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CONSOL Energy announces 4Q20 and full year results

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World Coal,

CONSOL Energy Inc. (CEIX) has reported financial and operating results for 4Q20 and fiscal year ended 31 December 2020.

4Q20 highlights:

  • Consummated the CONSOL Coal Resources (CCR) merger transaction with strong shareholder support.
  • Net income and net income attributable to CONSOL Energy Inc. Shareholders of US$14.7 million and US$13.1 million, respectively.
  • Cash and cash equivalents of US$50.9 million as of 31 December 2020.
  • Gross payments on total debt of US$26 million during the quarter.
  • Coal shipments recover to 5.9 million t compared to 4.5 million t in 3Q20 and 2.3 million t in 2Q20.
  • Net leverage ratio1 of 2.5 x as of 31 December 2020.
  • Net cash provided by operating activities of US$66.9 million.
  • Adjusted EBITDA of US$95.5 million and free cash flow of US$48 million.

FY20 highlights

  • Net loss and net loss attributable to CONSOL Energy Inc. Share-holders of (US$13.2) million and (US$9.8) million, respectively.
  • Net cash provided by operating activities of US$129.3 million.
  • Adjusted EBITDA of US$261.5 million and free cash flow of US$53.2 million.
  • Total consolidated indebtedness reduced by US$56.2 million – reduced TLA, TLB and 2nd lien debt outstanding by US$22.5 million, US$2.8 million and US$54.5 million, respectively.
  • Continued to take advantage of a strong equipment financing market by raising US$60 million of new capital during 2020 at a weighted average interest rate of 6%.

"2020 was an extremely challenging year, as our industry dealt with weakened commodity markets due to the unprecedented drop in global energy demand brought on by the COVID-19 pandemic," said Jimmy Brock, President and CEO of CONSOL Energy Inc.

"However, despite this difficult backdrop, I am pleased with our execution of not only managing through this pandemic but also setting ourselves up for potential success as we head into 2021 and beyond. We moved early in 2020 to amend our credit agreement and secure covenant relaxation with our banks, implemented multiple cost and CAPEX reduction targets, executed several transactional opportunities to bolster our liquidity and capped off the year by completing the CCR merger with overwhelming shareholder support. Additionally, we secured more than 10 million t of future business under term and spot contracts during 2020 for deliveries in 2021 and beyond in the most challenging market of my 40+ year career. Furthermore, despite the reduced earnings vs 2019, we made payments of US$86 million on our outstanding debt in 2020. We believe these actions have prepared us to hit the ground running in 2021."

"On the safety front, our Bailey Preparation Plant, CONSOL Marine Terminal (CMT) and Itmann project each had ZERO recordable incidents during 4Q20 and FY20. Our total recordable incident rate at the PAMC continues to track significantly below the national average for underground bituminous coal mines."

Pennsylvania Mining Complex (PAMC) review and outlook

PAMC sales and marketing

The marketing team sold 5.9 million t of coal during 4Q20 at an average revenue of US$39.05/t, compared to 6.7 million t at an average revenue of US$45.14/t in the year-ago period. Following the significant COVID-19 demand trough in 2Q20, demand for product has steadily improved and the company has increased its productive capacity for the second consecutive quarter. On the sales volume front, the 0.8 million t decline in 4Q20 compared to the year-ago period was mostly a function of reduced production.

During the quarter, it was successful in securing additional coal sales contracts for 2021 and 2022, bringing the contracted position to 18.2 million and 5.6 million t, respectively. Despite an extremely challenging commodity and economic climate in 2020, the company was successful in securing an additional 10.8 million t scheduled for delivery in 2021 and beyond.

On the domestic front, 4Q20 ended the year on a strong note from a demand perspective. According to the U.S. Energy Information Administration, coal's share in the electric generation mix ended the year at ~20%, which is improved from its low of 15% in April and indicates a strong 2H20. Furthermore, Doyle Trading Consultants estimates that total domestic coal demand will increase by 10% in 2021 vs 2020, while supply will increase by only 5%. This development could help to further reduce domestic coal stockpiles and continue to tighten the domestic market. The company continues to see tightness in the supply of NAPP coal, and the majority of its domestic customer stockpiles are at or below normal for this time of year. Finally, many weather forecasts predict a significant polar vortex event beginning late-January to early-February, which could bring weeks of frigid temperatures to much of the US.

On the export front, CONSOL has seen several very encouraging trends as the seaborne thermal coal markets have steadily improved since the end of 3Q20. Thermal coal prices in China have continued to increase due to China's strong electricity production, ban on Australian coal imports and regional coal shortages due to new COVID-19-related trucking restrictions. It is seeing continued high pet coke prices resulting from reduced oil production propping up demand and pricing for NAPP coal in high-CV markets, particularly India. Global LNG prices have continued to surge with the Asian spot market benchmark price (JKM) hitting an all-time high in early January. API2 spot prices have also rallied and crossed the US$70/t mark in early-January for the first time since March 2019, driven by recent cold weather trends and increased LNG prices. As such, Europe has again become a viable option for US coal exports.

Operations summary

During 4Q20, the company consistently ran four of its five longwalls and for the second consecutive quarter have steadily increased its productive capacity, operating at more than 80% capacity utilisation. The PAMC produced 5.9 million t in 4Q20, which compares to 6.7 million t in 4Q19. This brings total PAMC production to 18.8 million t in 2020. During the quarter, the company faced significant production bottlenecks due to transportation delays as its supply chain partners continued to struggle with crew availability due to the ongoing COVID-19 pandemic.

CEIX's total costs during 4Q20 were US$306 million compared to US$320.5 million in the year-ago quarter, and CEIX's total revenue during 4Q20 was US$324.6 million compared to US$342.6 million in 4Q19. Average cash cost of coal sold for 4Q20 was US$27.49/t compared to US$30.38 in the year-ago quarter. The significant reduction was due to continued tight control on maintenance and supply costs, contractor and purchased services costs and project expense. For 2020, CEIX's total costs were US$1030.9 million compared to US$1332.8 million in the prior year mainly due to reduced operating and other costs largely from reduced production in 2020 vs 2019, and CEIX's total revenue during 2020 was US$1021.6 million compared to US$1430.9 million in the prior year. Despite the significant decline in production in 2020 vs 2019 brought on by the COVID-19 demand destruction, the PAMC was very successful in limiting its cash expenditures during the year. As a result, the 2020 average cash cost of coal sold was US$29.12/t compared to US$30.97/t for 2019. The decrease was primarily driven by reduced maintenance and supply costs, contractor and purchased services costs and project expense.

CMT review

For 4Q20, throughput volumes at the CMT were 3.1 million t, compared to 2.5 million t in the year-ago period. Terminal revenues and operating cash costs were US$17.4 million and US$4.6 million, respectively, compared to US$16.5 million and US$4.9 million, respectively, during 4Q19. CMT achieved terminal revenue of US$66.8 million in 2020, just shy of the record terminal revenue set in 2019. CMT also achieved operating cash costs of US$18.4 million in 2020, compared to US$21.7 million in 2019, as the CMT employees continued to maintain tight control over expenditures in the year. CMT net income and CMT adjusted EBITDA came in at US$8.9 million and US$11.8 million, respectively, in 4Q20 compared to US$8.6 million and US$11.3 million, respectively, in the year-ago period. CMT finished the year with net income and adjusted EBITDA of US$32.5 million and US$44.4 million, respectively, compared to US$33.8 million and US$44.5 million, respectively, in 2019.

2021 guidance and outlook

Based on the company’s current contracted position, estimated prices and production plans, it is providing the following financial and operating performance guidance for 2021:

  • 2021 targeted coal sales volume of 22 – 24 million t.
  • 18.2 million t contracted at an average revenue of US$41.56/t assuming a PJM West power price of US$24.79/MWh.
  • Average cash cost of coal sold expectation of US$27 – US$29/t.
  • Capital expenditures of US$100 – US$125 million excluding any spending on the Itmann project.

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