Arch Coal Inc. (NYSE:ACI) Q2 2020 Earnings Conference Call - Final Transcript
Jul 28, 2020 • 10:00 am ET
Thank you. [Operator Instructions] Our first question will come from Scott Schier with Clarksons.
Good morning, everyone.
Paul A. Lang
Good morning, Scott.
John T. Drexler
Good morning, everyone. If I could start on the lower capex guidance. Could you walk us through where those savings are mainly coming from? Is it more timing on Leer South expenditures or some cuts on sustaining capex?
John T. Drexler
Hey, Scott. This is John Drexler. As we discussed in the guidance, we reduced our capex by $10 million from the previous quarter that was in addition to the $20 million that we achieved in the first quarter. So we've taken our capex guidance on the maintenance side, really from $90 million down to $60 million. And we look at these lower volume expectations, we look at how we're utilizing our equipment fleet across the board. And while there may be some element of deferral of some of that capex, we think a lot of what we've been able to remove is essentially pushed out for a very long period of time, once again, just given our revised volume expectations.
I'll provide some further color on that maintenance capex, where we sit here right now with the $60 million of maintenance capex. 80% of that really is directed at the met portfolio, 20% is directed at the thermal portfolio. So as we've moved forward, the focus has continued to be on the met operations, as we've indicated in our prepared remarks and in the release, we've taken significant steps across the thermal portfolio, and that's where I think we've seen a lot of the benefit and the reduction in the capex.
From a Leer South perspective, clearly, we're moving ahead. We think it's an excellent opportunity. And so we continue to move forward with the capex at that operation, which since the beginning of the year, we've identified about $220 million to be spent over the course of 2020 at Leer South.
Okay. That's very helpful. I appreciate that color. Switching gears a little bit to the 300,000 tons of deferrals that you mentioned that you experienced in the second quarter. Could you provide a little bit more color around this, specifically, I guess, where the deferrals came from, more so domestic or seaborne markets? And are you beginning to see some of the demand come back? And what are your expectations around any potential deferrals in the third quarter? Is that kind of all behind us?
John T. Drexler
Yes. So Scott, I think, clearly, we're coming through a period of tremendous volatility in the markets responding to what's happening around the world with the global pandemic. And as we indicated on the first quarter call and then playing itself out over the course of the quarter, we knew we would see some pressure and we have. We engaged where we needed to with our customers in any request for deferrals.
I think we've indicated, in total, over the course of 2020, we've seen deferrals to the tune of about 500,000 tons. While