CONSOL Energy Inc

NYSE:CEIX

Earnings Call Transcript 2022-Q3

[Operator]

Good day, and welcome to the CONSOL Energy Third Quarter 2022 Earnings Conference Call. All participants are in listen-only mode. [Operator Instructions] Please note today's event is being recorded.

I would now like to turn the one to Nathan Tucker, Director of Finance and Investor Relations. Please go ahead, sir.

[Nathan Tucker, Director of Finance and Investor Relations]

Thank you and good morning everyone. Welcome to CONSOL Energy’s third quarter 2022 earnings conference call. Any forward-looking statements or comments we make about future expectations are subject to risks, certain of which we have outlined in our press release and our SEC filings and are considered forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. We do not undertake any obligations of updating any forward-looking statements for future events or otherwise.

We will also be discussing certain non-GAAP financial measures, which are defined and reconciled to comparable GAAP financial measures in our press release and furnished to the SEC on Form 8-K, which is also posted on our website. Additionally, we filed our quarterly on Form 10-Q for the quarter ended June 30, 2022, with the SEC this morning. You can find additional information regarding the company on our website, www.consolenergy.com, which also include the supplemental slide deck that was posted this morning.

On the call with me today are Jimmy Brock, our Chief Executive Officer, Mitesh Thakkar, Chief Financial Officer; Dan Connell, our Senior Vice President of Strategy; and Bob Braithwaite, our Senior Vice President of Marketing and Sales.

In his prepared remarks, Jimmy will provide a recap of our third quarter 2022 achievements and specific insights on operations and sales. Mitesh will then provide an update on our balance sheet management, financial performance and 2022 outlook. In his closing comments, Jimmy will layout our key priorities as we head into 2023. After the prepared remarks, there will be a Q&A session in which Dan and Bob will also participate.

With that, let me turn it over to our CEO, Jimmy Brock.

[Jimmy Brock, Chief Executive Officer]

Thank you, Nate and good morning everyone. I want to start by highlighting a few developments for CONSOL that we are excited about. First, we recently announced the commissioning of our Itmann preparation plant at the end of September and our first shipment in mid October.

This plant gives us full marketing control of our Itmann product as well as incremental upside opportunity to third-party processing. This major milestone also gives us the ability to finish ramping up to full production capacity at the Itmann mine.

Second, we are nearing completion of the development of our fifth longwall at the Pennsylvania mining complex located at the Enlow Fork mine. The timeline remains on track and we continue to expect it to be up and running before the end of the fourth quarter. We are excited to bring this while back into the mix to add production, stability, optionality and improved quality to the complex.

Finally, CONSOL Energy achieved strong financial results during the third quarter of 2022. Despite multiple production related challenges. As such, we announced this morning our second dividend payment, which will occur later this month based on Q3, 2022 financial results. We also furthered our debt reduction goals by returning a sizable portion of our gross debt during the quarter.

Let's now discuss our operational performance in more detail. On the safety front, our Enlow Fork Mine, Harvey Mine, Bailey, Bailey Preparation Plant and CONSOL Marine Terminal each had zero employee recordable incidents during the third quarter of 2022. The Bailey Prep Plant and CMT have maintained zero employee recordable incident so far in 2022. And our Enlow Fork Mine achieved its second consecutive quarter at zero.

Our year-to-date total recordable incident rate at the PAMC is 3.4 times below the national average for underground coal mines. Coal production at the Pennsylvania Mining Complex came in at 5.3 million tons in Q3 2022 in line with the prior year period, but a reduction of nearly one million tons compared to Q2 of 2022.

Production suffered this quarter due to a plan maintenance shutdown and a longwall move as well as multiple operational and geological challenges. The good news is, we believe that these issues are now behind us and after finishing a longwall move in early October, all plan moves for 2022 have been completed.

As a result of these factors, our PAMC average cash cost of Kosovo per ton for Q3 2022 was elevated finishing at 39.77 compared to 34.81 in Q2 of 2022. This was mainly due to reduce fixed cost leverage resulting from the decreased production levels as well as the ongoing development costs associated with a fifth longwall and continued inflationary pressures on supplies, maintenance and power cost at our operations.

Maintenance costs were also elevated due to ongoing challenges on the supply chain front and deteriorating performance consistency by our suppliers. This brings our year-to-date cash cost of Kosovo to 34.46 per ton.

The CONSOL Marine Terminal had a throughput volume of 2.7 million tons during Q3, 2022, compared to 2.8 million tons in the prior year period. Terminal revenue for the quarter came in at 14.8 million and increase compared to 14.1 million in Q3, 2021 driven by an improvement in the throughput rate per ton.

DMT operating cash cost came in at 6.7 million for the quarter compared to 5.8 million in Q3 2021. DMT adjusted EBITDA finished Q3 2022 at 8.3 million compared to 7.3 million in the prior year period.

Our Itmann project hit a major milestone at the end of the quarter with the commissioning of our preparation plant, which processed its first coal in late September. We loaded and shipped our first train on October 12th.

While the prep plant was commissioned in the third quarter as anticipated on our last earnings call, supply chain bottlenecks have delayed the delivery of our third production section equipment and we now expect it to be delivered in the fourth quarter.

We still anticipate scaling up all three super sections by the end of 2022 and achieving full run rate production by the beginning of 2023. We are encouraged that mining conditions and coal quality are proven to be what we expected, and we will hit the ground running once all three super sections are fully operational.

The Itmann Mine produced 41,000 tons and sold 15,000 tons of low vol metallurgical coal in Q3 of 2022. The difference between sales and production resulted from a deliberate decision on our end to stockpile raw coal for processing in our own plant, instead of selling it for third-party processing, which will allow us to capture the full economic opportunity associated with this coal.

On the marketing front, the demand for our PAMC product remains strong in the third quarter of 2022. We sold 5.3 million tons of PAMC coal at an average realized coal revenue per ton sold of 72.83 in Q3 2022 compared to 5.4 million at 47.46 in the year ago period.

The $25.37 per ton increase in our average realized coal revenue per ton was driven by the ongoing improvement in the coal markets over the past year due to persistent coal supply shortages and increased commodity pricing.

Henry Hub natural gas spot prices averaged $8.03 per million BTUs in Q3 2022 compared to $4.35 per million BTU in the prior year period. PJM West day-ahead power prices hit the highest quarterly average in over eight years, finishing Q3 2022 at $90.44 per megawatt hour.

In the global thermal coal markets, demand remains robust as a result of tight supply. Domestically coal fired electric generation units are delaying retirements and internationally, we are seeing countries bring back coal fired electricity generating units, particularly in Europe.

Wood Mackenzie estimates that power demand will accelerate in India, as the country comes out of the monsoon season in Q4. The burden to meet this incremental demand will fall on coal due to the lack of alternative energy sources. Domestic supplies in India will be prioritized for power generation, and this will increase export demand for the non power generation sector, which we serve.

As a result of this continued coal market strength, our sales team opportunistically secured additional sales contracts and increased our forward sold position by six million tons through 2026. We now have 21.8 million tons contracted for 2023 and 8.8 million contracted for 2024.

For our metallurgical product coming out of the Itmann Mine, we have successfully concluded multiple contracts in the domestic and export markets for a portion of our Q4 2022 Itmann volumes and discussions regarding additional new business commitments are ongoing.

Finally, we are happy to report that we are secured new, five year throughput agreements for third-party code at the CONSOL Marine Terminal that will take effect in 2023 and run through 2027. This will lock in a minimum of 1.85 million tons of throughput in 2023 and a minimum of 2.75 million tons per year of throughput and 2024 through 2027.

With these minimum biomes secured by take or pay provisions, this deal is not expected to affect our needs for shipping our own PMC and Itmann products through CMT and when coupled with their own shipments, it provides solid revenue visibility and a meaningful growth opportunity for CMT going forward.

With that, I will now turn the call over to Mitesh to provide our financial update.

[Mitesh Thakkar, Chief Financial Officer]

Thank you, Jimmy and good morning, everyone. Let me begin by updating you on the progress that we have made on the balance sheet management front before discussing our quarterly results and 2022 outlook.

We continue to make considerable progress on our stated financial priorities due to the ongoing coal market strength and our strong financial performance. During the quarter, we generated $107 million of free cash flow, a majority of which was deployed towards a near-term goal of continuing to reduce our gross debt levels.

We made total debt payments of 56 million, which included $50 million towards Term Loan B and $6 million towards various finance leases. We have now made total debt repayments of 211 million in the first three quarters of 2022 and our current gross debt level now sits at just above 450 million.

While we have more recently focused on a Term Loan B that as it is firstly in an interest rate sensitive, the call price on our second lien notes will drop in mid November to 102.75 versus 105.5 currently. This will provide us additional optionality in our capital allocation process moving forward.

As such, we have submitted a redemption notice for $25 million of our second lien notes at the end of October, which will be redeemed during 4Q 2022 at the step-down call price. Additionally, we made a discretionary payment of 25 million towards our Term Loan B in October that was not included in our third quarter results.

These two pay downs will bring our gross that to approximately 400 million. We will continue to progress strengthening our balance sheet to significant debt reduction, and walk towards achieving our goal of 300 million or less of aggregate gross debt. Due to our continued earnings and free cash flow strength, we finished 3Q 2022 with a net leverage ratio of just under 0.3.

During 3Q 2022, due to our strong free cash flow generation, we also managed to increase our unrestricted cash balance, even while making $56 million and debt repayments, and $35 million dividend payment associated with our second quarter performance. Our unrestricted cash balance at September 30 was 269 million.

We also ended the third quarter with a significant liquidity position of 542 million. In conjunction with our strong free cash flow generation and consistent with our recently announced shareholder return program, we are pleased to announce this morning that the board of directors elected to issue a dividend of $1.05 per share amounting to a payment of roughly 37 million or approximately 35% of our 3Q 2022 free cash flow. This payment will be made on November 23rd to all shareholders of record as of November 14th.

As mentioned previously, most of our remaining free cash flow will be allocated towards our debt reduction goals. However, once the target gross debt level is achieved, we expect to further increase the percentage of free cash flow located to our shareholder returns, including potential share buybacks.

We continue to diligently engage with our shareholders each quarter and solicit feedback around their preferred method of shareholder return. This approach allows them to have a voice in the process and enables the company to best align its strategy with the interest of its shareholders.

We believe the previously announced increase an extension of our repurchase program authorization by our Board of Directors last quarter provides us the flexibility and wherewithal to quickly adjust our return strategy between dividends and share repurchases or mix of both.

Now let me recap our third quarter financial results and outlook for the remainder of the year. This morning, we reported a strong 3Q 2022 financial performance. We ended the quarter with net income of 152 million or $4.25 per diluted share. Our highest quarterly earnings per share level since becoming an independent public company in 2017.

Additionally, we finished 3Q 2022 with adjusted EBITDA of 18 million and generated $107 million of free cash flow. But our production levels came in lighter than our expectations during the quarter. Our strong PAMC sales book led to impressive credit cash margins and free cash flow generation.

On the guidance front, for the PAMC, we are pleased to announce that due to a strong 3Q 2022 performance and improved outlook, we are raising our expected average realized call revenue guidance to a range of 67 to 69 per ton, net of settlements of commodity derivatives. Our updated guidance assumes average PGMS of day power forwards of $81 per megawatt hour at the midpoint for the fourth quarter of 2022.

For every dollar per megawatt hour change in PGMS power prices during 3Q, 2022, we estimate the weighted average realization across our entire portfolio for the full-year of 2022 will change by approximately $0.04 per ton at the midpoint price.

Given the tough 3Q, 2022 operational performance at the PAMC and ongoing challenges with supplier inconsistencies, we are slightly tweaking our 2022 sales volume guidance to arrange of 23.75 million to 24.5 million tons.

The bottom end assumes producing at the average levels across the first three quarters of the year, while the top end assumes the possibility of accelerating the start date of the fifth longwall and potentially adding extra production shifts subject to labor availability and improving supply chain consistency. As of now we expect the work to start in mid December, but the team is working hard to commission it as soon as possible.

To reflect the operational and geological challenges we face during the third quarter ongoing concerns around the supply chain bottlenecks and higher input costs, we are increasing our PAMC cash cost of cold soul guidance to a range of $33 to $35 per ton.

We are beginning to see some relief in these cost pressures in the early part of the fourth quarter. Our supply chain team diligently manages costs as best as they can and the operations team is constantly focused on identifying ways to minimize the cash spent. After these revisions, we expect an overall improvement to our cash margins of $1.50 per ton at the midpoint of our guidance range as compared to last quarter's guidance.

For Itmann, we are reducing our tonnage guidance to a range of 200,000 to 300,000 tons for the full-year of 2022, down from 300,000 to 500,000 tons previously. While the preparation plan was commissioned in the third quarter, the midpoint of our guidance assume that planned startup could occur slightly earlier.

Furthermore, as is the case with most industries across the world supply chain bottlenecks have caused delays for us as well. The delivery of our third section of equipment, which was expected in August has been delayed until the fourth quarter.

We are optimistic that we will have all three CM super sections operational by the end of the year, and will be prepared for full run rate production starting in 2023. Lastly, on the capital expenditure front. We are maintaining our guidance range of 160 million and 185 million.

With that, let me turn it back to Jimmy to touch on our key priorities for the remainder of the year.

[Jimmy Brock, Chief Executive Officer]

Thank you, Mitesh. As we close out 2022, we have a few key areas of focus to set us up for the continued success heading into 2023. Our major focus is on our operations. First, we are laser-focused on bringing the fifth longwall back into operation this quarter and the PAMC team is hard at work to have it up and running as early as possible.

Second, we are also committed to ramping up the Itmann Mine to full run rate production by the end of the year, to ensure we hit the ground running by the start of 2023. We are very proud of the execution and hard work from our Itmann team members and for their dedication in getting us to this exciting point in a truly short period of time.

We have relocated, instructed and commissioned this preparation plant in just over a year, which is not an easy feat in the current inflationary environment with significant supply chain bottlenecks.

Third, our sales team remains opportunistic in its approach and will continue to balance revenue visibility with market optionality. We expect to continue to layer in additional business for 2023 and beyond. Our ability to lock in duration should allow us to benefit from the strong market for years to come.

We are also hard at work marketing our new Itmann product to secure new business with strategic and long-term partners. Finally, reducing the debt on our balance sheet remains a major focus. We are fast approaching our gross debt goal, which is a key pivot for accelerating returns to our shareholders.

In aggregate, we are very pleased with how 2022 has progressed to this point and our ability to optimize our sales book. Looking ahead, we remain even more excited about the future. For 2023, we expect higher sales volumes from both the PAMC and Itmann, which should add upside compared to this year.

With that, I will hand the call back over to Nate for further instructions.

[Nathan Tucker, Director of Finance and Investor Relations]

Thank you, Jimmy. We will now move to the Q&A session of our call. At this time, I would like to ask our operator to please provide the instructions to our callers.

[Operator]

Thank you. [Operator Instructions] Today's first question comes from Lucas Pipes with B. Riley FBR Riley Securities. Please go ahead. Mr. Pipes, your line is open, sir? I will say Mr. Pipes maybe on mute here, so we will move on to our next question. And our next question today comes from Nathan Martin at the Benchmark. Please go ahead.

[Nathan Martin, Benchmark]

Hey, good morning guys. Thanks for taking my questions. So you layered on additional six million tons through 2026. Looks like 2023 to 21.18 now, 2024 to 28. Could we please get a breakdown maybe the totals for those two years between export and domestic tonnage? And then Bob, I know you mentioned committed in price tons for 2023 last quarter were in the low to mid 70s, could we get an update there and then any commentary, you might have 2024 at this point, which I think was previously mentioned, expected to be higher than 2023, based on where the curves were at that point? Thanks.

[Robert Braithwaite, Senior Vice President of Marketing and Sales]

Sure Nathan, good morning. Let me start off by answering your first question, which is about surrounding the six million tons of commitments we can track it through 2026, the majority of those tons or just over four million, they were sold to strategic domestic utilities at fixed price, the balance or two million tons were sold export. And when pricing those tons through 2026, what we did was we looked at power and gas forwards at that time. And then we calculated what the delivered price for coal would need to be to be competitive.

One thing I can tell you is that the average price of those six million tons was over $100 for the six million. So when you look at the breakdown there, I would say, about 300,000 tons were optimization tons that we did in 2022, about 1.9 million in 2023, again, not including the optimization tons, 1.6 million in 2024, a 1.5 million in 2025, and the balance in 2026.

For 2023, that now again puts us at 21.8 million tons. And based on where API2 power and gas boards are today. We are expecting our average realized price across those 21.8 million will be in the upper 70s.

What I can also tell you is that we had opportunity to lock in additional volumes for 2023 and beyond. However, we decided to pass just due to pricing expectations from our customers and then our view of the market.

I would suggest the majority of the tons we have left the sell for 2023 will go into the export market, which is still yielding a premium over the domestic market, even with the recent fall an API2 prices.

Regarding 2024, as you mentioned, we have 8.8 million tons contracted to an increase of 1.6 quarter-on-quarter and although we are not prepared to provide, pricing guidance at this time for 2024. As you mentioned, we are expected to run all five longwalls throughout 2023 and beyond, so long as the market is supportive. So I still can see an instance where 2024 pricing or average realized price is higher in 2023.

[Nathan Martin, Benchmark]

Very helpful Bob, I appreciate that. Just maybe to your last point or one of your last points there the recent fall off in API2 prices. How has that affected business at this point, have you seen it affect business and maybe what is the outlook, if you have two prices going forward for you guys?

[Robert Braithwaite, Senior Vice President of Marketing and Sales]

Yes. So I actually just made a trip to Europe two weeks ago, and met with several customers. Obviously, there is a little bit of muted demand today just because of high stockpiles, but I can tell you, the consensus is pending a normal winter, those stockpiles are expected to drain quite quickly. Obviously, there is not rushing gas to refill the storage there, so they will be looking at coal to supply their needs going forward. So still fairly bullish on the European market.

API2 prices today for Cal 23, as you are aware, just over $200, but even then the netbacks still somewhat healthy to us. I will tell you 1.40, 1.50 is kind of what the netback looks like on a $210 API2 price. I still think that there is opportunity for that price to improve. I just think right now they the challenge or the concern is just when winter arrives and how long it lasts.

[Nathan Martin, Benchmark]

Great, I appreciate that color there. Maybe shifting to the balance sheet, capital return program,

free cash flow is one of seven the quarter obviously 35% dividend, you guys paid down about 56 million in debt Mitesh gone through all that. Mitesh, I think you also mentioned, another $50 million cumulatively has already been paid down here in the fourth quarter, which will get you to total debt around 400 million, I believe. How soon do you guys think you can kind of get down to that targeted debt level of $300 million and then I think you mentioned that maybe at that point, you could also look at starting to utilize some of your sizable share repurchase authorization. Thanks.

[Mitesh Thakkar, Chief Financial Officer]

Thanks Nat. That is correct. We did send a redemption notice for $25 million of second lien and another $25 million paid off Term Loan B here in October. So hopefully this quarter as well, our debt reduction phase will continue.

We announced a plan on the shareholder return program, which is 35%, returning to shareholders and achieve the target debt level with the remaining 60%, 65% and that is what we have been doing. We continue to plan doing that until we achieve the target debt level and hopefully with the market strength continuing we will achieve it sooner rather than later.

[Nathan Martin, Benchmark]

Okay, thanks, Mitesh. And then maybe just one final question, shipping to the logistic side of things. Just curious how, you know, real service port service has been. Is there anything you guys can do to prepare for potential real strike or lockout come November 19th? Thanks.

[Daniel Connell, Senior Vice President of Strategy]

Hi Nate. For one, we stay in constant communication with the railroads, they are obviously very important to us and we have seen some improvement, you know, quarter-over-quarter with a rail service. I know they are working hard to replace people to get that.

When I think about, you know, a national railroad strike, it is hard for me to imagine that the administration would allow that to happen. Of course, it obviously is possible. But we are kind of in the mode that we believe will continue to get service there and they have improved, as I said before, critically important to us.

And I believe that, the remaining few things, or at least from what we have heard that is remaining for the railroads can be worked out, particularly if it is just wage increases, or if it is scheduling or something like that.

I'm sure we have heard that the major bottlenecks and they are hard at work at that. So even though we have to plan for the worst, I really don't have to put a very low probability on a nationwide rail strap.

[Operator]

Thank you, ladies and gentlemen, our next question today comes from Lucas Pipes at B Riley Securities. Please go ahead.

[Lucas Pipes, B Riley FBR]

Thank you very much operator and good morning everyone. So my first question is on the pricing side. On my quick math, the midpoint of your full-year guidance implies about $68 per ton for the fourth quarter in realized price. And that is down from the third quarter 72.83. Can you walk us through the drivers? I assume it is lower PJM pricing, but would appreciate any, any additional colors you might be able to share on that?

[Robert Braithwaite, Senior Vice President of Marketing and Sales]

Yes, Lucas, you hit the nail on the head. It was lower PJM or there is lower - higher PJM less power pricing in Q3 than what is currently forecasted for Q4. Also API2 prices are down, we do have some API2 land contracts, as you are aware.

And also, as I mentioned, in my response to Nate, we would love 300,000 tons that we did some optimization by where we took lower price tons, moved them into next year for one customer, and then replaced those with higher priced, which I will call market tons. So those are the three main factors.

[Lucas Pipes, B Riley FBR]

That is very helpful. In terms of the volume component, obviously Q3 was impacted on some of these issues you highlighted. But in Q4, production should be much better. So to the extent you are able to place additional tons in the Seaport market, is there a degree of conservatism in that full-year pricing guidance? Thank you.

[Robert Braithwaite, Senior Vice President of Marketing and Sales]

We continue to work with the railroads to get as much coal as we have currently contracted shipped, our customers are in strong demand of that coal. If we do have incremental upside opportunity, I will tell you that, we will focus on putting that in the export market, because that is where the ARB is.

And as Jimmy mentioned, our transportation partners are performing quite well right now, especially to the peers. So is there upside to Q4? I would say potentially. But we got to get the coal produced, we got to get it shipped and that is where our guidance. We stay to our guidance based on what our thought was with what we would ship in Q4.

[Daniel Connell, Senior Vice President of Strategy]

And Lucas just to add to that on the productivity side, we have all of our longwalls completed as I said in the script. We don't have any more longwall moves in Q4 and we have most of these geologic conditions behind us.

Of course, those things can pop up at any time, but we certainly have the experience of dealing with those and we feel that during Q4 we are going to be at a normal run rate. Obviously, if we bring that fifth longwall earlier-than-expected, which we are working hard at, then there could be some upside potential tons coming from it as well.

[Lucas Pipes, B Riley FBR]

That is very helpful, thank you. And then another question on the pricing side. For 2023, what amount of tonnage is currently exposed to API2 pricing or to put differently, what amount of your tonnage would you expect to be exposed to API2 pricing between what you have committed, but not fully priced and then what is left to be priced presumably mostly in the export market?

[Robert Braithwaite, Senior Vice President of Marketing and Sales]

Yes. For 2023, we have about 7.5 million to eight million of exports currently contracted, of which about four million tons are indexed to API2. Of the four million, I would say about three million have collars around them, so they have ceilings and floors. And I can tell you that, where the API2 sits today, we still remain above the ceiling on a number of those contracts.

Looking ahead, I think we will still place another three million to four million tons in the export market. Probably two million tons of those would likely be linked to API2, the balance, I would say, is likely slotted for India. So in total, I would say potentially six million tons would be directly linked to API2. However, we will have ceilings and floors across the majority of those for the protection.

[Lucas Pipes, B Riley FBR]

Okay. That is helpful, thank you. And then switching topics Mitesh, at quarter end, you had $320 million of cash on hand. So it appears it is really at the Company's discretion when to meet that $300 million gross debt target. Can you provide additional clarity on what might keep you from paying-off the remaining debt to get to the $300 million gross debt target during this current quarter?

[Mitesh Thakkar, Chief Financial Officer]

Lucas, just for clarification, the cash number that you referenced included restricted cash balance as well. As you know, like that is earmarked for a specific purpose. So we are just going to work off of the unrestricted cash balance here of 268-ish.

And from that perspective, to think about it, we also have to take into account that we have a certain amount of liquidity that is going to drop off here in March of next year with a portion of our revolver not going to be extended.

So it is about 140 million of that revolving capacity, there is going to fall off. So if you think about replacing that revolver capacity, we are carrying a little bit excess liquidity right now, because of the expected fall off in the revolver capacity. So that plays into the equation.

But generally speaking, I think, as we have said, assuming no major changes to the cash balance, we would like to get to that $300 million of net reduction, up to $300 million of absolute debt. And the function of restricted cash is essentially when we do the project and spend it that gets converted, eventually into free cash flow once that restriction gets removed. So you would see that 50 million kind of flow into unrestricted bucket as we spend money on it.

[Lucas Pipes, B Riley FBR]

That is very helpful, thank you. And the amount of cash that you would like to hold, given the changes with the liquidity next spring, what is that amount?

[Mitesh Thakkar, Chief Financial Officer]

I think we are comfortable with what we have on the balance sheet right now. And as you notice, like this quarter, for example, there was very little if any increase on cash on the balance sheet from an unrestricted perspective.

We basically - between the debt buyback and the share, and the dividend, we basically exhausted all the cash flow that we generated, there was only a slight build, probably $6 million bill. So we don't anticipate that number to go much higher.

[Lucas Pipes, B Riley FBR]

Very helpful. Gentlemen, really appreciate the color and best of luck.

[Mitesh Thakkar, Chief Financial Officer]

Thanks Lucas.

[Daniel Connell, Senior Vice President of Strategy]

Thanks.

[Operator]

[Operator Instructions] Our next question comes from Michael Dudas with Vertical Research Partners. Please go ahead.

[Michael Dudas, Vertical Research Partners]

Good morning gentlemen. You talked about your domestic customers or inventories and there is been maybe a little bit hesitancy to burn more coal, because of the issues in the market. Two questions, one, relative to some of the coal retirement deferrals that we have seen or with - announced over the past few months in the U.S. are there any in their major customer base that you can identify? And do you anticipate the market being a bit more normalized, and we will see some more burn and some more, maybe demand for some you are committed PAMC coals in 2023 as you look right now?

[Robert Braithwaite, Senior Vice President of Marketing and Sales]

Mike, what we have seen over the last quarter is we have seen our customers build inventory, and that was by design, getting prepared for winter. And, as I mentioned, on previous calls side from some transportation issues that happened earlier this year, which did challenge utility from getting coal. I believe many utilities were just simply under bought, and therefore they were burning gas and economically or just simply not running.

But looking ahead, for the balance of this year, assuming a normal winter, I would expect overall coal fire generation to improve and the demand for coal to remain strong throughout 2023. In terms of the delayed retirements not really many of those retirements we are in our - I will call it our core marketplace, but we have supplied coal to some of the some of the plants that are announcing delays. We have one in South Carolina, we also have another in Indiana, that I can recall off the top of my head.

But the consensus there is, again, there will be strong demand for coal and the difference today versus before and you heard Jimmy say this many of times is your there is just not a supply response. So by definition, you should see, again, the demand over our - be higher than the supply, which should be beneficial to us.

[Michael Dudas, Vertical Research Partners]

That makes sense. Turning to your export markets, the dynamics India that you talked about do we are they sustainable and are we that market going to be poised for continued need for your types of coal and industrial marker, maybe they will quality into the car market on the end of 2023, 2024 and with the changes in burn, and countries looking to add or expand or restart capacity has there been a noticeable change in the customer inquiries or the mix of your customer base, that you will be looking to replace coal over the next six to 12-months?

[Robert Braithwaite, Senior Vice President of Marketing and Sales]

India certainly is and will remain a growth market for us. Most recently, we placed more tons into Europe, just begin again because that is where the ARB is. But there is still strong demand coming out of India, we talk to our customers on a daily basis. And I still think that long-term that is certainly where majority of our exports will end up going.

One thing that we highlighted on the call is our fifth longwall. Jimmy talked about the quality is well. Our quality, that fifth longwall was going to be a low sulfur the entire complex and why is that important? You know, in Europe, they don't they no longer have the low sulfur Russian coal to blend against the higher sulfur coals like Northern Illinois basin and others.

So that low sulfur now is going to be very beneficial to us and critical to us and actually puts us as a differentiator versus a lot of our peers. Because now you are blending, you are needing lower sulfur, which I will call northern AP or U.S. coals to blend against South African and Colombian, and even Central Appalachia coals. So we still feel as though we will have a good footprint into Europe going forward with our lower sulfur product. And again, they will be a differentiator for us.

[Daniel Connell, Senior Vice President of Strategy]

Yes, and Mike, just to add to that, when we think about the fifth longwall, it is not only for production, that fifth longwall certainly helps our quality overall for the complex. And more importantly, it gives us some optionality and stability.

So if you do have geological challenges on one of these other longwall, this fifth longwall that we have ran in the past can certainly overcome that. And you don't even notice it as much, as far as the tonnage goes.

And they have the opportunity is there to Bobby's point to move these tons exporter either domestically, or then we can run all five of those long walls, pretty much wide open. So we are very excited to have that coming back, you know, here late in Q4 of this year.

[Michael Dudas, Vertical Research Partners]

That is great analysis. Thank you one final question. As you are looking to budget for next year, just looking in your operating performance, maybe get any sense of seeking or relief on some input costs, labor, where do you stand on labor costs and the maybe contractor versus your own folks and how that plays through into 2023 given certainly - volume aside given the inflationary pressures or the markets witnessed in 2022?

[Robert Braithwaite, Senior Vice President of Marketing and Sales]

Yes, well there were there's no doubt that it is a very tight labor market. I think as we look forward to 2023 obviously you know you have to staff this fifth longwall that we have staffed now. And I think we have been able to maintain our folks here in the Pennsylvania mine complex because we do offer great benefits for them as much flexibility as one can give.

But you certainly have to look at labor, differently moving forward. I think some of these younger folks, particularly with all of the media attention that is placed on coal in general. They are somewhat hesitant to come out of school to come out there. So we have to do a better job of recruiting and talking to these employees, which we have.

But we believe that our labor will remain just fine. I mean, we think we are going to be able to run to the forecast that we have in 2023 and again with this fifth longwall excited about the potential to add upside to 2023 versus 2022.

[Michael Dudas, Vertical Research Partners]

And other costs?

[Robert Braithwaite, Senior Vice President of Marketing and Sales]

I think we are starting to see a little bit of relief on some of these inflationary pressures, particularly when you look at some of the consumables we used to produce with. We are starting to see those fall, you are starting to see the steel markets have certainly came down that have - with our roof support and things like that.

So we feel like we are seeing some relief. We are certainly not - we would want to be rep to maintain that. But if you remember, we have said all along that, we would like keep our higher inflationary cost in single-digits across the entire cost portfolio. I mean, some of it obviously is higher than others. Steel prices were very high there for a while, but you saw some relief on some of the other things that we had.

So in general, I think the cost numbers as we look at the budget for 2023 and beyond, we don't see a lot of higher inflation than we have actually experienced this year. So we would expect that cost to get a little better as we move forward.

[Daniel Connell, Senior Vice President of Strategy]

I think the one area that needs some work is around quality control issues with supplier inputs, and just getting the deliveries in time. We highlighted in our press release that we had a minor equipment that was supposed to be delivered in the third quarter and now it is going in the fourth quarter.

It is not just that there have been other areas where delays have been caused, because the suppliers are struggling with some of the same issues that we have been struggling with too. So that is a piece of the puzzle that needs to be solved as well.

[Robert Braithwaite, Senior Vice President of Marketing and Sales]

Yes. And lead times now are very important for us too. As we look forward for the budget, particularly next year, how long it takes to get certain pieces of this equipment. So for an example, we had to look at what our critical spares are, the critical elements that we need to produce with. Some of those have long lead days, so we are trying to put those in inventory and store those.

But Mitesh is right. I mean, quality control, the suppliers are having the same issues we have with the labor and people. So that may not have the same quality control we had a year or so ago. We are working with them, particularly on some of the failures that we have had on early startups that is not typical for us. So they have the same issues and we are constantly working with them to improve that as well.

[Michael Dudas, Vertical Research Partners]

Gentlemen thanks for your time.

[Robert Braithwaite, Senior Vice President of Marketing and Sales]

Thanks.

[Daniel Connell, Senior Vice President of Strategy]

Thanks Mike.

[Operator]

And ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to the management team for any final remarks.

[Nathan Tucker, Director of Finance and Investor Relations]

Thank you. We appreciate everyone's time this morning and thank you for your interest and support of CEIX. We look forward to seeing you on our next quarter earnings call. Thank you.

[Operator]

Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.