CNX Coal Resources LP -...
Transcript of CNX Coal Resources LP -...
Cautionary Statements
This presentation is not a prospectus, is not an offer to sell securities and is not soliciting an offer to buy securities.
An investment in the Partnership’s common units involves risks associated with the Partnership’s business, environmental, hea lth, safety and other regulations, the structure
of the Partnership and the tax characteristics of the Partnership’s common units. You should carefully consider the risk fac tors under the heading “Risk Factors” in the
Partnership’s Registration Statement on Form S-1 (File No. 333-203165) and Annual Report on Form 10-K for the fiscal quarter ended December 31, 2015, together with all
of the other information included in therein, including the matters addressed under “Forward-Looking Statements,” in evaluating an investment in the common units.
This presentation contains statements that express the Partnership’s opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or
future results, in contrast with statements that reflect historical facts. Examples include discussion of our strategies, EBITDA forecasts, financing plans and growth
opportunities. In some cases, you can identify such forward looking statements by terminology such as “anticipate,” “intend,” “believe,” “estimate,” “plan,” “seek,” “project,”
“expect,” “may,” “will,” “would,” “could” or “should,” or the negative of these terms or similar expressions. While we base these statements in good faith on assumptions that
we believe to be reasonable when made, these forward‐looking statements are not a guarantee of our performance, and you should not place undue reliance on such
statements. Forward‐looking statements are subject to many risks and uncertainties that are outside our control and could cause our actual results to differ materially from
those we thought would occur, such as: the amount of coal we are able to produce from our mines and the efficiency of our mining, preparation and transportation of coal,
which could be adversely affected by, among other things, operating difficulties, unfavorable geologic conditions, inclement or hazardous weather conditions and natural
disasters or other force majeure events; overall domestic and global economic and industry conditions, including the market price of, supply of and demand for domestic and
foreign coal; the consumption pattern of industrial consumers, electricity generators and residential users; the price and availability of alternative fuels for electricity
generation, especially natural gas; competition from other coal suppliers; the impact of domestic and foreign governmental laws and regulations, including environmental and
climate change regulations and regulations affecting the coal mining industry and coal-fired power plants, and delays in the receipt of, failure to receive, failure to maintain or
revocation of necessary governmental permits; the costs associated with our compliance with domestic and foreign governmental laws and regulations, including
environmental and climate change regulations; technological advances affecting energy consumption; the costs, availability and capacity of transportation infrastructure; the
cost and availability of skilled labor (including miners), the effects of new or expanded health and safety regulations and work stoppages and other labor difficulties; and
changes in tax laws. You should also carefully consider the statements under the heading “Forward-Looking Statements” in the Registration Statement and Annual Report on
Form 10-K.
Any forward-looking statement speaks only as of the date on which such statement is made, and the Partnership undertakes no obligation to correct or update any forward-
looking statement, whether as a result of new information, future events or otherwise, except as required by applicable law.
This presentation also contains information about the Partnership’s adjusted EBITDA, which is not a measure derived in accordance with U.S. generally accepted accounting
principles (“GAAP”) and which excludes components that are important to understanding the Partnership’s financial performance. Adjusted EBITDA should not be
considered an alternative to net income or any other measure of financial performance or liquidity presented in accordance with GAAP. Adjusted EBITDA excludes some, but
not all, items that affect net income or net cash, and our presentation may vary from the presentations of other companies. As a result, adjusted EBITDA as presented herein
may not be comparable to similarly titled measures of other companies. Reconciliations of adjusted EBITDA to net income, the most directly comparable GAAP financial
measure, can be found in the Registration Statement and in this presentation.
1
Offering Timeline CNXC Investment Proposition
2
Focus on Safety,
Compliance and
Continuous Improvement
Operate some of the industry's safest underground mines; 51% lower Mine Safety and Health Administration (“MSHA”)
incident rate vs. national average
Underground training academy dedicated to training miners and improving their safety performance and regulatory
compliance
Cash Flows Supported by
Multi-Year Contracts
Seek to minimize direct commodity exposure through multi-year, committed and priced sales contracts; contracted position
at 100%, 61% and 49% for 2016, 2017 and 2018 expected sales volumes
Well-established credit-worthy customer base comprised primarily of utility companies in the eastern U.S. willing to commit
to multi-year contracts
Strong Sponsor
Access to significant pool of management talent, deep industry knowledge and strong commercial relationships
Economically incentivized to grow CNXC through ownership of IDRs and LP units as well as 80% retained interest in the PA
mining complex
Experienced Management
Team
Significant expertise owning, developing and managing complex coal mining operations
Proven track record of successfully building coal assets in a reliable and cost-effective manner
Quality Reserve Base with
Substantial Capital
Investment
Extensive high-quality contiguous reserves of high-Btu bituminous coal in Pittsburgh No. 8 Coal Seam are ideal for high
productivity, low-cost longwall operations
Advantageous coal quality with relatively higher heat content, lower sulfur content and lower chlorine content
Strategically Located
Operations with Access to
Key Infrastructure
Logistics infrastructure and proximity to coal-fired power plants allow operational and marketing flexibility
Significant transportation cost advantage compared to many of our competitors
Direct access to domestic customers and Baltimore Marine Terminal through Norfolk Southern and CSX rail lines
Low-cost Highly Productive
Operations
2015 average cash margins were the highest of our MLP peers; CNXC: $21.76 per ton versus average of other MLP peers:
$14.16 per ton
Recent capital investment has optimized our mining operations and logistics infrastructure to maintain low operating costs
Advanced Distribution
with Cutting Edge Loadout
Technology
Dual-batch facility that operates 24/7 and loads up to 9,000 tons of coal per hour and ten unit trains per day
Strong relationship with Norfolk Southern and CSX rail lines - investing significant capex to increase rail takeaway
Solid distribution yield supported by world class asset base
Significant Focus on Safety, Compliance and
Continuous Improvement
3
Continued focus on core values of safety, compliance and
continuous improvement
Operate some of the industry’s safest underground mines
MSHA incident rate ~53% lower than national
average rate(1)
MSHA significant and substantial citation rate ~22%
lower than the industry average rate(2)
Promotes greater reliability in operations, lower operating
costs and long-term customer relationships
Exemplary Safety and Compliance Record (PA
mining complex)
(1) Based on incident rates for 2012- 2015 period. Source: MSHA
(2) For the Feb 1, 2015-Jan 31, 2016 period ; National industry rate for significant & substantial citations & orders per 100 inspection hours. Source: MSHA
CONSOL recently constructed the first underground
training academy in the United States dedicated to
training miners and improving their safety
performance and regulatory compliance
We continue to focus on our core values of safety, compliance and continuous
improvement
Underground Training Academy
Experienced staff and dedicated in-house coal lab
provide technical marketing services to assist
customers in the new, expanded, and continued use
of our coal
Technical Services and R&D Laboratory
4.95
2.62.35
2.03
0.0
1.0
2.0
3.0
4.0
5.0
6.0
Incident Rate S&S Citation Rate
Industry Average PA Operations
90
59
1116
21
0
25
50
75
100
Notice of Violation/Non-compliance
2011 2012 2013 2014 2015
Growth-oriented master limited partnership formed by CONSOL Energy, Inc. (NYSE:CNX) in 2015 to manage and
further develop all of its active thermal coal operations in Pennsylvania.
Initial assets include a 20% undivided interest in, and operational control over, CONSOL Energy’s Pennsylvania
mining complex
Sponsor has provided us the Right of First Offer (“ROFO”) on the retained 80% undivided interest in the
Pennsylvania mining complex, and certain other Sponsor Assets
Initial Public Offering – June 2015
Current Ownership Structure
Sponsor retained 12.7 million LP units (53.4% limited partner interest) including 11.6 million subordinated units
5.5 million LP units (23.2% limited partner interest) owned by Greenlight Capital
5.1 million LP units (21.4% limited partner interest) held by other public holders
Current market capitalization: $151M(1)
Total debt outstanding: $185M as of December 31, 2015
CNX Coal Resources LP - Overview
(1) Priced as of COB February 22, 2016
Navigating Current Challenges in Energy Markets
5
Align the marketing strategy to the MLP structure through aggressive contracting
and reduced price volatility
Continue to pursue incremental sales to improve targeted sales volume and/or
backfill changes to existing customer shipment schedule
Improve customer product shipment schedules to improve operational consistency
Focused on Distribution Preservation While Retaining Flexibility for Growth
Marketing Targets
Operational
Adjustments
Temporarily idled one longwall and re-aligned schedules for remaining longwalls
Continue to optimize corporate and production employee base
Reset compensation and benefit structure for all employees
Seeking additional cost savings from vendors/supply chain
Continue to optimize the cost structure through operational improvements
Financial Priorities
Maintain current distribution level
Continue to control costs and defer discretionary capital spending
Identify other opportunities to improve the distribution coverage ratio
Continue to evaluate potential for a drop-down/acquisition
CNXC Organizational Structure
6
CNXC owns a 20% undivided interest in
and operational control over CONSOL
Energy’s Pennsylvania mining complex
CONSOL Energy retained an 80%
undivided interest in the Pennsylvania
mining complex and own 100% of CNXC’s
general partner, as well as the incentive
distribution rights
Economically incentivized to grow
CNXC
CONSOL Energy granted CNXC a right of
first offer to acquire the remaining 80%
undivided interest
Certain other Sponsor ROFO Assets
Majority of units owned by our Sponsor are
subordinated
CNXC – 20% Undivided Interest in Pennsylvania Mining
Complex (Bailey, Enlow Fork and Harvey mines)
Strategically aligned with CNXC and incentivized to support growth to enhance value of
MLP business
CONSOL Energy Inc. (“CONSOL Energy”)
NYSE: CNX 1,050,000 Common Units
11,611,067 Subordinated Units
CNX Coal Resources GP LLC (“our general partner”)
2% General Partner Interest Incentive Distribution Rights
2% general partner interest
CNX Coal Resources LP (the “Partnership”)
NYSE: CNXC
53.4% limited partner interest
80% undivided ownership interest
20% undivided ownership interest and management and control rights
100% ownership interest
Pennsylvania mining complex
CNX Coal Resources Operating LLC
CNX Thermal Coal Company LLC
100% ownership interest
100% ownership interest
Public and Private Placement 10,561,067
Common Units 5,561,067
44.6% limited partner interest
Overview of Pennsylvania Mining Complex
7
Pennsylvania mining complex consists of three like-new underground
mines and related infrastructure with high-Btu bituminous coal (791.4
million tons proven and probable(1))
PA mining complex – 791.4 million tons reserves / 28.5 million tons
annual capacity(1)
Train loadout facility (up to 9,000 tons per hour) with dual rail access
with Norfolk Southern and CSX
High-Btu bituminous thermal coal is primarily sold to utility companies in
the eastern United States: ~13,000 Btus per pound average gross heat
content and 2.36% average sulfur content
Five longwalls and 18 continuous mining sections
Access to seaborne markets through CONSOL-owned Baltimore Marine
Terminal for exporting thermal and metallurgical coal
Over $2.0 billion invested in Harvey Mine, new slopes, overland
conveyor belts, equipment, and plant upgrades since 2008
(1) For the period ending and as of December 31, 2015.
(2) Source: EIA. Represents average power plant deliveries for the eleven months ending November 30, 2015.
(3) Source: Company filings from FELP, ARLP, WMLP and RNO for NAPP and Illinois Basin reserves.
Note: Data shown on a 100% basis for the PA Mining Complex. CNXC owns a 20% interest in the complex.
Mine
Total
Recoverable
Reserves
(tons) (1)
Average
AR Gross
Heat
Content
(Btu/lb) (1)
Average AR
Sulfur
Content (1)
Annual
Production
Capacity
(tons) (1)
Production
(tons) (1)
Bailey 271.7 12,940 2.64% 11.5 10.2
Enlow Fork 316.2 12,940 2.19% 11.5 9.0
Harvey 203.5 13,070 2.25% 5.5 3.6
Total 791.4 12,970 2.36% 28.5 22.8
Illinois Basin 11,363 2.95%
Other NAPP 12,394 3.22%
Other Coal
MLPs 11,525 2.44%
(2)
(3)
Baltimore
Terminal
PA Mining
Complex
Active Complex
Port/Dock
2015 PA Mining
Complex Customers
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(2)
Reduced spot commodity price exposure via multi-year, committed and priced sales contracts
Well-established, credit-worthy customer base comprised primarily of utility companies in the eastern United States
willing to commit to multi-year contracts
While unusually warm weather and ongoing low natural gas prices have resulted in fluctuating delivery schedules, we
continue to work with our customers to ensure our contracted volumes get shipped
Contracted Volume(1)
Reduced Cash Flow Volatility Through Long Term
Contracts
8
Major Customers Include:
Secured multi-year commitments with key power plants in the upper Midwest and
Southeast markets, which historically been thought of as domain of other coal basins
(1) Source: Annual Filings 10-K of CNX Coal Resources, Inc. and CONSOL Energy Inc. Committed and priced tons percentages based on the projected sales volume during that year and subject to
rounding adjustments. Our committed and priced contracts include those contracts that contain fixed prices with preestablished price adjustments based on (i) variances in the quality
characteristics of coal delivered to the customer beyond threshold quality characteristics specified in the applicable sales contract, (ii) the actual calorific value of coal delivered to the customer,
and/or (iii) fluctuations in the power market.
100%
43% 49%
19%
38%
51%
2016E 2017E 2018E
Committed and Priced Committed and unpriced Uncommitted
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
0
5
10
15
20
25
PA
Min
ing C
om
ple
x (
5)
Marion C
ounty
(1)
Monongalia
County
(1)
Federa
l (1
)
Em
era
ld (
1)
Harr
ison C
ounty
(1)
Mounta
in V
iew
(1)
Leer
(1)
Mars
hall
County
(2)
Cum
berland (
1)
Ohio
County
(1)
Tunnel R
idge (
1)
Centu
ry (
1)
Pow
hata
n (
1)
Su
lfu
r (%
as r
eceiv
ed
)
Pro
du
cti
on
(m
illi
on
to
ns)
2015 Production - PA Mining Complex 2015 Production - Other Longwalls 2015 Sulfur
Not All NAPP Longwalls Are Created Equal
9 Source: EIA 923, MSHA; Number of longwalls indicated in parentheses.
PA Mining Complex is uniquely positioned among NAPP longwall producers to provide
a sustained supply of high-quality coal to rail-served power plants in the eastern U.S.
Serve River Markets
Primarily
Met Coal
Producer
Mine Mouth
Operations
Near End of
Reserve Life
Higher
Sulfur
Closed
in 2015
The Carbon Pollution Standard for new plants, 111(b), will
severely hinder the construction of new coal-fired power
plants for 10 or more years
The Clean Power Plan, 111(d), was finalized by EPA in
August 2015, but faces an uncertain future
Designed to reduce GHG emissions from existing
plants beginning in 2022
The Supreme Court stayed implementation of the
Clean Power Plan pending judicial review on
February 9, 2016
Under any scenario, the most efficient, cleanest coal plants
are positioned to survive; these are the ones we are targeting
Impact of Power Plant Pollution Control Regulations
Traditional Pollutants
Greenhouse Gases (i.e., CO2)
10
Our Strategy: Focus domestic steam sales on clean, modern and efficient plants in our
core market. Push into former CAPP market, and take advantage of crossover and
export opportunities
42 GW of coal-fired capacity retired between 2011 and 2015
24 GW of additional capacity will likely retire through 2019,
largely in response to MATS and low natural gas prices
Remaining fleet of ~250 GW will be clean, modern and
efficient, with capacity to increase coal burn relative to 2015
PA Complex
Remaining (Non-Retiring)
Coal Power Plants
Coal plants expected to remain operating beyond 2019
Source: EIA and CNX data estimates.
Our Strategy in Action
11 Source: EIA and CNXC data estimates.
Eastern U.S.
Top 15
PA Mining
Complex
Customer
Plants(1)
All Other
Plants(2)
57%
51%
Capacity Factors: January-October 2015
(1) Ranked based on total coal deliveries for CY 2015.
(2) Excludes plants that retired during 2015.
(3) Defined to include PA, WV, MD, VA, NC, SC, NJ, DE, NY, CT, MA, NH
Core Market States(3)
Top
PA Mining
Complex
Customer
Plants(1)
All Other
Plants(2)
56%
45%
0
2,000
4,000
6,000
8,000
10,000
12,000
United States Eastern U.S. Current PAMining
ComplexCustomers
Reti
rin
g C
ap
acit
y (
MW
)
Announced 2016 Coal Unit Retirements
Superior performance of top PA Mining Complex customers due to:
Aligning with strong performers in our traditional core market
Success in selling to key plants outside of our core, rather than moving tons to weaker core market plants or to the export market
Effect of strong-performing customers picking up generation left by retirements
PA Mining Complex customer plants are minimally impacted (~200 MW retiring) by the final wave of MATS retirements in 2016
We have continued to increase sales to our highest capacity factor customers in 2016,
and we are well positioned to come out in the lead when the market rebounds.
28%
30%
32%
34%
36%
38%
40%
42%
44%
46%
< $2.50 $2.50-$3.00 $3.00-$3.50 $3.50-$4.00 $4.00-$4.50 > $4.50
Co
al
Sh
are
of
Mo
nth
ly G
en
era
tio
n (
%)
Monthly Average Natural Gas Price ($/mmBtu, Henry Hub Spot)
Range
Average
Coal Prices vs. Natural Gas Prices
Natural gas prices are suppressing coal prices, but that dynamic can change quickly
A 1% increase in coal’s share of generation equates to a 20-25 million ton / year increase in U.S. electric power
sector coal demand
Right-sizing of coal supply under current market conditions will help set the stage for coal prices to rebound with
uptick in gas prices
12
Coal Share of U.S. Generation vs. Natural Gas Price Ranges (January 2012 – November 2015)
Source: EIA
Source: EIA.
Financial Strategy Targeted at Maintaining
Current Distribution Level
13
Continue to optimize production levels while working with customers to ensure delivery
of committed coal
Focus on maintaining industry leading cash margins and high quality, well established
customer base
Reduced operating and capital spending levels while efficiently running our longwall
mining operation
CNXC is committed to maintaining current distribution level
Improve Cash Flow
Stability
Capitalize on Strong
Financial Profile
Pro forma leverage of ~2.0x Debt/TTM EBITDA
Target leverage ratio of approximately 3.0x
Reduced the borrowing on our $400M credit facility to $185 million from $200M
at the IPO
Maintain Growth
Flexibility
Improve distribution coverage despite challenging coal markets
CNXC will be flexible with respect to drop-down timing and financing mix to strive to
achieve its distribution targets
Distribution stability being prioritized over growth
4Q15 Earnings Highlights and 2016 Outlook
14
Announced quarterly cash distribution of $0.5125 per
unit
Implied distribution yield of 31.5% (1)
Generated distributable cash flow of $9.8 million
Estimated distribution coverage of 0.8x (1.05x
since the IPO)
Adjusted EBITDA of $18.7 million
Coal sales of 1.0 million tons
Net income of $8.7 million
4Q15 earnings impacted by unusually warm winter
weather, low natural gas prices and reduction in
planned shipments
Improved forward contracted position by continuing to
be anchor supplier in core markets while penetrating
non-traditional NAPP markets in upper Midwest and
Southeast
Achieved significant cost improvements through
improved productivity, negotiating lower prices with
suppliers, reduced employee-related costs
(1) Priced as of COB February 22, 2016
31-Dec-15 31-Dec-14
Coal Production million tons 0.9 1.3
Coal Sales million tons 1.0 1.3
Realized Price Per ton $52.57 $60.10
Cost of Coal Sold Per ton $39.84 $42.77
2016 Guidance Low High
Estimated Coal Sales million tons 4.4 5.2
Adjusted EBITDA $ million 57 67
Capex $ million 24.5 27.5
Three Months Ended
$21.76$20.24
$15.08
$0.00
$10.00
$20.00
$30.00
CNXC ARLP FELP RNO
31.5%
10.0%
33.2%
24.7%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
CNXC AMZ FELP ARLP
4.8x5.3x
5.7x
8.9x
.0x
2.0x
4.0x
6.0x
8.0x
CNXC ARLP FELP Coal C-Corps
2.0x
1.2x
2.9x
4.4x
.0x
1.0x
2.0x
3.0x
4.0x
5.0x
CNXC ARLP RNO FELP
Benchmarking vs. MLP Coal Peers
15
(1) Determined by deducting Company operating costs including transportation costs excluding DD&A; FELP on RNO data is only for 9M15
(2) Net debt as of December 31, 2015. EV and EBITDA based on mean of select Wall Street Research when guidance not available, FactSet as of February 22, 2016. ARLP on GP-adjusted basis. RNO and
FELP debt as of September 30, 2015.
(3) Current yield calculation based on COB February 22, 2016.
Average 2015 Cash Margin(1) ($ / ton) Debt/2015E EBITDA(3)
EV/2016E EBITDA(2)
Current Yield(3)
10.5%
8.3%
0.0%
5.0%
10.0%
15.0%
FELP ARLP
Current Yield (%)(4)
Roadmap to Unitholder Returns
16
Improve Contracted Shipment
Schedules
Pursue Incremental Volumes
Improve 2017-19 Hedge Book
Cash Flow Sustainability
Distribution Coverage
Improved Cost of Capital
Flexible Drop-downs
Optimize Cost Structure
Broaden Institutional Appeal
Non-GAAP Reconciliation
17
CNXC 4Q15 Adjusted EBITDA and Distributable Cash Flow
($ in thousands)Three Months Ended
December 31, 2015
Net Income 8,673
Interest Expense 1,898
Depreciation, Depletion and Amortization 8,063
Unit Based Compensation 25
Adjusted EBITDA 18,659
Less:
Cash Interest 1,583
Estimated Maintenance Capital Expenditures 7,319
Distributable Cash Flow 9,757
Net Cash Provided by Operating Activities 16,562
Less: Interest Expense, Net 1,898
Less: Other, Including Working Capital 199
Adjusted EBITDA 18,659
Less:
Cash Interest 1,583
Estimated Maintenance Capital Expenditures 7,319
Distributable Cash Flow 9,757