Colorado Springs Oct 23, 2015 (Thomson StreetEvents) -- Edited Transcript of Westmoreland Coal Co earnings conference call or presentation Friday, October 23, 2015 at 2:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Keith Alessi Westmoreland Coal Company - CEO * Kevin Paprzycki Westmoreland Coal Company - CFO ================================================================================ Conference Call Participants ================================================================================ * Brett Levy CRT Capital - Analyst * David Gagliano BMO Capital Markets - Analyst * Mark Levin BB&T Capital Markets - Analyst * Matt Farwell Imperial Capital - Analyst * Brian Taddeo Robert W. Baird & Company, Inc. - Analyst * Lucas Pipes FBR Capital Markets - Analyst * Justin Van Vleck Linden Advisors - Analyst * Michael Goldenberg Luminus Management - Analyst * Peter Sisitsky Stonehill Capital - Analyst * Melissa Tan RW Pressprich - Analyst * Lexi Fallon Carl Marks Management - Analyst * Ashwin Veasy Venner Capital - Analyst * Alan Jacobs - Private Investor * Greg Venit Morgan Stanley - Analyst * Thomas Howard Nomura - Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good morning, ladies and gentlemen, and welcome to Westmoreland Coal Company's and Westmoreland Resource Partners LP investor conference call. (Operator Instructions) As a reminder, this conference is being recorded today, and a replay will be available as soon as practical on the investor portion of the Westmoreland site through November 26, 2015. Management's remarks today may contain forward looking statements based on the Company's projections, current expectations, and assumptions regarding it's business, the economy, and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict. The Company's actual results may differ materially from the projections given and results discussed in any such forward looking statements. Any forward-looking statements we make or comment about future expectations are subject to business risks, which was laid out for you in our press release today, as well as our previous SEC filings. Any forward looking statements represent the Company's views only as of today, and should not be relied upon as representing its views as of any subsequent date. While the Company may elect to update forward looking statements at some point in the future, it specifically disclaims any obligation to do so, even if it's estimates change, and therefore you should not rely on these forward looking statements as representing the Company's views as of any date subsequent to today. Mr. Keith Alessi, Chief Executive Officer of Westmoreland Coal Company and Westmoreland Resource Partners LP will be delivering today's remarks. Thank you, Mr. Alessi. Please begin. -------------------------------------------------------------------------------- Keith Alessi, Westmoreland Coal Company - CEO [2] -------------------------------------------------------------------------------- Good morning. Joining me this morning is Kevin Paprzycki, our CFO; as well as Jason Veenstra, who is our CFO up in Canada. This morning, I want to talk about the two press releases that went out this morning. I'm probably going to do them in reverse order, based on feedback I've received, then talk about where we are in the business and where we are in the quarter. But let me start a reverse order, and talk about the management changes that we announced in one of the emails this morning. Those of you have followed the company for some time know that, over the last nine years, I have had no less than six different titles as I have operated here with the business. And we have always flexed in and out, depending on what the needs of the business were during a particular period of time. Many of you may recall that at the time that we started engaging in conversations to purchase the Sherritt assets, I was operating as Chairman of the Board. I then came back in as CEO in August of 2014. And the announcement this morning really is just about turning over the day-to-day operations to Kevin and the other guys on the team, while I continue to focus on the things I've always focused on, which are strategy, capital structure, supporting the operations as best I can by being out in the field, and maintaining key strategic relationships with some key customers, particularly in Canada. That's not going to change here. We have come through a very strong period of due diligence, looking at potential acquisitions to grow our business. And that was driven by what the market was showing us. There were an incredible number of opportunities to bolt onto our very good base business as we looked across the landscape this past summer. And we have been fully engaged in analyzing those opportunities. Several of them we chose not to pursue, and that is a function of them not meeting our criteria. Our criteria have remained unchanged. They have to meet our business model. We have to purchase them at attractive multiples. And they have to be long term in nature. And, several of the assets that we looked at this past summer were, on the surface, very close to our business model, they were represented to us to be long-term in nature. But as we got involved in the diligence, and until you get involved in the diligence, you can't figure these things out, we could not get comfortable with either the long-term nature of their contracts, the sustainability of their customers, or the geology and cost structures of the mines going forward. So we opted to walk away from numerous opportunities that had been presented to us. So, while we were knee-deep in due diligence on deals, it did not make sense to me to change any titles or day-to-day responsibilities inside the company, because we had our hands full. As we wind down the year, we have fewer of these kinds of opportunities on the table in front of us. I believe we are moving into harvesting season. We have built an incredibly good platform, and now it's time to take and reap the benefits of what we have sown. To me, that means de-leveraging, which we have always talked about as the ultimate strategy here, with judicious bolt-ons if-and-when we can find them. So, what most of you on the phone call probably don't know is that the responsibilities that Jason and John and Kevin do on a day-to-day basis is more reflected by the titles here that we have announced this morning. They are the guys who are -- John is the guy, operationally, who is putting up the numbers. Kevin largely drives the culture and what goes on here in Denver. Jason has been a key player on the financial side of the business. So I don't see that there's any diminishment in the potency of our management team as a result of what I consider to be a title change. Now, a question was, well, Keith wanted to go back and be Chairman, again? To me, that is a title. I firmly believe that a CEO should be able to sit in a Boardroom with directors and say what he has to say without having basically his boss sitting in the room critiquing him. And so I can do all the things I do for the Company without half the sitting in a Boardroom. Boardrooms are about governance, Boardrooms are about oversight, Boardrooms are about strategy, and I will certainly be in the Boardroom when I need to be on those topics, but I think this gives the management team better flexibility to do what they've got to do. It allows me to do what I've got to do. And I don't see it as a major seat change, albeit a title change. One of the things that we've done over the years, we have been extraordinarily flat. We don't hang our head on titles. We've often described our organization chart here as a Rubik's cube. We reformulate and reformat based on the task at hand. If we are in acquisition mode, we put certain groups of people together and certain people run it. If we are in operation mode, we do something else. So this is Westmoreland. This is how we operate, and I am extraordinarily confident in the team executing the business plan that we have set out to execute. So let's move to the actual numbers and talk about the quarter. The quarter was -- I described it as a steady quarter. Third quarter is always our weakest quarter. It's our weakest quarter because of a number of things, primarily the fact that the Canadian operation has a seasonality tuned into it. That's a function of the Canadian operations getting ready for the winter months. They want to make sure those plants are in good shape. It's also a heavy maintenance spend quarter for us in Canada as we do the same: getting our equipment in good shape to be ready for the brutal weather that we're going to see any day now in the North. So this quarter on quarter versus last year's is pretty flat. And I'd just call it a steady quarter. It was not particularly warm weather quarter, it wasn't a particularly cool weather quarter. It was just there. So that as the setup then, when we look at a couple of things here and the challenges of the business that we run on a daily basis. We have laid out here for you the impact, and I consider it a one time impact, of what went on out East with our largest customer Buckingham and the MLP. Our largest customer out there. We came out of the blocks in January and February of this year with extraordinarily good numbers. It's a very nice contract. We were having great performance, and they had an unexpected shutdown of the plant. The plant stayed down through the second quarter. We were told they would be back up running in the third. As they brought it back up they experienced some vibration issues in the unit. They took it back down, they brought it back up, they took a back down. They ultimately also isolated the problem. It's a fan in one of the units. The plant is currently running at half load. They have fabricated a new fan for the other half and it's supposed to be in by mid-November. All of that combined impact on the year when we were doing guidance is probably about a $15 million impact. And we have laid that out here. All that activity we talked about that we were conducting through the year, we probably spent about $5 million on outside engineers and professionals and whatnot. And that's reflected as well, as we have narrowed the range of the guidance here. The key number to focus on in my mind is the free cash flow numbers. Those numbers because of both really good management of capital and just outstanding performance by our people in the field. We have some $1 million and multi-million dollar maintenance jobs that we ran this year that came in hundreds of thousands of dollars under budget because of good work John Schadan and all the folks in operations have done. We have been able to manage our capital very closely. And we will, as we had projected, pay all of our interest and de-lever to the tune of about $2.45 a share. As we move forward, I would see more of the same. We will continue to de-lever in the absence of what we consider to be attractive acquisition opportunities, of which I think I've already indicated. We don't see as many today as we did. Let me address San Juan. San Juan, as you can expect and I know a number of you follow this, has been under a lot of pressure from green groups who are trying to throw a monkey wrench in the approval process. The approval process moves forward. We are being polled by all parties on that end that they are optimistic this is going to approved in December. We've indicated that we are not concerned about our ability through equipment financing or other ways of debt financing to get that deal done. We will not have to issue equity, nor do we intend to. We do not intend to issue a debt that would have warrants or equitably-like aspects attached to them. So we think this will clarify itself sooner than later. And we fully expect that this transaction will get closed right at year end, which has always been the intent. With that in mind, as we move into 2016, the tasks at hand here internally will be to continue to get efficiencies everywhere we can find them. To batten down the hatches and just generate cash everywhere we can, and continue to de-lever the business. We consider San Juan to be an extraordinarily attractive transaction and one that will actually help us de-lever if and when it gets completed. So we don't see that being disruptive in any way, shape or form. Our own people have been in close communication with the BHP folks. We have a very good transition plan. And I should point out, our transition plan in the past has normally been a 30 day kind of a transition plan based on the speed at which we have done transactions. We've had a full six months to ramp up this transition plan, so we are very confident in our ability to bring that on board -- bring it on board effectively, efficiently, and quickly once all the appropriate approvals are in place. With that, I am going to turn it over to Kevin. He will walk you through in a little more detail, and as always we will open up the questions. -------------------------------------------------------------------------------- Kevin Paprzycki, Westmoreland Coal Company - CFO [3] -------------------------------------------------------------------------------- Thanks, Keith, and good morning everyone. Our third quarter EBITDA team came in right at $48 million. That was up from $41.6 million in the third quarter 2014, and that was mostly driven by the MLP acquisition. We did experience some challenges this quarter, as Keith outlined. Weather was okay. Pretty cool in July through mid-August, and then we did see a pickup there in August, September. But early on, it hit us at Jewett and hit us down at ROVA. But we didn't see an entire Q3 or what we'd call a typical peak summer demand across any of our operations for very long. We also saw the continued outage (inaudible) issues in Q3 and again that was one of the larger primary customers of Buckingham and the MLP. Our third quarter net loss came in at $46.6 million and as has been in the past, it was a leader in by some non-cash charges. We took a mark-to-market on the ROVA [forward] purchase contract. There was non-cash debt charges as we paid off the debt around the Kemmerer drop, and a fairly significant income tax expense, also non-cash. We finished the third quarter with around $29 million of cash, and that was following a decent CapEx spend of $[17] million, but we did also make over $30 million of interest payments during the quarter, which is -- the first and third quarters of the year is a little bit more heavily weighted on interest. But there was decent cash generation, absent the timing of interest payments. I wanted to spend a little time going through the year-to-date cash generation and where we stand and our views on it, since we've been getting lot of questions. We are going to focus, going forward here, on a consolidated basis as the Kemmerer drop really sort of muddies the analysis between the parent and the MLP on a standalone basis. But on a consolidated basis, our year-to-date EBITDA is $159 million. Our cash adjustments, which we've outlined in our IR deck and whatnot, basically representing [retire, medical, reclamation] and deferred revenue around $22 million. And year to date, we spent over $49 million of CapEx. So that kind of brings us to a free cash flow, as we've defined it internally around $88 million. And again, as Keith outlined, that $88 million went to $55 million of interest payments during the year, and then $36 million year-to-date of de-levering in our capital leases. Year to date, that is about a $2 a share number. Our cash did increase over the nine-month period. That was largely driven by the fact that we did upsize the term debt in Q1, and we upsized it a little bit above and beyond the requirements we had for the Buckingham acquisition, but also including some working capital needs, mostly for Buckingham but also some general ones. And again, there were some acquisition and debt fees in the year, but we also paid down the beginning of year revolver balance, which was almost $10 million. So, the cash did increase year-to-date, but it was driven mostly by those factors. Turning to the guidance update, going a little bit more detail. We are updating our consolidated full year 2015 EBITDA guidance range to $215 million to $225 million. Again I'm going to provide some detail on the drivers, but want to emphasize we view this as a series of one-time events this year. We don't see any issue with our model. We don't see any issue with our long term cash generation potential. Nor do we see any problem, here, with our ability to de-lever going forward as we have done in the past. The largest driver in the 2015 EBITDA was the outage of the Buckingham and MLP's largest customer. It hit us significantly in Q3, and we expect it's going to continue well into Q4. And that was upwards of a $15 million total impact between both Buckingham and the MLP. This is a reminder, a lot of people asked -- why so significant of an impact on a relatively small mine? But if you recall, Buckingham is not a cost plus mine. And so therefore the EBITDA and cash flows are more sensitive to volume decreases, because it's not a full cost plus, our fixed cost aren't being picked up by the customer. We did do the $5 million of business development expenses, primarily in Q3. A lot of that was also associated with the MLP drop and getting our first drop organized and getting Kemmerer down to the MLP, but a lot of us was on the potential acquisitions we looked on and passed. So you got a combined $20 million impact between those two drivers. We've also updated our CapEx guidance range for the year, and we are projecting we'll come in well towards the lower end of the range at $75.5 million I think is around that, plus or minus, is the midpoint there. I want to again emphasize the great performance the guys have done on large maintenance projects. They have beaten their estimates, challenged themselves, and come in favorable project after projects. That really helped and its really an execution rather than any kind of postponement of capital. So we've done a great job. We think this year, all of our other cash flow items will remain consistent with sort of the historical spends we have outlined for people. And so, we think this year's cash flow generation will cover -- very similar to the year to date number, it will cover our full year interest, and it's going to probably de-lever us to $2.45 a share, allowing us to pay our capital leases. We're able to do this in a year where we have seen some unfavorable weather impacts, a few large customer issues, but also in a year where we are absorbing somewhere in the $20 million range, mid $20 millions of combined cash losses from our Coal Valley operations and ROVA operations. So I think it outlines the future cash flow potential of our business once those get wound up. With that, I will hand it back to Keith and then we will go to Q&A. -------------------------------------------------------------------------------- Keith Alessi, Westmoreland Coal Company - CEO [4] -------------------------------------------------------------------------------- Let's just go right to Q&A. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Brett Levy, CRT Capital. -------------------------------------------------------------------------------- Brett Levy, CRT Capital - Analyst [2] -------------------------------------------------------------------------------- Hey. First off, Keith, congratulations on all the things you have accomplished and to all the guys at [Mid] Title, congratulations as well. First question is, with respect to the ROVA and other hopefully one time -- how long before that mid $20 millions hit fully dissipates, and what is the time span for that, as you see it? -------------------------------------------------------------------------------- Keith Alessi, Westmoreland Coal Company - CEO [3] -------------------------------------------------------------------------------- The Coal Valley operation, we have take or pay provisions with both the rail and the port that expire at the end of 2017. If we don't get clarity and visibility by, certainly, this time next year, you would wind that operation down. And that operation is about half of that number on a net cash basis, probably little bit more on a net cash basis is due to the weak export market. People say, well, why don't you wind it down sooner? Well, you have a 2 million ton take or pay situation, that's $36 million -- about $35 million, $36 million a year that your take-or-pay would be, so you run the mine as long as it's less than take-or-pay, and we don't anticipate it would get to that. So that one goes away then. 12 months later, you have ROVA roll off. There's a 36 month tale on that operation. So, that would be the time horizon of both of those. We intend to market ROVA. It's hard to say on Coal Valley what the future there is. Obviously, it will be based on export pricing. -------------------------------------------------------------------------------- Brett Levy, CRT Capital - Analyst [4] -------------------------------------------------------------------------------- Got it. And then, you have de-levered $36 million to date; the target is $44 million. You have got bonds trading at a discount. Is there any possibility that some of that number or even a higher number than that number could take place in the bond repurchasing market? -------------------------------------------------------------------------------- Keith Alessi, Westmoreland Coal Company - CEO [5] -------------------------------------------------------------------------------- We would be externally interested in repurchasing bonds if we had adequate liquidity to do so. We're focused on getting the San Juan deal done, clearly, but as we continue to generate cash into 2016, I could most definitely see us recommending to our Board a buyback of bonds. -------------------------------------------------------------------------------- Brett Levy, CRT Capital - Analyst [6] -------------------------------------------------------------------------------- Thanks very much. Those are my two. -------------------------------------------------------------------------------- Operator [7] -------------------------------------------------------------------------------- David Gagliano, BMO Capital Markets. -------------------------------------------------------------------------------- David Gagliano, BMO Capital Markets - Analyst [8] -------------------------------------------------------------------------------- Hi, thanks for taking my question. And also, thank you for clarifying on the prepared remarks. I think it's helpful. I did want to give you an opportunity really to clarify even further. Just given loss in the stock, here. And I wanted to frame it in the form of a few questions regarding 2016. Understanding that there is the no guidance out there for 2016. But I'm hoping you can put some people at ease with regards to the following questions. So the first question, is there any reason really to expect the EBITDA not to return to that $230 million to $250 million range of 2016? That's my first question. -------------------------------------------------------------------------------- Keith Alessi, Westmoreland Coal Company - CEO [9] -------------------------------------------------------------------------------- Until we issue guidance, I'd be uncomfortable answering the question. I'm not try to be evasive. We're in budgets as we speak. And obviously, the guidance will be heavily dependent upon resolution of the acquisition at San Juan. We will be out with guidance as soon as we know for certain that deal is going to get done and what time frame it will get done. -------------------------------------------------------------------------------- David Gagliano, BMO Capital Markets - Analyst [10] -------------------------------------------------------------------------------- Okay I was hoping, considering what's going on here, I am not looking for a specific number, but -- let me ask it. Are there any big outliers that would change -- -------------------------------------------------------------------------------- Keith Alessi, Westmoreland Coal Company - CEO [11] -------------------------------------------------------------------------------- I can answer this way. I would not expect that the customer at Buckingham and Oxford would have the identical and dramatic long-term prolonged outage that they experienced this year. -------------------------------------------------------------------------------- David Gagliano, BMO Capital Markets - Analyst [12] -------------------------------------------------------------------------------- Okay, all right. -------------------------------------------------------------------------------- Keith Alessi, Westmoreland Coal Company - CEO [13] -------------------------------------------------------------------------------- and I don't think that we will have nearly the level of diligence on potential deals the next year. So that's helpful. -------------------------------------------------------------------------------- David Gagliano, BMO Capital Markets - Analyst [14] -------------------------------------------------------------------------------- Okay, that's helpful. And think that gets us going in the right direction. And then just my follow up, the I'm going to as a two-part follow-up, part A and part B. So part A, I was wondering, I was wondering if you could tell us, you mentioned in the beginning? What happened in terms of the ramp up at the Ohio plants, so my first part of the question is, what happened at the beginning? What was the unexpected outage? Was it an operational outage in the beginning of the second quarter that took that the facility down, or was it something else? -------------------------------------------------------------------------------- Keith Alessi, Westmoreland Coal Company - CEO [15] -------------------------------------------------------------------------------- No, it's all the same issue. They were experiencing vibration in the unit, and that's what took it down. It's just taken an extraordinarily long time to get it repaired. The first repair didn't take. -------------------------------------------------------------------------------- David Gagliano, BMO Capital Markets - Analyst [16] -------------------------------------------------------------------------------- Totally understandable, makes sense. And then part B of the question, one thing the implied margins per ton in the third quarter in the US, when you separate just the implied margins per ton, were pretty low. And I'm wondering, what was happening to cause that? It was around two (inaudible), 6 million tons, $50 million of EBITDA. That's a pretty low number. I'm wondering what's going on, there? -------------------------------------------------------------------------------- Keith Alessi, Westmoreland Coal Company - CEO [17] -------------------------------------------------------------------------------- I think it's just a general mix issue. Between the mines. Well, I guess David, it depends on which segment you're looking on. There is also an aspect of Kemmerer dropping down into the MLP. So I think you just got that mixed with just general mix and volume issues. You have a couple shutdowns of customers that were down for a little bit longer, and a couple that were up. Buckingham will fall into the US too, and so that outage is going to -- it really impacted the margin per ton as well. -------------------------------------------------------------------------------- David Gagliano, BMO Capital Markets - Analyst [18] -------------------------------------------------------------------------------- So moving forward, should that recover? -------------------------------------------------------------------------------- Kevin Paprzycki, Westmoreland Coal Company - CFO [19] -------------------------------------------------------------------------------- Let me put it this way, on all the operations that weren't impacted by either weather or the outages, margins were consistent with what they've always been. -------------------------------------------------------------------------------- Keith Alessi, Westmoreland Coal Company - CEO [20] -------------------------------------------------------------------------------- There's been no change in our cost structure nor our contracts that would cause that to occur. It's mix and timing. And the dynamics Kevin talked about. -------------------------------------------------------------------------------- David Gagliano, BMO Capital Markets - Analyst [21] -------------------------------------------------------------------------------- Was that -- by any chance, was that $5 million of M&A sort of expenses, did that flow-through the US operation -- was that allocated to any of the --? -------------------------------------------------------------------------------- Kevin Paprzycki, Westmoreland Coal Company - CFO [22] -------------------------------------------------------------------------------- I think it predominantly would've hit in the US. -------------------------------------------------------------------------------- David Gagliano, BMO Capital Markets - Analyst [23] -------------------------------------------------------------------------------- Okay. All right, thanks very much. -------------------------------------------------------------------------------- Operator [24] -------------------------------------------------------------------------------- Mark Levin, BB&T. -------------------------------------------------------------------------------- Mark Levin, BB&T Capital Markets - Analyst [25] -------------------------------------------------------------------------------- Hello. I want to return back to the 2016 conversation, realizing that you are not prepared to give guidance, and, obviously, David just asked a question around that. I just want to think from a big picture perspective, if we assumed EBITDA wasn't materially different next year than this year, and Keith, if I recall at our St. Louis conference, you'd mentioned that you felt like that that was a reasonable starting point. So if we assume that, and we assume -- you seem reasonably confident, I suppose, that San Juan will close before year end. Let's just hypothetically throwing numbers out there, put that around $60 million or so, you could be looking at potentially $300 million of EBITDA next year. Is that a completely outlandish way to think of it? Which is to say, that if you've got San Juan, and things were just not materially different next year than this year, that you could be approaching that level and that you're free cash flow would be, I think the previous guidance that you have put out prior to this release this morning was around $70 million. But just assuming San Juan generated a cash flow in the neighborhood of half of EBITDA, would get you to free cash of around $100 million, and that's even before you get some working capital return back to you. So am I thinking about this just completely wrong, in terms of the way the future looks? -------------------------------------------------------------------------------- Keith Alessi, Westmoreland Coal Company - CEO [26] -------------------------------------------------------------------------------- Well, I don't think structurally you are. I am not sure that I would concur with necessarily the San Juan EBITDA number. I think that, again, I have to be cautious here because we have not issued guidance, but I can -- I'm fairly confident that the upper end of our range next year would not have a three in front of it. -------------------------------------------------------------------------------- Mark Levin, BB&T Capital Markets - Analyst [27] -------------------------------------------------------------------------------- Okay. Fair enough. But you would be in the upper two's I would imagine, no? -------------------------------------------------------------------------------- Keith Alessi, Westmoreland Coal Company - CEO [28] -------------------------------------------------------------------------------- I can't really answer. -------------------------------------------------------------------------------- Mark Levin, BB&T Capital Markets - Analyst [29] -------------------------------------------------------------------------------- Fair enough. Fair enough. I'll back off of that. Let me pursue another question, which is obviously San Juan, but there are several other smaller M&A opportunities that are out there that I would imagine fit sort of the Westmoreland type profile. One of them is north of the border, Highvale, another one is called Navajo. You had mentioned before that you looked at a lot of different deals. Are we to assume that -- is it deals like these, which would be -- I would imagine be much, much smaller; might require much less capital. Are they included in that, or do you feel any less positive or negative about smaller deals like the ones I just mentioned? Potentially? -------------------------------------------------------------------------------- Keith Alessi, Westmoreland Coal Company - CEO [30] -------------------------------------------------------------------------------- I wouldn't necessarily call them smaller deals. The two deals you refer to are both contract mining situations, so they involve little or no capital. Because you go in and run a mine with somebody else's equipment. That said, they are much narrower margin because you don't have any risks. And they're also much more competitive bidding processes, because there's a whole lot of people who would gladly just go in and run somebody else's equipment. So yes, they are included in opportunities and I wouldn't say they are insignificant, but they certainly are not capital intensive because of the contract mining nature of them. -------------------------------------------------------------------------------- Mark Levin, BB&T Capital Markets - Analyst [31] -------------------------------------------------------------------------------- And how quickly might we, or not, find out about opportunities like these? These smaller opportunities? -------------------------------------------------------------------------------- Keith Alessi, Westmoreland Coal Company - CEO [32] -------------------------------------------------------------------------------- The two your reference should have resolution by the end of this year. -------------------------------------------------------------------------------- Mark Levin, BB&T Capital Markets - Analyst [33] -------------------------------------------------------------------------------- By the end of this year, and are you feeling confident one way or do you care to hazard a guess as to whether or not you're feeling good or worse about this? -------------------------------------------------------------------------------- Keith Alessi, Westmoreland Coal Company - CEO [34] -------------------------------------------------------------------------------- Well, from what we've been told, they are going to make their decisions by the end of the year. So I am only going on what we been told. Handicapping is difficult, but I would say it's a 50/50 kind of proposition anytime you're involved in an open bidding process. -------------------------------------------------------------------------------- Mark Levin, BB&T Capital Markets - Analyst [35] -------------------------------------------------------------------------------- Got it, fair enough. And then the final question just is a more of a big picture question around Canada. Obviously a lot has happened North of the border from a political perspective as it relates to coal. Specifically in Alberta, and then more broadly with the elections last week in Canada. I'm wondering how you feel like Westmoreland is positioned vis-a-vie some of the changing stuff that is going on up there. My look at some of their plants in Alberta, you tend to have pretty efficient plants that wouldn't seem to be targeted, at least under some of the initial proposals that we've seen. But I just wanted to give you a chance to maybe talk about how you view the Canadian market going forward in this changing world, and how that might impact strategy, going forward? -------------------------------------------------------------------------------- Keith Alessi, Westmoreland Coal Company - CEO [36] -------------------------------------------------------------------------------- That's a great question. I think the first place you have to start with is understanding that the Canadian governmental model is much different than our own. We become so used to these nonstop mandates coming out of Washington and the bureaucracy issuing proclamations and rules on the agencies, that's not at all how the Canadian market works politically in terms of natural resource management. Natural resource management is much more a provincial versus a federal sort of thing. We don't believe that the election of last Tuesday really changes anything. This government is in all likelihood, in fact we are fairly certain, will follow whatever the government in Alberta proposes. The Alberta proposals that -- and we been a part of it, by the way. John Schadan has testified in front of their environmental committee. We have a seat at that table -- is likely to impact other people versus us, for the reasons that you mentioned. The plant, primarily Genesee, that we supply is one of the most efficient in all of Canada. And we don't see impact on that facility. We have a couple of smaller plants that we supply in Alberta that are due to retire from 2020, maybe through the 2025 timeframe, and they have always been modeled in our numbers. We don't see any dramatic impact there. The bulk of our EBITDA in Canada comes out of Saskatchewan, and Saskatchewan has very coal friendly government and regulations, and they have made the investment in carbon capture and are likely to continue to do so. So we don't say over the short term horizon, or even in the intermediate horizon, any material change to what we had projected going on up there. -------------------------------------------------------------------------------- Mark Levin, BB&T Capital Markets - Analyst [37] -------------------------------------------------------------------------------- Great. Thanks. -------------------------------------------------------------------------------- Operator [38] -------------------------------------------------------------------------------- Matt Farwell, Imperial Capital. -------------------------------------------------------------------------------- Matt Farwell, Imperial Capital - Analyst [39] -------------------------------------------------------------------------------- Hey good morning. Just some questions on Cowansville. I'm wondering if the outages have affected the MLP operations at all? Your numbers for WMLP seem to be in line with my estimates. So is this really primarily a Buckingham issue? And then secondly, as long as this issue goes on, and of course it lasted longer than expected, but could you give us an idea of what the EBITDA loss would be at Buckingham for as long as Cowansville is undergoing this outage? -------------------------------------------------------------------------------- Keith Alessi, Westmoreland Coal Company - CEO [40] -------------------------------------------------------------------------------- I think we shown what it is in the press release. It has affected both. It has taken some upside off of the MLP. AEP has been an extraordinarily good partner, there, and has helped us move some tons through the MLP that would've gone to that unit, as well. So you're right, it doesn't appear on the surface that it's impacted the MLP, but it robbed it of some upside. So the total impact of the outages, as expressed in the release, about $15 million. Versus what we had guided towards. We actually, based on how it was coming out of the box early in the year, would have probably exceeded for that component of our guidance. We would've exceeded that number. -------------------------------------------------------------------------------- Matt Farwell, Imperial Capital - Analyst [41] -------------------------------------------------------------------------------- So the outages occurred over three quarters, so about $5 million a quarter? -------------------------------------------------------------------------------- Keith Alessi, Westmoreland Coal Company - CEO [42] -------------------------------------------------------------------------------- Yes, that's a way to look at it. -------------------------------------------------------------------------------- Matt Farwell, Imperial Capital - Analyst [43] -------------------------------------------------------------------------------- Okay, and then you had mentioned in the past the cash flow impact from the export mine, and given the drop in pricing, could you just -- you had mentioned about a $15 million hit on free cash flow from that mine, what Newcastle price were you seeing at that point, and what kind of Newcastle prices does the mine see, today? -------------------------------------------------------------------------------- Keith Alessi, Westmoreland Coal Company - CEO [44] -------------------------------------------------------------------------------- Well, keep in mind that the prices -- the Newcastle prices you see, those aren't the price that you necessarily ship at. These orders are placed ahead of time. We've worked -- because you have to get shipping in place and everything else. So this is not, you ring the register based on today's price. A lot the contracted tons out of there were contracted earlier in the year. Especially through our Japanese accounts and are closer to the Japanese reference price versus Newcastle. So as we look at it -- I think the better way to look at this thing, we've got [Travigera], who's our partner at the mine in terms of marketing those tons. They show us everything that they've got, and we look on a load-to-load basis of what makes the math and what doesn't. So, we are not always tied to Newcastle. What I can tell you is that as the year has progressed, we have trimmed the cash loss each quarter in that operation. That's even in the face of declining topline per-ton numbers. We've been able to get our costs down even more. So the range that we projected is, I would think, as things sit today, the top end of that number, I'm optimistic we can manage to lower than that number, moving forward. -------------------------------------------------------------------------------- Matt Farwell, Imperial Capital - Analyst [45] -------------------------------------------------------------------------------- Great. Thanks for taking my questions. -------------------------------------------------------------------------------- Operator [46] -------------------------------------------------------------------------------- Brian Taddeo, Robert W. Baird. -------------------------------------------------------------------------------- Brian Taddeo, Robert W. Baird & Company, Inc. - Analyst [47] -------------------------------------------------------------------------------- Good morning, everyone. A couple for me. First, with regards to the guidance numbers. Obviously the big one is the outages, but there's probably another $10 million, $15 million in that range of additional reduction in the guidance from the mid to upper end. Can you just help me bridge what those are, and how many of those -- how much that could be one time items, or actual operational items? -------------------------------------------------------------------------------- Kevin Paprzycki, Westmoreland Coal Company - CFO [48] -------------------------------------------------------------------------------- Well, you know, again, the big two drivers where the Ohio customer outage and the M&A efforts, but compared to where we laid out the year in the guidance, while we made improvements at Coal Valley, that price is lower. So that Coal Valley is a big piece of it. I think probably Ohio and just general pricing and market conditions there. We've trimmed the tons back, but it's a challenging market beyond the key customers and the longer term contracts there. So that's a piece of it. And then again, I think as Keith said it, was an okay weather year, but this certainly hasn't turned out to be a typical summer for us. So I think that we lost some of the upside with a typical hot summer would bring growth across all of our mining operations, but also in ROVA. And there's a couple of other scattered smaller outages amidst all of our customers, across the board. So I think it's just a mix of a lot of probably smaller things, Brian. -------------------------------------------------------------------------------- Brian Taddeo, Robert W. Baird & Company, Inc. - Analyst [49] -------------------------------------------------------------------------------- Were any of the assets, any of your customers' assets, down at all for economic reasons, given where commodity prices are? I know you're pretty competitive in most cases, but was anybody down, because they weren't competitive? They switched -- still switching, et cetera? -------------------------------------------------------------------------------- Kevin Paprzycki, Westmoreland Coal Company - CFO [50] -------------------------------------------------------------------------------- No, any type of reduction in their fuel take and their electricity production would have just been operational. So again, it goes back to the point that we believe all of our customers are generating power way below natural gas levels. We don't see any displacement. We haven't seen anything other than the operational issues we have outlined. -------------------------------------------------------------------------------- Brian Taddeo, Robert W. Baird & Company, Inc. - Analyst [51] -------------------------------------------------------------------------------- And then if I could just ask one on San Juan. Obviously, given where bonds are trading, banks debts trading, et cetera, what things are you looking at, or how are you thinking about the financing aspects of that as it gets completed here, given just general market conditions and where securities are turning? -------------------------------------------------------------------------------- Kevin Paprzycki, Westmoreland Coal Company - CFO [52] -------------------------------------------------------------------------------- We expect to give some give some announcements out there soon on what our plans are going forward. But given where we are and that whole process, I think legally it's tough for us to announce any more specifics about what we are doing exactly. But I think overall, again as Keith said initially in his opening comments, I think there is a path here that gets us done on the deal with debt financing at rates that will work, given the attractiveness of this asset. Looking at the cash flows, especially in first two years, that will come from this asset, I think there's a very solid return here and a value in it. -------------------------------------------------------------------------------- Brian Taddeo, Robert W. Baird & Company, Inc. - Analyst [53] -------------------------------------------------------------------------------- Got it. One last one, this is a bigger picture. With regard to your conversations with customers, we've seen in the past, [not in three] and talk about that being converted to natural gas, are you hearing any new talk from customers at plants, even though they're economic, as part adjust the broader environmental considerations that units are being looked at shutting down or being converted, et cetera? There is a lot of talk out there on Coal Strip one and two. So, if you could just provide any general comments around that, that would be great. Thanks -------------------------------------------------------------------------------- Keith Alessi, Westmoreland Coal Company - CEO [54] -------------------------------------------------------------------------------- The short answer is no. We've had no conversations along those lines. -------------------------------------------------------------------------------- Brian Taddeo, Robert W. Baird & Company, Inc. - Analyst [55] -------------------------------------------------------------------------------- Okay. Thanks. -------------------------------------------------------------------------------- Operator [56] -------------------------------------------------------------------------------- Lucas Pipes, FBR Capital Markets. -------------------------------------------------------------------------------- Lucas Pipes, FBR Capital Markets - Analyst [57] -------------------------------------------------------------------------------- Good morning, everyone, and congratulations, Kevin. I wanted to peel the onion maybe a little bit further on WMLP. And I understand that the table that you provided, there is probably some noise in there because of the acquisitions. But when I think about the September quarter for both 2015 and 2014, could you remind us? Does this include all of Kemmerer in both periods? And then does it include also three months of the former Oxford assets in both quarters? -------------------------------------------------------------------------------- Kevin Paprzycki, Westmoreland Coal Company - CFO [58] -------------------------------------------------------------------------------- You know, Lucas, one of the things that we found pretty challenging here is the GAAP requirements and the reporting requirements around this MLP drop. Because the gap requirements force you to go back and restate the dip the drop was in both periods, and that's why we -- what we have done in the financial statements is show the actuals for Q3, 2015 here, show the two month benefit of having Kemmerer down there, and that's through two months of operation that we dropped right at the end of July. But on the pro-forma, we have gone back and restated as if the combined entity were historical. So there's a little bit of apples and oranges there. And we are in the process of finalizing those here between now and year-end exactly how we report on that. So we tried to put a pro-forma in there in the MLP release that enhances our comparability. -------------------------------------------------------------------------------- Lucas Pipes, FBR Capital Markets - Analyst [59] -------------------------------------------------------------------------------- Okay. So I used to think of Kemmerer as a -- call it around $40 million $45 million EBITDA operation. So essentially, that would imply, if that is accurate, then it would mean that there is relatively little EBITDA in the former -- what I would call the former Oxford assets. Could you maybe elaborate on that? And then I have one more follow up from there. -------------------------------------------------------------------------------- Kevin Paprzycki, Westmoreland Coal Company - CFO [60] -------------------------------------------------------------------------------- Yes, and I think it's worth noting, too, in the second quarter we were talk about some of the mining challenges in Kemmerer and they came roaring back and had a great Q3. So the MLP saw the benefit of that. But we also did see, in the MLP, it was not immune from the customer outage. So we saw some of that. Again, as I outlined one of the impacts in our guidance ranges is the pricing and market conditions there. So while our core key customer contracts remain pretty strong, there's not a lot of incremental business there that's worth taking. And so we continue to manage that on a cash flow basis, which I think is the right thing to do, as opposed to just trying to chase revenue and EBITDA. -------------------------------------------------------------------------------- Lucas Pipes, FBR Capital Markets - Analyst [61] -------------------------------------------------------------------------------- Got it, and since that part of the business works a little bit differently from a contractual basis, could you share with us how contracted your business is for 2016, and so what exposure we could maybe see on that part of the business? Just potentially contracts rolling off and such. -------------------------------------------------------------------------------- Kevin Paprzycki, Westmoreland Coal Company - CFO [62] -------------------------------------------------------------------------------- I think with the key -- I don't have the number of front of me, Lucas, but I think with the key customer contracts, I think we're somewhere in the 50% to 60% contracted range for next year, and I think that will probably go up, here, in the next three months. -------------------------------------------------------------------------------- Lucas Pipes, FBR Capital Markets - Analyst [63] -------------------------------------------------------------------------------- Got it. All right well, I could go on, but I will jump back in the queue. Thank you. -------------------------------------------------------------------------------- Operator [64] -------------------------------------------------------------------------------- Justin Van Vleck, Linden Advisors. -------------------------------------------------------------------------------- Justin Van Vleck, Linden Advisors - Analyst [65] -------------------------------------------------------------------------------- Hello. My questions have been answered, thanks. -------------------------------------------------------------------------------- Operator [66] -------------------------------------------------------------------------------- Michael Goldenberg, Luminus Management. -------------------------------------------------------------------------------- Michael Goldenberg, Luminus Management - Analyst [67] -------------------------------------------------------------------------------- Good morning. I have wanted to ask about Buckingham. Since the plant has stopped experiencing -- operation, as they said, is back up online. What's capacity (inaudible) for the plant? -------------------------------------------------------------------------------- Kevin Paprzycki, Westmoreland Coal Company - CFO [68] -------------------------------------------------------------------------------- For the mine? -------------------------------------------------------------------------------- Michael Goldenberg, Luminus Management - Analyst [69] -------------------------------------------------------------------------------- Well, for the mine sorry. -------------------------------------------------------------------------------- Kevin Paprzycki, Westmoreland Coal Company - CFO [70] -------------------------------------------------------------------------------- Yes, we have right sized that mine at about 1.1 million tons. Prior ownership was running at a much higher number, at much higher cost, and unprofitably in a lot of ways. So our whole strategy around Buckingham was to serve the first million or so tons on the contract out of that mine, and the remainder of it going over to Buckingham. And that's a requirements contract for 1.1 million tons. We believe that would of done about 1.7 million this year, based on what the original projections were pre-outage. -------------------------------------------------------------------------------- Michael Goldenberg, Luminus Management - Analyst [71] -------------------------------------------------------------------------------- I am trying to understand. I guess now that the outage is over, is the plant back up to what originally was planned? Or is there some ongoing issue? -------------------------------------------------------------------------------- Kevin Paprzycki, Westmoreland Coal Company - CFO [72] -------------------------------------------------------------------------------- The outage is not over yet. They are coming up mid-November. We do not have the ability to stockpile mass quantities of coal at that mine. So the mine is not operating at a very high level while we were waiting for the customer to come back up. -------------------------------------------------------------------------------- Michael Goldenberg, Luminus Management - Analyst [73] -------------------------------------------------------------------------------- Right. So the customer, when the customer comes back, do you feel like the capacity of the customer will be the same as it was before, or are we to believe that there is been a permanent shift? -------------------------------------------------------------------------------- Kevin Paprzycki, Westmoreland Coal Company - CFO [74] -------------------------------------------------------------------------------- No, this is a key plant for them, and a very profitable and well scrubbed plant. This plant will go right back up to where it's historically been. It's just been working its way through this maintenance issue. -------------------------------------------------------------------------------- Michael Goldenberg, Luminus Management - Analyst [75] -------------------------------------------------------------------------------- Okay. My other question is on overall guidance in 2015. In hindsight, now that we have nine months of the year behind us, was the original guidance based on everything hitting right on all cylinders or was there slack in case of some of these one time things were to go wrong? -------------------------------------------------------------------------------- Kevin Paprzycki, Westmoreland Coal Company - CFO [76] -------------------------------------------------------------------------------- Well, certainly the top side of any guidance range assumes everything goes perfect, and the bottom is below where you think you're going to come in. I don't know anybody who gives guidance that doesn't do it that way. But there is a whole, so the top side was certainly in optimistic outlook on the world. And as the year has rolled out, it has rolled out in the way it has, and we have made the adjustments as we have discussed, and we have talked at length about the key components of why it is where it is now. But I think is interesting to point out that even if you go back to the initial guidance and look at the best case scenario being highest end of the EBITDA and lowest end of capital, and the worst case scenario being lowest end of EBITDA and highest end of capital, we are still in within those range of outcomes. -------------------------------------------------------------------------------- Michael Goldenberg, Luminus Management - Analyst [77] -------------------------------------------------------------------------------- So, my ultimate question, when you think about 2016 guidance, I'm not going to about the actual guidance, is there anything you've gleaned from 2015 guidance in terms of approach to giving guidance that may have changed over the last nine months, just structurally in how you put together guidance? -------------------------------------------------------------------------------- Kevin Paprzycki, Westmoreland Coal Company - CFO [78] -------------------------------------------------------------------------------- We are certainly going to review it, and review it, and review it again. My guess is, we will probably go with a narrower range next year and perhaps not look as much at upside scenarios. But I think the takeaway I would have is that the base business is what it has always been, a long-term contracted, predictable base. Interestingly, Buckingham is the one asset in the portfolio that is cost protected, but it's not a cost-plus. Had it been a cost-plus contract, it wouldn't have been a deviation. But that's just the way those work, and these things happen. But I don't think our guidance methodology was flawed, if that's the question. -------------------------------------------------------------------------------- Michael Goldenberg, Luminus Management - Analyst [79] -------------------------------------------------------------------------------- But what you are saying is in 2015, just for argument sake, you would of given guidance of $100 million to $110 million, maybe for next year we do just $100 to $105? Just to be more (inaudible) with the upper end? -------------------------------------------------------------------------------- Kevin Paprzycki, Westmoreland Coal Company - CFO [80] -------------------------------------------------------------------------------- I'm not sure where the $100 million number comes from. -------------------------------------------------------------------------------- Michael Goldenberg, Luminus Management - Analyst [81] -------------------------------------------------------------------------------- I am just throwing completely random numbers, like if you issued guidance of $100 to $110, these days you would more likely do guidance of $100 to $105? -------------------------------------------------------------------------------- Kevin Paprzycki, Westmoreland Coal Company - CFO [82] -------------------------------------------------------------------------------- Maybe. We will explain our methodology when we release guidance. That's for certain. -------------------------------------------------------------------------------- Michael Goldenberg, Luminus Management - Analyst [83] -------------------------------------------------------------------------------- Understood. Thank you very much. -------------------------------------------------------------------------------- Operator [84] -------------------------------------------------------------------------------- Peter Sisitsky, Stonehill Capital. -------------------------------------------------------------------------------- Peter Sisitsky, Stonehill Capital - Analyst [85] -------------------------------------------------------------------------------- Thank you. A lot of my questions have been answered, but the one that I'm curious about is to understand the movement in capital with the drop down. I believe you put, you put some of the purchase price for Kemmerer on term loan down at WMLP. That cash flowed up. Did you retire some of the term loan, or when we talk about the $36 million of de-leveraging, that includes everything? -------------------------------------------------------------------------------- Kevin Paprzycki, Westmoreland Coal Company - CFO [86] -------------------------------------------------------------------------------- No, when we're talking about the $36 million year to date, we're only including the capital leases. So we're approaching it a more on a consolidated basis. So we raises the debt at the MLP and then retired the term loan, but I haven't factored that in. -------------------------------------------------------------------------------- Peter Sisitsky, Stonehill Capital - Analyst [87] -------------------------------------------------------------------------------- Can you just give us a scale of that movement between the term loan at the parent and WMLP? -------------------------------------------------------------------------------- Kevin Paprzycki, Westmoreland Coal Company - CFO [88] -------------------------------------------------------------------------------- I think we borrowed roughly $115 million, and I think we've paid down roughly $100 million. The $15 million was swept through our revolver there at mid-year, so that's also one of the kind of working capital changes and the pay down of the revolver that I referenced earlier on cash. -------------------------------------------------------------------------------- Peter Sisitsky, Stonehill Capital - Analyst [89] -------------------------------------------------------------------------------- Okay. Great that's very helpful. Thank you. -------------------------------------------------------------------------------- Operator [90] -------------------------------------------------------------------------------- Melissa Tan, RW Pressprich. -------------------------------------------------------------------------------- Melissa Tan, RW Pressprich - Analyst [91] -------------------------------------------------------------------------------- Good morning. Thanks for taking my questions. First one is just regarding -- you mentioned a lot about you're not seeing as much M&A opportunities going forward. What about potential dropdowns? Do you still foresee something in the pipeline, maybe in the next 12 months or so? -------------------------------------------------------------------------------- Kevin Paprzycki, Westmoreland Coal Company - CFO [92] -------------------------------------------------------------------------------- As you know, historically there has been an arbitrage between cost of capital in an MLP and at the parent. That is not present at the moment. Certainly, we do not execute another dropdown until we felt that it would overall reduce our cost to capital. So I don't, I think that's going to be driven exclusively by market conditions. Given a market conditions today, we have no plans to execute a dropdown until that recovers. -------------------------------------------------------------------------------- Melissa Tan, RW Pressprich - Analyst [93] -------------------------------------------------------------------------------- Okay, thank you. And the next one is just related to the Buckingham, and also just related to in general of customer plant outages. I mean what type of scenario would you be able to recover insurance proceeds for such outages? It's my understanding there will be some sort of take-or-pay contract with the customers, and if they do declare some outages, you will be reimbursed for certain amounts? -------------------------------------------------------------------------------- Kevin Paprzycki, Westmoreland Coal Company - CFO [94] -------------------------------------------------------------------------------- Business interruption insurance is only collectible when there is an insurable event that occurs. So if the plant had an explosion, which is an insurable event at their end, that is a BI claim. If it is a maintenance issue, which this has been, it's not covered under BI. And we have had both of those types of situations over the years. Some we've had have been covered by BI and others have been maintenance and so they are not covered. These are requirements contracts, not take-or-pay. So we don't have take-or-pay provisions in our contracts. -------------------------------------------------------------------------------- Melissa Tan, RW Pressprich - Analyst [95] -------------------------------------------------------------------------------- okay. Thank you. That's all. -------------------------------------------------------------------------------- Operator [96] -------------------------------------------------------------------------------- Lexi Fallon, Carl Marks Management. -------------------------------------------------------------------------------- Lexi Fallon, Carl Marks Management - Analyst [97] -------------------------------------------------------------------------------- All my questions are answered, thank you. -------------------------------------------------------------------------------- Operator [98] -------------------------------------------------------------------------------- David Gagliano, BMO Capital Markets. -------------------------------------------------------------------------------- David Gagliano, BMO Capital Markets - Analyst [99] -------------------------------------------------------------------------------- Great thanks. Thanks for staying on so long and taking all the questions, by the way. -------------------------------------------------------------------------------- Keith Alessi, Westmoreland Coal Company - CEO [100] -------------------------------------------------------------------------------- We will stay as long as they are coming. -------------------------------------------------------------------------------- David Gagliano, BMO Capital Markets - Analyst [101] -------------------------------------------------------------------------------- Oh, we're going be here all day. (Laughter) The follow-up is tied to the comment made earlier. I just wanted to try and gauge repricing risk for 2016. I think, Kevin, you mentioned 50% to 60% is priced in Ohio? I was wondering if you could give us some volumes price of what is and -- is exposed to pricing, and what the average price, if you give us a sense of the average price, for the contracts that are rolling off and also geographically where those contracts are? -------------------------------------------------------------------------------- Kevin Paprzycki, Westmoreland Coal Company - CFO [102] -------------------------------------------------------------------------------- I don't -- put it this way, I'd rather focus on the bigger picture, which is, those Ohio operations have some really good long term contracts. And those contracts are at pretty solid prices. And the rest of the business is more shorter term in nature and would be going to the market. So I think roughly 60% of the tons that we do, if you want to say that's a mid 3 million to 4 million ton historical operation kind of. It's a -- you're going to have about half of that, maybe 60% of that, is going to be under contract, pretty solid pricing and pretty solid customers. I think the rest of it is probably a little bit more at risk to the market pricing. So you probably got -- and that's right now. I know there's contracts our sales guide and operations guys are looking at right now in renewing. But I think right now you're looking at probably a lower $40 level compared to where the Appalachian prices were a year ago. -------------------------------------------------------------------------------- David Gagliano, BMO Capital Markets - Analyst [103] -------------------------------------------------------------------------------- Okay. So again, a couple million tons -- we're talking about a couple million tons, lower $40 level now, and is that $10 a ton lower than last year, we're talking about? -------------------------------------------------------------------------------- Kevin Paprzycki, Westmoreland Coal Company - CFO [104] -------------------------------------------------------------------------------- When you say lower than last year, you are talking about 2015 versus 2016? -------------------------------------------------------------------------------- David Gagliano, BMO Capital Markets - Analyst [105] -------------------------------------------------------------------------------- Yes, you said the prices are in the lower $40's. -------------------------------------------------------------------------------- Kevin Paprzycki, Westmoreland Coal Company - CFO [106] -------------------------------------------------------------------------------- I don't think it's $10 a ton, because I think we are seeing the lower prices pretty consistently throughout this year. -------------------------------------------------------------------------------- Keith Alessi, Westmoreland Coal Company - CEO [107] -------------------------------------------------------------------------------- We've walked away from business that was not at numbers that made any sense. -------------------------------------------------------------------------------- David Gagliano, BMO Capital Markets - Analyst [108] -------------------------------------------------------------------------------- Okay. Again, just trying to avoid the surprises on the 2016 outlook. So that's really the purpose for the question. All right. I'll leave it at that. Thanks. -------------------------------------------------------------------------------- Operator [109] -------------------------------------------------------------------------------- [Ashwin Veasy, Venner Capital]. -------------------------------------------------------------------------------- Ashwin Veasy, Venner Capital - Analyst [110] -------------------------------------------------------------------------------- Appreciate you taking the questions. I just had a couple of quick ones. With respect to the notice from the Alberta -- or the Canadian regulators at Coal Valley the came out last week, I just want to confirm that 100% of any findings or liabilities there it's all on share, and there's nothing that effects Westmoreland whatsoever with respect to that. -------------------------------------------------------------------------------- Kevin Paprzycki, Westmoreland Coal Company - CFO [111] -------------------------------------------------------------------------------- I'm glad you brought that up. Yes, those all relate to -- those charges all relate to activity under Sherritt's ownership. Sherritt pays us back for all the work we do on their behalf. It has, it's not an issue for us. -------------------------------------------------------------------------------- Ashwin Veasy, Venner Capital - Analyst [112] -------------------------------------------------------------------------------- Okay great. And then my second question is, you know we obviously applaud the commentary about de-levering and strengthening the balance sheet a bit. I was curious to see, are there any limitations as far as buying back bonds or anything like that that, in other portions of the of your credit facilities, that would limit your ability to go out and execute that? Or is it more limited to the levels of Board's approved and then free cash flow? Just trying to understand the constraints against the debt pay down for next year, as we think about the free cash flow profile that should look pretty decent? -------------------------------------------------------------------------------- Kevin Paprzycki, Westmoreland Coal Company - CFO [113] -------------------------------------------------------------------------------- We had talked a while back about the constraints about buying equity, but we don't have those constraints or really any constraints about buying back the bonds. I think all of our debt facilities view that as -- de-levering is favorable. So it's basically just, based on the cash flow we generate. -------------------------------------------------------------------------------- Ashwin Veasy, Venner Capital - Analyst [114] -------------------------------------------------------------------------------- Okay great. Thanks. -------------------------------------------------------------------------------- Operator [115] -------------------------------------------------------------------------------- Alan Jacobs, a Private Investor. -------------------------------------------------------------------------------- Alan Jacobs, - Private Investor [116] -------------------------------------------------------------------------------- Hello, how are you doing? -------------------------------------------------------------------------------- Keith Alessi, Westmoreland Coal Company - CEO [117] -------------------------------------------------------------------------------- Good. -------------------------------------------------------------------------------- Alan Jacobs, - Private Investor [118] -------------------------------------------------------------------------------- Yes, my question, I have a couple of questions. San Juan, I read the whole contract. It was out there, mistakenly printed in the New Mexico newspaper. The fact that is out there in the public domain, are we still not allowed to really talk about that? Because I have a few questions with that. -------------------------------------------------------------------------------- Keith Alessi, Westmoreland Coal Company - CEO [119] -------------------------------------------------------------------------------- I don't know what it is you want to talk about. What's in that document just tells you what we bought it for, it doesn't tell you anything about what our cost structure is. -------------------------------------------------------------------------------- Alan Jacobs, - Private Investor [120] -------------------------------------------------------------------------------- Right, but somewhere there was a number thrown out that the first two years will be around $60 million EBITDA, is that not correct? -------------------------------------------------------------------------------- Keith Alessi, Westmoreland Coal Company - CEO [121] -------------------------------------------------------------------------------- You didn't read that in any contract. And we haven't stated that. -------------------------------------------------------------------------------- Kevin Paprzycki, Westmoreland Coal Company - CFO [122] -------------------------------------------------------------------------------- I think there are analyst's out there, Alan, who have done a pretty thorough job and come up with those estimates, but the bottom line is we're still bound by the nondisclosure agreement that we can't speak about it, any of the details until we close. So the contracts are out there, I think. It's helpful that you can see the price and the coal supply agreement, but you don't know the cost structure so you can't translate that EBITDA. And you can see the purchase price, but other than that, I don't think it's we can't really offer more color and I don't think that information's that helpful. -------------------------------------------------------------------------------- Alan Jacobs, - Private Investor [123] -------------------------------------------------------------------------------- Okay. So okay. I understand that. So we really -- from the way I sit here, and I've been in the stock 18 years, and I've spoke about it and written about it and talked about short-sellers and whatnot. I guess, we really -- a lot of people on this call need to have a question answered about the stock price. You see where we are trading right now, where we've been in the morning, and so I have a couple of questions related to that. A: How are we going to bury these short-sellers who seem to be pretty good in their trade right now? And B: Keith put back some stock in the open market not that long ago at $23.95. So when and if will you be able to go back to the market? I understand you're in position of material information, but do you intend to personally by back more shares? Do other insiders to intend to buy back more shares, and I guess I would like you to tell about the value in our stock and what you see here to make our stock rebound, basically? -------------------------------------------------------------------------------- Keith Alessi, Westmoreland Coal Company - CEO [124] -------------------------------------------------------------------------------- Alan you asked about four questions, there. Let me try to address, let me just try to address stock price as a topic, versus all the different questions you asked in there. We have always been of the belief that we run our Company as responsibly as possible, communicate as clearly we as we can to the marketplace, and try to articulate a strategy for long-term value creation. And that narrative has remained largely unchanged. Mined miles, Cost-plus, and/or protected, long-term good predictable cash flows, de-lever. That story hasn't changed. How the market chooses to value that is really not something that we can control. As you are well aware, we have seen dramatic reductions in the value of equity without any material change in really the prospects or performance of the business. There is plenty of external factors, including the performance of other equities in the space, the political environment, the narrative around coal, and we can't, we've never tried to manage this business by gimmick or by press release. I don't think were going to get into that. As far as insiders and what they know and what they don't know, and what their investment intents are, I can't speak to each individual's personal financial situation. I can tell you that we have an extraordinarily capable management team, most of them are fairly young. This is the biggest position in most of their portfolios, and I doubt many of them have a whole lot of liquidity to go out and make big buys, if that's what you are asking for. I can't really address it any more than that, Alan. You and I have had this conversation every quarter now for a year, and the answer hasn't really changed. -------------------------------------------------------------------------------- Alan Jacobs, - Private Investor [125] -------------------------------------------------------------------------------- Well, okay. Fair enough. I appreciate everything you've done and I like the way you run the Company, but there just seems to be quite a disconnect here in terms of the stock price. And I think it's a fair question for shareholders to see if there's anything out there that really is going to change the dial right now. I understand you're running your business, you're doing good deals, and maybe even in guidance, when it comes out, maybe that will be the game changer. If you can't speak for other people, I believe you could at least speak for yourself in terms of your intention regarding open market purchases. -------------------------------------------------------------------------------- Keith Alessi, Westmoreland Coal Company - CEO [126] -------------------------------------------------------------------------------- I'm not going to comment on that on this call. -------------------------------------------------------------------------------- Alan Jacobs, - Private Investor [127] -------------------------------------------------------------------------------- Okay. -------------------------------------------------------------------------------- Operator [128] -------------------------------------------------------------------------------- Greg Venit, Morgan Stanley. -------------------------------------------------------------------------------- Greg Venit, Morgan Stanley - Analyst [129] -------------------------------------------------------------------------------- Thank you for taking my questions. Congratulations Kevin, and to your management team for the promotions. On a San Juan contract, can you tell us, and maybe you've already mentioned this, is it a cost protected contract or a cost-plus contract? -------------------------------------------------------------------------------- Kevin Paprzycki, Westmoreland Coal Company - CFO [130] -------------------------------------------------------------------------------- It falls more closer to a cost protected contract. It is certainly not a cost-plus contract. -------------------------------------------------------------------------------- Greg Venit, Morgan Stanley - Analyst [131] -------------------------------------------------------------------------------- okay. And then the second I guess this is a request, or -- When the plant in Ohio comes up and operating, will you issue a press release saying that has come back online? -------------------------------------------------------------------------------- Kevin Paprzycki, Westmoreland Coal Company - CFO [132] -------------------------------------------------------------------------------- I guess we could do that. -------------------------------------------------------------------------------- Greg Venit, Morgan Stanley - Analyst [133] -------------------------------------------------------------------------------- Thank you. That's it. -------------------------------------------------------------------------------- Operator [134] -------------------------------------------------------------------------------- Thomas Howard, Nomura. -------------------------------------------------------------------------------- Thomas Howard, Nomura - Analyst [135] -------------------------------------------------------------------------------- Most of my questions have been answered. I just have one clarification, I think on past calls when you referred to ROVA, potential exit from that asset, you said it might wait until the current contract runs off in 2018? Did I hear earlier on this call say you may accelerate that timeframe and try to market it in the near term? -------------------------------------------------------------------------------- Keith Alessi, Westmoreland Coal Company - CEO [136] -------------------------------------------------------------------------------- We would be interested in doing so. Currently, the -- Dominion, who is the offtaker there has a right of first refusal, and that's always dampened any efforts to market. But yes, we certainly are open to approaches. -------------------------------------------------------------------------------- Thomas Howard, Nomura - Analyst [137] -------------------------------------------------------------------------------- I had some other detail questions, but I can wait for the Q. Do you know the timeframe for that would be? -------------------------------------------------------------------------------- Kevin Paprzycki, Westmoreland Coal Company - CFO [138] -------------------------------------------------------------------------------- It should be probably later part of next week. So when you release your earnings this early, the team has done a great job of getting earnings out, especially considering all the challenges around the drop. So they are to be commended, but I think the Q is probably later part of next week. -------------------------------------------------------------------------------- Thomas Howard, Nomura - Analyst [139] -------------------------------------------------------------------------------- Just to confirm, you said that the debt at the MLP level might be $115 million higher, and that WLB will be $100 million lower? Does that sound right? -------------------------------------------------------------------------------- Kevin Paprzycki, Westmoreland Coal Company - CFO [140] -------------------------------------------------------------------------------- That's correct. -------------------------------------------------------------------------------- Thomas Howard, Nomura - Analyst [141] -------------------------------------------------------------------------------- All right, thank you. -------------------------------------------------------------------------------- Operator [142] -------------------------------------------------------------------------------- Lucas Pipes, FBR Capital Markets. -------------------------------------------------------------------------------- Lucas Pipes, FBR Capital Markets - Analyst [143] -------------------------------------------------------------------------------- Thanks for taking my follow-ups. Just there have been a number of questions on San Juan, and I was wondering -- of course, expectations are for the deal to close and you laid out how you expect to finance it. I was wondering in case market conditions are challenging or any other reason, really is there a breakup position in case the deal does not close? -------------------------------------------------------------------------------- Keith Alessi, Westmoreland Coal Company - CEO [144] -------------------------------------------------------------------------------- No, I don't believe so. Again, I am not, we're very confident that we're going to get this done in a way that people will be satisfied with. We have had plenty of people approach us on this. I should mention, particularly after last quarter's call. We seen some very creative ideas, and some very good ideas. And the people who presented to us have been unwavering in their support for what we're doing, and so I don't, I'm not worried about it, as I sit here. -------------------------------------------------------------------------------- Lucas Pipes, FBR Capital Markets - Analyst [145] -------------------------------------------------------------------------------- Thank you for that color, and then I think we haven't been speaking much about capital expenditures. You took down guidance for this year. Could you share with us what reduction, what caused the reduction, and then should we think of it more as a deferral? So essentially, could this come back next year, or was this something that you were able to take out structurally, out of your capital expenditure budget? -------------------------------------------------------------------------------- Kevin Paprzycki, Westmoreland Coal Company - CFO [146] -------------------------------------------------------------------------------- Lucas, we went over that earlier in the call, but it was essentially rate operating performance. The guys had a large number of drag-line rebuilds this year. That they all beat their cost projections. And so I think this year we are looking at somewhere in the mid-$1.30 range per ton. I think the historical average is still in the $1.50 a ton, and it will be lumpy going up and down, but this year was just great. It was just great performance by the guys. So I don't think there's anything that is going to come back in future years. -------------------------------------------------------------------------------- Lucas Pipes, FBR Capital Markets - Analyst [147] -------------------------------------------------------------------------------- Got it. So as we think about it going forward, we can hold it at this $1.30 level now? -------------------------------------------------------------------------------- Kevin Paprzycki, Westmoreland Coal Company - CFO [148] -------------------------------------------------------------------------------- No, I said the average for our type of mine is going to be $1.50 a ton, so I think this is the year where we are little bit below. -------------------------------------------------------------------------------- Keith Alessi, Westmoreland Coal Company - CEO [149] -------------------------------------------------------------------------------- The key takeaway here is this is not deferral. -------------------------------------------------------------------------------- Lucas Pipes, FBR Capital Markets - Analyst [150] -------------------------------------------------------------------------------- Okay. Got it. Thank you. -------------------------------------------------------------------------------- Operator [151] -------------------------------------------------------------------------------- Ladies and gentlemen due to time constraints we have reached the end of the question and answer session. Mr. Alessi, I would now like to turn the floor back over to you for closing comments. -------------------------------------------------------------------------------- Keith Alessi, Westmoreland Coal Company - CEO [152] -------------------------------------------------------------------------------- I think we said all that there is to be said for today, and we will be chatting here at year end. -------------------------------------------------------------------------------- Operator [153] -------------------------------------------------------------------------------- Ladies and gentlemen, this concludes today's investor conference call. If you would like to access this call for digital replay, you may do so by dialing 877-660-6853. And enter conference ID number 13622775. Thank you and have a wonderful day.
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