Participants

Brian Chopin; Chief Accounting Officer, Controller; Warrior Met Coal Inc

Walter Scheller; Chief Executive Officer, Director; Warrior Met Coal Inc

Dale Boyles; Chief Financial Officer; Warrior Met Coal Inc

Katja Jancic; Analyst; BMO Capital Markets

Nick Giles; Analyst; B. Riley Securities

George Ed; Analyst; UBS

Nathan Martin; Analyst; Benchmark Company

Presentation

Operator

Good afternoon. My name is Down, and I will be your conference operator today. At this time, I would like to welcome everyone to the Warrior first quarter 2025 financial results conference call. (Operator Instructions)
This call is being recorded and will be available for replay on the company's website.
I would like to turn the call over to Brian Chopin, Chief Accounting Officer and Controller.

Brian Chopin

Good afternoon and welcome everyone to Warriors' first quarter 2025 earnings conference call.
Before we begin, let me remind you that certain statements made during this call, including statements relating to our expected future business and financial performance, may be considered forward-looking statements according to the Private Securities Litigation Reform Act.
Forward-looking statements by their nature address matters that are to different degrees uncertain. These uncertainties, which are described in more detail in the company's annual and quarterly reports filed with the SEC may cause our actual future results to be materially different from those expected in our forward-looking statements.
We do not undertake to update our forward-looking statement whether as a result of new information, future events, or otherwise, except as may be required by law. For more information regarding forward-looking statements, please refer to the company's press releases and SEC filings.
We will also be discussing certain non-GAAP financial measures which are defined and reconciled to comparable GAAP financial measures in our first quarter press release furnished to the SEC on Form 8-K, which is also posted on our website.
Additionally, we will be following our Form 10-Q for the quarter ending March 30, 2025 with the SEC this afternoon. You can find additional information regarding the company on our website at warriormetcoal.com, which also includes a first quarter supplemental slide deck that was posted this afternoon.
Today on the call with me are Mr. Walt Scheller, Chief Executive Officer, and Mr. Dale Boyles, Chief Financial Officer. After our formal remarks, we'll be happy to answer any questions.
With that, I will now turn the call over to Walt.

Walter Scheller

Thanks, Brian. Hello, everyone, and thank you for taking the time to join us today to discuss our first quarter of 2025 results.
After my remarks, we will review our results in additional detail, and you'll have the opportunity to ask questions. While weak market conditions continued as we expected through the first quarter, I'm pleased with our relentless focus on our operations, which enabled us to deliver an increase in volumes, performed well from a cost perspective, and generated positive cash margins.
This operational backbone gives us the ability to drive strong performance relative to the market despite the current macro headwinds. At the same time, we continue to make excellent progress at Blue Creek, with the work this quarter keeping us on budget and on schedule for the start up of the long wall at this "World Class" growth project.
So let's start by looking at the current dynamics of the market for steel making coal. We've seen a dramatic change in the steel making coal markets where average premium, low volume index prices have dropped by 40% or $112 per shirt ton compared to last year's first quarter. First quarter premium lowball prices averaged $280 per ton in the first quarter of 2024 compared to $168 per ton in the first quarter of this year.
In addition, average index pricing for our High Vol A product has decreased 43% in that same time period. We've now seen four consecutive quarters of weakening still making coal prices.
While we cannot control market fundamentals, we can't control our response to these weaker markets by tightly managing our spending at the mines, operating the mines as efficiently as possible and rationalizing all other spending throughout the organization.
On the supply and demand side, overall market fundamentals for the past quarter of a week, but generally in line with our expectations. Chinese steel exports remained at elevated levels and continued to stress our customers' domestic and export markets.
Well, global demand for steel was challenging. On the steel making coal side, supply remained healthy while some customers engaged in a resale of cargos, both of which contributed to a weaker pricing environment for our markets.
However, we were again reminded of how vulnerable the steel making coal supply chain is, with several mining events occurring at other still making coal facilities during the first quarter, which could potentially impact the reliability of supply for several quarters this year.
Trade flows have also been impacted following China's decision to apply retaliatory tariffs on US steelmaking coals. Which is essentially halted coal trade between both countries. It is too early to quantify or for that matter adequately assess the impacts of US trade policy announcements will have on the flow of steel making coals, but we continue to monitor the situation closely.
Prices at these levels are especially challenging for other steel making coal producers higher on the cost curve than we are. Even the recent disruptions in global mining production have only had an insignificant impact on seed borne pricing. Our cost discipline continues to be a key differentiator for us in this environment.
As I noted earlier, average premium steel making coal prices have now declined for 4 straight quarters since last year's first quarter. Our primary index, the POV FOB Australia ended the first quarter at $153 per ton, which was $25 per short ton lower than the end of the fourth quarter of 2024 and averaged $168 for the first quarter of 2025.
Similar declines were observed in the Plat LV HCC index for our High Vol A product sold primarily in Asia, which ended the first quarter at $126 per short ton. This was $15 per short ton lower than the end of the previous quarter. We achieved the gross price realization of 83% for the first quarter, which was a function of product mix, geography, tariffs, and freight rates.
This result was slightly lower than our annual targeted range of 85 to 90%. It could be lower throughout this year as spreads have widened more in the last 12 months than historically. According to the World Steel Association monthly report, global Pig iron production decreased by 0.2% in the first three months of 2025 as compared to the prior year period.
Pig iron production in China, which is the world's largest production region, grew by 0.8% for the same period. The rest of the world's pig iron production experienced a decline of 2.2% for the first three months of 2025. India remains a bright spot with a growth rate of 6.2% and is expected to continue growing with new blast furnace capacity expected to come online this year.
Now let me turn to our first quarter results. Importantly, our strong sales volume was driven by excellent performance from our existing mines.
Our first quarter sales volume was $2.2 million short tons compared to $2.1 million short tons in last year's same quarter, representing a 2% increase. This increase is particularly notable given the market dynamics I described earlier. Our sales by geography for the first quarter break down as follows 43% into Asia, 37% into Europe, and 20% in South America.
Most of the sales into Asia during the first quarter were customers in India and other Southeast Asian countries. There were no sales into China during the first quarter of this year. Our spot volume was 8% for the first quarter of 2025, which is primarily sold into Europe.
For the full year, our split volume is expected to be approximately 15% of total sales volume. Production volume in the first quarter of 2025 was $2.3 million short tons compared to $2.1 million short tons in the same quarter of last year, representing a 10% increase.
Our existing mines continued to perform well, and the continuous mining units at our Blue Creek mine produced 251,000 short tons during the first quarter and drove the overall increase in production volume. Our coal inventory remained nearly the same at $1.1 million short tons at the end of the first quarter compared to the fourth quarter, 2024.
During the first quarter, we spent $79 million on CapEx and mine development of that amount, CapEx spending totals $69 million. Mine development costs for the Blue Creek project were $11 million during the quarter and were below budget. We expect our mine development costs to continue to grow throughout 2025 and until the low production starts at Blue Creek, which is expected to occur no later than the second quarter of 2026.
Excluding the Blue Creek capital expenditures invested during the first quarter, we tightly managed all the other capital spending to $13 million. Turning to our transformational Blue Creek growth project, during the first quarter, we continued to make excellent overall progress while remaining on budget and on schedule.
The development of the first lawn mower panel produced 251,000 short tons of steel making coal and remains on track to produce $1 million short tons for the full year 2025. We're pleased with the progress that has been made to date in the development as well as our tight management of costs. We started taking delivery of the long wall shields during the first quarter, and we expect to have all shields on site during the second quarter this year.
In addition, our recruiting and hiring efforts to this new mine continue to be on track. In the first quarter, we continued to make excellent progress on building out the surface infrastructure at Blue Creek, including the overland clean coal belt and barge loadout. We made considerable progress on the dry slurry processing system, the refuse area, and the preparation plant.
We're excited to announce that in the last few days subsequent to the end of the first quarter, we hit two major milestones at Blue Creek earlier than expected. We completed the a module preparation plant and we started washing coal and preparing it for sale.
At the preparation plant, we continue to make significant progress on the BNC modules, and the full commissioning of those modules remains on schedule. In addition, we recently completed the truck dump at the rail load out to move the coal from the preparation plant to the rail load out.
Also, we completed the rail load up where we began loading our first trains to move the Blue Creek coal to the port of Mobile. We expect to begin shipping small amounts of Blue Creek product in the second quarter ahead of schedule. We plan to post short videos of these key milestone achievements to our website soon.
We could not have achieved these major milestones early without our project team continuing to do an excellent job of managing the schedule and capital spending. All remaining key development progress milestones remain on track, including the aforementioned $55 million invested in capital expenditures in the first quarter.
The total project investment to date is $772 million which has been 100% funded from internally generated cash flows from existing operations. Equally important, we believe that we have sufficient liquidity on hand to complete the project. We remain focused on tight capital spending discipline until the project is fully completed.
The total of $772 million invested in the development of Blue Creek to this point is more than 70% of the expected total project capital expenditure. Absent any unexpected or unusual event, we continue to believe we will deliver the project on schedule as planned and within our total capital expenditure estimate of approximately $995 million to $1.1 billion. This estimate excludes the impact of any trade and tariff policy announcement that may be implemented, which could increase the final total estimated cost.
Well, at this point, there's too much uncertainty to quantify any potential impacts of the recent trade and tariff policy announcements. We will continue to monitor the situation and we will provide any updates at the appropriate times.
Blue Creek represents one of the last remaining untapped premium high quality high ball a coal reserves in the US, and we anticipate this product will generate strong margins. We expect incremental annualized production of at least $4.8 million short tons after the startup of the long wall ramping to a nameplate capacity of $6 million short tons as market conditions dictate.
This will enhance and strengthen our already strong global cost curve positioning and deliver incremental profit and cash flows.
I'll now ask Dale to address our first quarter results in greater detail.

Dale Boyles

Thanks, Walt. I'd like to make one overall note on our financial strength and market positioning before diving into the numbers.
We have built our company to thrive in most market price environments with strong customer contractual relationships, high quality products that realize premium prices, a low and variable cost structure, and strong balance sheet.
As a result, we believe demand for our products will continue even in the current market conditions and in the face of uncertainty of trade and tariff policy changes. We also have the flexibility to continue to rationalize and manage our cost and capital spending. These are unique assets.
In addition, we have the remaining capital anticipated to be needed to fund the completion of the Blue Creek project with cash on our balance sheet. We do not expect to slow down or suspend the project if these market conditions continue to persist for a prolonged period.
All of which means we can both weather the storm and emerge well positioned for the future. Now let us look at more detail on our first quarter financial results. For the first quarter of 2025, Warrior recorded a net loss on a GAAP basis of $8 million or $0.16 per diluted share compared to net income of $137 million or $2.62 per diluted share in the same quarter of 2024. These decreases in quarter over quarter results were primarily driven by 42% lower realized average net selling prices.
Partially offset by lower variable cost for transportation and royalties, other lower production cost spending, and 2% higher sales volume. We reported that adjusted EBITDA $40 million in the first quarter of 2025 compared to $200 million in the same quarter of last year.
Our adjusted EBITDA margin was 13% in the first quarter of 2025 compared to 40% in the same quarter of last year. On a per ton basis, our adjusted EBITDA margin was $18 per short ton for the first quarter of 2025 compared to $94 in last year's first quarter.
As I previously mentioned, these decreases in quarter over quarter results were primarily driven by 42% lower realized average net selling prices, partially offset by lower variable costs for transportation and royalties, other lower production cost spending, and 2% higher sales volume.
Total revenues were $300 million in the first quarter of this year compared to $504 million in the first quarter of 2024. This overall decrease of $204 million was primarily due to the decrease in average gross selling prices of $222 million partially offset by the impact of higher sales volume of $9 million.
In addition, the [Murri] and other charges were $9 million lower compared to the first quarter of 2024 and resulted in an average net selling price of $136 per short time in the first quarter of 2025 compared to $234 for short time in the same quarter of last year.
Cash cost of sales in the first quarter of 2025 was $244 million or 83% of mining revenues compared to $284 million or 57% of mining revenues in the first quarter of last year of the $40 million net decrease in cash cost of sales, $46 million of the decrease was driven primarily by the lower variable transportation royalty costs on 42% lower steel making coal prices.
In addition, we rationalized and tightly managed our spending on supplies and other repairs and maintenance expenses. These decreases were partially offset by a $6 million increase in sales volumes. Cash cost of sales for short time FOB port was approximately $112 in the first quarter this year compared to $133 in the first quarter of 2024. The decrease was primarily related to the lower variable transportation will be costs and lower steel making coal prices and tightly managing our overall spending at the mines.
We enter the first quarter below the bottom end of our 2025 guidance range for cash cost of sales for a short time. This result was primarily due to the lower actual steel making coal prices in the first quarter compared to our price assumption for the full year. Our cash cost of production for the first quarter of 2025 was 66% of our total cash cost for short time compared to 61% in the same quarter last year.
Overall, transportation royalty costs were 34% of our cash cost of sales for short time in the first quarter this year on lower average net selling prices compared to 39% in the same quarter last year. As a result of the lower average net selling price, our cash margin per short ton was $23 in the first quarter this year compared to $100 in the same quarter of last year.
SG&A expenses were about $18 million in the first quarter of 2025 and were slightly lower than the first quarter of last year. This was primarily due to a decrease in employee-related stock compensation expenses. Appreciation and depletion expenses were $45 million in the first quarter of 2025 and were higher than last year, primarily due to the additional assets placed into service at Blue Creek.
Our net interest income earned from cash investments was lower in the first quarter this year due to lower average cash balances and lower rates of return. Our effective income tax rate for the first quarter was approximately 42% because of the pre-tax loss.
Turning the cash flow. During the first quarter of 2025, free cash flow was a negative $68 million. This was the result of cash flows generated by operating activities of $11 million thus cash used for capital expenditures and mine development of $79 million.
Excluding the investment in developing Blue Creek of $66 million during the first quarter of 2025, free cash flow is nearly break even. Our total available liquidity at the end of the first quarter of 2025 was $617 million and consisted of cash and cash equivalents of $455 million short and long-term investments of $48 million and $114 million available under our ABL facility.
Now let's turn to our outlook and guidance for the full year 2025. We expect the weak market conditions we have seen over the last few quarters could persist for a prolonged period and could continue to put downward pressure on steel making coal prices.
In addition, any new tariffs or trade wars could put additional pressure on C1 pricing. Despite these expected market conditions, we have a favorable operational performance outlook for 2025 and this anticipate both higher sales and production volumes. 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 added spot activity. We are entering 2025 with a stronger contracted volume of approximately 85% and spot volume of 15%.
With this context, we are keeping our initial 2025 guidance unchanged until there is additional clarity on the impact of the recent trade and tariff policy announcements. At this time it's extremely difficult to estimate the impact of these recent policy decisions on our business due to the uncertainty and market volatility.
We expect to provide further updates to our financial outlook in connection with our second quarter earnings call to be held in early August 2025.
I'm now turning back to Walt for his final comments.

Walter Scheller

Thanks, Dale.
As we look forward, we believe the global steel market will continue to face challenges for the rest of the year due to China's overcapacity and the uncertainty caused by recent changes in trade and tariff policies.
However, we expect some of these headwinds to be balanced with an increase in steel making coal demand from India during the year as new steel production is commissioned. We also expect the recent mining events to cause temporary tightness in the steel making coal availability, which could lead to slightly higher prices compared to the previous quarter.
But until there's a meaningful change in the global steel market fundamentals, it is unlikely that steel making coal prices will return to their previous levels. While we recognize that we're operating in an uncertain environment, a world class asset base, highly flexible cost structure, and a high performing workforce will allow us to navigate successfully through the remainder of this year and beyond.
With that, we'd like to open the call for questions, operator.

Question and Answer Session

Operator

(Operator Instructions)
Katja Jancic, BMO Capital Markets.

Katja Jancic

Hi, thank you for taking my questions. Maybe starting on the pricing side, I think, Walt you mentioned that price utilization could stay below the 85%. So given the current market environment, is it fair to assume somewhere between 80% to 85%, or how should we think about it?

Walter Scheller

I think that's reasonable, we're still hopeful it will be above that, but I think that's reasonable, 80% to 85%.

Katja Jancic

And then in this environment, given how good your costs were this quarter, is the $120 per ton something we should be considering in the near term, or what are some of the moving pieces there?

Dale Boyles

That is Dale. Well, as far as the low end of the range, that was because the prices that average, what they did in the quarter was much lower than our assumption for the year. So it really depends on where prices go on the remainder of the year, we've seen them bounce up a little bit here in the last couple of weeks, so it's really going to be price dependent because our transportation royalties are variable.
So prices continue to go down from here. We could see some more improvement as well as our our management of our cost as well but if prices make coal prices rise, we'll see a rise in our variable cost as well.
So sorry, I can't give you a really good example unless you can give me an exact price for the year.

Katja Jancic

Yeah, more I was more thinking about near term, right? If prices stay at these levels in 2Q. I assume that this cost level would still be sustainable. Is that fair?

Dale Boyles

Yeah, it's fair.

Katja Jancic

One more, if I may, if I'm not mistaken, your longwall shields are imported from Europe. Are you, based on the current situation, are you responsible for the 10% tariffs that are in place?

Dale Boyles

With those shields, when they'll all be delivered, we will not incur any tariff, impacts on those shields.

Katja Jancic

Perfect thank you.

Operator

Nick Giles, B. Riley Securities.

Nick Giles

Thanks, operator. Good afternoon, everyone. My first question was just back on the realizations. You listed a number of factors that drove things lower, and I was wondering if you could add some color around that. I mean, should we think about transportation differentials and higher sales to Asia as as some of the biggest drivers or any color you could add around, the type of discounts that US producers are ultimately taking to send tons to Asia?

Dale Boyles

Yeah, thanks, Nick. Yes, those factors are what drove it and it really depends on where we sell our volumes into Asia, right? So the transportation we saw last year rates as high as [$50.55] a ton. We're more in that mid-30s now, so it's come down quite substantially over time, but with the trade and tariff noise. Those rates have started to rise recently, given, potential with the landed vessel charge that was talked about there for a while.
So those are the things that can kind of drive those things as well as the difference between the relativity between the PLB and the High Vol A that, prices off the [plat]. So those are really the biggest factors.

Nick Giles

Got it, thanks for that, Dale. Maybe just back to the shipment side. I mean, shipments were higher than expected based on the midpoint of your guidance and when taking into account Blue Creek volumes in the second half. So curious how we should think about volumes in the second quarter. Is it fair to assume that they they could step down?

Dale Boyles

Well, if you look at our, historical what we sell in the second half of the year, the fourth quarter is very light, so I'm not going to give guidance on the second quarter just to say that look, for the year within our range, we're 85% contracted for the year. So volumes can shift between quarters if a customer calls and all of a sudden moves the vessel that's supposed to shift the last day, moves it two days into the next quarter, that happens.
So we don't read too much into the difference between the quarters. We're really focused on the year.

Nick Giles

Hey, fair enough. And one more if I could, there's there's obviously been a lot of pain out there in the US markets, and so I was wondering if you could comment on the overall production outlook, do you have any rough estimate for how much production could have come offline during this period and what level of US production is ultimately at risk?

Walter Scheller

I think that's really difficult to say because even today we're hearing more rumors of different things going on in different operations. We know where we sit on the cost curve and we know there's a lot of pain being incurred right now throughout the industry, so I wouldn't be terribly surprised to see some curtailments, but sometimes those take a little time.

Nick Giles

Fair enough. Well, I want to commend you on your ability to navigate these tough markets, so keep up the good work.

Operator

George Ed, UBS.

George Ed

Yeah, hi, Walton, Dale. Hope you're both well. My first question is on Blue Creek and the remaining $220 million to 300 million CapEx. Could you maybe just clarify what it is specifically or at least what the big parts are, and when it will be spent over the next 12 months?

Dale Boyles

And so a lot of this is final construction, right, so labor, a lot of things like that. The majority of the large purchases of steel equipment, I would say we have the majority of that already on hand. So this is really finishing out the project.
So if you look at our estimate was 225 to 250 for this year. So that's what we look to spend this year in the $55 million, in the first quarters right on target with that. So then it steps down significantly in 2026. It's the build out of those other two modules we talked about with the prep plant, the labor to do that.
It's the overlay and belt, finishing construction of that, which is to come online in the fourth quarter. Plus we continue to work on the barge loadout. So those are the three big when Dale talks about the labor, those are the three big buckets of the project that are continuing throughout this year.

George Ed

Yeah, that's good. Thanks for clarifying that. And maybe the working [cap], so $32 million build this quarter, is that mostly attributable to Blue Creek and how should we maybe think about that over the coming quarters? Will we see a similar trend potentially, Dale?

Dale Boyles

Yes, as we mentioned, we did start washing some of the Blue Creek coal, and our inventory has been building, from the production there. So as we start to wash that coal and get it delivered to the port and then sold, we'll start to turn some of that working cap in the second half. So I would imagine you're going to see.
Over the second and early third quarter, you're going to see a working capital build and then we'll start to see some improvement in the second half late.

George Ed

Yes, okay. Thanks very much. And then just last one, guidance, what Metcoal price was that based on?

Dale Boyles

It's based on $200 that's and that's metric, so whatever that is, 185.

Operator

(Operator Instructions)
Nathan Martin, Benchmark Company.

Nathan Martin

Good afternoon, gentlemen.
Maybe first a clarification question. Well, I might have heard this incorrectly, but I think you've mentioned you price your your High Vol A product off the Platts US lowball HCC index, not the US High Vol A. Did I hear that correctly?

Walter Scheller

You did and you know how it gets priced depends on where the customer is, so it varies, but yes, that's correct.

Nathan Martin

Okay, got it. As we've seen, I guess all CPLD price has increased some which is positive, but you know those US prices have not quite kept pace and that discount spread has widened, as I think you guys also called out. So I'm interested to get your thoughts on, the published US prices if you think those are reflective of the current market and, do you think this discount can tighten up?

Walter Scheller

Over time, I expect the discount to tighten up. I can't tell you how or when that will happen, especially when you look at some of the operations that are having production issues this year and some of the tons that I think are under quite a bit more cost pressure right now. So I would expect it to tighten up. I don't know how quickly and how much, but that would be my expectation over time.

Nathan Martin

And then what do you just, do you see that what you're hearing from customers is kind of reflective of that index that plat publishes, or are there any discounts or premiums for that matter?

Walter Scheller

I think it's pretty much reflective of what the pricing is.

Nathan Martin

Okay, got it. I appreciate that and then good to hear, [Ari], that the rail loadout, the prep plan module A, being completed early. As you guys begin to start trucking that Blue Creek coal over to the loadout and shipping it, and how should we think about the impact on cost per ton of the operations?

Dale Boyles

Well, Nate, this is Dale. That won't have a dramatic impact of the volume this year, small comparative to the run rate volume, so it'll have some benefit, but. It won't stand out this year like it will starting next year.

Nathan Martin

Okay, Dale. yeah, I was just thinking it might actually be a little bit of a a a drag or drive costs higher just because I would assume transportation costs would be a little bit higher from trucking is that not the case though?

Dale Boyles

It look, that the cost is going to be great coming out of Blue Creek, but the additional trucking for a short period of time shouldn't add any significant material cost to that. And we're really focused on the cost right now and all the items that we have control over. So to the extent we can mitigate that, so there's really no impact, we'll do that.

Nathan Martin

That makes sense. And then, as you just mentioned, Dale, hoping to get maybe some more of your thoughts around what meaningful levers you could use to trim or defer some CapEx if need be during this persistently weed market?

Walter Scheller

I think what we're doing is we're squeezing our our existing operations pretty hard and making sure we're only spending on things that we absolutely have to have in the short term and we'll continue to do that and you know we're constantly looking for every nickel and dime we can save in this type of a situation and you know when we've kind of tried to design ourselves for this type of situation so that we're able to respond and thrive in this kind of a market as well as the upper end so we're pulling the levers we need to pull.

Dale Boyles

And we have the added benefit.
Look, we have over $500 million of cash sitting on the balance sheet. So, it's one brought up earlier, you have a maximum amount of $300 million left to spend, so that still leaves you with another $200 million of cash if you need it for other things in a worst case.

Nathan Martin

Got it, very helpful. I'll leave it there, guys. Appreciate the time and best of luck.

Operator

At this time there are no further questions. I will now turn the call over to Mr. Scheller for any comments.

Walter Scheller

That concludes our call this afternoon. Thank you again for joining us today. We appreciate your interest in Warrior.
Thank you.

Operator

And that concludes our conference for today.
Thank you all for participating. You may now disconnect.