Q4 2023 Arch Resources Inc Earnings Call

Participants

Deck Slone; SVP, Strategy and Public Policy; Arch Resources, Inc.

Paul Lang; CEO & President; Arch Resources, Inc.

John Drexler; SVP & COO; Arch Resources, Inc.

Matt Giljum; SVP & CFO; Arch Resources, Inc.

Lucas Pipes; Analyst; B. Riley FBR Holdings, LLC

Katja Jancik; Analyst; BMO Capital Markets Corp.

Nathan Martin; Analyst; The Benchmark Company, LLC

Alex Hacking; Analyst; Citigroup Inc.

Michael Dudas; Analyst; Vertical Research Partners LLC

Chris LaFemina; Analyst; Jefferies Financial Group Inc.

Presentation

Operator

Good day and welcome to the Arch Resources Inc. fourth quarter 2023 earnings call. All participants will be in a listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question. You may press star, then one on your touchtone phone. And to withdraw your question, please press star then to Please note this event is being recorded. I would now like to turn the conference over to Mr. Deck Slone, Vice President of Strategy. Please go ahead, sir.

Deck Slone

Good morning from St. Louis and thanks for joining us today. Before we begin, let me remind you that certain statements made during this call, including statements relating to our expected future business and financial performance may be considered forward-looking statements according to the Private Securities Litigation Reform Act. Forward-looking statements by their nature address matters that are to different degrees uncertain. These uncertainties, which are described in more detail in the annual and quarterly reports we filed with the SEC may cause our actual future results to be materially different than those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by law.
I'd also like to remind you that you can find a reconciliation of the non-GAAP financial measures we plan to discuss this morning at the end of our press release, a copy of which we have posted in the Investors section of our website at Arch. Rsc.com. Also participating on this morning's call will be Paul Lang, our CEO, John Drexler, our COO, Matt Giljum, our CFO. After our formal remarks, we'll be happy to take questions.
With that, I'll now turn the call over to Paul Lang.

Paul Lang

Thanks, Derek, and good morning, everyone. We appreciate your interest in Arch and are glad you could call for us on the call this morning. I'm pleased to report that during the fourth quarter Arch completed drive forward with our simple, consistent and proven plan for long-term value creation and growth. And the quarter just ended, the team achieved adjusted EBITDA of $180 million, generated $127 million in discretionary accounts, bolstered our cash position by $107 million, consistent with our stated objective of building additional optionality for potential future stock repurchases initiated plans unwind the cap call instrument associating with the now retired convertible security declared a quarterly cash dividend of $32 million, or $1.65 per share, increasing the total capital employed in our shareholder return program since its relaunch two years ago for well over $1.2 billion and achieved independent level a verification at the Leer mine under the globally recognized for its sustainable mining framework, becoming the first U.S. mine of any type producers. In short, we demonstrated strong progress against many of our strategic priorities spanning numerous critical areas of performance, including financial positioning, shareholder value creation and sustainability. Critically, the team maintained a sharp focus on driving productivity improvements across the operating platform as well. Here too, we made significant positive headway as we achieved a 10% quarter over quarter reduction in the average cost per ton in our metallurgical segment, secured a nearly 25% improvement in our average coking coal realization and delivered an increase of more than 50% operating margin. Overall, the team delivered improved product to capitalize on strong market environment and continue to lay the foundation. We're still stronger execution in future periods.
Before moving on, let me make a few additional comments about our highly successful capital return program. As we've stated many times in the past, the capital return program is the centerpiece of our value proposition. And the central tenet of that program is a return to shareholders while sector and 100% of the Company's discretionary cash flow will retire in any given quarter. Of course, the amount of capital is deployed with program can and will vary based on several factors, including upcoming cash requirements of our minimum liquidity target and the like. But those are just timing issues and do not change the fact that over time, effectively all of the discretionary cash returned share on the Q3 call. As most of you will have noted, we signaled our intention of increasing our cash balance by $100 million, which we believe serves to enhance potential for opportunistic share repurchases in the event of a market pullback during Q4, we accomplish that objective and in the $100 million to our cash position. With that completed, we believe we've now effectively position the Company to continue the evolution of our capital allocation model towards a heavier share repurchases in the future. Matt will comment on the subject further in his remarks. But a major step in this regard in the play have settled the cap call instrument that we expect to complete in the near future. The settlement of the cap call in and of itself should result in their retirement, and there are 2% of our outstanding share.
Turning our attention to the market dynamics despite somewhat lackluster steel market fundamentals, coking coal markets appear reasonably well support prices, Arch's primary product, High-Vol A. coking coal. It's currently being assessed at $262 per metric ton on the US East Coast, which will step down from the average price that prevailed last quarter is still highly advantageous, particularly in light of Arch's first quartile cost profile. Moreover, the Australian premium low low vol index is currently trading $53 per metric ton higher than the US East Coast price, which is creating an attractive arbitrage opportunity for select US volumes moving into the Asian market. Needless to say, we're sharply focused on trying to capitalize on that opportunity to the fullest extent possible. Of course, that focus on these opportunities aligns perfectly well with our already well advanced objective of increasing our penetration in Asian markets, we expect future steel demand to be centered primary reason that coking coal markets remain well supported in our estimation, as I could have constrained supply stemming from ongoing reserve degradation and depletion, mounting regulatory pressure and limited capital availability and persistent underinvest in 2023. According to trading, Australian coking coal exports declined nearly 6%. And compared to 2022, it brings a total decline in Australian exports to around 40 million metric tons or more than 20% decrease since 2016 peak year for coking coal exports from the US and Canadian coking coal exports and aggregate bounce-back moderately in 2023, offsetting the Australian decline to some degree, protection for those two countries remained well below their respective peak levels. As a result of these factors, we remain constructive on the seaborne coking coal market and expect to continue to be in an excellent position we capitalize on this environment going forward.
Looking ahead, we remain sharply focused on pursuing operational excellence, relentless and hitting our volume and cost targets, extending the reach of our high-quality coking coal products into the fastest growing global markets, continuing to reward shareholders through our capital return program as we evolve towards a heavier share repurchase model. Maintaining our strong financial position, I'll call capitalizing on the optionality it affords during periods of market pullback and advancing our industry-leading sustainability products. We believe we're well positioned to drive forward volume objectives in 2024 and the up and in doing so continue to generate significant value for our shareholders.
But that I'll now turn call over to John for further discussion of our operational performance in Q4.

John Drexler

Thanks, Paul, and good morning, everyone. As Paul just discussed, the arch team executed at a high level during Q4, delivering significant improvements against numerous operating metrics while turning in another outstanding performance in the critically important area of sustainability in our core metallurgical segment, the team's strong execution contributed to significantly higher realizations, significantly lower unit costs and much improved operating margins.
In our Thermal segment, the team achieved a return to form of Westell as well as a solid contribution from the Powder River Basin assets. Despite a softening thermal market environment, the upshot was a greater than 50% sequential increase in discretionary cash flow, which, as Paul noted, is the engine for our robust capital return program.
Let's take a closer look at the performance of the metallurgical segment. During Q4, the metallurgical team delivered on one of its highest priorities, reducing its average cash cost by more than $10 per ton or more than 10% when compared to Q. three. That's a significant achievement and one that serves to further solidify the metallurgical portfolio's position in the first quartile of the U.S. cost curve. Importantly, the improved performance at Leer South contribute markedly to these stronger results. As anticipated, Leer South experienced slower than normal advance rates and lower than normal yields in the first two months of the quarter as the operation completed mining in panel five, where, as you will recall, the coal seam was appreciably better due to its position at the outer edge of the reserve book. However, the mine made up for lost time once it transitioned to panel six in early December resulting in nearly 20% increase in output in Q4 versus Q3.
Looking ahead to 2024, we expect continued productivity increases for the portfolio as a whole as well as continuing improvements at Leer South over the course of the year. As you will have noted, we are guiding to coking coal volumes of 8.8 million tonnes at the midpoint for full year 2024. In addition, we are guiding to an average cost for the metallurgical segment of $89.50 per ton, which is essentially flat versus 2023 despite inflationary pressures. More noteworthy, in my view is the expectation still further improvements in the metallurgical segments performance as Leer South transitions to the second longwall district in late 2024. As previously discussed, we expect better mining conditions in a materially thicker coal seam as the Leer South longwall advances in the district to based on our significantly expanded drilling program at a time when many of our competitors are wrestling with the migration to less advantageous and higher cost reserves. We are fortunate to be moving in the opposite direction.
Looking ahead, we currently expect a less than ratable shipping schedule for our metallurgical segment segment here at the outset of 2024, it can strengthen sales volume relates to weather related disruptions as well as unplanned and accelerated maintenance requirements at Curtis Bay, including a force majeure event that will affect vessel loadings in Q1. As you know, the Curtis Bay terminal is an important link in the seaborne logistics chain for our Leer and Leer South operations. So this outage will have a volume impact. We are current. We currently expect Q1 volumes to be modestly less than revenue. However, we expect the impact to be principally one of timing, which is to say we expect to make up for the missed shipments as the year progresses. I might add that we have factored those events into our full year sales volume guidance.
Let's turn now to our thermal platform, which includes our WestOK longwall mine in Colorado with its high-quality coal and competitive access to seaborne markets as well as our legacy Powder River Basin operations during Q4, Westell capitalized on the transition to a more advantageous area of the reserve base by delivering its highest quarterly production level of the year at around 1.1 million tonnes. As most of you are aware, this is consistent with the normal run rates we have achieved at West Elk in recent years, Bottomline's overall financial contribution will continue to be muted to some degree by the need to make up for legacy price shipments that were missed in the second and third quarters of 2023. We expect a solid contribution in 2024 before a step-up in cash generation in 2025 when we will be transitioning into the BC midyear doing more encouraging still in my view, as with our metallurgical platform, West Delta expects to transition to even more attractive reserves in mid 2025 when longwall mining shifts to the BC. As we have shared in the past, the coal seam thickness is significantly greater and the coal quality appreciably better in the BC, which should translate into both higher volumes and stronger relative price. This positive trajectory, coupled with the mines access to seaborne markets and its durable domestic industrial customer base underscores Westell's significant ongoing potential in further supports our belief that the mine will remain a value-generating component of our operating portfolio for the next decade. If not long in the Powder River Basin, the team made a solid financial contribution despite weakening market dynamics that resulted in a number of negotiated shipment deferrals based on customer requests. As always, we took steps to ensure that we preserve the value of our contract book with these negotiated agreements and parlayed the deferrals into additional sales in outer years. But those deferrals still resulted in lighter volumes in Q2.
Looking ahead to full year 2024, we have commitments in place for approximately 50 million tons of PRB coal at a price generally in line with our average realized price in 2023. As we have demonstrated repeatedly in recent years, we believe we can maintain our cost structure and preserve our ability to generate cash even at step down production levels should that prove necessary.
Finally, let me emphasize once again that our harvest strategy, which is to say our focus on optimizing cash generation from our thermal assets remains very much intact. Since the fourth quarter of 2016, the thermal segment has generated a total of nearly $1.4 billion in adjusted EBITDA, while expending just $172 million in Cap.
Before passing the baton to Matt, let me now spend a few minutes discussing our efforts in sustainability, which remains the very foundation of our corporate culture. During 2023, the company achieved an aggregate total lost-time incident rate of 0.55 incidents per 200,000 hours worked, which is nearly four times better than the industry average. Perhaps even more impressively, the Leer and Leer South mines completed 519 and 329 consecutive days, respectively, without a single lost-time incident. Those streams are nearly unprecedented for underground mines of their size and complexity and further underscore our progress towards our ultimate goal of zero incidents at every one of our mines every single year.
On the environmental front, the company received zero environmental violations under Snapper versus an average of 11 by 10 of our large coal peers and recorded zero water quality exceedances for the 3rd year in a row. Again, an impressive achievement by the team.
Finally, and as Paul noted, our Leer operation became the first US mine of any kind to achieve level a verification under the globally recognized Towards Sustainable Mining framework. That accomplishment is further evidence of our deeply ingrained culture of continuous improvement of our intense focus on raising the bar in all areas of our operating execution.
And with that, I will now turn the call over to Matt for some additional color on our financial results. Matt?

Matt Giljum

Thanks, John. And good morning, everyone. As usual, I'll begin with a discussion of cash flows and our liquidity position. For the fourth quarter. Operating cash flow totaled $182 million a sequential increase of nearly 40% from Q3 levels. As expected, we had a small working capital benefit in the quarter, contributing $7 million. Capital spending for the quarter totaled $55 million and discretionary cash flow was $127 million. As planned, we grew our cash balance over the course of the quarter with an increase of $107 million. We ended the quarter with cash and short-term investments of $321 million and total liquidity of $444 million, including availability under our credit facilities. Debt at year end was $142 million, resulting in a net cash position of $178 million. We have achieved our objective of enhancing our financial flexibility and do not anticipate needing to materially add to the cash balance in 2024.
Moving on, I wanted to note a recent development in our outstanding debt that we completed shortly after year end. As you will recall, we paid down the vast majority of our U.S. term loan in early 2022, giving a small stub outstanding because of the interaction between the low and other parts of our debt structure. Earlier this month, we refinanced that stub with a new $20 million term loan. Our small transaction refinancing allows us to maintain the financial flexibility that we have grown accustomed to over the past several years without any material change in our ongoing debt service obligations.
Next, I want to highlight a couple of notable financial accomplishments from 2023, starting with the capital return program. For the year, we deployed $355 million under the program, representing nearly 80% of the year's discretionary cash flow. That total includes dividends declared of $171 million or $9.20 per share and repurchases of common stock and dilutive securities of $184 million. As for the remainder of the discretionary cash flow, we expect to deploy that opportunistically in future quarters the second accomplishment is the ongoing reduction of our diluted share count and the simplification of our capital structure. Going back to the beginning of 2020 three's Our diluted share count total approximately $20 million shares with more than 11% of that comprised of diluted securities, primarily the remaining convertible bonds and warrants by the end of the year. The diluted share count was below 19 million shares for dilutive securities representing just 3% of the total. So we reduced the total share count by 5% while greatly simplifying the capital structure as a final step in that simplification process and another significant step in reducing the share count fleet tend to unwind the cap call by unwinding in the near term. We will receive shares representing the current fair value of the instrument estimate that could be as much as 2% of the fully diluted shares outstanding. While we are accepting a discount on the dollar value of the cap call. We believe that retiring the shares now in advance of expected future capital return, we'll prove more value-creating than delaying the retirement until the maturity date in late 2025.
Before turning the call over for questions, I would like to cover a few cash flow guidance and modeling items for 2024. First, we expect capital expenditures to be in the range of $160 million to $170 million, representing maintenance level spending. We currently expect that to be spread fairly ratably over the course of the year. Second, we expect a larger share of additional maintenance and improvements at DTA. over and above the normal operating costs to be approximately $10 million. This is not included in our CapEx guidance but is accounted for as an equity investment. I would also note that we expect this to be offset by additional income that we will generate from selling our excess capacity in the terminal to third parties.
Third, with respect to cash taxes at current metal prices, we would expect our cash taxes investments for the year to be near the bottom end of our guidance range as we continue to utilize our net operating loss carry forwards.
Lastly, as we look at working capital trends, we typically see a cash outflow in the first quarter and would expect that to be the case in this quarter as well, with an outflow of as much as $40 million as we look at the full year, we currently expect to see a modest working capital benefit, which represents a tailwind of more than $80 million as compared to the working capital build we experienced in 2023 to wrap up our Agenda 2024 in a great position to continue to deliver robust capital returns, only maintenance capital spending, minimal debt service obligations and the ability to utilize NOL carryforwards to minimize cash taxes and a more favorable working capital trends.
As we look at how we execute the capital return program, the combination of streamlined capital structure, the reweighting of the program towards share repurchases and the additional cash we currently have on hand positions us nicely to substantially reduce the share count this year. For that, we are ready to take questions. Operator, I'll turn the call back over to you.

Question and Answer Session

Operator

Thank you. We will now begin the question and answer session to ask a question, you may press star then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. And at this time we'll pause momentarily to assemble our roster. And the first question will come from Lucas Pipes with B. Riley. Please go ahead.

Lucas Pipes

I first wanted to ask about the met coal guide for 2024 and Tom, when I think about the midpoint, 8.8 million tonnes and I compare that to 2023 sales of 8.6 million tonnes kind of pulp, a delta there of 200,000 tonnes at the midpoint. I'm a little surprised given the transition at Leer South. And so I just wondered if you could maybe walk us through maybe some puts and takes across that portfolio. Would appreciate your perspective on that.

John Drexler

Hey, Lucas, John Drexler. Um, as we look at the volume guidance for 24 were comfortable with what we have out there. We, as we've discussed, expect the continued opportunity to ramp at Leer South over the course of 24 district to for us, which we've been talking about and sharing with you guys as well is something that we'll be getting to towards the end of 2014. So that transition is continuing. The expectation for Leer South is around 3 million tonnes this year. And so that for us is kind of a comfortable as you look at the rest of the portfolio, there's a lots of things that happen operationally between longwall moves at each of our longwall operations over the course of the year, et cetera, timing. But we're comfortable with that 8.8, I'll share with you the team is very focused on being higher than that number as we work over the course of the year. But as we kick the year off here, I wanted to make sure we're all in a range that we were comfortable with, but we're very focused on improving that numbers as we work over the course of the year.

Lucas Pipes

That that's helpful. I appreciate the color, I'll turn it over to the thermal side for a moment. And first, I wondered if you could maybe provide a mix on expectation between West Elk and the PRB and then also where you kind of see PRB pricing contracted for 2024? Thank you.

John Drexler

Look at that and we look at it at the tunnel portfolio, we're excited about what we've seen and the progress we've made at West Elk. And as we reported, we've gotten back essentially to expected run rates for that operation as we got through the fourth quarter, we were at 1 million tons. That's kind of where we expect to be as we work through 2024, 7 million tons a quarter, 4 million tons for the year. The balance then comes over to the PRB at West Elk. I'll note though, real excitement is we're back to normal levels, but we're also going to be in a position where we're transitioning to the Bcf. So development is occurring there. By the time we get to mid 2025, we're going to be in an even thicker coal seam better quality. So we're excited about that in the PRB. The rest then spilled back to the PRB. We've indicated that that we're at kind of that 50 million ton level. If you look at our guidance, the midpoint of that guidance, our commitments are actually slightly higher. Where we sit today. You see where natural gas prices is that as we reported, we took advantage of the opportunity of some of our customers in 23 that needed to look at their commitments in their inventories. And we were able to parlay that into additional volumes with some rollovers in 24 was about 5 million tons. So as we sit here today, we don't think it be unreasonable to think of something else in that magnitude 5 million tons is that could be impacted as we work through 22.

Deck Slone

And I'm going to look at this, is that I mean, I would just I would add this that for the Westell, we expect volumes to be higher. That's for sure. Volumes on normally around 3 million tonnes in 2023. So we expect no meaningful step up to between four and 4.5 million tons in 2024, but prices are likely to be lower. So, you know, obviously the seaborne pricing has come down. We have some legacy contracts that we still need the service. So this sort of sideways contribution despite the better the better results at West out from a production perspective, the better operations in the Powder River Basin. That pricing is now around $15 is kind of where we're committed to right now. We still think that creates the opportunity for us to generate $1 to $1.50 margin. So look, overall for the thermal contribution, perhaps a small step down given the volumes are likely to be lower, but still a substantial contribution from the thermal segment. I know that doesn't necessarily come across from the guidance table because things like export tons are missing, et cetera. But we still think this our Thermal segment is going to contribute a significant amount of cash in 2020.

Paul Lang

But again, I'm not going to repeat one thing. I think I'd like to just kind of touch on again another deck and John alternative. I know it's a little odd. We're guiding below book, so by about $1 million million. that I think is just plain and simple recognition of natural gas has fallen so much in the last couple of weeks that we're expecting pretty hard push back. We'll get that value back. I think it's the reality. And I think we wanted to show our guidance.

Lucas Pipes

Yes. Thank you. That's that some exactly what I wanted to get at. If you look at the guidance table, you're committed at, call it, $17 and cash cost guidance $16 to $17. So maybe to help us understand this better in today's Newcastle price environment and what you have left to sell at West Elk maybe domestically as well, what would you expect that $17.09 to trend in today's market environment?

Deck Slone

Look, it may well count on that right now. You can look at it as the net backs could be sort of in the 40 sort of 40 plus dollar range, but was there a lot of moving parts of West Elk and again, we grant you that there's a little that guidance table might cause a little confusion, but the reality is there's so many moving parts at West Elk in the wake of some of the quality issues we had in 2023 that we do think there is a meaningful margin still to be gained. And even with what I just described, that sort of mid $40 range and net back. We still believe that when you sort of factor in some of the volumes that are priced again, you're going to see a widening out and a solid margin from the thermal segment as all look at I mean, your did not indicate on that additional export volume even at these costs and prices that are down from where they have been that will move that number up.

John Drexler

That's in the guidance table over the course of the year. I think that's kind of been the historical practice you would have seen from us as well if you go back to the previous quarters, beginning of the year, et cetera.

Lucas Pipes

Thank you. And sorry if I missed it, how many Westel tons are uncommitted unpriced today and would they all go into the export market with that 40 something in FX.

Deck Slone

And so it would be it's close to a million times that wouldn't be it would not be priced as yet.

Lucas Pipes

Got it, right. And this is very helpful, gentlemen. I really appreciate all the color, and I'll turn it over. Best of luck.

Paul Lang

Thank you, Lucas.

Operator

Katja Jancik, BMO Capital Markets.

Katja Jancik

Thank you for taking my questions. Staying on West Elk, how much did West or contribute in 23.

John Drexler

So Scott, you have once again, we're as we've indicated this past year and '23, Westell, while it was constrained and had issues, it produced 3 million tons we expect that to grow the 4 million tonne. So we do see an enhancement there given where the international markets were and with some of the challenges we had, we still had have a nice margin that at Westell how you got as we just talked about some pressures in the markets themselves as we step into '24 less stuff. But you see a very meaningful increase in volume. So contribution as we see it is probably flattish between '23 and '24 and still resulted in a nice cash flow for the for that complex contributing to the pharma segment.

Deck Slone

I thought maybe just a little bit more granularity deck again, probably $10 to $15 margin is how do we think about that for the 3 million tons. You think about that 2014 margin kind of what we're saying is so you can see that volume that John just described, the 3 million ton step up to four plus for May, that margin gets compressed a little bit in the current environment. So maybe that's maybe that's helpful.

Katja Jancik

That's super helpful. Thank you. And then on the met side, you're guiding 8.6 to 9. Can you still over time expect you can get to 10 million tonnes?

John Drexler

Okay. Yes, I think we've continued to have discussions around the Met portfolio. And we are comfortable, especially as Leer South transitions into district two that we're going to see volumes at that nine plus million tonne level. And we'll continue to do everything and to focus on on getting that to the highest amount of production that we can out of that portfolio. We do expect it to be well north of nine. And that will be a great net portfolio. And if we can push it up and then we'll be working to do that as well. But it's too early for that far out to really solidify some of that guidance comes Paul, who wanted to go ahead and I'll get John to a lot of credit.

Paul Lang

As he noted in his remarks, we came through October, November as expected, due to some bad conditions. We hit December and the new panel from Iran as well as lead senior loan. And we know we can run the volume. So I gave a lot of confidence in what I saw and why you saw the team produced. So and I still remain fairly optimistic.

Katja Jancik

Okay, thank you. Back into the queue.

Operator

Nathan Martin, The Benchmark Company.

Nathan Martin

Maybe just a follow-up on the most recent question. As we think about the net operations in general, again, I think you guys in the past eventually get to that 10 million tonne run rate. But just to be clear, does that include but thermal byproduct tonnes? Because I know some people, I think have likely assume that that was just coking coal. So that does include the byproduct tonnes.

John Drexler

And in theory or coking coal tons, Zoom more likely in the low 9 million kind of range, just would be great to get your thoughts on the right way to think about that today than what we're talking about net and the numbers we're using and the goal of ultimately maximizing the net sales that's just in that it excludes the thermal byproducts as we mine across our portfolio as part of the production and processing, you are left with that product. So so that's incremental to the to the volume, the volume that you have there. So it if you add in the MIDS product, then yes, you're right, we will be over 10 million tons when you add back the impact of the of the MIDS as we look longer term?

Paul Lang

Absolutely.

Nathan Martin

Okay. John, just want to make sure that was clear for everyone appreciate that. And maybe sticking with met first. Second, any thoughts guys on on this historically wide spread between US East Coast met coals like High-Vol A. and the ultimate goals, especially given your high portion of mix to HVA production? And then how do you see that possibly affecting your realized price per ton in 24? And what do you think it takes for the spread to kind of return closer to normal?

Deck Slone

Yes, Nathan, it's Deck and let me take a shot at that and others can join in. And obviously, we don't have a perfect answer this is a very wide differential historically, we think it's to why we think it will close over time because it creates significant arbitrage opportunity. But yes, as you noted, the average over the past seven years between the debt average differentials, the past seven years has been a $10 premium for premium low-vol on look, you could make the argument that and the spread could, you know, could reasonably be assumed to be around $20?
That's the that's the transportation differential between moving tons from Australia into Japan versus the US East Coast in Japan, but the fact is it's one of them taking today.
One of the things I would point to is you have different products play different roles in coking coal blends and so right now, as we discussed, as Paul noted, coking coal exports out of Australia are down 40 million tons, 40 million metric tons, yes, since 2016. And we continue to see operational challenges there. So there's real pressure on availability of premium low-vol and premium. Low-vol does have a very specific role that it plays in blends. And so look, I think your scarcity there?
I would add the fact that with costs and royalties moving up in Australia, that also is supporting a higher premium low-vol price and look not to say that justification because again, we think this creates a significant arbitrage opportunity for us to sell our tons in the Asian market rather than into the Atlantic market. And for the Asian buyers, duration of audio on the US East Coast to pick up tons. So we still expect that excess spread to contract on. I do believe the fact that there are fewer US producers who really have a lot of experience and exposure in Asia has more U.S. producers get that exposure. And I do think that creates more of an opportunity to see that out of the this?
Yes, equilibration of those two and those two prices that look, we're glad to see the higher PLD price. We absolutely believe that that HPA and the other US East Coast prices should be pulled up over time by the scarcity there?

Paul Lang

Yes, I think one of the interesting things, Nate, is that with where we have the unusual ability for the US and that we can compete closer to appeal the because the CSR plastic properties of the coal. Because of that, we do get an opportunity to participate in that arbitrage. And so it's a little odd and I think Dick did a good at a summary of all the things that are going on that are created there.
No, right now we have that ability to compete head to head, and we'll take advantage of it while it exists and that we are selling and we are taking advantage of and in some instances.

Deck Slone

So there are times we're selling time to TLV. and other instances on it may be that we are buyers in Asia who are quite willing to pay that price because they don't need that for quality. So we can we can sell a lower quality product with a little more ash and take advantage of a blend between PLD and some of the other indices and still get a premium to the US East Coast price. So we absolutely are tapping into that and taking advantage, but it would be nice to see the entire East Coast market lift. I think again, that would take some of our competitors following suit and being able to sort of penetrating into Asia and where we are Appreciate those comments guys.

Nathan Martin

And then maybe one final question, Paul or maybe, Matt, just as it relates to the discretionary cash flow, again, you guys mentioned your decision to increase your cash position quarter over quarter, obviously affected share repurchases. I think you only spent about $3 million in the fourth quarter there. On your now talk is moving to heavier more opportunistic share repurchases. So I guess first, and can you provide maybe just some more details behind your decision to build that cash during 4Q?
I think the average share price was below where it has been to start the year here? And then second, should we expect on the return of discretionary cash flow, obviously, other than the dividend to continue to kind of be lumpy? And then finally, would you expect to increase your buyback authorization as you shift to buying back more stock?

Paul Lang

Again, I think I'll start with this, but I think there's probably a group effort. But as I look back and with the CAP drug program last few years, in fact, there's very little change here. Arguably Arch took the lead in this area really set the standard for colder. I know the fundamental premise of our shareholder return program is really pretty simple and we live by and this is the shareholders' money and we're going to return and we have shareholders that prefer dividends, even shareholders prefer buybacks. And we've tried to be responsive to the decision to build the $100 million on the balance sheet, Trulia responsive just from some of our share will use the thought we should really hold onto some dry powder when we see pullbacks in the market like everybody in the commodities business, we experienced significant volatility, and I would expect that to be the case in the future as well. So while we remain very constructive on the current seaborne coking coal market, our story and gender of our store in general. Also, I think you see that by our willingness to exercise the cap call promise with Jeff, when we see pullback to generally coincides with lower cash balances on the balance sheet. And that's exactly what we're trying to take advantage. So I look back and look at our buybacks. Neil history, other than has, I think, been pretty good stewards of shareholder money. The 12 million shares we've bought back over the last six or seven years, we've averaged about $90. I think in this pricing environment, that's a pretty good story and we're clearly better at picking the timing on buying and selling our investors there.

Matt Giljum

If we wanted to be prudent on how we deal with the buyback program and building cash towards the upper end of our target points, though, with the goal of trying to be a little more responsive and maybe just add a little bit to that, just to give you a specific example, if you go back to the middle of last summer, we saw the stock price dip when the met prices were in the call $110 a share, maybe a little lower. And as we entered Q3 of that year, we were at minimum liquidity levels. So we had certainly we used the cash flow we were generating at the time to buy back. But if you look at our Q3 buybacks, no, relatively weak. And if we had had a little dry powder at that time. I'm going really to have done something more substantial. And that's really the type of thing we're trying to build in the ability to do today is really be able to take advantage of those times. There's going to be volatility in this industry and we should be able to manage to take some of that volatility out of the trading for one, but also to take advantage of times when we think the value has gotten a little lower than it really should be. So I mean, I think that's the right way to look at the cash Bill, when you think about the and part of your question regarding the lumpiness of capital returns look for better or worse, the cash flows are fairly lumpy the way the business runs. And so there's going to be some element of that. But hopefully what we've done by buildings and cashiers tried to smooth some of that out. And then as we look at the authorization, look, we'll continue to watch that. I wouldn't be surprised if here in the next quarter. So we need to potentially refresh that authorization. But that will be a discussion we'll have with with the award when the time is.

Nathan Martin

Right. Very helpful, guys. Appreciate the time and best of luck in '24. Thanks.

Operator

Alex Hacking, Citi.

Alex Hacking

Yes, good morning. Can you hear me? First of all, I am so I guess just coming back to Nate's question on HVA pricing because your gaps pretty wide, right. I think, as you know, FOB Australia ACC was priced around $290 a short ton in the fourth quarter, you guys are realizing 195 from 100 to $100 gap, right? And a lot of that has to do with the pricing of HVA. I guess how much of the issue there is with all the new supply because Leer South ramped up and it seems like mine number four in Alabama is also transition to HVA. Like is that the fundamental problem that we've just had a big chunk of new supply in the markets struggling to absorb it or is there something above and beyond that? Thank you.

Deck Slone

Yes. So Alex, yes, I mean, look, I think the right way to think about the spread with PLD is right now. It's about a $53 differential. So that is simply a function of sort of market conditions and the aspects we talked about.
Now when you look at our average coking coal realization. The average HVA price in Q4 was $281. And when you think about sort of the hard blended portfolio, we might be talking about something more like sorry, $75 would have been sort of the average price that prevailed. So you take that to $75 and you say, okay, that's around $35 metric has $200,000 short, you assume a $50, our rail rate, that's $200. And then when we think about the fact we had North American volumes committed it way to the word fixed price for about 20% of our volumes kind of lands you right on top of that $196 number. So look, I would say we're really delivering on that US East Coast HBA price or the US East Coast prices. Generally, we're capturing that realization fully. So we feel we feel good about that and I'd still believe that's the best proxy for us going forward is US East Coast pricing, even though as indicated, there will be instances when we tried to move tons into Asia at the PLD price and instances where we can do that or at a blended price in Asia. So look, we feel good about that. But I would say back to the issue of sort of what the differential was between TLD and HVA. Again, some of those some of those fundamentals that we discussed, certainly don't view this as a new supply issue.
Yes, U.S. production did bounce back about 5 million tons or exports bounce back about 5 million tons in 2023 when Australia was down 10 million tons. So in reality, the seaborne market was lost supply during 2023. So we certainly don't see that as the issue would suggest that the 5 million tons of U.S. was really just for the most part, bringing additional volumes out of the existing portfolio. There aren't a lot of shiny new assets being added. So we see sort of limitations to how much the US can can move up. But again, we think the market is really quite well supported. We think we'll continue to have opportunities to move additional volumes in Asia. We're shipping 40% of our tons in Asia. Today, we expect that to be 50% and in relatively short order and probably 16 thereafter. So look, we're moving in the right direction into that sort of a center of the of the steel or steel making future. And so feel good about all of that.

Alex Hacking

Okay. Thanks for the color. I mean, actually, I kind of answered my second question, which was going to be around some of the tonnage that's going into Asia. So let me just ask, I guess real quick. I apologize if I missed this in terms of the shipments in the first quarter, they're going to be weaker, impacted by some logistical issues. Did you quantify that or can you quantify that?Thanks.

John Drexler

And we indicated maybe less than ratable for the 8.8 million tonnes. The one we used was modestly. I think from a ratable perspective, you could look to a 5% to 10% reduction from ratable on the 8.8. So you know, that's a vessel or two, Alex. So that's just the kind of timing that you're talking about here and we'll be making that up as we go forward. We don't have any concerns about that.

Alex Hacking

Okay, perfect. Thank you. Balaji has nothing that suggests missing. You know, look at the two vessels, 150,000 tons. It doesn't it doesn't take much for for volumes to slip from one quarter to the next.

Deck Slone

No. Look at Curtis Bay is moving quickly to resolve the issues on. But when you're talking about a force majeure event and an outage that span multiple days, that really does result in a change in kind of the efficiency and productivity of the facility. They did a great job of getting things lined out, but it was multiple days of outage. And so again, could have a small effect and we want to be prepared for the fact that we could see a couple of vessels slip out of Q1 into Q2 probably Thanks.

Alex Hacking

Makes sense. I get every every vessel count. Thanks.

Operator

Michael Dudas, Vertical Research Partners.

Michael Dudas

On the met coal front, maybe Matt can go over your admirable with per ton cost flat, but what are you budgeting for 2024 on some of the input costs, labor, consumables, contracting, royalties et cetera, what are moving at a better rate or higher rate than normal winter kind of contribute to help hope those costs as we move through '24. And is that something similarly, given with expected better volumes we could think about for 2025 preliminarily, am I correct?

John Drexler

That's a good question. And I mean, you hit on everything. I mean as the economy recovered as supply chain issues prevail, we saw significant inflationary pressures from the industry because we saw supply chain issues, pushing things out, delaying major pieces of equipment what have you. The team did a fantastic job of managing all of that and continues to do a great job of managing all of those things. We continue to see higher inflation and certain things that repair parts and supplies that we're acquiring. We're seeing other things where inflationary has slowed down significantly from, you know, so that all gets factored in from the labor perspective, labor stuff in our industry, really, as we've talked about this at length before, we're very fortunate that we've got great long live, low cost assets that operate incredibly safely have a great culture, our most important asset, our employees in and when they feel that way, our turnover is lower than the others on. But still labor is another impact that is affecting the costs as we sit here today to be able to move flat from 23 to 24, obviously with some modest improvements in volumes, but still hard work by the team to manage cost across the board as we step forward into 25.
One of the wonderful things about our portfolio is our ability to continue to manage to that first top quartile cost structure. Once again, high volumes, great assets, great people running them in. We think we're in a good position as we move forward.

Michael Dudas

Appreciate that. My second question, maybe for Paul, John, or maybe the group. Certainly there's been a pretty sizable shift in the thermal market in the US with gas prices meandering quite low, maybe a sense of what your customers are thinking? Any thoughts on plant retirements, pace or speed up and as you're thinking about the next several years and we have we did have a nice recovery when prices were strong because of the Ukraine issue couple of years ago on the pace of maybe moderating or declining what the PRB assets will contribute in the marketplace. Given what maybe could be a little longer a trough in the market from a cyclical side relative to the other secular issues that that they serve your customers?

Paul Lang

As far I'll start off and let the others jump in. But now as I said in the past, we look at this situation from pretty pragmatic point of view, the last coal-fired power plant in the United States was 10 years ago. Last year, we saw about 13 gigawatts of coal-fired generation shutdown of the MAX, and there's expected to be in oh seven are never spent more than seven gigawatts in 2014.
You know, the funny thing is, though, at the same time, 2023 was a record year for global coal consumption or excuse me 2022 was 2023 is looking like it also is going to be another record year. So the thermal market as well as seaborne thermal Arne's world seaborne coking coal market that it still remains very strong. And if you have assets or the US that can get coal offshore, it still has a very good outlook and West Elk is a prime example of that where it's a coal that fits very well in the Asian market because of its low ash and low sulfur and high CV. So I think there is a diminishing role in the US for coal are kind of the internal view is that the PRB will continue to drop about five or 10% a year. And I think what you're seeing or we could see in 2024, headed into the early part here is looking at a $1.70 natural gas. It's a pretty tough road to go forward.

Deck Slone

Yes. And my God, yes, I would agree with all that obviously. But look, last year, utility consumption was around 390 million tons in the U.S. go back to 2008, it was 1.1 billion. So clearly, you know, there's been a pretty a pretty steep glide path here, but we are absolutely prepared. If we start to see a plateau, we're prepared to continue to produce at a higher level, had the ability to do that. We'll take advantage of it. But I think we've been we've been right to prepare for that sort of decline and do all the things that you that, you know, we've done shrink the footprint, build the Faro mine reclamation fund the PRB, any shift about turning 30 million tons in total in 2023?
As Paul said, right now, we expect that to continue to step down 10% per year or so probably makes sense. We could definitely see some delayed retirements of power plants so that that $1.50 or $1.70 natural gas price right now is a green line saying you're okay to close. I will say this concerns about reliability are growing areas more discussion. We'll see if we end up with some some some more significant delays we've seen a few here lately. So we're prepared to go the direction if it continues to decline the way that it has, we're preparing to bring the plane in for a soft landing Powder River Basin. It is suddenly we see a plateau. We're also ready to capitalize it.

John Drexler

Michael, I'll round out those comments with just the wonderful folks out at our operation have done an incredible job through the entirety of that cycle. And through the decline over many years, we continue to manage the asset and nibbling into do it in a way to manage the costs. You go back to a high watermark for the Powder River Basin or Black Thunder was 117 million tons. You know, this year it was 60 right now, you see us guiding to 50 through the entirety of that decade of change. The team there is embraced and continued to manage the costs and to be able to put us in a position to continue to generate cash. And we've got high confidence no matter where that goes as we go forward, that we're in a position to do the same thing as well.

Operator

Chris LaFemina, Jefferies.

Chris LaFemina

I just had a question about it had a question about the capital return strategy support. You mentioned accumulating this cash as dry powder you've talked about in the past as well. You've targeted 100 million of cash build which you achieved in the quarter. So as we go forward from here, let's assume that you don't get the pullback in your stock price. Should we then assume that our free cash flow will be returned to shareholders. And it's really just a question of whether it's dividends or buybacks or do we continue to accumulate more cash waiting for that potential pullback to happen? That's my first question.

Paul Lang

Okay. So I think the real simple answer is that we got ourselves to where we said the kind of the upper end of our cash ranges and we're ready to move on. And I think we've positioned ourselves very well. And I think there's two strong arguments for moving forward with heavier share repurchase right now.
I think first and foremost is the discussion here earlier. The fundamentals for metallurgical segment are still pretty good. Pricing is it all looks pretty strong over the medium to short term that's probably not baked into dynamic or it's not reflected our share fronts. And second, as John pointed out, we expect ongoing operational improvement in '24 and '25. So I think we set ourselves up well for what's coming and I feel good about the position we put ourselves in.

Matt Giljum

One thing I'll add, Chris, you were, as Paul said, on the cash balance were at the level we wanted to be at. I think I was pretty clear in my my prepared remarks, we don't see the need to build that here in 2024, maybe one one data point. As we look at the cap call, which if there's going to be something similar to a share repurchase, the breakeven, if you look at where we're at today from a share price perspective and where we would need to be in 2025 to make this a better bet to do it today currently sits at a little less than $200 a share. And if we look at it that way, we look at our plans, we look at what where we think we'll be able to achieve in terms of capital returns over the next couple of years. We think it's better to do this today. And so taking that translating into share repurchases, we think we're in a position that in today's share price environment, we've got a lot of a lot of cash we're going to generate to buy back shares. And then if we do see a pullback in in the the world where we don't have a pullback would be one of the first times. I think we've seen something like that in a long time in our business, but we don't see a pullback. We're going to be spending 100% of the cash flow as we sit here today, returning that to shareholders and is there a kind of number on a pullback that you'd be looking for?

Chris LaFemina

I'm not sure if you can answer that question, but your stock's down 15% from its recent high. Is that enough of a pullback or does it have to be so much more significant in that regard?

Matt Giljum

I don't think we want to give him to go where we're going to be a certain price points. I think where we sit today what the stock has done in reaction to this, I think we'd be early fairly active in the repurchase program.

Chris LaFemina

Excellent.

Paul Lang

Thank you, Chris.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Mr. Paul Lang for any closing remarks. Please go ahead, sir.

Paul Lang

Thank you again for your interest in Arch. As I noted earlier, we remain focused on pursuing operational excellence, delivering on our volume and cost targets while driving continuous improvement across the portfolio. At the same time, we continue to reward shareholders through our capital return program. We're intensifying our focus on share repurchases and opportunistically shrinking our diluted share count over time. So that operator, we'll conclude the call, and we look forward to reporting the group in May. Stay safe and healthy with one.

Operator

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