Arch Coal Inc. (NYSE:ACI) Q2 2020 Earnings Conference Call - Final Transcript
Jul 28, 2020 • 10:00 am ET
Matthew C. Giljum
As a result, we were able to continue with the Leer South development, while maintaining cash and liquidity, largely in line with the levels at March 31. At quarter end, we had cash of $217 million and liquidity of $303 million. Shortly after quarter end, we put in place another source of funding for Leer South, with a $53 million tax- exempt bond offering.
Working with the West Virginia Economic Development Authority, we were able to qualify certain of the mine development expenditures to be financed in this manner and executed on a very successful offering.
We received proceeds of approximately $30 million at closing, and we'll receive the remaining funds over time as the qualifying expenditures are made with approximately $15 million expected over the remainder of 2020. We want to thank the EDA and Governor Justice for facilitating the transaction and supporting the Leer South project.
Combined with our first quarter equipment financing, we have now raised over $100 million of capital to date in 2020, at an average rate below 6%. We believe that our ability to access capital at very competitive rates has been a significant advantage for Arch and a testament to the quality of our operations and our solid balance sheet.
As we look at the remainder of 2020, we currently expect improvement from first half levels in both earnings and cash flows. Our operating results should benefit from higher volumes in the metallurgical segment, improved financial performance in the thermal segments, and lower SG&A costs.
With respect to cash flows, in addition to the proceeds from the tax- exempt bonds, we expect an additional benefit of $30 million to $35 million from payroll tax deferrals and receipts from the federal land settlement, as well as an improvement in working capital as we sell inventory that built up over the first half of the year. These improvements are expected to be sufficient to allow us to continue the Leer South development while maintaining adequate cash and liquidity.
With that said, given the ongoing uncertainties in the macro environment, we think it is prudent to continue to evaluate alternatives for additional financing.
Before taking questions, I'd like to briefly recap the first half of 2020. It is no secret that industry conditions were challenging, and Arch's cash and short-term investments before the impact of any financing, declined by more than $120 million over the course of the period.
However, to put that amount in perspective, that is less than the total of the investments made in Leer South, the costs related to the proposed joint venture and the various severance programs that we undertook.
In other words, absent these strategic investments and non-recurring items, we would have increased cash through the period, due in large part to the positive cash margins earned in our metallurgical segment margins that will only be further enhanced when Leer South starts up.
With that, we are ready to take questions. Operator, I will turn the call back over