Alpha Metallurgical Resources Inc

NYSE:AMR

Earnings Call Transcript 2019-Q2

[Operator]

Good morning. My name is Carol, and I will be your operator today. At this time, I would like to welcome everyone to the Contura Energy Second Quarter 2019 Earnings Call. [Operator Instructions]

At this time, I would like to turn the call over to Alex Rotonen, Vice President, Investor Relations. Please go ahead, sir.

[Alex Rotonen, executive]

Thanks, Carol, and good morning, everyone. Before we begin, let me remind you that during our prepared remarks and the Q&A period, our comments relating to expected business and financial performance contain forward-looking statements and actual results may differ materially from those discussed. For more information regarding forward-looking statements and some of the factors that can affect them, please refer to the company's second quarter 2019 earnings release and the associated SEC filing. Please also see those documents for information about our use of non-GAAP measures and their reconciliation to GAAP measures. Participating on the call today are Contura's Chief Executive Officer, David Stetson; and Chief Financial Officer, Andy Eidson. Also participating on the call is Kevin Stanley, our Chief Commercial Officer, who will provide an update on the current coal market dynamics.

With that, I'll turn the call over to David.

[David Stetson, executive]

Thanks, Alex. Good morning and thanks to everyone for participating. First, I want to start by saying how excited I am to be leading this organization with its tremendous assets and a workforce that's second to none. With regard to Contura's deep and experienced management team, I'd like to thank Andy and Mark, in particular, for the excellent job they did in managing the organization as Interim CEOs during the company's recent leadership transition.

While we have faced a number of challenges the past several months, I believe the future is very bright for Contura and we'll be covering several positive developments today that point toward the high potential of the company. Additionally, I'm looking forward to sharing my longer-term vision for Contura with you, which includes some structural changes about our management team and the Board of Directors that allow us to better focus our strategic efforts on that vision.

Our operational performance in the second quarter was exceptional with record-high EBITDA of $140 million and over $100 million of cash provided by operations. We increased our second quarter met shipments by 10% as compared to the first quarter to nearly 3.4 million tons. In addition, we reduced our cost of coal sales across all operating segments, but we still have much work to do to get the cost to a level with which I'm comfortable.

While the second quarter was very strong for us, I'm sure everyone on this call is well aware of the seaborne met market that has held up so well over the past 2 years, has begun softening in July. Obviously, we can't control the market dynamics, but we can control how we react to them. Therefore, as a result of what we believe to be a short-term challenge, we are rationalizing our production for the remainder of the year. Rather than being overly aggressive and selling at low returns into the buyers' market, specifically, we are lowering our shipment guidance for the CAPP - Met segment to a new range of 11.5 million to 12 million tons. We're also lowering our CAPP - Thermal guidance to a range of 4.3 million to 4.7 million tons. While we think there's some potential upside to our revised met coal guidance, we believe that this time it's prudent to be more conservative given the softness we're experiencing at the end use markets, most notably Europe and South America. Kevin Stanley will provide additional color about these market conditions in his prepared remarks and Andy will discuss both the second quarter and our updated guidance in more detail a bit later.

Turning to the recent Blackjewel bankruptcy filing and the related asset sale, I want to give you a brief update regarding our situation there. As has been widely reported, we were the successful bidder for Belle Ayr and Eagle Butte mines in Campbell County, Wyoming as well as for the Pax [indiscernible] Surface mine in Fayette County, West Virginia. It's important to note, however, that the transaction with the Wyoming mines, in particular, is contingent upon a resolution to the United States government's pending objection to the sale. We're still in ongoing discussions with both the debtor and the relevant federal agencies in an effort to resolve those issues.

As I'm sure most of you are aware, Contura's wholly-owned subsidiary, Contura Coal West, divested these 2 Western mines to Blackjewel in December of 2017 in order to sharpen the company's focus on its met-heavy Eastern asset base. Blackjewel began operating the mines while it, Contura Coal West, in the State of Wyoming, jointly undertook a lengthy process to transfer all leases and permits to Blackjewel.

As of the midyear 2018, all related leases and permits have been successfully transferred with the exception of the Surface Mine Control and Reclamation Act permit for each of Eagle Butte and Belle Ayr, which carry with them reclamation obligations for both operations. As such, we continue to maintain sufficient bonding with third-party sureties to cover reclamation and other obligations for those 2 mines.

After Blackjewel filed for Chapter 11 protection on July 1, we determined through careful analysis the most prudent course of action for the company was to serve as a stalking-horse bidder for select Blackjewel assets in order to accommodate a smooth sale process as well as to provide us with optionality regarding those operations.

The Pax Mine, on the other hand, is a low-cost, high-volatile surface and high-well mine located near our existing operations in South -- in Southern West Virginia that further expands our metallurgical coal footprint and provides logistical synergies and blending opportunities. In fact, we believe the Pax mine, when fully operational, can produce up to 0.5 million tons of annual production and should generate enough return to roughly cover the cost of our total bid for the Blackjewel assets. Again, while this acquisition was obviously not in our plan 6 months ago, we are confident it was the right decision to be proactive with these assets and work to secure a resolution that will both create near-term value and mitigate any adverse financial impact to the enterprise. Andy is going to share more color with you on the Powder River situation a little bit later in this call.

Next, I'd like to turn a few comments to Contura's consistently strong safety and environmental performance. Safety is and always will be a foundational core value for our company. As such, I'm pleased to share that our safety performance continues to reflect our adherence to that core value. Specifically, our total reportable incident rate in the second quarter was meaningfully lower than the national average with our July and year-to-date results better than the national average. Similarly, our NFDL and violations per inspector day were better than the national average for both July and year-to-date periods.

Positive environmental performance also continued throughout the second quarter, with a 20% decrease in total exceedances compared to a 3-year average for the January-through-June time period. Going forward, we'll maintain our focus on continuing improvement, both in safety and environment stewardship, as we simply -- part of our DNA.

I'll wrap up my prepared remarks with a high-level overview of the strategic focus going forward. I have been in Contura just over 2 weeks now and over the coming weeks and months, I'll be working with the entire team to implement my vision for our company. However, here are some high-level focus in which we are already taking action.

First, we can't control the markets so, therefore, our focus must be on running efficient and safe operations. I'll be implementing changes that will lower our cost structure to more historic levels and provide for better coordination between sales and operations. This is an extremely high priority for me and the entire management team. Let me be clear, lowering costs should not and cannot come at the expense of maintaining the highest possible safety and environmental standards. But I am confident that Contura can become one of the lowest-cost met producers in Central App and can sustain these lower costs without [ negatively ] impacting our commitment to safe and responsible operations.

Secondly, I'm committed to maintaining a strong balance sheet and believe -- and we believe we can do so in concert with a robust capital return program. We will pursue both goals by focusing on what I believe to be the most important value measure for our shareholders, free cash flow. Strong free cash flow will allow us to fund our operations and capital needs while enabling us to succeed in our next strategic step, a meaningful returning capital to the shareholders. We believe Contura's shares are materially undervalued at the current trading price, and I expect to be announcing the first tranche of a capital return program in the very near future.

Third, to help ensure we are fully leveraging market opportunities while protecting against downside risk, I am focused on actively managing Contura's asset portfolio, whether that means divesting nonstrategic thermal properties or acquiring new met mines or reserves that enhance or expand our product offerings in a strategic position. I firmly believe the metallurgical coal market continues to have favorable long-term dynamics, but to best position the company to take advantage of that potential upside, asset optimization will be critical to our success.

I'm also a strong believer that success starts with the team you have in place. In my short time here, I've been impressed with Scott Kreutzer's strategic vision and ability to execute. As I'm sure most of you saw the announcement late yesterday, I've asked him to work directly with me as our newly created Chief Strategy Officer, tasked with implementing my vision to acquire new reserves and operation, divest nonstrategic thermal assets with the goal of ensuring Contura will be the leading U.S. met company for decades to come.

Jason Whitehead, who almost has 2 decades of experience as a Central and Northern App coal miner, who is uniquely familiar with our coal property via his previous role as COO of Alpha, will assume the COO role for me here at Contura. We're also in the process of conferring our Board to increase industry-specific expertise and allow for more efficient decision-making.

Finally, the company has navigated a couple material unexpected events over the recent months from the leadership transition to the asset transaction out West. Those kinds of events, as I expect, is reflected in some degree in our current share price, creating a level of uncertainty among our key stakeholders. As such, I'm acutely aware that we will strive to think big with regard to Contura's future and our role within the broader industry. We must also give significant attention to the basics, the daily blocking and tackling in all areas and all levels of the company. An important part of that process is to enhance our investor outreach to increase participation in conferences, hosting investors at our offices and engaging in non-deal roadshows. I am fully committed to increasing our interaction with our owners, the shareholders and with potential future owners.

With that, I'll turn the call over to Kevin Stanley, our Chief Commercial Officer, who will provide a market overview.

[Kevin Stanley, executive]

Thank you, David. As David referenced earlier, after 2-plus years of relative stability in the met markets, we have seen significant volatility over the past several weeks. At least short term, there has been a change in the international supply/demand balance. Growth has softened accompanied by an increase in supply, particularly in Australia as logistical challenges are overcome and shipments have increased. This shift in balance has resulted in a softening in short-term pricing and reduced spot export opportunities for U.S. coal as reflected in metallurgical indices which track U.S. coal products.

The Platts Atlantic High Vol A declined approximately 15% since the beginning of July. As is usually the case in these periods, when the overall market is pressured, the spreads between the various coal qualities tend to shrink as well. For example, a month ago, the Atlantic High Vol A was priced at $184 per metric ton, representing a $34 spread over High Vol B. Currently, the High Vol A price is at $158 and the spread between it and High Vol B has narrowed to $13.

It's important to note that while the spot market has obviously declined meaningfully, the Australian Low Vol futures indicate a much smaller decline when looking at the late 2019 and 2020 price strip. For example, the early August Australian premium hard coking coal spot was at $157, down from $201 2 months earlier. But the December 2019 futures declined approximately half as much, from $188 to $164. And the June 2020 forward strip declined even less, from $183 to $186. While these Australian indices are simply today's snapshot of the forward curve, they should be somewhat indicative of future pricing trends. This tells us that a futures market expects the supply/demand dynamic to continue near equilibrium levels. We believe that the seaborne supply growth and the domestic U.S. production upside are both quite limited.

We view the recent decline in met prices to be a confluence of many factors, driven by softness in several end-use markets. Europe has been slowing for several months now, while some other markets are likely experiencing more short-term softness. China continues to enforce port restrictions to limit met coal imports, primarily from Australia. India's imports are currently affected by its normal monsoon-related slowdown in the summer. And Australian met exports fight for their fiscal year-end. This temporary imbalance indicates that it's quite possible we'll see some firming of met coal prices over the balance of the year as these short-term issues get resolved. That said, the global slowdown, should it continue, would clearly cap any met price recovery.

To add a little more color on the demand picture, our overall global crude steel demand appears quite healthy. World crude steel production, excluding China, declined 1.3% in June, showing underlying softness in some regions, with Europe being the most significant at a 3% decline. South America also experienced a roughly 3% decline in June and year-to-date.

The strongest crude steel markets continue to be China, growing 10% in June and 9.9% for the year; followed by India, which grew 4% for June and 5% year-to-date. U.S. crude steel production is up 5.4% for the year and 3.1% for June.

Given the weakness in Europe and South America, it's not surprising that U.S. met exports continue to struggle with both June and year-to-date exports declining 2% and 8%, respectively.

Another way to look at a possible impact of global economic dynamics is to consider the manufacturing Purchasing Managers' Indices from July. Many major PMIs were slightly negative, with the exception of the U.S. and India, which showed 50.4 and 52.5, respectively. The results in India are especially encouraging as it is one of our key export markets and gives us more confidence that the aforementioned softness in India's met exports is temporary.

The weakest readings are coming from Europe, with the overall EU PMI at 46.5, with Germany at a 7-year low of 43.2. China and Brazil are both just under 50, indicating flattish growth. In summary, we believe the met markets are showing short-term dislocations for which we'll get a better picture once we are past these issues.

Not helping the market dynamics are continued concerns over trade challenges in the near term. No country benefits from increased tariffs and reduced trade in the long term, so it's only rational to expect these trade issues get resolved sooner rather than later. Again, assuming rational behavior, we expect met prices to stabilize and firm over the next couple of months as indicated by the futures.

And with that, I'll turn the call over to Andy.

[Charles Eidson, executive]

Thanks, Kevin. As David mentioned at the beginning of the call, we did have a great second quarter with about $140 million of EBITDA as compared with $83 million in the first quarter. The improvement here was driven mostly by higher revenues, but also, as we'll see, strong cost containment across all the segments.

As we dig into the individual segment performance a little bit, CAPP - Met generated about $114 million of adjusted EBITDA during the quarter. Trading and Logistics generated $9 million and our thermal operations, CAPP - Thermal and NAPP, contributed about $11 million and $21 million, respectively. And in addition to that, SG&A expense was about $15 million, which is not allocated against the individual segments.

From a shipments perspective. Second quarter CAPP - Met shipments increased from 2.8 million tons to 3.1 million tons as compared to the first quarter, while NAPP volumes increased from 1.65 million to 1.75 million. CAPP thermal shipments increased from 1 million to 1.2 million tons. And T&L was roughly flat with first quarter at around 400,000 tons.

Again, on the cost side. We saw material quarter-over-quarter cost improvements across all of the operating segments. The steps we took at the end of first quarter, when we saw costs creeping higher, considerably higher, in Central APP - Met, along with increased productivity at our operations and that's all thanks due to the continued commitment and dedication of our coal miners, yielded what we believe would be very positive results and we expect to continue to build on this success. As David mentioned earlier, a good quarter is not the end of our efforts as far as bringing down costs, we will continue to be acutely focused on that.

Digging a bit deeper into the cost side of the picture. CAPP - Met cost declined roughly $8 to $85, just a hair over $85, as compared to $92.90 in the first quarter. Again, this is primarily driven by the impact of higher production and sales volumes and the knock-on impacts to the underlying categories of labor benefits and other tertiary items. But also, it's worth noting that the impact from purchased coal is much less in the second quarter. We simply produced so much coal we didn't have to really fill in any gaps with any purchased coal so that obviously brings our cost down a bit. That was about a $2-a-ton reduction on our costs.

If you look at, strictly, captive production in the CAPP - Met, the CAPP - Met segment, the cost came in at about $82.40. So that was again a very, very good quarter from a cost perspective.

From a CAPP - Thermal perspective costs improved from $65.61 in the first quarter all the way down to $51.93 in Q2. As we mentioned in Q1 results, the main factor for our higher cost in the first quarter in the segment were related to some infrastructure issues at the [ flat camp ] mine, which were fully resolved and everything was back to normal production in April. So we got pretty close to a full quarter of full production from that mine and then the other mine from the segment performed pretty well also.

Second quarter performance at NAPP was also much better. We saw increased productivity. And also, there were no longwall moves during the quarter, so that helped kind of achieve a very strong 3-month period. We do expect third quarter NAPP costs to be impacted by longwall move in September. Just as a reminder, we have 2 longwall moves a year -- this year. It staggered out to first quarter and third quarter. So typically, there's about a $5-a-ton cost impact in quarters where there's a longwall move as compared to quarters without one. So we'll probably see that impact in Q3.

I'm looking at liquidity. At the end of the second quarter, the company had approximately $250 million in unrestricted cash, up from $182 million at the end of the first quarter. Our total restricted cash balance was $292 million. Again, the restricted cash balance basically supports surety bonds as collateral for workers' comp policies, black lung policies, things like that. And so they get you to a total of $542 million in total restricted and unrestricted cash. Total available liquidity, which includes unrestricted cash and availability under our ABL, was $435 million as of June 30.

For cash flows. Cash provided for operations in the quarter was really strong at $103 million. Working capital, in total, was essentially flat compared with Q1. There was some intra-account movements here. AR declined by about $39 million, that was offset by a $19 million increase in inventory and a $20 million decline in accounts payable. We do -- naturally, as working capital does tend to fluctuate, we did have working capital build in Q1 primarily in inventory, a bit in AR. AR build has now kind of cleared out. And then we also, in the second quarter, we built a little bit more inventory. So we should see some of this start to reverse as we work inventory debt levels down a bit in the back half of the year.

Turning to guidance. Just based on the softer demand outlook that was discussed earlier in the call, we are taking a more cautious view of shipments for the balance of the year and thus we're making some updates to our 2019 guidance. We now expect to ship between 11.5 million to 12 million tons within the CAPP - Met segment, down from our previous guidance of 12.2 million to 12.8 million tons.

Also, given our strong shipments year-to-date in our T&L segment, we're increasing our guidance from the previously announced 1 million to 1.5 million ton range to a 1.3 million to 1.7 million ton range. The CAPP - Thermal segment, we're reducing our guidance slightly from 4.2 million or 4.3 million to 4.7 million ton range from previously announced 4.6 million to 5.2 million ton range, maintaining NAPP guidance roughly at a 7 million ton midpoint.

From a committed aspect, we're in a solid position across all of the segments here. 72% of our CAPP - Met has been committed at an average price of $144.46 per ton. You will note a little bit of shifting in the math as far as looking at the amount of incremental tons that have been booked since Q1. We did, and I think -- I believe we've mentioned this in previous calls, because our CAPP - Met include some incidental thermal production and vice versa, our CAPP - Thermal includes some incidental met production as we're shifting tons around from sources to meet orders, sometimes there's a little bit of a movement between categories as it relates to commitments and price levels.

So look, if you try to compare quarter-over-quarter, you'd get an artificially low pricing for the newly committed tons. Actual pricing on our new tons is about $123 per ton, shows up a little bit less. But you'll also note that our CAPP - Thermal commitments, while they've held pretty flat with the previous quarter, the pricing that's reported for those commitments has gone up. Again, that's just the impact of a little bit of mix of met and thermal between the 2 categories.

Speaking of CAPP - Thermal, in that statement, we are 98% roughly, effectively 100%, committed at the price of $58.61 per ton. On a cost guidance, we're maintaining cost guidance across the board, so I think we still look to be in pretty good shape there.

Again, looking back at Q1 and thinking through the rest of the year, we've mentioned then and I think we can probably affirm at this point, that Q1 we're -- we saw high cost, both in met and thermal. What we expected to see at that point in time was CAPP - Thermal to straighten itself out in Q2, which we saw that happen. From a met perspective, I think what we'll see going through the rest of the year, the cost will kind of look like a sine wave, high cost in Q1, much lower in Q2, Q3 will probably trend a little bit higher, relatively speaking, as we implement some mine planned changes that we had discussed in Q1 as it relates to Marfork. And then by Q1, we should be settling back down closer to where initial guidance has started out. Again, all these things are kind of market and production dependent, but I think that trend appears to still be in place.

We are increasing our SG&A expense guidance to $60 million to $65 million range based on our run rate for the first 6 months, mostly as a result of higher-than-expected expenses associated with professional fees in the accounting and legal area, a lot of costs related to just year 1 stock standup and testing, so that will be kind of a nonrecurring expense going forward. We've also increased our cash interest and expense range to $45 million to $49 million to reflect the refinancing of our term loan.

Finally, we're maintaining our CapEx guidance range of $170 million to $190 million. To add a little color on the actual economics of the Powder River Basin acquisition on the Blackjewel situation, I want to start by reemphasizing David's comment. This transaction is wholly dependent on an agreement being reached with the federal government to present its objection to the sale, a couple of items that we need to take care of there.

So it's also worth noting that the debtor is on a pretty tight clock in regard to day-to-day operating funds, so it's certainly not an absolute certainty that an agreement will be reached before the debtor could be forced to move to Chapter 7 and liquidate, which is a slightly different outcome. But looking at that and having that in mind is one side of a bracketed outcome. I do want to share, thinking what the financial impact would be if we are, in fact, required to move directly to a reclamation process and are unable to come up with a better outcome. In that scenario, we would estimate that we'd be looking at a net present value cost in the ballpark of about $100 million, which that's kind of net of the impact of the separate Pax mine transaction.

If you look at the publicly stated face amount of the bonds that are posted for those mines in Wyoming, it's about $250 million. And that calculation, which is performed by the State of Wyoming, does include some things that, when you dig into the details, you could see how that number starts working its way down and basically supports more of $100 million NPV impact. That number does include such items as roughly $30 million for acquisition of a shovel that's required for reclamation. That shovel already is at the property, so that wouldn't need to happen. It also basically is driven off of a scenario where a third-party has to come in and do the reclamation itself rather than it being an orderly situation, so there are contractor markups, contingencies built into it.

So as you walk that down to what a realistic cash burn for a reclamation plan is, it ends up being quite a bit less than the stated face amount of the bond. And so again, it looks like that, in this situation, it's roughly $100 million impact spread out over about an 8- to 10-year horizon, pending an approved reclamation plan.

So $100 million equates to roughly $5 a share on our current share count. And given our share price decline of approximately 40% since Blackjewel initially filed on July 1, we believe the market has probably punished us a bit more than the numbers would support, just due to the exposure on the PRB. And again, this is a good opportunity to get more information out there and very clearly explain what this reclamation situation looks like. It's certainly something we would rather not deal with. But in the event that it does happen, and that is the way we have to approach it, we continue to believe that the net impact to the company would be very manageable going forward.

Just to kind of wrap everything up. Again, had an exceptional second quarter, very strong EBITDA, good cash generation and very impressive cost improvements at the operations. And we're fully committed to continuing to improve our cost structure going forward. With the new leadership in place, I think we're confident that we'll continue to be able to effectively manage the controllable aspects and optimize our performance going forward.

Thanks again for everyone being on the call today, we appreciate the interest. And for those attending the Seaport Global securities conference in St. Louis next week, we look forward to seeing you there.

So operator, with that, I believe we are ready for questions.

[Operator]

[Operator Instructions] Our first question comes from Mark Levin from Seaport Global.

[Mark Levin, analyst]

Great. And congratulations, David, on your new position. I think it's a very good day, it was a very good day when you were announced. And also, congratulations on a very strong quarter.

Let me ask -- start out with maybe some more specific questions and then maybe more general ones. On the specific side, Andy, you had referenced a longwall move in the third quarter and some other gating items. When you think about 3Q EBITDA versus, let's say, Q1 and Q2 EBITDA and then Q4, maybe you can give us some cadence as to how earnings should play out in the back half of the year.

[Charles Eidson, executive]

Yes, Mark. I don't want to try to get too precise here because, again, going into the way the market is appearing to turn, I don't want to throw out something that we failed to achieve. But I think it's safe to say just again based on the way we expect cost to move in this kind of a sine wave function, I think we could expect Q3 to have slightly higher costs. We will have the longwall move, which will impact NAPP. The market is going the direction the markets is going, so I mean it would be tough to see third quarter really looking to be in the same ballpark as what we saw in Q2. Again, it's really going to be a function of where the market lands. Is [ 160 ] kind of the support level? Do we see any kind of rebound? Or do we need to go a little bit further deeper into the met prices before we have some support and bounce back at it. I really don't have a good view on that right now, so probably best just to leave it at some generic kind of cost guidance on where we think the controllable piece of it will be able to go.

[Mark Levin, analyst]

No, that makes perfect sense. And then on the -- I know you guys are entering into the domestic negotiations now. Can you remind us as to what your mix was in 2019 and what is a reasonable way to think about what your domestic versus export mix could look like in 2020?

[Kevin Stanley, executive]

Mark, this is Kevin Stanley. Our domestic committed position is just over 5 million tons for '19, so that's going to put you -- if you're at, for CAPP - Met segment, at 11.5 million to 12 million tons of guided volumes, so 5 -- just over 5 million tons on that. 2019 -- or, I mean, for 2020, obviously it's very early in the domestic negotiation process. So to start to put a number on that, that's a little bit difficult. The other thing I'd remind you going into 2019, when we were in the domestic market, we were 2 separate companies, so we'll go in with a consolidated strategy. I think we were pretty similar going into '19, Contura and Alpha. But we're looking at some things, so I don't want to venture a guess just yet on '20.

[Mark Levin, analyst]

Got it, got it, got it. And then just turning to Blackjewel real quickly. Andy, you laid out sort of the NPV cost over an 8- to 10-year time frame under the reclamation scenario. Maybe without doing sort of the NPV calculation, what would be the sort of the annual cost impact if you were to have to go that route, a? And then, b, under the scenario in which you do bring these assets back in, how should we think about the cash impact in 2020, 2021, if you are actually operating those assets?

[Charles Eidson, executive]

Yes, Mark. I think -- and of course, as I mentioned, it will be pending agreement upon a reclamation plan with the Wyoming Department of Environmental Quality who has been kind of lockstep with us through this process, making sure that we're communicating and keeping our plans well developed in the event we do need to pivot one direction or the other. The process will be somewhat front-end loaded. But again, without trying to get into too many specifics, if you kind of think of it as adjusting out some of the earlier items that I mentioned, acquiring a shovel for $30 million and 15% contractor markets and all those kinds of things, if you pull those out, it gets you kind of with a gross number in the $180 million to $200 million total cost range over that 10-year period.

It's not a scenario where you would just say it's $20 million a year based on that picture, it would be front-end loaded. So again, not trying to get too specific, but maybe you're looking at $30-ish million in the first couple of years. And you -- after the big portions of dirt have been moved, then you start to level out some and then you taper throughout the rest of the reclamation plan. But again, we've still got some work to do. We've got to -- we're engaging with third-party consultants to help us get a refreshed view of what a better reclamation cost would look like. And again, working with the DEQ I think will give us a leg up to hopefully minimize the impact from a cash burn perspective.

[Mark Levin, analyst]

And if you don't reclaim, what would it look like?

[Charles Eidson, executive]

Yes, if we don't reclaim, I mean, that comes down to more of a strategic question of operating longer term versus operating shorter term. I believe, strategically, we got out of the PRB for a reason I don't know that we're terribly interested in doing anything longer term. That said, this -- pursuing this transaction as it's been structured does, as David mentioned earlier, it gives us a lot of options around different things to do with the assets, whether it's pursuing additional transactions or just attacking a more short-term operational approach just to get us to a point where we can do a more early reclamation. But all these options are still on the table pending some kind of resolution with the various counterparties in this process.

[Mark Levin, analyst]

Got it. And then just my last question is for David. David, when you think about the opportunities on the cost side, you mentioned about getting cost back to levels that you think are more appropriate for the enterprise. Can you maybe talk about some of the levers that you expect to pull or would like to pull to kind of get cost back down to where you think they need to be?

[David Stetson, executive]

Well, Mark, coming in, I've been here a good 10, 12 days, so it's -- is trying to evaluate those. Obviously, I'm working in tandem with Jason Whitehead on those. Most of it is going to go to efficiency at the mines themselves. We've seen a drop off in feed per shift that we need to increase back. A lot of it is driving force at the mines themselves, and that's what Jason is going to be working on. So I think, from a cost perspective, the -- it's more the efficiency side of it. And then it's also coordination between sales and ops, quite frankly.

As the sales see a softening in the market, they can relay that to ops quicker so they can respond more quickly. I believe in a flat, nimble operating and management system so that we can be -- we can move quickly as markets change. So most of this is going to be driven around efficiencies at the mines themselves. We may have some indirect savings through some supply and maintenance changes we'll make. But most of it is going to be driven through the efficiency at the mines, driving up the feed per shift and bringing it more in line with where we are on the sales side.

[Operator]

Our next question comes from Daniel Scott from Clarksons.

[Daniel Scott, analyst]

I want to echo Mark's comment. David, congratulations on the new role. My question is for Andy. There was a pretty sizable loss from discontinued operations in the quarter. Can you kind of walk through what made that up and why it was so big this quarter versus other quarters?

[Charles Eidson, executive]

Sure. Sure thing, Dan. This is almost entirely related to booking the ARO. Even though the bankruptcy filing for Blackjewel was on July 1, at the back side of the quarter, 1 day's difference, it's kind of hard to argue that the condition didn't actually exist at the balance sheet date, so we went ahead and did record the ARO coming back onto our books. And of course, that does consist of the discounted GAAP number, which has to start with the initial Wyoming bonding estimate of $250 million in that ZIP code and includes the extra shovel and all the contractor markups and things like that, that I mentioned earlier. So you're starting with a larger number, you're discounting it back at more of a cost of capital discount rate, and that gets you to the [ 140-ish ] number that shows up on the balance sheet, but that's the big portion that hit.

[Daniel Scott, analyst]

Okay. And then maybe stepping back a bit here. When Blackjewel filed, I think the perception and maybe the message from Contura was that it's a pretty limited exposure to those assets or at least the reclamation coming back, given that Blackjewel has been operating and taking title of the assets. Is the development to become the stalking horse and bring this in house? Is that a changed perception of the risk that was there? Or is that just a desire to get an overhang taking care of earlier? What's the thinking there?

[Charles Eidson, executive]

It's a little bit of both, Dan, but I think it was more along the lines of coming to the conclusion from a legal and a statutory perspective that the fact that we still held the permit, irrespective of the status of the permits basically at the end of the permit transfer process, irrespective of all that, we were going to be kind of tagged with the reclamation responsibility as it was. And so once that became apparent from our outside counsel and just a broad regulatory perspective, we determined that the best course would be to get in the mix and kind of drive the outcome as best we could, because at that point, your downside is pretty much limited to the reclamation, which I think we've now kind of put a bracket around what that looks like and anything that we can accomplish better than that just in [indiscernible] of the benefit of the organization. So it was a little bit of -- well, not a little bit, it was a pretty significant change in the understanding and the conclusion on what the regulatory exposure was there.

[Daniel Scott, analyst]

That's extremely helpful. And then lastly, last quarter, the capital return, $250 million authorization was announced. And then it wasn't really mentioned in this release, but you did talk about the first tranche coming up soon. And I believe you've made comments about the price of your stock. Does that mean that that's the most likely direction or is a special dividend on the table at all?

[Charles Eidson, executive]

I'll jump in on this one, too. This is a thing where we've done a good amount of work with the Board previously. And we laid up, naturally -- as you mentioned, we did have the $250 million authorization. I think we're in kind of the short rows now as far as David coming in and getting up to speed. We've got a little bit of work to do just helping him understand liquidity analysis and that kind of stuff. And then with the reconstituted Board coming to a quick conclusion as to what the next step is to move forward. I think at our current price, again, we're so, just from my personal estimation, so undervalued right now. Talking about anything but a share repurchase, whether it's through a Dutch tender or an open market 10b-5, 10b-18 plan. Those are the things that make sense rather than dividends. But again, this will be entirely up to the Board and David as they work through that over the next very short-term future.

[Operator]

Our next question comes from Lucas Pipes from B. Riley FBR.

[Daniel Paul Day, analyst]

Yes. This is Dan Day on for Lucas. So it sounds like Plan A with the Blackjewel assets is to reclaim. I just -- so first of all, just maybe if you could put some probabilities around like reclaiming versus deciding to run the mines. And then if you do decide to run them, like what sort of capacity do you think you'd run them at? Would it be just like reduced capacity to reduce cash burn? Or maybe kind of if you go that route, do you think like you'll maybe try to turn them around and get them profitable? So just, I guess, some color around that.

[Charles Eidson, executive]

Sure. Sure. Well, I wouldn't call reclamation Plan A. I think Plan A would be something that looks a little bit different. Again, there are several options with this. I think the real Plan A would be someone else who has an interest in being a PRB operator shows up quickly and the terms to do a transaction there, that would probably be the best case outcome.

But when you look in between those, there are some situations where we could view ourselves as an operator from -- for a period of time. But again, strategically, being out there for a lengthy term is simply not really an option. We have continued to drive our focus towards the Eastern met properties. And I think, particularly with David coming on board, the desire to do that increases even more and so I think you could probably see some shorter-term operating horizons to get to a point where reclamation then would make sense. But again, I think best case would be the assets end up in someone else's hands who wants to be a PRB operator. And kind of worst case, if you want to call it a worst case, is the reclamation, immediate reclamation plan, which I think we've now or at least I've tried to define pretty well as to what the impact would be, which again, it's not a wonderful outcome, but it's not cataclysmic by any stretch of the imagination.

And then as far as probabilities, again, that one is really tough. It depends on what time of the day you ask me, I'll give you a different answer because it's been quite a twisting and turning adventure over the past 2 months. Again, pending how things resolved with the federal government and the other parties involved, we could have something that looks a bit better than a reclamation scenario, but we'll just have to see how that plays out over the next little bit.

[Daniel Paul Day, analyst]

Have you had conversations with anyone you think might be someone who wants to be an operator of these assets? Or is this just something you're looking to?

[Charles Eidson, executive]

I can't really -- I mean look, we don't own the asset, so we're having to kind of straddle [indiscernible] the bankruptcy process continues. Even though the asset sale was approved, it was -- the closing of that deal is contingent upon certain agreements being reached. So I don't want to speak on Blackjewel's process, but I'm sure there are people still looking at and talking about the assets, particularly as they relate to the ongoing Cloud Peak situation just because there are some interesting things that could be looked at from that perspective for someone who does want to be a PRB operator.

[Daniel Paul Day, analyst]

Cool. Yes. Just one more I'll sneak in. So we've heard there's been a lot kind of -- more conversations going on as far as M&A goes in the coal space now than maybe there has been over the last few years. As far as like maybe any growth acquisitions you guys consider, would that be sort of limited to areas you're already in? Like, basically CAPP - Met would be kind of where you look to grow? Would you look outside of Appalachia? Or just looking for some color there as well.

[David Stetson, executive]

Well, this is David. I would answer it this way: we'll look at anything that will expand our footprint, expand our offerings and that we believe to be strategic. I certainly believe that that's going to be primarily in the Central App region and I think there's multiple opportunities available to us to do some bolt-ons that will further enhance our offerings, further enhance our capabilities, and that's probably where my primary focus would be. I love optionality, so I don't ever say no to something. But I have watched too often where people have ventured outside their core competencies and their core areas and seldom have I found that to be successful. So our primary focus will be on the Central App region. But again, we'll -- that's why I got Scott Kreutzer taking this lead for me, work directly with me to look at every option we have.

[Operator]

And we'll turn the call back over to Mr. Stetson for closing remarks today.

[David Stetson, executive]

Thank you, Carol. Again, thanks, everyone, for your interest in Contura. And I look forward to meeting with many of you in the near future. Have a great rest of your day, and thank you so much again.

[Operator]

This concludes today's conference call. You may now disconnect.