Warrior Met Coal, Inc. (HCC) Q1 2020 Earnings Call Transcript

Warrior Met Coal, Inc. (HCC -2.28%)
Q1 2020 Earnings Call
Apr 29, 2020, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to the Warrior Met Coal first-quarter 2020 financial results conference call. [Operator instructions].

This call is being recorded and will be available for replay on the company's website. Thank you. Before we begin, I've been asked to note that today's discussion may contain forward-looking statements, and actual results may differ materially from those discussed. For more information regarding forward-looking statements, please refer to the company's press release and the SEC filing.

I've also been asked to note that the company has posted reconciliation of the non-GAAP financial measures discussed during this call in the tables accompanying the company's earnings press release located on the Investors section of the company's website at www.warriormetcoal.com. In addition to the earnings release, the company has posted a brief supplemental slide presentation to the Investors section on its website at www.warriormetcoal.com. Here to discuss the results are Mr. Walt Scheller, chief executive officer; and Mr.

Dale Boyles, chief financial officer. Mr. Scheller, you may begin your remarks.

Walt Scheller

Thanks, operator. Hello, everyone, and thank you for taking the time to join us today to discuss our first quarter 2020 results. After my remarks, Dale will review our results in additional detail and then you'll have the opportunity to ask questions. We were pleased to achieve higher-than-expected sales and production volumes for the first quarter than we previously communicated to you on our last earnings call.

However, as we also said on that call, the COVID-19 outbreak could be a significant threat to seaborne met coal prices until we could get more clarity on containment of the virus and businesses got back to operating as usual. And that indeed has turned out to be the case. I will come back to that thought in a few minutes. First, I'd like to discuss how the widespread outbreak of COVID-19 has affected us all in new and unprecedented ways.

While we continue to operate our mines as a critical infrastructure business in the state of Alabama, these are challenging times, and I would like to thank all of our employees for their hard work and resilience in the face of adversity. We've taken the necessary measures to adjust our workplace environment to comply with social distancing and personal hygiene guidelines set forth by various health organizations while maintaining our operations. While I know the future is on everyone's minds, let's take a minute to look at the first quarter results in more detail since they do provide an important baseline. Production volume in the first quarter of 2020 was 2.1 million short tons compared to 2.3 million short tons produced in the same quarter of last year, a decrease of 9%.

Sales volumes in the first quarter were 1.8 million short tons compared to 2.1 million short tons in last year's first quarter. Our sales by geography in the first quarter were 54% into Europe, 26% into South America and 20% into Asia. The geographical mix this year was fairly consistent with last year's first quarter. As expected and previously communicated, inventories were higher at the end of the first quarter than the fourth quarter of 2019.

Inventories increased 229,000 short tons to 978,000 short tons during the first quarter, primarily due to higher production volumes. We expect our inventory levels to remain temporarily elevated as a precautionary measure to reduce risk should the mines be disrupted or shut down by COVID-19 outbreak among the workforce. Also, the higher-than-normal inventory levels will allow us to capitalize on market opportunities that may become available as a result of our competitors being idle or shut down for lengthy periods of time. We entered the first quarter cautiously optimistic about our customers' ability to start ramping up production rates from the low levels in the fourth quarter of 2019.

Global pig iron production for the first three months of the year was down by 0.5%, with positive growth in China of 2.4%, partially offset by a sharp decline of 5.4% observed across the rest of the world. As the quarter progressed, all major met coal indices increased due to the local dynamics in China, where resilient demand from the integrated steel mills was challenged by three temporary supply constraints: first, the drastic reduction in domestic met coal production as a result of lockdown measures in China due to COVID 19; second, the closure of the Mongolian border in order to reduce the spread of COVID-19; and third, weather-related disruptions in the Australian supply chain. Met coal indices peaked in mid-March as these supply constraints were eventually addressed and started retreating, giving back most of their gains. As the impact of the virus on global steel demand outside of China became apparent, our customers were quick to adjust to the threat posed by the virus, taking major actions starting in early March to align the production rates with a declining forecast in orders.

As expected, several spot customers withdrew existing and future tenders due to rapidly deteriorating conditions. The supply response from major U.S. and Canadian base met coal producers has been significant with a fairly large amount of production being temporarily taken off line. The Platts Premium Low Vol FOB Australian Index price closed the first quarter of 2020, $8 a metric ton higher than where it started the quarter.

Met coal prices rose as high as $164 per metric ton during the first quarter before falling late in the quarter. Our gross price realization for the first quarter 2020 was 89% of the Platts Premium Low Vol FOB Australian Index price and was lower than our 98% achieved in the prior year period. Our lower realization was primarily due to a rising price environment combined with a higher proportion of spot sales. The company spent $26 million on capital expenditures and mine development costs during the first quarter this year compared to $30 million last year.

This amount includes the longwall panel development costs for the extension of Mine 4 into the next area of the mine plan we call 4 North. We expect to be mining in that area sometime in the next four to five years. I'll now ask Dale to address our first quarter results in greater detail.

Dale Boyles -- Chief Financial Officer

Thanks, Walt. For the first quarter of 2020, net income on a GAAP basis was approximately $22 million or $0.42 per diluted share compared to net income of $110 million or $2.14 per diluted share in the first quarter of 2019. Excluding nonrecurring, other income and losses, non-GAAP adjusted net income for the first quarter was $20 million or $0.39 per diluted share compared to $2.30 per diluted share in the first quarter of 2019. Adjusted EBITDA was $62 million in the first quarter of 2020 as compared to adjusted EBITDA of $181 million in the same period of 2019.

The quarterly decrease was primarily driven by a 31% decrease in average net selling prices and a 13% decrease in sales volumes. Our adjusted EBITDA margin was 27% in the first quarter of 2020 compared to 48% in the first quarter of 2019. Total revenues were approximately $227 million in the first quarter of 2020 compared to $378 million in the same period last year. This decrease was primarily due to the decrease in average net selling prices and sales volumes in a weaker market environment than last year.

The average net selling price per short ton decreased approximately 31% in the first quarter of 2020 compared to the same period in 2019. As you may recall, last year's first quarter saw stronger met coal demand and higher pricing. The Platts Premium Low Vol FOB Australian Index averaged $51 per ton lower in the first quarter of 2020 compared to the same quarter last year. Demurrage and other charges reduced our gross price realization to an average net selling price of $122 per short ton in the first quarter of 2020 compared to $176 per short ton in the same period last year.

Mining cash cost of sales was $151 million or 68% of mining revenues in the first quarter compared to $182 million or 49% of mining revenues in the first quarter of 2019. Cash cost of sales per short ton, FOB port, was approximately $83 in the first quarter compared to $87 in the same period of 2019. The decrease is primarily due to lower price-sensitive costs such as transportation and royalties that vary with met coal pricing, offset partially by 13% lower sales volumes. SG&A expenses were about $8 million or 4% of total revenues in the first quarter of 2020 compared to approximately $9 million in the prior year period, primarily due to lower corporate expenses.

Depreciation and depletion expenses for the first quarter of 2020 were $29 million compared to $22 million in 2019. The increase quarter over quarter was primarily due to the high level of capital spending during 2019. Net interest expense was about $8 million in the first quarter and included interest on our outstanding debt plus amortization of our debt issuance costs associated with our credit facilities, partially offset by interest income. This amount was $1 million lower compared to the same period last year primarily due to the early retirement of a portion of our debt in last year's first quarter.

We recorded noncash income tax expense of $3 million during the first quarter of 2020 and $28 million in the same period last year. These results primarily reflect the utilization of our net operating losses, or NOLs, with a corresponding decrease in the balance sheet account deferred income taxes. We paid no cash taxes in the first quarter of 2020 or 2019. We continue to expect the utilization of our NOLs will reduce our federal and state income tax liability to 0 until the NOLs are fully utilized or expired.

We expect this will continue to drive significant free cash flow conversion over the next several years. Turning to cash flow. During the first quarter of 2020, we used $5 million of free cash flow, which was the result of cash flows provided by operating activities of $21 million, less cash used for capital expenditures and mine development costs of $26 million. Free cash flow in the first quarter of 2020 was negatively impacted by an increase in net working capital.

The increase in net working capital was primarily due to higher accounts receivable and inventory, partially offset by an increase in accounts payable. Operating cash flows were significantly lower in the first quarter of 2020 compared to 2019, primarily due to lower average net selling prices of 31% and lower sales volumes of 13%. Cash used in investing activities primarily for capital expenditures and mine development costs was $20 million during the first quarter of 2020 compared to $30 million for the same period last year. Cash flows provided by financing activities were $63 million in the first quarter of 2020 and consisted primarily of the draw on our ABL facility of $70 million as a precautionary measure, less payments for capital leases of $4 million and less payment of the quarterly dividend of $3 million.

Of note, our balance sheet remains strong with a leverage ratio of 0.52x adjusted EBITDA. In addition, we have ample liquidity without the fixed costs associated with legacy liabilities with the low and variable cost structure. Our total available liquidity at the end of the first quarter of 2020 was $303 million, consisting of cash, cash equivalents of $257 million and $46 million available under our ABL facility, net of borrowings of $70 million and outstanding letters of credit of approximately $9 million. As I mentioned earlier, we drew $70 million on our ABL facility as a precautionary measure to increase liquidity and reduce risk during these unprecedented times.

We intend on retaining the funds and cash to preserve liquidity amid the growing uncertainty surrounding the COVID-19 outbreak. In summary, the first quarter results for production and sales volumes turned out as expected and previously disclosed. The overall financial results were primarily driven by lower net selling prices and slightly lower sales volumes compared to last year's first quarter. Now turning to our outlook for the remainder of the year.

In light of the uncertainties regarding the duration of the COVID-19 pandemic and its overall impact on the global economy and the company's operations, we are withdrawing our full year 2020 guidance issued on February 19 at this time. We're also appropriately adjusting operational needs, including managing expenses, capital expenditures, working capital, liquidity and cash flows. For example, as precautionary measures, we have delayed the $25 million budgeted for the development of the Blue Creek project until at least July 1, 2020, and have temporarily suspended our stock repurchase program. We will continue to evaluate the impact of the COVID-19 pandemic on our business for the remainder of the fiscal year and expect to provide further updates to our financial outlook and the development of the Blue Creek project during our second quarter earnings call to be held in late July.

We're continuing to pay our quarterly dividend at this time, but we'll continue to monitor liquidity in light of the COVID-19 pandemic. I'll now turn it back to Walt for his final comments.

Walt Scheller

Thanks, Dale. Before we move on to Q&A, I'd like to make a few more comments. While we were pleased with our first quarter results, the rest of the year is less certain. We are clearly seeing the impact of COVID-19 on global steel production and overall met coal pricing in light of reduced automobile manufacturing and a slowdown of construction projects.

Although we did experience some reduction in sales orders toward the end of the first quarter, it is now apparent that the full impact of COVID-19 on met coal demand erosion may not materialize until the second quarter of 2020 and possibly beyond. And as a result, the unprecedented level of uncertainty in our customers' markets has made the job of forecasting, which was already challenging, even more difficult. We continue to regularly update our business continuity planning on global steel production and met coal demand for various potential developments related to COVID-19 and will continue to take precautionary measures as necessary or advisable. We've kept and will continue to keep close contact with our customers during this period in order to optimize our sales orders and capitalize on opportunities if and when they appear in the marketplace.

Regarding met coal pricing, we expect all indices to remain under pressure as long as the supply and-demand balance remains stressed by the uncertainty of current events. Despite the unknowns, there are a few important reasons that our business is well positioned to weather any prolonged economic challenge: one, we have a strong balance sheet and adequate liquidity; two, our low and variable cost structure enables us to drive high margins and free cash flow across most business environments; three, we've made significant investments in our operations over the past three years, allowing us to now reduce capital expenditures as needed without impacting operations; four, we maintain one of the world's highest quality met coal portfolios, and we have strong long-term customer relationships; and five, our highly talented workforce is committed to safely and efficiently driving results. As a result of these factors, I'm confident we will emerge from this health crisis ready to achieve our long-term growth potential. With that, we'd like to open the call for questions.

Operator?

Questions & Answers:

Operator

[Operator instructions] Our first question is from David Gagliano from BMO Capital Markets.

David Gagliano -- BMO Capital Markets -- Analyst

Thanks for taking my questions. I just wanted to drill down a little bit on 2Q, if possible. I know you've paused the guidance, which I get. But just directionally, if you can give us a sense as to it seems like sales volume is 1.8 million tons in the first quarter.

Can you give us a directional sense for the second quarter on sales volume? And also, on the cash cost performance, again, exceptionally strong, good cash cost performance, $83, I think it is in the first quarter. Is that sustainable into the second quarter? That's my first question.

Walt Scheller

Well, in terms of the market in Q2, David, frankly, that's one of the reasons we withdrew guidance, just things are changing on a daily basis. We had customers shifting things out of the quarter. We then had customers shift things back into the quarter. So it's really been very dynamic.

So we do expect to see the real impacts of COVID-19 in Q2 and probably Q3, and I don't know what will happen beyond that. But in terms of our cost structure, I think we're pretty solid there, and I would expect us to continue to squeeze ourselves pretty hard in terms of managing our costs.

David Gagliano -- BMO Capital Markets -- Analyst

OK. And operationally, on the cost side, any upcoming nuances associated with longwall moves or anything like that relative to the first quarter that we need to be thinking about?

Walt Scheller

We have a longwall move at Mine 4 that will happen at around the end of Q2. It could be Q2 or Q3. It's just hard to tell right now. It's right on the cusp of two.

David Gagliano -- BMO Capital Markets -- Analyst

OK. And then my last question, just regarding the pause in the spending at Blue Creek. Can you talk a little bit about the press release, like July 1, potentially? And is the timing associated with restarting the spending at Blue Creek associated with expectations for COVID-19 relief? Or is it related to an improvement in market conditions?

Walt Scheller

Probably a little bit of both, probably more COVID-19 than market. But right now, the way the market's deteriorated here in the last week or two would be, I would be lying if I didn't say that that's also on my mind a little bit.

David Gagliano -- BMO Capital Markets -- Analyst

All right. That's it for me. Thanks.

Walt Scheller

Thank you, David.

Operator

Our next question is from Scott Schier from Clarksons.

Scott Schier -- Clarksons Platou Securities, Inc. -- Analyst

Thank you. Good afternoon, everyone. While, obviously, your mines are running very well, given that you have almost one million tons of inventory at this stage. Is there any consideration of slowing or idling production to bring these levels down? I think I recall you saying in the past, around 400,000 tons was about an ideal level.

And as a second part, about how much capacity you have to continue to build inventories?

Walt Scheller

So Scott, as I said in my comments, there's a couple of reasons. We kind of signaled at the Q4 call that Q1 to be a lot like Q2. And in Q4, I think we built about 150,000 tons of inventory. In this quarter, we bought a little more than I expected because the mines ran a little better than we expected.

But we're not uncomfortable with where that level is right now because, frankly, if we would have an outbreak of COVID-19 at one of our operations, it could easily result in a multi-week shutdown, and we want to make sure that we have contractual obligations, and we want to make sure we have call on hand to fulfill those obligations that are committed through the second quarter. Additionally, I think there's the potential the same thing happening at other operations globally, which could result in opportunities for us to potentially step in and take care of those. So we're not uncomfortable with that. I don't know that we've ever really discussed our max capacity, but it's well beyond where we are today in terms of total inventory levels.

Scott Schier -- Clarksons Platou Securities, Inc. -- Analyst

OK. That's very, very helpful. I appreciate that. Switching gears a little bit.

It was good to see the regular cash dividend declared and paid, and I know you mentioned this in the prepared remarks a little bit. But given that we have seen many other companies in the space suspend dividends or shareholder return programs, can you just walk us through your thought process around any factors that may make it time to rethink this dividend policy?

Dale Boyles -- Chief Financial Officer

Well, Scott, this is Dale. If the pandemic continues to worsen or have greater impact and the durations even longer, I think that's one of the other things that you put on the table. But for now, we've got a very strong balance sheet with plenty of liquidity, so we didn't see the need at this point to suspend the dividend.

Scott Schier -- Clarksons Platou Securities, Inc. -- Analyst

That's helpful. Thanks for taking my questions. Good luck.

Operator

[Operator instructions] Our next question is from Lucas Pipes from B. Riley FBR.

Lucas Pipes -- B. Riley FBR -- Analyst

Good afternoon, everyone. Good job on the cost side and [Inaudible] adjusting quickly to these market realities [Inaudible]. Well done. I first wanted to ask about free cash flow.

So Q1 was slightly negative, obviously, a few things going on with working capital. But I know you suspended guidance. But just kind of high level when you think about where the market is today, including, for example, the lower sales realizations, what cost could look like in this environment? I understand there are a lot of uncertainties with this volume. But just kind of high level, do you expect to be free cash flow positive here right at this price environment? Would very much appreciate your thoughts on that.

Thank you.

Dale Boyles -- Chief Financial Officer

Yes. Luke, this is Dale. Yes, I think we would be free cash flow positive. You have some seasonal working capital build we have for the last three years in the first quarter around your receivables and inventories.

Obviously, we've already talked about inventory, so that was the primary drivers. We were working on capital spending some. I wouldn't say to the extent that we may be working on it in the future, just depending on the price environment. But I think we'll be positive.

I don't see a problem there should we need to be able to really dial back all expenses and all capital spending.

Lucas Pipes -- B. Riley FBR -- Analyst

Got it. That's helpful. And my second question is in regards to sales commitments. Kind of think about this environment, so you're getting calls from your customers, you mentioned something along those lines in your prepared remarks as well.

But when you think about 2020, what amount of volume is currently spoken for? I understand that pricing may not be fixed, but just in terms of having customers on the other side of it?

Walt Scheller

Again, we withdrew guidance because so much of that is in flux right now. We have customers wanting to push cargoes out for a quarter. We really just don't know how quickly things are going to pick back up in Europe with auto manufacturing. So even though we have coal spoken for, it's not unforeseen that some of those may push out a quarter.

I think in total volumes over the period of contract, they'll still be taken care of. But it's easy to see coal that was going to move in late June, not move until July and then just pushes the whole way out through the year, and you have coal that was going to move in December that then moves into next January. So it's really difficult for me to nail that one down for you.

Lucas Pipes -- B. Riley FBR -- Analyst

OK. Let me maybe try slightly differently. Typically, this time of year, what amount of your volumes [Inaudible]?

Walt Scheller

It varies. It varies based on what demand is because we'll have some times where, again, customers, either us or customers will want to push coal out on contracts or we may, if we think we have better opportunities, push coal out into the following quarter. So it's really tough to say.

Lucas Pipes -- B. Riley FBR -- Analyst

OK. I will have more follow-up. I think the market is concerned about fairly severe oversupply of met coal, and that some producers could run into problems with finding a home for your product. And how do you think about that risk in this market? I know you suspended guidance, but what sort of assurances, so to say, might there be in place to find a home for the product so that the mines don't have to get stopped out here.

Would really appreciate your thoughts on that.

Walt Scheller

Well, that's why we're withdrawing guidance because we just don't know. Again, I'd love to answer your question. But if I could answer your question, I wouldn't be withdrawing guidance. So sorry, I can't give you a little more there.

Dale Boyles -- Chief Financial Officer

Yes. And just a reminder, Lucas, most of these contracts all have force majeure clauses in them. So if you've already seen Arcelor and others, large steel producers, issue those letters. So that just kind of takes a step back as well when you're talking about commitments.

Lucas Pipes -- B. Riley FBR -- Analyst

Got it. Got it. Now I mean I understand it's a very uncertain environment. And I appreciate all the color.

I appreciate making these tough decisions, and I wish you best of luck and stay healthy.

Walt Scheller

Thank you. You as well.

Operator

The next question is from Matthew Fields from Bank of America.

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

Hi, guys. Hope you and your families are doing as well as can be expected. You made a comment earlier about sort of maintaining liquidity and strong balance sheet in the case that for opportunities in case some of your competitors are shuttered or closed or curtailed, are you specifically talking about sort of picking up incremental pieces of business? Or are you talking about kind of M&A transactions for distressed competitors or both?

Walt Scheller

So I'm talking about picking up incremental pieces of business.

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

OK. Great. And then another sort of clarification on liquidity, appreciate drawing down a piece of the revolver because of all the uncertainty in the marketplace. How do you think about kind of been balancing the need for that liquidity sort of on hand versus — which is basically hedging your bets in case things are very bad versus kind of taking advantage of potentially your stronger balance sheet in case things are better than people feared, potentially buying back debt at a discount or making some kind of other transaction? How do you balance those kind of two needs?

Dale Boyles -- Chief Financial Officer

Well, it's a daily balance, just depending on what the market looks like. So that's probably more of a realtime decision once you start to see the recovery from this pandemic and believe that you kind of are coming out of it, then you try to balance thinking something along those terms. But I think for now, it's highly unknown what the true impact on demand and pricing will be. So I think our focus will be on liquidity like most everybody else and preserving that liquidity versus buying back debt at a discount at this point.

And you got to remember our first call on the debt is in November of this year. So...

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

Right. And then sort of ties into the next question, which is if not, but when Blue Creek goes ahead, it's going to be a lot more sort of capital spending. With the current kind of bonds, relatively high coupon versus lien, how do you think about sort of potentially coming to market for an unsecured deal, maybe larger deal to sort of boost liquidity, plus get you sort of part of the way toward funding Blue Creek if and when the call price becomes more amenable?

Walt Scheller

Well, I think that was something we would definitely get consideration to, depending on the market conditions. I'm not willing to pay a high coupon for that. Some of the spreads are pretty high out there on some of these deals as well, so I'm not sure that, that makes sense right now. It might later at some point.

But again, I think we're focused on preservation of our total liquidity right now, and we'll look at things like that. But it's hard to tell exactly what we might do there.

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

OK. So I don't want to sort of put words in your mouth, but is the message right now kind of bid on the liquidity until we have a clearer picture of the future?

Walt Scheller

Yes, I think that's pretty much what we've been saying.

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

OK. All right. That's it for me I guess. Thanks very much and good luck.

Operator

[Operator instructions] Our next question is from Chris LaFemina from Jefferies.

Chris LaFemina -- Jefferies -- Analyst

Hey, guys. Thanks for taking my call. It's good to see the flexibility that you have in the business where you can cut volumes a bit and still have decline in unit cost. It's pretty unusual in coal, obviously.

But my question is really related to the cash generation and the free cash flow outlook, understanding, of course, that you've suspended guidance. But if we look at the first quarter, the capex run rate for the quarter was below your prior full year guidance, excluding Blue Creek. My first question is, was there any capex associated with Blue Creek in that first quarter capex? And should we expect capex through the rest of the year, assuming kind of markets still like they are today? Should we assume your capex run rate per quarter to be lower than what it was in the first quarter? That's my first question.

Dale Boyles -- Chief Financial Officer

Well, I guess the first one there. There was no spending related to Blue Creek in the first quarter. And as far as your run rate question, again, who knows? We don't know. We don't have good visibility in the second half yet to be able to provide you any guidance on what capex will be on a run rate basis.

We're just going to have to monitor the situation with the pandemic and the impact on demand pricing and look at what we are willing to spend the rest of the year. So I would not take that number times four, if I were you. So suspended guidance, so it's just there's no visibility right there.

Chris LaFemina -- Jefferies -- Analyst

And in terms of the receivables, I understand there's seasonality around the build in receivables in the first quarter. Is there a risk for 2020 that because your customers who owe you the money are having hard times themselves that maybe you don't get the reversal of that receivable accumulation from the first quarter. In other words, the benefit that you should get through the rest of the year does not happen?

Dale Boyles -- Chief Financial Officer

There's nothing there that we believe that would prevent us from not recovering that build in receivables.

Chris LaFemina -- Jefferies -- Analyst

And sorry, just my last question. You commented earlier about expecting most likely to be free. I mean, obviously, I think there's a lot of moving parts here, but potentially being free cash flow positive for 2020. Is that true at current spot prices.

I mean if you look at $110 per metric ton for benchmark pricing, is that? Do you think you could be free cash flow positive in that sort of price environment?

Dale Boyles -- Chief Financial Officer

I think so.

Chris LaFemina -- Jefferies -- Analyst

Thank you.

Operator

Our next question is from Lucas Pipes from B. Riley FBR.

Lucas Pipes -- B. Riley FBR -- Analyst

Thanks very much for taking my follow up question. I wanted to ask about changes in customer mix and also kind of changes on kind of spot versus committed volumes. Any additional color you might be able to provide on that 10-K? You had a fairly large customer who's kind of not an end user. Any guidance how that might impact the sales and the mix of your customers? Thank you very much.

Walt Scheller

Well, thanks, Lucas. Our sales mix was roughly the same as it was last year in the first quarter with the majority going into Europe, a little less going into South America and then the remainder going into Asia. And I think that's likely to remain the case, by and large. I mean every now and then, we'll have a quarter of our South America and Asia swap places.

But I think by and large, the mix for the year will remain about the same. I can't remember what the second part of the question was.

Lucas Pipes -- B. Riley FBR -- Analyst

In terms of...

Walt Scheller

We had more spot in the first quarter than we would normally have had. And that was due, again, as soon as COVID-19 started to show its face around Europe and other places, you had people shifting pretty quickly, trying to either get vessels or delay vessels. So we ended up with a little more spot sales than what would be normal. Again, with guidance for the rest of the year, Lucas, again, that's why we withdrew.

I just don't have a good feel for exactly what will be spot and what will be contractual for the rest of the year.

Lucas Pipes -- B. Riley FBR -- Analyst

Now that's that's helpful. I appreciate that.

Operator

Our next question is from Curt Woodworth from Credit Suisse.

Curt Woodworth -- Credit Suisse -- Analyst

Good evening, everyone. From a marketing perspective, Walt, most of your contracts are with legacy long-term customers. But with Japan and Korea cutting last furnace production pretty quickly now, can you pivot into more other markets you traditionally don't go into? Like could you try to sell more into China right now? I mean the arbitrage is relatively open, and it does seem like their economy is coming back. If you could just kind of talk to commercially what you're doing right now.

That's my first question.

Walt Scheller

Well, a lot of our coal or all of our coal really that flows into Asia flows through Xcoal. So they're monitoring those markets and seeing where the opportunities are in the Asian market and where things have tightened up. I can tell you, obviously, Japan has tightened up quite a bit. So we expect them to be monitoring that.

But I do think there may be opportunities in China open up in the relatively short term.

Curt Woodworth -- Credit Suisse -- Analyst

OK. And then could you give us a sense of what your current, like, mine plan is right now? Like what what's kind of the capacity utilization of your operation is today?

Walt Scheller

Well, in the first quarter, it wasn't quite we didn't push the mines as hard as we did in the first quarter last year. That was for a few different reasons. But you could see that last year, pricing was over $200 a ton, and we were running the operations flat out. This year, we're not quite running at that level in the first quarter, and we'll see where we go from here.

Curt Woodworth -- Credit Suisse -- Analyst

Can you give us a sense for what your operating rate is right now?

Walt Scheller

I'd rather not. We're still operating, but I'd rather not discuss exactly what we're doing today.

Curt Woodworth -- Credit Suisse -- Analyst

OK. Thank you very much.

Operator

At this time, there are no further questions. I will now turn the call back over to Mr. Scheller for any comments.

Walt Scheller

That concludes our call this afternoon. Thank you again for joining us today, and we appreciate your interest in Warrior Met Coal.

Operator

[Operator signoff]

Duration: 43 minutes

Call participants:

Walt Scheller

Dale Boyles -- Chief Financial Officer

David Gagliano -- BMO Capital Markets -- Analyst

Scott Schier -- Clarksons Platou Securities, Inc. -- Analyst

Lucas Pipes -- B. Riley FBR -- Analyst

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

Chris LaFemina -- Jefferies -- Analyst

Curt Woodworth -- Credit Suisse -- Analyst

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