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CEIX and CCR 4th Quarter 2019 Investor Presentation PDF
CEIX and CCR 4th Quarter 2019 Investor Presentation PDF
CEIX and CCR 4th Quarter 2019 Investor Presentation PDF
This presentation includes unaudited “non-GAAP financial measures” as defined in Regulation G under the Securities Exchange Act of 1934,
including EBIT, EBITDA, Adjusted EBITDA, Bank EBITDA, EBITDA per Affiliated Company Credit Agreement, Net Leverage Ratio, CONSOL Marine
Terminal EBITDA, Modified Net Leverage Ratio, Consolidated Net Debt, Consolidated Net Debt less Non-controlling Portion of CCR Affiliate Loan,
Net Debt per Affiliated Company Credit Agreement, Return on Capital, Adjusted EBITDA Attributable to CONSOL Energy Shareholders, Average
Cash Cost of Coal Sold Per Ton, Average Cash Margin Per Ton Sold, Organic Free Cash Flow, Distribution Coverage Ratio and Organic Free Cash
Flow Net to CEIX Shareholders. The presentation of non-GAAP financial measures is not intended to be a substitute for, and should not be
considered in isolation from, the financial measures reported in accordance with GAAP.
2
Investment Thesis
Proven Ability to Generate Material Free Cash Flow Leading to Significant Deleveraging with Continued Focus
1
on Further Debt Paydown and Increasing Shareholder Returns
Base Assets with 1st Quartile Cost Position Sustains Margins through the Cycle and Provides Internal Funding
2
to Execute Our Strategy
3 Proven Marketing Strategy Maintains Solid Domestic Customer Base While Capturing Export Growth
Seaborne Thermal Coal Fundamentals Supported by Continued Global Coal-fired Capacity Build Out and Strong
4
Global Value Proposition of NAPP Coal
5 Proven Competitiveness in Domestic Markets Relative to Other Basins and Natural Gas
6 Measured Approach to Growth that Strengthens Base Operations, Enables Diversification and Reduces Risk
Continue to Execute our Strategy Through Balanced Approach to De-leveraging, Growth and Capital Returns To
7
Drive Shareholder Returns
3
CEIX Performance Since November 2017 Spin
Performance of Our Securities Since the November 2017 Spin…
Spin Today
-37% -15%
25.00 8% -25% 105.00 0%
$21.45 3%7.0% 0% $100 12%
6.0% -2%
100.00 70% 14%
20.00 -2%6.0% -4% 63%
-50% 56%
-7% 60% 12%
5.0% 4.5% 95.00 -6%
15.00 $13.49 -12% -100% 50% 10%
4.0% -8%
-17% 90.00 40% 8%
-150% -10%
10.00 -22%
3.0% $85
-27% -200%85.00 -12% 30% 6%
2.0%
5.00 -32% -14% 20% 4%
1.0% -250%80.00
-37% -16% 10% 2%
- 0.0%
-42% -300%75.00 -18% 0% 0%
Common Stock Term Loan B Credit 2nd Lien Notes Pricing Net Debt / Enterprise Value
Spread
4
Pennsylvania Mining Complex Overview
◼ Three highly productive, well-capitalized underground coal mines
◼ Continuously sealing off old mine works to reduce maintenance, improve safety
of employees and maintain current operating footprint
Average AR
Total Average AR Est. Annual
Gross Heat 2018A
Mine Recoverable Sulfur Production
Content Production*
Reserves* Content Capacity*(3)
(Btu/lb)
Bailey (1) 163 12,890 2.61% 11.5 12.7
(1)
Enlow Fork 334 12,935 2.07% 11.5 9.9
*(Million Tons)
Sealed
75
50
25
0
0 10 20 30 40 50 60 70
Cumulative Production (Million Tons)
Sulfur
4.3% 2.5% 3.3% 2.7% 4.2% 3.3% 3.1% 4.1% 3.3%
content
River market mine Rail market mine Minemouth mine
1st quartile position among global thermal coal production (2018) (2)
(Cash costs $ per tonne)
Thermal Coal
Exports
PAMC US Appalachia US Illinois Basin US Powder River US Western Bituminous
$120 2015 2016 2017
$120
$100 1st Quartile 2nd Quartile 3rd Quartile 4th Quartile
100
$80
80
US $/Tonne
$60
60
40
$40
20
$20
0
$0
– 100 200 300 400 500 600 700 800 900
Cumulative Production (Million Tonnes)
The PAMC’s 1st quartile cost position drives global
competitiveness despite changes in seaborne thermal
Source: CONSOL management. Wood Mackenzie supply / demand fundamentals
(1) Costs represent total cash costs as defined by Wood Mackenzie
(2) Costs are BTU adjusted and include mining, preparation, transport, port and overhead costs. PAMC cash costs of coal sold are based on CONSOL management and peers based on Wood
Mackenzie
6
CONSOL Marine Terminal Overview
Overview
◼ Coal export terminal strategically located in Baltimore, Maryland.
7
On-Site Key Logistics Infrastructure and Advantaged Export Access in a
Growing Export Market
Dual-served railroad access
Port of
Baltimore
PAMC
Core Markets
Eastern U.S. coal regions and points of thermal export(1)
~$12 - $15/ton
~$11 - $13/ton
East
Coast to EUR
~$17/ton
~$16 - $19/ton
Battleground
Markets
~$14 - $16/
ton Gulf Coast
to EUR
8
Multi-pronged PAMC Marketing Strategy
Illustrative portion of
annual production
1
Maximize sales to established customer base of rail-served power plants
in the Eastern U.S., with a focus on top-performing environmentally- ~60 – 80%
controlled plants
2
Place approximately 2.0 – 2.5 million tons per annum in the seaborne
~10%
met coal market
3
Selectively place remaining tonnage in opportunities (export or
~10 – 30%
domestic) that maximize FOB mine margins
2018A Domestic
4%
Industrial/Met
Customers
43%
Regulated Power
Plants
2015A 2016A 2017A 2018A 2019E
Merchant
Domestic Export Thermal Export Met (Unregulated)
53%
Power Plants
In 2018, the Company sold PAMC coal to 27 domestic power plants located in 13 states, and to thermal and
metallurgical end-users located across five continents.
10
Stable, Diversified, Credit Worthy Customer Base That Minimizes Market Risk and
Optimizes Margin
Blue-chip customers(1) Limited volume at risk due to announced power plant retirements
Announced
Coal Retirement 1%
Private
Market cap: $23.3bn Market cap: $68.7bn -/-
Baa1 / BBB+ Baa1 / A-
Private
-/-
No Announced Coal
Retirement 99%
Market cap: $68.5bn Market cap: $65.3bn Private
Baa2 / BBB+ Baa2 / A- B2 / B+
40%
20%
0%
Delta % 12% 5% 11% 14% 19% 17% 20% 17% 7% 11% 7% 5% 15% 5% 21% 5% 13% 14% 12% 7% 16% 11% 13% 9%
7.0 +
5.6 5.4
5.0
4.6 6.8
4.2 6.5
1.4
3.4 3.4
2.1 4.4
2.0
2.1
3.6
2.5 2.2 2.0
1.3 1.2 1.5 1.5
2011A 2012A 2013A 2014A 2015A 2016A 2017A 2018A 2019E 2020E
Export Crossover Met Export Thermal
12
Premium Quality Coal and Differentiated Marketing Strategy Ensures
Continued Participation in Seaborne Markets
Differentiated Marketing Strategy Provides Strong Revenue Visibility Best-in-class Btu content(1)
◼ Entered into a three-year contract with a blue-chip domestic utility (Btu/lb gross as-received) (Btu/lb gross as-received)
at prices above the then-prevailing market prices and capturing a 13,000 13,000
contango in outer years.
12,000 12,000
◼ Extended previously disclosed export contract through December
31, 2020 and added 3.65 million tons (68% thermal and 32%
crossover met coal) in 2H20. 11,000 11,000
o Increased our 2020 contracted exports position to 7.15 million 10,000 10,000
tons with an average floor price that is greater than our 2017
average revenue per ton of $45.52. 9,000 9,000
◼ Total portfolio contracted position now stands at 95+% in 2019, 8,000 8,000
82% in 2020, and 36% for 2021. BTU Content Sulfur %
CEIX Average Revenue Per Ton Domestic NAPP Coal Average Prompt Month
API#2 Spot Average PJM Western Hub Around-The-Clock
160
140
120
+0.5%
100
-19.2%
Index
80
-19.0%
60 -37.8%
40
20
3Q19
4Q17
1Q18
2Q18
3Q18
4Q18
1Q19
2Q19
Source: CONSOL Energy Inc. management, ABB Velocity Suite, EIA, and S&P Global Platts
(1) Other NAPP, CAPP, ILB and PRB represent the average of power plant deliveries for the three years ending 12/31/2018 per EIA / ABB Velocity Suite. Excludes waste coal. BTU content for
other countries from S&P Global Platts.
(2) Domestic NAPP is sourced from CoalDesk LLC’s forecast at 4.75lb sulfur and 13,000 mmBtu
13
Solid Global Coal-Fired Generation Capacity Growth Continues
Global coal power plant build outs – under construction by year Global coal power plant build outs – by country
90 China India Vietnam Indonesia Other Asia Rest of World 90 Under Construction Planned Not Under Construction
80 80
Total Global Under Construction Total Global Planned (not under construction)
70 70
2019 – 2024 = 110.6 GW 2019 & Beyond = 299.5 GW
Plant Capacities (GW)
40 40
30 30
20 20
10 10
- -
2019 2020 2021 2022 2023 2024 China India Vietnam Indonesia Other Asia Remaining
+ 15MMt
1,000 + 15MMt
+ 28MMt
Million Tonnes (MMt)
900
+ 47MMt
- 109MMt
600
2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
14
Global Value Proposition for Coal is Unparalleled
$12.00
$10.00
$8.00
$/mmBtu
$6.00
$4.00
$2.00
$0.00
NAPP Coal
UK LNG
Newcastle Coal
India LNG
China LNG
Henry Hub Spot
Japan LNG
Source: Coaldesk LLC, World Bank, Doyle Trading Consultants, EIA, FERC
15
Near-Term LNG Oversupply Expected to Become Shortfall after 2021
◼ We believe rising export capacity in US will help tighten the domestic natural gas markets – the linkage
of natural gas to crude oil.
◼ Global LNG demand growth is expected to soak up the incremental supply around 2021.
◼ LNG demand is mostly based on long term contracts, which could challenge US supply to keep up.
◼ According to Wood Mackenzie, supply additions are expected to slow significantly after 2021 and some
new projects need upward of $7/mmbtu to breakeven.
16
17
Index Index
30
45
50
55
70
75
30
70
90
35
40
60
65
50
130
110
Dec-19 Jan-18
Position
Jan-20 Feb-18
Feb-20 Mar-18
Mar-20
Apr-18
Apr-20
May-18
Nov-20 Nov-18
Dec-20 Dec-18
CEIX
Jan-21 Jan-19
Feb-21 Feb-19
Mar-21
Mar-19
Current LNG Forwards
Apr-21
Apr-19
May-21
LNG
May-19
Jun-21
Jun-19
Jul-21
Jul-19
Aug-21
Aug-19
Sep-21
Sep-19
API2
Oct-21
Oct-19
Current API#2 Forwards
Nov-21
Current Pullback in CEIX Shares Does Not Reflect Strong Contracted
Dec-21 Nov-19
With a Highly Competitive Position Versus Natural Gas
Thermal coal price behavior vs. natural gas price
($/mmBtu)
imbalance $3.40
$50
$45 $2.90
PAMC’s average all-in cash cost position of ~$1.33/mmBtu versus average natural gas price of $2.96 over the same period
has positioned CONSOL well and is expected to continue moving forward
$1.45
$1.38 $1.38 $1.37 $1.34 $1.39
$1.28 $1.30 $1.31 $1.32
$1.24 $1.23
4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19
Source: ABB Velocity Suite, NYMEX, Coaldesk, EIA
(1) Calculated as quarterly average cash cost per ton sold based on CEI’s historical SEC filings plus $5 per ton estimated maintenance capex; converted at
13,000Btu/lb and 2,000lbs/ton
18
PAMC Growing Share in Favored US Basin Despite Coal Power Plant
Retirements
PAMC has taken advantage of shifting domestic PAMC sales have increased despite US
thermal coal demand coal plant retirements
◼ High cost / unfavorable basin specific dynamics forcing coal Annual US coal power plant capacity (GW)
production decline in other basins (10.8%) decline in capacity since 2015
271 263 255 242
◼ NAPP is better situated than other US basins
− Mine depletion driving production decline PAMC annual sales (tons, millions)
(million tons)
PAMC NAPP PRB ILB CAPP
405
332
2015A 2018A 2015A 2018A 2015A 2018A 2015A 2018A 2015A 2018A
% change
from peak N/A (22%) (22%) (24%) (39%)
production to 2018(1):
Source: Bloomberg, SNL and Wood Mackenzie
(1) Peak production per Wood Mackenzie between 2013 and 2018
19
CEIX – A Measured Approach to Growth
20
Itmann Project – High Returns & Measured Pace of Investment
Location ◼ Wyoming County, WV
18.5% 0.9% 60
Projected
Capital Cost ◼ $65-80 million (mine + preparation plant)
Projected
Operating Cost ◼ $65-75/short ton cash operating cost
21
Itmann Project Will Cater to Growing Market with Shrinking High Quality Supply
◼ Global seaborne met coal demand will rise from 313 Mt in 2019 to 422 Mt by 2040.
◼ Indian imports increase to 142 Mtpa in 2040 vs 63 Mtpa in 2019; account for over 72% of net seaborne growth.
◼ There is a shortage of low-vol projects in the supply pipeline and known projects are limited.
Source: Wood Mackenzie Coal Market Service.
22
CEIX - Summary of Financial Policy
◼ Strong liquidity position of $449 million, including $123 million of cash and cash equivalents less CCR
cash, provides flexibility in volatile commodity markets.
Maintain strong ◼ CEIX cash flow expected to be augmented by CCR via pro rata distributions to unitholders (on ~62%
liquidity ownership interest), interest payments and principal paydowns on Affiliate Loan.
◼ Expecting to further improve cash flows and liquidity through expanded surety bond program and
expanded revolving credit facility.
(1) Based on $112mm remaining at 6/30/2019 less 3Q19 repurchases of $40mm ($16.2mm second lien, $23.2mm CEIX common shares and $0.2mm CCR common units), less 4Q19-to-date through
11/1/2019 second lien repurchases of $14mm.
23
CEIX Accelerating Debt/Equity Repurchases
CEIX Repurchase Program Authorization(1) Cumulative Repurchases Remaining Availability
$43 $142
$50 $50 $67 $128
$24 $88
$38 $65
$33 $57
$12 $26
1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q-to-Date(2)
Debt Equity
25
• $64.4 billion capital raised 2014 – YTD 2019.
20 18.6 • Debt = $45.3 billion
Transaction Value ($B)
Debt Equity
100
80.9
80 • $300.3 billion capital raised 2014 – YTD 2019.
Transaction Value ($B)
(1) “EBITDA”, “Adjusted EBITDA”, “Bank EBITDA”, “Adjusted EBITDA Attributable to CONSOL Energy Shareholders” and “EBITDA per Affiliated Company Credit Agreement” are non-GAAP financial
measures. Net leverage ratio and modified net leverage ratio are operating ratios derived from non-GAAP financial measures. Please see the appendix for a reconciliation to net income.
(2) Adjusted Method is based on “Adjusted EBITDA” and Bank Method is based on “Bank EBITDA”.
(3) See appendix for a reconciliation.
(4) Calculated as consolidated net debt of $614 million less the 38.5% public ownership of CCR’s Affiliate Loan of ~$181 million.
(5) Calculated as CEIX cash and equivalents of $133 million as of 9/30/2019 less CCR cash and equivalents of ~$11 million as of 9/30/2019.
27
Return on Capital Highlights the Need for Rising Commodity Prices
◼ The goal is to raise CEIX’s Return on Capital(1) over time while lowering its WACC.
◼ Low production decline for coal assets vs. very steep initial decline for natural gas shale assets.
◼ Ability to export a high percentage of production to capture the highest BTU value chain.
◼ Use our free cash flow generation to improve our cost of capital and increase returns to
shareholders over time.
12%
8%
Weighted
Average
Cost of
Debt(3)
3%
Return on
Capital(4)
(5)
CEIX E&P
LTM 9/30/2019 2015A-2018A
Source: CONSOL Energy Inc. management and FactSet
(1) CEIX return on capital has been adjusted to exclude legacy liability expense in the numerator as it is already captured as a liability in the denominator. Return on capital is an operating ratio derived
from a non-GAAP financial measure which is reconciled to the most directly comparable GAAP financial measure in the appendix.
(2) CEIX EBIT has been adjusted to remove the effect of the 1Q19 refinancing transaction to remain consistent with prior period calculations.
(3) Calculated as the weighted average interest expense for TLA, TLB, 2nd Lien Notes and Baltimore Bonds multiplied by their respective interest rates. Assumed LIBOR of 1.82% for TLA and TLB.
(4) Return on capital for E&P is defined as EBIT/(Total Assets – Current Liabilities). No adjustment has been made to exclude E&P group companies’ legacy liability expense.
(5) Comparable E&P universe = CHK, COG, RRC, SWN, EQT, REP, EOG, AR, and GPOR.
28
Corporate Sustainability Approach
Our Legacy is Built on Safety, Compliance, and Continuous Improvement
◼ PA Mining Complex’s MSHA reportable incident rate was 34% lower than the industry average from 2014- 2018.1
◼ 2018 Marked 5th consecutive year with an environmental compliance record exceeding 99.9%. 1
◼ Board level HSE Committee oversees procedures for identifying, assessing, monitoring, and managing ESG risks.
◼ Innovative technologies deployed at PA Mining Complex directly relate to ESG aspects of greatest impact to CONSOL.
◼ Partnerships with Komatsu Mining Corporation, Environmental Commodities Corporation, and OMNIS Bailey, LLC.
◼ Recently recognized for sector leadership in ESG disclosures, transparency, and strategic initiatives. 2,3
29
ESG Priorities: Creating Shared Value
• Producing high-Btu bituminous coal; carbon intensity 5-20% below other ranks.1
Environment • Marketing to low heat rate, environmentally controlled customers.
• Expanding methane destruction program to decrease direct emissions.
• Reducing water use intensity through focused reuse and recycling.
Shared Value
◼ Bettercoal is a global organization that was established by major coal buyers. (1)
◼ Seeks to advance the continuous improvement of sustainability performance in the
coal supply chain.
◼ The “Bettercoal Code” is an internationally recognized standard of operating principles.
◼ Ethical, Social, and Environmental Components
Bettercoal’s Values Align with CONSOL’s Management Approach and Commitment to ESG
Creating
Continuous Stakeholder Risk Based
Shared Improvement
Transparency
Engagement Approach
Value
32
Organizational Structure Overview
Public and
Private
75% undivided
ownership interest(1) 1.7% general partner Placement
interest 10,821,006
Common Units
38.5%
limited
CONSOL Coal Resources LP partner
NYSE: CCR interest
33
CEIX Balance Sheet Legacy Liabilities, Manageable and Declining
Significant legacy liability reductions over the past three years Legacy liabilities Balance Sheet Cash Servicing
($mm) Value Cost
◼ The impact of administrative changes in 2016 & 2017 reduced our OPEB
liability without impacting the level of benefits delivered to beneficiaries. 9/30/2019 LTM 9/30/2019
Long-term disability 11 2
◼ Furthermore, the balance sheet reduction we’ve seen in 2018
versus 2017 is a result of a decreasing trend of actual claims Workers’ compensation 70 12
over the prior 3 years. Coal workers’ pneumoconiosis 176 13
◼ Cash payments related to legacy liabilities are declining over time. Other post-employment benefits 460 36
◼ Considerable tax benefits are associated with legacy liability payments. Pension obligations 56 1
◼ Legacy liabilities could be viewed as payment obligations between Asset retirement obligations 272 10
unsecured debt and equity on a company’s balance sheet. Total legacy liabilities 1,045 75
◼ Approximately 69% of all CEIX employee liabilities are closed classes. Some totals may not foot due to rounding.
− Actuarial and demographic developments continue to drive medium-
term reduction in liabilities.
− Actively managing costs down.
CEIX legacy liabilities and cash costs CEIX employee-related liability projections
($ mm)
2019E Payments 2022E Payments
$1,497
$1,362
$1,267
$139 $1,163 $62 $58
$133
$1,067 $1,045
$92
$73 $75 $75
34
Experienced Management with Enhanced Focus on Safety, Compliance and
Financial Discipline
◼ CEIX’s management and operating teams have a long history in the coal industry Key performance results
− Proven track record of successfully building, enhancing and managing ◼ Significant expertise owning, developing, and
coal assets managing coal and associated
− Focus on growing return on capital through strategic capital allocation grounded in infrastructure assets
detailed commodity analysis
− Reduced operating costs per ton sold by 21%
◼ CEIX management has a strong focus on financial discipline from 2014–2018
− Demonstrated ability to improve operating performance and maintain ◼ Strong focus on safety and compliance standards
low cash costs
− Primary use of organic FCF(1) will be to de-lever the balance sheet through 2020 − PAMC's Mine Safety and Health Administration
("MSHA") reportable incident rate was ~34%
Experienced management team lower than the industry average in 2014-2018
Jimmy Brock David Khani − PAMC’s MSHA significant and substantial
President and Chief Executive Officer EVP, Treasurer and Chief Financial Officer
◼ President and CEO since 2017 ◼ EVP and CFO of CEIX since 2017, held
citation rate was 36% lower than the industry
◼ COO – Coal for CNX from 2010 – 2017
same positions at CNX from 2013 – 2017 average for YE 2018
◼ CCR CFO & Director; same roles at CONE
◼ Appointed CEO and Director of CCR in
2015
Midstream Partners from 2014 – 2018 − Executive and workforce compensation tied in
◼ 40 years in coal industry, all at CONSOL
◼ 25 years in metals & mining, oil & gas and part to environmental and safety performance
coal industries, including 8 at CONSOL
◼ Addressing environmental and legacy liabilities
Jim McCaffrey Kurt Salvatori − Cash servicing costs reduced from $139mm in
Chief Commercial Officer Chief Administrative Officer
2014 to $75mm LTM 9/30/2019
◼ CCO and SVP of Coal Marketing since ◼ VP– Administration for CEIX since 2017
2017
◼ Previously served as VP Shared Services ◼ Management incentivized to improve free cash
◼ SVP – Energy Marketing for CNX from for CNX from 2016 – 2017
2013 to 2016 flow and continue to de-leverage balance sheet
◼ Has held variety of HR positions at
◼ 42 years in industry, all at CONSOL CONSOL
◼ Strong commitment to environmental responsibility
◼ 27 years in industry all at CONSOL
36
CCR Adjusted EBITDA & Organic Free Cash Flow Reconciliations
EBITDA Reconciliation
3Q19 3Q18
Net Income $7.0 $8.6
Plus:
Interest Expense, Net 1.6 1.6
Depreciation, Depletion and Amortization 11.1 11.1
37
CEIX Net Leverage Ratio Reconciliations
CEIX Net Leverage Ratio Reconciliations Adjusted Method Bank Method
LTM 9/30/2019 LTM 9/30/2019
Net Income $122 $122
Plus:
Interest Expense, net $71 $71
Interest Income ($3) ($3)
38
CEIX Return on Capital Reconciliation
39
CCR Net Leverage Ratio Reconciliation
40
CCR Distribution Coverage Ratio Reconciliation
41
Average Cash Margin and Average Cost per Ton Sold Reconciliations
42
CMT Adjusted EBITDA Reconciliation
CMT EBITDA Reconciliation
3Q19 3Q18
Net Income $7.7 $5.7
Plus:
Interest Expense, net 1.5 1.5
Depreciation, Depletion and Amortization 0.5 1.0
43