Hello and welcome to the Alpha Metallurgical Resources' Third Quarter 2021 Results Conference Call. My name is Alex and I will be coordinating the call today. I will now hand over to your host, Emily O'Quinn, SVP of Corporate Communications, to begin. Over to you, Emily.

Thank you, Alex, and good morning, everyone. Before we get started, let me remind you that during our prepared remarks and the Q&A period, our comments regarding anticipated business and financial performance contains forward-looking statements and actual results may differ materially from those discussed. For more information regarding forward-looking statements and some of the factors that can affect them, please refer to the Company's third quarter 2021 earnings release and the associated SEC filings. Please also see these documents for information about our use of non-GAAP measures and their reconciliation to GAAP measures. Participating on the call today are Alpha's Chair and Chief Executive Officer, Davis Stetson; and President and Chief Financial Officer, Andy Eidson. Also participating on the call are Jason Whitehead, our Chief Operating Officer; and Dan Horn, Executive Vice President of Sales. With that, I'll turn the call over to David.

Thanks, Emily. Good morning to everyone and thank you for joining us. We're excited to discuss additional details about Alpha's third quarter performance with you today. As usual, I'll let the rest of the team provide their detailed thoughts on the results, but there are a couple of points I want to highlight with additional context. The first is the 134% increase in sales realizations quarter-over-quarter on our business tied to Australian indices. Beyond being an outstanding accomplishment by Dan and his entire sales team, this figure is also a reminder of Alpha's commitment to our customers both in good times and those like earlier this year when unique circumstances were much more challenging. That's because we deeply value our customers and make good on our commitments. As much as we've talked about the Australian indices on prior call, I'm especially pleased to report this positive shift. Another important detail to highlight is the fact that we nearly tripled gross revenues quarter-over-quarter on our met sales. This is a further testament to the robust market dynamics and our team's diligence in mining and selling our coal for an attractive price. An area where I'm especially proud of our progress is on our debt and legacy reduction. Our total long-term debt and legacy obligations were reduced in the third quarter by over $75 million. If you listened to our prior earnings calls, you know that I've been steadfast in my assertion that deleveraging the Company is critically important to Alpha's longevity and therefore, debt reduction should be our first priority for excess cash. Thanks in large part to Andy's excellent work in executing these various prepayments and repurchase, we ended the quarter with roughly $500 million in long-term debt. We intend to continue this forward momentum in the coming months because…

Thanks, David. Good morning, everyone. Our operations team turned in another solid quarter of performance overcoming several unique challenges in the period, including continued inflationary pressure that as a result had increased cost for certain materials. This together with increased labor costs and higher royalties and taxes due to higher sales prices resulted in elevated cost of coal sales for the quarter. With these factors expected to continue at least for the near term, we're increasing our 2021 Met segment cost of coal sales guidance to a range of $73 to $77 per ton. The 2022 guidance range of $88 to $92 per ton issued today also reflects our go-forward expectations for cost. Despite these factors outside of our control, I'm proud of the operation team across the organization for remaining focused and committed to cost containment and managing the cost that we can directly influence. Last quarter I spoke about our decision to add a fourth section at our Road Fork 52 mine to increase our output of low vol met coal at a modest capital cost with an expected payback in a matter of six months or less. Development progressed on this additional section ahead of schedule during the quarter, which has allowed us to begin producing in mid-October. As David mentioned earlier in connection with our issuance of 2022 CapEx guidance, we are announcing several planned projects designed to provide optionality and increased efficiency for Alpha both in the near term and for many years to come. In addition to having attractive expectations for return on invested capital, each of these projects should provide immediate value upon our completion also yielding longer-term benefits to the organization. This project list includes development of two new mines in West Virginia, Cedar Grove No. 3 mine and the Glen Alum…

Thanks, Jason. As we reported in our release this morning, our third quarter adjusted EBITDA was $148.2 million nearly quadrupling our second quarter adjusted EBITDA of $39.9 million. Alpha sold a total of 4.7 million tons for the third quarter with our Met segment volume of 4.4 million tons representing an increase of nearly 20% quarter-over-quarter. Our most significant area of increased results is in our realizations, which drove gross Met margins of $36.90 which tripled nearly - or nearly tripled quarter-over-quarter. Our export business linked to the Australian indices yielded realizations of just under $159 for the quarter while we realized $125.44 per ton on our export businesses based on the Atlantic indices and other pricing mechanisms. For the Met segment as a whole, our realizations came in at $113.51 per ton, which is an increase of 36% from the second quarter while realizations increased slightly within the all other category to $62.43 per ton. As you would expect in a pricing environment like this one, our Q3 Met segment cost of coal sales increased to $76.62 per ton and our all other categories cost of coal sales rose to $47.47 in Q3. With increased labor cost we discussed on our last quarterly call combined with increased materials cost due to inflationary pressures and higher sales prices that require larger royalties and severance taxes, we expect higher cost to be part of the equation for as long as the current market holds. That's a good problem to have at this point in the market. SG&A, excluding non-cash stock comp and non-recurring items, increased from $13.3 million to $14.1 million in the third quarter. Our Q3 CapEx was $22.3 million, up from a second quarter level of $17.6 million but still in line with our increased guide range - guidance…

Thanks, Andy, and good morning. To start off with a look at the most recent market dynamics globally. The latest World Steel Association crude steel production statistics show an 8.9% decline in the year-over-year total production for September. China's September production was 21.2% lower than in September of 2020. However, in Brazil production increased 15.3% and India showed an increase of 7.2% for the year-over-year period. Regionally, North American and European crude steel production increased 19.2% and 15.6% respectively against the year-ago period. The year-to-date U.S. steel mill capacity utilization rate here is 81.3% through mid-October with the metric recently reaching a multi-year high at 85%. This is encouraging and something we keep an eye on as we survey the market landscape. We're all aware that coal indices have increased significantly over the course of the third quarter. For example on July 1, the U.S. East Coast High Vol A index was at $193 per metric ton and rose to $377 per metric ton on September 30. The U.S. East Coast Low Vol index followed a similar path moving from $217 a metric ton at the start of the quarter to $412 per metric ton at quarter close. The early year volatility in the seaborne metallurgical coal market began to subside in the second quarter with a more traditional equilibrium between Australian and Atlantic indices continuing into the third quarter. Despite China's continued ban on Australian coal imports, the Australian premium low vol index more than doubled in the third quarter from $190 a metric ton on July 1 up to $401 per metric ton on September 30. This yielded much higher realizations for our Aussie linked tons during the quarter further confirming the importance of our decision to continue delivering on our customer commitments throughout this brief period of…

Our first question today comes from Lucas Pipes from B Riley Securities. Lucas, your line is now open.

Thank you very much and good morning, everyone. First Dan, somebody asked me to ask you how it feels to be selling coal at these levels. But all joking aside when we look out to 2022, very strong sales book-to-date, do you expect to lever - layer in additional fixed price contracts here or would you say the fixed price season is concluded at this time?

Thanks, Lucas. I appreciate the question. I do - there are still opportunities out there for some fixed pricing. The domestic market is not 100% settled yet and we're absolutely still seeing demand in the next several months from our other markets whether it's India, Brazil, Europe. So there's absolutely opportunities to layer in more fixed pricing whether it's short term spot or medium term, there's just a lot of opportunities.

Okay. Do you have a - can you share where you kind of expect to end up on a fixed price basis for 2022 call it at the end of this year? 50%, 40%, what would be your guess?

Yes. I don't have that number handy, Lucas. You mean on the overall book?

Yes. On the met coal book, yes.

Yes, Lucas. This is David. We're in the high 20%s. We're opportunistic. If we see opportunities that we like on the domestic front or on the fixed price front, we'll seize it. If not, we're very comfortable where we stand today from a mix of domestic fixed versus international. So, we feel very comfortable with where we are right now.

Thank you. Thank you very much for that. And then my second question is on the capital structure, balance sheet side. You highlighted a number of times in your prepared comments how debt reduction, liability reduction is a priority? Given the visibility you have today with strong sales book where pricing is today, do you have - can you share with the market when you would expect to be net debt zero? Is that a target? Is that a goal you're working towards and again like when would you expect to get there? Thank you very much for your perspective on that.

Well, I'm not going to give a specific timeline on that because that takes us beyond what we normally disclose. I can tell you that I stand by my comments I made. I'm steadfast in the fact that we will use free cash flow to reduce our indebtedness and that is where my priorities are. So, everybody can run their models and figure that out on their own. But my goal has not altered at all. We're paying down our debt, building a robust cash balance to take care of ourselves if any kind of downturn occurs in the market, being able to fund our own capital projects in the future, invest in our future. That's my focus - 100% focus at this point in time, Lucas.

That's very helpful. Thank you. I do have more, but I'll jump back in queue for now. Thank you and best of luck.

Thanks, Lucas.

Thank you, Lucas. Our next question comes from Nathan Martin from The Benchmark Company. Nathan, your line is now open.

Good morning, guys. Congrats on the quarter and continuing to work those debt levels down.

Thanks, Nate.

I wanted to start on the cost side as I guess I've been doing on most calls this quarter. Totally understand obviously inflationary pressures everyone's seeing in the market. Sales related costs, obviously that's a good problem to have. Also really appreciate the slide you guys put in your deck kind of bridging the guidance from '21 to '22 because I think that implied 20% or so increase is probably higher than what most investors were expecting. But I was hoping maybe you could dissect this a little bit more. With the $7 increase you have on the slide in sales related costs, maybe what met price are you guys assuming with that and how about maybe rail rates as well? And then with the $5 increase in labor and benefits, is some of that temporary or is it more structural? Andy, I think you said that those levels are kind of expected to remain high in this price environment. So, just any color on there. Thanks, guys.

Nate, it's, Andy. Yes, the - I think what we typically try to do and I think either you or Lucas has asked this question for a couple of years and I want to try to maintain the same answer every time. We're pretty well informed by what the futures are for the met pricing. So we may not adopt the exact same numbers, but we do try and adopt the same kind of curve and of course with a backward dated curve, we're looking at something pretty close to what futures are trading or indicating right now. We do tend to - as always we tend to be a little bit more conservative. So, we like - for at least for internal purposes, we'd like to pull those numbers back a little bit. But our curve isn't terribly dissimilar from the futures curve as far as pricing and that drives the sales price related cost On the labor side, yes, that - look, Jason can answer this way better than I can, but there is a real labor concern and a labor issue in Central Appalachian. We don't want to be delusional and pretend that it doesn't exist. So, we want to be very transparent that it exists and we're all - I mean we are all having to deal with it and it will be a continued cost pressure whether it's competition for labor in this hot market or whether it's just generally a shrinking labor pool for folks leaving the industry and finding other things to do. So we want to recognize our employees, we want to recognize our miners; they do a fantastic job. We want to make sure that they're very well compensated and in times like these, we're actually happy to give a bump here and there just to recognize and let them feel some appreciation where we can afford to spend the money to support them and we got to. We don't just invest in CapEx, we invest in our people too and this is really important to us. So, everyone likes to keep cost low. But this is one of those points in time where the cost has crept on us and for the most part it's - these aren't necessarily controllable costs because these are things we have to do to make sure that coal continues to be mined.

Thanks for that color, Andy. And then just any comment on the rail rates, is that part of that $7 sales related cost increase that you all assume?

No, that cost happens and that's captured in our netback realization number not in the cost of sales.

Okay.

We definitely don't worry too much about rail stuff anyway.

Okay, perfect. And then maybe kind of going over to the new projects you guys have announced. Are they expected to change the cost structure much? I guess I see from your table Cedar Grove 3 replacement, Glen Alum kind of replacement tons there as well. How many tons of production maybe could we expect from those mines once they're up and running and how does that really change the overall mix if at all? Thanks.

Hey, Nate. This is Jason. I guess I'll start with Cedar Grove 3, which is basically just - it's 100% sustaining so we have a depleting mine basically the same quality, the same geology, with the same expected output. So, that's just kind of a push. The fourth section at Lynn Branch which should expect up to 400,000 tons a year of incremental production on top of where we are today with very similar to maybe slightly decreased cost structure for incremental tons as you normally bolt them on. And then the last mine the Glen Alum mine, which won't come into full production until the very end of next year. It's also a replacement mine, but it's kind of replacement plus because it is a significant improvement of quality there to Marfork complex. But if you look at incremental overall tonnage increase, it would just be the Lynn branch fourth section.

Perfect. Appreciate that, Jason. And then just maybe one more for now. Strong shipments obviously guys in the third quarter, congrats on that. It's like well above initial production. Is that driven by some inventory sales there or maybe even any purchases? And then if we kind of look at the fourth quarter, I had a client ask me already even if we assume the high end of the guidance implication the sales will definitely be down. Maybe you can just talk about that expectation a little bit? Thanks.

Yes, Nate. So, I'll let Dan fill in the gaps if I leave anything out here addressing the guidance question. So, that's kind of what I was kind of hinting at talking about the fact when you get it to year-end, there is a chance that you could have some - anything can happen in either direction. You could have some cargoes slip into Q1 out of Q4 or vice versa pull some cargoes a little bit ahead I think. It feels like with the market being where it is, there's probably a higher likelihood that we'd pull some in from Q4 - or Q1 into Q4. So, we could actually get above our guidance and beyond comfortably at the higher end. But that's - again that's really more tied to shipping schedules and how supply chain is holding up and how the port's doing and things like that. So feels like we're probably going to start closer to the higher end, but we didn't want to go so far as to change guidance on that piece.

Thanks for those comments, Andy. It's positive, I think one of your competitors said that they were expecting maybe some tons that could slip from 4Q to 1Q. So, that's good. Sounds like logistics might be going a little better for you guys. So, very helpful. Thank you guys for the time as always and best of luck in the fourth quarter.

Thanks, Nate.

Thank you, Nate.

Our next question comes from Lucas Pipes from B. Riley Securities. Lucas, your line is now open. Sorry, Lucas, are you there? Can you hear me?

Sorry about that, I was on mute. So, thank you very much for taking my follow-up question. I wanted to ask about the modernization CapEx and you may have touched on this in your prepared remarks, but is this part of sustaining capital or growth CapEx?

Hi, Lucas. This is Jason. And you're talking about the preparation plant upgrades that we mentioned today?

That is correct.

Yes. So, it's both. So, it's about replacing tired equipment with newer more efficient equipment. But in both cases at Kepler and Marfork, we are expecting higher coal recoveries from the raw coal. So, there is an incremental tonnage gain by completing both of these projects.

Got it. And what sort of magnitude are we talking about for the -

Order of magnitude, both combined about 150,00 tons, 160,000 tons a year.

Okay. And in terms of dollars - capital dollars?

Yes. We have - I think we indicated approximately $120 million of maintenance CapEx, $40 million to $50 million of capital projects that Jason was outlining earlier.

No, I was curious about this. It seems like a low-hanging fruit so appreciate these additional comments. And then my second follow-up question is in regards to the commercial strategy as it relates to Asia. May have missed the details, but did you comment on additional third-party partnerships for marketing coal in Asia and if so, what scope does that partnership have?

Yes, Lucas. I'm not really prepared to comment more on it than what we've said. We're confident we'll continue to sell our coal into the markets where we have long-standing relationships into Asia, including India and China. But some of the other Asian markets we're excited to announce a partnership, but I don't have any other color to give you on that at the moment.

Okay. I appreciate that. Thank you, Dan. And then another follow-up question. You're adding incremental production here. Obviously terrific to see that in this market environment. And I wondered kind of would this fit in with your average cost structure? Are you looking to lower your average cost with for example the 150,000 tons of additional recoveries from the prep plants that should have very low cost to it? So, kind of obviously there are these - there are few moving pieces here on the cost side. You're adding production, you have the sales related costs there, the inflationary pressures. But if you kind of were to tease out the cost of the incremental tons, where would they shake out relative to your legacy cost structure?

Lucas, this is Jason again. So I guess first, the $50 million of efficiency or improvement CapEx that David spoke to, not all of that are in these preparation plant upgrades yielding 160,000 tons a year. But to your point, yes, 160,000 tons once these projects are commissioned are ultra-low cost, but it's not material enough to move the guidance across 15 million tons.

Yes. And we - as we've always maintained, we developed a business model, we developed operational practices that do give us flexibility to ramp up and ramp down as the markets dictate. These markets today as positive as they are, we're taking every advantage to meet those demands. But at the same time, as Jason has indicated and the projects he's brought forth to us and the facilities, they will make us more efficient not only now to take advantage of these markets. But more importantly as the markets begin to fall into a normalized area, we'll be much more efficient as an organization as a result of this capital we're spending on our various facilities. So, we're excited about it. We do not look at those from a perspective of our cost, but rather meeting long-term investment in our future here.

Yes. That's kind of what I was getting at. So, I really appreciate the color and again best of luck.

Thank you, Lucas. Our next question comes from Matt Russell from Hudson Bay. Matt, your line is now open.

Thanks for taking the question. On the 400,000 of net export business that's contracted for next year, is that just like a normal cadence of shipments or do you have customers there that are actually doing term business?

That's actually some of both that there is some fixed some near - let's call it medium-term deals in there and there's some that's got let's call it a full year cadence. So, a little bit of both.

Got it. And then if I look at the cost of sales bridge from the slide deck, the $7 that's sales related. If I just - like should I just apply sort of your historical royalty rate and assume that that means your price deck has call it plus $100 - plus $120 of sales realization delta year-over-year?

Well that's one way to do it, Matt. I mean it doesn't account for - those are different royalty rates and they have shifted a bit as we've moved to new mines pretty significantly over the past three years particularly moving into Black Eagle, Road Fork 52, and Lynn Branch. So that's probably a decent proxy, but again it's not going to be terribly exact. Like I said, we always try to start with the futures curve and then for our purpose, we'll dial it back just a little bit for conservatism. But I don't think what you're saying is terribly crazy.

Thank you, Matt. That concludes today's Q&A session. I'll now hand back over to David Stetson for any closing remarks. David, over to you.

Thanks. I want to thank the entire Alpha team for an excellent quarter. It's been a phenomenal time and we look forward to the future quarters as well. As usual, I'd like to direct everyone's attention to the Investors section of our web page where you will find an updated investor presentation that will accompany our call today. In closing, I want to reiterate how pleased I am with the team's performance in Q3. It's truly an outstanding quarter in executing on our vision to advance the goals of our organization. We plan to keep up the good work and look forward to providing an update on Alpha's full-year 2021 performance during our next earnings call. I want to thank everyone who joined us today on this call and for your interest in Alpha Metallurgical Resources. Have a great rest of your day and your weekend.

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