Feb 3, 2015
Executives
Dawn M. Theel - Investor Relations John W.
Eaves - President and Chief Executive Officer Paul A. Lang - Executive Vice President and Chief Operating Officer John T.
Drexler - Senior Vice President and Chief Financial Officer
Analysts
Mitesh Thakkar - FBR Capital Markets & Co. Brandon Blossman - Tudor, Pickering, Holt & Co.
Michael Dudas - Sterne Agee & Leach Inc Caleb M.J. Dorfman - Simmons & Company International John Bridges - JP Morgan Chase & Co.
Evan Kurtz - Morgan Stanley Lucas N. Pipes - Brean Capital, LLC.
Jeremy Sussman - Clarkson Capital Markets David Gagliano - Bank of Montreal Paul S. Forward - Stifel, Nicolaus & Co., Inc.
Brett Levy - Jefferies & Co. Matthew J.
Korn - Barclays Capital Inc. Justine B.
Fisher - Goldman, Sachs & Co.
Operator
Good day and welcome to the Arch Coal Incorporated Fourth Quarter 2014 Earnings Release Conference Call. Today’s conference is being recorded.
At this time, I would like to turn the conference over to Dawn Theel with Investor Relations. Please go ahead ma'am.
Dawn M. Theel
Good morning from St. Louis and thank you for joining us today.
Before we begin, let me remind you that, certain statements made during this call, including statements relating to our expected future business and financial performance may be considered forward-looking statements according to the Private Securities Litigation Reform Act. Forward-looking statements, by their nature address matters that are, to different degrees, uncertain.
These uncertainties, which are described in more detail in the annual and quarterly reports that we file with the SEC, may cause our actual future results to be materially different than those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by law.
I would also like to remind you that you can find a reconciliation of the non-GAAP financial measures that we plan to discuss this morning at the end of our press release, a copy of which is in posted to the Investors section of our website at archcoal.com. On the call this morning, we have John Eaves, Arch’s President and CEO; Paul Lang, Arch’s Executive Vice President and COO; and John Drexler, our Senior Vice President and CFO.
John, Paul and John will begin the call with some brief formal remarks, and thereafter, we’ll be happy to take your questions. John?
John W. Eaves
Good morning. Today Arch reported it is fourth quarter financial results and recorded $116 million of adjusted EBITDA.
That represents our highest level of adjusted EBITDA in over a year. In addition, we ended 2014 with more than $1.2 billion in total available liquidity.
For the full-year we shipped 134 million tons of coal, which was impacted by rail service shortfalls in the PRB over the course of last year. We did see an improvement in performance by the rail carriers in the second half of year which enabled us to catch up on a portion of our delayed shipments.
Looking ahead, we believe the railroads will continue to make progress and service levels will return to normal in 2015. Rail constraints weren't the only headwinds facing the US coal industry in 2014.
Unfavorable weather patterns including a mild summer followed by a muted start to the current winter season has dampened domestic coal consumption. Against that background, Arch's results demonstrate that with our commitments to operational excellence and our diversified low-cost asset portfolio, we can manage our cost and drive improvement results in a challenging environment.
We successfully reduced our cash cost in the Powder River Basin Appalachia regions over the course of 2014 and further reduced our capital outlays. That success is reflected in the 2015 guidance we have provided.
Additionally, we have built a solid book of business for the year with higher contracted prices in two of our segments that position Arch well for the coming year. In his prepared remarks, Paul will discuss the current outlook for our operations.
Now let's turn to current market outlooks. As the domestic thermal markets continue to evolve, we expect the U.S.
coal market fundamentals to be challenged in 2015. So far, warm winter weather has decreased heating degree days by 5% and contributed to climbing natural glass storage levels and depressed pricing.
As result, coal stockpiles at U.S. generators ended 2014 around 145 millions tons, which is essentially flat versus the prior year, but still one of the lowest year end levels we've seen since 2006.
That said, PRB coal remains competitive and we currently expect regional demand to grow modestly in 2015 as utilities receive their contracted shipments and stockpiles remain lower than the rest of the country. As you know, the MATS regulations are slated to take effect this year.
We estimate that since 2012, the coal industry has retired approximately 20 gigawatts of coal generating capacity and we expect another 40 gigawatts or so will retire by 2018. In 2015, we expect roughly half of that capacity will be retired, meaning a reduction of up to 25 million tons of domestic demand on annualized basis.
In light of these market trends, we are taking a very conservative approach to 2015. Currently, we expect total US coal consumption to be down between 50 million and 60 million from 2014 levels.
We also anticipate that there will be coal response during the year as demand declines. In particular, we expect the structural decline of central App to continue and output in the region to fall below an unprecedented 100 million tons.
On the international front, global thermal prices continue to be pressured by oversupply, causing US exports to fall below 100 million tons in 2014. We expect that trend to continue in 2015 as it remains uneconomic for most US suppliers to compete at these low prices, especially in light of the strengthening US dollar.
However, the US isn't the only country expected to rationalize coal supply in 2015. Recent announcements have indicated that Indonesia and China are calling for reduced domestic production targets and Australian producers are publicly reconsidering coal expansion projects.
We don't see a near-term catalyst for the sea-borne market but continue to believe in its long-term growth. Countries like India, Japan and even Europe have sustained import needs and are currently constructing new coal-based generating capacity to meet rising power demand.
With that in mind the groundwork Arch continues to do through its international offices and export projects is helping to position the Company for when the market tightens fundamentals improve. Turning now to metallurgical markets, we expect to see continued weakness over the course of 2015.
Global prices continue to bounce along what we believe is the bottom as the latest benchmark price settled down just $2 per metric ton versus the previous quarter. We anticipate the bulk of the announced supply cuts will impact the market during 2015 and could spark additional supply rationalization, but with decelerating demand growth in some regions and incremental supply still available, it will take some time.
Absent any market disruption, we do not expect supply and demand to be in balance until 2016. The U.S.
did see met exports in Europe reach near-record levels during 2014. With projected growth in the European steel sector in 2015, we could see comparable U.S.
met volumes going into the Atlantic Basin, though with softer pricing. The North American steel sectors also projected to grow despite recent closures, as automotive demand remains healthy and the Canadian and Mexican demand remains high.
At Arch, we shipped 1.9 million tons of met coal in the fourth quarter of 2014, representing the strongest met shipment level we've had in the past six quarters. For full-year 2014, Arch sold 6.9 million metallurgical tons if prices averaging $81 per short ton.
We hit the high end of our guidance range due to the outstanding operational performance in our Appalachian segment. The successful ramp-up of the Leer mine was a major achievement for us in 2014.
By bringing Leer online, we have taken an impressive step down on the cost curve and improved our coking coal qualities. Now denying that the current market conditions aren't fun, but we are extremely pleased with the performance of Leer so far and are excited to demonstrate what it can do for Arch in the future.
Finally, I'd like to mention a few other major achievements for Arch this past year. We delivered another strong safety and environmental performance in 2014, turning in our best safety and environmental records since 2010.
In addition, several of our operations, Coal Creek and West Elk, reached new safety and environmental milestones during the year. I want to congratulate our employees on the continued progress towards our ultimate goal of a perfect zero.
In closing, I want to reiterate Arch's commitment to managing through these challenging market conditions. By being market responsive and relentlessly focusing on controlling the variables we can, our cost, our capital outlays and our liquidity, we are successfully managing the business and positioning the Company to emerge from this market cycle as a strong industry player.
With that, I will now turn the call over to Paul Lang, Arch's COO for a discussion of our recent operating performance and outlook for 2015. Paul?
Paul A. Lang
Thanks, John. This morning I'm going to discuss our operating performance in 2014 and set the stage for our plans and expectations for 2015.
During the fourth quarter, our Powder River Basin cash costs continued to improve and shipment levels stabilized. For the full-year 2014, our cash cost in the segment increased slightly as rail service impeded our shipment levels, especially during the first half of the year.
We expect the improvements we've seen from the rail carriers to continue into 2015. with that improvement in rail service together with reduced cost expectations stemming from our ongoing cost containment efforts and lower diesel prices should more than offset the impact of higher sale-sensitive and inflationary cost pressures in the region.
As such, we expect our cash cost to be lower in 2015 than 2014 and in the range of $10.50 to $11 per ton with slightly higher costs occurring in the first quarter. Given the supply and demand fundamentals that we currently see, we anticipate our mines in the region will operate at levels similar to 2014.
Relative to diesel let me expand briefly on our exposure to falling oil prices and its impact to our operations. In 2015 we’re forecasting diesel consumption across our operating platform of approximately 60 million to 65 million gallons, of which 80% is used in the Powder River Basin.
Our strategy has been to acquire out-of-the money call options that protect us from spikes in diesel prices but leave us open to participate in price reductions when they occur. As such, we benefit from lower diesel prices in 2015, which has been contemplated in our cash cost guidance.
This anticipated benefit is based on a year-over-year reduction in diesel prices of approximately $0.80 per gallon. At this time, we’ve elected not to lock in our full prices for the balance of the year and have no restriction on our ability to participate in further savings if oil prices continue to decline.
As we move through the year, we’ll continue to evaluate our exposure and act accordingly. In Appalachia we achieved an 11% reduction in our cash cost in the fourth quarter, driven by an outstanding performance at our Leer mine and continuing improvements at Mountain Laurel.
As a result, we're able to increase our cash margins per ton over four fold when compared to the previous quarter. For full-year 2014 our cash cost performance in the region improved by 5% as compared to 2013.
Our volume levels remain flat year-over-year and pricing fell slightly as pressure in the metallurgical and thermal markets continued build. Despite these market challenges, we saw a cash margin improvement in the region as we realigned our platform towards lower cost mines.
Looking ahead, we anticipate comparable production levels in the region in 2015 with a similar percentage of metallurgical and thermal productions last year. At the same time, we are forecasting cash cost to decline versus 2014 and range from $57.75 to $61.75 per ton.
With the smooth ramp-up of the Leer mine in 2014, we expect its positive influence on our cost structure to continue this year. Over the past 12 months, we've made tangible progress shifting our production in Appalachia towards low-cost, high margin metallurgical production.
Using the longwalls at Leer and Mountain Laurel to anchor production and scaling the other operations as required, we expect we can continue to generate strong positive cash flow from this segment even in these challenging market conditions. We are also moving forward with the permitting and engineering on the other high-quality metallurgical reserves in the Tygart Valley area.
These reserves, which are similar to Leer in quality, can support several new operations including another longwall mine. This reserve offers a unique, organic growth opportunity for us when the markets start to turn.
While now is not the time to invest capital into developing them, they are a valuable piece of our future metallurgical platform. In our Bituminous Thermal segment we saw cash cost rise as expected in the fourth quarter due to an increase of development cost and planned maintenance activity in the region.
For full-year 2014, we saw cash costs decrease about 4% when compared to the prior year, in part from higher shipment levels in the region. Both mines in this segment had an exceptional year and we were able to run West Elk close to capacity and capture various domestic and niche international market opportunities.
In 2015, we expect cash cost in the segment to be slightly above our fourth quarter performance as development costs should remain steady during the year and volumes are expected to be slightly below our 2014 run rates. Lastly, I want to touch on our sales commitments.
On the thermal side we are over 90% committed, based on the midpoint of our guidance range for 2015 with higher contracted prices in our thermal focused region versus the prior year. In the Powder River Basin we have rolled roughly 5 million tons from 2014 to 2015 due to rail performance issues and have maintained the value of those contracts through repricing and additional sales.
We currently believe there will be a modest demand growth in the Powder River Basin during the year, but that could be further tempered by week utility burn this winter. In our Appalachian and Bituminous Thermal segments, the industrial sector appears to be steady, which is offsetting some of the supply demand imbalance and low natural gas prices in the traditional utility markets in the region.
Looking ahead, we have a solid start to our 2016 commitments with almost half of our volume booked based on 2015 expected production levels at attractive prices. We will continue to be active in the market in the coming months so as to position our business for the outer years.
On the metallurgical side, given where the markets currently stand, we are targeting similar sales volumes in 2015 as 2014 and guiding to a range of 6.3 million to 7 million tons. To date, we've booked sales of 4 billion tons of which 3.9 million is priced, an average of $77.45 per ton and another 100,000 are committed, but unpriced.
We currently have more than 60% of our expected metallurgical sales committed for 2015 based on the midpoint of our guidance with a majority of those placed to the domestic market. During the third quarter, we extended some agreements with a major customer that impacted our previously contracted volumes and prices.
Overall, we lowered our 2015 pricing, but in return increased our committed tons in 2015 and added new sales to 2016. By doing this transaction, we are able to maintain our overall value and reduce some of the volume risk associated with our plan.
Although global metallurgical prices remain low, we now have a cost structure that allows us to continue to participate in the market. We believe the current prices are unsustainable for the long-term and that additional supply cuts could be announced by industry during the year, given that investment in this space has all, but stopped.
In all, we feel good about how the mines performed in 2014 and think we are well-positioned for 2015. With that I will turn the call over to John Drexler, Arch’s CFO to update us on our consolidated financial results, liquidity and guidance.
John?
John T. Drexler
Thanks, Paul. As John and Paul have described, despite the challenges, Arch continues to successfully manage the business in this difficult market environment by streamlining our platform, reducing our costs, managing our capital spend and controlling our cash flow and liquidity.
As we look to 2015, it is apparent that headwinds remain, but we are confident we are taking the right steps to continue to successfully navigate this portion of the market cycle. First, let’s discuss cash flow and liquidity management.
We ended 2014 with nearly $1 billion in cash and a total liquidity position of more than $1.2 billion taking into account the undrawn portion of our credit facilities. We entered 2014 with $1.16 billion in cash in short-term investments.
Through a combination of strong cost control, prudent capital management, monetization of several non-core assets and multiple other cash management efforts, we were able to contain cash outflows to $177 million for 2014. Looking ahead to 2015, with the thermal portfolio that is heavily committed at prices above what we achieved in the prior year in our PRB and bituminous thermal segments, a met portfolio that is 60% and an expectation of lower cash costs, we anticipate expanding cash margins in our two most significant regions.
With the expectation of improved results in 2015, we anticipate our cash flow will be comparable to 2014. As part of our ongoing financial strategy we have decided to suspend our current dividend at this time.
In light of the continued weakness in coal markets, we believe that is a prudent step toward preserving our liquidity. As a reminder, we have no major financial maintenance covenants until June of 2015.
At that time a relaxed senior secured leverage ratio covenant of five times steps back in on the $250 million revolver. Today, we have only a minimum liquidity covenant of $550 million in place tied only to any borrowings under that revolver, and we have no meaningful debt maturities until mid-2018.
Based on our current projections, we expect to remain in compliance with our covenants in 2015. Factoring all of this together, we continue to believe that Arch is well-positioned to weather the market downturn with ample liquidity and extended maturity runway, modest and manageable cash outflows and a solid book of business for 2015.
In addition to the cost containment that Paul discussed, we continue to make significant progress in aligning capital spending with the realities of current market dynamics without underinvesting in our equipment portfolio. During the fourth quarter, capital spending totaled $29 million.
After adjusting for the LBA payment made in the second quarter, our full year CapEx spending totaled $88 million, which represents a meaningful reduction from the prior year. In fact since 2012 we have reduced capital expenditures by nearly $250 million.
Looking ahead to 2015, as reflected in our CapEx guidance we expect to maintain these reduced levels and will do so for as long as these challenging market conditions persist. Turning to our fourth-quarter results, I would like to expand on two significant items that were mentioned in the release.
First is part of our continuing focus on cost containments. The Company made the decision to freeze its employee pension plan.
While never an easy decision, this resulted in a pension curtailment gain of $27 million during the quarter or $0.08 per share and reduces our ongoing expense by approximately $20 million annually. It should be noted that the majority of the fourth quarter benefit is recognized as a reduction in cost of sales, but is not included in our reported per ton results.
Second, our review of the recoverability of deferred tax assets during the quarter resulted in a charge of $169 million or $0.80 per share to increase the valuation allowance and was recorded as an adjustment in the tax provision. Turning now to our updated expectations for 2015.
In the PRB we expect cash cost in the range of $10.50 to $11 per ton a meaningful reduction from 2014 levels. In Appalachia, we will continue to drive improvements into the cost structure and expect cost to be in the range of $57.75 to $61.75 per ton.
In the bituminous thermal, we expect cash cost in the range of $22 to $26 per ton. In other financial guidance we expect our CapEx for 2015 to be between $145 million and $160 million included in that range is the fourth of five annual $60 million LBA payments for the South Hilight reserve.
DD&A to be the range of $410 million to $440 million, total interest expense to be between $385 million and $395 million, our cash interest expense will between $360 million and $370 million for 2015. During 2014, we successfully reduced our SG&A expenses by $20 million, a reduction of 15%.
As we turn to 2015, we SG&A expenses to be between $115 million and $121 million. However, we will continue to look for ways to reduce this cost.
We also expect the tax benefit for the year in the range of zero to 10%. With challenging market conditions likely to continue in 2015, we expect to build on the successful actions we have taken over the last several quarters, including managing costs, controlling CapEx and limiting cash outflows while preserving liquidity.
Our reconfigured platform of low cost large scale complex that generate positive cash flow in soft market environments will allow us to manage thought the difficulties, but more important will position Arch to create substantial value as core market rebound. With that we are ready to take questions.
Operator, I will turn the call back over to you.
Operator
[Operator Instructions] And we’ll take our first question from Mitesh Thakkar. Your line is open.
Mitesh Thakkar
Thank you. Good morning, gentlemen.
John W. Eaves
Hi, Mitesh.
Paul A. Lang
Good morning, Mitesh.
Mitesh Thakkar
Paul, to start with you, congratulations on all the things you are doing on the cost side. It definitely shows up.
On the fuel side, you gave excellent color with respect to how should we think about the expectations and what you are doing to mitigate any changes in fuel prices. Can you give a little bit more color with respect to how should we think about protection against any increase in diesel prices?
I know you mentioned that you are buying out of the money call options. Anything else and how should we think about sensitivities to any change in diesel prices versus your cost guidance?
John T. Drexler
Hey, Mitesh, this is John Drexler. I guess as we go back over the last several years we've of implemented a policy as Paul describe where buying out of the money call options to protect against price increases in diesel.
Essentially doing the premium is an insurance policy and its fairly modest premium at least in approach that we’ve taken. It’s allowed us to benefit in the volatile movement we’ve seen downward as Paul described we are Arch is pretty significantly in the downward pricing in diesel.
As we sit here today we are going to continue to look at the market and continue to evaluate opportunities to protect and potentially lock in the types of benefits that we’ve seen develop in that portion of our cost portfolio.
Mitesh Thakkar
Okay. Let me rephrase that a little bit.
Does the cost guidance reflect current diesel price or does it reflect your hedging as well?
Paul A. Lang
No Mitesh, I think the way you should view that number of $0.80 per gallon based on diesel price is effectively today.
Mitesh Thakkar
Okay. Well on the Bituminous Thermal side, under what scenario can your cost in bituminous thermal go up to your high end of the range?
Because if you look at versus your 2014 level, the higher end of the range is almost 25% higher.
Paul A. Lang
Mitesh, I think what we are trying to do on the guidance with Bituminous Thermal is leave open the fact that as we've added into this year we have a little bit larger open position. We are not expecting anything at the mines to change materially.
And we are simply cautioning on the fact that the gases down and demand is down a little bit and we probably won't have the pickup from the PRB that we saw less than bit so we are cautious on the volume side which is really driving our guidance.
Mitesh Thakkar
Okay. Perfect.
Just one question on the financing side, if I may. John, how should we think about any opportunistic buybacks of [bond], if that is in your near-term focus or is it something which you would want the market to recover a little bit before start thinking about deleveraging?
John T. Drexler
Mitesh, this is John Drexler, obviously we worked real hard to put ourselves in a position to have meaningful liquidity a long runway from a maturity perspective, obviously we described over the course of the prepared remarks that continue to be a lot of headwinds in the markets themselves as well, so I think liquidity continues to be a focus, we’ll look closely at that as we’ve demonstrated through the course of the market cycle here if we feel there is opportunities to take advantage and to create value, we’ll do so and that includes capital structure. But right now with where our markets are at I think our focus is going to continue to be on liquidity.
John W. Eaves
Yes, Mitesh this is John, I mean I think John Drexler and his team had done a great job on liquidity, we don’t feel like we have to do anything, but we are always exploring how we can create value. And that’s something we continually do.
I think we’ve done a good job thus far it will continue to look for ways to do that. But clearly if you like we are in a position, we don’t have to do anything unless it’s in the best interest of our investors.
Operator
Okay. And we’ll go to our next question from Brandon Blossman.
Your line is open.
Brandon Blossman
Good morning, guys.
John W. Eaves
Good morning Brandon.
John T. Drexler
Good morning Brandon.
Brandon Blossman
Okay, Just for fun I will follow up on Mitesh's question on the bond buyback, just larger in scope. Liquidity is obviously excellent right now, cost structure improving fairly dramatically over the last year or so, markets have at least stabilized.
What needs to change out there as far the macro for you to get more comfortable with not having to hold quite such a big liquidity position?.
John W. Eaves
Brandon, this is John. I think more comfort in the market, so I mean we are seeing certainly oversupply in the global markets, gas prices have gone sub three, inventories ended the year to about a $145 million.
We just need to see some stabilization in met pricing, some directional changes in the thermal prices. We think we’ll see that there was about 25 million to 30 million tons of supply cut backs announced last year, we didn’t really see much of an impact from that.
We think as we move through 2015 we’ll see more of an impact from that. I think where benchmark pricing is right now at 117, you may see some additional cuts, but we just need to see a little more clarity on the market.
What we have done Brandon as we position ourselves very well on the cost curve. If you look where we are on the thermal cost curve where we are on the met cost curve I think we are well-positioned out only to generate cash margins in this tough environment.
But really positioned well to capitalize when we see the market correction and that's really the way we are managing our business. To answer your question I think we just need to see a little bit more clarity and improve direction on pricing whether it is thermal.
Brandon Blossman
Okay, all fair comments and we will look to see what happens through 2015. Follow-up question, this is also a forward-looking question as we talk about or contemplate at least permitting activity on an incremental Leer-like mine.
What has been the market acceptance of the Leer product and what do you think the future holds for that, particularly in the US market?
Paul A. Lang
Yes, this is Paul. I got to say we have been pleasantly surprised.
Leer has got a very good cost structure and it is one of those weird things where the quality out of the mine was actually a little bit better than we forecasted. And we have seen great acceptance of that mine not only on the domestic side, but the International side.
I think we shipped about 2 million tons of Leer last year on the export basis. And frankly heading to this year Leer is I think in very good shape and I don't think we will have any trouble placing those tons.
Brandon Blossman
Okay, thank you very much, Paul.
Operator
Now we’ll take our next question from Michael Dudas of Sterne Agee.
Michael Dudas
Good morning, gentlemen, Dawn.
John W. Eaves
Good morning.
Michael Dudas
It’s great. You enjoy the weather here in New York today by the way.
It is really what you guys need.
John W. Eaves
I saw the smell.
Michael Dudas
We have plenty, we would love to ship some out. First question for John or Paul.
I think it is appropriate to take a cautious tone towards the US thermal markets this year. Of how you are looking at the market, is natural gas more of a threat, is the retirements more of a threat, lack of an economy more of a threat?
If you could talk a little bit about that because gas is coming to a level where we are getting more interested in folks thinking about any displacement from coal from gas. If you can share some of your thoughts on that, I would appreciate it.
John W. Eaves
Michael this is John. I mean you got a lot of headwinds coming into 2015, and with those headwinds we think we position ourselves very well with a large percentage of commitments, in fact if you look at our thermal commitments.
I’m not sure, I remember when we’ve been in better shape. So we feel good about where we are, but you know when you look at natural gas prices trading where they are, we haven’t seen any impact on our PRB demand, because the natural gas prices we are seeing in other areas I think, would be seeing it, Western would be seen it and certainly Central App is seeing it so that provides a little challenge there.
We finished the year with145 million tons of inventory, that’s quite frankly a little bit higher than what we anticipated, we had a slow start to the winter, consumption was off in fourth quarter. So we will see how the winter plays out if we had an extended period of winter, we have a good summer, I think PRB should be fine, but there is no arguing the fact that mass takes effect this year it is going to impact about 25 million tons of coal demand and then if you look at natural gas and some of the other headwinds, we think all-in its probably 50 million, 60 million tons of lost coal demand in 2015.
Again, I think we’ve strategically put ourselves in a good position with our thermal commitments and on the met side having 60% of that coal under contract makes us feel pretty good. So we are being cautious, Paul and his team have done a great job in making sure that we're on the extreme low end of the cost curve and we feel like the fact that we are generating good cash margins at all our operations right now, it positions us very well when this market starts to improve.
Michael Dudas
John those are very fair comments and I agree. My follow-up would be for John Drexler, just looking - remember – asset sale proceeds that you generated in 2014 and is there opportunities to generate like amounts in your assets and 25th team?
John T. Drexler
Michael, really the sales that we're focused and highlighted by us quite earlier in the year generated asset proceeds, cash proceeds of about $46 million, if you look on the cash flow there are some additional proceeds from some other smaller sales that occurred over the course of the year that you kind of total up. As we’ve indicated on previous discussions and we’ve been very consistent with, we will continue to look at opportunities if there is value to be generated for non-core pieces of our business that’s been our approach, it’s resulted in some of the transactions that we’ve occurred.
I don’t think we can speculate as we move forward what type and level that will be at as we go forward.
John W. Eaves
Michael this is John, just a follow-up on that. I mean you know we’ve been pretty proactive over the last 24-months starting in 2013 with a monetization of canyon fuels and as John said ad car hazard.
We’ve positioned ourselves very well, we’ve put that cash on our balance sheet, but given where we are liquidity wise, we just don’t feel like we have to do anything that would be a bad deal. So as John indicated to the extent, somebody would come on, place value on our non-strategic assets, more value than we could create ourselves as.
A management team, we would certainly be compelled to look at transactions that don’t feel like we have to do anything.
Operator
And we’ll take our next question from Caleb Dorfman of Simmons & Company.
Caleb M.J. Dorfman
Thanks for taking the question.
John W. Eaves
Good morning Caleb.
Caleb M.J. Dorfman
First, looking at the PRB, obviously you do have a good committed position for 2015, but 2016 there's a lot of tonnage left to sell. Can you discuss how you are thinking about rolling in that tonnage?
Are the prices that we are looking at in the financial market for 2016 down in mid-11 actually accurate or is there some sort of disconnect between the financial and physical market you are seeing right now?
Paul A. Lang
Caleb this is Paul. For 2016, actually I think were off to a pretty good start and we currently have about 54 tons committed to PRB of which 38 you know change your price for those is it 14.58 which is 8% above this year which is 4% above last year.
It’s a pretty good step and it’s a pretty good commitment start the year. As you know the contract seen really starts off - in the next month or two and obviously we're going to be very active in the market.
As far as the disconnect between the indexes in fiscal it is really widened out. I mean the fact is if you wanted to go out in place any volume at those financial prices it doesn’t exist.
So I feel pretty good about heading into contracts for next year, I guess like always we wish to prices be a little bit higher but in general we are not the bad spot.
Caleb M.J. Dorfman
Great, that was helpful. And then, John, you mentioned that you expect cash burn this year to be fairly similar to last year.
Do you see any possibility that looking at all the elements in your guidance ranges, the cash burned could actually be less in 2015 than 2014?
John T. Drexler
You know Caleb obviously the guidance range is on a lot of fronts here as we step at the beginning of 2015 are fairly wide to anticipate a lot fluctuation in a lot of different things. If things are towards the better end of the guidance ranges I think your statements accurate is potential an accurate one.
Operator
And we’ll take our next question from John Bridges of JP Morgan.
John Bridges
Thanks for everybody congratulations.
John W. Eaves
Good morning, John.
Paul A. Lang
Good morning, John.
John Bridges
Good morning. The mines in Appalachian that you've taken offline, what would you see any reclamation cost coming through from those things this year?
Paul A. Lang
John, this is Paul. Obviously there's idle holding the cost and I think as I mentioned when we idle Cumberland River we are leaving it on what I’d call hot idle.
We are keeping the mines ventilated and pumped. They were on the high end of our cost curve on the met side, so we took them offline.
They are still good mines and they are still a good product, but they are out of the money right now. So as you look at our guidance beyond that we really don’t have a lot of ongoing idle holding cost.
The fact is that we’ve been able to do some of these transactions and we have separating ourselves from some of those. I think our guidance for the 2015 includes the idle holding cost for the eastern operations John.
John Bridges
Okay, and that cost is in your forecast cost?
John W. Eaves
Yes, sir.
John Bridges
And then just with respect to your comments about the likelihood of 50 million to 60 million tons lost, you said you’ve called this year. You're very well contracted, but the last time there was a crisis with very low gas prices there was some pushback even on contracted tons.
Where do you see the big pressure coming? Is it all Appalachia or do you see some of it coming into PRB this year?
John W. Eaves
John, this is Johnny. So really haven’t seen anything on the PRB yet, actually shipments are going extremely well through the first few days of February, year-to-date.
I would say most of that challenge will be in central app and maybe even in Illinois, with current gas prices where they are. Paul indicated that we are a little bit cautious on Colorado right now given where gas prices are.
We do have a pretty good contracted base in Colorado. But that’s something we continue to watch pretty closely.
And if we don’t get the balance of that volume put in the marketplace, we could be on the higher end of our cost curve. But I would say that the PRB currently really haven’t any headwinds in terms of what we are seeing on potential loss generation.
And really if we have a normalized winter for the rest of season in the normalized summer, we actually could see a pick up in PRB demand as we move through the year. Because we do expect a railroads to improve their performance throughout the year as well.
Operator
And we will be going to our next question from Evan Kurtz of Morgan Stanley.
Evan Kurtz
Hi, good morning guys.
John W. Eaves
Good morning.
John T. Drexler
Good morning, Evan.
Evan Kurtz
Just you did a great job on working capital this year. I kind of calculate that you had a release of about 70 million or so.
I just wanted to get a sense from you what you are thinking on working capital going into 2015. Is that cash you can keep out of the business or do you think some of that might creep back in?
How should we think about that?
Paul A. Lang
Evan, that something we’re always going to be focused on and you look at certain areas of the balance sheet, you know our ability to continue to evaluate see if there is opportunities it will be a focus for us whether its in areas as material in the supply parts that we have at the mines, coal inventories levels, et cetera. It is an ongoing focus for us quarter-to-quarter there is variability especially with the timing of some of our interest payments which are semiannually on our unsecured bonds so you see that flowing through but overall of the course of year we will be very focused on seeing if there's opportunity for improvement in working capital.
Evan Kurtz
Thanks and just one follow-up on domestic met coal contracts. On the like-for-like I know you have a bunch of mix shift going on this year with the ramp of Leer, but I was hoping you could give us a sense on a like-for-like basis, quality wise where did contracts end up in 2015 versus 2014 for some of the key grades?
Paul A. Lang
Yes, I’ll take my shot at it and see what John thinks, but you know if you look at the domestic met coal market right now, we are seeing low vol in the 85 to 95 range and high vol 75 to 85. frankly if you look year-over-year, we were able to extend our volumes into the domestic market and frankly that’s why we are in such a good position.
Prices are obviously a couple of bucks off last year, but we are entering 2015 pretty strong on the metallurgical sales side.
John W. Eaves
And the other thing that we did in terms of domestic sales as Paul and his team has moved up from about 35% in 2014 to about 45% plus of domestic commitments and that’s volume and price that are committed for this calendar year. So as Paul said we are in very good share as we enter discussion for the international market and quite frankly we’ve been pleased with the demand that we’ve seen in Europe, we don’t want the pricing much, but the demand has been relatively strong.
Operator
And we’ll go to our next question from Lucas Pipes of Brean Capital.
Lucas N. Pipes
Hey good morning everyone.
John W. Eaves
Good morning Lucas.
Paul A. Lang
Good morning.
Lucas N. Pipes
Maybe to hone in a little more on that 50 to 60 million ton reduction year-over-year. Do you have a sense for maybe a base in breakdown of that number?
John T. Drexler
I don't know that we have a good feeling. I think the biggest impact we think will obviously be Central App, there would be some northern and Illinois and there could be a small bit of that volume that will hit PRB.
Particularly on the MATS regulation. Nova we have a good breakdown.
Logic would tell you the biggest impact would be Central App followed by northern out and Illinois.
Lucas N. Pipes
Yes I’m just thinking about kind of big picture, considering how much has come out of cap, how much there is left to cut. I would think that after the on slot of regulations in gas prices that mines that are left they are relatively efficient.
John T. Drexler
Well Lucas if you think about Central App and we finished the year call it 117 million, 118 million in 2014, we’ve got another call it 17 million, 18 million maybe 20 million tons coming up in 2015. So we think that you are going to probably dip below that 100 million ton mark in 2015 in Central App, so you have got some real structural change going on there.
I mean there are still some higher cost production, it probably needs to come out, there is probably some guys hanging on that may throw in the – given the current pricing environment. I think we are unique in the fact that if you look at our base operation for thermal in Central App its [coal mac] and we have an extremely low cost structure there that actually believe it or not allows us to create cash margins even in this current market condition.
Lucas N. Pipes
That's helpful so maybe to shipped over to the medical side for a second here. So you you’re watching the Australian dollars as well and I'm wondering do see an impact already on kind your European sales efforts because of this weaker dollar or Australians pushing harder into that market and then you could give us an update on kind of the average net back met coal price to our mines in the current environment?
John W. Eaves
Well, I mean certainly we watch the currencies and the weakness in the $8 gives them a cost advantage no doubt about that we really haven't seen any material volumes coming in to the Atlantic market. We think most of that is seeing the Asian market and they even we’re putting some of that met coal in the PCI thermal market.
So as I indicated earlier we continue to be pleased with the demand that we see in Europe, pricing is under some pressure, but given the logistical advantages that we have from the U.S. we continue to believe that Europe will be a good market for us.
The transportation differentials that the Australians have coming into that market is fairly significant although its comes up recently we just really haven't seen much of that. So when you look at our more traditional markets for met coal U.S., Europe, South America and Canada there's about 115 plus million tons of demand with a lot of that demand being highwall.
So if you look at how Arch is positioned today with the startup of the longwall, that combined with Mountain Laurel longwall we think we are pretty uniquely positioned not only from a quality standpoint that from a cost standpoint. So we think we can compete in the U.S.
and global markets pretty consistently.
Operator
And we’ll go next to Jeremy Sussman of Clarkson.
Jeremy Sussman
Yes, hello, good morning and thank you for all the color you guys given on the call.
John W. Eaves
Good morning, Jeremy.
Paul A. Lang
Good morning, Jeremy.
Jeremy Sussman
I just want to clarify that the domestic prices, the 75 to 85, that was for highwall A and I think you said that was a couple bucks lower year-over-year and if that's right can you give us the same kind of metrics on highwall B?
John W. Eaves
Highwall B I would throw about another $5 to $8 discount on top of highwall B. As I did say the average price we have booked so far this year is about 77.45 and give you a little more color on that it is about 55% lowwall and highwall A in the balance is highwall B and PCI.
So what we are looking at is a similar product mix to last year.
Jeremy Sussman
Gotcha, that’s helpful. Now just quick follow up, I think in the press release liquidated damages 50 million to 60 million for 2015?
Can you just elaborate on what this pertains to and how long these go on for?
John W. Eaves
Jeremy, this is John. We’ve been talking about those over the last couple of years and those are a combination of barge agreements, rail agreements, port agreements that they go on for varying lengths.
So we really haven’t got into more detail on that. Regarding to a midpoint of about $55 million this year, we finished 2014 at about $37 million, so the guys have done a great job in mitigating that exposure, but given the softness we see in the international markets right now, we still think it’s prudent to participate more in the domestic markets and we’ll continue to try to minimize that liquidated damages for 2015.
But right now our best outlook would be a midpoint of about $55 million and we’ll do everything we can to reduce that numbers as we move through the year.
Operator
And we’ll go to our next question from David Gagliano of BMO.
David Gagliano
Great, thanks for taking my question.
John W. Eaves
Good morning, David.
John T. Drexler
Welcome back.
David Gagliano
Thanks for that. There is one clarification question first of all.
On the PRB, if you do the basic math on again, backing into what was contracted Q3 to Q4, during Q4 it implies 12 million tons were contracted about $12 per ton for 2015 delivery. But I know that in the prepared remarks there was commentary about tons being pushed out into 2015.
Can you clarify how much was actually contracted in the PRB and at what price for 2015 delivery?
Paul A. Lang
David, Q4 the comparison is kind of messy for quite a few reasons, as I mentioned earlier we were proactive or conservative however you think about it as the real situation look bad, we got in - we got our customers and wanted to preserve our value, so we rolled tons starting in the second half of 2014, and 2015 and 2016. The other thing that makes the tonnage a little bit messy is that we actually transferred one contract to the Illinois Basin and converted it to a 2015, 2016 contract.
So all told the actual sales were actually below $10 million or right at $10 million and the other thing that's messy about that I guess if you're looking just for price direction is about two thirds of those were 8800 and about one third were 8400 coal, so you had a pretty big mix and kind of a messy quarter-over-quarter comparison.
David Gagliano
Okay. And just to follow-up on that, so of the I guess its two-thirds of $10 million that was 8800 BTU coal, what was the price on that coal that was sold for 2015 delivery?
John T. Drexler
We layered it in over the quarter and it was pretty broad range, but I would tell is anywhere for 12.50 to 14.25.
David Gagliano
Okay. For the 2016 number, how much 2016 coal did you actually sell in the fourth quarter and what was the price on that coal?
John T. Drexler
David I don’t have that right in front of me.
David Gagliano
Okay. Great, thanks.
John T. Drexler
Thank, you.
Operator
And we will go next to Paul Forward of Stifel.
Paul S. Forward
Good morning, thanks.
John W. Eaves
Hey, Paul.
John T. Drexler
Hi, Paul.
Paul S. Forward
Just want to follow up on that question on the liquidated damages. Is that 50 million to 60 million embedded in your cost guidance across the regions full-year or partially included in those cost guidance numbers?
John T. Drexler
Paul, this is John Drexler, it is not, so that’s in addition to the cost that were reflecting in each of the regions that’s an add to the overall expense that we expect for 2015.
Paul S. Forward
Okay and when thinking about that range of 50 million to 60 million and I know you've been talking about how potentially, you don't like the price happening in the export market for met coal, but you like what you're seeing in terms of the demand for the product and the potential for volumes holding up. At to what extent, if we see that continue and see that you're able to kind of defend share in the export markets, how could that potentially affect those liquidated damages if, in fact, you're able to ship more than maybe the current market is suggesting?
John T. Drexler
Yes, Paul, I mean its really hard to speculate on what we could see in improvement in market price and then additional volume and how that could impact it. I guess, what – we indicated earlier and John Eaves said.
I think still applies we look to 2015 and that is as we came into this year. We started out at a higher number we worked very hard over the course of the year to mitigate that.
As we sit here today, I think the guidance that we are providing is our best estimate of what we see with current market conditions. And what we are going to incur, but [indiscernible].
The team here is going to work very closely to find opportunities to mitigate that.
Operator
And we’ll go to our next question from Brett Levy of Jefferies.
Brett Levy
Hey, guys you talked about the June 2015 covenant. It sounds like you probably get a waiver, but can you talk about the covenant sort of where you think you will be around the time of that covenant in terms of the key metrics and sort of where you are in negotiating with the banks?
John T. Drexler
Brett, this is John Drexler. I guess as we indicated in our prepared remarks as we sit here today on our current expectation and projection.
We expect to be in compliance with the covenant. The senior secured leverage ratio that kicks back in June of 2015 at five times.
And then obviously the $550 million minimum liquidity provision. With that being said if markets continue to be very challenging and significantly unfavorable, you know we have discussed this in the past.
We have a supportive bank group at least they have been historically. And if need be we would be in a position, where we would be having conversions with them.
With all of that being said, the actual component of our liquidity that’s made up of, of the revolving credit facility is quite small. So its less of an impact on our overall liquidity.
So we feel very comfortable with where we stand today, with our cash position representing the majority of our liquidity.
Brett Levy
And then in terms of what you could potentially add in terms of senior secured liquidity, where do you feel like that basket sits at this point?
John W. Eaves
You know Brett, we’ve got a fairly complex debt structure, a lot of different components, we’ve talked about some of the significant items that exists, ones at 30% CNTA limitation on additional secured borrowing capacity that essentially is driving at this point our secured capacity. However, there are various baskets across the indenture where there is we believe some additional secured capacity as well.
So as we sit here today, we continue to believe there is flexibility in how we approach those things. With that being said, as we indicated at the beginning of our prepared remarks we're very comfortable with our liquidity, our runways and where we sit today, so we feel good about how we are positioned.
Operator
And we’ll take our next question from Matthew Korn of Barclays.
Matthew J. Korn
Hi, everyone.
John W. Eaves
Good morning.
Paul A. Lang
Good morning Matthew.
Matthew J. Korn
With the utilities that you are supplying with slide inventories…
Paul A. Lang
Matthew you dropped off.
Operator
Mr. Korn, have you hit your mute button?
John W. Eaves
Operator, we probably should move on, if we’ve lost him.
Operator
Yes, and due to time constraints our last question will come from Justine Fisher of Goldman, Sachs.
Justine B. Fisher
Good morning, how are you doing?
Paul A. Lang
Good morning.
John W. Eaves
Doing good Justine.
Justine B. Fisher
The first question that I have is a follow-up on Brett's question. I definitely understand that if I were you guys too, I don't know if I would use my liquidity to buy back bonds now.
But on the revolver, are you guys considering replacing that revolver with some long-term permanent money to maybe eliminate the potential need to go back to the banks and renegotiate covenants in the first place? If you could replace that with a first-lien bond, for example, then you wouldn't have to worry about the covenants.
Is that on the cards or is it a preference to maintain it in a revolver form?
John T. Drexler
You know Justine as we sit here today and you know as we’ve indicated, we're very comfortable with the liquidity position, the cash component of the liquidity position that we have. As we continue to move through these markets as we’ve shown throughout the cycle, we will be proactive in how we approach opportunities and at this point I don’t think we can speculate on how we are going to approach the revolver here which is well over a year away before – at the end of its term.
Justine B. Fisher
Okay. And then my follow-up is on liquidated damages.
Just to clarify, could you tell us how much they were in 2014? If you had said earlier, I didn't get it.
Then to clarify, those are an offset to other income, right? That's where they're recorded, so they're not included in cost guidance, but they're in your other income number for 2014 and that's where they should be in the future.
Is that right?
John W. Eaves
That’s correct. Justine its John Eaves and the number for 2014 was 37%.
Justine B. Fisher
Okay, fabulous. Thank you very much.
John W. Eaves
Thank you. End of Q&A
Operator
And this does conclude the question-and-answer session. At this time, I would like to turn the conference back over to Mr.
John Eaves for closing remarks.
John W. Eaves
I would like to thank everyone for their interest in our call. I would also like to thank the employees of Arch Coal for their focus on safety environmental performance, cost, capital, liquidity.
We will continue focusing on those things in 2015, we think we’ve positioned the company well with our diversity, access to thermal markets, met markets, domestic, international, we like how we are positioned and we will continue to manage the company effectively. We look forward to updating you on our first quarter results in April.
Thank you very much.
Operator
And this does conclude today's program. You may now disconnect and do have a wonderful day.