Good morning, my name is Carol, and I will be your operator today. At this time, I would like to welcome everyone to the Contura Energy Second Quarter 2019 Earnings Call. [Operator Instructions] At this time, I would like to turn the call over to Alex Rotonen, Vice President, Investor Relations. Please go ahead, sir.

Thanks, Carol, and good morning everyone. Before we begin, 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 second quarter 2019 earnings release and 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 Chief Executive Officers, David Stetson; and Chief Financial Officer, Andy Eidson. Also participating on the call is Kevin Stanley, our Chief Commercial Officer, who will provide an update on the current coal market dynamics. With that, I'll turn the call over to David.

Thanks Alex. Good morning and thanks to everyone for participating. First, I want to start by saying how excited I am to be leading this organization with this tremendous assets and a workforce that's second to none. With regard to Contura's deep and experienced management team, I'd like to thank Andy and Mark in particular for the excellent job they did in managing the organization as interim-CEOs during the company's recent leadership transition. While we have faced a number of challenges the past several months, I believe the future is very bright for Contura and we'll be covering several positive developments today that point toward the high potential of the company. Additionally, I'm looking forward to sharing my longer-term vision for Contura with you which include some structural changes to both our management team, and the Board of Directors that allow us to better focus our strategic efforts on that vision. Our operational performance in the second quarter was exceptional with record high EBITDA of $140 million and over $100 million of cash provided by operations. We increased our second quarter met shipments by 10% as compared to the first quarter to nearly 3.4 million tons. In addition, we reduced our cost of coal sales across all operating segments but we still have much work to do to get cost to a level with which I am comfortable. While the second quarter was very strong for us, I'm sure everyone on this call is well aware of the seaborne met market that has held up so well over the past two years, has begun softening in July. Obviously, we can't control market dynamics but we can control how we react to them. Therefore, as a result of what we believe to be a short-term challenging, we are rational our production…

Thank you, David. As David referenced earlier, after two plus years of relative stability in the met markets we have seen significant volatility over the past several weeks. At least short-term, there has been a change in the international supply demand balance, growth has softened accompanied by an increase in supply, particularly in Australia as logistical challenges are overcome and shipments have increased. This shift in balance has resulted in a softening in short-term pricing and reduced spot export opportunities for U.S. coal as reflected in metallurgical indices with track U.S. coal products. The Pax Atlantic high vol A declined approximately 15% since the beginning of July. As is usually the case in these periods when the overall market is pressured, the spreads between the various coal qualities tend to shrink as well. For example, a month ago the Atlantic high vol A was priced at $184 per metric ton representing a $34 spread over high vol B. Currently, the high vol A price is at $158 and is spread between 8 and high vol B has narrowed to $13. It's important to note that while the spot market has obviously declined meaningfully, the Australian low vol futures indicate a much smaller decline when looking at the late 2019 and 2020 price strip. For example, the early August Australian premium hard coking coal spot was at $157, down from $201 two months earlier. But the December 2019 futures declined approximately half as much, from $188 to $164. And the June 2020 forward strip declined even less from $183 to $168. While these Australian indices are simply today's snapshot of the forward curve, they should be somewhat indicative of future pricing trends. This tells us that the futures market expects the supply demand dynamic to continue near equilibrium levels. We believe…

Thanks Kevin. As David mentioned at the beginning of the call, we did have a great second quarter with about $140 million of EBITDA, as compared with $83 million in the first quarter. The improvement here was driven mostly by higher revenues but also as we'll see strong cost containment across all the segments. As we dig into the individual segment performance a little bit, CAPP met generated about $114 million of adjusted EBITDA during the quarter. Trading Logistics generated $9 million and our thermal operations cap thermal and NAP contributed about $11 million and $21 million respectively. And in addition to that, SG&A expense was about $15 million, which is not allocated against the individual segments. From a shipment perspective, second quarter CAPP met shipments increased from 2.8 million tons to 3.1 million tons as compared to the first quarter, while net volumes increased from 1.65 to 1.75. CAP Thermal shipments increased from 1 million to 1.2 million tons and T&L was roughly flat with first quarter at around 400,000 tons. Again, on the cost side, we saw material quarter over quarter cost improvements across all of the operating segments. The steps we took at the end of first quarter when we saw cost creeping higher considerably higher and Central App met, along with increased productivity at our operations. And that's all, thanks, due to the continued commitment and dedication of our coal miners yielded what we believe to be very positive results and we expect to continue to build on this success as David mentioned earlier, a good quarter is not the end of our efforts as far as bringing down costs we will continue to be acutely focused on that. And digging a bit deeper into the cost side out of the picture, CAPP met cost declined…

So just kind of wrap everything up. Again had an exceptional second quarter very strong EBITDA, good cash generation and very impressive cost improvements at the operations. And we are fully committed to continuing to improve our cost structure going forward. With the new leadership in place, I think we're confident that we will continue to be able to effectively manage the controllable aspects and optimize our performance going forward. And thanks again for everyone being on the call today, we appreciate the interest and for those attending to Seaport Global Securities Conference in St. Louis next week. We look forward to seeing you there. So operator, with that, I believe we are ready for questions.

[Operator Instructions] Our first question comes from Mark Levin from Seaport Global. Please go ahead.

Great and congratulations David on your new position I think it's a very good day. It was a very good day when you were announced and also congratulations on a very strong quarter. Let me ask – start out with maybe some more specific questions and then maybe more general ones on the specific side Andy, you had referenced a longwall move in the third quarter and some other gating items. When you think about 3Q EBITDA versus let's say Q1 and Q2 EBITDA and then Q4, maybe you can give us some cadence as to how earnings should play out in the back half of the year?

Yes, Mark I don't want to try to get too precise here because again going into the way the market is appearing to turn. I don't want to throw out something that we failed to achieve. But I think it's safe to say just again based on the way we expect cost to move in this kind of a sound wave function. I think we could expect Q3 to have slightly higher costs. We will have the longwall move, which will impact NAPP. On the markets going the direction, the market is going so I mean, it would be tough to see third quarter really looking to be in the same ballpark, as what we saw in Q2. Again, it's really going to be a function of where the market lands as 160 kind of the support level. Do we see any kind of rebound or do we need to go a little bit further deeper into the – met prices before we hit some support and bounce back out, really don't have a good view on that right now. So probably best just leave it at some generic kind of cost guidance on – where we think the controllable piece of it will be able to go.

No, that makes sense, and then – I know you guys are entering into the domestic negotiations now. Can you remind us as to what your mix was in 2019 and what is a reasonable way to think about what your domestic versus export mix could look like in 2020?

Mark, this is Kevin Stanley, our domestic coal position is just over 5 million tons for 2019. So that's going to put you, if you're at for CAPP Met segment at 11.5 million to 12 million tons of guided volumes so just over 5 million tons on that. 2019, volume for 2020 obviously, it's very early in the domestic negotiation process so to start to put a number on that that's a little bit difficult. The other thing I would remind you going into 2019, when we were in the domestic market, we were two separate companies. So we'll go in with a consolidated strategy. I think we were pretty similar going into 19, Contura and Alpha, but we're looking at something. So I don't want to venture a gas just hit on 2020.

And then just turning to Blackjewel real quickly Andy, you laid out sort of the NPV cost over an eight to 10 year timeframe under the reclamation scenario. Maybe without doing sort of the NPV calculation what would be the sort of annual cost impact if you were to have to go that route A), and then B), under the scenario in which you – do bring these assets back in. How should we think about the cash impact in 2020/2021 if you are actually operating those assets?

Yes, Mark, I think, and of course, as I mentioned, it would be pending agreement upon our reclamation plan with the Wyoming Department of Environmental Quality, who has been – kind of lock step with us through this process, making sure that we're communicating and keeping our plans well developed, in the event we do need to pivot, one direction or the other. The process will be somewhat front-end loaded. But again without trying to get into too many specifics, if you kind of think of it as adjusting out some of the earlier items that I mentioned – acquiring a shovel for $30 million and 15% contractor to market and all those kinds of things. If you pull those out it gets you kind of with the gross number and – $180 million to $200 million total cost range over that 10-year period. It's not a scenario where you would just say its $20 million a year based on that picture. It would be front-end loaded. So again not trying to get too specific, but maybe you're looking at 30-ish million in the first couple of years. And after the big portions of dirt have been moved and you start to level out some and then you taper throughout the rest of the reclamation plan. But again, we still got some work to do, we've got to, we're engaging with third-party consultants to help us get a refreshed view of what – a better reclamation costs would look like. And again working with the DEQ I think will, give us a leg or two to hopefully minimize the impact from a cash burn perspective.

And if you don't reclaim, what would it look like?

Yes if we don't reclaim, I mean that comes down to more of a strategic question of operating longer term versus operating shorter term. I believe strategically we got out of the PRB for reason. I don't know that we're terribly interested in doing anything longer term. That said – pursuing this transaction as it's been structured does as David mentioned earlier. It gives us a lot of options around different things to do with the assets, whether it's pursuing additional transactions or just attacking a more short-term operational approach. Just to get us to a point where we can do a more orderly reclamation, but all these options are still on the table pending some kind of resolution with the various counterparties in this process.

And then just my last question is for David. David, when you think about the opportunities on the cost side, you mentioned about getting cost back to levels that you think are more appropriate for the enterprise. Can you maybe talk about some of the levers that you expect to pull or would like to pull to kind of get cost back down to where you think they need to be?

Well, Mark coming in I have been here a good 10, 12 days. So is trying to evaluate those obviously, I'm working in tandem with Jason Whitehead on those, most of its going to go to efficiency at the mines themselves. We've seen a drop off in feed per shift that we need increase back. A lot of is driving force at the mines themselves and that's what Jason is going to be working on. So I think from a cost perspective, it's more of the efficiency side of it. And then, it's also coordination between sales and ops quite frankly. As the sales, see a softening in the market, they can relate that to ops quicker. So they can respond more quickly, I believe in a flat nimble operating and management system, so that we can move quickly as markets change. So most is going to be driven around efficiencies at the mines themselves, you may have some indirect savings through some supply and maintenance changes we'll make, but most of it's going to be driven through the efficiency at the mine is driving up the fee per shift and bringing it more in line with where we are on the sales side.

Our next question comes from Daniel Scott from Clarksons. Please go ahead.

I want to echo Mark's comment, David. Congratulations on the new role. My question is for Andy, there was a pretty sizable loss from discontinued operations in the quarter. Can you kind of walk through what made that up and why it was so big this quarter versus other quarters?

This is almost entirely related to booking the ARO, even though the bankruptcy filing for Blackjewel was on July 1, it's outside of the quarter, one day’s difference. It's kind of hard to argue that the condition didn't actually exist at the balance sheet date. So we went ahead and did record. The arrow coming back on to our books and of course that does consists of the discounted GAAP number which has to start with the initial Wyoming binding estimate of $250 million and that zip code and includes the extra shovel on all the contract and market ups and things like that, that I mentioned earlier, so you're starting with the larger number, you’re discounting it back at more of a cost of capital, discount rate and that, that gets you to the 140-ish number that shows up on the balance sheet, but that's the big portion that it has.

And then maybe stepping back a bit here. When Blackjewel filed, I think, the perception and maybe the message from Contura was that, it was a pretty limited exposure to those assets or at least the recognition coming back, given that Blackjewel has been operating and taking title of the assets. Is the development to become the stalking-horse and bring this in-house, is that a change perception of the risk that was there? Or is that just a desire to get an overhang taking care of earlier? What's your thinking there?

Yes, it's a little bit of both Dan, but I think it was more along the lines of coming to the conclusion from a legal and a statutory perspective that -- the fact that we still had held the permits irrespective of the status of the permits. Basically, at the end of the permit transfer process, irrespective of all that, we were going to be kind of tag with the reclamation responsibility as it was. And so once that became apparent from our outside counsel and just a broad regulatory perspective, we determined that the best course would be to get in the mix and kind of drive the outcome as best we could because at that point, your downside is pretty much limited to the reclamation which I think we've now kind of put a bracket around what that looks like, and anything that we can accomplish better than that. Just a nourish that would benefit the organization. So it was a little bit of it. Not a little bit, it was a pretty significant change in on the understanding and the conclusion on what the regulatory exposure was there.

And then lastly, last quarter of the capital return 250 million authorization was announced and it wasn't really mentioned in this release, but you did talk about the first tranche coming up soon. And I believe you made comments about the price of your stock, is that mean that, that's the most likely direction or a special dividend on the table at all?

I'll jump in on this one too. This is a thing where we've done a good amount of work with the board previously and lead up naturally as you mentioned, we did have the $250 million authorization. I think we're in kind of the short rows now as far as David coming in getting up to speed. We've got a little bit of work to do just helping them understand liquidity analysis and that kind of stuff. And then with the reconstituted board, coming to a quick conclusion as to what the next step is to move forward. I think at our current price again, we are so just from my personal estimation so undervalued right now talking about anything but a share repurchase, whether it's through a Dutch tender or open market 10b5, 10b-18 plan. Those are the things that makes sense rather than dividends. But again, this will be entirely up to the Board, and David as they work through that over the next very short-term future.

Our next question comes from Lucas Pipes from B. Riley FBR. Please go ahead.

This is Dan Day on for Lucas. So it sounds like Plan A, with the Blackjewel assets is to reclaim, I just -- so first of all, just maybe if you could put some probabilities around like reclaiming verse deciding to run the mines. And then if you do decide to run them like what sort of capacity do you think you'd run the math, would it be just like reduced capacity to reduce cash burn, or do you kind of, if you go that route. Do you think like you maybe try to turn them around and get them profitable? So just, I guess some color around that. Thanks.

Sure, sure. Well, I wouldn't call reclamation Plan A. I think Plan A would be something that looks a little bit different. Again, there are several options with this, I think the real Plan A would be someone else who has an interest in being a PRB operator shows up quickly and in terms to do a transaction there, that would probably be the best case outcome. But when you look in between those, there are some situations where we could view ourselves as an operator for a period of time, but again strategically, being out there for a lengthy term is simply not really an option, we have continued to drive our focus toward the Eastern met properties, I think particularly with David coming on board, the desire to do that increases even more. And so I think you could probably see some shorter-term operating horizons to get to a point where reclamation that would make sense, but again I think best case would be, the assets end up in someone else's hands who wants to be a PRB operator. And kind of worst case, if you want to call it a worst cases, it's reclamation, immediate reclamation plan, which I think we've now or at least have tried to define pretty well as to what the impact would be, which, again, it's not a wonderful outcome, but it's not cataclysmic by any stretch of the imagination. And as far as probabilities, again that ones that one is really tough. It depends on what time of the day, you asked me. I'll give you a different answer, because it's been quite a twisting and turning adventure over the past two months. Again, pending how things resolved with the federal government and the other parties involved, we could have something that looks a bit better than a reclamation scenario, but we'll just have to see how that plays out over the next little bit.

Have you had conversations with anyone you think might be someone who wants to be an operator of these assets? Or is this just something you're looking to?

I can't really. I mean, look, we don't own the assets. So we're having to kind of stay out of that. The bankruptcy process continues even though the asset sale was approved. It was the closing of that deal is contingent upon certain agreements being raised. So, I don't want to speak on Blackjewels process, but I'm sure there are people still looking at and talking about the assets, particularly as they relate to the ongoing cloud peak situation just because there are some interesting things that can be looked at from that perspective. For someone who does want to be a PRB operator.

Just one more. I'll sneak in. So, we've heard there has been a lot of kind of more conversations going on as far as M&A goes in the coal space now then maybe there has been over the last few years. As far as like maybe any growth acquisitions, you guys consider, would that be sort of limited to areas you're already in like basically CAPP met would be would be kind of where you'd look to grow? Or do you look outside of Appalachia? Or I'm just looking for some color there as well?

Well, this is David. I would answer it this way. We will look at anything that will expand our footprint, expand our offerings. We believe to be strategic. I certainly believe that, that's going to be primarily in the Central App region. And I think there is multiple opportunities available to us to do some bolt-ons that will further enhance our offerings, further enhance our capabilities and that's probably my primary focus would be. I love optionality. So I don't ever say no to something, but I have watched too often where people have ventured outside of their core competencies in their core areas and sell them, and if I found that to be successful. So, our primary focus will be on the Central App region. But again, well that's what I got Scott Kreutzer taken this lead for me, work directly with me to look at every option we have.

And we’ll turn the call back over to Mr. Stetson for closing remarks today.

Thank you, Carol. Again, thanks everyone for your interest in Contura, and I look forward to meeting with many of you in the near future. Have a great rest of your day and thank you so much again.

This concludes today's conference call. You may now disconnect.