Warrior Met Coal, Inc. · NYSE:HCC
Warrior Met Coal — Investor Day (February 2018)
54 slides from Warrior Met Coal's investor day presentation, Feb 21, 2018
Slide 1: Warrior Met Coal Analyst Day
Warrior Met Coal Analyst Day February 21, 2018 Exhibit 99.1
Slide 2: Forward Looking Statements
Forward Looking Statements These slides contain, and the Company’s officers and representatives may from time to time make, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All
Slide 3: Today's Presenters
Today’s Presenters Walter J. Scheller, III (Chief Executive Officer) Appointed CEO of Warrior Met Coal in April 2016 CEO of Walter Energy from September 2011 to March 2016 President and COO of Walter Energy from June 2010 to September 2011 Senior management and operational positions with Peabody, CN
Slide 4: Premier U.S. Met Coal Producer and 100% Exporter
Premier U.S. Met Coal Producer and 100% Exporter *See “Non-GAAP Financial Measures”. Note: 1 short ton is equivalent to 0.907185 metric tons. As of year-end December 31, 2017. Gross Leverage calculated as Gross Debt / Adjusted EBITDA. 6.7 Mst(1) Production $518 mm(1) Adj. EBITDA* 0.7 x(1) Gross Leve
Slide 5: Major Achievements in 2017
Major Achievements in 2017 Completed initial public offering on the NYSE under ticker symbol “HCC” Successful operational and financial ramp up generating $518mm of Adj. EBITDA* and $342mm of Free Cash Flow* in 2017 Maximized value of tax assets, including $1.9bn of NOLs from IRS private letter ruli
Slide 6: Generating Industry-Leading Margins and Cash Flow Conversion
… Generating Industry-Leading Margins and Cash Flow Conversion Warrior Met Coal FCF Conv.(1)* *See “Non-GAAP Financial Measures”. Source: Peer information based on publically available information. Note: Based on year-ended December 31, 2017. (1) FCF Conversion defined as FCF / Adj. EBITDA. FCF defi
Slide 7: Strong Financial Performance Allowed Warrior to Return Significant Cash to Shareholders
2017 Cash Returned to Shareholders ($mm)(3)* Strong Financial Performance Allowed Warrior to Return Significant Cash to Shareholders and Outperform Peers *Note: Total shareholder return calculated as aggregate share price appreciation plus dividends received from April 17, 2017, to February 15, 2018
Slide 8: Investment highlights: premium product, reserves, location
Premium Product with High Realizations Differentiated, premium met coal product drives U.S industry leading realizations Warrior’s met products are of superior quality to U.S. met coals and more comparable to Australian met coals Realize near 100% price realizations vs. sub-90% realizations for othe
Slide 9: Agenda
Agenda Warrior’s Operations and Relative Positioning I Financial Results and 2018 Guidance IV Update on Industry and Warrior’s Marketing Strategy II Q&A Session with Management V Xcoal Market Summary III
Slide 10: Warrior's Operations and Relative Positioning
Warrior’s Operations and Relative Positioning
Slide 11: Warrior Snapshot: Leading Price Realizations Coupled with 1st Quartile Cost Structure
Warrior Snapshot: Leading Price Realizations Coupled with 1st Quartile “Variablized” Cost Structure “Variablized” Cost Structure Protects Operating Margin Highest Operating Margin Among Other Publicly-Listed U.S. Producers(3) Premium Product with Industry-Leading Realizations One of the Lowest Cost
Slide 12: Production Profile Supported by Substantial Reserve Base of Premium Met Coal
Warrior’s Production Profile is Supported by a Substantial Reserve Base of Premium Met Coal Mine No. 4 Low-vol / Mid-vol hard coking 1 Longwall / CM Blue Creek / Mary Lee 1.8 46.3 30+ Coal type: Longwalls: Mine type: Seams: 2017 Production (Mst): Reserves (Mst): Est. LOM (reserves & adj. resources)
Slide 13: Seaborne Metallurgic Coal Market More Attractive for Warrior
Seaborne Metallurgic Coal Market Represents More Attractive Market for Warrior Warrior Met Coal /// Warrior’s Operations and Relative Positioning European/Asian BOFs tend to be larger vs. domestic BOFs, which requires them to use greater proportion of mid- to low-vol in coal blends Warrior’s high-CS
Slide 14: Warrior Produces Premium Met Coal Products Sold into the Seaborne Market
Warrior Met Coal /// Warrior’s Operations and Relative Positioning Warrior Produces Premium Met Coal Products That are Sold into the Seaborne Market Source:Wood Mackenzie, Platts. Note:Global production data as of 2017. All values in short tons. Data sourced from customs information and may contain
Slide 15: Warrior's Met Products Superior Quality to U.S. Met Coals
Low Vol Mid Vol Warrior’s Met Products are of Superior Quality to U.S. Met Coals... Low Source:Platts, AME and Warrior management estimates as of January 2018. Note: 1 short ton is equivalent to 0.907185 metric tons. High Vol Warrior U.S. Discount Premium Premium Discount Within Min-Max Net Value ($
Slide 16: More Comparable to Australian Met Coals
Low Vol Mid Vol ...and More Comparable to Australian Met Coals Warrior Met Coal /// Warrior’s Operations and Relative Positioning Low Source:Platts, AME and Warrior management estimates as of January 2018. Note: 1 short ton is equivalent to 0.907185 metric tons. High Vol AUS Warrior U.S. Premium Dis
Slide 17: Warrior's Value Proposition: Differentiated Investment Opportunity in Met Coal
Warrior’s Value Proposition: Unique and Differentiated Investment Opportunity in Met Coal Leading Met Coal Producer Focused on Premium Met Coal Products 1 Warrior is One of the Lowest Cost Met Coal Producers Globally 2 Significant Logistical Cost Advantage to the Seaborne Market 3 ü ü ü Multiple Att
Slide 18: Premium Product Drives Higher Realized Prices and Operating Margins
Warrior’s Differentiated, Premium Met Coal Product Drives Higher Realized Prices and Operating Margins 2017 Met Coal Average Net Selling Price ($/st) $172 (FOB Port) $100 (FOB Mine) $133 (FOB Port) 2017 Met Coal Operating Margin ($/st) $82 $29 $45 2017 Consolidated Operating Margin ($/st) $82 $5 $9
Slide 19: One of the Lowest Cost U.S. Seaborne Met Producers
Warrior One of the Lowest Cost U.S Seaborne Met Producers(1) Source: Wood Mackenzie Note: 1 short ton is equivalent to 0.907185 metric tons. 2017E total cash costs for U.S. seaborne producers of High Vol A, High Vol B, Mid Vol, and Low Vol met coal based on estimates from Wood Mackenzie. Warrior Met
Slide 20: Focus on Maximizing Profitability Across Pricing Environments
Increase production at all longwalls with limited capex / costs through addition of extra shifts, supported by labor contract incentives Run additional continuous miner units to generate cash and build “float” Fund strategic capex projects to improve efficiency and lower cost Arbitrage between rail
Slide 21: Significant Logistical Cost Advantage to Access the Seaborne Market
Located ~300 miles from Port of Mobile, Alabama Contract with Port of Mobile through 2026, providing up to 8.8 million short tons of annual port capacity Low-cost, flexible and efficient rail and barge networks underpin cost advantage Ability to use Company-owned barge loadout to access port in lieu
Slide 22: Multiple Growth Opportunities, Including Development of Blue Creek Mine
Warrior has Multiple Attractive Growth Opportunities, Including Development of Blue Creek Mine Historical Production vs. Nameplate Capacity (million short tons) Warrior focused on returning production to nameplate capacity achieved in 2013 Minimal incremental capex required to return to nameplate ca
Slide 23: Operations: Returning Production Toward Nameplate Capacity
Warrior Met Coal /// Warrior’s Operations and Relative Positioning From 2016 to 2017, restarting Mine No. 4, restarting the second longwall at Mine No. 7, and increased shifts and CM units in operation increased tons from 3.4M to 6.7M short tons Warrior has recently had several individual months tha
Slide 24: Highly-Experienced Senior Leadership Team
Highly-Experienced Senior Leadership Team with Commitment to Safety and Operational Excellence 30+ 1 8 Walter J. Scheller, III (Chief Executive Officer) Jack K. Richardson (Chief Operating Officer) Dale W. Boyles (Chief Financial Officer) Michael T. Madden (Chief Commercial Officer) Kelli K. Gant (C
Slide 25: Update on Industry and Warrior's Marketing Strategy
Update on Industry and Warrior’s Marketing Strategy
Slide 26: Marketing Strategy Seeks to Broaden Global Reach and Maximize Price Realizations
Marketing Strategy Seeks to Broaden Global Reach and Maximize Price Realizations Contract Structures in General Terms(1) Blue Chip Customer Base Diverse customer base comprised of global steel producers Customers include largest European and South American steel producers Represent core feedstock fo
Slide 27: Geographical Advantage in Serving Atlantic Basin
Warrior Benefits from Geographical Advantage vs. Australia and Western Canada in Serving Atlantic Basin Source:Wood Mackenzie. Note: 1 short ton is equivalent to 0.907185 metric tons. Major Exporter Major Importer Primary Market Secondary Market United States 37 mst W.Canada 30 mst Europe 47 mst Rus
Slide 28: Favorable Supply-Demand Outlook with Demand Growth in Key Markets
Favorable Supply-Demand Outlook with Demand Growth Expected in Warrior’s Key Markets Above account for 93% of 2018E global seaborne met exports Significant market rationalization from 2013 peak, primarily from higher cost U.S. and Canadian operations Despite higher prices, restarts of previously idl
Slide 29: Chinese Environmental Policies Expected to Benefit Premium Met Coal Producers
Source:Wood Mackenzie; Platts; Goldman Sachs research 1 short ton is equivalent to 0.907185 metric tons. Based on China Customs data for seaborne and landborne imports as of YTD September 2017. Represents ranges for Mine No. 4 and Mine No. 7. Chinese Environmental Policies Expected to Benefit Premiu
Slide 30: Quality Allows Warrior to Benefit from Supply Shocks
Source:Wood Mackenzie. Note: Benchmark settlements provided in metric tons and are inflation adjusted to January 2017 US Dollar values. 1 short ton is equivalent to 0.907185 metric tons. Ten year average Australian HCC Benchmark / Australian LV Index settlement: $194 / metric ton Quality of Warrior’
Slide 31: Xcoal Market Summary
AM WARRIOR MET COAL Xcoal Market Summary
Slide 32: Financial Results and 2018 Guidance
Financial Results and 2018 Guidance
Slide 33: Strong Performance Across Key Metrics in 2017
Strong Performance Across Key Metrics in 2017 *See “Non-GAAP Financial Measures”. Note: 1 short ton is equivalent to 0.907185 metric tons. Represents the nine months ended December 31, 2016. Represents the twelve months ended December 31, 2017. Represents cash capital expenditures and excludes non-c
Slide 34: Warrior Delivered on its Commitments for 2017
Warrior Delivered on its Commitments for 2017… *See “Non-GAAP Financial Measures”. 1 short ton is equivalent to 0.907185 metric tons. Management guidance for YE 2017 as per Q3 2017 Earnings Presentation. Includes $93mm of cash capex and $15mm of non-cash capex commitments for 2017. Coal Sales 6.5 Ms
Slide 35: Expecting to Build Upon Positive Momentum for 2018
… and is Expecting to Build Upon Positive Momentum for 2018 Note: 1 short ton is equivalent to 0.907185 metric tons. * See “Non-GAAP Financial Measures”. Coal Sales 6.6 – 7.2 Mst Coal Production 6.6 – 7.2 Mst Cash Cost of Sales (Free-on-Board Port)* $89 - $95 per St Capital Expenditures $100 - $120m
Slide 36: Well-Positioned to Generate Robust Free Cash Flow
Warrior is Well-Positioned to Generate Robust Free Cash Flow to Drive Shareholder Returns High Price Realizations 1 Highly Variable and Low Cost Structure 2 Significant Net Operating Loss Carryforwards (NOLs) 5 World-class assets, clean balance sheet, and tax attributes will permit strong cash conve
Slide 37: Overview of Warrior's Gross Price Realizations vs. Benchmark
Overview of Warrior’s Gross Price Realizations vs. Benchmark Note: 1 short ton is equivalent to 0.907185 metric tons. Warrior Gross Realized Prices vs. Australian Premium LV HCC Benchmark ($/st) Warrior Met Coal /// Financial Results and 2018 Guidance 1 104% 100% 97% 88% 84% 105% 95% 101% Australian
Slide 38: Understanding Net vs. Gross Realizations and QoQ Variances
Understanding Net vs. Gross Realizations and QoQ Variances Note: 1 short ton is equivalent to 0.907185 metric tons. Actual blended gross realized price / ton for Warrior consists of a blend of the gross realized sales price per ton sold of low-vol and mid-vol coals. The quarterly HCC index price rep
Slide 39: Key Elements of Cost Structure Have Been Variablized
Key Elements of Cost Structure Have Been “Variablized” Warrior benefits from a flexible cost structure that provides it with the ability to react to market conditions to maximize profitability in all price environments Approximately two-thirds of our cash costs relate to on-site mining costs Our CBA
Slide 40: Breaking Down Warrior's Capital Expenditures
Breaking Down Warrior’s Capital Expenditures Included spending deferred in prior years due to low met coal price environment. Included construction of new Mine No. 7 portal and other productivity projects. Includes cash and non-cash commitments of $92.6mm and $14.9mm, respectively. Sustaining capita
Slide 41: Clean Balance Sheet with No Legacy Pension / OPEB Liabilities
Clean Balance Sheet with No Legacy Pension / OPEB Liabilities Source: Filings as of December 31, 2017. Note: Contura and Foresight excluded because 2017 information is not available as of the date hereof. Adjusted EBITDA used from company filings, each company applies nuances in calculating Adjusted
Slide 42: Significant Tax Attributes (Prior to Tax Reform)
Warrior Benefits from Significant Tax Attributes (Prior to the Tax Reform) Substantial NOL Position Federal NOLs ~$1.6 billion (expire predominantly in 2034-2036) State NOLs ~$1.6 billion (expire predominantly in 2029-2031) We are Protecting this Benefit The Company adopted a restriction in its char
Slide 43: Tax Attributes Resulted in Substantial Tax Savings During 2017
Warrior Tax Attributes Resulted in Substantial Tax Savings During 2017 * See “Non-GAAP Financial Measures”. Warrior Met Coal /// Financial Results and 2018 Guidance 5 In 2017, Warrior realized $123mm ($2.33 per share) in tax savings as a result of its NOLs Tax savings resulted in substantial uplift
Slide 44: Expected to Benefit from Recent Tax Reform
Warrior is Expected to Benefit from Recent Tax Reform Favorable Impacts Repeal of Corporate Alternative Minimum Tax Regime Refunding of AMT Tax Credits Tax Rate Reduction from 35% to 21% Bonus Depreciation Increase to 100% (Previously Limited to 50%) Potentially Unfavorable Impacts Repeal of Section
Slide 45: Continue Realizing Benefit of NOLs Over the Medium Term
Warrior Expects to Continue Realizing Benefit of NOLs Over the Medium Term Note: 1 short ton is equivalent to 0.907185 metric tons. Represents discounted cash flow of illustrative tax shield realized from Warrior’s NOLs, assuming 25% effective tax rate and equal realizations over time period indicat
Slide 46: Well Positioned to Generate Significant Cash Flow Through-the-Cycle
Warrior is Well Positioned to Generate Significant Cash Flow Through-the-Cycle (Short tons in thousands. $ in millions, except where noted) *See “Non-GAAP Financial Measures”. Note: 1 short ton is equivalent to 0.907185 metric tons. Run rate tons adjusted to remove ~0.3 million short tons for contin
Slide 47: Plans to Utilize Free Cash Flow to Drive Shareholder Returns
Warrior Plans to Utilize Free Cash Flow to Drive Shareholder Returns Quarterly Cash Dividend Implemented a $0.05 / share quarterly dividend policy, beginning with the second quarter dividend we declared in connection with our Q1 2017 results Since adopting our dividend policy, we have declared a $0.
Slide 48: Q&A Page
Warrior Met Coal /// Q&A Page 47
Slide 49: Appendix
AM WARRIOR MET COAL Appendix
Slide 50: Illustrative Quarterly Revenue Model
Illustrative Quarterly Revenue Model Note: 1 short ton is equivalent to 0.907185 metric tons. Q1 based on the Australian HCC Benchmark prior to being replaced by the Australian LV Index in Q2. Warrior Met Coal /// Appendix
Slide 51: Strong Record of Mine Safety
Strong Record of Mine Safety Safety Superior safety record compared to similar U.S. mining operations Focus on safety managed through a rigorous training program Environmental No environmental liability accruals as of 12/31/2017(2) Regular compliance and monitoring programs Company goal of no violat
Slide 52: Reconciliation of Non-GAAP Measures
Reconciliation of Non-GAAP Measures Warrior Met Coal /// Appendix (1)Represents non-cash accretion expense associated with the Company’s asset retirement obligations. (2)Represents non-cash stock compensation expense associated with equity awards. (3)Represents non-recurring costs incurred by the Co
Slide 53: Reconciliation of Non-GAAP Measures
Reconciliation of Non-GAAP Measures Warrior Met Coal /// Appendix (1)Represents idle costs incurred, such as electricity, insurance and maintenance labor. This mine was idled in early 2016 and restarted in August 2016. (2)The Company entered into a new initial CBA with the UMWA pursuant to which the
Slide 54: Reconciliation of Non-GAAP Measures
Reconciliation of Non-GAAP Measures Warrior Met Coal /// Appendix