Good day, and welcome to the Peabody first quarter earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press Star then one on a touch-tone phone. To withdraw your question, please press Star then two. Please note, this event is being recorded. I would now like to turn the conference over to Karla Kimrey, Vice President of Investor Relations. Please go ahead.
Good morning. Thank you for joining Peabody's earnings call for the first quarter of 2023. With me today are President and CEO Jim Grech and CFO Mark Spurbeck. Within the earnings release, you'll find our statement on forward-looking information, as well as the reconciliation of Non-GAAP financial measures. We encourage you to consider the risk factors referenced there, along with our public filings with the SEC. Now I'll turn the call over to Jim.
Thanks, Karla Kimrey. Good morning, everyone. In the first quarter of 2023, Peabody's diverse portfolio produced another strong quarter of financial results. For the past 18 months, we have aggressively been de-leveraging our balance sheet. We remain committed to a disciplined approach for capital allocation. In April, we announced a shareholder return program that will consist of a fixed dividend component, share repurchases, and variable dividends. We are starting the program with a heavy weighting towards share repurchases. We expect to transition to a plan including share repurchases, variable dividends, and fixed dividends. Before I expand on the markets and operations, I would like to thank our global employees for their continued focus on working safely and efficiently. Without the dedication of our talented workforce, we would not be in the strong financial position we are in today. Now turning to global coal markets.
Global thermal coal prices stabilized in March and recently showed improvement amid supply disruptions in Colombia, South Africa, and ongoing strong demand from India, China, and ASEAN countries, although shoulder season conditions and healthy fuel stocks are influencing demand elsewhere. China has ended its unofficial ban of Australian coal imports, providing additional demand for Australian thermal coal, which has resulted in Australian import rates of over 4 million tons per month. Domestic coal production and renewable generation have been strong to start the year. Import demand has been higher year-over-year as overall coal demand has been strong. While it is early in the year, the first quarter of 2023 run rate of imports is close to an all-time high of approximately 400 million tons.
India too has shown signs of improved economic activity early in 2023, resulting in increased power demand and elevated coal imports despite elevated domestic production. Overall, demand for Seaborne Thermal coal is robust and supply remains constrained across the globe. However, we acknowledge that lower LNG prices and high coal inventory levels in Europe are short-term headwinds in terms of pricing across the globe. Within the Seaborne Metallurgical coal market, the quarter was characterized by ongoing volatility as global macroeconomic turbulence counteracted improving demand and further weather-induced supply disruptions in Australia. Met coal price volatility continued and early March increases eroded in the second half of the month amid macroeconomic sentiment to the lowest level since mid-January, albeit remaining healthy at around $250 per metric ton for headline hard coking coal.
In the United States this quarter, natural gas prices have weakened further due to near record gas production levels. U.S. natural gas prompt prices are approximately $2.25 per MMBTU. EIA is currently forecasting Henry Hub natural gas spot prices to increase above $3 per MMBTU during the second half of 2023 in response to higher feed in volumes to LNG exports, while natural gas production rates remain flat. Overall, near-term demand for U.S. thermal coal is expected to be muted as a result of low gas prices and stronger renewable generation. However, as summer weather brings stronger total load demand and increased LNG export pressure gas prices, coal demand has the potential to increase in the second half of 2023. Moving on to our operating segments.
Our Seaborne Thermal segment's first quarter exports were stronger than anticipated due to better-than-expected production out of Wilpinjong as a result of more efficient mine sequencing and Wambo open cut as a result of improved productivity. Cash cost per tons were lower than anticipated due to the increased coal production as well as lower overall spend. Our Seaborne met production was down from the fourth quarter due to lower volumes at Shoal Creek and rail and transport congestion in Australia due to heavy rains earlier in the year. On March 29th, 2023, the Shoal Creek mine experienced in the J2 longwall panel a fire involving void fill material utilized to stabilize the roof structure of the mine. All mine personnel were safely evacuated from the mine.
MSHA has allowed mine rescue-equipped personnel into the mine at various times to assess the situation and perform work in preparation for installing temporary seals. On April 26th, MSHA approved the temporary sealing program limited to only the affected underground area, which consists of the J2 panel and previously mined J1 panel. At North Goonyella, we continue to advance redevelopment efforts and expect to spend approximately $120 million as planned in 2023. As a reminder, North Goonyella is a premium grade hard coking coal longwall operation in Queensland, Australia, with over 70 million tons of reserves. This operation's grade of coking coal is considered to be the cornerstone of coking coal feedstocks globally. North Goonyella is expected to meaningfully increase Peabody's metallurgical coal production and generate approximately 25% returns at historical long-term prices in this initial phase.
In the U.S., PRB sales volumes recovered due to higher customer nominations and better rail performance. We were able to pull forward some maintenance into the first quarter to improve truck availability and lower costs for the remainder of 2023. Our other U.S. thermal mines continued to perform well as expected. We are still essentially fully committed at our U.S. domestic operations for 2023, and the railroads are showing improvement in their service levels. While we are sold out, we are working with our customers to be responsive to their needs while retaining the value in our contracts. Our guidance reflects our current assessment of sales going forward, taking into account the current U.S. market conditions. I'll now turn it over to Mark to cover the financial details.
Thanks, Jim. In the first quarter, we recorded net income attributable to common stockholders of $269 million or $1.68 per diluted share and adjusted EBITDA of $391 million, a nearly 20% increase from the prior year quarter. We reported operating cash flow of $386 million and had $892 million of cash at March 31st after completing the pre-funding of all long-term mine closure and reclamation and adjusting cash collateral for other performance obligations. More importantly, we delivered on our commitments to amend the surety agreement and eliminate the bank letter of credit facility. With our balance sheet initiatives complete, we were pleased to announce a comprehensive shareholder return program.
The board has authorized a $1 billion share buyback program and implemented a regular quarterly cash dividend of $0.075 per share for a current yield of approximately 1.25%. Under the program, first quarter performance will result in $170.2 million being returned to shareholders, including nearly $160 million for share buybacks, or about 6.6 million shares at the current price, better than 4.5% of outstanding common shares. Turning now to the first quarter segment results. Seaborne Thermal recorded $164 million of adjusted EBITDA. As expected, export shipments were lower than the prior quarter due to a longwall move at Wambo, but exceeded expectations by 300,000 tons due to higher than anticipated production from both Wilpinjong and the Wambo open cut joint venture.
Higher production rates helped drive cost to a lower than expected $51 per ton. With the winding down of the legacy hedge program, we realized an average export price nearly the same as the fourth quarter, despite a 33% decline in the average Newcastle benchmark. Overall, the segment reported a 47% adjusted EBITDA margin. The Seaborne Metallurgical segment generated $90.8 million of adjusted EBITDA. As expected, volumes were lower than the prior quarter due to heavy rains in Queensland and the challenging conditions at Shoal Creek. The average realized price was flat quarter-over-quarter, while cost increased to $151 per ton due to lower production, resulting in adjusted EBITDA margins of 31%. The U.S. thermal mines delivered $100 million of adjusted EBITDA, 21% better than the prior quarter, despite challenging market conditions.
The PRB mines generated $35.8 million of adjusted EBITDA. Revenue per ton was a record $13.89 as we continued to benefit from the roll-off of lower-priced contracts. 22 million tons were shipped on forecast, while costs of $12.26 per ton were above expectations as we opportunistically pulled certain equipment repair costs forward into the first quarter. The other U.S. thermal mines delivered $64.2 million of adjusted EBITDA. Production and costs were both in line with expectations, resulting in adjusted EBITDA margins of 26%. Turning to the balance sheet. At March 31st, we had $892 million of cash.
During the quarter, in connection with the surety amendment and elimination of the bank letter of credit facility, we increased restricted cash and collateral to $937 million, including $760 million for reclamation and mine closure and $177 million for other performance obligations such as long-term port and rail commitments, black lung, workers' compensation, and legacy pension requirements. Importantly, the revised surety agreement eliminates a substantial liquidity risk by establishing a collateral cap of 56% of the bonded amount and guarantees Peabody's access to third-party bonding through December 31st, 2026. Combined, we believe we have positioned Peabody with the best balance sheet in the industry, free from uncertain credit markets and built to withstand market cycles.
Looking forward, we will maintain rigorous discipline to capital allocation, expecting to return at least 65% of available free cash flow to shareholders. While never risking the company's financial resiliency. Lastly, let's turn to our outlook. Our full-year guidance remains unchanged, with updates limited only to priced positions. As a reminder, Shoal Creek was transitioning in 2023 until production ramped up later in the year with better conditions. Currently higher than anticipated production from Metropolitan is partially offsetting lost production from Shoal Creek. For the second quarter, we are expecting improvements in our seaborne segment's performance and another consistent, reliable quarter from the U.S. thermal segments. Seaborne thermal export volumes are expected to be 500,000 tons higher as Wambo Underground completed a longwall move in the first quarter, and Wilpinjong continues to produce at first quarter's heightened levels.
Approximately 1 million tons are priced on average at $243, and 1.2 million tons of high ash product and 400,000 tons of Newcastle product are unpriced. Costs are expected to remain at $50-$55 per ton. Seaborne metallurgical volumes are projected to be 400,000 tons higher as CMJV shipments recover from the impacts of heavy rains that impacted logistics in Queensland during the first quarter. Above 500,000 tons are priced on average at $244, and remaining tons are expected to achieve 75%-80% of prevailing hard coking coal prices. Costs are expected to decline to $135-$145 per ton.
In the PRB, we are projecting shipments of 21 million tons, priced on average at $13.70, and costs are expected to be $12 per ton. Full-year price volumes of 91 million tons are now 1 million tons less than previous expectations, better reflecting contract minimums given market conditions. Other U.S. thermal volumes are expected to be 4.3 million tons at an average price of $52.50 and cost of $41 per ton. Full-year priced volumes of 18 million tons are also now 600,000 tons less. We previously anticipated annual cash interest payments of $60 million, inclusive of surety bond fees. With a substantial increase in restricted cash and collateral generating a conservative U.S. Treasury-like yield, we no longer anticipate significant net cash interest for the year. In summary, the company continued to generate substantial free cash flow.
We amended and extended the surety agreement. We positioned Peabody with the most resilient balance sheet in the industry. We initiated a robust shareholder return program and continued to invest in long-term growth at North Goonyella. I'd now like to turn the call over for questions. Operator?
We will now begin the question-and-answer session. To ask a question, you may press star, then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question today comes from Lucas Pipes with B. Riley. Please go ahead.
Thank you very much, operator. Good morning everyone, and congratulations on the commencement of the capital return program. That's a job really well done. My first question is in regards to the cadence of met coal shipments over the course of this year and then also the cadence of your met coal costs. When I kind of back into the full year guidance versus what you've done in Q1 and what your outlook is for Q2, we're looking at a pretty meaningful ramp-up in volumes and concurrent decline in costs. I just wondered if you could provide a little bit more color as to the key drivers there, where you would expect volumes to ramp up within your portfolio. Thank you very much for your color on that.
Good morning, Lucas. Thanks for the comments on the shareholder return program. We're excited to finally kick that off. You're right. As we announced at the beginning of the year, the first quarter was gonna be less than ratable and our lowest production quarter for the year. We do expect that to consistently improve, largely given improved performance at the CMJV, as well as the Wambo Underground was undergoing a longwall move in the first quarter. That really drove first quarter volumes lower. We're still on target in our range for Seaborne Met. Clearly with some uncertainty around Shoal Creek, there's a potential to be at the lower end of that range.
We'll see how that plays out through the remainder of the year.
Thank you for that. On Shoal Creek, the temporarily sealed section, is that surrounding the existing operating longwall at Shoal Creek, or would that be adjacent to it? I'm just trying to get a better sense for where the affected areas are and what it could mean for production over the course of this year. I know you have a second longwall on schedule for later this year. Any comments regarding the start of that one? Thank you very much for your color on it.
Yeah. Hi Lucas, good to hear from you again. I'll talk about the sealing and then the other longwall. I just wanna start out by saying that, you know, safety dictates every step that we take forward at Shoal Creek, and we're working very closely with MSHA in this regard.
Because that's our top priority, the path forward, that I'll talk about here can have a lot of variability, you know, as we react to conditions in the mine. If needed, we will reset our path to the safest way to proceed. I will say that the conditions at the mine have been relatively stable, which has been great. With that in mind, and the potential for variability, though, our current path forward right now is, as you said, we're going to put in temporary seals, which they can be put in very quickly, and there's not as extensive a construction process, as a more substantial set of seals.
Because of that, putting them quickly, we can also pick out a localized area of the mine to do that with, which, as you said, Lucas Pipes, that's just in the J2 panel. The seals will cut off the J2 panel and the already mined J1 panel area. We are in the mine actively doing that right now. I will say that MSHA, under mine rescue apparatus and attended by mine rescue personnel, we have been in the mine numerous times since the incident has occurred. Again, I'm going to get back to the relatively stable conditions in the mine. We're putting the seals in and in this localized area.
If all continues to go well, we expect those temporary seals to be put in today, finalized today. The plan after that to going forward is to then flood the area with nitrogen with the goal of eliminating any existing sources of potential ignition. This whole process could take a few weeks to getting the seals in, putting the nitrogen in, and getting MSHA and us both getting comfortable with the conditions in the mine. After that, we're going to work with MSHA to assess the situation and with MSHA's guidance, how best to safely proceed in the mine.
The key to the new longwall coming into the mine, Lucas, as you've noted, is the seals that we have, the temporary seals are just in the J2 and J1 area. This plan isolates this part of the mine, but if all goes well, again, working with MSHA, we still should have access, hopefully, to the rest of the mine, which is most importantly the L panel area. The L panel area, we've already the development is complete already for the new longwall, and we are on schedule, as we have been the same schedule to arrive sometime in Q3 and get into much better mining conditions in the J panel.
Again, a lot of variability, but the plan is contained, isolated to the J, J1 and J2, still have access to the rest of the mine, most importantly, the L panels, where development is done, and then the new longwall will come in the third quarter. That's the outlook as it stands at the moment, Lucas, of course, subject to change, but that's where we're at right now.
That is a lot of color. I appreciate that. I'll turn it over for now. Thank you very much.
Next question, please.
The next question comes from Nathan Martin with The Benchmark Company. Please go ahead.
Hey, good morning, everyone. I'll echo Lucas's comments. Congrats on getting the surety agreements completed and then, pivoting to shareholder returns.
Thanks, Nathan.
You know, maybe Mark for you, in regards to the available free cash flow calculation you guys laid out this morning, how should we think about modeling that non-controlling interest and restricted cash, you know, line item going forward? Is the expectation that they might be fairly consistent, or could they be lumpy, excuse me. Any guidance there would be very helpful. Thanks.
Sure. Two things. First, on the distributions to non-controlling interest, that's a minority interest in the Wambo complex, 25%. That'll be variable based on results from the Wambo mine. On the restricted cash and collateral, with the progress we made in the first quarter, we're fairly comfortable with that number. There is some variability. It's, you know, we'll certainly manage it, we don't expect significant changes right now outside of a change in law. New bonding requirements are also a possibility that would increase that. Don't expect significant changes in that restricted cash and collateral here in the immediate future.
Got it. That's $40 million run rate, ±, is a good way to think about that then.
Yeah. No. Just to be clear, Nathan, the amount we have on the balance sheet now, is good, and I'm not expecting an increase here over the next couple quarters. We'll look to continue to manage that throughout the year. The biggest risk is changes to laws and regulations.
Okay. Got it. Mark Spurbeck, to be clear, that $43 million that is in your calculation of available cash, free cash flow, that probably goes closer to zero because you don't expect a change in the overall number.
That's right. I don't expect a significant change-
Okay.
over the next couple quarters.
Got it. Okay. Makes sense. Appreciate that clarification. Also I have you, can we touch again on the other operating cost line item? I know I've asked about the last couple quarters. You know, they've been running at $30 million a quarter. I think the back half of last year, you had mentioned you expect another decent quarter. Again, it was actually up, $26 million quarter-over-quarter, it looks like, maybe driven by some, the sales of logistics capacity you guys called out. It'd be great to get your thoughts on how that line could look over the next few quarters.
Sure. You're right. The sale or assignment of excess port and rail capacity, that was a one-time gain of $19 million in the first quarter. Wouldn't expect that to repeat. The other big item was about $34 million in trading operations. You referenced the previous two quarters that that was basically realizing higher prices in some of the hedged tons, and the delay in the delivery of the physical tons. With an improving price environment, we actually had gains there. Those were real and consistent with our operations. In the first quarter of this year, that $34 million gain is largely based on some
Coal purchases, that coal trade made as part of our blending operations, they were able to sell that at prices, you know, realized prices higher than what they purchased those coals at. That's a, that's a timing thing. With the declining price environment we've experienced here in the first quarter, we expect that to reverse here in the second quarter. That's kind of a one-time thing that'll reverse out in the next quarter or two.
to wrap that up, maybe that $50+ million this quarter kind of gets closer to $0 million-$5 million. Just any indication on an absolute value?
Yeah, that's right. If you normalize those two items, that's right. You know, we include like some of our past mining obligations in there. There's some corporate and other stuff in there, but pretty modest in the coal trading from a blending operations. I think that $5 million number is something that we've targeted before.
Great. Appreciate that color. Then, maybe guys, finally, could we get some, you know, additional thoughts on the domestic thermal coal market here? I think there were some comments in your, in your prepared remarks. You know, specifically, how are you seeing your customers' stockpiles? Are you having any deferral discussions at this point? You know, maybe as we look into 2024, you gave us some numbers previously around PRB and other thermal commitments. Could we get an update there? Maybe any thoughts on pricing? Appreciate it.
Yeah. Hi, Nate. Good morning. You know, the current guidance that we've put out reflects the current market dynamics and results of the discussions with our customers right now. As you probably know, you know, our position for 2023 is sold out. As our customers have different demands or different needs, we work with them, you know, to be responsive to that while we still retain the full value of our contracts. Again, with all that said, and any expected changes, that's all reflected in our current guidance. As far as 2024, on the PRB, you know, we're about 85% sold position and about 70% sold in our other positions.
We got a very strong sales book for next year already in place. We don't, we haven't given up price guidance yet on any of those positions.
Got it. Then how would you describe maybe, Jim, the rail service you're seeing in the U.S. right now? Is that driving any of the expected quarter-over-quarter decline in U.S. thermal shipments, or is that more market-driven or any thoughts there?
Nate, so far, you know, I would say for this year, January and February, were tough operations for the railroads. The service challenges they had, along with some really challenging weather made for some pretty rough numbers for us. March was a significant improvement, and we've seen that same level of service so far in April. You know, we're feeling a lot better about the rail service out west and their ability to meet the customer demands going forward. Big improvement there. Now, my view on it is going forward, it's gonna be more a fluctuation of market demand and the customer pull dictating the flow of the coal versus rail performance.
Great. Appreciate your comments and thoughts, Jim, and Mark as well. Leave it there. Best of luck in the remainder of the year.
Thank you.
Thanks, Nate.
Next question. Next question. The next question comes from Katja Jancic with BMO. Please go ahead.
Hi. Thank you for taking my question. Going back to the capital return framework. You have nearly $900 million of cash, which I assume is unrestricted on the balance sheet. Could any of that be used potentially for the maybe buybacks or special dividends later in the year?
Hi, Katja, and congratulations to you. With regard to the cash in the balance sheet, as we mentioned previously, we're gonna maintain substantial liquidity in the balance sheet to weather the volatile pricing cycles in a credit-challenged industry. You know, the way I look at this represents the opportunity cost or the call option premium for the free cash flow yield that Peabody generates in the current price cycle. We've always mentioned that the shareholder returns, it'll be a minimum of 65% of available free cash flow, but it is on a forward-looking basis. We're real comfortable given the current market conditions, where we're at from a liquidity standpoint in that $800 million- $1 billion range.
Maybe just on the second half of the year, when you're planning to have a more balanced, capital return framework. Can you talk about is this gonna be 50% variable dividend, 50% share buybacks, or how should we think about that?
Yeah, I think, certainly it's at the board's discretion. We're starting with a very heavy focus on share buybacks given the current free cash flow yield. We do look to probably transition to a more balanced approach between dividends and buybacks, going forward. You know, it's gonna be at the board's discretion, but a 50/50 split is something that we may achieve at some point.
Okay, thank you very much.
Thank you.
Thank you. Next question. The next question comes from Michael Dudas with Vertical Research Partners. Please go ahead.
Hi. Good morning, everyone.
Good morning.
Jim, I was wondering if you could share your views? There's been a wee little bit of consolidation and activity in the global mining space, especially in the coal sector.
In Australia and elsewhere. Just wanna share your views on how you're seeing that play out, what are your thoughts about it? You know, as you've recapitalized, done a terrific job on getting the company's balance sheet just where it is. You know, maybe reiterate your thoughts on how Peabody may or may not fit into those types of opportunities going forward.
Michael. First off, thanks for getting on the call. It's, it's great to hear from you again. As far as, you know, Peabody and what we look at as far as potential M&A, we stated before, and it's still the case that, you know, our focus is on seaborne, the seaborne markets and assets that serve the seaborne markets. More heavily focused on metallurgical, but, you know, if there's a good thermal play out there, we take a look at it. Our main focus is seaborne metallurgical is where we're looking. There has seemed to be, you know, some uptick in M&A activity out there. A lot of discussions going on.
You know, to me what hasn't changed though, Michael, is, you know, the availability of financing to do deals, right? It seems to me that you're looking at scenarios where, you know, yet people either have to use equity or cash on hand or cash they generate because of the financing or attractive financing isn't really there. While there is an uptick in activity, I still think the challenge that people are gonna have is, again, how to do the financing for some of these assets. Michael, did I answer all the questions that you asked, or is there?
Yes. No.
Oh.
No, that's very helpful, no. That makes quite a bit of sense because there are those dynamics on capital, which of course is probably gonna lead to a much tighter market for global thermal and met coals in the future. My second part of my question would be, maybe, Jim Grech, as you assess how your customers are reacting, looking at things, you know, obviously a very volatile market, but as you look forward into later this year, maybe into next, are you more encouraged or cautious about the direction of demand and maybe pricing in the markets for, you know, the quality of thermal and met that you guys ship into the market?
Yeah. I'd say on a global scale, we're more encouraged, not just later this year, next year, but I'll just say going through the rest of the decade. That being, Michael, just to oversimplify it, you know, a fact of supply and demand. We see demand growing both in thermal and metallurgical on the in the seaborne markets. The constraints to supply growth that have been there are still there. You know, access to new capital, permitting, you know, ESG pressures, lack of hiring employees. While the volatility is gonna be there in the pricing, as you see right now, there's some, you know, maybe downtick in demand because of weather or some excess gas on the market.
The underlying fundamentals, this year, next year, through the decade, are still really strong. The fact that we think demand is going to be growing and supply is gonna have a hard time responding to it.
Makes sense, Jim. Thanks for your thoughts.
Thanks again, Michael, for getting on the call.
Next question.
A-
As a reminder, if you have a question, please press star then one to enter the question queue. The next question is a follow-up from Lucas Pipes with B. Riley. Please go ahead.
Thank you very much, operator. Thank you very much for taking my follow-up questions. Jim, the first one I wanted to touch on is just kind of the acute state of the met coal market today. It softened a bit. Price is still strong by historical standards, but I wondered if you could shed a little bit of light on what you're seeing from your customers in the various geographies, and what you think is causing this back. Thank you very much.
Yeah. I'll break that into two parts of the answer, sort of shorter term and longer term. In the shorter term, you know, what we saw was China, the exports of steel out of that really flooding the market here, in the first few months of the year. We've seen that pull back significantly now as you're getting into there's a lot of domestic growth going on in China, and the demand for steel is we're already seeing less exports of steel from China and more use for internal consumption of it. That goes with a need for more coal imports into China, and being less steel out on the market from China opens the way for other countries now to be pushing, you know, their product out there.
You know, we've seen the dip in the prices still at a very healthy price at around $250. We, you know, we think the conditions are there now with what's we see with China and its steel production for production in other countries to fill that void on the international market. There's potential there for strength with that. Again, you know, longer term, you know, I'll just go back to the same supply-demand dynamic that I mentioned with Michael and that seeing, again, not very quick response from the supply side, if at all. As demand increases, you know, having that out of balance equilibrium in the supply and demand side on the international met markets.
I appreciate that. Thank you. Switching topics, a little bit of a complicated question, but as much detail as you could provide, I would appreciate. When I think about your restricted cash, defeasing the reclamation liability effectively, but then also the larger bonding requirement at the minimum liquidity requirement that comes with that. Over time, I would expect both the NPV and the bonding requirement to come down. This should unlock a fair bit of capital. First, can you comment on the expected pace of those declines? What sort of reclamation costs would be associated on the other side of it, as you reclaim land and return mined areas to their original state?
Again, just trying to get a sense for the NPV of that liability, how it may change and also the bonding requirement, how capital might be unlocked there. Thank you very much for your color on this.
Certainly, Lucas. I guess I'll start with the first question. The collateral cap on the surety program is a percentage of what is currently bonded. It's a little bit different by individual market and by characteristics of the bonds they've written, but it's 56%. You are correct. As bonds are released, after work is completed, that would naturally come down. It'll be completely dependent upon, you know, new bonding requirements and new operations. We have not seen a significant change in that amount, from a gap liability perspective over the last several years, and I don't expect to see one going forward for the next several years either.
The total bonding has come down recently, but I expect it to be pretty stable going forward. As far as the expense that goes on, we have guided to $60 million-$70 million of kind of ARO cash spend. That's been pretty consistent over the last several years, and I'd expect that to continue.
Got it. Over the next few years, in a nutshell, we shouldn't expect meaningful changes either on the bonding requirement or the present value that you have cash collateralized of that amount. Is that right?
That's correct, Lucas. Again, that $900 + number we have on the balance sheet for total restricted cash and collateral, not expecting to see significant changes going forward. If there's changes in laws or some, you know, additional new bonding requirements, then that could go up. We'll do our best to offset that by completing reclamation work and continuing to get bond releases.
Got it. That's very helpful. I appreciate that, Mark. Thank you for the color. Just to go back to Shoal Creek one more time. With the temporary seal program being initiated, is that due to an abundance of caution or have there been signs of lingering, hotspots, for example, underground that caused this measure to be made? Thank you very much.
I, the readings, while they have been very stable at the mine, have not been zero when it comes to like, levels of hydrogen or CO. This is, you know, and so we're putting the temporary seals in again with MSHA to make sure that it is a safe environment for us to get in to access the rest of the mine and hopefully back to this area here. I don't know if I call it an abundance of caution, Lucas. It's, you know, we're comfortable with this approach and working with MSHA on it. The temporary seals-
Got it.
I think are a good indication, yeah, that we get to get in there, you know, to get in there quickly, and localize the area, the where it's at. I guess I'd leave it at that.
No, no, that's helpful. Thanks again for all the color and best of luck.
Thank you, Lucas.
Do we have any more questions?
There are no further questions at this time. I would like to turn the conference back over to Mr. Jim Grech for any additional or closing remarks.
I'd like to thank you all for joining us today. I'd especially like to thank our employees for remaining focused on safety and for continuing to execute on our various initiatives. I'd also like to thank our customers, investors, insurance providers, and vendors for your continued support. Operator, that concludes our call.
Thank you. That does conclude today's teleconference. We do appreciate your participation. You may now disconnect.