Warrior Met Coal Announces Fourth Quarter and Full Year 2018 Results

Company records best-ever sales and production volume for full year

Exceeds guidance targets for 2018

Returned $400 million to shareholders through dividends and stock
repurchases

Robust demand for premium met coal underpins strong outlook for 2019

Warrior continues to advance its world-class Blue Creek growth project

BROOKWOOD, Ala.–(BUSINESS WIRE)–Warrior Met Coal, Inc. (NYSE: HCC) (“Warrior” or the “Company”) today
announced results for the fourth quarter and full year ended December
31, 2018. Warrior is the leading dedicated U.S. based producer and
exporter of high quality metallurgical (“met”) coal for the global steel
industry.

Warrior reported fourth quarter 2018 net income of $374.2 million, or
$7.11 per diluted share, compared to net income of $97.2 million, or
$1.83 per diluted share, in the fourth quarter of 2017. Excluding the
noncash income tax benefit recognized upon the release of the valuation
allowance on deferred tax assets associated with Warrior’s net operating
losses (“NOLs”) and a noncash adjustment to the Company’s asset
retirement obligations due to a change in reclamation estimates,
adjusted net income per share for the fourth quarter of 2018 was $2.38
per diluted share compared to $1.83 per diluted share in the fourth
quarter of 2017. The Company reported Adjusted EBITDA of $161.6 million
in the fourth quarter of 2018, compared to Adjusted EBITDA of $86.3
million in the fourth quarter of 2017.

The market for high quality premium met coal continued to be strong in
the fourth quarter, reflecting robust economic growth and global steel
production. “With strong customer demand and our ability to take
advantage of a favorable pricing environment, we are pleased to report
record high sales and production volumes for 2018, leading to record
high financial performance,” commented Walt Scheller, CEO of Warrior.
“We exceeded our guidance targets for this year and our unique business
model provides a critical competitive advantage that gives us a
confident outlook for 2019. Moreover, as a result of our record
performance, we were able to invest capital of over $100 million in 2018
to further strengthen our company while also returning significant
capital to stockholders through cash dividends and stock repurchases.”

Warrior reported full year 2018 net income of $696.8 million and
adjusted net income of $459.0 million or net income of $13.17 per
diluted share and adjusted net income of $8.67 per diluted share,
compared to net income of $455.0 million and adjusted net income of
$467.9 million, or net income of $8.62 per diluted share and adjusted
net income of $8.86 per diluted share, in 2017. The Company reported
Adjusted EBITDA of $601.0 million for the full year of 2018 compared to
$517.7 million in 2017.

Warrior continues to advance its Blue Creek growth project and evaluate
various development options to enhance project economics and reduce
execution risk. Warrior believes that Blue Creek represents one of the
few remaining untapped reserves of premium High Vol A metallurgical coal
in the United States and that it has the potential to provide Warrior
with meaningful growth. “With strong and consistent performances from
Mine No. 7 and Mine No. 4, we are evaluating development alternatives
for Blue Creek as we consider the next phase of growth for Warrior. We
believe that Blue Creek represents a world-class asset that produces a
complementary premium met coal product that has the potential to
generate significant free cash flow through-the-cycle,” said Mr.
Scheller. “We are excited by the promising results from our early work
and believe Blue Creek has the potential to deliver significant value to
our shareholders.”

Operating Results

The Company produced 1.9 million short tons of met coal in the fourth
quarter of 2018, 20% more than the amount produced in the fourth quarter
of 2017. For the full year of 2018, the Company produced 7.7 million
short tons, a record year, which exceeded its guidance and expectations
as the Company ramped up its operations and maximized efficiencies at
the mines. Sales volume in the fourth quarter of 2018 was 2.0 million
short tons, 45% more than the same quarter last year, reflecting the
strength of both continued production and demand from customers. Sales
volume for the full year 2018 reached a record high for the Company of
7.6 million short tons and was 17% higher than 2017.

Additional Financial Results

Total revenues were $360.4 million for the fourth quarter of 2018,
including $349.9 million in mining revenues, which consisted of met coal
sales of 2.0 million short tons at an average net selling price of
$177.50 per short ton, net of demurrage and other charges. Total
revenues for 2018 were $1.4 billion, 18% higher than in 2017, due to a
record sales volume of 7.6 million short tons that was 17% higher than
2017. Warrior capitalized on the rising pricing environment in the
quarter by selling its met coal at 93% of the quarterly Australian
premium low-volatility (“LV”) hard coking coal (“HCC”) index average
price (the “Australian LV Index”).

Cost of sales for the fourth quarter of 2018 were $180.2 million, or
51.5% of mining revenues, and included mining costs, transportation and
royalty costs compared to $136.7 million, or 60% of mining revenues in
the same period of 2017. Cash cost of sales (free-on-board port) per
short ton decreased to $92.64 in the fourth quarter 2018 from $100.97 in
the fourth quarter of 2017, primarily due to higher sales volumes, lower
spending and offset slightly by higher transportation costs, which is
price sensitive to met coal pricing. For the full year 2018, cost of
sales was $716.6 million compared to $592.5 million in 2017 and cash
cost of sales (free-on-board) per short ton was $93.76 compared to
$90.58 in 2017, primarily as a result of higher spending associated with
the increased sales and production volume.

Selling, general and administrative expenses for the fourth quarter of
2018 were $7.6 million, or 2.1% of total revenues, and were $36.6
million for the full year. Depreciation and depletion costs for the
fourth quarter of 2018 were $25.5 million, or 7.1% of total revenues,
and were $97.2 million for all of 2018. Warrior incurred interest
expense, net of $8.8 million during the fourth quarter of 2018 and $37.3
million for the full year.

Income tax benefit was $225.8 million in the fourth quarter of 2018,
primarily reflecting the release of the valuation allowance on deferred
tax assets associated with the Company’s NOLs. The release of the
valuation allowance was reflective of the Company’s earnings trends and
projected future taxable income.

Cash Flow and Liquidity

The Company continued to generate strong cash flows from operating
activities in the fourth quarter of 2018 of $130.8 million compared to
$91.4 million in the fourth quarter of 2017, a 43% increase. Full year
2018 cash flows from operating activities were $559.4 million, compared
to $434.5 million for the full year 2017, a 29% increase. Net working
capital, excluding cash, for the fourth quarter of 2018 increased by
$38.9 million from the third quarter of 2018 and increased $10.7 million
for the full year 2018 compared to 2017. The increase in net working
capital, in 2018 was primarily attributable to an increase in trade
accounts receivable due to higher sales volumes combined with an
increase in income tax receivable offset by an increase in accounts
payable and accrued expenses due to increased production and sales
volume. The Company continued to make significant investments in its
business during 2018, with total capital expenditures for the fourth
quarter of 2018 of $25.6 million and $101.6 million for the full year of
2018.

Free cash flow was $105.2 million in the fourth quarter of 2018, which
was $43.7 million, or 71% higher than in the prior year period. Free
cash flow for the full year 2018 was $457.8 million, which was $115.9
million, or 24% higher than 2017. Free cash flow conversion increased
10% in 2018 to 76%. Cash flows used in financing activities for the
fourth quarter were $27.0 million primarily due to the Company’s stock
repurchases, described below. The Company returned $400.0 million of
capital to shareholders in 2018 in the form of dividends and stock
repurchases, as reflected in cash flows used in financing activities.

The Company’s available liquidity as of December 31, 2018 was $326.0
million, consisting of cash and cash equivalents of $205.6 million
combined with $120.4 million available under its recently-amended
Asset-Based Revolving Credit Agreement.

Capital Allocation

The Company repurchased 1.1 million shares, totaling approximately $25.9
million, of Warrior’s common stock in the fourth quarter of 2018. For
the full year 2018, the Company repurchased 1.6 million shares, or 3% of
outstanding shares, totaling approximately $38.0 million, under the
Company’s Stock Repurchase Program which authorized the Company to
repurchase up to an aggregate of $40.0 million of the Company’s
outstanding common stock.

During 2018, Warrior returned $400 million of capital to stockholders
and has returned $1.2 billion since its IPO. Warrior remains committed
to returning cash to stockholders through dividends and stock
repurchases.

Regular Quarterly Dividend

On February 19, 2019, the board of directors of the Company (the
“Board”) declared a regular quarterly cash dividend of $0.05 per share,
totaling approximately $2.6 million, which will be paid on March 11,
2019, to stockholders of record as of the close of business on March 4,
2019.

S&P Upgrade

On January 23, 2019, the Company announced that Standard & Poor’s
(“S&P”) had affirmed the Company’s corporate credit rating of “B+”,
raised the issue level rating on the Company’s Senior Secured Notes due
2024 (the “Notes”) from “BB-” to “BB” and raised the recovery rating to
1 from 2. According to S&P, the upgrade reflects the Company’s strong
financial performance, strong credit metrics and a stable outlook. The
upgrade further reflects S&P’s view about the Company’s ability to
maintain strong EBITDA margins, low debt leverage and strong free cash
flow in 2019.

Restricted Payment Offer and Concurrent Tender Offer

On February 21, 2019, the Company announced in a separate press release
the commencement of an offer to repurchase (the “Restricted Payment
Offer”) up to $150.0 million aggregate principal amount of its 8.00%
Senior Secured Notes due 2024 (the “Notes”) at a repurchase price of
103% of the principal amount plus accrued and unpaid interest to the
repurchase date. The Restricted Payment Offer is being made in
accordance with the indenture governing the Notes to provide the Company
with the ability in the future to declare special dividends and/or
repurchase shares of common stock of an estimated $150 million. The
Company concurrently announced the launch of a tender offer (the “Tender
Offer”) to repurchase up to $150 million aggregate principal amount of
its Notes at a repurchase price of 104.25% of the principal amount plus
accrued and unpaid interest to the repurchase date. This press release
is not an offer to purchase or a solicitation of an offer to sell the
Notes in the Restricted Payment Offer or the Tender Offer.

Blue Creek Update

Warrior continues to evaluate a number of development alternatives for
Blue Creek. The Company is currently studying the feasibility of a
single longwall operation that could produce up to 3.0 million short
tons annually. While Warrior continues to optimize project parameters,
preliminary engineering studies have estimated that initial capital
expenditures of approximately $550 million to $600 million would be
required to be spent over five years in order to develop this project.
Once developed, Warrior believes that Blue Creek has the potential to
offer robust project returns across a range of metallurgical coal prices:

Illustrated Returns based on Assumed Metallurgical Coal Prices(1)
  $150   $175   $200
Net present value (“NPV”)(2) (8%) $842mm   $1,302mm   $1,761mm
Per share (3) $16.34 $25.25 $34.16
Internal rate of return (“IRR”)(2) 24% 31% 37%
 

(1) These assumed prices are in metric tons and are for
illustrative purposes only and are not a predictor of actual
returns from the development of this project. These prices were
selected because they reflect market expectations of long term
pricing trends in met coal but there can be no guarantee of prices
prevailing at any time in the future.

 

(2) TheNPV and IRR calculations are for
illustrative purposes only and are based on estimates and
assumptions that may change, including due to future developments.

 

(3) NPV per share based on outstanding shares of 51.6
million as of February 15, 2019.

 

Warrior controls approximately 114 million short tons of reserves at
Blue Creek and has the ability to acquire adjacent reserves that would
increase total reserves to over 170 million short tons at Blue Creek.
Based on our preliminary engineering studies indicating up to 3.0
million short tons of annual production from a single longwall
operation, Blue Creek is expected to have a mine life in excess of 40
years. Also based on our preliminary engineering studies, we believe
that the geology and reserve base of Blue Creek could support a second
longwall that would be expected to increase annual production up to 6.0
million short tons, which would provide Warrior with future growth
opportunities at Blue Creek.

Our third party reserve report indicates that Blue Creek would produce a
premium High Vol A metallurgical coal that is characterized by
low-sulfur and high coke strength after reaction (“CSR”). High Vol A has
traditionally priced at a slight discount to the Australian Premium Low
Vol and the U.S. Low Vol coals; however, recently has been priced at or
slightly above these coals. Warrior expects High Vol A coals will
continue to become increasingly scarce as a result of Central
Appalachian producers mining thinner and deeper reserves, which is
expected to continue to support prices. Warrior believes this creates an
opportunity for Blue Creek to take advantage of favorable pricing
dynamics driven by the declining supply of premium High Vol A coals.

Given the positive results of the work completed to date, Warrior plans
to pursue a number of activities in 2019 to maintain project momentum
and optimize Blue Creek’s project parameters. These activities are
expected to include additional core drilling, finalizing the rail loop
design, and permitting the slurry storage and coarse refuse areas.
Additionally, Warrior plans to continue to explore potential off-take
arrangements as well as project financing alternatives. The Company
expects Blue Creek will be fully permitted and ‘shovel ready’ by early
2020 at which point Warrior would be in a position to make a decision on
development. “We are extremely excited by the potential we see at Blue
Creek and believe the project could become the cornerstone of our future
portfolio. We look forward to providing updates to our shareholders on
our progress and key milestones over the next twelve months,” said Mr.
Scheller.

Company Outlook

The Company’s outlook for 2019 is subject to many risks that may impact
performance, such as market conditions in the steel and met coal
industries and overall global economic and competitive conditions, all
as more fully described under Forward-Looking Statements. As a result of
strong production in 2018, the Company expects to complete a total of
five longwall moves in 2019, as compared to three longwall moves in
2018. Despite additional longwall moves, the Company is increasing the
upper end of its guidance range for coal production and coal sales for
2019 compared to guidance provided for 2018. The Company’s guidance for
the full year 2019 is summarized below and reflects management’s view of
continued operational strength and expected market conditions:

Coal sales         7.1 – 7.6 million short tons
Coal production 7.1 – 7.6 million short tons
Cash cost of sales (free-on-board port) $89 – $95 per short ton
Capital expenditures $100 – $120 million
Selling, general and administrative expenses $32 – $36 million
Interest expense, net $40 – $42 million
Noncash deferred income tax expense 23% – 25%
Cash tax rate 0%
 

Key factors that may affect outlook include:

  • 5 planned longwall moves in 2018 (1 – Q1, 1 – Q2, 1 – Q3, and 2 – Q4)
  • HCC index pricing
  • Exclusion of other non-recurring costs

The Company’s guidance for its capital expenditures consists of
sustaining capital spending of approximately $70 – $87 million,
including regulatory and gas requirements, and discretionary capital
spending of $30 – $33 million for various operational improvements.

The Company does not provide reconciliations of its outlook for cash
cost of sales (free-on-board port) to cost of sales in reliance on the
unreasonable efforts exception provided for under Item 10(e)(1)(i)(B) of
Regulation S-K. The Company is unable, without unreasonable efforts, to
forecast certain items required to develop the meaningful comparable
GAAP cost of sales. These items typically include non-cash asset
retirement obligation accretion expenses, mine idling expenses and other
non-recurring indirect mining expenses that are difficult to predict in
advance in order to include a GAAP estimate.

Use of Non-GAAP Financial Measures

This release contains the use of certain U.S. non-GAAP (“Generally
Accepted Accounting Principles”) financial measures. These non-GAAP
financial measures are provided as supplemental information for
financial measures prepared in accordance with GAAP. Management believes
that these non-GAAP financial measures provide additional insights into
the performance of the Company, and they reflect how management analyzes
Company performance and compares that performance against other
companies. These non-GAAP financial measures may not be comparable to
other similarly titled measures used by other entities. The definition
of these non-GAAP financial measures and a reconciliation of non-GAAP to
GAAP financial measures is provided in the financial tables section of
this release.

Conference Call

The Company will hold a conference call to discuss its fourth quarter
2018 results today, February 21, 2019, at 4:30 p.m. ET. To listen to the
event live or access an archived recording, please visit http://investors.warriormetcoal.com/.
Analysts and investors who would like to participate in the conference
call should dial 1-844-340-9047 (domestic) or 1-412-858-5206
(international) 10 minutes prior to the start time and reference the
Warrior Met Coal conference call. Telephone playback will also be
available from 6:30 p.m. ET February 21, 2018 until 6:30 p.m. ET on
February 28, 2019. The replay will be available by calling:
1-877-344-7529 (domestic) or 1-412-317-0088 (international) and entering
passcode 10127170.

About Warrior

Warrior is a large scale, low-cost U.S. based producer and exporter of
premium HCC, operating highly efficient longwall operations in its
underground mines located in Alabama. The HCC that Warrior produces from
the Blue Creek coal seam contains very low sulfur and has strong coking
properties and is of a similar quality to coal referred to as the
premium HCC produced in Australia. The premium nature of Warrior’s HCC
makes it ideally suited as a base feed coal for steel makers and results
in price realizations near the Australian LV Index. Warrior sells all of
its met coal production to steel producers in Europe, South America and
Asia. For more information about Warrior, please visit www.warriormetcoal.com.

Forward-Looking Statements

This press release contains, and the Company’s officers and
representatives may from time to time make, forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as
amended and Section 21E of the Securities Exchange Act of 1934, as
amended.
All statements, other than statements of historical
facts, included in this press release that address activities, events or
developments that the Company expects, believes or anticipates will or
may occur in the future are forward-looking statements, including
statements regarding 2019 guidance, sales and production growth, ability
to maintain cost structure, demand, the future direction of prices,
expected capital expenditures and future effective income tax rates.
The
words “believe,” “expect,” “anticipate,” “plan,” “intend,” “estimate,”
“project,” “target,” “foresee,” “should,” “would,” “could,” “potential,”
or “outlook,” “guidance” or other similar expressions are intended to
identify forward-looking statements. However, the absence of these words
does not mean that the statements are not forward-looking. These
forward-looking statements represent management’s good faith
expectations, projections, guidance or beliefs concerning future events,
and it is possible that the results described in this press release will
not be achieved.
These forward-looking statements are subject to
risks, uncertainties and other factors, many of which are outside of the
Company’s control, that could cause actual results to differ materially
from the results discussed in the forward-looking statements, including,
without limitation, fluctuations or changes in the pricing or demand for
the Company’s coal (or met coal generally) by the global steel industry;
federal and state tax legislation; changes in interpretation or
assumptions and/or updated regulatory guidance regarding the Tax Cuts
and Jobs Act of 2017; legislation and regulations relating to the Clean
Air Act and other environmental initiatives; regulatory requirements
associated with federal, state and local regulatory agencies, and such
agencies’ authority to order temporary or permanent closure of the
Company’s mines; operational, logistical, geological, permit, license,
labor and weather-related factors, including equipment, permitting, site
access, operational risks and new technologies related to mining; the
timing and impact of planned longwall moves; the Company’s obligations
surrounding reclamation and mine closure; inaccuracies in the Company’s
estimates of its met coal reserves; any projections or estimates
regarding Blue Creek, including whether this project is developed and,
if it is, the possible returns from this project, the Company’s
expectations regarding its future tax rate as well as its ability to
effectively utilize its NOLs; the Company’s ability to develop or
acquire met coal reserves in an economically feasible manner;
significant cost increases and fluctuations, and delay in the delivery
of raw materials, mining equipment and purchased components; competition
and foreign currency fluctuations; fluctuations in the amount of cash
the Company generates from operations, including cash necessary to pay
any special or quarterly dividend or the timing and amount of any stock
repurchases the Company makes under its stock repurchase program; the
Company’s ability to comply with covenants in its credit facility or
indenture relating to the Notes; integration of businesses that the
Company may acquire in the future; adequate liquidity and the cost,
availability and access to capital and financial markets; failure to
obtain or renew surety bonds on acceptable terms, which could affect the
Company’s ability to secure reclamation and coal lease obligations;
costs associated with litigation, including claims not yet asserted; and
other factors described in the Company’s Form 10-K for the year ended
December 31, 2018 and other reports filed from time to time with the
Securities and Exchange Commission (the “SEC”), which could cause the
Company’s actual results to differ materially from those contained in
any forward-looking statement.

Contacts

For Investors:
Dale W. Boyles, 205-554-6129
[email protected]

For Media:
William Stanhouse, 205-554-6131
[email protected]

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