Apr 24, 2014
Executives
Ryan Osterholm - Frederick A. Henderson - Chairman, Chief Executive Officer and Chairman of Executive Committee Mark E.
Newman - Chief Financial Officer and Senior Vice President
Analysts
Neil Mehta - Goldman Sachs Group Inc., Research Division Lucas Pipes - Brean Capital LLC, Research Division Nathan Littlewood - Crédit Suisse AG, Research Division Tom Endel McConnon - Indaba Capital Management, L.P. Brett M.
Levy - Jefferies LLC, Fixed Income Research Sam Dubinsky - Wells Fargo Securities, LLC, Research Division
Operator
Welcome to the SXC's earnings call. My name is Christine, and I will be your operator for today's call.
[Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Ryan Osterholm.
Please go ahead.
Ryan Osterholm
Thank you. Good morning, everyone.
Thank you for joining us on the SunCoke Energy's First Quarter 2014 Earnings Conference Call. With me are Fritz Henderson, our Chairman and Chief Executive Officer; and Mark Newman, our Senior Vice President and Chief Financial Officer.
Following the remarks made by management, we will be taking questions on our first quarter results. However, since SXCP is currently in registration for an offering of common units, we will not be taking any questions with respect to SXCP or any equity and debt financing related to the dropdown transaction.
This conference call is being webcast live on the Investor Relations section of our website at www.suncoke.com. There will be a replay available on our website.
If we don't get to your question during the call, please call our Investor Relations Department at (630) 824-1907. Before I turn over the call to Fritz, let me remind you that the various remarks we make about future expectations constitute forward-looking statements, and the cautionary language regarding forward-looking statements in our SEC filings apply to the remarks on our call today.
These documents are available on our website, as are reconciliations of any non-GAAP measures discussed on this call. Now I'll turn it over to Fritz.
Frederick A. Henderson
Good morning. Page 2 is a summary of the first quarter 2014 earnings.
The quarter, when you look at adjusted EBITDA, down from $52 million to $33 million. It was a challenging first quarter.
The Indiana Harbor performance is weak due in large part because of weather impacting both the production and the refurbishment projects. So we had a combination of things, which affected that community in the harbor, which significantly depressed the production volumes, increased costs and decreased yields.
And apart from Indiana Harbor, the same factors affected the rest of our coke fleet. We were down about $7 million versus expectations, apart from Indiana Harbor, driven by weather-related impacts and yields, volumes and costs.
So adjusted EBITDA down. The EPS loss of $0.11 reflects both the weak adjusted EBITDA.
And then accelerated depreciation in Indiana Harbor as we're completing the projects, making decisions about assets, maintaining services, as well as assets to take out of service. We have accelerated depreciation in some assets in that regard.
And then, we're also, and Mark will take you through this a little bit later in the presentation, taking a different approach to our ongoing floor and wall repair that we would have done relative to how we handled it in the past which also resulted from the accelerated depreciation in Indiana Harbor, so affected the first quarter. Relative to our 2014 guidance, our original guidance was $230 million to $255 million.
Based upon the start that we've had to the year, the weaker start we've had to the year, we're adjusting our EBITDA outlook now from $220 million to $240 million. So it's narrowed a bit, and down relative to both the top and the bottom of the range, with the bottom of the range will be from $230 million to $220 million, and the top of the range moving from $255 million to $240 million.
We've initiated -- already initiated and have completed a restructuring at the corporate level. This was related to corporate costs, reduced our manpower at the Lisle headquarters location, about 10% relative to where we stood coming into the year.
We've also taken some actions to reduce other out-of-pocket spend, which was done for 2 principal reasons. One, with the catalyst of the announcement on the coal transaction and the expectations and our objective to sell the business, we felt like we needed to get ahead of our -- what would be a problem in terms of corporate cost.
We allocate corporate cost to our business units, and we didn't want to get behind the eight ball. So preemptively, we took action in the quarter, and actually into April, to restructure our corporate staff about 10%, and then reduce spending so that as the dust clears and we move into next year, we feel like we wouldn't have any negative effect at corporate costs as a result of the coal divestiture.
That was one. And two, always a good idea to look at your structure, to make sure you're lean as possible, and the company itself has been public, not quite 3 years, and then we saw a reasonable opportunity for us to look back and say, "Are we pursuing our corporate activities both the governance, as well as supporting the plants in the most efficient way as possible."
We took a charge in the quarter by $1.4 million related to the restructuring activity. Finally, and I'll have a chart on this next.
We did announce and execute -- and are executing the first dropdown transaction, the agreement was actually executed, $365 million of total consideration for a 33% remaining interest in Haverhill and Middletown, which I'll cover on the next chart. Page 3.
I spent a little bit of time, since we're not taking questions about this on the call, I'll spend some time, more time on this than I might normally spend. But I want to try to make it as clear as possible what the transaction is all about.
First and foremost, it's the first dropdown transaction that we'll have participated in. Recall when SXCP went public, we dropped 65% of the interest in the Haverhill and the Middletown assets into the MLP.
This transaction will move another 33% of those assets into SXCP. What that brings to SXCP is about $44 million of adjusted EBITDA.
Net of an incremental $5 million of corporate costs that we’re allocating as part of this transaction. The consideration for that 33% interest is $365 million, which is approximately an 8.3x EBITDA multiple.
Again, that's 8.3x relative to the $44 million, roughly, net of the incremental corporate costs. This transaction was approved by the complex committee of the SXCP Board, and so this is the first time we've been through this process.
The consideration of how this transactions is financed, there's 2 things going on in the transaction at this time. One is the dropdown transaction; and two, we're taking some measures in the SXCP balance sheet, particularly with respect to the revolver to term out and replenish our revolver.
So the amount of financing that's being raised in order to accomplish the dropdown transaction is actually more than required for the dropdown transaction because of what we're doing on the SXCP balance sheet. But let's start with, first, at the top of the transaction, is SXCP will assume and then immediately repay $271 million of SXC debt.
So the SXC level of indebtedness will decline by $271 million, roughly, as a result of the transaction. SXCP will also issue to the parent $80 million, or roughly $2.7 million additional common units, as part of a transaction.
So relative to the units that are being offered to the public, think of this as roughly half would be taken back by the parent and half will be offered to the public. The parent also receives an additional $3 million general partner interest.
And then receives $3 million of cash, net of $7 million is retained at SXCP. So beyond the dropdown transaction, the additional financing being raised at SXCP is intended to, first, term out the $40 million draw that we have in the revolver.
Last year, when we closed on the KRT acquisition, we used cash and we drew on our revolver to finance that acquisition. As the result of debt that will be raised at SXCP, we would term out that revolver and basically replenish it, we'll be back to 0.
And then the additional funds are being paid to both put some cash in the balance sheet and pay the transaction fee. So that's the transaction in a nutshell.
The bottom of the chart, you can see SXCP, when the transaction is done, we anticipate about a $23 million increase in distributable cash flow at SXCP. At this point, I'll turn it over to Mark.
Mark E. Newman
Thanks, Fritz. As Fritz mentioned upfront, Q1 was a weak quarter which we came in well below our expectations.
Adjusted EBITDA was down about 36%. In our Domestic Coke segment, you'll see adjusted EBITDA deteriorated from $62.7 million to $48.6 million in the year, really driven by 2 principal factors, weak Indiana Harbor results, in fact we had a loss at Indiana Harbor of $6.6 million on an EBITDA basis, which is well below expectations.
And then, across the entire cokemaking fleet, weather impacted both yield, reliability and, to some extent, operating costs. And here, about $7 million below our expectations.
We're covering more detail, but Indiana Harbor continues to make progress from Q1, and the rest of our coke fleet is essentially back to normal production levels, and Fritz will cover that at the end of the call. On our coal business, the lost -- the loss continues due to price headwinds.
Adjusted EBITDA were a loss of $8 million, down roughly $3.4 million. Again, primarily on deterioration in price, down $22 per ton year-over-year.
We are continuing to make improvement in cash cost per ton of $9 in the quarter. And finally, we have engaged advisors to help us in launching the sale process of our coal mining business.
As Fritz mentioned earlier, we did launch a restructuring in Q1 and is a $1.4 million charge in the quarter. Turning to Chart 5, which is our adjusted EBITDA bridge.
Again, we reported $33.6 million adjusted EBITDA, versus $52.3 million last year. And the deterioration really results in, again, Indiana Harbor being down roughly $3.9 million, primarily on volume, and that was partially offset by a higher fixed fee as a result of the recently negotiated extension in the Indiana Harbor coke contract with ArcelorMittal.
Our Domestic Coke fleet was down approximately $10 million on a year-over-year basis. Again, about $7 million in volume and $4.6 million in lower yields.
We did have slightly higher energy results, or slightly better energy results, year-over-year, largely as a result of higher prices, in part due to the very extreme weather that we had in the quarter. And again, in terms of production, Indiana Harbor was down about 65,000 units, and the rest of our coke fleet was down approximately 43,000 units on a year-over-year basis.
So that explains the volume. Turning to International Coke, approximately breakeven in the quarter.
Brazil flat and our India JV are slightly above breakeven. Our Brazilian assets are ramping up to full production in April, and so we expect better results in Brazil going forward.
On coal logistics, the is a business we -- as you know, we acquired in Q3 and Q4 of last year. So coal logistics is accretive because we didn't have it in Q1 of the prior year.
But again, our results are below expectations by about $2 million with respect to weather-related cost, primarily our throughput at our Lake Terminal and higher costs at both KRT and Lake, related to operating in extreme weather. Coal mining, I mentioned earlier and we'll cover it in more detail, is down $3.4 million.
And then finally, corporate costs are unfavorable, roughly $3.3 million. Again, about $1.4 million of that is explained by the restructuring charge we took in the quarter.
And then in Q1 of last year, we had favorable gains related to our India rupee hedges of about 0.9 million. The diluted EPS bridge on Chart 6.
In Q1, we reported a loss of $0.11 per share. The lion share of that is driven by the lower adjusted EBITDA that I just took you through.
Additionally, higher depreciation year-over-year with Indiana Harbor accounting for about $0.04 of accelerated depreciation in the quarter. Again, we'll have more detail later on about our Indiana Harbor, which will explain what's going on here.
On interest expense, it's favorable. We did have some financing costs related to the IPO of SXCP in Q1 of '13 that are not repeated this year, that largely explained the delta in interest expense.
And then finally, taxes are favorable, in part because of lower earnings, but also because we had a number of unfavorable state and local tax items in Q1 of '13, as well as a Sunoco tax-sharing true-up, again, which are not repeated in Q1 of this year. Turning to Chart 7, we achieved adjusted EBITDA per ton in Domestic Coke of $49 per ton.
This is below our guidance of $55 to $60 per ton. Again, largely on account of production being down across the fleet, as you see in the left-hand side of the chart, by about 107,000 tons.
And also, just to remind everyone, that our adjusted EBITDA per ton includes the loss at Indiana Harbor, which equates to about $7 per ton. So turning to Chart 8.
I'd like to give a little more detailed update on Indiana Harbor. The refurbishment project on the ovens is completed, and we expect the delivery of the Pusher Charger Machines, or PCMs as we call them, in Q3 and Q4.
Based on spends and committed, we expect the project will be completed for $104 million in capital. And I just want to remind everyone that this project was really to address the replacement of the doors, lentils (sic) [lintels], buckstays and tie rods associated with the ovens.
So the -- sort of the exoskeleton of the oven, if you may. As well as address some of the infrastructure assets, namely the coal sheds and 2 new Pusher Charger Machines.
As a result of the project, in Q1, we identified the need for oven floor and flue replacement on about 80 ovens. And so, at this point, we're estimating that we will need to spend an additional $15 million in capital and $5 million in expense.
And these numbers are now reflected in our full-year guidance that I'll cover later on. As a result of the full replacement of certain oven floors, we're expecting roughly $10 million of accelerated depreciation related to the internal oven work that was not included in the initial Indiana Harbor project.
I would say the replacement of oven floors in this manner is, we believe, better and more cost-effective than the traditional silica welding that we would typically do on an ongoing basis. It's a more effective replacement strategy.
We also believe that we will gain some benefit in terms of lower maintenance going forward and higher production levels, i.e. higher charge rates, potentially, as a result of the oven floor replacement.
Finally, we had planned to retain roughly 2 Pusher Chargers of the 4 existing Pusher Charger Machines, and we've decided that it makes more sense to scrap all 4. So there's an additional $8 million of accelerated depreciation.
So between oven floor replacement and the scrapping of all of the existing PCMs, there's roughly $18 million of the accelerated depreciation that we'll see this year that wasn't previously forecasted. Turning to Chart 9, the outlook for Indiana Harbor.
As you will note in the chart, we saw a fairly dramatic drop-off in daily production levels in January. What we're pleased to announce is that we're starting to see early signs of improvement as we go through April.
Through April 20, we're at a rate of roughly 2,800 tons per day. And we expect, as shown in the lower chart, that this will continue to ramp up throughout the year, and we will really reach full production levels of 3,400 tons per day by Q4.
There is -- we have been notified of an outage at ArcelorMittal, and I think our plan today will be some combination of inventory build or deferred payment terms, as we continue to ramp up production, i.e. we will not slow production in Q2 so that we can complete the ramp up of this project.
Finally, based on the weak start in Q1, the improvements we're seeing in Q2 and the ramp-up to full run rate by the end of the year, our expectation is adjusted EBITDA will come in somewhere between $20 million to $25 million, but will be largely second-half loaded. Coal mining financial summary on Chart 10.
Again, this shows that our adjusted EBITDA deteriorated to about $8 million lost, down around $3.5 million year-over-year, driven primarily by dramatic price decline in our delivered coal price from $121 per ton last year to $99 per ton this year. What you'll also notice in the chart is that we continue to make improvements in our cash cost per ton.
We're down $9 in the quarter, and in fact, we exited the quarter at approximately $110 per ton. We're maintaining our guidance to a loss of $20 million to $30 million in our coal business.
And as I mentioned earlier, we have launched a sale process. What we have seen in our coal business is that improvement in both a number of the operating and cost metrics, including the reject rate, which you'll notice is at 68% in the quarter.
On SXC liquidity, we ended the quarter with consolidated cash of $178 million, with adequate revolver to pass the -- both SXCP and SXC. As Fritz mentioned earlier, as part of the dropdown transaction, we will be replenishing the SXCP revolver, which was drawn when we purchased KRT.
In addition to the net loss we took in the quarter, it was a quarter in which we had a fairly significant consumption of cash on the working capital front. And accounts payable, again, largely on timing, down about $18 million.
We did make a $13.1 million payment of accrued sales discounts to our customer. This was discounted versus the nominal value.
So there's a small gain related to this. And then, in addition, in the quarter, we have our bond interest payments.
So typically, Q1 and Q3, are -- we see these outflows. Finally, we had extended payment terms to one of our customers in Q4 through Q1, and this was repaid.
So there's a favorable receivable impact of about $20 million in the quarter. On CapEx, again, we spent roughly $14.7 million at Indiana Harbor on the refurbishment, versus a full-year expectation of about $24 million.
Ongoing CapEx was 12.8, versus full year ongoing expectation of about $65 million. And then the environmental project, the remediation at Haverhill continues, about $10.6 million spent in the quarter.
And then finally, we do have distributions, Q4 distributions to our SXCP unitholders of approximately $6.4 million. Again, we feel we have adequate liquidity about taking steps to replenish the SXCP revolver.
Turning to Chart 12, this is our full year guidance. As Fritz mentioned, we're adjusting our EBITDA guidance to $220 million to $240 million.
So if I look at the midpoint of the range, we're down approximately $12.5 million versus, I would say, being down approximately $20 million versus our expectations in Q1. So there is some expectation here that as we go throughout the year, we will be able to regain some of what we lost in Q1.
I'll take you through the EPS walk in a minute on the following chart. But as a result of the reduction in EBITDA and the accelerated depreciation at Indiana Harbor, our expectation is EPS will be somewhere between $0.08 and $0.33 per share.
Again, as a result of lower earnings, our expectation is cash flow from operations will be about $160 million versus our previous estimate of $170 million. And then based on the capital that we're spending at Indiana Harbor on the floor and flue replacement, our expectation is our ongoing CapEx -- our CapEx in total, rather, will come in at roughly $138 million for the full year.
The rest of our guidance, other than our Domestic Coke production, remains largely unchanged. Finally, on Chart 13, this is a walk from our current guidance -- to our current guidance of $0.08 to $0.33 from our prior guidance level, and what you'll see is in addition to the EBITDA reduction, our expectation is that accelerated depreciation at Indiana Harbor will be approximately $0.26.
Again, that is roughly $18 million related to both the floors and flues, and the write-off of the 2 remaining Pusher Charger Machines. Interest expense will be favorable year-over-year, that's a combination of lower debt and mix of debt as well as some capitalized interest on the environmental remediation project at Haverhill.
And then finally, taxes, favorable roughly $0.09, largely as a result of our lower earnings. So with that, I'll turn it back to Fritz to wrap up the call.
Frederick A. Henderson
Thanks, Mark. So sitting here in April, thinking about the rest of 2014, whether our priority starts with operational excellence as it always does, maintaining our top quartile safety performance in both coal and coke, getting the plants back on track -- I want to spend a minute here, because it's extremely important, obviously.
In our Analyst Day in March, we had estimated that our results in the first quarter would be down, adjusted EBITDA results would be down, relative to targets of $10 million to $15 million, and you might -- those of you who were there would probably recall I said it was $15 million was the better estimate. First quarter, we came in about $20 million less than our targets, and $5 million delta.
As I think about it, part of it is just a weaker March, and frankly, the weather continued to affect us, particularly in the Indiana Harbor, but it was a little weaker than we thought. And then, we did take the restructuring charge, which is we thought the right thing to do, but we had contemplated that when we met in March.
But the first quarter is behind us. And it's about getting the plants back on track.
Mark's already showed you what's been accomplished through April in terms of our daily rates of production. So I think what we've seen in April, relative to our expectations in the 2Q and for the year is supportive of the plan that we've outlined for the rest of the year in Indiana Harbor.
Relative [ph] to the other plant is we look -- for example, in the second quarter levels of production, we think will be about 50,000 tons higher in the second quarter than we were in the first quarter. So sequentially, we will be up about 50,000 tons.
Again, this is -- these are the rest the coke plants without Indiana Harbor. And would put us in a level in line, a little bit less than 2013 second quarter, but was pretty much in line with 2013, frankly in line with our targets.
So as we sit here in April, we feel good about that. Obviously we didn't deliver it, but as we think about operations, it's about putting this behind us and getting our plants operating back to what they're capable of doing.
If you think about learning from the winter, 3 things you'd say. Obviously, one, it was severe, so that affected us pretty significantly.
We are getting back on track. And the third is we have learned, history shows that those who do not learn from their experiences are destined to relive them.
Historically, we would winterize the plant based upon an expectation of standards, and that's how we've historically winterized our plants at SunCoke. This year, obviously that was not sufficient.
And one of the things that we learned, and we're implementing it for the future, is a different approach, which we'll still winterize our plants for an expectation of a normal winter. And then we have a fallback plan, frankly, that we've learned that some of our plants -- we're taking these steps at direct to the plant, so we've shared the lessons learned, is that you can actually anticipate -- I mean, you can't anticipate everything, but if you anticipate prolonged periods in the 0 and subzero weather, that there are additional measures you can take on an incremental basis, there's a cost to it.
But rather than try to winterize your plants to a higher standard on a permanent basis, you basically kind of have a Plan B that you would implement if you see even more severe winter weather coming, and that's what we plan to adopt as we go into this upcoming winter and in the future. So we try to learn from the experience.
And then, finally, executing the projects we have on our plate, whether it's the project we have at Indiana Harbor -- finishing the project we have at Indiana Harbor and the refurbishment. And as Mark talked about, the approach in the floors and the sole flues is, frankly, a better way of executing this than in the past where we would basically silica weld and expense.
It's a different design. And frankly, it provides for both lower maintenance, as well as a better chart rates in the future.
So it's just a better approach to handling something. But at 80 ovens, that's higher than we would typically have.
So it's -- we realize that to some degree the ovens we need to repair. You can look back and think about all the things we've been doing at that plant and then the winter we've gone through, we've got more ovens to repair that we would typically have.
And then in executing the environmental remediation projects at -- particularly at Haverhill, we have some important steps, important measures that we're going to be taking this summer. In terms of driving growth, we have been continuing to work on permitting our new coke plants and fanning out -- we are fanning out talking to customers about this.
And we haven't got the final permit yet. We have submitted comments to the public comment letters, we're now waiting on the final permit.
So with that, we actually think we would then, assuming we receive that, we would be in a position to be in dialogue with customers. And again, we're not going to launch any capital associated with the plant until we get all of 60% to 70% of that plant signed up.
So that's the work. If we think about the primary gating item for our new coke plant today, it's really customer commitments, and that's something we plan to focus on through the rest of the 2014.
And then leveraging SunCoke Energy Partners to pursue further opportunities in cokemaking, coal logistics and entry into ferrous value chain. Finally, in terms of optimizing the business and the capital structure, we're pleased to be moving at the pace we're moving in the first dropdown transaction at SXCP, and the related financing associated with that.
We've been trying to move this along, you'll recall the tax sharing agreement expired the 18th of this year. At Analyst Day, we talked about what our game plan would be in terms of longer term dropping our entire Domestic Coke business into the MLP and proceeding with the first dropdown transaction.
And we're pleased to be doing that in the month of April, and then to close in May. And then, finally, also moving on in terms of the future of our coal mining business and pursuing a strategic exit, as Mark talked about, we retained advisors, that process is moving and moving quickly as we planned.
Even with the challenging environment in coal, we think it's the right thing for us to do to move forward with the exit from that business in SunCoke Energy. Those were my comments.
At this point, we'll take -- open the line for questions.
Operator
[Operator Instructions] Our first question comes from Neil Mehta from Goldman Sachs.
Neil Mehta - Goldman Sachs Group Inc., Research Division
First, can you talk a little bit about the M&A landscape as you talked about driving growth. At your Analyst Day, you highlighted about a dozen smaller-sized M&A opportunities, where do you stand in that process?
And which verticals seem the most promising, and which verticals seem the least promising?
Frederick A. Henderson
I would say -- I'll have Mark answer the question, but one of the things I would say, Neil, is we've been -- the last certainly 30 to 45 days, we've been working hard at both the dropdown transaction as well as the -- getting our ducks lined up on coal. So relative to the Analyst Day, as I think about what we've doing for the last 45 days, we've been working on those, too.
But I'll let Mark talk about the prospecting and what we're doing on M&A.
Mark E. Newman
Thank, Fritz. So I think on Analyst Day, I think we outlined some of the areas where we believe there are M&A opportunities.
I'd say we still continue to believe that coal logistics add-ons are likely the most feasible in the short run. And we don't comment on specific initiatives, but we are very active in this area.
Looking at a number of opportunities really around the terminalling business or logistics -- or coal infrastructure assets, more generally. Beyond coal logistics, I'd say we do have an interest in certain cokemaking acquisitions, but we think these are likely to be episodic over time.
And then finally, on the ferrous front, we recently received the ruling on beneficiation and pelletizing. We have submitted the ruling on DRI, we're awaiting dispensation on that.
And we believe there are opportunities there, but I think those will take a bit longer to achieve.
Neil Mehta - Goldman Sachs Group Inc., Research Division
And then on -- in terms of the sale of those coal assets, other companies in the industry have had the challenge in selling their metallurgical coal assets. If there -- if finding a seller is challenging, how would you -- is there still a path to exiting the business?
Frederick A. Henderson
So finding a seller is not challenging, it's the buyer. I think that's what you're referring to.
The -- I would say a couple of things. We will have an ultimate backup plan in the event that we're unsuccessful.
I want to talk about our outlook in that regard. But I mean, our plan would be, if we're not successful, we would significantly downsize further in order to try to meet only the needs of the coke plant, and then over time, even rationalize that.
So it just wouldn't be done immediately because in the end, we still need 1.05 million tons to go into the coke plants. And some reasonable portion of those tons need to come from -- should come from logistically the mines that are very close by.
But the fallback plan would be to minimize the absolute level of adjusted EBITDA loss and cash that needs to be -- the cash that will be burned in the business, why you rationalize it over time. That's the fallback plan.
Now the principal plan, if you think about it, we're surrounded by strategics. If we think about $110 of cash cost, which is -- and yet with our exit rated margin, with our goal really for 2014, we think that if our mines were combined with someone that had significant scale, they could take another chunk of cost out of the above ground cost, call it another $5 to $10 roughly, this is something I reviewed in Analyst Day.
And then lastly, a more efficient per plant located better, in a better location to the mines, and probably another $10, which if we think about $90 of cash cost for deep room and pillar mid-vol coal is certainly a much more competitive level than we've been at. The asset itself, we have an offtake agreement that we could offer.
We could do the prep plant and then offer it on an offtake basis and then put it into the MLP. And lastly, we're very flexible on structure of -- it's not like we need to do this transaction to raise cash, so we could take our consideration to multiple form.
I think we've got, we've had quite a bit of inbound interest, but obviously, we need to be able to translate that into a transaction, so we're early in the process. But I think we believe we have both the assets and the opportunity and the openness to a transaction that would allow us to get this done, and that's what we're going to work on in 2014.
Neil Mehta - Goldman Sachs Group Inc., Research Division
Great. And then last question, in terms of the timing of the final permit for the new coke plants, what is the milestone we should look out for?
Frederick A. Henderson
I think we're expecting at any time now, actually. We did submit -- in the first quarter, actually north -- getting into the first quarter, we submitted all of the responses to the public comments.
The public comments were actually pretty straightforward. And now it's just grinding through the system.
In the meantime, the dialogue, the discussion -- all of the 5 customers were for blast furnace coke, 3 of them are already our customers. So we've been talking with the customers about what we're doing here, what we might be prepared to do, the kind of terms we could offer, the multiplant, which could be different.
I mean, historically, to a steel-making customer who's dealt with us, they signed up for 15- or 20-year terms for 550,000 tons. We don't believe that one customer is going to take 550,000 tons.
We think this plan is likely to be multi-customer. I think that the really serious discussions can even -- can accelerate as we have that permit in hand.
I would say, lastly, we're using the time to finish our engineering work. Because generally, when we sign up a customer, at that point, the capital risk is ours, so we want to try to finish the engineering work to try to minimize the risk we might have that the pricing cost will be higher than we expect.
Operator
Our next question comes from Lucas Pipes from Brean Capital.
Lucas Pipes - Brean Capital LLC, Research Division
My first question is actually a pretty straightforward simple one. So in terms of your adjusted EBITDA guidance for Indiana Harbor, $22 million to $25 million, does that include the floor replacement, et cetera, expense of $5 million?
Frederick A. Henderson
Yes.
Lucas Pipes - Brean Capital LLC, Research Division
Okay, that's helpful. So this -- with that, when I think about your guidance change for 2014, Indiana Harbor essentially unchanged from where I had it previously.
What do you think are the big kind of levers that caused the numbers to come down a little bit?
Frederick A. Henderson
I would say Indiana Harbor is a little weaker, I'm not sure about your expectations, but certainly, versus our expectations. Second is the rest of the plants actually did have a weaker first quarter start, as the coal logistics and coal itself.
So we basically, as Mark said, take the midpoint of that range down about 12.5, we were down about 20 in the first quarter relative to our target, so think of it as putting in roughly half of the first quarter mix into the guidance range.
Lucas Pipes - Brean Capital LLC, Research Division
Okay. That's helpful.
I appreciate that. And then on the CapEx side, so your -- this environmental project and then Indiana Harbor refurbishment are going on, should we essentially expect all of that to be completed this year so that going into 2015, essentially, should be more or less left with the ongoing CapEx?
Frederick A. Henderson
I'd say the last piece of the remediation project, though, is Granite City. And Granite City, I think the capital at Haverhill will largely be spent this year, a little bit in the next year.
Granite City actually then get -- we take that on, that's about 1/3 of the total project, and that will be spent in '15 and a little bit in '16. So -- but you have 2/3 of the project roughly done by the end of this year, spending wise.
Operator
Our next question comes from Nathan Littlewood from Credit Suisse.
Nathan Littlewood - Crédit Suisse AG, Research Division
I just wanted to talk about the increase in CapEx in Indiana Harbor a little bit. I was wondering if you could help us understand some of the offsets to that.
Perhaps some of the offsets are an increased EBITDA margin that you can earn longer term, or maybe you can quantify the reduction in maintenance costs and the benefit of the higher charge that you talked about. I'm just actually trying to understand, this incremental CapEx, is that 100% hit on your chin?
Or what are the sort of incremental cash flow benefits that we should think about?
Frederick A. Henderson
Yes. Well, think about this post 2014, because it's really executing the project into 2014.
But historically, if we would have problems or holes in the oven floors and/or repairs that we need to make sole flue issue, we'd do it with silica wells, which is maintenance expense. That process is effective when you have small, relatively small changes, it is pretty expensive and very, very intrusive if you have to do it on a more extensive basis.
So the alternative approach, as we said, we spend about $15 million of capital. What does that do?
It shortens the time associated with repairing the oven very significantly, number one. Number two, we think we can get at least 1 more ton of charge rate going forward, which in and of itself is a reasonably attractive return, relative to the silica welding that you did before, and you wouldn't get the additional 1 ton .
And then ongoing maintenance expense going forward. When you silica weld, you're generally silica welding about 6 most to 3 years later, because it doesn't -- it's not a permanent fix, it's just ongoing maintenance.
This would be a more permanent, as you can see from the picture, this would be a more permanent approach. So we do think this is actually number one, a better way to do it relative to silica welding; and number two, we do think it actually generates a return on investment.
I'm not prepared today to say anything other than the additional 1 ton of charge weight, actually there is a return for that. And it's just a much better approach.
Which we frankly came up with as we looked at the situation in the first quarter and looked at the -- we took an inventory. So it's about 1/4 of the ovens in the plant where we felt like we needed to do this.
And frankly, our team that's been working on it came up with this approach, that was a much better, more intelligent way to do it, and we think will generate a return for us longer term.
Nathan Littlewood - Crédit Suisse AG, Research Division
So there's nothing in the contract that allows for an incremental return on that capital for higher margins as such?
Frederick A. Henderson
No. You see, you got to get the return from more tons, which we can sell more tons, and I think ArcelorMittal would take the tons if we produce them.
And the contract does provide for us to do that, and then lower maintenance costs, which benefit, frankly, us as well as the customer longer term.
Nathan Littlewood - Crédit Suisse AG, Research Division
Got it. Okay.
I certainly appreciate all the color, but, I guess, from our perspective -- and I think anyone on this call is actually able to kind of quantify what an extra 1 million ton charge rate actually means in terms of marginal cash sales. So it would be helpful if we could get a little bit of guidance on that at some point in the future.
The next question I had was just on the distributable cash flows. Back at the Strategy Day, you've indicated that the dropdowns would increase distributable cash flow by about $38 million on a pre-financing basis.
The number you've given today is $23 million. Is the difference between the 2, being $15 million, purely the financing costs?
In other words, it is the underlying apples-to-apples?
Frederick A. Henderson
Yes, the difference is financing costs.
Nathan Littlewood - Crédit Suisse AG, Research Division
Right, okay. Third and final question was just on your guidance on tonnage.
The change from 4.3 million to 4.2 million tons, is really pretty modest, I guess, in terms of what we're seeing in the steel industry at the moment with all of the sort of iron ore and raw materials issues that they're having. Could you talk a little bit about the underlying blast furnace utilization numbers that are embedded into your full year production guidance?
Frederick A. Henderson
So, interestingly, obviously, the blast furnaces have been affected by iron ore shortages, Lake Superior logistics, I've learned all sort of things about icebreaking barges. And let's face it, it's been a -- the winter has affected our customers in a pretty significant way.
Interestingly, relative to the demand for our coke, there's been no desire on the part of our customers for us to dial back production. On the contrary, frankly, we wish we could've produced more from -- particularly from Indiana Harbor.
So relative -- I can't really comment on overall blast furnace utilization as we go into 2014, my crystal ball is not that good. If you look at order books, and I do -- we do talk to our customers, their order books are strong, they would prefer to be running more.
And I think if they get through the disruptions of the winter and get iron ore delivery more normalized, they want to run their blast furnaces at higher utilization rates and they're going to be pulling on our coke. So we don't really think -- we don't -- if we look out the rest of the year, we don't see demand constraints hitting anything.
Nathan Littlewood - Crédit Suisse AG, Research Division
Got it, okay. And on Mittal's Indiana Harbor specifically, do you know much about their inventory position in terms of iron ore at the moment?
Frederick A. Henderson
No, I don't. You'd have to ask ArcelorMittal for that one.
Operator
Our next question comes from Erin Scully from Indaba Capital.
Tom Endel McConnon - Indaba Capital Management, L.P.
It's actually Tom McConnon from Indaba. Quick question guys.
With the dropdown that should obviously increase the GP cash flows pretty significantly, can you give us some kind of sense of pro forma what the GP cash flows should be once you've completed this dropdown?
Mark E. Newman
Yes, based on where we are in the splits, we've identified $23 million, and probably close to $4 million of that relates to GP cash flows.
Tom Endel McConnon - Indaba Capital Management, L.P.
So that's $4 million incremental from the dropdown?
Mark E. Newman
Correct.
Operator
Our next question comes from Brett Levy from Jefferies.
Brett M. Levy - Jefferies LLC, Fixed Income Research
I guess, with respect to selling the coal coke or I'm sorry, the met coal assets, I guess, it would reflect a certain amount of bearishness longer term. I mean, you listen to some of these guys saying, "Listen, 2014 is not going to be a great year, but maybe 2015 will be much better."
I guess, the question is, why not wait if you're at least medium bullish on met coal?
Frederick A. Henderson
First of all, I don't have a view on met coal. I'm not that good.
And even Mike Hardesty who works for me, who is that good, I mean, his crystal ball is not that great either. And so our view is no time like the present, might as well just get on with it.
We don't really have -- we don't have a strategy which could make us successful. We are subscale.
We have all the challenges. In other words -- and we won't -- it's not like we were printing cash when met coal prices were high.
So as we think about it, now that the tax sharing agreement is over, yes, it's a tough time to sell the business, it's an even more difficult time for us to be in the business. And so we felt like it will be the right time to just get moving.
And to the extent that we want to -- if we have a view on met coal, it's part of the transaction, some form of the consideration as an upside for met coal, fine. I'm flexible on that.
But I just don't think staying in a business where you don't have a recipe for success, and to wait for commodity prices to rise is good strategy for us.
Brett M. Levy - Jefferies LLC, Fixed Income Research
Got it. And then in terms of buying the balance of the JVs, is there a financing plan for that?
Or I did not understand that fully?
Frederick A. Henderson
Could you clarify the question a bit?
Brett M. Levy - Jefferies LLC, Fixed Income Research
The -- was it $325 million transaction?
Mark E. Newman
It's the dropdown.
Brett M. Levy - Jefferies LLC, Fixed Income Research
Yes, yes.
Frederick A. Henderson
Oh, I'm sorry, you're talking about -- well, that's the dropdown transaction, $365 million is a 33%. Are you talking about the remaining 2%?
Brett M. Levy - Jefferies LLC, Fixed Income Research
No, no, no. The whole thing.
Frederick A. Henderson
Oh, got it. Oh, look, we're not going to comment actually on that.
What we said was, at Analyst Day, that our dropdown plan in its entirety, including all the customer-related assets, would be able to support an 8% to 10% minimum growth and distributions over the 3-year period, end of 2016, and we certainly see this transaction as being highly consistent with that.
Operator
[Operator Instructions] Our next question comes from Sam Dubinsky from Wells Fargo.
Sam Dubinsky - Wells Fargo Securities, LLC, Research Division
Is 8x now a good barometer for how we should think about future dropdowns? Just because I believe the initial plants you're dropping down were some of your better plants.
So potentially, you may have been able to sell at slightly higher multiple. So I'm just trying to think about how you're shaping the future EBITDA multiples when you look at it?
And then I have a follow-up.
Frederick A. Henderson
Well, let's start with 8.3, which is the multiple here. Let's hold market conditions constant.
Obviously, market conditions, whether in interest rates -- so let's hold market conditions constant for purposes of addressing your question. These are our best assets.
But one of the -- a very important consideration for the multiple is the ratio of distributable cash flow to EBITDA, it's expressed in this 8.3 relative to EBITDA. Embedded in that is both the quality of assets, the amount of replacement capital, the amount of ongoing capital.
But also what's interesting the financing that comes within the individual transactions. So as I think about 8.3, these are some of our newest assets, some of our better assets.
If we were to put -- when we were to consider either Jewell or Indiana Harbor, we're going to have higher replacement capital accruals. We could very well have higher ongoing capital accrual, and so the ratio of distributable cash flow to EBITDA could be lower, so therefore the multiple would be lower.
I guess, the last point I would make about this is that part of the transaction, obviously, is the GP. We're taking back roughly half the unit, so we maintain, even at part of this dropdown transaction, we're getting about half the equity issued back to us as LP units, and obviously, it's the GP, we're moving up the splits in getting the GP cash flow.
So we benefit both directly and indirectly from the dropdown.
Sam Dubinsky - Wells Fargo Securities, LLC, Research Division
Okay, great. And then just on your revolver, I know you're paying down the revolver.
Technically, I don't think you have to, but I know you're doing it. In theory, does this mean that you now have more gunpowder to make logistics acquisitions?
With the revolver paid down, a little extra cash at the MLP's balance sheet?
Mark E. Newman
Yes, Sam, it's Mark. We thought it was -- since we're accessing the capital markets and this was a draw that was ready to buy a long-term asset that it made sense to term it out.
And so with the refreshing of the revolver, we really are then able to do acquisitions, and candidly fund some of the remainder of the environmental remediation. But your answer -- your question is right on.
We want to be able to do acquisitions without financing contingencies or accessing the capital market. It made sense to just add this on when we went to market.
Sam Dubinsky - Wells Fargo Securities, LLC, Research Division
Okay, great. And then in terms of your capital allocation strategy at the parent SXC, at what point do you think it makes sense for SXC to start paying dividends?
What are you looking for? Do you need -- most of the assets will be dropdown, do you need a decision on DRI?
Maybe just clarify what point do you think it makes sense to pay a dividend.
Frederick A. Henderson
Yes. I'll give you same answer I gave at Analyst Day.
What we wanted to do is get first transaction done, which we're working on now, obviously we expect to close in May. That's a dialogue for the board.
And I anticipate the board -- the dialogue will take place in 2014. You'd have to wait for all of the dropdown to be done.
I think the dialogue will be taking place in 2014 and anticipate we have that with the Board and be able to factor in all considerations, including the MLP, including cash flows, including our capital plan in order to arrive at a rational capital allocation strategy for the parent. So that's work in front of us.
Sam Dubinsky - Wells Fargo Securities, LLC, Research Division
Okay. And then my last question is just housekeeping.
I know you're pushing some corporate overhead from the parent to the MLP, once you do all your dropdown, how much corporate overhead is leaving the parent and going to the MLP, do you think? If you could provide that.
Mark E. Newman
Sam, it may be a little bit too early to comment of that. I think what we would like to do is as we think about the parent without the operating assets, we want to get to something that's more nominal than what we retain today.
Obviously, today, the retained corporate overhead is approximately $35 million. We're taking steps, as Fritz mentioned, to reduce that in view of selling the coal business.
And then further, we've done a pretty in-depth assessment as to where we're spending our time, vis-à-vis, the operations and the GP, and really what we're trying to do is do a fair rational allocation of cost and reduction of cost, so that when we get to a parent that has no operating asset and you look at the retained corporate overhead, it makes sense.
Frederick A. Henderson
And lastly, the right time to do it is when we consider dropdown transactions, because then the MLP, the complex committee as they approve a transaction, both costs are included in evaluation. So it's absolutely the right way to handle it and the right time to do it.
Sam Dubinsky - Wells Fargo Securities, LLC, Research Division
And I apologize if I missed this, but what is the corporate overhead associated with the coal business?
Frederick A. Henderson
Interestingly, you didn't miss it. If you just look at our total corporate costs before allocations, we're generally $80 million to $85 million, and then we allocate roughly $50 million of that to whether it's coke plants or the coal business.
The coal business is a reasonable part. We spend a fair amount of time on the coal business.
However, if you were to come to our headquarters and try to pick the 25 people who work on coal, everybody works on it a part of their time. We have some people, but it's -- and so the decision we took in order to reduce our manpower about 10% and curtail a number of other spending-related categories was really intended to meaningfully reduce that growth number so that if we were to sell the coal business and no longer have the allocation, that we wouldn't end up having a negative effect on our coke assets.
We've not really talked about how much goes to coal versus other plants, so you didn't miss it. But that gives you some sense of what we're trying to get accomplished.
Operator
We have no further questions at this time.
Frederick A. Henderson
All right. Well, again thanks very much for your interest in SunCoke.
And we look forward to talking to you next quarter. Thank you.
Operator
Thank you. And thank you, ladies and gentlemen.
This concludes today's call. Thank you for participating.
You may now disconnect.