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SunCoke Energy Partners (NYSE:SXCP)
Q4 2019 Earnings Call
Jan 29, 2020, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Ladies and gentlemen, thank you for standing by, and welcome to SunCoke's fourth-quarter 2019 earnings and 2020 guidance call. [Operator instructions] Please be advised that today's conference is being recorded. [Operator instructions] I would now like to hand the conference over to your speaker today, Shantanu Agrawal, director of investor relations. Please go ahead, sir.

Shantanu Agrawal -- Director of Investor Relations

Good morning, and thank you for joining us this morning to discuss SunCoke Energy's fourth-quarter and full-year 2019 earnings, as well as 2020 guidance. With me today are Mike Rippey, president and chief executive officer; and Fay West, senior vice president and chief financial officer. Following management's prepared remarks, we'll open the call for Q&A. This conference call is being webcast live on the Investor Relations section of our website, and a replay will be available later today.

If we don't get to your questions on the call today, please feel free to reach out to our investor relations team. Before I turn things over to Mike, let me remind you that the various remarks we make on today's call regarding future expectations constitute forward-looking statements. The cautionary language regarding forward-looking statements in our SEC filings apply to the remarks we make today. These documents are available on our website as are reconciliations to non-GAAP financial measures discussed on today's call.

With that, I'll now turn things over to Mike.

Mike Rippey -- President and Chief Executive Officer

Thank you, Shantanu. Good morning, and thank you for joining us on this morning's call. Today, we announced SunCoke Energy's fourth-quarter and full-year results. And before I turn things over to Fay, who will review the results in detail, I want to discuss a few highlights.

Let me start by first thanking all of our SunCoke employees for the contributions throughout the year. The commitment and dedication of our team drove the foundational improvements in our core operations that you see today. On Slide 3, you can see the key initiatives that we set out for 2019 and how we performed against these objectives. We delivered $247.9 million of adjusted EBITDA in 2019, which was well within our revised guidance range of $240 million to $250 million.

This reflects the strong performance of our coke operations and the significant contribution of our Indiana Harbor facility. The domestic coke operations contributed close to $227 million of adjusted EBITDA in 2019, which exceeded the financial targets established at the beginning of the year. I am pleased with the safe and efficient operations of our coke facilities, as well as the successful execution of capital projects, specifically the Indiana Harbor rebuild project. We successfully completed the last phase of this project in 2019, a multiyear journey to return the plant to profitability and nameplate production capacity.

Indiana Harbor produced over 1 million tons of high-quality coke and earned close to $25 million of adjusted EBITDA in 2019. Thanks to the investments we made in enhancing the Indiana Harbor, we're well-positioned to build on this strong foundation as we are now projecting that Indiana Harbor will double its adjusted EBITDA in 2020 and earn approximately $50 million. During the year, we also made strides in enhancing our corporate structure through the successful completion of the simplification transaction in the second quarter. This was a very important transaction for our company, which received tremendous support from SXC shareholders and has already created significant value for SunCoke stakeholders and set the stage for additional long-term value creation.

Going forward, the transaction will continue to position us well, providing significant flexibility to allow us to execute against our strategic initiatives and return capital to shareholders. While we have made excellent progress during the year in strengthening our core operations and structure, we also faced significant industry headwinds in our logistics business, which we continue to navigate. We have talked throughout 2019 of the challenges faced by our coal export customers and the impact for lower coal export prices and declining domestic coal demand have had our customers free cash flow and liquidity. Murray Energy declared Chapter 11 bankruptcy and rejected a contract with CMT in the fourth quarter.

Murray Energy did not ship any meaningful volumes through the terminal in 2019 and did not make any payments under its take-or-pay agreement. The loss of this customer had a significant impact on our 2019 financial performance, resulting in a loss of approximately $40 million of EBITDA. And accordingly, we adjusted our 2019 guidance in the third quarter to reflect this bankruptcy. Our other coal export customer, Foresight Energy, exported slightly more than 5 million tons of coal through the convent facility and performed in line with our expectations in 2019.

Although there was no impact on 2019 results, Foresight Energy remains challenged by both market conditions and its capital structure. Foresight is currently exploring potential restructuring alternatives, which is likely to impact our relationship going forward and is something we are planning for in our expectations for 2020. We'll discuss 2020 guidance a bit later in the presentation. But our expectation today based on our assessment of the situation and discussions with our customer is that both volumes and rate per ton will be lower in 2020.

Now withstanding the current challenges, we continue to believe in the potential of our CMT business and are highly focused on exploring opportunities for way to maximize our operations and diversify the products we can move in order to secure new customers and incremental volume through the facility. As we think about the totality of our business, we're very pleased with the strength of our core operations, which allowed us to drive robust cash flows for the year, well above our revised guidance. The strong cash flow has provided us the ability to weather the challenges facing our industry, while also aggressively pursuing a balanced yet opportunistic approach to capital allocation in '19. Fay will go into more detail on this, but at a high level, we made tremendous progress on our capital allocation initiatives for the year, reducing our debt, investing in our assets and returning meaningful capital to our shareholders.

With that, I will turn it over to Fay to review our fourth-quarter and full-year results.

Fay West -- Senior Vice President and Chief Financial Officer

Thanks, Mike, and good morning, everyone. Turning to Slide 4. The fourth-quarter net loss attributable to SXC was $0.02 per share, down $0.05 versus the fourth quarter of 2018. On a GAAP basis, our full-year 2019 net loss attributable to SXC was $1.98 per share, reflecting a $2.27 per share impairment-related charge we recorded to logistics goodwill and long-lived assets at CMT in the third quarter.

Excluding these noncash charges, adjusted net income attributable to SXC was $0.29 per share, which was down $0.11 versus full-year 2018, mainly driven to lower operating performance at our logistics segment due to a coal customer bankruptcy. Consolidated adjusted EBITDA for the fourth-quarter 2019 was $50.8 million, down $15.1 million versus the fourth quarter of 2018. The decrease was mainly driven by lower volumes in our logistics segment. On a full-year basis, we delivered adjusted EBITDA of $247.9 million, down $15.3 million versus full-year 2018.

There was a meaningful improvement in our domestic coke business year over year, mainly from higher volumes at Indiana Harbor and lower outage impact at Granite City. The 2019 results were significantly impacted by the bankruptcy of our coal customer in the logistics segment, as mentioned previously by Mike. Turning to Slide 5. And looking further at our fourth-quarter adjusted EBITDA performance, fourth-quarter 2019 adjusted EBITDA was $50.8 million, compared to $65.9 million in Q4 2018.

We finished the final phase of Indiana Harbor oven rebuild project in November and the facility is back to its nameplate capacity of 1.2 million tons. The coke segment performance was comparable quarter over quarter. In terms of our logistics segment, we saw lower throughput volumes at both CMT and KRT. As discussed, the bankruptcy of one of our coal customers along with the challenging coal export markets continued to impact CMT.

Our domestic logistics terminals also saw reduced volumes owing to lower energy prices. Turning to corporate and other. The quarter-over-quarter increase in expense was primarily due to the timing of employee-related expenses, as well as higher legacy costs. Looking at full-year adjusted EBITDA performance on Slide 6.

On a full-year basis, 2019 adjusted EBITDA was $247.9 million, down $15.3 million compared to the prior year. Our coke segment delivered strong operational performance with higher sales from Indiana Harbor and lower outage impact at Granite City. Indiana Harbor production increased by almost 100,000 tons and adjusted EBITDA improved by approximately $10 million. The domestic coke segment delivered full-year adjusted EBITDA of approximately $227 million, which was above our full-year domestic coke guidance.

In total, across our coke segment, adjusted EBITDA was up 7% or approximately $16 million year over year to nearly $243 million. This was offset by a $30 million year-over-year decline in our logistics business as a result of the Chapter 11 bankruptcy of Murray Energy. Finally, our corporate and other segment was unfavorable by $1.7 million, primarily due to higher legacy costs. In summary, while we are very pleased with the progress we made in our domestic coke segment in 2019, it was a very challenging year for us in the logistics segment, and we know we have work to do to secure new customers and additional volume at CMT.

Turning to our capital deployment on Slide 7. As Mike highlighted, we generated a very strong operating cash flow of approximately $182 million, which was above our full-year revised guidance range of $150 million to $160 million. This robust cash flow generation allowed us to make tremendous progress on our capital deployment initiative. Capex of approximately $110 million during the year was below our guidance, yet delivered outsized returns and operational improvements, driven by investments like the $35 million related to our Indiana Harbor oven rebuild initiative.

We made strong progress strengthening our balance sheet. As during the year, we spent $55 million cash to reduce debt outstanding by approximately $58 million. This includes repurchasing $50 million face value SXCP senior notes at a discount. We remain focused on further strengthening the balance sheet and maintaining a leverage ratio consistent with our long-term target of three times.

We also returned significant capital to our shareholders in 2019. As discussed during last quarter's call, we initiated a share repurchase program in August, under which we repurchased approximately 6.3 million shares for $36.3 million in the second half of 2019. Going forward, we will remain disciplined and opportunistic on future share repurchases. We also declared and paid a dividend of $0.06 per share in the fourth quarter.

In total, we ended 2019 with a cash balance of approximately $97 million and strong liquidity of approximately $340 million, setting the stage for continued progress against our capital allocation priorities in 2020. At this time, I would like to turn the call back over to Mike to share our views on steel and coal market before I run through our guidance expectations for 2020. Mike?

Mike Rippey -- President and Chief Executive Officer

Thanks, Fay. Before we review our 2020 guidance, I wanted to provide a few brief thoughts on the overall market and where we see things as we enter the new year. Steel demand and capacity utilization remained stable in 2019. However, downward pressure on price impacted profitability of steel producers.

A hot-rolled benchmark price at a low of $470 per short ton earlier in the year before rebounding to $600 per short ton at the end of the year. Looking forward to 2020, we expect to see stable steel demand from the industrial, construction and energy sectors, with automotive slightly lower. We believe the coke market will remain oversupplied and do not foresee a meaningful change in coke demand or coke supply in 2020. These market dynamics certainly factor into our current contract negotiations.

However, steel markets are cyclical, and our business is based on long-term supply and demand fundamentals. And accordingly, on long-term contractual commitments. Looking beyond 2020, we believe that SunCoke is well-positioned for long-term success. We have the youngest domestic coke facilities in the NAFTA region and continue to invest in our facilities to ensure that they operate safely and efficiently.

We have leading technology with outstanding environmental performance and are recognized as the EPA MACT Standard. We reliably produce a very high-quality product, although we continue to see market share shift from integrated steel producers to EAS, we believe that the coke supply exiting the market in the longer term will be greater than the reduction in coke demand due to the shift in market share from integrated steel producers. Also, recent developments in the steel market have created the potential to economically produce pig iron or consumption by EAS. The production of pig iron via domestic blast furnaces will require coke, which could create opportunities for SunCoke.

Longer term, we believe that Suncoke will continue to provide high-quality coke to our existing customers. Additionally, as we look beyond our existing customers, we may produce coke for alternative uses such as coke for foundry applications. On the thermal coal export side, the market appears challenged again in 2020, with API2 prices in the low to mid-50s per ton. While fully repositioning, CMT is going to be a multiyear undertaking.

It will be one of our top priorities in 2020. In the short term, we are aggressively pursuing new opportunities by adding new customers and new products. We don't expect these activities will offset the loss of large anchor customers. In order to achieve the economies of scale, as well as operate optimally and efficiently.

Our goal is to anchor the facility to handle products on a large bulk scale basis. In the past, this anchor commodity was coal. It can continue to be coal, or the terminal could be reconfigured to handle a completely different bulk commodity. We're exploring all opportunities to optimize the facility both in 2020 and for the longer term.

Now I'll turn it over to Fay to review our 2020 adjusted EBITDA guidance.

Fay West -- Senior Vice President and Chief Financial Officer

Thanks, Mike. Turning to Slide 10. We expect 2020 adjusted EBITDA to be between $235 million and $245 million. Domestic coke will contribute an incremental $16 million to $20 million in 2020 based on the strong foundation of improved performance efficiency we have built at Indiana Harbor.

The improvement in the domestic coke operations will be more than offset by a decrease in the logistics business. As Mike just mentioned, we anticipate that the coal market conditions will remain challenged and expect that both coal export volumes through CMT, as well as the rate per ton will be lower in 2020. Our coal export customer, Foresight Energy, is in the process of negotiating with its creditors and exploring restructuring alternatives. As a result, we anticipate entering into negotiations with Foresight to establish a new logistics contract going forward.

This is something we have factored into our 2020 guidance, as it includes our best estimate of export volumes and rates. Lastly, we expect our corporate and other segment to be down slightly due to higher employee-related costs and incremental legacy costs as compared to 2019. Moving on to Slide 11, in 2020, we expect our domestic coke adjusted EBITDA will be between $243 million and $247 million or $56 to $57 on a per-ton basis. The domestic coke business has delivered adjusted EBITDA growth over the last few years, which is the result of the successful oven rebuild program at Indiana Harbor.

With the completion of the rebuild project in 2019, we expect that Indiana Harbor will operate at nameplate capacity of 1.2 million tons. The anticipated increase in production, coupled with improved operating performance will position Indiana Harbor to achieve record annual adjusted EBITDA of approximately $50 million in 2020. Our 2020 projections also include lower yield gains across our domestic coke fleet from lower met coal prices. As a reminder, while we do pass through the cost of coal to our customers, we generate incremental adjusted EBITDA due to better than contract yield performance, the value of which is impacted by coal prices.

As compared to 2019, lower met coal prices in 2020 will reduce the anticipated yield gain by $5 million to $7 million. Lastly, we expect 2020 coke production to be approximately 4.3 million tons, which is approximately 130,000 tons higher than 2019. Moving on to Slide 12. 2020 logistics adjusted EBITDA is expected to be between $17 million and $20 million, a significant decrease versus 2019 and 2018 due to the ongoing customer and industry challenges we mentioned.

As we discussed during the third quarter, Murray rejected our contract. And while we intend to pursue all of our remedies in bankruptcy court, we do not anticipate any coal export volumes from Murray in 2020. Additionally, based on market conditions and ongoing discussions with Foresight energy, we are projecting 3.6 million tons of export volumes through CMT. We are also projecting a reduced rate per ton in 2020.

These factors have significantly reduced CMT's adjusted EBITDA, and we are projecting CMT's adjusted EBITDA to be between $7 million and $9 million in 2020. While the challenges facing our logistics customers and market are outside of our control, we are not satisfied where we are and are aggressively pursuing initiatives to bring on new customers additional volumes and new products at CMT. CMT is a state-of-the-art facility, which is a low-cost and efficient operator and has the physical facility footprint suitable for repositioning. We believe in long-term potential of CMT and are working hard to better utilize the facility and we look forward to updating you on the progress of these efforts throughout the year.

This will take time, and as such, our guidance for 2020 is a realistic and sober view of existing market and customer conditions. At KRT, we expect 2020 volumes will be lower than 2019 with lower end market demand for both met and thermal coal. Moving to the 2020 guidance summary on Slide 13. This slide provides a view of 2019 actual performance across many metrics, as well as a summary of our 2020 guidance.

Once again, we expect adjusted EBITDA to be between $235 million and $245 million. Our coke operations are performing well, and the completion of the Indiana Harbor rebuild project will meaningfully increase adjusted EBITDA by $25 million in 2020. Unfortunately, this is not enough to offset the loss from our logistics volume. Our operating cash flow is anticipated to be between $170 million and $185 million in 2020, consistent with 2019.

And with the completion of the Indiana Harbor rebuild project, you can see that our capex requirements have decreased significantly. We anticipate that capex in 2020 will be between $70 million and $80 million. Additionally, we estimate that our free cash flow will be between $104 million and $114 million in 2020. With that, I'll turn it back to Mike.

Mike Rippey -- President and Chief Executive Officer

Thank you, Fay. I'd like to direct your attention to Slide 14, which lays out our capital allocation framework and priorities. This slide should look familiar to you as is consistent with our discussion in the third quarter. Creating value for shareholders is the goal of our management team and the board, and our solid cash flow allowed us to return meaningful capital to shareholders through a share repurchase plan initiated in early August and the declaration of a dividend of $0.06 in the fourth quarter.

We have repurchased approximately 6.8 million shares so far, including 4.2 million shares in the fourth quarter. As a reminder, our board authorized a new $100 million for future share repurchases, which we expect to execute opportunistically balanced against the capital needs of the business and our goal of improving our balance sheet position. Towards that goal of improving our leverage position. We extinguished approximately $58 million of debt, which included repurchasing $50 million base value of 2025 senior notes at a discount.

We ended the year with a gross leverage ratio of 3.23 times. And while we expect this level to naturally fluctuate over the course of the year, we will work to maintain leverage consistent with our stated goal of gross leverage ratio of 3.0 times. We continue to make high-impact investments in our operations, as demonstrated by our investment in the Indiana Harbor rebuild project, which is a very high return on capital. We will continue to monitor M&A opportunities, but we have been and will continue to be disciplined in our evaluation and consideration of opportunities.

We are focused on providing long-term value creation for our shareholders and are mindful that it is not in the shareholders' interest for our company to sacrifice long-term value creation for short-term marginal gains. In 2019, we demonstrated our resolve and commitment to creating value for our shareholders while balancing the needs of our business. We will continue to deploy this framework in 2020. Wrapping up on Slide 15.

2020 will be a busy year for our organization. We have a great foundation from which to build. As always, safety and operational performance is top of mind for our organization. Our efforts will focus on successfully executing against our operating and capital plan in 2020.

We will continue to pursue opportunities to optimize our asset base, specifically as it relates to Convent Marine Terminal, repositioning CMT is a critical undertaking for SunCoke. We will work diligently toward that goal in 2020, pursuing opportunities to add new customers and new products, recapturing the lost earnings potential from this facility will be a multiyear process and progress in 2020 will be the first step in that journey. We have significant coal contracts expiring at the end of 2020. Successfully navigating through these contract renewals is another key initiative for our organization and for the long-term success of SunCoke Energy.

We are in discussions with our customers, and we'll keep our investors and stakeholders informed throughout the year. In total, we are optimistic for 2020 and see tremendous potential to build on the strength of our core coke-making franchise to meet our financial targets, deliver against our capital allocation priorities and create value for shareholders. With that, let's go ahead and open the call for Q&A.

Questions & Answers:


Operator

Thank you. [Operator instructions]. Your first question comes from Matthew Fields from Bank of America Merrill Lynch. Your line is open.

Matthew Fields -- Bank of America Merrill Lynch -- Analyst

Hey, Mike. Hey, Fay. Two questions for me. One on the logistics side.

Appreciate all the detail on the guidance. It looks like you're taking a very conservative view on the CMT contribution in 2020. Just to reiterate because I don't know if I heard it all, you're assuming in your 2020 guidance no tons from Murray and 3.6 million tons from Foresight at what you are projecting to be some kind of reduced rate given a renegotiated contract that we don't know about yet.

Mike Rippey -- President and Chief Executive Officer

Hi, Matthew. Thanks. Your recital is correct, although you used the word conservative to begin your question, and we believe we are taking a realistic view as not to be overly conservative or aggressive. But your recital of tons and the fact that Murray has no volumes is correct.

Matthew Fields -- Bank of America Merrill Lynch -- Analyst

OK. Great. Thank you. And then just on the capital allocation policy, sort of getting to 3.0x gross debt based on your guidance, would assume that you have to repay about $65 million to $95 million of debt by the end of 2020.

Is that kind of the direction you're thinking about?

Mike Rippey -- President and Chief Executive Officer

Yeah, that's the right range, Matthew.

Matthew Fields -- Bank of America Merrill Lynch -- Analyst

OK, OK. And that eats up if you have to $100 million to -- $104 million to $114 million of free cash flow, that kind of assumes that two-thirds or higher of free cash flow sort of slated for debt holders over shareholders in 2020?

Mike Rippey -- President and Chief Executive Officer

Yeah, that's correct.

Matthew Fields -- Bank of America Merrill Lynch -- Analyst

OK. Thanks very much, and good luck in 2020.

Mike Rippey -- President and Chief Executive Officer

Thank you.

Operator

Your next question comes from Daniel Scott from Clarksons. Your line is open.

Daniel Scott -- Clarksons Platou Securities, Inc.

Just back on the Foresight's topic. Have those renegotiation discussions already begun? I mean, that 3.6 seems like a fairly specific number.

Mike Rippey -- President and Chief Executive Officer

We are in discussions with Foresight, yes.

Daniel Scott -- Clarksons Platou Securities, Inc.

OK. And there's no other counterparties right now? That's the only contract at the moment?

Mike Rippey -- President and Chief Executive Officer

Correct.

Daniel Scott -- Clarksons Platou Securities, Inc.

OK. Great. And then as far as looking at -- and I brought the effort at diversifying your customer base for the logistics business. Is there potential significant capital expenditure that would need to be made at the ports to change it fundamentally from a coal handling facility to something else? Or is that not currently contemplated?

Mike Rippey -- President and Chief Executive Officer

In a range of scenarios, that's a possibility, and I stress, a possibility. If there were to be a requirement for significant capital expenditures, we would only undertake that type of capital expenditure if, in fact, we had a long-term commitment from a very high credit quality customer. So, like the counterparty would have to display a very, very good credit profile and the term of the contract would have to be such to allow us to not only fully recover the capital cost, but also earn a good return for our shareholders on that deployment.

Daniel Scott -- Clarksons Platou Securities, Inc.

Perfect. That was going to be my third question. Thanks very much, guys.

Mike Rippey -- President and Chief Executive Officer

Sure.

Fay West -- Senior Vice President and Chief Financial Officer

Thank you.

Operator

Your next question comes from Matt Vittorioso from Jefferies. Your line is open.

Matt Vittorioso -- Jefferies -- Analyst

Thanks for taking my questions. Just a couple of quick ones. I guess maybe just your high-level thoughts on the long-term leverage target of three times. If you look at sort of what the equity has done, it seems like that now implies a higher loan-to-value than maybe it did a year ago.

Is there any consideration for reducing that long-term leverage target just given that the equity market seems to be putting less value on the overall enterprise?

Mike Rippey -- President and Chief Executive Officer

Yes. Thanks, Matt. Good question. We've said in the past, and I'll reiterate now, it's three times or lower that we would look to achieve.

I think three times is something that we see as, kind of, a minimum that we'd like to get to, and given the cash flows we expect to generate this year. It seems a reasonable target for us to be pursuing at this point.

Matt Vittorioso -- Jefferies -- Analyst

Yes, makes sense. And then one more high-level question, I guess. Just convent, obviously, you guys spent, I think, $400 million to buy that asset a while back. Coal markets have changed.

That stuff happens. Just given the expectation for something like $10 million of EBITDA this year. I'm just wondering is there a scenario where that asset is worth more to someone else? Or is that a salable asset? I'm just trying to understand. Is there a scenario where like selling convent actually is better value to shareholders than trying to turn it around if that makes sense?

Mike Rippey -- President and Chief Executive Officer

No. It's an excellent question. And when we ask ourselves as we always look to provide maximum value to shareholders. So, while on the one hand, we're looking and working diligently to reposition the asset, utilizing all of our capabilities, knowledge of markets, it could be that in certain circumstances, there's strategic that finds more value in their portfolio than what we might find in ours.

And if that were to be the case, we would certainly entertain the sale. I would say, however, this asset is a very, very high-quality asset. As Fay discussed earlier, it's well designed, it's very, very efficient, very low cost, very well managed. The team down there is exceptional.

So, this isn't the kind of asset where you think about turning it around because it's underinvested. It's not capitalized properly. It's not positioned well. The management team is not strong.

It's all quite the contrary. But if somebody were to find that in their overall logistics platform, there's a whole and convent would fill it well. We'd certainly entertain that sale.

Matt Vittorioso -- Jefferies -- Analyst

Yeah. OK. Thanks, guys.

Operator

[Operator instructions] Your next question comes from Lucas Pipes from B. Riley FBR. Your line is open.

Lucas Pipes -- B. Riley FBR -- Analyst

Hey. Good morning, everyone. This is Lucas.

Mike Rippey -- President and Chief Executive Officer

Good morning, Lucas.

Lucas Pipes -- B. Riley FBR -- Analyst

Good morning. I wanted to ask about capital spending. If I recall correctly, I think you said something like $60 million run rate in the past. This year is a little bit higher than that.

Can you break out kind of where you're spending capital and what potentially that delta is to the run rate capex of $60 million? Thank you.

Fay West -- Senior Vice President and Chief Financial Officer

Lucas, this is Fay. I think what we've had said in the past is, on average, you're going to be between $65 million and $75 million over the long-term period. In given years, you may have an increase in that spending, depending on the timing of certain projects. And so, this is really within kind of that range, right? That we're thinking here.

In 2020, there is a significant decrease versus 2019 given the completion of Indiana Harbor, as well as the completion of the gas sharing project at Granite City. What we see is just normal ongoing maintenance capital that is anticipated to be spent. There is a significant portion that's going to be expended on the Herzig and that's just to maintain the back end of our plans to ensure that we are in compliance. That's part of a multiyear program.

You've seen that same type of capex in '19 and '18 related to those projects. There's also some equipment purchases here in 2019 -- in 2020 that we're contemplating. But there isn't anything very a large project that stands out. It's just normal recurring maintenance capex.

And it really is just the timing of that on the long-term horizon.

Lucas Pipes -- B. Riley FBR -- Analyst

That's very helpful. And then looking at Slide 14 at your capital allocation priorities coming. M&A made the list again. Should we be thinking of as kind of it being last in order here? Or are there maybe more concrete projects on the M&A side that you might be looking at? Thank you very much.

Mike Rippey -- President and Chief Executive Officer

No. I think it's fair to prioritize the way you've outlined, as we'd indicated earlier. Now the three times leverage is a priority for the company. And as we've also discussed earlier in the call, this year's cash flows really are significantly tied up in that undertaking to maintain proper leverage in our company.

So, M&A is taking a backseat at this point in time relative to our desire to reach that three times.

Lucas Pipes -- B. Riley FBR -- Analyst

That's very helpful. I appreciate that, and best of luck. Thank you.

Fay West -- Senior Vice President and Chief Financial Officer

Thank you.

Mike Rippey -- President and Chief Executive Officer

Thank you.

Operator

Your next question comes from Peter Volle from Mangrove Partners. Your line is open.

Nathaniel August -- Mangrove Partners -- Analyst

This is Nathaniel August on for Peter. Obviously, stock price performance for shareholders has been extremely disappointing over a multiyear period. And when we look at it, we trace it back to at least three major errors that were made by the company: the acquisition of CMT for more than $400 million; the acquisition of the visa coke facility, which appears to have been a complete write-off; and a very disadvantageous contract that was signed at Indiana Harbor that caused significant earnings shortfalls at the company and quite a bit of capex there. And when we trace those decisions back, we see that both of the independent board members who are up for election this year were likely to have voted in favor for each of these three transactions.

And so, my question to you is, can you make a case for why shareholders should vote in favor of those two board members as opposed to withholding their votes and forcing the upgrade on the board and better outcomes for shareholders?

Mike Rippey -- President and Chief Executive Officer

Sure, Nathaniel. We believe quite strongly that we have a board that's quite complementary in nature. There's a good set of skills. Of course, since these decisions were made, the board refreshed itself, there's probably at least three new board members, which is nearly half of our board since that point in time.

So, we continue to refresh and build upon the skills that are current in our board, and we'll continue to do that. It's good governance.

Nathaniel August -- Mangrove Partners -- Analyst

Each independent board members. Each one of them approved each one of these decisions, which were extraordinarily detriment to shareholders. And in my opinion, I can't see a compelling reason to vote for any of them.

Mike Rippey -- President and Chief Executive Officer

Not sure how you ...

Nathaniel August -- Mangrove Partners -- Analyst

My second question is that your stock trades at four times free cash flow, and you seem intent to repurchase debt or repay debt instead. Why not direct more cash toward buyback?

Mike Rippey -- President and Chief Executive Officer

Because we take a very long view, and we believe, given the cyclical nature of our business, given the customer concentration, that if you're going to be having manufacturing, it's exposed to business cycles. A long view where you over lever yourself can cause nothing but harm for shareholders. We're disappointed in the share price. The sectors certainly traded well off.

But we're not going to undertake something in the short-term that could cause real harm in the long term. We over lever ourselves doing a share buyback. We don't have the opportunity to invest and maintain our facilities properly. And you're in the long-term downward spiral, and we're just not going to do that.

I've been in this business for a long, long time. I've seen what happens to companies that find themselves in over-levered positions, and it's never good for shareholders or stakeholders for communities, for employees. So, it's not something we're going to do.

Operator

We have no further questions. I turn the call back over to the presenters for closing remarks.

Mike Rippey -- President and Chief Executive Officer

Again, thank you, everyone, for joining us in our call this morning and, as always, your continued interest in SunCoke. Look forward to talking to you all soon. Thanks again.

Operator

[Operator signoff]

Duration: 40 minutes

Call participants:

Shantanu Agrawal -- Director of Investor Relations

Mike Rippey -- President and Chief Executive Officer

Fay West -- Senior Vice President and Chief Financial Officer

Matthew Fields -- Bank of America Merrill Lynch -- Analyst

Daniel Scott -- Clarksons Platou Securities, Inc.

Matt Vittorioso -- Jefferies -- Analyst

Lucas Pipes -- B. Riley FBR -- Analyst

Nathaniel August -- Mangrove Partners -- Analyst

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