Good afternoon. My name is Betsy (ph) and I will be your conference operator today. At this time, I would like to welcome everyone to the Warrior Met Coal Fourth-Quarter and Full-Year 2021 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. . This call is being recorded and will be available for replay on the company's website. Before we begin, I've been asked to note that today's discussion may contain forward-looking statements and actual results may differ materially from those discussed. For more information regarding forward-looking statements, please refer to the company's press release and SEC filings. I have also been asked to note that the company has posted reconciliations of the non-GAAP financial measures discussed during this call. In the tables accompanying the company's earnings press release located on the Investors section of the company's website at www.warriormetcoal.com. In addition to the earnings release, the company has posted a brief supplemental slide presentation to the Investors section of its website at www. warriormetcoal.com. Also, for more labour-related information, go to warriormetcoalfacts.com. Here today to discuss the company's results are Mr. Walt Scheller, Chief Executive Officer, and Mr. Dale Boyles, Chief Financial Officer. Mr. Scheller, you may begin your remarks.

Thanks, Operator. Hello, everyone, and thank you for taking the time to join us today to discuss our fourth quarter and full-year 2021 results. After my remarks, Dale, will review our results in additional detail and then you'll have the opportunity to ask questions. During the fourth quarter, we were pleased to deliver our most profitable quarterly results in the last three years on the back of strong customer demand and our ability to capitalize on a favourable pricing environment. The global supply of Met Coal remains tight during the fourth quarter, even with China continuing to reduce its steel production. We are well-positioned from a cost and supply standpoint to take advantage of the current strong market for high-quality premium met coal, which has been strengthened by robust economic growth. In addition, we capitalize on favourable conditions within the Capital Markets to refinance our senior notes and extend the maturity of our ABL facility in the fourth quarter, which Dale will discuss in more detail later in his prepared remarks. As reported cases of COVID-19 rose during the fourth quarter and impacted most of the country, we continued to take the necessary measures to adjust our workplace environment to comply with social distancing and personal hygiene guidelines set forth by various health organizations and regulators to protect the health and safety of our employees while maintaining our operations. I would like to thank our employees for their hard work and dedication to safety during these challenging times. While we continue to run the operations at lower operating rates due to the UMWA strike, we never changed our philosophy or dedication to providing a safe working environment for our employees. In fact, despite the disruptions during the year, our safety incident rate dropped significantly last year to 1.25 rate from…

Thanks, Walt. As Walt noted in his remarks, the market for met coal was strong during the fourth quarter, driving prices to levels never seen before. The strength of the met coal and steel markets have strong economic recovery from COVID, and robust capital markets led us to capitalize upon favourable timing to refinance our senior notes and ABL Facility. We believe the timing of the refinancing was excellent as the markets had been experiencing a significant amount of inflation, and we believe that the Federal Reserve would start raising interest rates sooner rather than later to manage it. We believe that it would have been more costly and more difficult to complete a refinancing if we waited to do it closer to the maturity of the senior notes. Our decision to refinance our senior notes and ABL facility during the quarter accomplishes several important goals. It enhances our already strong balance sheet and financial position takes advantage of current low borrowing rates, which are expected to start rising in the near future. Modestly lowered our cash interest expense and furthers our financial flexibility with the maturity extension as we pursue the creation of long-term shareholder value. It will also position us to resume our growth strategy and increase our return of cash to shareholders in the future. For the fourth quarter of 2021, the company recorded its largest quarterly net income in 3 years on a GAAP basis of approximately $139 million or $2.68 per diluted share compared to a net loss of $34 million or $0.66 per diluted share in the same quarter last year. Non-GAAP adjusted net income for the fourth quarter, excluding the nonrecurring business interruption expenses, idle mine expenses, and the loss on early extinguishment of debt was $3.17 per diluted share compared to an…

Thanks, Dale, before we move on to Q&A, I'd like to make some final comments on our outlook for the first quarter and full-year 2022. As Dale noted earlier in his remarks, our cash cost per short ton in the first quarter 2022 is expected to be higher than last quarter, and possibly the highest we've ever seen in our business as a result of Met Coal prices at all-time highs. This is not necessarily a bad thing because our margins are expected to be higher as a result of the higher Met Coal prices. However, this negatively impacts our variable costs for wages, transportation, and royalties. We expect transportation royalty costs which are normally about a third of our cash cost of sales to be a significantly larger portion of our total cash costs in the first quarter and previous quarters. Another factor that may negatively affect our cash costs is the impact of inflation. U.S. inflation hit its fastest pace in nearly four decades in 2021 as pandemic related supply and demand imbalances along with stimulus measures intended to shore up the economy, push the consumer price index up to a 7% annual rate. That rate of inflation continued to rise at the end of January to 7.5%, a 40 year high. We expect COVID-19 to continue to impact global supply chains, resulting in shortages, extended lead times, and increased inflation, thereby impacting our operations and profitability in 2022. While we did not experience any material inflation in 2021, we're expecting anywhere from 10% to 25% increases in steel prices, freight rates, labour, and other materials and supplies in 2022. These increases affect, among other things, the cost of Belt structure, move bolts, cable, magnetite, rock dust, and machinery and equipment purchases. We're applying a number of different…

At this time, I would like to remind everyone that to ask a question, . We will pause for just a moment to compile the Q&A roster. The first question today comes from David Gagliano with BMO. Please go ahead.

Hi, thanks for taking my questions. I just wanted to ask about the capital allocation policy considering the cash-generation. Warrior generated about looks like equivalent about a 40% annualized free cash flow yield. In the quarter and that was on lower than current prices and higher than 2022 targeted cash costs, balance sheets in great shape and I understand the ongoing strike and concerns about prices falling. However, my question is, will Warrior pay out special dividends, even in the midst of the ongoing strike?

Thanks, Dave, though your question's with Dale. It's a possibility, we named a few factors that we want to get a little more clarity on, such as what we think the market will look like for the rest of the year. As we said, look, with the Chinese coming back after the new year in Olympics, want to see exactly what kind of policies and impact on the markets they may have. The strike as well and taking an over look at developing Blue Creek, that data is about two years old on Blue Creek and we want to pull together a refresh on the total cost of that project and the metrics and everything and see if that still makes sense. And so once we get a little clarity on those things, I think we will -- we may have a change or an update on our capital allocation policy. We did up -- or increase the quarterly dividend 20%, which was a small change, but still very good for us.

Okay. And what's the reasonable timeline to expect those updates to be completed and have a more definitive capital allocation policy plan in place?

Well, really nothing changed in our policy and -- but maybe in the next few months.

Okay. That's helpful. And as you think about Blue Creek versus returning cash to shareholders, as Warrior thinks about those two options, what's the preference at this point?

Well, as we've said, we don't have a particular preference. We're going to try to balance both. We said that, but in the past -- we'll just have to see how Blue Creek rolls up and what the Capital construction costs are there, with the inflation that you're seeing in the current business, how is that going to impact the project? And will they allow us to balance both the way we want to. So we don't have a one or the other kind of decision point. We're looking at how we do both.

Okay, great. Thanks. And my last question. The $95 to a $100 cash costs range, you mentioned that was on lower than current prices, obviously. What's sort of -- not sort of, what's the reference price embedded in that $95 to a $100 assumption for the full year. And what would those cash costs be if magically prices happen to stay where they are now for the full year?

Well they will stay where they are now. You're still going to see an increased till we get out because of the one-quarter lag for transportation. You could see a first-quarter cash cost per ton, 10% to 15% higher than the fourth quarter, which may include some inflation there. And there's a lot of factors you got to think about and that cash cost guidance. We are building in a steep correction starting second quarter to the rest of the year. So you got that, but you get the benefit of the higher volumes we expect over the year offsetting that. And then the same thing happens with transportation lagging the quarter, the royalties correct sooner than later. So the guidance -- the cash cost guidance might be a little more conservative, but when you factor in all those different puts and takes, we think prices are going to correct pretty steeply the rest of this year, some of these supply chain issues get worked out.

Okay. Just so I can help me level-set what's embedded in that steep decline. Again, what's a reasonable -- what assumption was made on the benchmark price for the full year to get to that $95 to $100 so I can calibrate that, the assumptions we're making in our model?

We're still working on somewhere near a $200 number.

Okay. All right. That's helpful. Thanks.

The next question comes from Lucas Pipes with B. Riley Securities. Please go ahead.

Thanks very much. Good afternoon, everyone and nice job on the quarter. I wanted to follow up a little bit on Blue Creek and I think you used the word re-evaluation. Is it -- can you share or update us on how broad this re-evaluation is? Is it the CapEx cost component of this project or strategically also how this project just fits into your longer-term vision of the coking coal market? Would really appreciate your thoughts on that. Thank you.

I think we're pretty settled on where this fits in from a long-term standpoint in the company's portfolio. For us, the issue is especially with the changes in steel prices and labour shortage, and some things like that, what's the impact going to be on construction and capital spending and timeline for development. So we're redoing network to make sure we're confident about where those sit today.

That's very helpful. And what's the timing? When should we expect an update on that re-evaluation?

The same as the capital allocation policy. We are looking at both right now, and our expectation is over the next few months we will have more clarity around those topics.

That's very helpful. Thank you for that.

Well, thank you.

And on the volume cadence for the year, I may have missed it, but in Q1 should we expect higher volumes because you don't have a long wall move or how should we split the volume comp midpoint $6 million tons currently between the four quarters?

The real uptick in the first quarter is going to be the fact that we are now running the long-wall at Mine 4. So we just started that longwall up so it won't be our expectations were that it will take a little while to ramp. But the additional tons as we go out through the year, we said we expect Mine 4 to be at about a million tons for the year. So you can expect that it won't be a quarter of a million, quarter-by-quarter. It should ramp a little bit. But it's not going to be far off from that. That's the real additional -- that's where the additional tonnage is coming out of

Lucas, this is Dale. So we've been -- the last two quarters about 1.1 million tons produced with Mine 7 running at its lower rates. So annualize that 4.4, add 1 million tons for the Mine 4 long wall, 5.4, and then we have the continuous miner units that are running in Mine 4 too. So that just rounds you to the bottom end of that range.

Perfect. That is super helpful. Really -- really appreciate that. That addresses my most important questions for now. I will jump back in the queue. Thank you and best of luck.

Thank you.

Thanks.

The next question comes from Nathan Martin with The Benchmark Company. Please go ahead.

Hey, good afternoon, guys. Congrats on the quarter. Thanks for taking my questions. Some of my bigger questions were already addressed, so maybe just some more modelling related questions. I think you guys mentioned about 46% of sales in the quarter where it CFR China prices. Any comments on how many sales you might expect to sell to Asia at CFR China prices within the 22 guidance.

You know what, it's much more difficult to look at '22 because as we've said, it's flipped in terms of CFR versus FOB Australia right now. And it doesn't make a lot of sense with where the market is today to be moving coal into China from our standpoint. But we don't expect that dynamic to stay long term, so we can still see tons moving into China. We always move tons also into Japan and Korea as well. But as far as specifically into China, that's just going to be a wait and see what happens with the market in China.

And then just Walt find something.

Sure.

Find something there in actually your question, the 47% was the amount of volume that went in -- went out in the month of October, total volumes so not just China. The other maybe where you got that confused as the other comment was during the fourth quarter, we did sell all of our CFR China at the 100% of the index during the quarter. And I think that's very similar to luck which very close to each other, so maybe that was what was confusing.

I could've misunderstood Dale. I appreciate that. Yeah, I thought it was 46% sales to Asia like you guys breakdown from Europe, South America, etc. But thanks for clearing that up. I guess maybe I'll just shift over really quickly to inventories, obviously you guys exceeded your full-year '21 sales guidance by a pretty good amount which you said was possible in the last call, but your inventories got down about 243 thousand tons it looks like previously, I think you referenced maybe a 400 thousand ton level kind of a good comfort level. Does your 22 guidance assume staying at these new levels? Or are you looking to build inventory backup a little bit to that prior level for Thanks.

I would expect us to build a bit that's running down at that 240 level, it gets pretty lean down at the port in terms of being able to load vessels. So we'd like to have a little higher than that. But that doesn't mean at the end of the year we don't try to push an extra vessel or two out quickly and get that number back where -- in that 250 to 300 range. But what's comfortable with us is closer to that 400 level.

Got it. Thanks. And then maybe sticking you're putting an extra vessel or two, well, I think I asked this last quarter and I know transportation doesn't always work exactly how you want, but maybe just some updated thoughts on your rail and barge service currently? Thanks.

We've been very -- we have hiccups just like everyone does with rail but by and large, we've been very satisfied with both barge and rail service, and we're able to get our coal down to the port in a timely fashion. So it has not been a major issue for us.

Great. And then maybe just one more. I think I heard in your prepared remarks you guys were adding hourly employees. I think there is a part of the discussion of labour costs. Can maybe we get a little more colour there? Is this specifically just for the Mine 4 ramp? Any thoughts. Thank you.

Now, we continue to have hourly employees from the Mine 4 and Mine 7 workforces that continue to cross the picket line and joined the workforce. And we're also having new hires as well and our intention is to continue to see that occur throughout the year and to grow month by month, additional employees, and as we get to the point where we can add a CM unit, if we add a CM unit. When we get to the point where we've got enough CM unit s to add another shift, the low wall operations at Mine 4 will do that. So it's just a matter of how quickly we are able to get people in here. We're up to over 300 hourly employees at this point and continuing to grow.

Great, very helpful guys. Thanks. I will leave it there. Appreciate the time information, best of luck in '22.

Thank you.

Thanks.

The next question comes from Matthew Field with Bank of America. Please go ahead.

Hi, everyone. Not to keep beating the Blue Creek horse here, but it was -- I think the CapEx for construction was 550 to 600. That was way back in February 2020 before everything started costing a lot more. When you gave that presentation, you had some discussion about the flexibility in which you had to fund it through cash balances, equipment, leases, cash flow, and capital markets. Assuming we're looking at a higher overall price tag here. How do you plan on, obviously there's, there's levers you have, but like what's the philosophy on how to fund a big Capital project like that? And kind of what's the sort of overall balance sheet, what should that look like, that's really construction and then look on the other end like how -- what's the right level of debt for Warrior kind of to fund this and then maybe on the other side?

Well, some of that we don't have the answers to, but we still have all the options available to finance it, and we're going to look at the best optimal capital structure we can during the construction period of roughly 5 years. So things will change. There will be periods when prices will be low and times when prices are high. So we will have to manage through that as we pull together the updated cost and see how that -- how that -- again, what's the cadence of that. And, obviously, we have a better starting point now than we did in 2019 with almost $400 million of cash at the end of the first -- the fourth quarter, and with prices where they are, we should be generating some more in the coming quarters. So gives us a lot of flexibility to pick and choose options rather than be forced into a certain path, so we're keeping all of our options open, we don't -- we're not looking at a single path either way here. And how much debt? We're at net zero today. I would imagine that if we did start Blue Creek, we would increase our minimum liquidity targets just to make sure we protect that balance sheet. We've always said in the past before Blue Creek, $100 million should be safe during these pandemics and things like that. So and 2020 pretty much proved that. So I think we would increase some minimum amount like that to work through the construction period, I just don't know what that is now, I'm just going to largely depend on what the project looks like now versus before.

Okay. And then I know you're still re-evaluating things, like you said, for the next couple of months. But what do you think about maybe at this stage, as a growth strategy, building something like this over a series of five years versus being able to take a minority stake and maybe appears large-scale met coal operation? I think one of your periods was on the news today saying maybe 10% of their stake might be in the market for a buyer. What's your take on build versus buy for something like that?

Well, we look at any, and I'll talked about them as acquisition opportunities. We compare everything to Blue Creek and it's going to have to be a darn good project for us to look at it, even though you're right, it's a 5-year project and it takes time to get it up and get it productive. But we're very confident in the quality of the call in the demand for what this call will be. And as a result of that, we'll look at anything and will consider other options. But this is just an outstanding project and one that deserves and needs to be built.

That's great. I appreciate that and we look forward to hearing the clarity on capital allocation and the Blue Creek decision in the coming months. Thank you.

Thanks a lot.

The next question comes from John Ogben with Eastern values limited. Please go ahead.

Hello guys. And thank you very much for presentation at didn't have a few. I will just run quickly. Fiscal China. What percentage of sales of that last year versus previously I was just wondering if you have any business with China at all in previous years, and then if the market changes, Australia comes back in, would that mean you would go back to minimal China sales and then why to name that question out to think that market as a whole? Some commentators have said that if Mongolia, the boarders reopen, plus Australia ban is removed, then met coal prices will be sort of tumbling very fast. That's one review. Now, my view will be different because I think climate change concerns have constrained supply below the lay of coal and met coal as well. And also we’ve got a big ramp up in the comment industry this year and the full reopening of most economies. Still demand is going to be actually going up. So there is a case to be made, bull case, full supply and demand so we could have a strong year this year. So it will be interesting to get your thoughts on that. The other nuts-and-bolts, what's the amount of tonnage you have committed this year? And is that fixed price or is that based on a benchmark? Then, what's your full worth in for royalties and transport? Is it fixed percent? Or is the ratcheting up of percent? Or say, we transfer a base number and then if you can give us a bit more detail on that? And then finally, is your ASP, is that for the CFI, you just strip out the transport? So you just take everything back away FOB so that you can just compare apples-to-apples? It's just some nuts and bolts again. Thank you for that.

Man, you loaded yourself there. We've got so many questions and that -- I'll try to start where I can and work through a few things. First of all, let's start with transportation and royalties. Our transportation cost is -- and royalties -- our royalties are based on a percentage of coal sales price or whatever the price is of coal at the time. So that varies on a percentage basis when the prices are higher. Naturally, the royalty value per ton is much higher. In terms of our transportation cost, we have a formula through which we work with the railroads that adjust based on coal prices in the previous quarter, so we see that's completely variable as well. So that's where we go with that. On the CFR and FOB, we had that occur last year where the delta between the FOB Australia and the CFR China got to the point where it made sense even though we are normally at our transportation disadvantage for us to go ahead and ship to China, CFR China. And we saw that that clearly reversed itself more than reversed itself because of CFR prices actually below the FOB Australia price. So for us to move coal into China, we're going to have to see a situation where it makes sense for us because the majority of our coal, the vast majority of our coal in normal years is sold on contracts based on formulas that fall as the market. But last year, so we only normally have about 20% available per spot sales. Last year, we sold far more on the spot market because we were able to, because of this CFR spread versus the FOB Australia price. I don't think it's reasonable to assume that our sales to China will remain in 2022 what they were in 2021 again, unless this thing puts back over and there's a huge job there again this year. So we will look at that. Again, the vast majority of our tons are contracted and are simply price based on what the market is. From there, Dale, buddy, what you remember? What have I missed? What did I forget here?

In the past, uh, I think we had a very, very, very small amount of volume into China in 2020. And before that, because the price differential for freight, we really never had any sales to China. It has all become an issue this year primarily because of the difference in those two indexes. So when you net them down on a comparable basis, it was still more profitable sell to China during this year than it was in the past. And if that reverses to where it's no longer profitable for us to sell into China, we won't probably be sending any volume there.

I think from a demand and supply standpoint, from what I'm looking at, I think things are slightly -- we're slightly negative on the supply side compared to demand, so I think we'll remain having a strong market this year. But a strong market -- if we're -- we're not expecting prices to stay anywhere near where they are today, and we're not depending on that. But I think right now with what we see out of all of our customers, and steel prices have come off some, but what we see is a real strong demand for products. So I don't see that being the reason that the pricing crashes. I agree to you that I think what happens in China will have a huge impact on what happens to global pricing. But as we've said, we hope it returns to normal levels at a slow major pace. But we're prepared if it's a very rapid decline as well.

Thank you. Just a quick couple of small follow-up. So what you're saying is all the Chinese clients were when you were CFO, whereas your clients, your traditional clients are eight places like Japan and Korea, Lloyd's work FOB is that right? And then just looking at the two benchmark prices and seeing if it makes sense. not.

That's correct.

Okay, thank you. Any thoughts on Chinese met coal production? Basically, there's a big hub in Shanxi and that is a very mature area. So would you expect that in the coming years China structure will need to import more coal? And therefore that could be support for the seaborne market?

I think China will be -- continuing to support the seaborne market and I think that's evidenced by where they put their newer steel mills, close to the coastal areas. I think they will always try to supply at least some of that domestic coal. But I think they will always be a big importer of metallurgical coal as well.

Okay. Thank you very much, indeed.

Thank you.

As a reminder, if you have a question, . The next question is a follow-up from David Gagliano with BMO. Please go ahead.

Sure. Thanks. I just have a really quick follow-up on Blue Creek. In the past, there was also talk perhaps for you in a joint venture partner. Would that also be under consideration?

Yeah. I mean, everything -- all those thought options are still on the table, David. But if we're in a position to do this ourselves, I mean, why would I give away the project? I mean -- so it's all good depending on what kind of terms, and if anyone can afford to do it. There's some other peers that are in some pretty challenging positions, so I'm not sure that they have the wherewithal to do it. But it's still an option because as well as traders, marketers, customers, all those have expressed interest. I think we'll be looking at possibly trying to do an off-take agreement or something like that to lower your risk, but we think given the feedback from our customers, we can sell a whole volume and not being positioned where we have to do that. So we will have plenty of options available.

Right? considering that you're going to have more cash than the total CapEx for the project in a pretty short period of time here, would the preference be to just go it alone, is that the preference or is it more complicated than that.

I don't want to say that right now until we see how this thing rolls back up again, the costs and everything. I think we want to kind of wait and keep our options open until we see what that looks like now.

Alright, thanks.

Thank you.

The next question is from John Austin with Eastern Value Limited. Please go ahead.

Yes. Sorry, guys. Quick follow-up to one of your previous answers. you mentioned that in normal times you would have 80% tonnage for the and 20% on spot. Just want to clarify that that 80% is completely variable pricing and based on absolute quite recent benchmark prices. And you would take 100% of the benchmark of the price because you coal is in line with that quality. I just want to clarify that because obviously some of your peers will be locked in actual dollar prices rather than probably use which will be priced later on the benchmark and you start using your strategy which I agree with. That would explain why traditionally your prices will be in line with the benchmark and then as we've seen last quarter, it's very volatile and you can't sort of keep up with it, thanks for clarifying.

Sure. The vast majority of our tons in our contracts, we have formulas that are built around the benchmark pricing and quality, that determine what the price will be, and it may be based on the previous two to four weeks prior to loading of what the average -- of what the spot price was through that period. Occasionally, we will have a customer that will want to lock in a little -- some of their tons for a longer period of time at a fixed price, and we certainly consider that. And if we think that we can come to a reasonable deal on what we both look at for pricing, we'll do that. That doesn't happen very often. But once in a while we'll reach those types of agreements. And -- but by and large, we're floating right along with the market.

Okay. Thank you very much for clarifying.

Thank you.

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

That concludes our call this afternoon. Thank you again for joining us today and we appreciate your interest in Warrior Met Coal.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.