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Good day and welcome to the Arch Coal, First Quarter 2019 Earnings Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Deck Slone, Arch’s Senior Vice President for Strategy and Public Policy. Please go ahead, sir.
Good morning from St. Louis. Thank you 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 that 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 results of new information future events or otherwise, except as may be required by law.
I would also like to remind you that you can find a reconciliation of the non-GAAP financial measures that we plan to discuss this morning at the end of our press release, a copy of which we have posted in the investor section of our website at archcoal.com.
On the call this morning, we have John Eaves, Arch’s CEO; Paul Lang, Arch’s President and COO, and John Drexler, our Senior Vice President and CFO.
We will begin with some brief formal remarks and thereafter we will be happy to take your questions. John.
Thanks, Deck and good morning, everyone. I'm pleased to report that Arch is off to an excellent start in 2019, with every intention of continuing that strong momentum as we progress through the year.
During the quarter descended, we made significant headway on each of our core objectives, delivering impressive levels of free cash from our high performing asset base, returning robust levels of free cash to shareholders and getting a terrific start on the build out of Leer South.
Hitting on the highlights of Q1, we achieved record coking coal realizations of $133 per ton, and record margins of nearly $51 per ton in our Metallurgical franchise. We returned $86 million to shareholders exceeding by 10% the average amount returned on a quarterly basis during 2018, despite the expenditure of $18 million of growth capital at Leer South.
We bought back nearly 900,000 shares of stock. Bringing total buybacks to nearly one-third of our initial shares outstanding in just eight quarters time. We announced the boards authorization of additional $300 million for buybacks, bringing the total authorization to-date to $1.05 billion and leaving us with available capacity of $388million.
And we made very significant strides at Leer South, where we completed initial slope work, and even producing modest amount of development coal. In short, these are exciting and eventful times at Arch and we look forward to continuing to deliver on the Company's great promise.
Let me say that I'm particularly excited about the tremendous progress we have made in our capital return program in a period of just two years and the great potential we have to build on that success going forward.
Since launching our capital return program in May of 2017, we have returned a total of $726 million to shareholders through share buybacks and dividends. We view this systematic return of capital is highly impactful and highly value creating and we further believe that it is sustainable over a wide range of market environment.
On the buyback front, we have now repurchased more than 8.1 million shares, and in doing so reduced our share count from 25 million to 16.9 million. We believe that buying back one-third of our shares outstanding in such a short span of time is an exceptional fee, and expect the market to take further note of our progress as we hit future milestones.
We are also pleased that the Board is signaling its continued strong support for sustained progress in the capital return program with the authorization of an additional $300 million of buybacks. In short, we believe the program will continue to be an excellent vehicle for value creation well into the future.
Now let’s spend a few minutes on the coal market, before I turn the call over to Paul Lang for further commentary on our operating performance. As you know, global coking coal markets are proving to be exceptionally resilient and we see good reason for sustained strength through the remainder of this year and into next.
As we pointed out many times in the past, investment in new mines and logistic capacity continues to lag in Australia and the U.S. and every other supply base in consequence. At the same time, steel demands and steel pricing are holding up nicely, which is translating into solid demand growth for seaborne and coking coal. As a result, coking coal prices remained quite healthy with prices for primary High-Vol A coal hovering around $200 per metric ton FLB the vessel on the U.S. East Coast.
Moreover, we see good support in the market going forward. Global economic growth remains above 3%, despite some recent weakening, stainless spending and supporting steel demand in China, U.S. steel mills are operating levels of 82% and Australia investment and output is yet to respond to the stronger market environment.
Other market data suggest ongoing support as well. While - traded global coking coal industry show Queensland prices for delivery in 2020 at $185 per metric ton and $175 per metric ton in 2021 both of these figures it's interesting to note are below the inflation-adjusted nine-year average of $190 per metric ton.
Moreover, seaborne prices remained at very significant discount to Chinese domestic prices, which should keep Chinese actively engaged in the seaborne market place and Indian steel output remains on a steady upward trend.
On the thermal side, domestic activity continues to recover at an extended period of weakness. Generator stockpiles started to deal with an estimated 60 days of supply and the recent rail challenges could result in a further correction.
Moreover, buying activity for the Powder River Basin coal during the first quarter was strong as we have seen over the five years. We believe these conditions should support an ongoing focus on free cash generation against a very modest capital investment in our thermal portfolio.
Looking ahead, we are enthusiastic about Arch's future prospects for growth and value creation. We believe the outlook is excellent for strong free cash generation for the balance of the year, which should enable us to drive forward on each of our major financial objectives, returning robust levels of cash to shareholders, sustaining our existing portfolio of world-class mines, constructing another powerful cash generating assets at Leer South and maintaining our exceptional and rock solid balance sheet.
With that, I will now turn the call over to Paul for additional color on the first quarter results. Paul.
Thanks John and good morning everyone. As John noted, we are very pleased with our operated performance during the quarter. We achieved rapid realizations with our coking coal sales, delivered record margins in that segment, managed our metallurgical costs effectively even with too longwall moves and turned in a solid cost performance at our Powder River basin operations despite rail issues.
In my view, the ability to overcome external challenges as they arise is critical to long-term success in our business. That is exactly what our people did in the first quarter and I'm extremely proud of our team for once again displaying that hard won ability to deliver under a wide range of operating conditions.
I'm also pleased to report that we are off to a great start in the development of Leer South. In a brief span of time - completed the initial slope work of the site, they are now producing development tons albeit at modest levels. While we are just getting started, I'm satisfied with the work to-date and remain confident we will be producing coal of longwall before the end of 2021.
In addition with the work at Leer South, we are continuing to prove up additional longwall payrolls for the Leer mine, within our 200 million ton Tygart reserve. At present, Leer mine plans is expected to support longwall mining into the early 2030s and we expect that to be extended as we move forward with additional drilling, engineering and permitting.
As a reminder, we will be pressing into the heart of the mines reserves in 2020, at which point the average seam thickness of the operation will increase by roughly one foot. The higher mining height should drive both and increase in output and a reduction in costs of the operation.
I'm also encouraged with progress the marketing team made during the quarter to build out our book of business. In the Metallurgical segment, we signed agreements to deliver almost 800,000 tons of coking coal during the balance of 2019, virtually all of which was committed at index based or prompt delivery fixed pricing.
I might add that we continue to be very comfortable with the fixed volume floating price agreement structure for our coking coal sales, our customers prefer it, we have been well served by it and we have the balance sheet to accommodate it.
With these recent transactions, we have committed nearly 95% of our 2019 coking coal volumes, assuming the midpoint of our guidance range. I would also note that our net interest in our Leer brand, High-Vol A product continues to be particularly strong, in fact, has outstripped the amount of volume we actually have available. I believe the fact that we are oversubscribed at Leer underscores the strategic value of adding three million incremental tons of High-Vol A coal to our portfolio through the development of Leer South.
As noted in release, the number of solicitations for Powder River Basin coal have been quite strong, stronger in fact than we have seen during any comparable period in the past five years, we attribute that high level of interest to a number of factors, for one point the three year utility stockpile correction, - to finally bought inventories back to target levels. For another late shipping volumes during the first quarter due to flooding in the Midwest have started to have an impact.
During the fourth quarter we moved aggressively to capitalize on this strength, committing an additional 10.2 million tons for 2019 delivery, increasing our committed thermal position by almost 95% for the year.
In addition, we committed approximately 3.5 million tons for delivery in the out years, with prices beginning at levels above our average 2019 realization. I would also note that we have continued this trend by locking up significant volume in April for the 2020 to 2023 period.
Looking ahead, we expect higher volumes and lower costs at our Metallurgical segment during the second quarter. Even now we again have new schedule to both longwall mines that will temper those improvements. However, we still expect the back half of the year to be particularly strong.
In the Powder River Basin we expect the ongoing flood related - disruptions to persist throughout much of the second quarter, as a result of this and the typical shoulder season impact on shipments, we anticipate volumes to be even lighter in Q2 than Q1, which is likely to pressure costs that lead to compressed margins in the coming quarter. As with the Metallurgical segment however, we expect shipments to rebound significantly in the back half of the year.
Overall, given our strong start to the year and continued positive outlook, we are reaffirming our sales, costs, and CapEx guidance for full-year 2019.
Finally, I would like to take a moment to highlight our excellent safety and environmental performance during the quarter and more importantly to thank the Arch team for their dedication in both of these critical areas.
During the first quarter our Leer operations was honored with Top Safety Award for underground operations of the State of West Virginia. And our Coal-Mac mine won the same honor for surface mines. This is the second consecutive year when we swept the same Safety Awards. At the same time, Arch won the Top Safety Environmental Award for its reclamation work of the Vindex operations.
In closing, let me add to John sentiment. These are exciting and eventful times at Arch. Our mines are running well, our products are in high demand, our capital return program is delivering excellent value to our shareholders and we are building a powerful foundation for future success and growth with Leer South. We will confirm to continuing that positive momentum and to delivering on the Company's great promise.
With that, I will turn the call to John Drexler. John.
Thanks Paul and good morning, everyone. As John and Paul have indicated, we are out of the gate in a positive fashion after a strong finish in 2018. I plan to give you an update on our strong start in 2019 and the execution of our financial plan as well. First a brief update on our capital return program and liquidity position.
During the quarter just ended, we used our strong cash flow and liquidity profile to buy back 872,000 shares or 3.5% of our initial shares outstanding for $78 million. Through March 31, we have spent a total of $662 million buying back 8.1 million shares or almost one-third of our shares outstanding in just eight quarters.
That is a truly remarkable achievement and a testament to the cash value generating capability of the portfolio and we were able to achieve that while making initial capital expenditures of $18 million Leer South.
During the quarter, we also paid our normal recurring dividend of $7.8 million. The Board also approved the next quarterly cash dividend payment of $0.45 per common share, which is scheduled to be paid on June 14th to stockholders of record at the close of business on the May 31st.
As John indicated, between our repurchase program and recurring dividend, we have returned in excess of $725 million in eight quarters to our shareholders. Looking ahead, we will constantly evaluate which uses of cash provides the that risk-adjusted return over the longer term. Having said that, we continue to view our stock as an excellent value.
Given the recent approval of an increase in our share repurchase authorization to $1.05 billion and given our current capital resources and the expectation of strong free cash flows for the remainder of the year, we expect to continue to return cash to shareholders while simultaneously funding the build out of our Leer South operation.
As we look at our liquidity, we indicated on the last call that we were comfortable in allowing our cash balance to drop below $400 million. We ended the quarter with $383 million and when combined with our borrowing capacity on our accounts receivable securitization facility and inventory asset-backed lending facility, we had $490 million of liquidity.
As we look at our liquidity for the remainder of 2019, we would expect to have availability under our borrowing facilities in the range of $80 million to $120 million based on current market conditions. As we have stated, we would like to maintain our liquidity in the range of $400 million and $500 million with a substantial component of that being cash and we are very comfortably positioned at the high-end of that range.
One further item I would like to report on regarding the exciting build out that Leer South relates to development, production in Lower Kittanning seam. The seam in which the long well will ultimate operate. Under current accounting rules we are required to recognize costs on the sales of those development tons at an average rate of what we expect to experience once the longwall is up in running.
As a reminder, under previous accounting rules the revenues associated with the development tons were recognized as a direct reduction of the capital deployed for the project. As you know we are expecting cash cost to Lear South to be in the low $50 per ton. Therefore now that we have begun producing coal out of the scene we will immediately recognize EBITDA associated with those tons sold.
For 2019 we expect to sell between 125,000 and 175,000 tons in the last three quarters of the year and in 2020 we expect that to ramp to a net in excess of 400,000 tons. Then in 2021, those volumes will more than double, particularly with the startup of the longwall towards the end of the year.
And in 2022 of course the contribution of Lear South becomes game changing. While it is hard to predict where market pricing will be in the future years, using today’s current market pricing for HIGH-VOL A, it would imply $36 million of additional EBITDA in 2020 using 400,000 tons of sales and then more than doubling of that in 2021. Of course the substantial earning power of Lear South become even more evident once the longwall is up and operating at levels in excess of three million tons a year.
In summary, we are pleased with our performance in the first quarter of 2019. We will continue to focus on executing on our plan of consistently generating substantial cash out of each of our segments quarter-after-quarter. That strong cash generating platform will allow us to fund our 2019 maintenance capital needs and the Lear South development project, while still affording us the capability to drive forward rapidly and aggressively on our capital return program.
With that, we are ready to take questions. Operator I will turn the call back over to you.
Thank you very much. Ladies and gentlemen at this time, we would like to open the floor for questions. [Operator Instructions] Thank you our first question will come from Mark Levin, Seaport Global.
Yes congratulations gentlemen on a great start to the year. A couple of - to start with some modeling questions and maybe a bigger picture one or two. As you think about Q2 versus Q1, I think Paul you alluded to the fact that met would be better with more volumes lower cost, but PRB volumes might be a little bit worse from a volume in cost perspective. So when you think about just kind of earnings or EBITDA Q2 versus Q1, how does all this or how do you expect this to all kind of net itself out?
Mark first of all, I appreciate the comments. Just without getting into direct EBITDA let me just kind of give you a sense of the tons. So we did about 1.5 million tons in the met segment in Q1. I think it will be about 10% higher than that so that will put it about 1.6, 1.7. In the back half of the year I think you will see us banging around about 1.8 per quarter last half of the year.
PRB, it's a little bit of a moving target, I think Q2 will be slightly worse than Q1. But I don't think it's going to be much below that. And in the other thermal segment, I think we should be slightly better, because a lot of what happened in Q1 was just timing, particularly on the West Elk.
Got it, that is a great color. And then in terms of just because this is written about a lot, maybe you guys can remind people about your exposure to the API-2 price meaning in 2018, how many millions of coal did you guys price off of API-2, I think you referenced in the press release, that you locked in a bunch of tons in 2019, maybe before the price started to come down. And then so maybe 2018 baseline and what do you think 2019 might look like from a volume export seam API-2 volume linked perspective.
Yes, in general on the hedge commentary, as prices moved higher earlier this year and late last year, we layered in financial hedges in 2019, primarily to protect the margins at West Elk and Coal-Mac on export sales.
We added to those hedges through early this year and currently we have about a million tons hedged for 2019 and about 200,000 tons hedged for 2020. Just kind of round numbers, we estimate those net facts kind of in West Elk about $30 to $32.
And I think you saw that what happened in Q1 as global prices fell dramatically, both on Newcastle and ARA, which is why we came up with that 13 billion of mark-to-market income. As you look at the other part of your question on volumes, last year we shipped about 11 or 12 million tons export. We are thinking this year that it will be down about a million tons and most of that is going to come out of the thermal group.
And Paul, most of our Coal-Mac will be competitive for the year. As we get that price.
Yes, we will actually completely committed out Coal-Mac and we have just clean up tons West Elk.
Got it. That is very helpful. And then just thinking, 2020-ish, I think it's ways out and your thermal coal position, how much - I think you referenced that you guys put to bid some tons in the quarter. I can’t remember the direct number off the top of my head, but how contracted are you for 2020 at this point from a thermal perspective?
You know, we haven't given those numbers out yet, but I will tell you that just we started off Q2 pretty strong. We put the bed about 16 million tons of PRB coal for the 2020 to 2023 period.
Got it, that is a great color. And then just one last question on the net market in general. How do you guys feel - I mean, what are you seeing in the market. I know that the Chinese have implemented some custom delays, maybe some import restrictions. I think, on the Contura call they were referencing maybe some price aggressiveness down in Brazil. Obviously, met prices are still - at least spot met prices so well about 200. But I'm just curious how you see the market right now tight, softer than what it was before, tighter than what it was, what sort of be your general thoughts on the met market today?
You know, I will start off and maybe let John finish it up. A couple weeks ago, I had the opportunity to hit just about all of our thermal customers, both U.S. and Europe and Asia. Good conversations with all of them. I think we are expecting comparable year to slightly up as far as demand. Look, they understand the pricing and the mechanisms and there isn't anybody that is blinking that these numbers.
Yes, Mark. This is John. I continue to be cautiously encouraged by what we see in the met market. As Paul indicated in his opening comments, I mean we are seeing a lot more demand for High-Vol A than we have coal. So, certainly feel good about Leer South project coming.
I talked about last quarter, I mean when we looked at bringing on Leer South, I mean we did a pretty deep dive on the world markets and conservatively that 1.5% demand growth for met and then depletion rate of 2%, you know, we think there is at least 75 million tons that are needed over the five to six years.
And we just don't see those investments being made, if you look in North America even with prices where they are today, there is no additional volumes coming on. So we feel pretty good about our position now and ongoing forward.
That is a great color. Well congrats again on a very strong start to the year.
Thanks Mark.
Thank you Mark.
Thank you very much. [Operator Instructions]. Our next question comes from the line of Dan Day, B. Riley FBR.
Hey this is actually Lucas Pipes calling. Good morning everyone and congratulations on a great quarter. I wanted to follow up on kind of the cadence for met coal volumes over the next couple years. Obviously this Leer South starting up, it will be significant growth, but then and I think we discussed this a quarter ago, but I just wanted to hone in on that a little bit, but then Sentinel will be coming off. So, can you walk us through those steps one more time and then importantly, when Leer South is fully up in running, how many years of kind of nine million tons of met coal output you will have at that time? Thank you.
Yes Lucas. Let me take a shot at this. So in 2019 as you know, we are expecting a slight uptick in production at Leer and that is clearly coming from the increases in coal scene thickness. Beckley and Sentinel should hold their own, while Mountain Laurel will drop a little bit, but with all that 2019 we are looking at about a 200,000 ton pickup over 2018.
2020 we will see a slight drop as Mountain Laurel transitions from a longwall mine to CM mine and in 2021, we should be starting to see the thicker coal and Beckley should be about the same. So depending upon the exact dated longwall at Leer South final integration, it could be a tossup in 2021.
In 2022 is when Leer South really starts to hit its stride, our coking coal volume should average about nine million tons and of that call it round numbers 6.8 to 7.2 could be High-Vol A. effectively our product mix will change and about 75% of our production will be High-Vol A coal.
So, on an incremental basis if you are kind of running the numbers, we pick up about four million tons. We hit about four million tons in 2019 High-Vol A and we should hit seven million tons in 2022. So that is where the incremental three million tons come from.
Lucas to build on that as Paul said, we expect that to continue at lease at these levels through the early 2030s and as we indicated in the press release, we continue to prove up additional reserves at Leer and we do drilling, engineering, permitting, so we expect that even those early 2030 Leer is likely to add reserve beyond that. So and definitely it’s probably the right way to think about that seven plus million tons of the High-Vol A.
And thank you very much for all the color, very helpful. When you say to the early 2030s is there major capital spending associated with that, what sort of maintenance capital should we plug into our models for that sort of long-term production outlook?
Lucas the mine plan that we are operating off of right now for Leer is basically just maintenance CapEx through 2030.
Got it excellent, thank you and just last one switching topics. What is your outlook for the PRB at this time, from a demands perspective specifically stable, declining, what do you think is a reasonable expectation from demand and then also your volumes as to look out over the next couple of years? Thank you.
I think we have what I would call a cyber view of the PRB. We think it’s going to continue to decline somewhere around 1% to 3% per year and within that we think the higher quality mines will tend to stay a little bit better than the 8400 quality mines, but it’s a great story as far as cash generation, but I just don’t see any expansion or any growth possible out there.
Got it. Okay, well thank you very much for your perspective and all the details and continued best of luck.
Thank you Lucas.
Thank you. Our next question will come from Michael Dudas with Vertical Research.
Good morning gentlemen.
Good morning Michael.
Hey Michael.
Hello Michael.
Maybe for John Drexler so maybe you could elaborate a little bit more on the West Virginia tax rebate that you mentioned in the press release, how that impacted, how you are thinking about Leer South prior, or how this adds to IRR and what type of meeting longer term investments that could drive as you are planning out additional Leer tons from the original Leer and the expansion that you might see with other panels in that Leer South?
Michael this is John Drexler, thanks. I will go ahead and kick this off and then others may have some comments as well. Look we have been excited about the opportunity with Leer for some time we think given its cost structure and quality that it’s just it’s a home run opportunity and we kind of laid that out last quarter and then with the recent legislation that was passed incenting additional opportunities, as we have indicated in the press release the opportunity to recover some of that capital that we are spending is just outstanding.
Mechanically the way that it works, it’s reduction and severance tax. And it will be recovered - the capital will be recovered as Leer South the asset in the longwall come up and start mining coal. So recoveries in future years but it’s a direct reduction essentially of the severance tax of the cost that Leer South will incur as we have indicated given our expectation and the range of $360 million to $390 million of capital to be spend.
We think there is an opportunity depending on market conditions to recover in excess of a $100 million. So all of that just in additional kicker on what we already thought was an outstanding opportunity as we move forward.
And Michael, this is John, I mean, as we look beyond Leer South and other projects, certainly, this is a great thing the State of West Virginia is done - investment. So, clearly, it will have us looking at how we make investments over the next five to 10 years.
It makes a lot of sense. And maybe just to remind us, or just a thought on the cadence of Leer South capital spend without getting into general details, the percentages of the total spend and from this year and through 2021, just as we kind of calibrate that dynamic relative to free cash and potential for other growth capital investments, if you have any that you would like to share, or certainly going back relative into the investment into the Company in the equity.
Yes, I think what I laid out last quarter was think of 2019 about $90 million than the balance of the investment pretty well evenly split between 2020 and 2021.
And Michael, I will lay in here as well. Obviously, and you alluded to it, there's very healthy free cash generation that we expect to generate from our portfolio, as we have indicated in the course of our comments, and how we have also demonstrated an execution, a big component of that is focused in the capital return program.
So, we did up the program by an additional $300 million. It gives us $388 million of capacity. I think we have indicated that at least over the course of 2019, we can fund initial capital at Leer South and continue the repurchase program and the capital return program. As we step into 2020 and 2021, when those capital needs do step up, there's so much dependent on where markets will be et cetera.
So as we indicated on the last call, we will watch that all very closely. But this management team, our Board are very focused on capital return, we expect that to continue. And as we indicated, we would even be willing to consider some modest levels of additional leverage to help fund Leer South. But all of that in the frame of its an appropriate investment, it's all about generating value for our shareholders. I mean we will make those decisions as we continue to evaluate the market and step through the development time period of Leer South.
I would think the market is starting to share in the confidence, enthusiasm of the Board and you guys are relative to the opportunities here. Appreciate your time, gentlemen, thank you.
Thanks, Michael.
Thank you, Michael.
Thank you very much. [Operator instructions] Our next question will come from Wayne Cooperman, Cobalt Capital.
Hey, guys. Just a question on thermal coal and gas. And I know in Texas gas prices have been sort of negative, because they can't get it anywhere, but eventually that will change. Is that affecting demand for PRB coal today and do you see that as a headwind going forward?
Yes, Wayne its Drex. I would say that right now, and as Paul highlighted, demand has been pretty strong we are seeing good, solid demand, really, across the Board for our various operations, but particularly in the PRB and we have seen higher levels of activity in Q1 than we have seen in the past five years. And so clearly the fact that - come down to now close to target levels is helpful.
We are seeing utilities out looking to shore up their positions, not just the 2019 but throughout years, and so if we watch that carefully its - we are constantly battling that with natural gas, there is no doubt, but right now it feels like demand is quite solid and stable and we really haven't seen much change in fact from the small movements we have seen in has prices. Clearly that can be a basis differential so in some regions it can be more challenging at times, but at present we feel pretty good about what we see for 2019 and even for the other years.
How much of your coal would you say you ship to Texas?
It’s a big market for us Wayne, but there is no doubt. And you know obviously these region of wind continued to have an impact, but we just haven't seen meaningful reduction there or push back of committed volumes.
Great. Thank you very much.
Thank you Wayne.
Thank you very much. [Operator Instructions]. Our next question will comes from Lin Shen, HITE Hedge Asset.
Hey, good morning. Thanks for taking the call.
Good morning.
Let me just ask if you think about the current market for High-Vol A premium versus maybe a year ago, what is the most important reason why High-Vol A should premium versus historical average?
I will start this conversation. I think one of the things we are is that, as we have introduced the product particularly in Asia, they found that it's been a very good blending product for helping with other coals. They are able to basically take one-on-one and make three out of it. It's a very flexible coal and particularly it keeps you know - it stays fluid during very large range - it has a very strong high-strength which helps in the black furnace. The value appears to be greater than what you would see it at some of the parts.
Let me jump in, this is John. I mean the other piece that we found is there appears to be a real scarcity value associated with High-Vol A. If you look around the globe, there is about 25 million tons or less of true High-Vol being produced. Once Leer South is up in operating Arch will have about 30% of that. So, you know we think the High-Vol A will continue to have a value in the marketplace as Paul said they need it their blast furnaces. It allow them to lower their cost with other coal. So, we certainly like the way we are positioned with High-Vol.
One other comment, back again, what we have seen over the last several 24 quarters at High-Vol A is traded at a premium to Low-Vol but that is increasingly the case. In fact, all last year and each quarter High-Vol A traded at a premium, in fact it was a $12 premium on average. And so you know not only we view that as sort of the new normal, but that margin as increasing as customers realize the benefit of Leer Brand in particular has As Paul pointed out that advantage of not only the very high fluidity and high plastics properties that have been so advantageous for blending but also a very high PSR equivalent to really the best coking coals in the world. So clearly, we see a significant advantage for the Leer coal, but High-Vol A is generally seems to have moved into position where it's going to earn a premium going forward.
Great. So I just want to clarify. So in first quarter how much your met coal is High-Vol A versus may be High-Vol B or others?
Yes in the first quarter our sales mix was about 16% Low-Vol, about 58% High-Vol and about 26% High-Vol B.
Great and do you think this ratio kind of continue for the rest of the year?
I mean the right way to think about it is probably to think about four plus million tons of High-Vol A, - four plus million tons of High-Vol A. so 60% or so High-Vol A, 25% High-Vol B, 15% Low-Vol that math doesn’t quite work. But roughly that a little heavier on High-Vol A even than what I described.
Great. Last question, for the share buyback program you have been buying shares in first quarter. Are you buying most share from the open market or most of the transaction is between you and the big shareholders because I noticed some of them are still holding shares in the first quarter?
I think what we have described is we are out in the market buying on the open market. I think in 2017 we had some block transactions that we disclosed with one of our shareholders other than that we have been out in the open market buying back shares.
Great. Really appreciate it. Thank you very much. Good quarter by the way.
Thank you.
Thank you.
Thank you very much. Speakers at time we have no further questions in the queue, so I would like to turn this conference back over to you for any final comments.
Well, I thank everybody for their interest in Arch Coal today. The management team continues to be laser focused on returning cash to shareholders making sure that our cost remains on the lower end of the cost curve in each of our operating segments, executing on the construction of Leer South and maintaining our strong balance sheet. Look forward to updating you in July on our second quarter results. Thank you.
Thank you very much. Ladies and gentlemen thank you for joining us today. This now concludes our presentation. You may disconnect your phone lines and have a great rest of week. Thank you.