ARCH RESOURCES, INC. Unless the context otherwise requires, all references in this report to "Arch,"
the "Company," "we," "us," or "our" are to
Cautionary Notice Regarding Forward-Looking Statements
This report contains "forward-looking statements" within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended - that is, statements related to future, not
past, events. In this context, forward-looking statements often address our
expected future business and financial performance, and often contain words such
as "should," "could," "appears," "estimates," "expects," "anticipates,"
"intends," "may," "plans," "predicts," "projects," "believes," "seeks," or
"will." Actual results may vary significantly from those anticipated due to many
factors, including: loss of availability, reliability and cost-effectiveness of
transportation facilities and fluctuations in transportation costs; inflationary
pressures and availability and price of mining and other industrial supplies;
changes in coal prices, which may be caused by numerous factors beyond our
control, including changes in the domestic and foreign supply of and demand for
coal and the domestic and foreign demand for steel and electricity; volatile
economic and market conditions; operating risks beyond our control, including
risks related to mining conditions, mining, processing and plant equipment
failures or maintenance problems, weather and natural disasters, the
unavailability of raw materials, equipment or other critical supplies, mining
accidents, and other inherent risks of coal mining that are beyond our control;
the effects of foreign and domestic trade policies, actions or disputes on the
level of trade among the countries and regions in which we operate, the
competitiveness of our exports, or our ability to export; competition, both
within our industry and with producers of competing energy sources, including
the effects from any current or future legislation or regulations designed to
support, promote or mandate renewable energy sources; alternative steel
production technologies that may reduce demand for our coal; our ability to
secure new coal supply arrangements or to renew existing coal supply
arrangements; the loss of, or significant reduction in, purchases by our largest
customers; disruptions in the supply of coal from third parties; risks related
to our international growth; our relationships with, and other conditions
affecting our customers and our ability to collect payments from our customers;
the availability and cost of surety bonds; including potential collateral
requirements; we may not have adequate insurance coverage for some business
risks; additional demands for credit support by third parties and decisions by
banks, surety bond providers, or other counterparties to reduce or eliminate
their exposure to the coal industry; inaccuracies in our estimates of our coal
reserves; defects in title or the loss of a leasehold interest; losses as a
result of certain marketing and asset optimization strategies; cyber-attacks or
other security breaches that disrupt our operations, or that result in the
unauthorized release of proprietary, confidential or personally identifiable
information; our ability to acquire or develop coal reserves in an economically
feasible manner; our ability to pay dividends or repurchase shares of our common
stock according to our announced intent or at all; the loss of key personnel or
the failure to attract additional qualified personnel and the availability of
skilled employees and other workforce factors; existing and future legislation
and regulations affecting both our coal mining operations and our customers'
coal usage, governmental policies and taxes, including those aimed at reducing
emissions of elements such as mercury, sulfur dioxides, nitrogen oxides,
particulate matter or greenhouse gases; increased pressure from political and
regulatory authorities, along with environmental and climate change activist
groups, and lending and investment policies adopted by financial institutions
and insurance companies to address concerns about the environmental impacts of
coal combustion; increased attention to environmental, social or governance
matters ("ESG"); our ability to obtain and renew various permits necessary for
our mining operations; risks related to regulatory agencies ordering certain of
our mines to be temporarily or permanently closed under certain circumstances;
risks related to extensive environmental regulations that impose significant
costs on our mining operations and could result in litigation or material
liabilities; the accuracy of our estimates of reclamation and other mine closure
obligations; the existence of hazardous substances or other environmental
contamination on property owned or used by us; and risks related to tax
legislation and our ability to use net operating losses and certain tax credits.
All forward-looking statements in this report, as well as all other written and
oral forward-looking statements attributable to us or persons acting on our
behalf, are expressly qualified in their entirety by the cautionary statements
contained in this section and elsewhere in this report. These factors are not
necessarily all of the important factors that could affect us. These risks and
uncertainties, as well as other risks of which we are not aware or which we
currently do not believe to be material, may cause our actual future results to
be materially different than those expressed in our forward-looking statements.
These forward-looking statements speak only as of the date on which such
statements were made, and we do not undertake to update our forward-looking
statements, whether as a result of new information, future events or otherwise,
except as may be required by the federal securities laws. For a
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description of some of the risks and uncertainties that may affect our future results, you should see the "Risk Factors" in Item 1A of our Annual Report on Form 10-K for the year endedDecember 31, 2022 and subsequent Form 10-Q filings.
Overview
Our results for the three months endedMarch 31, 2023 benefited from continued strong global metallurgical markets while global thermal coal markets retreated from historically high levels, but remained above previous long-term average levels. The Russian invasion ofUkraine continues to distort previously established trading patterns in the global energy markets. However, a generally mild winter heating season inEurope and much ofNorth America has mitigated feared natural gas shortages and significantly moderated thermal coal markets. In the Pacific, whileChina has currently lifted the suspension of purchases of Australian coal for the most part, traditional trade flows in coal markets are far from being reestablished. General global inflationary pressure may be moderating, following tighter monetary policies from many nations' central banks, but the rapid tightening has caused some instability in certain areas of the global banking industry. On a macro level, the outlook for global economic growth in the short term is mixed at best, but supply constraints continue to support global metallurgical and thermal coal markets to varying degrees. TheFebruary 2022 Russian invasion ofUkraine continues to significantly disrupt previously established global coal and energy trading patterns, driving Russian products into Asian markets at discounted prices. On-going bans on the import of Russian coal by theEuropean Union , theUnited Kingdom ,Japan , and other nations continues to pressure availability of supply to these markets. In particular, theEuropean Union's ban on importation of Russian coal, which became effective onAugust 10, 2022 , and the related restriction of Russian natural gas supplies intoEurope , contributed to historically high thermal coal prices in the international markets during 2022. The current mild winter heating season inEurope has prevented, at least currently, feared natural gas and electricity shortages, allowing European energy markets to moderate. This moderation in European energy prices has led to announcements of the reopening of several Basic Oxygen Furnace ("BOF") steel plants inEurope that had been idled during 2022. While prospects for global economic growth remain uncertain, the outlook for increased steel production and coking coal demand inEurope has improved. Furthermore, supply constraints and disruptions continue to support coking coal markets. Since the fourth quarter of 2020,China had effectively banned the import of coking coal and thermal coal, among other products, fromAustralia , the largest global exporter of coking coal. Currently,China has lifted this ban on Australian coal. The lifting of this ban is beginning to impact trade patterns as Australian coal begins to flow intoChina once again. We expect international coking and thermal coal markets to remain volatile as they adjust to this new reality. Russian coking coal, offered at discounts to published indices, remains a larger share of Chinese and Indian imports than previously, but logistical, financial, and quality constraints exist as potential barriers to further increase in Russian supplies to these markets. Overall, Australian and North American coking coal supply continues to be constrained despite coking coal prices staying persistently above long-term historical averages. Some new coking coal supply has been added to the market; however, production and logistical disruptions, continue to constrain supply. The duration of specific supply disruptions is unknown. We believe that underinvestment in the sector in recent years underlies both the current and longer-term market dynamics. Overall, underinvestment in the sector appears likely to persist, despite favorable markets, as government policies and diminished access to traditional capital markets, limits investment in the sector. In the current environment, we expect coking coal prices to remain volatile. Longer term, we believe continued limited global capital investment in new coking coal production capacity, normal reserve depletion, and an eventual return to economic growth will provide support to coking coal markets. During the first three months of 2023, domestic thermal coal consumption was pressured by a generally mild winter heating season in most of the heavily populated areas ofthe United States , and falling natural gas prices. Currently, natural gas prices are at levels that allow the competing fuel to economically dispatch ahead of thermal coal. We have firm sales commitments for the current year for our thermal segment at volume levels that ensure economic operation, even if some volume is deferred. Longer term, we continue to believe thermal coal demand inthe United States will remain pressured by continuing increases in subsidized renewable generation sources, particularly wind and solar, planned retirements of coal fueled generating facilities, and competition from natural gas. Despite some moderation, international thermal coal markets remain above long term historical averages, supporting continued export opportunities for our thermal operations. 26 Table of Contents During the first three months of 2023, we encountered adverse geologic conditions at our West Elk thermal coal operation. These conditions adversely impacted both our expected volumes and coal quality. Due to this situation, we have issued force majeure notices to our West Elk customers with shipments affected by that event and logistics providers. We continue to communicate with these customers and logistics providers, and to manage through the adverse area to mitigate adverse impacts to the extent possible. We continue to pursue strategic alternatives for our thermal assets, including, among other things, potential divestiture. We are concurrently shrinking our operational footprint at our thermal operations. During the first three months of 2023, we contributed$1.1 million to our fund for asset retirement obligations, representing interest earned, bringing our total to$137.1 million . Additionally, we performed approximately$2.5 million of reclamation work at our thermal operations. We plan to continue to grow the thermal mine reclamation fund through both contributions from cash flow of up to$20 million and interest earnings. We continue to exercise our operational flexibility to maximize cash generation from our thermal operations. Currently, we plan to meet existing commitments, and align our production accordingly. Longer term, we will maintain our focus on aligning our thermal production rates with the expected secular decline in domestic thermal coal demand and viable export opportunities, while adjusting our thermal operating plans to minimize future cash requirements and maintain flexibility to react to short-term market fluctuations. We continue to streamline our entire organizational structure to reflect our long-term strategic direction as a leading producer of metallurgical products for the
steelmaking industry.
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Results of Operations
Three Months Ended
Revenues. Our revenues include sales to customers of coal produced at our operations and coal purchased from third parties. Transportation costs are included in cost of coal sales and amounts billed by us to our customers for transportation are included in revenues.
Coal sales. The following table summarizes information about our coal sales
during the three months ended
Three Months Ended March 31,
2023 2022 (Decrease) / Increase
(In thousands)
Coal sales $ 869,931 $ 867,936 $ 1,995
Tons sold 19,176 19,738 (562)
On a consolidated basis, coal sales in the first quarter of 2023 were
approximately $2.0 million , or 0.2%, more than in the first quarter of 2022,
while tons sold decreased approximately 0.6 million tons, or 2.8%. Coal sales
from Metallurgical operations increased approximately $64.0 million , primarily
due to higher volume and offset partially by decreased pricing. Thermal coal
sales decreased approximately $62.0 million due to decreased pricing and volume.
See the discussion in "Operational Performance" for further information about
segment results.
Costs, expenses and other. The following table summarizes costs, expenses and
other components of operating income during the three months ended March 31,
2023 and 2022:
Three Months Ended March 31,
Increase
(Decrease)
in Net
2023 2022 Income
(In thousands)
Cost of sales (exclusive of items shown
separately below) $ 571,737 $ 508,225 $ (63,512)
Depreciation, depletion and amortization 35,479 32,210(3,269)
Accretion on asset retirement obligations 5,292 4,430
(862)
Change in fair value of coal derivatives, net (1,462) 15,519
16,981
Selling, general and administrative expenses 26,022 26,648 626 Other operating income, net (3,707) (3,439) 268 Total costs, expenses and other$ 633,361 $ 583,593
Cost of sales. Our cost of sales for the first quarter of 2023 increased approximately$63.5 million , or 12.5%, versus the first quarter of 2022. The increase in cost of sales is directly attributable to general inflationary pressures on most goods and services, increased repairs and supplies costs of approximately$38.6 million , and increased compensation and related benefit costs of approximately$16.0 million . See discussion in "Operational Performance" for further information about segment results. Depreciation, depletion and amortization. The increase in depreciation, depletion, and amortization in the first quarter of 2023 versus the first quarter of 2022 is primarily due to the increased depletion and amortization in our Metallurgical Segment of approximately$2.5 million as a result of increased volume. Accretion on asset retirement obligations. The increase in accretion expense in the first quarter of 2023 versus the first quarter of 2022 is primarily related to the results of our annual recosting exercise completed during the fourth quarter of 2022. Change in fair value of coal derivatives, net. The gains in the first quarter of 2023 versus the first quarter of 2022 are primarily related to mark-to-market gains on coal derivatives that are used to hedge our price risk for international thermal coal shipments. 28
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Selling, general and administrative expenses. The decrease in selling, general and administrative expenses in the first quarter of 2023 versus the first quarter of 2022 was due to a decrease in compensation related expenses offset by an increase in professional services. Other operating income, net. The increase in other operating income, net in the first quarter of 2023 versus the income in the first quarter of 2022, consists primarily of the net favorable impact of certain coal derivative settlements of approximately$11.7 million , partially offset by the unfavorable impact of mark to market movements on heating oil positions of approximately$8.1 million .
Nonoperating expenses. The following table summarizes our nonoperating expenses
during the three months ended
Three Months Ended March 31,
Increase
(Decrease)
2023 2022 in Net Income
(In thousands)
Non-service related pension and
postretirement benefit credits (costs) $ 592 $ (873) $ 1,465
Net loss resulting from early retirement of
debt (1,126) (4,120) 2,994
Total nonoperating expenses $ (534) $ (4,993) $ 4,459
Net loss resulting from early retirement of debt. In the first quarter of 2023,
we incurred a $1.1 million loss related to the Convertible Note repurchases. In
the prior year quarter, we incurred a $4.1 million loss from the repayment of
$271.8 million of Term Loan. For further information regarding the Convertible
Notes repurchases, see Note 8, "Debt and Financing Arrangements" to the
Condensed Consolidated Financial Statements.
Provision for income taxes. The following table summarizes our provision for
income taxes for the three months ended
Three Months Ended March 31,
Increase (Decrease)
2023 2022 in Net Income
(In thousands)
Provision for income taxes $ 37,138 $ 455 $ (36,683)
See Note 9, to the Consolidated Financial Statements "Income Taxes," to the Consolidated Condensed Income Statements for additional information of the statutory federal income tax provision at the statutory rate to the actual provision for taxes.
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Operational Performance
Three Months Ended
Our mining operations are evaluated based on Adjusted EBITDA, per-ton cash operating costs (defined as including all mining costs except depreciation, depletion, amortization, accretion on asset retirements obligations, and pass-through transportation expenses, divided by segment tons sold), and on other non-financial measures, such as safety and environmental performance. Adjusted EBITDA is defined as net income attributable to us before the effect of net interest expense, income taxes, depreciation, depletion and amortization, the amortization of sales contracts, the accretion on asset retirement obligations and nonoperating income (expenses). Adjusted EBITDA may also be adjusted for items that may not reflect the trend of future results by excluding transactions that are not indicative of our core operating performance. Adjusted EBITDA is not a measure of financial performance in accordance with generally accepted accounting principles, and items excluded from Adjusted EBITDA are significant in understanding and assessing our financial condition. Therefore, Adjusted EBITDA should not be considered in isolation, nor as an alternative to net income, income from operations, cash flows from operations or as a measure of our profitability, liquidity or performance under generally accepted accounting principles. Furthermore, analogous measures are used by industry analysts and investors to evaluate our operating performance. Investors should be aware that our presentation of Adjusted EBITDA may not be comparable to similarly titled measures used by other companies.
The following table shows results by operating segment for the three months
ended
Three Months Ended March 31,
2023 2022 Variance
Metallurgical
Tons sold (in thousands) 2,155 1,543 612
Coal sales per ton sold $ 204.25 $ 255.52 $ (51.27)
Cash cost per ton sold $ 82.66 $ 88.04 $ 5.38
Cash margin per ton sold $ 121.59 $ 167.48 $ (45.89)
Adjusted EBITDA (in thousands) $ 263,057 $ 259,003 $ 4,054
Thermal
Tons sold (in thousands) 17,021 18,195 (1,174)
Coal sales per ton sold $ 18.49 $ 18.85 $ (0.36)
Cash cost per ton sold $ 15.79 $ 13.43 $ (2.36)
Cash margin per ton sold
This table reflects numbers reported under a basis that differs fromU.S. GAAP. See "Reconciliation of Non-GAAP measures" below for explanation and reconciliation of these amounts to the nearest GAAP measures. Other companies may calculate these per ton amounts differently, and our calculation may not be comparable to other similarly titled measures. Metallurgical - Adjusted EBITDA for the three months endedMarch 31, 2023 increased slightly from the three months endedMarch 31, 2022 due to increased tons sold and lower cash cost per ton sold, partially offset by decreased coal sales per tons sold. Tons sold increased and cash cost per ton sold decreased as each of our metallurgical mines increased production volume over the prior year period. Coal sales per ton sold declined from the historically high levels of the prior year period, but remain above long-term historical averages. As discussed previously in the "Overview," coking coal indices remain above long-term averages due to supply constraints and a longer term, global lack of investment in the industry. Cash cost per ton sold decreased versus the prior year period despite continued inflationary pressure on most goods and services, due to the increase in production volume and decreased taxes and royalties that are based on a percentage of coal sales per ton sold.
As expected, conditions and productivity at our Leer South longwall mine improved in the current quarter as we mined our third panel. Our move to the fourth panel, where we expect conditions similar to the third panel, occurred in
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April 2023 . We continue to expect the addition of this second longwall operation
to our Metallurgical Segment will significantly increase our future volumes and
strengthen our low average segment cost structure relative to our peers.
Our Metallurgical segment sold 2.1 million tons of coking coal and 0.1 million
tons of associated thermal coal in the three months ended March 31, 2023 ,
compared to 1.5 million tons of coking coal and 0.1 million tons of associated
thermal coal in the three months ended March 31, 2022 . Longwall operations
accounted for approximately 80% of our shipment volume in the three months ended
March 31, 2023 , compared to approximately 74% of our shipment volume in the
three months ended March 31, 2022 .
Thermal - Adjusted EBITDA for the three months ended March 31, 2023 decreased
versus the three months ended March 31, 2022 , due to decreased coal sales per
ton sold, decreased tons sold, and increased cash cost per ton sold. The decline
in coal sales per ton sold in the current year period is due to the roll off and
replacement of some high-priced domestic business was contracted for the prior
year period during the second half of 2021, which was a period of very strong
domestic thermal coal markets, and a decrease in the percentage of tons sold
from our higher priced West Elk operation. Tons sold decreased in the current
year period due to rail service constraints early in the quarter, and the
generally mild winter heating season and a related significant drop in natural
gas prices as the quarter progressed. Cash cost per ton sold increased due to
the decrease in tons sold, and general inflationary pressure on most goods
and
services.
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Reconciliation of Non-GAAP measures
Segment coal sales per ton sold
Non-GAAP Segment coal sales per ton sold is calculated as segment coal sales
revenues divided by segment tons sold. Segment coal sales revenues are adjusted
for transportation costs, and may be adjusted for other items that, due to
generally accepted accounting principles, are classified in "other income" on
the Income Statements, but relate to price protection on the sale of coal.
Segment coal sales per ton sold is not a measure of financial performance in
accordance with generally accepted accounting principles. We believe segment
coal sales per ton sold provides useful information to investors as it better
reflects our revenue for the quality of coal sold and our operating results by
including all income from coal sales. The adjustments made to arrive at these
measures are significant in understanding and assessing our financial condition.
Therefore, segment coal sales revenues should not be considered in isolation,
nor as an alternative to coal sales revenues under generally accepted accounting
principles.
Idle andThree Months Ended March 31, 2023 Metallurgical Thermal Other Consolidated (In thousands) GAAP Revenues in the Consolidated Income Statements$ 536,172 $ 333,759 $ -$ 869,931 Less: Adjustments to reconcile to Non-GAAP Segment coal sales revenue Coal risk management derivative settlements classified in "other income" - (2,668) - (2,668) Transportation costs 96,054 21,721 - 117,775 Non-GAAP Segment coal sales revenues$ 440,118 $ 314,706 $ -$ 754,824 Tons sold 2,155 17,021 Coal sales per ton sold$ 204.25 $ 18.49 Idle and
Three Months Ended March 31, 2022 Metallurgical Thermal Other Consolidated (In thousands) GAAP Revenues in the Consolidated Income Statements$ 472,171 $ 395,765 $ -$ 867,936 Less: Adjustments to reconcile to Non-GAAP Segment coal sales revenue Coal risk management derivative settlements classified in "other income" - 9,074 - 9,074 Coal sales revenues from idled or otherwise disposed operations not included in segments - - (1) (1) Transportation costs 77,863 43,744 1 121,608 Non-GAAP Segment coal sales revenues$ 394,308 $ 342,947 $ -$ 737,255 Tons sold 1,543 18,195 Coal sales per ton sold$ 255.52 $ 18.85 32 Table of Contents
Segment cash cost per ton sold
Non-GAAP Segment cash cost per ton sold is calculated as segment cash cost of
coal sales divided by segment tons sold. Segment cash cost of coal sales is
adjusted for transportation costs, and may be adjusted for other items that, due
to generally accepted accounting principles, are classified in "other income" on
the statements of operations, but relate directly to the costs incurred to
produce coal. Segment cash cost per ton sold is not a measure of financial
performance in accordance with generally accepted accounting principles. We
believe segment cash cost per ton sold better reflects our controllable costs
and our operating results by including all costs incurred to produce coal. The
adjustments made to arrive at these measures are significant in understanding
and assessing our financial condition. Therefore, segment cash cost of coal
sales should not be considered in isolation, nor as an alternative to cost of
sales under generally accepted accounting principles.
Idle and
Three Months Ended March 31, 2023 Metallurgical Thermal Other Consolidated
(In thousands)
GAAP Cost of sales in the Consolidated
Income Statements $ 274,171 $ 289,506 $ 8,060 $ 571,737
Less: Adjustments to reconcile to
Non-GAAP Segment cash cost of coal
sales
Diesel fuel risk management derivative
settlements classified in "other
income" - (1,008) - (1,008)
Transportation costs 96,054 21,721 - 117,775
Cost of coal sales from idled or
otherwise disposed operations not
included in segments - - 5,178 5,178
Other (operating overhead, certain
actuarial, etc.) - - 2,882 2,882
Non-GAAP Segment cash cost of coal
sales $ 178,117 $ 268,793 $ - $ 446,910
Tons sold 2,155 17,021
Cash Cost Per Ton Sold $ 82.66 $ 15.79
Idle andThree Months Ended March 31, 2022 Metallurgical Thermal Other Consolidated (In thousands) GAAP Cost of sales in the Consolidated Income Statements$ 213,728 $ 288,084 $ 6,413 $ 508,225 Less: Adjustments to reconcile to Non-GAAP Segment cash cost of coal sales Diesel fuel risk management derivative settlements classified in "other income" - 27 - 27 Transportation costs 77,863 43,744 1 121,608 Cost of coal sales from idled or otherwise disposed operations not included in segments - - 3,704 3,704 Other (operating overhead, certain actuarial, etc.) - - 2,708 2,708 Non-GAAP Segment cash cost of coal sales$ 135,865 $ 244,313 $ -$ 380,178 Tons sold 1,543 18,195 Cash Cost Per Ton Sold $ 88.04$ 13.43 33 Table of Contents
Reconciliation of Net Income to Segment Adjusted EBITDA
The discussion in "Results of Operations" above includes references to our
Adjusted EBITDA for each of our reportable segments. Adjusted EBITDA is defined
as net income attributable to us before the effect of net interest expense,
income taxes, depreciation, depletion and amortization, the accretion on asset
retirement obligations and nonoperating expenses. Adjusted EBITDA may also be
adjusted for items that may not reflect the trend of future results by excluding
transactions that are not indicative of our core operating performance. We use
Adjusted EBITDA to measure the operating performance of our segments and
allocate resources to our segments. Adjusted EBITDA is not a measure of
financial performance in accordance with generally accepted accounting
principles, and items excluded from Adjusted EBITDA are significant in
understanding and assessing our financial condition. Therefore, Adjusted EBITDA
should not be considered in isolation, nor as an alternative to net income,
income from operations, cash flows from operations or as a measure of our
profitability, liquidity or performance under generally accepted accounting
principles. Investors should be aware that our presentation of Adjusted EBITDA
may not be comparable to similarly titled measures used by other companies. The
table below shows how we calculate Adjusted EBITDA.
Three Months Ended March 31,
2023 2022
Net income $ 198,108 $ 271,872
Provision for income taxes 37,138 455
Interest expense, net 790 7,023Depreciation, depletion and amortization 35,479
32,210
Accretion on asset retirement obligations 5,292
4,430
Non-service related pension and postretirement benefit (credits) costs (592) 873 Net loss resulting from early retirement of debt 1,126
4,120
Adjusted EBITDA 277,341
320,983
EBITDA from idled or otherwise disposed operations 4,032
2,390
Selling, general and administrative expenses 26,022
26,648
Other 1,917
9,482
Segment Adjusted EBITDA from coal operations
Other includes primarily income or loss from our equity investment, changes in
fair value of derivatives we use to manage our exposure to diesel fuel pricing,
changes in the fair value of coal derivatives, EBITDA provided by our land
company, and certain miscellaneous revenue.
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Liquidity and Capital Resources
Our primary sources of liquidity are proceeds from coal sales to customers and certain financing arrangements. Excluding significant investing activity, we intend to satisfy our working capital requirements and fund capital expenditures and debt-service obligations with cash generated from operations and cash on hand. We remain focused on prudently managing costs, including capital expenditures, maintaining a strong balance sheet, and ensuring adequate liquidity. Given the volatile nature of coal markets, we believe it remains important to take a prudent approach to managing our balance sheet and liquidity. Additionally, banks and other lenders have become increasingly unwilling to provide financing to coal producers, especially those with significant thermal coal exposure. Due to the nature of our business, we may be limited in accessing debt capital markets or obtaining additional bank financing, or the cost of accessing this financing could become more expensive. Our priority is to improve our financial position through enhancing liquidity and reducing our debt and other liabilities, while returning significant value to our stockholders. During the first three months of 2023, capital expenditures were approximately$30.5 million , and we expect our capital spending to remain at maintenance levels for the foreseeable future. During the first three months of 2023, we repurchased$13.2 million in principal amount of our Convertible Notes with consideration of$58.4 and received approximately$43.7 million for warrants that were exercised. During the first quarter of 2023, working capital had an outflow of approximately$169.6 million ; primarily in receivables, inventories, and accounts payable. With the initial target of the fund for asset retirement obligations met in 2022, we contributed$1.1 million , representing interest earned, for the first three months of 2023 bringing the total to$137.1 million . We ended the first quarter of 2023 with cash, cash equivalents and short-term investments of$221.9 million and total liquidity of$347.6 million . We believe our current liquidity level is sufficient to fund our business and meet both our short-term (the next twelve months) and reasonably foreseeable long-term requirements and obligations including our recently enacted variable rate dividend policy. We expect to maintain minimum liquidity levels of approximately$250 million to$300 million , with a substantial portion of that held in cash. In addition, we expect to hold additional cash at the end of each quarter in an amount that represents a substantial portion of the following quarter's dividend payment. We believe we have significantly increased our future cash-generating capabilities, and as a result, in the second quarter of 2022, we launched a comprehensive capital return program that returns 50% of the prior quarter discretionary cash flow to stockholders via a variable rate cash dividend and reserves the remaining 50% for potential share buybacks, special dividends, the repurchase of potentially dilutive securities, and capital preservation. For the three months endedMarch 31, 2023 , we paid approximately$66.9 million to our stockholders in the form of dividends, and spent approximately$20.8 million to repurchase our common stock. Any future dividends and all of these potential uses of capital are subject to board approval and declaration. OnJanuary 18, 2023 , theOffice of Workers' Compensation Programs ("OWCP") proposed revisions to regulations under the Black Lung Benefits Act (BLBA) governing authorization of self-insurers. The revisions seek to codify the practice of basing a self-insured operator's security requirement on an actuarial assessment of its total present and future black lung liability. A material change to the regulations is the requirements that all self-insured operators must post security equal to 120% of their projected black lung liabilities. The proposed regulations were posted to theFederal Register onJanuary 19, 2023 with written comments to be accepted within 60 days of this date. Subsequently, the comment period was extended an additional 30 days. The revisions proposed by the OWCP were a material deviation from their bulletin issued inDecember 2020 that would have required the majority of coal operators to post security equal to 70% of their projected black lung liabilities, which, at the time, equated to the Company posting additional collateral of$71.1 million . If the above regulation is codified into law, the Company will be required to post additional collateral to maintain its self-insured status. The Company is evaluating alternatives to self-insurance, including the purchase of commercial insurance to cover these claims. Additionally, the Company is assessing the availability of surety bond capacity within the markets, additional sources of liquidity, and other items to satisfy the proposed regulations. Any of these outcomes will require additional collateral and would reduce our available liquidity.
Based on the first quarter discretionary cash flow, a combined fixed and
variable dividend payment of
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The table below summarizes our first quarter discretionary cash flow and total dividend payout:
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