CNX Coal Resources LP. Investor Presentation May 2016

Transcription

1 CNX Coal Resources LP Investor Presentation May 2016

2 Cautionary Statements Various statements in this presentation, including those that express a belief, expectation or intention, may be considered forward-looking statements under federal securities laws including Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act") that involve risks and uncertainties that could cause actual results to differ materially from projected results. Accordingly, investors should not place undue reliance on forward-looking statements as a prediction of actual results. The forward-looking statements may include projections and estimates concerning the timing and success of specific projects and our future production, revenues, income and capital spending. When we use the words "believe," "intend," "expect," "may," "should," "anticipate," "could," "estimate," "plan," "predict," "project," or their negatives, or other similar expressions, the statements which include those words are usually forward-looking statements. When we describe strategy that involves risks or uncertainties, we are making forward-looking statements. The forward-looking statements in this presentation, if any, speak only as of the date of this presentation; we disclaim any obligation to update these statements. We have based these forward-looking statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. These risks, contingencies and uncertainties relate to, among other matters, changes in coal prices or the costs of mining or transporting coal; uncertainty in estimating economically recoverable coal reserves and replacement of reserves; our ability to develop our existing coal reserves and successfully execute our mining plans; changes in general economic conditions, both domestically and globally; competitive conditions within the coal industry; changes in the consumption patterns of coal-fired power plants and steelmakers and other factors affecting the demand for coal by coal-fired power plants and steelmakers; the availability and price of coal to the consumer compared to the price of alternative and competing fuels; competition from the same and alternative energy sources; energy efficiency and technology trends; our ability to successfully implement our business plan; the price and availability of debt and equity financing; operating hazards and other risks incidental to coal mining; major equipment failures and difficulties in obtaining equipment, parts and raw materials; availability, reliability and costs of transporting coal; adverse or abnormal geologic conditions, which may be unforeseen; natural disasters, weather-related delays, casualty losses and other matters beyond our control; interest rates; labor availability, relations and other workforce factors; defaults by our sponsor under our operating agreement and employee services agreement; changes in availability and cost of capital; changes in our tax status; delays in the receipt of, failure to receive or revocation of necessary governmental permits; defects in title or loss of any leasehold interests with respect to our properties; the effect of existing and future laws and government regulations, including the enforcement and interpretation of environmental laws thereof; the effect of new or expanded greenhouse gas regulations; the effects of litigation and the other factors discussed in the "Risk Factors" section of our Annual Report on Form 10-K for the year ended December 31, 2015, as well as any subsequent report on Form 10-Q that we file with the SEC. This presentation does not constitute an offer to sell or a solicitation of offers to buy securities of CONSOL Energy Inc. or CNX Coal Resources LP. 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 our Quarterly Report on Form 10-Q for the period ended March 31, 2015 and in this presentation. 1

3 Offering CNXC Timeline Investment Proposition Focus on Safety, Compliance and Continuous Improvement Cash Flows Supported by Multi-Year Contracts Operate some of the industry's safest underground mines; 53% 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 Seek to minimize direct commodity exposure through multi-year, committed and priced sales contracts; contracted position at 97%, 70% and 52% 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 Quality Reserve Base with Substantial Capital Investment Strategically Located Operations with Access to Key Infrastructure Low-cost Highly Productive Operations Advanced Distribution with Cutting Edge Loadout Technology 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 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 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 2015 average cash margins were the highest of our MLP peers; CNXC: $21.76 per ton versus average of coal peers: $12.11 per ton Recent capital investment has optimized our mining operations and logistics infrastructure to maintain low operating costs 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 2

4 CNX Coal Resources LP - Overview 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: $198 million (1) Net debt outstanding: $191 million as of March 31, 2016 (1) Priced as of COB May 5, 2016

5 Significant Focus on Safety, Compliance and Continuous Improvement 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 Underground Training Academy CONSOL recently constructed the first underground training academy in the United States dedicated to training miners and improving their safety performance and regulatory compliance Exemplary Safety and Compliance Record (PA mining complex) Incident Rate S&S Citation Rate Notice of Violation/Non-compliance Technical Services Experienced staff provide technical services to assist customers in the new, expanded, and continued use of our coal Industry Average PA Operations We continue to focus on our core values of safety, compliance and continuous improvement (1) Based on incident rates for 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 4

6 CNXC Organizational Structure CNXC 20% Undivided Interest in Pennsylvania Mining Complex (Bailey, Enlow Fork and Harvey mines) 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 owns 100% of CNXC s general partner, as well as the incentive distribution rights 80% undivided ownership interest CONSOL Energy Inc. ( CONSOL Energy ) NYSE: CNX 1,050,000 Common Units 11,611,067 Subordinated Units 53.4% limited partner interest 100% ownership interest CNX Coal Resources GP LLC ( our general partner ) 2% General Partner Interest Incentive Distribution Rights 2% general partner interest Economically incentivized to grow CNXC CNX Coal Resources LP (the Partnership ) NYSE: CNXC 44.6% limited partner interest Public and Private Placement 10,561,067 Common Units CONSOL Energy granted CNXC a right of first offer to acquire the remaining 80% undivided interest 100% ownership interest CNX Coal Resources Operating LLC 100% ownership interest Certain other Sponsor ROFO Assets CNX Thermal Coal Company LLC Majority of units owned by our Sponsor are subordinated 20% undivided ownership interest and management and control rights Pennsylvania mining complex Strategically aligned with CNXC and incentivized to support growth to enhance value of MLP business 5

7 Overview of Pennsylvania Mining Complex 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 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 PA Mining Complex 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 Baltimore Terminal Active Complex Port/Dock 2015 PA Mining Complex Customers Over $2.0 billion invested in Harvey Mine, new slopes, overland conveyor belts, equipment, and plant upgrades since 2008 Mine Total Recoverable Reserves (tons) Average AR Gross Heat Content (Btu/lb) Average AR Sulfur Content Annual Production Capacity (tons) Production (tons) Bailey (1) , % Enlow Fork (1) , % Harvey (1) , % Total , % Illinois Basin (2) 11, % Other NAPP (2) 12, % Other Coal MLPs (2,3) 11, % We couldn't fine the original artwork _Graphic.ai NY0086JT so we had to ungroup it and make the edits. (1) For the period ending and as of December 31, (2) Source: EIA. Represents average power plant deliveries for the twelve months ending February 29, (3) Includes Northern Appalachian and Illinois Basin production from ARLP, FELP, RHNO, and WMLP. Note: Data shown on a 100% basis for the PA Mining Complex. CNXC owns a 20% interest in the complex. 6

8 Navigating Current Challenges in Energy Markets Temporarily idled one longwall and re-aligned schedules for remaining longwalls Operational Adjustments 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 Improve customer product shipment schedules to improve operational consistency Marketing Targets Pursue contract buy-outs, and other value preserving alternatives with customers delaying shipments beyond contractual flexibility Align the marketing strategy to the MLP structure through structured contracting effort and reduce price volatility Maintain current distribution level Financial Priorities 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 Focused on Distribution Preservation While Retaining Flexibility for Growth 7

9 1Q16 Earnings Highlights and 2016 Outlook Improved 2016 potential cash generation by $9 million since the previous quarter update EBITDA guidance increased by $2 million Capex guidance lowered by $7 million Announced quarterly cash distribution of $ per unit Implied distribution yield of 23.78% (1) 1Q16 Earnings Recap: Operational Performance Three Months Ended 31-Mar Mar-15 Coal Production million tons Coal Sales million tons Realized Price Per ton $42.99 $58.82 Cost of Coal Sold Per ton $33.16 $ Guidance Low High Estimated Coal Sales million tons Adjusted EBITDA $ million Capex $ million Adjusted EBITDA of $13.1 million Coal sales of 1.1 million tons Net income of $2.5 million 1Q16 earnings impacted by unusually warm winter weather, low natural gas prices and customer deferrals Achieved significant cost improvements through improved productivity, negotiating lower prices with suppliers, reduced employee-related costs (1) Priced as of COB May 5,

10 Cost of Coal Sold ($/ton) Average Price Realization ($/ton) Operational Initiatives Partially Offset Market Declines Warm weather, slow customer shipments, and low natural gas prices weighed on price realization Operational initiatives such as improving productivity, vendor concessions, reduced staffing levels, refocused incentive plans, and realignment of employee benefits helped achieve ~25% improvement in cost of coal sold Spot market/export sales, although lower-priced, improved mine consistency and provided economies of scale ~25% Improvement ~24% Deterioration Q15 3Q15 4Q15 1Q16 0 2Q15 3Q15 4Q15 1Q16 Structurally Repositioned Mines to Benefit As Demand and/or Pricing Recovers Source: EIA. 9

11 Benchmarking vs. Coal Peers Average 2015 Cash Margin (1) ($ / ton) Debt/TTM EBITDA (3) $30.00 $20.00 $10.00 $21.76 $20.24 $13.12 $ x 6.0x 5.0x 4.0x 3.0x 2.0x 1.0x 2.4x 1.3x 4.9x 5.6x 6.3x $0.00 CNXC ARLP FELP CLD.0x CNXC ARLP CLD WLB FELP EV/2016E EBITDA (2) Current Yield (%) (4) 8.0x 6.0x 4.0x 6.1x 4.5x 6.3x 6.5x 7.6x 25.0% 20.0% 15.0% 10.0% 23.8% 14.3% 11.7% 9.9% 2.0x 5.0%.0x CNXC WLB CLD ARLP FELP 0.0% 0.0% CNXC WMLP ARLP AMLP FELP (1) Determined by based on netback at the mine prices and costs; Segment EBITDA Expense used were cost data not available (2) EBITDA, Net debt and EV based on company data or FactSet data as of May 5, EBITDA based on mean of select Wall Street Research when guidance not available. ARLP on GP-adjusted basis. (3) TTM EBITDA based on FactSet data as of May 5, (4) Current yield calculation based on COB May 5,

12 PA Mining Complex (5) Marion County (1) Monongalia County (1) Federal (1) Emerald (1) Harrison County (1) Mountain View (1) Leer (1) Marshall County (2) Cumberland (1) Ohio County (1) Tunnel Ridge (1) Century (1) Powhatan (1) Production (million tons) Sulfur (% as received) Not All NAPP Longwalls Are Created Equal Production - PA Mining Complex 2015 Production - Other Longwalls 2015 Sulfur Closed in 2015 Closing in Nov Higher Sulfur Near End of Reserve Life Mine Mouth Operations Primarily Met Coal Producer Serve River Markets 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. Source: EIA 923, MSHA; Number of longwalls indicated in parentheses. 11

13 Reduced Cash Flow Volatility Through Long Term Contracts 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 or value to CNXC is preserved. Contracted Volume (1) Major Customers Include: 97% 70% 52% 2016E 2017E 2018E Secured multi-year commitments with key power plants in the upper Midwest and Southeast markets, which historically have been thought of as domain of other coal basins (1) Contracted percentages based on the projected sales volume for 2016 and at 5.2 million ton annual run rate thereafter. Some of our contracts 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. 12

14 Impact of Power Plant Pollution Control Regulations Traditional Pollutants 42 GW of coal-fired capacity retired between 2011 and GW of additional capacity will likely retire in , largely in response to MATS and low natural gas prices Coal plants expected to remain operating beyond 2019 Remaining fleet of 249 GW will be clean, modern and efficient, with capacity to increase coal burn relative to 2015 Greenhouse Gases (i.e., CO 2 ) 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 on February 9, 2016, pending judicial review PA Complex Remaining (Non-Retiring) Coal Power Plants Under any scenario, the most efficient, cleanest coal plants are positioned to survive; these are the ones we are targeting Our Strategy: Focus domestic steam sales on clean, modern and efficient plants in our core market area. Push into former CAPP market, and take advantage of crossover and export opportunities. Source: EIA and CNXC data estimates. 13

15 Retiring Capacity (MW) Our Strategy in Action Capacity Factors: January-December 2015 Announced 2016 Coal Unit Retirements 14,000 Eastern U.S. Core Market States (3) 12,000 Top 15 PA Mining Complex Customer Plants (1) All Other Plants (2) Top PA Mining Complex Customer Plants (1) All Other Plants (2) 10,000 8,000 6,000 54% 49% 53% 43% 4,000 (1) Ranked based on total coal deliveries for CY (2) Excludes plants that retired, switched fuels, or did not report any net generation during (3) Defined to include PA, WV, MD, VA, NC, SC, NJ, DE, NY, CT, MA, NH 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 ,000 0 United States Eastern U.S. Current PA Mining Complex Customers 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. Source: EIA and CNXC data estimates. 14

16 Coal Share of Monthly Generation (%) Coal Prices vs. Natural Gas Prices A 1% increase in coal s share of generation equates to a 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 Coal Share of U.S. Generation vs. Natural Gas Price Ranges (January 2012 February 2016) 46% 44% 42% 40% 38% 36% 34% 32% 30% 28% 26% < $2.00 $2.00-$2.50 $2.50-$3.00 $3.00-$3.50 $3.50-$4.00 $4.00-$4.50 > $4.50 Monthly Average Natural Gas Price ($/mmbtu, Henry Hub Spot) Range Average Source: EIA Natural gas prices are suppressing coal prices, but that dynamic can change quickly Source: EIA. 15

17 Roadmap to Unitholder Returns Optimize Cost Structure Improve Contracted Shipment Schedules Pursue Incremental Volumes Cash Flow Sustainability Distribution Coverage Improve Hedge Book Improved Cost of Capital Flexible Drop-downs Broaden Institutional Appeal 16

18 Non-GAAP Reconciliation CNXC 1Q16 Adjusted EBITDA and Distributable Cash Flow ($ in thousands) Three Months Ended March 31, 2016 Net Income $2,499 Interest Expense $1,994 Depreciation, Depletion and Amortization $8,253 Unit Based Compensation $308 Adjusted EBITDA $13,054 Less: Cash Interest $1,967 Estimated Maintenance Capital Expenditures $6,700 Distributable Cash Flow $4,387 Net Cash Provided by Operating Activities $2,285 Less: Interest Expense, Net $1,994 Less: Other, Including Working Capital -$12,763 Adjusted EBITDA $13,054 Less: Cash Interest $1,967 Estimated Maintenance Capital Expenditures $6,700 Distributable Cash Flow $4,387 17