CNR - NYSE

Good morning, ladies and gentlemen. Welcome to the Core Natural Resources, Inc. Second Quarter Earnings Call. [Operator Instructions] This call is being recorded on Tuesday, August 5, 2025. I would now like to turn the conference over to Deck Slone, Senior Vice President, Strategy. Please go ahead.

Good morning from Canonsburg, Pennsylvania, everyone, and thanks for joining us today. Before we begin, let me remind you that certain statements made during this call, including statements relating to our expected future business and financial performance may be considered forward-looking statements according to the Private Securities Litigation Reform Act. Forward-looking statements, by their nature, address matters that are to different degrees, uncertain. These uncertainties, which are described in more detail in the annual and quarterly reports that we file with the SEC, may cause our actual future results to be materially different than those expressed in our forward-looking statements. 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 law. I'd also like to remind you that you can find a reconciliation of the non-GAAP financial measures that we plan to discuss this morning at the end of our press release, a copy of which we have posted in the Investors section of our website at corenaturalresources.com. Also participating on this morning's call will be Paul Lang, our CEO; Mitesh Thakkar, our President and CFO; and Bob Braithwaite, our Senior Vice President of Marketing and Sales. After some formal remarks from Paul and Mitesh, we will be happy to take questions. With that, I'll now turn the call over to Paul. Paul?

Thanks, Deck, and good morning, everyone. We're glad you could join us on the call today. I'm pleased to report that in the quarter just ended, Core again demonstrated its significant cash-generating capabilities even while navigating a softer market environment as well as with the current outage in our Leer South mine. During Q2, the team generated adjusted EBITDA of $144 million and free cash flow of $131 million, increased our merger-related annual synergy target to a range of $150 million to $170 million, which is roughly 30% higher at the midpoint than the original guidance. Returned $87 million to investors through share buybacks and a quarterly dividend, increased cash and cash equivalents by $25 million and overall liquidity by $90 million. And finally, advanced our plan for resuming longwall production at Leer South during Q4. On the operations front, the high CV thermal segment again set the pace achieving a significant step-up in sales volumes while lowering unit costs markedly. Exclusive of the outage at Leer South, the metallurgical platform also executed well, led by the segment's flagship Leer mine which achieved a second straight quarterly production record. Finally, the Powder River Basin segment delivered another strong performance as power generators sought to accelerate shipments in advance of the summer season. We remain focused on pursuing operational excellence across the entire operating portfolio and expect ongoing synergy capture to lift our performance further as the year progresses. Now let's shift our attention to the capital return program. As you will recall, we announced a new capital return framework in February, shortly after the merger's completion, which was designed to reward shareholders for their ongoing support and which we consider a central tenet of Core's long-term value proposition. The centerpiece of this framework is the targeted return to shareholders of around 75% of free cash flow through share repurchases and a sustaining quarterly dividend of $0.10 per share. We kicked off that program in a strong fashion in Q1 with a return to shareholders of $107 million and maintained our momentum in Q2 with a return of an additional $87 million. In total, we've now returned $194 million to shareholders in just the first 2 quarters of the combined company despite generally weak market conditions during that period. As a central component of this effort, we've repurchased 2.6 million shares or 5% of the total shares outstanding as of the program's launch. Supplementing that buyback effort, we've now returned approximately $11 million to stockholders via small sustaining quarterly dividend. In short, we're putting our excess cash to work opportunistically in today's depressed equity market environment. And let me stress, we expect the share repurchases to be highly value creating at current valuations. Indeed, that is another key strength of the combined platform, our ability to generate cash across a wide range of market cycles, given our diversified portfolio and strong mix of contract and market exposed volumes. As previously indicated, the Board has authorized a total of $1 billion in share repurchases in support of the capital return framework. And as of the end of Q2, we have roughly $817 million remaining on that authorization. That authorization level, quite obviously, underscores the Board's confidence in our near, mid- and long-term outlook. Turning now to the status of Leer South. As you know, in mid-January, the operations team sealed the active longwall panel at that operation to establish an isolated combustion event occurring in the mined-out area behind the longwall. On June 10, Core personnel and regulatory officials reentered the sealed area of the mine and conducted an evaluation of the equipment and infrastructure. As expected, the major components and systems appeared in good condition from our visual inspection, and we were able to repressurize the longwall shields. Then on June 26, more than 2 weeks after reentering the impacted zone, the team found it necessary to seal a smaller affected area due to an increase in carbon monoxide levels. Since that time, we've been collaborating with federal and state officials to develop a plan to recover the longwall equipment and move it to a new area in the same panel that was unaffected by the incident. Given that the area where the fire was located is small and will be relatively easy to keep isolated, we remain confident in Leer South's ability to deliver on its strong potential over the long term. Now I'd like to spend a few minutes on the global market dynamics, which continue to be highly variable. First, domestic thermal markets appear to be strengthening in the face of rising demand outlook and the advent of summer temperatures. Second, seaborne thermal demand has shown signs of recovery, particularly in Asia, where coal-fired power remains a critical part of the energy mix. Conversely, global coking coal markets remained soft, pressured by sluggish steel production in key regions such as Europe and China and ongoing destocking by mills. Despite these headwinds, we believe we are well positioned to navigate market troughs. Our low-cost, high-quality operations, flexible logistics enable us to shift between domestic and export markets as conditions evolve preserving margin. Mitesh will discuss how we're seeking to optimize value and build our contract book in this market environment. But let me spend a few minutes on the broader market dynamics as well as on the corrective forces we believe are already at work on several fronts. Starting with the metallurgical markets. Tariff-related uncertainties continue to weigh on market demand. However, several recent developments including the recent trade agreements with Japan and the EU as well as ongoing discussions with other major trading partners suggest that such uncertainties could begin to abate in the not-too-distant future, even as potential secondary tariffs remain at risk. In addition, we believe that major coking coal indices are at levels well below the marginal cost of production. Moreover, we continue to see signs at these pricing levels are beginning to take a toll on supply as high cost production has started to exit the market. As evidence of that fact, coking coal exports from the three primary high-quality supply regions, Australia, the United States and Canada are down 7% in aggregate through May with more cuts likely. In addition, we expect demand for metallurgical coal to continue at steady upward climb over time as the young economies in Southeast Asia, particularly India, continue to add new blast furnace capacity in support of their ongoing infrastructure build-out. In the thermal arena, domestic power markets are experiencing a second straight year of demand growth after several decades of sideways movement. Underscoring this tightness, the PJM PAMC market auction conducted just 2 weeks ago, cleared at a record price for the second straight year. We expect this power demand growth to continue in the quarters ahead, buoyed by increasing energy requirements of AI and data centers. As for the high CV seaborne thermal markets, both API2 and Newcastle prices have rebounded from their lows and we continue to believe that certain strategic elements of that market, such as the Indian cement demand are poised for further recovery, particularly in the post monsoon season. Specifically, we expect cement demand in India to continue to grow at robust rates throughout the balance of the decade and beyond and believe Core with our energy dense high CV thermal product site should be a prime beneficiary. Let me take a moment to express our appreciation to the President and the U.S. Congress for the steps they've taken in recent months to protect and support the U.S. coal industry. In April, the President issued a series of executive orders aimed at reducing the regulatory burden on America's coal-fired power plants and preserving the U.S. coal generating fleet. During the White House ceremony, the President's recognition and inclusion of many of our hourly employees was a poignant example of the past and future contribution of coal miners in meeting the country's energy and industrial needs, a recognition that's been ignored in recent years. In addition to the executive orders on July 4, the President signed into law the One Big Beautiful Bill, which included several provisions designed to strengthen the U.S. coal industry and enhance the competitiveness of our products overseas. Of note, the new legislation designates U.S.-produced metallurgical coal as a critical material under Section 45X through which the company will be eligible for a 2.5% monetizable tax credit on production-related costs over the next 4 years. Significantly, the new legislation also lowers the royalty rate on tons produced on federal lands, which in turn will reduce the cash cost and enhance the competitiveness of our Powder River Basin and West Elk operations in future periods. Again, we applaud the President and Congress for their leadership and foresight in taking these historic steps. Steps that will help ensure that U.S. coal remains a key element of America's future energy supply as well as a stabilizing force in both domestic and global energy markets. Let me close by again recognizing the Core team for tremendous progress it has made in integrating the combined operating, marketing and logistics portfolio into a cohesive, high-performing unit while at the same time, unlocking the synergistic value created by the merger. With our world-class mines, logistical network, strong balance sheet, significant cash-generating capabilities and talented workforce, we believe we're equipped to create shareholder value in a wide range of market environments. With that, I'll now turn the call over to Mitesh for greater detail on our Q2 financial results as well as our outlook for the balance of the year. Mitesh?

Thank you, Paul, and good morning, everyone. First, let me review our second quarter financial results and then provide an update on the outlook and synergy fronts. This morning, we reported a net loss of $37 million or $0.70 per diluted share and adjusted EBITDA of $144 million for 2Q '25. We spent $89 million on capital expenditures and generated $131 million of free cash flow. Additionally, during 2Q '25, we spent $21 million related to Leer South combustion event and idling costs, which is included in our reported adjusted EBITDA. As Paul indicated, during the quarter, we repurchased 1.2 million shares for approximately $82 million at a weighted average price of $69.64 and paid dividends totaling approximately $5 million. In addition, we announced this morning that the Board of Directors has declared $0.10 per share dividend payable on September 15 to stockholders of record on August 29. We have now repurchased 2.6 million shares or 5% of our total shares outstanding since the launch of our capital return program in February. When coupled with dividends, we have returned $194 million to shareholders in aggregate during the first half of 2025. Year-to-date, we have returned over 100% of free cash flow to shareholders through our share buybacks and dividends demonstrating our ability and willingness to return capital and repurchase shares in a countercyclical manner while maintaining strong liquidity and a leverage neutral balance sheet. At the end of the second quarter, we had total liquidity of $948 million, an increase of $90 million compared to the end of the first quarter, driven by an increase in our cash balance and higher availability on our revolver and securitization facilities. In July, we combined two legacy A/R securitization facilities further firming up our liquidity position. The combined facility has a borrowing base of up to $250 million and an extended maturity to 2028. Consolidating these facilities marks the final step for us in constructing the desired post-merger capital structure, which also includes an upsized revolving credit facility of $600 million and multistate tax-exempt bond financings totaling $307 million. In aggregate, we have now completed approximately $1.2 billion in advantageous financing transactions in a depressed commodity environment and an uncertain macroeconomic backdrop. Let me now provide a quick update on the marketing progress we made during the second quarter and outline how we are positioning the business for future success. The second quarter presented a mixed market environment. Export markets, particularly in the metallurgical segment remained challenged due to ongoing headwinds affecting global trade. These pressures continue to weigh on customer demand and contributed to a subdued spot and term export market. In contrast, domestic market conditions continue to strengthen with a notable increase in utility-driven demand and customers seeking thermal coal in both spot and term contracts. In response, we capitalized on the domestic strength during the quarter, and increased our 2025 contracted positions for high CV thermal coal to 30 million tons, coking coal to 7.5 million tons and PRB coal to 47.8 million tons. This places us near fully contracted for the remainder of 2025. Furthermore, we have continued to build momentum into 2026 by layering in additional committed tonnage for the high CV thermal and PRB segments. Encouragingly, in the thermal coal space, we are starting to see term business conclude above the current published markets, reflecting rising power generation demand and significant contango in natural gas markets. We now have approximately 13 million tons in the high CV thermal segment and 33 million tons in the PRB segment committed in 2026. Now let me provide a quick update on our outlook for 2025. On the metallurgical front, we are maintaining sales volume guidance and slightly increasing our cash cost guidance due to the delayed restart of the longwall at Leer South and reduced production at the Itmann mine. At Itmann, we issued a WARN notice in June and are now planning to operate only one section. While this was a difficult decision, we found it necessary to reduce ongoing cash loss while protecting the long-term economic potential of the operation. We continue to evaluate all operations on an ongoing basis guided by market dynamics. This market-driven approach will also inform our strategy as we participate in the domestic metallurgical RFP cycle. We remain prepared to further reduce production where the market does not support value-accretive outcomes. As in the past, our guidance for coking coal sales will continue to be driven by our operational capabilities and constantly evolving market realities. For the high CV thermal segment, we are lowering our projected pricing range on committed tons by $1 to a range of $60 to $62 per ton. This adjustment is primarily the result of contracting the previously uncommitted volumes at current spot prices, partially offset by higher power prices. We are maintaining our guidance for both sales volume and cash costs in this segment. For the PRB segment, we are increasing our sales volume guidance to a range of 45 million to 48 million tons and our committed and price position has increased by approximately 6 million tons to 47.8 million tons at a realized coal revenue of approximately $14.40 per ton. We are also lowering our cash cost guidance by approximately $1 a ton to $12.75 to $13.25. These updates reflect the impact of legislation that Paul discussed in his prepared remarks and an improved sales volume outlook benefiting the fixed cost per ton produced. Let me now provide our thoughts on the current market landscape. In the high CV thermal segment, macro uncertainties continue to weigh on the export market, while we have seen an increase in base demand in the domestic power generation markets. As noted earlier, on July 22, the PJM capacity auction concluded with capacity prices increasing to $329 per megawatt day for the 2026, 2027 delivery period. A second straight record high. This compares to last year's auction, bringing prices of $270 per megawatt day. This, along with the support from the Trump administration represents an incentive for power plant operators to invest in existing generation. As we have discussed in the past, capacity utilization for the U.S. coal fleet was approximately 43% in 2024. Historically, the U.S. coal fleet ran at capacity factors as high as around 70%, which provides a lot of room for coal demand growth domestically. PJM recently acknowledged that in 2026, the data center boom will drive power demand to all-time highs. It also indicated that summer peak power consumption may climb by 70 gigawatts over the next 15 years or 30% higher than the all-time high, reached in 2006. This will [indiscernible] margins. We believe some portion of this playing out in several RTOs, which highlights the need to keep existing coal plants running. For the PRB segment, the [indiscernible] continue to drive and enhance outlook. There are multiple examples of utilities revising their IRPs as they extend the operational life of existing units to meet capacity needs. Tight capacity conditions in MISO and SPP are likely to support increased demand for PRB coal in 2026 and 2027 as well. Let me now provide an update on the progress we have made on the synergy front. As a reminder, at the merger announcement, we guided to an average annual run rate of $110 million to $140 million of synergies 18 months following close. Then during our 1Q '25 earnings call, we updated the range to $125 million to $150 million. We are pleased to report that we are again increasing our projected annualized synergies range to approximately $150 million to $170 million. The key drivers of this increase are the additional benefits we identified in the areas of admin costs, purchasing and best practices sharing. Admin costs such as lower insurance premiums and benefits costs are now well delineated and account for the majority of the increase. Best practice sharing and head count optimization are expected to make up the difference. While depressed export metallurgical and thermal prices have reduced the value of the expected uplift from the thermal byproduct planning, we still expect to achieve our overall marketing synergy targets by finding offsets. Furthermore, when the market recovers, the value of the uplift will drive the blending synergy higher. In closing, we continue to demonstrate the strategic benefits of the merger as we identify additional synergies while navigating a mixed coal market and dynamic macro landscape. While our results have improved quarter-over-quarter, we believe they do not fully reflect the long-term potential of this company. As commodity prices begin to more accurately reflect global cost structures, particularly on the metallurgical side and certain broader macroeconomic uncertainties begin to dissipate, we expect the Core platform to deliver the full earnings power of our assets and the value of the captured synergies and to fully reflect the efforts of our miners and corporate employees. The post-merger integration has progressed exceptionally well in a very short period of time, and I'm very grateful for our team members' dedication and hard work throughout the year. With that, I'll hand the call back to the operator who will provide further instructions and begin the Q&A session.

[Operator Instructions] With that, our first question comes from the line of Chris LaFemina with Jefferies.

So just quickly on the buyback. I mean you generated good cash flow in the quarter, but the buyback on total capital return was below the 75% target. And I was wondering, in light of the fact that your share price have been weak and there's pretty good outlook for most of your segments. I would think that now would be a very good time to accelerate the buyback. I'm just wondering why it wasn't an impressive scale to buy back, I'm just wondering why it wasn't even bigger in light of where your share price is and how good the outlook is?

Chris, this is Mitesh here, and thank you for that question. I think generally, our guidance on the buybacks have been that we'll return approximately 75% of our free cash flow back to the shareholders. I think if you look at first half of the year, we have done just over 100% of shareholder returns. So I would say we have been a little bit more aggressive than what we have guided to. Having said that, I think we continue to monitor the markets and everything around it with all the uncertainties on the macro side. We generate free cash flow from our business, and we'll continue to deploy cash. I think to the extent we have cash flow generation coming in from our operating segments, which we do and working capital improvements that a big portion of that is going back to shareholder returns. So I would say every quarter is going to be different. Some quarters are going to be higher than what we generate in terms of free cash flow, some might be lower. But I think that's how I would think about it from a -- as a guidance perspective in the coming quarters.

Okay. That's fair. And secondly, on the $100 million insurance recovery you're expecting to get for Leer South. How should we think about that in the context of the capital returns?

Yes. Like I said, similar to working capital, I think those funds are available for all corporate purposes. Right now, we see that the biggest value for our shareholders and the stock and our view of the value of the stock hasn't changed. So from that perspective, I think you should consider that as part of our capital return program as well.

And your next question comes from the line of Nick Giles with B. Riley Securities.

Congrats on a strong quarter here. First, I wanted to ask about your overall level of confidence at Leer South and ultimately returning to normalized levels of production. Should we think about that return as occurring over a number of months? Or maybe said differently, could we see Leer South run below normalized levels until market fundamentals improve?

Nick, this is Paul. Look, I think first and foremost, I think the mine overall is not at risk, and I have a real high confidence in the ability to get back up and running. I think what we were able to do in June, even though we got pushed out, we saw that -- we got our eyes on the longwall. We were actually able to repressurize the seal. So while there's some minor damage, as you would expect, the longwall is in good shape. So with the plan we have before, which is to go back in here when reading is stabilized and try and recover the longwall equipment sometime in early fall. I feel pretty good that so long as the atmosphere cooperates, we'll be able to do it. The plan then will be to move the longwall equipment to the new phase, which is about 500 feet from the existing phase and seal the area behind us. My expectation is that while we'll have to do some repairs on the longwall, I'm not expecting anything major, and this could, in fact, just look like a very extended longwall move of a couple of weeks. So at this point in time, I'm still fairly confident about the ability to get up and running relatively quick, particularly heading to Q1.

And Nick, this is Bob. To answer your question from a marketing standpoint. I mean, we do see opportunities even today, most of them being in the Pacific market. But again, with our cost structure, it certainly allows us to participate. So as soon as we get that longwall back up and running, we'll have opportunities to put that coal into those markets.

Bob, I appreciate that. And maybe just as a follow-up. I mean, I believe we are coming up on domestic contracting season on the met side. So wondering if you had any early indication of how pricing could move beyond year. I mean what's your general appetite to participate in that market this year?

So as you mentioned, there are several that are out today. We think there's a couple more forthcoming. But for those that we participated in thus far, we are having constructive negotiations. It's about all I can say. I do think that based on where cost structures are I think it's going to be hard to see a significant decrease, especially on the low vol side year-on-year. But again, we are in those negotiations today. And I think you'll see us participate more in the domestic market on a go-forward basis.

Maybe one last one, if I could. I mean, PRB margins appear very solid. You've now raised your full year guide and with lower costs. So -- just was wondering if you could provide some additional color on how contracting is looking specifically in the outer years?

Yes, I think, certainly, demand is up. We raised our guidance midpoint 6 million tons this year. And then as Mitesh mentioned, we have 33 million tons contracted for next year. I can tell you the average price of those tons are in the mid-14s today, and we're certainly seeing some appetite of prices even higher than that. So we are seeing a lot of appetite for future contracting, not only in the PRB, but also in the high CV segment as well. So again, all good news there on the thermal side.

And your next question comes from the line of George Eadie with UBS.

Nice update here. Can I start by asking, have you run any studies on rare earth potential at any of your mines like some peers in the sector?

Yes. We have -- we've talked a few times in the past drilling and continue to look at the various potential. As you know, the Powder River Basin geology is fairly same mine to mine to mine. And so like many of the peers of the basin, we're all looking at the same thing. And look, I think it's worth pursuing the analysis where it will lead, I'm not sure, but look, it's time to continue to look at it. And obviously, others have had good success with it. So we're interested, like everybody else.

Okay. And maybe switching tunes a bit. But on the insurance claims, can I just get a little bit more color here. You called out in the release, $100 million for Leer South, but there's also the Baltimore bridge one too. So if I think about them combined, let's say, $100 million to $150 million, is that about right? And in terms of timing, is it some in Q4 this year may be the bridge and then say, 2/3 or the majority falls in early 2026?

Yes. So I think, George, I think generally speaking, as we have guided before, I think you're in the ballpark in terms of the cadence. I think, we have submitted an initial claim on some of the expenses that we have incurred with respect to firefighting and idling costs to the insurance adjusters for Leer South claim. So I think we are hopeful that we'll get some of that in the remainder of the year. Similarly, on the Baltimore claim, I think the claim has already been submitted. And we are going through the adjustment process. We are hopeful both of those two get resolved here towards the end of this year. On the Leer South claim, just to clarify the expenses reimbursement claim is a smaller one. I think the business interruption claim would be a bigger one that we haven't submitted yet. As we get our estimates and everything in [ row ] I think there's going to be a claim submitted for business interruption side as well. So when you put the business interruption and the expenses side, that's the 100-plus number that we are talking about, and that's going to be more of a 2026 recovery.

Yes. Okay. And then just one more for you. Working capital, like it was a pretty big outflow in Q1, nearly half of that unwound this quarter. How should we think about working capital in the second half? Is that potentially say, $50 million more unwind? I know it's early, you're not going to know timing, but a bit more to come potentially there?

Yes, George. So we are expecting some more working capital here, but just recognize that the vast majority of that has been reversed in Q2 with respect to the receivables. I think in Q3 and Q4, I think there's some work being done on inventory reduction. We have said earlier that, we have some metallurgical coal inventory due to strong performance at some of our mines that is going to flow through as well. So I think there is some reversal coming. It's not going to be of the same magnitude as you saw in Q2.

Yes. Okay. No, that's great. And then just one more for you Mitesh. If I look at the corporate, other and eliminations line in revenue it jumped $10 million quarter-on-quarter. Can you maybe help me understand what's happening there, the net loss for this segment is up quite a bit all things considered Q-on-Q?

For corporate, other and eliminations, is that what you're referring to?

Yes.

Yes. So what is going through corporate, others and eliminations, some of the spending that we have with respect to items such as gain on sale of assets, litigation, corporate loss accrual. We have some fire cleanup costs also going through it. So those are the kind of things that's flowing through. I think over time, you will see that stabilize a little bit. Does that answer your question?

Yes. No, that's handy. I can follow up, just to clarify a few things there.

And your next question comes from the line of Nathan Martin with The Benchmark Company.

Maybe just to start, Bob, you just mentioned that the 2026 PRB tons priced, I think, in the mid-$14 range. Any thoughts on the pricing for the 13 million tons or so of the high CV thermal coal you guys have for '26?

Yes. So the 13 million, Nick, is broken down really 6.5 domestic, 6.5 export and about 4 million is linked to different API2, call it, 2.5 fixed on the export side, balance obviously to be domestic. I will tell you, we're using a $110 API2 price and we're looking at low 60s.

Okay. Perfect, Bob. That's helpful. And maybe looking at the met segment, $21 million of Leer South idling cost this quarter, calling out another, I think it's $20 million to $30 million for the fourth -- for the third quarter. Obviously, those expenses don't run through the met segment cost per ton line item, but I'm just hoping to get some thoughts on how you see that trending as we enter the second half. It looks like based on your updated full year guidance, met segment cost per ton is going to need to increase to an average of over $96 a ton, which is higher than it was in the second quarter. So just any way you can walk us through kind of the drivers of the forecasted increase, especially if you still foresee a lower cost of Leer South mine coming back online, hopefully, in the fourth quarter?

I think -- this is Mitesh here. I think in Q3 and Q4, I think the cost is going to be a little bit elevated because we are going to have some CM mining costs. If you recall, we explained this on the last call, that -- when the CMs are mining at Leer South, you have a little bit of an elevated cost structure. What ended up in Q2 is in the month of June when we pull the CMs out. And when we pull the CMs out as we reached the seals, for the rest of that month, I think all that cost moved down to idle costs instead of the per-ton costs. So I think it's at a different location that cost was incurred, but it's at a different location because there were no tons being produced. I think as we go to Q3 and Q4, that cost is elevated because of the CM tons will have production associated with it, which will impact the per tons. But longer term, I think once CM is up and running, we do expect our costs to drift down to that low 90s level.

Okay. Mitesh, I appreciate that. Maybe one for Paul. Can we get your thoughts on the recently announced Union Pacific and Norfolk Southern merger. Core is still a customer of both rails. So I was just curious to hear, how you think a potential combination could impact your business?

I mean it's an interesting question. I think we're all a little surprised by the potential merger. While we obviously have some concerns, I get the desire for both railroads to want to create a more efficient and cost-effective platform. If you stand back and think about it, some of the positives for us could be our ability to blend some of our western coal with PAMC. It would also probably give us better access to our East Coast terminals for our western coal. Think about it, we could load larger vessels and have less sailing time to Europe than we do out of the Gulf of America, and transit time should be a little bit better with fewer handoffs. Having said all that though, I think what we're going to want to understand as a shipper on both of these railroads is -- first and foremost is that they're going to drive a great deal of savings out of this and that we're assuming some of this is going to come back to us as a shipper. And secondly, we're going to have some protections on that, the service levels stays high. I mean the bottom line is we are critically dependent on rail service and rail cost. And for us to be competitive, both domestically and globally, the railroads have to perform and they have to perform at a reasonable rate. So look, we have great relationships with both railroads, and we're open to a balanced discussion, and we'll see where this goes.

Appreciate that, Paul. And then maybe it would also be good to get your thoughts around some of the recent increase in trade tensions with India, especially given Core's, it's important export market for Core, I should say.

Yes, I'll start off and let the others jump in. I mean I -- the following of the tariffs and the reciprocal tariffs is becoming morning obsession, I think, with a lot of us to try and understand where it's going. I think the -- one thing I take some solace in is that most of these have been resolved, although it's been a little messy. But Japan and the EU getting resolved, it would sure nice to be have -- for us to have India resolved because India remains a huge trading partner of Core. Any other thoughts from the group?

I would just add one thing. I think PAMC in particular, the quality of that coal makes it a very flexible product. As you know, it goes into the crossover met market, it goes into the domestic power generation markets and of course, the industrial market overseas. I think, as Bob mentioned, we'd hope that India, U.S. trade tensions abate. And it's not an issue, but the product itself is flexible for us to be able to move. I think if you look at China is a great example, right? Like last year, we shipped a lot of crossover product into China. This year, we are not doing much at all because of the tariffs, but we are moving more to Indonesia. So I think -- what I'm trying to say is our marketing team is doing a very good job of managing through this. And I feel like the product quality and the logistics strength that we have with different terminals and the blending potential, I think we'll have to continue to look for new homes.

And we do have a follow-up question coming from the line of Nick Giles of B. Riley Securities.

Apologies if this is somewhat repetitive, but I believe in your prepared remarks, you mentioned that met volumes will be market driven. And just so when we start to think about what 2026 met volumes could look like with the recovered Leer South, should we be thinking that you could hold back some tons? Or anything you'd call out from a mix perspective? I appreciate any color there.

Yes. My view is that when we get back Leer South running, and hopefully, that's early in Q1 at full speed. We will see volumes very much akin to what people were used to. As Mitesh noted in his earlier comments, the decision at Itmann was a difficult one, but one I think we took because I think there was a belief that the balance sheets of some of the coal companies would go ahead and support losses in some of these mines for some period of time. And we took the fact of we're not going to do that. And that will follow through into next year. Look, as long as we can generate a margin and feel comfortable in the outlook, we'll keep running operations. But we'll remain market-driven, and do what we have to do to adjust our operations.

And your next question comes from George Eadie with UBS.

Just one more as well. On the met coal segment, realized price for the thermal byproduct was up nearly 40% Q-on-Q. But that seems very good given the pricing, soft environment at the moment. Like how much higher can that get with blending and so forward and maybe a bit more color, like should we assume that higher price from this quarter is a more reasonable assumption going forward?

Yes. So George, this is Bob. So as you mentioned, I think in Q1, we were mid-30s; Q2, mid-40s on the thermal byproduct from a pricing perspective. And what we've done since the merger is took -- we've been able to take advantage of that product and blending it in with PAMC. And I will tell you that on a go-forward basis, we're looking to continue to maximize doing so. So when you look at Q3, Q4, I'd say it's going to be a lot similar to Q2. It's also market-driven because it depends on what the realization you're getting back on the international market is as well. So as the international market continues to improve, then you'll see the mids pricing improve. But for sake of where we stand today, I'd say you're closer to Q2 realization than you are Q1 on the mids product.

Yes. Okay. Great. And then just checking, I've got it right before, when you were talking about '26 pricing, was that $110 metric a ton for API2 and then for the 4 million ton. And then when you said low 60, was that talking as a whole? Or what's priced in so far for domestic?

Yes. So we use the $110 as the assumption that's baked into the 4 million tons that are linked to API2. And that would net back all in what's for the 13 million tons would be in the low 60s back to the segment.

And we have no further questions at this time. I would like to turn it back to Paul Lang for closing remarks.

Thank you again for your interest in Core. Let me close again by recognizing the Core team for tremendous progress they've made and the work they've put in, in bringing the two companies together. The markets that we're currently going through just simply refortify the reasons why we did the merger and the ability to generate cash through a wide range of market environments. With that, operator, I want to thank you, and we'll talk to you in October.