Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
In addition to the risks inherent in operations, we are exposed to financial, market, political and economic risks. The following discussion provides additional detail regarding our exposure to the risks related to changes in commodity prices, interest rates and foreign exchange rates.
Commodity Price Risk. Our primary product is metallurgical coal, which is in itself a commodity. Sales commitments in the metallurgical coal market are typically not long-term in nature. The Company’s domestic sales contracts have terms of about one year and the pricing is typically fixed. Export sales have spot or term contracts, and pricing is often derived from an index. As such, we are exposed to changes in the international price of metallurgical coal.
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Our sales commitments as of February 29, 2024 are as follows:
2024
Volume
Average Price
North America, fixed priced
1.5
$
167
Seaborne, fixed priced
0.2
$
159
Total, fixed priced
1.7
$
166
Index priced
2.2
Total committed tons
3.9
Sales commitments of 0.4 million tons were obtained subsequent to December 31, 2023, which are included in the table above.
Sales commitments in the metallurgical coal market are typically not long-term in nature and, therefore, we are subject to fluctuations in market pricing. We expect the shift to more export sales in the Company’s mix of revenue that occurred in 2023 to continue during 2024, which may lead to volatility in revenues due to index-based pricing. The Company does not currently manage this risk through the use of derivative instruments. We also have exposure to price risk for supplies that are used directly or indirectly in the normal course of production such as diesel fuel, explosives, and other items. The Company manages its risk for these items through strategic sourcing contracts in normal quantities with our suppliers.
Interest Rate Risk. We are exposed to risk from changes in interest rates; however, based on the current levels of debt and leases, the Company does not attempt to manage our exposure to interest rate fluctuations. we are not overly exposed to interest rate risk. The Company has senior unsecured notes with a face value of $34.5 million that mature on July 30, 2026, unless redeemed prior to maturity, bearing interest at a fixed rate of 9% per annum and paid quarterly.
Some of the Company’s debts may be affected by changes in benchmark interest rates, such as the Secured Overnight Financing Rate (“SOFR”). Borrowings under the Company’s Revolving Credit Facility, which has a maturity date of February 15, 2026, bear interest at either a base rate plus 1.5% or the applicable SOFR plus 2%. The base rate equals the highest of the administrative agent’s prime rate, the Federal Funds Effective Rate plus 0.5%, or 3%. The Company’s outstanding financing related to the Maben coal acquisition, which had a balance of $11.4 million at December 31, 2023 and is due in full in 2024, bears interest at the applicable SOFR plus 3% compounded monthly.
Foreign Exchange Rate Risk. International sales of coal are typically denominated in U.S. dollars. As a result, we do not have direct exposure to currency valuation exchange rate fluctuations. However, because our coal is sold internationally, to the extent that the U.S. dollar strengthens against the foreign currency of a customer or potential customer, we may find our coal at a price disadvantage as compared with other non-U.S. suppliers. This could lead to our receiving lower prices or being unable to compete for that specific customer’s business. Consequently, currency fluctuations could adversely affect the competitiveness of our coal in international markets.
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