Oct 12, 2015
Executives
Lisa Ciota - IR Fritz Henderson - Chairman, President and CEO Fay West - SVP and CFO
Analysts
Pavan Hoskote - Goldman Sachs Lucas Pipes - FBR Garrett Nelson - BB&T Capital Markets Paul Luther - Bank of America
Operator
Welcome to the Q3 SXC Earnings Call. My name is Paulette and I'll be your operator for today's call.
At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session.
Please note that this conference is being recorded. I’ll now turn the call over to Lisa Ciota.
Lisa, you may begin.
Lisa Ciota
Thank you, Paulette. Good morning, everyone.
Thank you for joining us on our early morning call to discuss SunCoke Energy’s Third Quarter 2015 Earnings. With me are Fritz Henderson, our Chairman, President and CEO and Fay West, Senior Vice President and Chief Financial Officer.
Following our remarks made by management today, we’ll open the call for Q&A. This conference call is being webcast live on the Investor Relations section of suncoke.com and a replay will be available for few weeks.
If you don’t get to your questions on the call today, please feel free to give me a call this afternoon at 630-824-1907. Now before I turn the call over to Fritz, let me remind you that the various remarks we make today regarding future expectations constitute forward-looking statements.
The cautionary language regarding forward-looking statements in our SEC filings apply to these remarks. These documents are available on our Web site as are any reconciliations to non-GAAP items discussed on today’s call.
And now turn the call over to Fritz.
Fritz Henderson
Thank you Lisa and good morning. Thanks to everyone for joining the call.
We made our decision to report our third quarter results earlier than we typically do in order for investors to have as much information as soon as possible, so again thank you very much for joining us this morning. If you look at the third quarter -- number of things to place in the third quarter at SunCoke; first the Convent Marine Terminal acquisition was both completed and the integration steps were completed as well which really builds and strengthens our Coal Logistics platform.
We executed 16 million of share repurchases against the existing authorization we had we declared the second consecutive $0.15 quarterly dividend, Fay will have more to say about that. In the quarter, we initiated a number of steps and took a fresh look at our Indiana Harbor plant.
As the plant continues to have both continued challenges and continues to post unacceptable performance, I’ll have more to say about that later in the call. The organization also had a number of changes in the third quarter with the departure of Mike Thomson and Barry Elswick, we took that opportunity to flatten the organization in the quarter.
We also managed the transition at General Counsel from Denise Cade to Katherine Gates. So the company has made a number of important changes in management and I want to thank Denise and congratulate Katherine on her promotion.
In terms of guidance given what’s happened with Indiana Harbor we are revising our guidance today to $180 million to $190 million that reflects both the Convent acquisitions but also significant under performance in Indiana Harbor, Fay will have more to say about that later in the presentation and then I’ll wrap up talking about again our value proposition SunCoke what our business model and what our value proposition is toward our customers going forward. So at this point turn it over to Fay.
Fay West
Thanks Fritz. For the quarter consolidated adjusted EBITDA of $50.2 million was down $14 million versus the prior year.
And this was due primarily to the impact of our performance at Indiana Harbor as well as other items that impact comparability which I’ll discuss on the next slide. These items were partially offset by the performance of our Convent Marine Terminal facility which contributed $5.4 million third quarter results and is expected to deliver full year 2015 adjusted EBITDA of approximately $20 million, which is in line with our prior guidance.
Looking at EPS, we reported a loss $0.36 per share which reflects the impact of $19.4 million non-cash impairment charge related to our VISA SunCoke joint venture in India. Similar to the impairment charge we took last year, the market conditions continue to deteriorate and we have now written our investments down to zero.
Turning to Slide 4. And working from left to right on the chart, we identified the drivers of year-over-year changes in adjusted EBITDA.
Most notably you could see the $11.4 million impact from cost under recovery and lower volumes at Indiana Harbor which was partially driven by the oven rebuild pilot program that Fritz will just talk later in the presentation. In addition to Indiana Harbor a few items impacting comparability include the previously disclosed idling of the Haverhill Chemicals facility, as well as one-time deal cost and severance cost that were incurred in the third quarter.
Partially offsetting these items was the beneficial impact we are already experiencing from our Convent Marine Terminal acquisition which contributed $5.4 million to results. In total our consolidated adjusted-EBITDA for the third quarter was $50.2 million down from the prior year quarter of 64.2.
Moving to the Domestic Coke summary on page 5. Given the operational challenges at Indiana Harbor our Domestic Coke fleet delivered results below expectations finishing with adjusted-EBITDA per ton of $54 on 1049,000 tons of production.
Overall we continue to have confidence in the long-term performance of our Domestic Coke segment as a whole but in the near-term we’re reducing our full year adjusted-EBITDA per ton guidance range to be between 50 and 55 per ton down from the previous range of $55 to $60 per ton. Moving to slide 6.
Our liquidity position remains strong as we continue to actively manage our balance sheet in order to preserve flexibility as two of our customers are working through contract negotiations with their labor forces. We ended this quarter with approximately $103 million in cash and remaining revolver capacity of $213 million.
We generated positive cash from operations although working capital was impacted by the timing of the cash payment for our customer. The payment was received on October 1st one day later than anticipated and was delayed due to administrative issues.
Cash flow from operations was offset by capital expenditures which were in line on a consolidated basis and the net cash from the C&P acquisition. Further we paid out nearly $50 million in executing our capital allocation strategy.
With combined liquidity of $316 million we are well positioned to manage through any potential challenges while we continue to execute our strategy. Turning to the next slide.
We continue to be committed to leveraging our unique structure and creating value for shareholders. During the quarter we executed approximately [$15] million in share repurchases at a level that we believe is highly undervalued.
As a reminder we have $39 million of share repurchase authorizations remaining for SXC and going forward we intend to opportunistically execute against the remaining portion of this authorization. We also declared a quarterly dividend of $0.15 per share which was consistent with the prior quarter and represents a 100% increase from where we started the year.
And lastly we anticipate that the remaining SXC bonds will be taken out in the fourth quarter as we have already called our retained portion of the bond totalling approximately $60 million, and we anticipate that sometime in the fourth quarter SXCP will redeem the approximately $45 million portion of the SXC bonds they assumed as part of the 23% drop down of [indiscernible]. The redemption of these bonds will provide more flexibility to execute on our go forward capital allocation strategy.
Looking at our revised adjusted-EBITDA guidance on the next page. As mentioned earlier we’re revising our 2015 adjusted-EBITDA guidance to be between $180 million and $190 million.
When excluding Indiana Harbor you could see that the rest of our business has remained in balance as strong performance at Middletown, Jewell and Brazil has offset the unfavorable impact of Haverhill Chemicals facility idling and some other non-operational charges including black lung severance and deal cost. However as you could see Indiana Harbor's underperformance is driving a downward revision in our outlook for the year as volume shortfalls and cost under recovery have yielded disappointing results.
Partially offsetting the Indiana Harbor performance is the approximately $20 million benefit that we expect from the Convent Marine Terminal acquisition. I will now turn it back over to Fritz.
Fritz Henderson
Before talking about slide 9 I wanted to provide some overall comments about Indiana Harbor. When you look back not just in the quarter but over the last three year performance of the plant has not been acceptable under any measure.
We've invested about $130 million of capital in that plant from 2013 to what we expect to do in 2015. While Indiana Harbor does have some unique challenges we’re not making excuses today, we’re not getting the job done, we’re not getting the job done in terms of profitability, cash flow and what we expect to achieve in terms of production yield and the various other operating metrics at the plant.
The asset today is in much better condition than it was in 2013. If you look at the physical plant, the environmental performance, there are number of significant improvements in the infrastructure and the capability of the plant but as I said we’re not hitting the numbers in terms of production yield O&M thoughts and therefore EBITDA.
So the logical question is why? And what will we do differently going forward.
There is four points I want to make before touching on the information you see on page 9 and page 10. First point I want to make is, we plan to transition this from a project to a plant.
What does that mean? Typically when you do a project you complete the spending and you expect to have results.
We've spent capital at the plant but we've not been able to bring the plant to the 1.2 million rate. As we think about going forward we plan to take a more balanced approach beyond going spending and the management of the projects within the plant are going to be incorporated within the operations of the plant.
The emphasis going forward is going to be on stability in the operation and the operation performance not necessarily in hitting the 1.2 million rate. Whether or not we hit the 1.2 million rate will be a function of our ability to demonstrate stability in the operation day to day.
The focus is going to be on minimizing variation and building process capability in the plant. This is something you do in plants and something that we do in our other plants and something that we're going to be focused on almost exclusively at our Indiana Harbor plant.
Second important point, we're going to go slower in some areas in order to accelerate progress. What does that mean?
The plant as I’ve looked back over the last three years can only incorporate a certain amount of change. As we look for example last year we undertook the investment in repairing about 42 ovens, the floors and the flues.
As we look back in 2015 a more holistic approach to oven repairs is in order and we generate a better return, a lot more to say about that when I talk about the charge. If you look at the commissioning of the Pusher Charger Machine for example, the first machine that was commissioned late last year and in the winter this year was not done well.
The commissioning had lots of difficulties, lots of problem. As we've looked at the commissioning of the second machine which began on or about July of this year, and we expect to complete this month in October, we've factored in the lessons learned from the first PCM commissioning.
We factored in the improvements that we made in the machine into this machine and the objective is to do this in a deliberate way so that when the machine converts over to the second battery that we expect to service this month that we do so in a much more smooth fashion. Third, there's going to be a constant focus [indiscernible] continuous improvement once stability is established.
As you look at the oven repairs and I'm going to talk about it in a minute, it's not just about improving the performance of those specific ovens, it's also about improving the overall reliability across the battery. And so as we minimize variation in individual ovens it gives the team at the plant an ability to more effectively adjust to those ovens that haven't been repaired.
And so it’s about continuous improvement, once process stability has been established. Fourth and finally, we intend to apply greater discipline in both CapEx as well as in O&M, what we will do is, we look at the initiatives we're undertaking and I also have more to say about this in a bit, is we're going to measure the results first, we're going to monitor those results and then we're going to incorporate changes step by step in the plant in terms of both spending as well as O&M and so in these four areas, these are conceptual points, these are four important areas where we do plan to change on what's been done in the past.
So wrapping it up then you might ask okay, well when the plant be stable, how much will be spent, how much can we generate in terms of production needs to talk more about the customer. I'd say a couple of things.
First the balanced approach is in effect now. I've more to say about 2016 on December 17th when we have our Analyst Day and we talk about guidance for 2016.
For now in the fourth quarter of 2015 what we’ve factored in to Indiana Harbor is approximately the rate we've been running this year which is approximately breakeven. The first benchmarking of the plant and the results of this revised approach you'll see in the first quarter next year, where we need to post significantly better results in the first quarter of '16 versus the first quarter of '15 as we exercise the plant, as we manage the plant with stability in winter which is historically for the last two years has been a very difficult period for the plant.
And finally with respect to the customer we have capacity within the system to be able to meet the customer's needs and we intend to continue to leverage that capacity as we achieve process stability and improve the results at Indiana Harbor. So with those introductory comments I turn your attention back to page 9.
We did in the third quarter step back and look at the overall performance or underperformance of the plant and we conducted a comprehensive review both of the refurbishment project itself as well as plant operation. The workforce continues to be very actively engaged in the turnaround activities which is a positive.
The plant itself improved last year particularly 2014 the plant saw significant improvements in material handling and yield. We need to continue with that focus in 2015 and 2016.
There is a systematic plant maintenance activity and process underway and that process is gaining traction at the plant with a major emphasis on equipment reliability and asset care. We are executing a comprehensive winterization approach for 2016.
When you look at the plant's performance in winter of 2015 versus winter of 2014 it was better. If you look at how the plant performed versus our other plant winterization it was nowhere near as good as what we did at other plants and we can significantly improve the activity.
I can't control winter but we can control our readiness for winter. And then finally we are implementing additional measures to both control costs as well as benchmark those costs both O&M as well as capital across our plant in order to be more disciplined in that area.
We are maintaining continuous communication with our customers I mentioned before and meeting their needs, and as we think about previous oven and plant refurbishment efforts they haven't delivered the results and as I said before we need to take a different approach to stabilizing Indiana Harbor. So as we look at our lessons learned on page 10 we have done a number of unique one of a kind things for us at least with respect to the plant and we undertook something additional in the third quarter.
If you look on the left side of this chart to some degree it summarizes what’s been done as well as summarizes where we are today. We have replaced the stacks, we rebuilt exoskeletons to the plant to restore the integrity of the oven structure.
We've commissioned the first pusher/charger machine already and the second one is expected to be completed, the commissioning as expected to be completed in October. We've repaired and replaced common tunnels to optimize oven draft and allow us to increase charge weights as the ovens allow us to.
As I mentioned, we did repair floors and sole flues for 42 individual ovens. We have seen improvement in those, we have not seen the full improvements that we expected, what we've seen however is our ability, we've seen an ability is to stabilize coking rates and push cycles.
What we need to do beyond this in terms of ovens and oven health, we did in the third quarter pilot a test rebuild of 34 ovens in the month of September. It did, if you looking at your production in the third quarter of '14 versus third quarter of '15, round numbers we produced 275,000 tons in the third quarter of '14 which was about 90,000 to 91,000 tons per month.
If you look at the third quarter 2015, we produced about 245,000 tons, which was about 80,000 to 81,000 tons per month. Part of that, reflected over the ovens we took out of service and we rebuilt and we rebuilt them in an entire block and we not only repaired the floors and the sole flues but we re-bricked walls and we closed up a number of frankly gashes in the oven walls that were present in those ovens, which has improved as we look at it provides for a much more controlled environment in the plant.
The other thing we did was we controlled the start-up of those ovens in the third quarter. We did a better job at both reheating the ovens, bringing them back in the service.
And as we look at initial results and again I express the word initial results, very encouraging but very early stages. We’ve seen more stable coking rates, we see more stable push cycles.
We've been able to increase charge weights and coke production income, we've also seen and this is one of the points I was making before, greater stability in the remaining ovens to the most coke batteries. So it's about making individual repairs, doing in intelligent way and then looking for progress both in those ovens as well as the cost of remaining battery.
We do plan an additional 14 oven block during the fourth quarter of this year, that's been built into our guidance and we're going to monitor all those pilot ovens further as we go into 2016. I anticipate in 2016 and we will build in the capital plan further oven rebuilt like this in 2016 but we're not going to finalize our plant until we see demonstrated performance across the -- we're now at 48 ovens we have rebuilt over at least multiple months.
So wrapping it up and looking at our value proposition to our customers we do think, we remain in an advantaged position across the still value change from a cost, quality and logistic perspective. We do have long term take or pay contracts which require customers to take all the coke we produce up to contract maximum.
Our one of the key provisions of our contract is pass through, pass through of commodity cost that substantially limits the commodity risk in this case met coal within our contract. Where low cost source of coke for our customers, we provide an attractive alternative and relative to investment in their own coke plants.
From a technology prospective, we do capture both steam as well as power across our plants and we're the only company to build a Greenfield facility, coke making facilities in last 25 years in the U.S. We do have an advantaged environmental signature, a technology is considered MACT by the EPA.
Our heat-recovery ovens don't produce by-product chemicals for example, in terms of the asset based we have. Obviously, we have challenges in Indiana Harbor but our [indiscernible] plant for example, the oldest plant in the system introduced and produced in a reliable basis and be very, very low cost.
And our newer asset base involves lower CapEx requirements as well as, as demonstrated the plants of these demonstrated stable, reliable operations. And then finally, we're logistically advantaged to serve the customer's needs, their blast furnaces, important strategic blast furnaces via conveyor, rail or truck.
We provide the flexibility across our system to supply multiple customer facilities. I already mentioned the case of Indiana Harbor, we've been able to supply the customer's needs from other facilities and we weren’t short in Indiana Harbor, and we had been able to work with our customers to supply for multiple sites to optimize their logistics cost.
So wrapping it up, operational excellence is the base of our business, we have not been operational excellent in the Indiana Harbor plant. I spent a lot of time this morning talking about what we're going to do differently.
Across the rest of our plant as Fay showed, notwithstanding the challenges we've had in our business, our plants have continued to perform at a very high level and have been able to offset some of the headwinds we've seen in the business but we've not been able to offset the headwinds we've seen in the Indiana Harbor. We're positioned in a unique way within the steel value change.
We provide coke, we believe on an advantage basis and we believe we're a preferred supplier of coke to our customers both today in longer term. And then finally relative to capital allocation, we remain committed to being disciplined in executing our capital allocation strategy with a balanced approach to returning cash to shareholders.
So at this point, I would like to open it up for questions.
Operator
Thank you. We will now begin the question-and-answer session.
[Operator Instructions] And our first question comes from Pavan Hoskote from Goldman Sachs. Please go ahead.
Pavan Hoskote
Thanks a lot. Good morning guys.
Appreciate the detailed update on the Indiana Harbor, wanted to follow-up on the recent idling of operations at Granite City. Can you give a bit of an update on how you're seeing the supply and demand balance for domestic coke over the next few years?
And then on related note can you discuss the level of confidence you have in your take-or-pay contracts if steel markets remain challenged for longer?
Fritz Henderson
So two questions let me deal with Granite City and then deal with your broader question, actually you have three question. Nature coke balance, the security of our contracts in Granite City, so let me deal with Granite City first.
The announcement made by U.S. Steel about a potential temporary idling of their blast furnace there, the issuance of temporary [indiscernible] notices, I stress the forward temporary.
It seems this space was only one per early this year very similar. What we’ve done at that plant as we continued to meet the customers cook needs for the one blast furnace it has been lending it to sites, we’ve maintained normal operations there, we’ll continue to work with the customer into the extent they do idle that plant and they wish to ship coke to other facilities, we’ll do so that to their cost.
Had we not seen any significant deviation or departure in our operations at the plant, we don’t anticipate it, we have a long-term take-or-pay agreement with U.S. Steel interestingly in the first announcement on Granite City earlier this year US Steel articulated themselves that at the reduce rate they were running at the time between their own clear and coke battery and our Granite City operations they were imbalanced.
So we don’t anticipate any significant changes in our Granite City plant and we’ll have to -- we’ll monitor and work with the customer at Granite City. So coke balance, across the system what you have seen is -- you’ve seen a number of the coke plants they were permanently shut down in 2015.
You’ve seen U.S. Steel permanently shut down their Gary plant, you’ve seen U.S.
Steel coke plant I should say, you’ve seen U.S. Steel permanently shut down their Granite City coke plant.
There is a question about what might happen with the U.S. Steel coke plants during Canada and I can’t answer that question that today, we’re just monitoring what’s happening there.
But as you think about overall coke balance I think you need to think about what happens with blast furnace utilization rate, what happens -- what decisions do the customers take with respect to their own by product coke plant and then finally where do we fit in. We think we’re in advantaged position, we are continuously communicating with our customers.
We’ll have more to say about this more broadly I think when we talk about our 2016 targets that’s the right time to talk about it in terms of what our operating rates are expected to be for next year. But the short answer, we don’t expect any major changes in our business as going to ’16 from ’15 other than expecting better results ourselves from our Indiana Harbor plant.
So your third question is on the nature of our contracts. Our contracts have been -- as you think about the downturn in the steel industry in ’08 and ’09; we’ve continued to increase production through that period of time.
We do think about the last 12 months which has been a tumultuous period for our customers. We’ve continued to operate our plants and our customers have continued to respect our contracts.
We don’t see any reason to take a different [tune] today. We believe we are in advantaged position with our customers both in terms of the investments we’ve made the locations, the cost of our coke, the quality of our coke, the importance of our by-product and in this case power or steam to a number of our customer sites.
And we anticipate that we’ll continue going forward.
Pavan Hoskote
Great, thanks for that. And then on separate note given that you’ve now completed the Convent Marine Terminal acquisition, can you talk about what are you seeing broadly in terms of trends in -- is an oil based and coke exports and then how confident are you in consistent export volumes going forward?
Fritz Henderson
Well I would say that plant also has take-or-pay contracts. When you look at where we’re running today and then going back to the [common] chart, we had in the third quarter -- obviously we’d be closing the deal with our later in August but we had both transloaded volumes as well as we did had accrued volumes.
So we’ll consider take-or-pay volumes. We had in the quarter 800,000 transloaded volumes and 200,000 we’ll call it crude volumes crude [times] based up with those which would be covered by take-or-pay.
So you have seen softness, we’ll have more to say about 2016 also in December, but what we’ve seen and what we anticipate in the fourth quarter is that we will -- we’ll run the plant at or around where we have been running it, there will be some take-or-pay tons all of which are factored into the guidance that we provided about 20 million for 2015 and the 60 million annualized rate. I think it's certainly API 2 has been low, you’ve seen challenges in that system and so therefore what we’ve seen is both a pretty significant base load of volumes at Convent.
But also there are going to be some take-or-pay tons.
Pavan Hoskote
Great. Thanks a lot.
Operator
[Operator Instructions] And our next question comes from Lucas Pipes from FBR. Please go ahead.
Lucas Pipes
Hey good morning again. So I wanted to follow-up a little bit more on Indiana Harbor and I appreciate that we’ll probably get most of my questions answered in December.
But to the extent possible, I believe in the past you've guided to 35 million to 45 million of EBITDA long-term at Indiana Harbor. How do you look at this long-term guidance today?
Fritz Henderson
More to say about that in December Lucas. The plant itself if you look at 1.2 million tons if it ran the way was expected to and met all of the guidelines -- met all of the targets that is the rate at which the plant would run but it’s not run at that point and until it's stable we’re not going to talk about what the long-term capability is to the plant, we’ll have more to say about that in December.
Lucas Pipes
And then just two circle back on the CapEx. You mentioned what has been invested so far and appreciate your sentiment as to the need to improve performance on the back of that investment, but listing your priorities today what do you think you still have to spend?
Fritz Henderson
What we’ll have as we look into next year again we’ll have more to say about this in December, but we’re completing several rebuilds of quench towers at Indiana Harbor. We’re building some material handling investment into the plant, we’re doing some normal ongoing CapEx in the plant in order to improve its performance in environmental signature and the last piece we do anticipate we will likely build into our 2016 plan some additional oven rebuild similar to what we’ve done in the pilot test, but the nature what we planned to build into the capital plan for 2016, we’ll have more to say about it in December.
And frankly I’ll have another two months of performance to assess before landing what that number is.
Operator
Our next question comes from Garrett Nelson from BB&T Capital Markets. Please go ahead.
Garrett Nelson
With the dropdown of the remainder of Granite City during the quarter, could you talk about how you're thinking about the timeline and sequence and additional dropdowns? I assume the timeline for Indiana Harbor has been pushed out as you work through the challenges there but any detail on future dropdowns will be great.
Fritz Henderson
I would say the timeline Garrett is interrupted. And if you look at the yield at the MLP, its dislocated from anything that would be rationale, and so until we see some correction in that yield we don't anticipate dropping assets down into the MLP, it would not be smart for either SXCP or SXC to do that.
I would say operationally obviously Indiana Harbor even if the yield were improved, is delayed. Jewell, however, continues to operate very effectively.
We've done the work necessary in Brazil. So I mean if we saw the yield more normalized so we could execute according to plan that we push off Indiana Harbor.
But right now the yield suggests that we will not be doing dropdowns until we see a significant correction in the yield going forward.
Operator
[Operator Instructions]. And our next question comes from Kevin [indiscernible] from Nationwide.
Please go ahead.
Unidentified Analyst
I would like to get some more detail behind the total debt number, that the 900 I guess 41 numbers that can consist of the seller financing from the terminal?
Fritz Henderson
I'll let Fay answer that question, but the quick answer to that question is yes. So I'll let Fay walk you through within the total debt.
Fay West
So we have a schedule that actually lays that out, our total debt at SXC is $999 million attributable to SXCP is $941 and there is $58 million at SXC. Included in the 941 is the seller financing that was attributable to that Convent acquisition.
And there is also $45 million of bonds that were assumed by SXCP as part of the Granite City transaction, what’s remaining in SXC are the bonds that have been called and will be redeemed on October 22.
Unidentified Analyst
And if the go to kind of maintain that [indiscernible] to four time leverage going forward?
Fay West
That is our plan.
Fritz Henderson
That’s the plan. And particularly we’re going to call the bonds at the parent -- we already have actually, excuse me.
So those will be redeemed shortly actually this month. And then at the MLP the 3.5 to 4 is our target leverage ratio.
We do anticipate as I mentioned earlier this morning in the SXCP [call] Kevin that we'd use our coverage that comes from the Convent acquisition both repurchase units and delever, I think a tenth of the turn is $20 million of debt roughly. So I think we've got capability to both stay within that range, delever in small steps and repurchase units and that’s what we intend to do.
Unidentified Analyst
Any kind of comments on the rating agencies regarding outlook?
Fritz Henderson
I'll let Fay answer that question.
Fay West
So both Moody's and S&P reconfirmed our ratings, Moody's in July and S&P most recently. And they are comfortable with ratings -- with our leverage targets below 4.0 or [4.9].
Unidentified Analyst
And both agencies have stable outlook at this point.
Fay West
Correct.
Operator
And our next question comes from Paul Luther from Bank of America, please go ahead.
Paul Luther
Hi again, thanks for taking my question. Could you just give us maybe a quick update on the coal mining operations?
I get you're not in a position to give 2016 update but can you talk about your capacity and maybe to cut cost further if prices continue to decline or if you have options to further look to purchase coal to for the Jewell coke facility and further rationalize coal.
Fritz Henderson
Good questions. We will more to say about this in December, I feel like a broken record in that regard, but what we are doing today is we're executing in line with what we identified for 2015.
Coal prices are declining, as we go into next year we anticipate they will decline and we're evaluating what additional measures we can take. You know we have flexibility given the steps we've taken to both purchase as well as contract mine that’s what we've done this year and we'll continue to evaluate if purchasing coal can meet our quality targets and are more cost effective we'll continue to push that way.
And one of the reasons we did what we did in terms of frankly separating our entire hourly workforce and going to a contract mining model is to give us the flexibility to do that.
Operator
And we're showing no further questions.
Fritz Henderson
All right, just wrapping it up, again I want to thank everybody for joining us this morning. Really want to thank my team actually for pulling forward earnings by 10 days.
Don't expect this to be a trend for us but I think this is something that we felt was important given the news within the company and what we wanted to try to get accomplished. We want to get the information out into the market as quickly as we possibly could.
We will have more to say about 2016 obviously in our Investor Day on December 17 and look forward to seeing you then, thank you.
Operator
Thank you ladies and gentlemen, this concludes today's conference, thank you for participating, you may now disconnect.