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Warrior Met Coal, Inc. (HCC) Q4 2020 Earnings Call Transcript

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HCC earnings call for the period ending December 31, 2020.

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Warrior Met Coal, Inc. (HCC -0.03%)
Q4 2020 Earnings Call
Feb 24, 2021, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon. My name is [Lyshname], and I'll be your conference operator today. At this time, I would like to welcome everyone to the Warrior Met Coal Fourth Quarter and Full Year 2020 Financial Results conference call. (Operator Instructions.]

Before we begin, I have 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 SEC filings.

I have also been asked to note that the company has posted a 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 of its website at www.warriormetcoal.com.

Here today to discuss the company's results are Mr. Walt Scheller, Chief Executive Officer and Mr. Dale Boyles, Chief Financial Officer. Mr. Scheller, you may begin your remarks.

Walter J. Scheller -- Chief Executive Officer and Director

Thanks, operator. Hello, everyone, and thank you for taking the time to join us today to discuss our fourth quarter and full year 2020 results. After my remarks, Dale will review our results in additional detail, then you'll have the opportunity to ask questions. The fourth quarter continued to present a challenging market environment as a disruptive impact from the COVID-19 pandemic remained evident throughout the U.S. and global economies. Although the steel and met coal industries operated below their normal yearly levels, we saw volumes stabilize with existing customers in our key markets as producers continue to increase their operating rates. Despite these challenging headwinds, especially on met coal pricing, we were pleased to be free cash flow positive for the third consecutive quarter in a row. We remain focused on preserving cash and liquidity while managing the aspects of the business that we can control.

Importantly, we achieved our lowest annual cash cost per short ton since going public. At the same time, we carefully balanced our spending on long-term capex investments to keep us uniquely well positioned to benefit from the eventual recovery in steel production, met coal demand and pricing. We continue to take the necessary measures to adjust our workplace environment to comply with social distancing and personal hygiene guidelines set forth by various health organizations to protect the health and safety of our employees while maintaining our operations.

We continue to operate our mines as a critical infrastructure business in the state of Alabama. And I would like to thank all of our employees for their hard work and resilience during these challenging times. We've been fortunate to keep our people employed during this unprecedented period, whereas others in the industry have had to idle their operations and furlough employees.

Our fourth quarter played out largely as expected, with the exception of taking advantage of additional spot volume opportunities into China. As the Chinese ban on Australian coals played out in the fourth quarter, we were able to monetize our higher than normal inventories. We were able to successfully attract new Chinese customers during the fourth quarter, which partially offset some of the impact of the depressed pricing environment experienced in our natural markets. Unfortunately, some of these Chinese cargoes were sold early in the fourth quarter just as the CFR index was beginning to rise.

From a market perspective, the most consequential theme of the fourth quarter was, without a doubt, the Chinese ban on select Australian commodities, including met coal. While we were cognizant of this situation coming into the quarter, the impact of the ban became apparent in early November as a large number of vessels were building up along the Chinese coast without being allowed to unload. As this new reality settled in, Chinese buyers scrambled to initiate discussions with alternative sourcing options, including U.S.-based supply. The Russia transact, coupled with additional complications such as a slowdown in the importation of land borne coal from Mongolia and tightness in their domestic met coal markets, created a significant distortion in the met coal indices, which persists today.

Premium low-vol CFR China based indices have decoupled from premium low-vol FOB Australian indices; increasing from their normal spread of $8.00 to $12.00 per metric ton to over $100 per metric ton at the end of the fourth quarter. The increasing differential was primarily driven by two opposing forces. First, Chinese customers rush to secure the limited supply of non-Australian premium coals; and second, the Australian supply that is normally reserved for China was being offered to well supplied markets, such as Europe and South America.

Despite the distorted met coal pricing conditions, we were generally pleased with global steel fundamentals. Global pig iron production, as reported by the World Steel Association, continued to show an ongoing recovery in steel demand for most regions outside of China, while China achieved another record-breaking year. The full year, global pig iron production was down less than 1%, which is quite remarkable given the severity of the impact of COVID-19 on the world's economy. The global result is largely due to China's impressive production of 887 million metric tons of pig iron. Equivalent to a year-over-year increase of 4.3%, while the rest of the world was down 9.6% for the same period.

We also entered the fourth quarter with reservations about pricing, which turned out to be true. The absence of clarity concerning Chinese import quotas, the Chinese ban on Australian coals and the perception of a well supplied market kept all major indices tightly range bound for most of the quarter after the early rapid decrease. The Platts Premium Low Vol FOB Australian index price began the quarter at a high of $139 per metric ton and fell to a low of $97 per metric ton during the fourth quarter; averaging $108 per metric ton for the entire quarter.

Sales volumes in the fourth quarter were 2.2 million short tons compared to 1.7 million short tons in the same quarter last year. These results were ahead of expectations set out on our last earnings call for volumes at the midpoint of our second and third quarter volumes, which was around 1.7 million short tons.

Our sales by geography in the fourth quarter were 49% into Europe, 20% into South America and 31% into Asia. These higher volumes were a nice rebound from the lower volumes in previous quarters. Production volume in the fourth quarter of 2020 was 1.8 million short tons compared to a similar amount in the same quarter of last year. This aligns with our thinking on our third quarter earnings call, where we said we expected to better match our sales and production volumes in the second half of 2020 and take advantage of opportunities if they met profitability thresholds.

As planned and previously communicated, inventories remained elevated at the end of the fourth quarter compared to pre-pandemic levels. Total inventory levels decreased 515,000 short tons to one million short tons at the end of the fourth quarter; primarily due to the monetization of spot volume opportunities into China. We expect our inventory levels to temporarily remain elevated, which will help us mitigate the risk that our mines may be disrupted or shut down by a widespread COVID-19 outbreak among our workforce. The higher than normal inventory levels will allow us to capitalize on spot market opportunities.

Our gross price realization for the fourth quarter of 2020 was 102% of the Platts Premium Low Vol FOB Australian index price and was higher than the 97% achieved in the prior year period. Our better gross price realization was primarily due to a higher percentage of our sales being exposed to spot sales with lower relativities due to a fundamental oversupply in the marketplace. Our spot sales volume in the fourth quarter were approximately 50% of the total volumes compared to a normal expectation of approximately 20%.

The company spent $29 million on capital expenditures and mine development costs during the fourth quarter compared to $34 million in the same period last year. This is a 14% decrease in spending quarter-over-quarter. We will continue to balance our free cash flow and liquidity preservation against maintenance and discretionary capital spending as we navigate the effects of the COVID-19 pandemic.

I will now ask Dale to address our fourth quarter results in greater detail.

Dale W. Boyles -- Chief Financial Officer

Thanks, Walt. Our fourth quarter continued to be about balancing competing priorities as it had been throughout most of 2020. We ran the mines without idling or laying off employees, while keeping our costs low in an extremely depressed and challenging price environment. At the same time, we continued to make significant capex and mine development investments. Our ability to generate positive free cash flow in the fourth quarter was an important testament to the success of this balancing act.

For the fourth quarter of 2020, the company recorded a net loss on a GAAP basis of approximately $34 million or a loss of $0.66 per diluted share compared to net income of $21 million or $0.41 per diluted share in the same quarter last year. Non-GAAP adjusted net loss for the fourth quarter was $0.63 per diluted share compared to $0.32 of income per diluted share in the same quarter of 2019.

Adjusted EBITDA was $9 million in the fourth quarter of 2020 as compared to $45 million in the same quarter last year. The quarterly decrease was primarily driven by a 22% decrease in average net selling prices; partially offset by higher sales volumes. Our adjusted EBITDA margin was 4% in the fourth quarter of 2020 compared to 22% in the same quarter last year. Total revenues were approximately $212 million in the fourth quarter of 2020 compared to $205 million in the same quarter last year. This increase was primarily due to the 33% increase in sales volumes, partially offset by a 22% decrease in average net selling prices and a weaker market environment due to the impact of COVID-19.

The Platts Premium Low Vol FOB Australian index price averaged $32 per metric ton lower or down 23% in the fourth quarter of 2020 compared to the same quarter last year. After the early decrease at the beginning of the quarter, the index price remained range bound for most of the fourth quarter, averaging $108 per metric ton and hitting a low point of $97 per metric ton. Demurrage and other charges reduced our gross price realization to an average net selling price of $94 per short ton in the fourth quarter of 2020 compared to $120 per short ton in the same quarter last year.

Mining cash cost of sales were $190 million or 92% of mining revenues in the fourth quarter compared to $142 million or 72% of mining revenues in the same quarter of 2019. The increase of $48 million or 34% and cash cost of sales was primarily attributable to two factors; one, the 33% increase in sales volumes and, two, tighter cost management in 2020; partially offset by a 22% decrease in average net selling prices.

Cash cost of sales per short ton, FOB port, was approximately $86 in the fourth quarter and approximately the same amount in the same period of 2019. While the cost per ton in both quarters was the same, met coal prices were 22% lower in the fourth quarter of 2020. Cash costs and price-sensitive costs, such as wages, transportation and royalties that vary with met coal pricing were lower in the fourth quarter. However, they were offset by higher production cost per ton. Production costs per ton were higher due to our decision to slow production in order to preserve cash in the fourth quarter.

SG&A expenses were about $8 million or 3.7% of total revenues in the fourth quarter of 2020 and were 2% lower than the same quarter last year, primarily due to lower professional fees and employee-related expenses. Depreciation and depletion expenses for the fourth quarter of 2020 were $39 million. The increase quarter-over-quarter was primarily due to a higher amount of assets placed in service and higher spending levels.

Net interest expense was about $8 million in the fourth 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 was approximately $2 million higher compared to the same period last year, primarily due to incremental borrowings on our ABL facility this year and lower returns on cash balances.

We recorded a noncash income tax benefit of $11 million during the fourth quarter of 2020 compared to a benefit of $3 million in the same quarter last year. This quarter's tax benefit is attributed to the pre-tax loss and additional marginal gas well credits from our gas businesses.

Turning to cash flow. During the fourth quarter of 2020, we generated over $1 million in positive free cash flow, which resulted from cash flows provided by operating activities of $30 million, less cash used for capital expenditures and mine development cost of $29 million. Free cash flow in the fourth quarter of 2020 was positively impacted by a $20 million decrease in net working capital. The decrease in net working capital was primarily due to a decrease in inventory on higher sales volume and our decision to slow production this quarter.

Operating cash flows were higher in the fourth quarter of 2020 compared to the same quarter last year, primarily due to higher sales volumes. Cash used in investing activities for capital expenditures and mine development costs was $29 million during the fourth quarter of 2020 compared to $34 million in the same quarter last year. We continue to rationalize spending versus investing in long-term projects that will benefit the company in the future. Specifically, the company spent $13 million or 47% less on capex in the fourth quarter of 2020 compared to the same period last year, which was partially offset by higher spending on mine development costs.

For the full year of 2020, our sustaining capex spending was approximately $60 million, which was $29 million less than the prior year. Because our mines are well capitalized and generate significant cash flows, we can continue to invest in our business even in challenging price environments.

We spent $27 million on discretionary capex in 2020 or approximately 31% of total capex. Free cash flow for the full year could have been that much higher had we chosen to suspend those discretionary investments during the pandemic. Cash flows used by financing activities were $6 million in the fourth quarter of 2020 and consisted primarily of payments for capital leases of $3 million and the payment of the quarterly dividend of $3 million.

We continued to focus on cash preservation and total liquidity during the quarter, and our balance sheet remains strong with a leverage ratio of 1.9 times adjusted EBITDA. In addition, we have adequate liquidity as we have shed our fixed cost legacy liabilities and today have a low and variable cost structure with no near-term debt maturities.

Our total available liquidity at the end of the fourth quarter was $244 million, consisting of cash and cash equivalents of $212 million and $32 million available under our ABL facility, net of borrowings of $40 million and outstanding letters of credit of approximately $9 million.

Now turning to our outlook. Due to the ongoing uncertainty related to the COVID-19 pandemic, the Chinese ban on Australian coal and other potentially disruptive factors, we will not be providing full year 2021 guidance at this time. We expect to return to providing guidance once there is further clarity on these issues. We continue to evaluate the impact of COVID-19 and these other potentially disruptive factors on our business, although we believe that it is premature to speculate on when the economies of the countries in which our customers are located, will reopen on a sustained basis and lead to a return of normalized demand for met coal.

We continue to appropriately adjust our operational needs, including managing expenses, capital expenditures, working capital, cash flows and liquidity. We have delayed the development of the Blue Creek project until at least the summer of 2021. This decision was not based on changes in the perceived value of the project, but rather on our short-term focus of preserving cash and liquidity. Our stock repurchase program also remains temporarily suspended.

I'll now turn it back to Walt for his final comments.

Walter J. Scheller -- Chief Executive Officer and Director

Thanks, Dale. Before we move on to Q&A, I would like to make some final comments. While we understand the immediate consequences of the Chinese ban on Australian coal, we've adjusted our operations under these circumstances. We still do not have a clear view of on the trade of seaborne met coals will return to normal efficient market conditions. We expect that China will allow some level of Australian premium coals to be imported sooner rather than later, but we remain cautious in predicting how and when China will act. For now, it's prudent to stay close to our long-term customers while strategically placing some spot volumes into China to capture the benefits of the temporary pricing distortions and continuing to build brand recognition for our premium coals in China.

Most steel producers in Europe and South America have increased production and restarted [idle] blast furnaces. However, some countries in which we do business have again temporarily shut down their economies due to a recent rise in new COVID-19 cases and new variants of the virus. While we believe that demand for our products should remain stable throughout our portfolio for the next few quarters, we also believe that price volatility will present the greatest uncertainty for the short term.

As previously mentioned, we expect that our current inventory levels will remain elevated as we intend to adjust production rates in accordance with demand and as we manage potential disruption risks due to COVID 19. Of course, if the opportunity to sell additional volume, while meeting our profitability threshold materializes, we would expect to see a more rapid decrease in our inventory levels. We plan to balance Chinese spot volume opportunities with existing commitments to our long-term customers.

Just one last point I would like to remind everyone of, as we've previously disclosed, our union contract is set to expire on April 1. We believe that we have a good relationship with our union workforce and have done our best to do right by them. We are in negotiations with the union for a new contract. At this time, we cannot comment any further on any potential terms of a new contract.

Finally, I have repeated a simple mantra for many times, both before enduring this pandemic, it's worth repeating again. The five important reasons our business is well positioned to weather any prolonged economic or disruptive challenge. One, our highly talented workforce is committed to safely and efficiently driving results. Two, we maintain one of the world's highest quality met coal portfolios and have strong long-term customer relationships. Three, we have a strong balance sheet and adequate liquidity. Four, our low and variable cost structure enables us to drive high margins and free cash flow across most business environments. And five, we've made significant investments in our operations over the past few years, allowing us to now reduce capital expenditures as needed without significantly impacting our operations.

As a result of these factors, I'm confident that we will emerge from these ongoing uncertainties ready to achieve our long-term growth potential.

With that, we'd like to open the call for questions. Operator?

Questions and Answers:

Operator

[Operator Instructions.] The first question comes from David Gagliano with BMO Capital Markets. Please go ahead.

David Gagliano -- BMO Capital Markets -- Analyst

Hi. Thanks for taking my questions. I appreciate the challenges associated with providing full-year color in this environment. I'm just wondering, though, can you give us some color on the first quarter, get more past halfway through the first quarter? Can you give us a sense on volumes and pricing and costs?

Walter J. Scheller -- Chief Executive Officer and Director

So the operations are running as expected. We've discussed frequently how our coal is priced and it's still being priced that way for our standard customers. And things are going out kind of as we expected, but that's about as much clarity as I can give you.

David Gagliano -- BMO Capital Markets -- Analyst

Okay. And just to drill down a little bit more on what you expected in the first quarter when you say as expected, what are you expecting in the first quarter for volumes?

Walter J. Scheller -- Chief Executive Officer and Director

We -- you can look at our last year or two and see how we've run, and that's kind of how we expect to operate.

David Gagliano -- BMO Capital Markets -- Analyst

Okay. And then in terms of spot sales, at this point, how many times have you sold in the spot market in the first quarter or for delivery in the first quarter into China?

Walter J. Scheller -- Chief Executive Officer and Director

I'm not getting into that level of detail, David.

David Gagliano -- BMO Capital Markets -- Analyst

Okay. All right. I'll just leave it at that. Thanks.

Walter J. Scheller -- Chief Executive Officer and Director

Appreciate your call.

Operator

The next question comes from Lucas Pipes with B. Riley Securities. Please go ahead.

Lucas Pipes -- B. Riley Securities -- Analyst

Hey, good afternoon, everybody.I wanted to get a sense of committed volumes for 2021. I appreciate that you don't want to put out a number for the full year, but you typically layer in commitments into Europe, South America, etc., and then if you could also add where you typically stand kind of on a percentage basis versus capacity on the committed side, that would be very helpful. Thank you.

Dale W. Boyles -- Chief Financial Officer

Well, I guess, in the previous few quarters, Lucas, our spot sales have been running about 50% of our quarterly volumes because of the pandemic and most of the shutdowns that occurred. As those geographies are improving, some of those countries have also kind of stepped back as well with the new cases and the new variants of this virus. So it's hard to say exactly on the committed volume because of the spot volume as well. But we expect to improve more above that 50-50 ratio as we move forward this year. The whole market disruption with China and what's going on there with that ban, we can try to take advantage of those opportunities when we can, but we still want to make sure that we fulfill everything with our customers.

So I don't want to get into the committed right at this point because that can change very quickly. And our contracts do roll over from year-to-year. So I just want to say that, look, we're going to be improving on that 50-50 ratio as we've been for the last three quarters, I believe it is.

And just as you think about the year, and this kind of goes back to David's question, our volumes were off about 7% year-over-year; both production and sales volumes. And in 2020, being off 7% in total, given the pandemic, I think that was a pretty good result after the fact. And I just think you would think about next year or 2021, somewhere in those terms of those numbers. And it just depends on how quickly some of these things get resolved. And I would say everything looks very positive. But until we start to see that improvement, we tend to always be very cautious.

Lucas Pipes -- B. Riley Securities -- Analyst

Yes, yes. No, that's appreciated. Thank you, Dale. Higher-level question, follow-up question on marketing in this environment. Kind of big picture, isn't this a time for someone like you to gain share in the market? I mean if Australia is kind of shut out of the Chinese market, you continue to hold transportation logistical advantages into Europe, Latin America, why not run flow out? And kind of based on where prices are today, I would have you running a positive contribution margin every time you sell. So kind of just big picture philosophically, why not run full out here?

Walter J. Scheller -- Chief Executive Officer and Director

Well, you remember, you've got millions of tons of Australian coal sitting off the coast of China. The fact that China is not letting the coal in from Australia doesn't mean the coals not being produced in Australia. This really still is a pretty close balance between supply and demand. And we've seen some cargoes of Australian coal make its way into both Europe and South America. As we've had opportunities to move our coal into China, and the best thing for us has been -- it allows us to get brand recognition in China with our coals out of mine four and mine seven because we haven't sold as Warrior into China previously.

So the market is really not that significantly undersupplied at this point. I think as of a couple of weeks ago, you still had about four million tons of Australian coal sitting off the coast of China.

Lucas Pipes -- B. Riley Securities -- Analyst

That's helpful. I'll end with one final follow-up and then go back into queue. We're all looking at various pricing around the globe, deliver China, FOB Australia, FOB East Coast. Would you say those prices are representative or representative for you? Or would you say, look, given that the -- you know that the inventories in Australia, I'm sorry, with Australian coal outside of China that maybe some of these prices are not fully representative. Just help me understand -- I'm just -- to be frank, I'm a little confused when we look at an improving index for a number of weeks now that there would be so much hesitation to provide more volume color. It seems like it'd be quite profitable even at these prices. So I would appreciate the additional color on pricing in today's environment. Thank you.

Walter J. Scheller -- Chief Executive Officer and Director

Well, as we look at it, the ability, when we sell into our customers in both Europe and South America, that coal is sold based on the FOB Australian price. And we expect to be able to fully achieve those prices based on whatever our particular contract is for a particular customer, whether it's two weeks, three weeks, four weeks of average pricing previously.

And with what's going into China, while it's CFR, again, I don't know, China is not always fully active in the market and these CFR prices may be on very, very small volumes.

Dale W. Boyles -- Chief Financial Officer

I think the same thing happened with the East Coast price as well. Right?

Walter J. Scheller -- Chief Executive Officer and Director

Yes.

Dale W. Boyles -- Chief Financial Officer

That price has ramped up over the last several weeks, and there's been virtually no volume traded under that index.

Lucas Pipes -- B. Riley Securities -- Analyst

Very helpful. I'll jump back in queue. Thank you very much, and best of luck.

Dale W. Boyles -- Chief Financial Officer

Thanks, Lucas.

Operator

The next question comes from Chris Terry with Deutsche Bank. Please go ahead.

Chris Terry -- Deutsche Bank -- Analyst

Hi, Walter and Dale. I just wondered if I could ask a little bit on the costs for the quarter. The $86 million was $5.00 or $6.00 higher than what we had. Appreciate you sold out of inventory. Just wondered if you could talk about how you see that. I know you're reluctant to talk too much about 2021, but maybe just some of the moving parts. I guess it was just that inventory, that was the main contributor to the higher costs in the quarter? I wondered if you could give some details.

Walter J. Scheller -- Chief Executive Officer and Director

Well, if you look at our average cost of sales for the last five years, we've been between $90 and $95 --

Dale W. Boyles -- Chief Financial Officer

Metric ton.

Walter J. Scheller -- Chief Executive Officer and Director

Metric -- per metric ton. And that's kind of where we continue to be. Last quarter was exceptional in Q3. And we expect to be able to operate in that same level year after year and quarter after quarter.

Now in any particular quarter, we're going to have some blips. And for instance, in the fourth quarter, there's an awful lot of fixed costs associated with these mines. And when we intentionally drop back the number of days we operate and the number of tons we produce, the fixed cost gets spread across fewer tons. So we're going to see a higher cost per ton number.

Dale W. Boyles -- Chief Financial Officer

And just one other anecdote there. The third quarter, if you were basing it off the third quarter, third quarter was so unusually low. I mean, that was just an outstanding number being in the, I think, about $78 a ton. That's highly unusual to be down that low. So that's -- you got a big snap back there because of all the different things. And one other factor that kind of makes us a little bit harder, too, is since our inventory levels are so high, what we sold in the fourth quarter, a lot of that was mined in the third quarter. So you got some rollover affected some other quarters on the inventory layering. So it just makes it a little bit more convoluted.

But yes, I mean, low to mid $80 range is what we've been historically running at.

Chris Terry -- Deutsche Bank -- Analyst

Yes. Okay. That's clear. And then in terms of 2021, how many longwall moves do you have due? And maybe you could just talk a little bit about your expectations on a capex range?

Walter J. Scheller -- Chief Executive Officer and Director

No, we have three, possibly a fourth longwall move. In terms of capex, my expectation is you should see, again, us probably in similar levels to we've been in previous years where we've budgeted between $100 million and $120 million.

Chris Terry -- Deutsche Bank -- Analyst

Okay. Thank you. And then just coming back to the inventory level you've got now and keeping that ready in case anything was to happen around COVID. I wondered if you could just talk a little bit about that, like, what level do you have to keep versus opportunities that come up in the spot market? I'm just trying to understand that million tons, can you take it down to half a million and still be comfortable? Or what's the opportunity in that million tons you've got in inventory?

Walter J. Scheller -- Chief Executive Officer and Director

I think for us, the really low inventory levels are when we get below 250,000 tons, that's really below where we want to be. Optimum, I would say, is somewhere in the 350 to 450 range.

Chris Terry -- Deutsche Bank -- Analyst

Okay. Thanks, guys. That's it for me.

Walter J. Scheller -- Chief Executive Officer and Director

Thank you.

Operator

The next question comes from Matt Farwell with Roth Capital. Please go ahead.

Matt Farwell -- Roth Capital -- Analyst

Hi. Thanks for taking my question. Just a question on China. How -- given the high CFR prices in China, is there a way that we should think about the realizations to the mine versus how we would think about Australia and low-vol. Obviously, $100 per ton premium but also higher logistics costs. I'm just looking for just a rough way to estimate.

And then secondly, your -- just your commentary about exports to China seems fairly unique. Like I feel like less than 5% of the volumes would potentially reach China this year. And I wonder if you can comment on that estimate.

Dale W. Boyles -- Chief Financial Officer

I'll handle the first one there. As far as the realizations, obviously, I can't predict that without having actual volumes. But as we said in our prepared comments, look, we're going to try to take advantage of the opportunities, if we can. But first and foremost, it's our long-term customers. We have to make sure that we service our long-term customers that are here today and been with us for 20-plus years, and a Chinese customer comes today and gone tomorrow. So we have to balance that and make sure we meet that demand.

So I can't really predict the actual transactions that might occur this year other than just say, look, we'll try to take advantage of any spot volume opportunities at some of those CFR prices into China, if we can do that.

Walter J. Scheller -- Chief Executive Officer and Director

And as far as the second part of the question, I think Dale's answer really captures that as well and that we're first going to take care of our long-term customers, and then we'll look at spot opportunities, determine where our best opportunities are and go after that realization.

Matt Farwell -- Roth Capital -- Analyst

Okay. Great. And then just one other question on capex. If you could just provide any more clarity on discretionary projects that are planned this year. So I can think a little bit deeper into the capex plan.

Dale W. Boyles -- Chief Financial Officer

Well, as you've seen in our materials, and as we've talked about on previous calls, we are building out the four North portal and that facility, and that's continued to be under construction. So I do expect that's our primary project. As we did say in our prepared comments, right now, we are postponing the start of development of the Blue Creek project at least until the summer of this year. So discretionary spending, again, it could be similar to what we incurred in the prior year.

This year's, as Walt said earlier, it could be anywhere from $100 million to $120 million is what we budget to start with. But as we get into this year, depending on how things go. If things take off as everybody seems to be so exuberant about; that's probably a pretty good target. But if things don't pick off as fast as that, then you would not see us spending that kind of money.

Matt Farwell -- Roth Capital -- Analyst

Got it. Great. Thanks for the color.

Dale W. Boyles -- Chief Financial Officer

Thank you.

Operator

The next question comes from Nathan Martin with the Benchmark Co. Please go ahead.

Nathan Martin -- the Benchmark Co -- Analyst

Hey, Walt and Dale. Thanks for taking my questions, guys. Most of the topics I was looking to dig into have been touched on. Maybe just to follow-up real quick on that capex question. Obviously, you guys did a great job bringing down sustaining capex in 2020 to that $60 million level. I think, Dale, you made the comment that, and Walt as well, that the mines have been well capitalized over the last few years. Do you feel like that number is something that you could sustain going forward into 2021, if necessary? That would be my first question.

Dale W. Boyles -- Chief Financial Officer

Yes, in 2021, yes. It's not a long-term sustainable number, but yes, we could do that in 2021.

Nathan Martin -- the Benchmark Co -- Analyst

Okay. Great. And then quickly, kind of going back to the CFR China story. I'm just curious, guys, what is a reasonable number right now that you're seeing maybe out there for ocean freight from mobile to China?

Dale W. Boyles -- Chief Financial Officer

I think it was in the $40 range, let me check. Yes, $40 to $50 range, a ton.

Nathan Martin -- the Benchmark Co -- Analyst

Okay. Got it. I appreciate that, too. And then finally, just a little housekeeping question. Dale, you were mentioning the volumes in 2020, I think, were down 7% roughly year-over-year. And then you made a comment about, I think, 2021, and you said the numbers will be roughly the same. Did you mean roughly the same maybe as 2020 from a sales perspective on an absolute basis, is that what you're getting at?

Dale W. Boyles -- Chief Financial Officer

Yes. I would say, there could be a similar amount of amount volume to 2020. And again, that all depends on how fast our customers are able to ramp back up. Again, there's a lot of talk about it. We just need to see that. So that range, I think, is a reasonable range. But again, it's -- we just need to get a little more clarity from our customers on their actual run rates for the year.

Nathan Martin -- the Benchmark Co -- Analyst

Got it. Thank you. And then just real quick, one final one, going back to the capex. I know you obviously just pointed out the four North portal project, etc., or where you would expect to spend most of your discretionary dollars this year. Any color you can provide on how much is left to spend on those projects?

Walter J. Scheller -- Chief Executive Officer and Director

I think we're about halfway through the mine four capital needed for that project. We're capitalizing some of the development. It also includes a bunker that will be built underground. So it's a sizable project. It's bigger than just putting a portal in. So it's we're about halfway.

Nathan Martin -- the Benchmark Co -- Analyst

You're halfway, as what would be the original --

Walter J. Scheller -- Chief Executive Officer and Director

I think it was 80-ish.

Dale W. Boyles -- Chief Financial Officer

80 -- yes, about mid- 80s for the total.

Nathan Martin -- the Benchmark Co -- Analyst

Okay. Got it. Thanks for the reminder, guys. I appreciate your time. Best of luck.

Dale W. Boyles -- Chief Financial Officer

Thank you.

Operator

Next question comes from Len Hen with Hite. Please go ahead.

Len Hen -- Hite -- Analyst

Hey. Thanks for taking my call. I just want to ask for the Blue Creek project, so from now to summer, what do you want to make you be comfortable to [Indecipherable] project at that time? What do you want to see, [pure] price, inventory, supply demand? What are you thinking you want to see?

Walter J. Scheller -- Chief Executive Officer and Director

I just think that -- I assume you're talking about asking about us starting Blue Creek? I think we would have to see -- I talked for just a minute about the -- we have COVID issues, we want to see a little more clarity around that so that we can -- a little better, more clearly defined demand. We would like to see pricing stay pretty stable. And we talked a little bit about the fact that we had the contract negotiation. And so we just need clarity around some of those issues before we're going to commit a lot of money into the project.

Len Hen -- Hite -- Analyst

Got it. And also, like, we heard a lot of kind of [Indecipherable] kind of the coal from this new administration. So I know it's more profit for thermal coal. But I guess for your operation, for your business, do you kind of feel like any kind of potential overhang negatively for your business, either from their, I guess, maybe like [more cost] or like less demand. I guess, can you talk a little bit about what are you seeing about the administration?

Walter J. Scheller -- Chief Executive Officer and Director

Well, it's a little early to tell, but some of the moratoriums on the federal land leasing, they specifically excluded coal -- metallurgical coal, all coal actually. So at this point, it's kind of hard to say what they expect other than that one, which doesn't impact us. We don't know. It's just -- we can't predict that at this time.

Len Hen -- Hite -- Analyst

And then just for clarify, you don't have any federal lands [do] you?

Walter J. Scheller -- Chief Executive Officer and Director

Well, we do lease, yes, some federal land. Yes.

Len Hen -- Hite -- Analyst

You do lease federal lands?. So is for your existing or for your new projects?

Walter J. Scheller -- Chief Executive Officer and Director

It would be both.

Len Hen -- Hite -- Analyst

Okay. Got it. Thank you.

Dale W. Boyles -- Chief Financial Officer

Thank you.

Operator

Next question is a follow-up from David Gagliano with BMO Capital Markets. Please go ahead.

David Gagliano -- BMO Capital Markets -- Analyst

Hi. I think a lot of my questions have now been asked. But I guess I just had two quick follow-ups. First of all, just on the longwall moves, is there any particular quarter where they're chunkier than other quarters?

Walter J. Scheller -- Chief Executive Officer and Director

No, no, they're pretty much spread throughout the year.

David Gagliano -- BMO Capital Markets -- Analyst

Okay. Thanks. And then just on the union on negotiations and contract, can you just give us some context? So when was that contract last negotiated?

Walter J. Scheller -- Chief Executive Officer and Director

Five years ago from this coming April 1.

David Gagliano -- BMO Capital Markets -- Analyst

Okay. So obviously, things were quite different then. One of the pieces of the prior contract, I believe, was wages that were tied to prices in some respect. And is that still likely to be the structure moving forward? Or is that part of the negotiation?

Walter J. Scheller -- Chief Executive Officer and Director

That will be part of the negotiation. But interestingly, prices stayed robust enough that wages stayed constant from that standpoint throughout the contract. We never hit a trigger.

David Gagliano -- BMO Capital Markets -- Analyst

Okay. Got it good. That's it for me. Thanks.

Walter J. Scheller -- Chief Executive Officer and Director

Thanks, David.

Operator

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

Walter J. Scheller -- Chief Executive Officer and Director

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

Operator

[Operator Closing Remarks]

Duration: 48 minutes

Call participants:

Walter J. Scheller -- Chief Executive Officer and Director

Dale W. Boyles -- Chief Financial Officer

David Gagliano -- BMO Capital Markets -- Analyst

Lucas Pipes -- B. Riley Securities -- Analyst

Chris Terry -- Deutsche Bank -- Analyst

Matt Farwell -- Roth Capital -- Analyst

Nathan Martin -- the Benchmark Co -- Analyst

Len Hen -- Hite -- Analyst

More HCC analysis

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