coal? Would you say, look, in any reasonable price environment, even what we've seen more recently, which of course hasn't been so great, to put it mildly, we would be able to put these tons to bed? Thank you very much for that.
Yeah, I'll just hit a brief preface on that before I let Dan dig into the details that he wants to share. I think when you look at our production, it's looking mostly flat on the met side. 2020 to 2021, maybe a slight tick up. Again, we don't have any better information than anyone else out there to go off of. The futures are where they are. Everyone's optimistic about getting there, but we just don't know necessarily the timing or what the curve looks like to get there. I think by and large, we're pretty comfortable. Dan and his team have done a fantastic job getting a domestic book locked into place in this kind of a challenging market. I think we feel pretty solid about the volumes in total. Naturally, we can't control the price.
Dan, anything you'd like to add to that?
Yeah. Thanks, Andy. Lucas, yeah, I think we're comfortable going forward. We're shipping at about a rate of 3 million tons a quarter this year, and through some very difficult times and challenging markets and challenging times with our customers. I think it's fair to say we're a little more optimistic about 2021 as far as the volumes. We're moving the coal right now. We're moving it in Q4. We're going to move it into Q1 and Q2. As far as the domestic book, we like our position there. We took the business that we felt like we wanted and left some business we didn't want.
Great.
I think we like the balance that we have.
That's very good to hear. Thank you everyone for the call and continued best of luck.
Thanks, Lucas.
Again, if you have a question, please press star and then one at this time. Our next question comes from Mark Levin with The Benchmark Company.
Yeah, great. Echoing Lucas's comments, congratulations to the team on a great cash cost performance. I remember it wasn't that long ago where net cash costs were in the 90s, and it's really quite an improvement. Let me ask a couple questions on cash. Andy, in the fourth quarter, I guess you referenced some confidence you'll get the $66 million AMT refund. I would assume it's reasonable to assume that your cash would build Q3 over Q4, or are there some other factors that we should be mindful of?
Hey, Mark, by the way. I hate to guide too precisely, again, just because we don't know where the market price is going to fall out. It's been so inconsistent the past couple of months in particular. I will say the third quarter every year is our heaviest cash burn quarter just because July is when all of our legacy payments hit. I certainly would expect the fourth quarter, all things being equal, to be considerably better from a cash usage or cash generation perspective than Q3. Again, I don't want to get into any specifics of projecting what that looks like.
Sure.
I think just by virtue of not having those payments weighing upon us for Q4, we should be $30 million-$40 million better, all other things being equal.
Plus the $66 million AMT refund, right?
The $66 million. Correct.
Right. Okay. Got it. You referenced the $17 million cash collateral call or collateral call from third-party surety providers. Maybe you can give us just a greater understanding of how to think about what the exposure is, how to model what those cash call collateral requirements could look like going forward. I know this morning, Peabody disclosed that they had reached a standstill agreement with their surety providers. Their situation is obviously markedly different. I'm just kind of curious how to think about what the exposure looks like, and then what to think about it going forward.
Yeah. The main exposure still is coming from thermal permits. The surety companies, by and large, aren't terribly excited about holding thermal permits, and they're under the same pressures as all the other third-party providers. Not only is there risk from a market perspective and just ongoing economics, but it also has a considerable amount of ESG risk involved from the surety's perspective themselves. It's kind of hard for these surety guys to go upstairs and ask for permission to even take new bonds or have to justify not requiring higher collateral levels. I think by and large, we're in a pretty good position on our bonds right now. We do continue to have conversations with our sureties. We have a very long-standing relationship with the sureties. Most of the book have been with us for many, many years, going back to legacy Alpha days.
They've been partners with us for a long time and have been very patient through challenging markets. I do think with what we did to shore up collateral in Q3, I think we're in pretty good position. To the degree that we continue moving away from thermal markets, that will only inure to our benefit.
Is there a way, Andy, to quantify what the exposure or how to maybe think about it?
No. You have to look at any given company's total bonding exposure.
What is the total bonding exposure now?
For us, I'm not sure I know that one off the top of my head. It's roughly going to reflect our undiscounted reclamation cost. We'll snag that number in just a second. The weighted average mix is what's going to get you. Any kind of a thermal permit is a surety is probably going to be looking from north of 50% collateral on that kind of a bond. If it's met, you know you're going to be considerably lower than that. It's just, again, to the degree that we can get away from thermal permits, because we're currently across our book, we're a little bit over 30% in total collateral. On a weighted average basis, the met has helped pulling that number down. Again, I think we're in pretty good shape, and I shouldn't have too much incremental exposure from that perspective.
As we move forward, as the political climate moves forward, especially regarding thermal, all bets are off.
Yeah, that makes sense. That dovetails into something I'm sure you're not going to want to discuss too much, but I'm going to ask anyway. You referenced ongoing progress with the NAPP asset sale. Maybe your degree of confidence, one to 10 scale that you think you can get something done, and then what the timing might be. If you did do something, would it require cash going out the door or would this be at worst a cash neutral transaction?
Actually to close out the loop, Mark, this kind of partially answers a little bit of your question here. We have roughly $350 million of bonds outstanding. Now that's more than just reclamation bonds. That includes some workers' comp, things like that. Of that 350, around $150 million of that is Cumberland. That kind of feeds into your question.
Oh, okay. Interesting. Yeah. Okay.
Of a potential transaction. On a scale of one to 10, I would probably put our likelihood of getting a deal done at somewhere between one and 10.
Okay.
So again-
That's terribly not helpful, Andy. Thank you very much.
Yeah. Mark, it'll be more than one, but less than 10.
Excellent. That is the color. That is outstanding color.
I like to be real precise in my answers.
All right. How about to the follow-up, which is if you sold it and a buyer actually had to post all sorts of cash collateral, could you do a transaction or is that the bottom line that you would do a transaction that was cash neutral? Or might a transaction involve you actually having to put some cash on it?
Yeah. Well, Mark, I think when you look at a deal like this, because of the strategic benefit to the entire enterprise, you can mix and match lots of financial and non-financial benefits on something like this. Is it possible to expect a transaction? Can you envision a transaction where you could get some cash? Maybe. Can you envision one where you give some cash? Maybe. Really, again, I hate to give you a non-answer answer, but there are so many pieces that you can move around to benefit the overall enterprise. It's kind of hard to put a dollar tag to it without knowing all the other pieces in the mix.
Okay. Perfect. All right. That's fine. I get it. I understand there are a lot of moving pieces. All right. My last question is just a really, it's more on the market and the met market in general. Since China announced their sort of unofficial import ban, have you guys seen any or would you I don't think you sell anything into China, but would you consider selling anything into China? What are kind of the puts and takes if trade flows start to change and they start to keep Australian coals out of their market for an extended period of time? The second piece is India, which is such an important market to the seaborne coking coal demand.
Maybe you can discuss a little bit what you're seeing out of that market recently and kind of what the book looks like there over the next three to six months or how you see that market.
Go ahead, Dan.
Hey, Mark. Yeah. Start with the China, the trade war issue in China. We don't sell any coal to China. We're aware. We've had a few inquiries. By and large, Mark, as you know, a lot of the coal that goes into China from Australia is low-vol coal, and that's generally what they're looking for. We don't export a whole lot of low-vol. We're very balanced in our portfolio with it. We're not pursuing actively at all any sales into China. We are aware of some inquiries and maybe some of our competitors have shipped a vessel or so over there. With regard to India, yeah, very important customer. Been pretty steady all year. Like most customers, they had some slowdowns and some difficulties with the pandemic. By and large, our shipments have remained steady there, and I expect them to be steady into 2021.
Yeah. That's great to hear. Super. All right. Well, thanks very much for all of the time this morning and congrats again on the cost performance.
Thanks, Mark.
This concludes our Q&A session. I would like to turn the call back over to David Stetson for any closing remarks.
Thank you very much. Thanks for everyone joining us this morning. Have a great end of your year and we appreciate it so much. Thank you.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.