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Arch Coal, Inc. (NYSE:ARCH)Q4 2018 Earnings Conference CallFeb. 14, 2019, 10:00 a.m. ET
Contents: Prepared Remarks Questions and Answers Call Participants Prepared Remarks:
Operator
Good day and welcome to the Arch Coal Fourth Quarter 2018 Earnings Conference Call. Today's conference is being recorded.
At this time, I would like to turn the conference over to Deck Slone, Arch's Senior Vice President for Strategy and Public Policy. Please go ahead, sir.
Deck S. Slone -- Senior Vice President, Strategy and Public Policy
Good morning, everyone, and thanks for joining us on this exciting day. We hope you've all seen by now the two press releases and the supplemental slide deck that we released this morning. If you have not, they can all be found on the home page of the Arch Coal website, as well as on the Investors section under Featured Documents.
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 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
With me on the call this morning are John Eaves, Arch's CEO; Paul Lang, Arch's President and COO; and John Drexler, our Senior Vice President and CFO. We will begin with some brief formal remarks and thereafter we'll be happy to take your questions. John?
John W. Eaves -- Chief Executive Officer
Thanks, Deck, and good morning, everyone. I'm pleased to report that Arch brought 2018 to a highly successful conclusion in the fourth quarter, achieving strong operating results, delivering outstanding progress on our value creating capital return program and rolling out plans for a new world-class High-Vol A longwall mine. To say that these are exciting times for Arch would be an understatement. We look forward to discussing all these developments with you during the course of today's call with particular emphasis on Leer South. I'll start with a quick overview of fourth quarter and full-year operating results.
During the quarter, just ended, Arch reported adjusted EBITDA of nearly $123 million, an excellent result and second best quarterly performance since emergence. Our quarterly results benefited from another powerful contribution from our high performing coking coal portfolio, where we shipped a record 1.9 million tons of coking coal and captured near-record average margins of $47 per ton. Supplanting that strong result, our Powder River Basin operations once again stepped up in a significant way, acting quickly and aggressively to capitalize on increased opportunities for spot sales and higher than anticipated railcar availability related to persistent weather impacts elsewhere in the basin.
All told, we finished 2018 with EBITDA of nearly $438 million, which included a negative $9 million mark-to-market adjustment. Again that's a very strong result and a material improvement over our already strong 2017 performance. As previously noted, we put this impressive level of cash generation to good use, driving exceptional progress on our capital return program. During the quarter, we bought back another million shares of our common stock at a total investment of nearly $89 million, our second highest quarterly repurchase level since initiating the program in May of 2017. That brings our total repurchases over that time frame to 7.2 million shares, a total investment of $584 million. To look at it in another way, we repurchased nearly 29% of our shares initially outstanding in just seven quarters' time.
In addition, we've augmented our great progress in our share buyback efforts with the return of additional $56 million to shareholders via recurring quarterly dividend payments. In total, we have to-date returned nearly $640 million to shareholders via buybacks and dividends under our capital return program. We also expect, based on current assumptions, to have the capacity to maintain or even accelerate the rate of our capital return program in 2019, should we opt to do so. Today, the Board has authorized an expenditure of up to $750 million for share buybacks, leaving $166 million remaining under the current authorization.
Given the positive outlook for the business and continued strong free cash flow generation, the Board has chosen to further reward shareholders with a 12.5% increase in the quarterly dividend rate, upping it to $0.45 per share. Since launching the capital return program, Arch has now increased the quarterly dividend rate twice by total of nearly 30%. Given these developments, it should be evident that the Board and the management team remain sharply focused on generating value for you, our shareholders.
That brings us to Leer South, which we view as an exceptional project, whose time has come. As you know, we've been talking about this tremendous potential, this High Vol-A coking coal reserve in Northern West Virginia for many years now. We are highly confident that this is the right moment to move forward aggressively with the next phase of development on this unique and hugely promising reserve base.
Let me walk you through a few of the attributes that make Leer South such a compelling investment opportunity before passing the baton to Paul for some additional thoughts. First, we expect Leer South to be among the largest, lowest cost and highest margin coking coal mines in the United States. That's particularly noteworthy given the fact that after well over a century of mining in the US it is a highly maturely producing region in terms of coking coal output. In particular, we believe that US coking coal reserves that are well suited for longwall mining are very, very scarce outside our Tygart Valley reserve. And when it comes to High-Vol A quality coal, such reserves may be non-existent.
Second, the addition of Leer South will cement our position as a premier global producer of High Vol-A coal. It has been pointed out frequently in recent years by us and others, High-Vol A is increasingly sought after in the marketplace and increasingly scarce. As a result, as you would expect, High-Vol A coals are attracting a significant premium in the marketplace and are likely to continue to do so for a long time to come. Third, the investment thesis for Leer South is extremely compelling. Based on the average margin we captured in 2018 at the Leer mine, which is, in effect, the proven and highly successful prototype for Leer South, we would recover investment in Leer South within two years of the longwall start-up, that's extraordinary for a mine that's expected to operate for 20 years.
Finally, we believe if the market wants it can easily absorb these incremental High Vol-A tons. We have been rationalizing sales of Leer brand products (inaudible) the existing customers and there are many more potential customers out there that simply we haven't had the volume to serve. Moreover, the global marketplace as a whole was under-supplied and there's very little capital being invested in new mine capacity in the US, Australia and anywhere else in the world. Based on the work of industry consultants and our own internal assessments, the globe -- the global coking coal market will need to add between 70 million tons and 80 million tons of new productive capacity by 2025 in order to meet the new demand and offset depletion, that investment simply isn't happening at present, which creates a compelling opportunity.
In short, we're extremely excited about the prospects for our next world-class High Vol-A coking coal mine and equally excited about Arch's prospects in 2019 and beyond for strong free cash flow generation, continued robust progress in our capital return program and exceptional value creation for our shareholders.
With that, I will now turn the call over to Paul for further commentary on Leer South, as well as for some color on expectations for 2019. Paul?
Paul A. Lang -- President and Chief Operating Officer
Thanks, John, and good morning, everyone. As John noted, we view Leer South as a truly compelling growth opportunity, one that promises to further enhance our already top-tier coking coal portfolio. As indicated, Leer South will be similar in virtually every respect to our flagship mine Leer, which as you know, is a premier global coking coal asset. We're confident that we can achieve the same level of success at Leer South, delivering an identical product at a comparable and exceptionally competitive cost structure with great access to seaborne markets.
All told, we project investing between $360 million and $390 million over the next three years to complete this exciting project. As compared to the acquisitions we studied recently, that is a highly capital efficient price tag for a 3 million ton per year mine with a Tier 1 cost structure, producing a High-Vol A coal with a 20-year life. Capital efficiency, of course, is a high priority for us and we've taken numerous steps to ensure the strongest possible return and the fastest possible payback. Of particular note, we pared the new mine's capital requirements by around $35 million via the decision to repurpose our existing -- our Mount Laurel longwall system.
In addition, we plan to expand and significantly upgrade the existing preparation plant, rail load out and other facilities and our Sentinel operation rather than build a new complex from scratch. Again, this was all done with an eye toward minimizing upfront capital costs and decreasing development time. It's worth underscoring that the longwall equipment we plan to transfer from Mountain Laurel to Leer South is almost completely interchangeable with longwall equipment at Leer, which is just 11 miles away. That should drive compelling operating synergies between the two mines related to maintenance, training, spare parts and the overall management of the complex.
Of course, we're sharply focused on ensuring that our coking coal portfolio maintains a highly competitive cost structure and Leer South promises to average down our costs. Once the longwall is up and running, which is slated to occur in the fourth quarter of 2021, Leer South should boast a cost structure very comparable to that of the Leer mine.
This is notable, because Leer's cost structure or Leer's costs are comfortably in the first quartile of the US cost curve. Moreover, as indicated in our release, based on this cost structure, coupled with current prices in the seaborne market, it would infer Leer South could capture a cash margin of around $90 per ton for a coking coal product. I would also point out that Leer South will actually be operating in a slightly thicker coal seam than we've experienced at the Leer mine to-date. In addition, Leer South will have the advantage of roughly 35% longer panels, which should translate into fewer longwall moves and lower panel development costs on a unit basis. Perhaps, most importantly, Leer South will benefit from many year -- from many lessons we've learned over the course of the past five years in successfully operating the Leer longwall in the same Lower Kittanning seam of the Tygart Reserve Block.
In short, we're experiencing the geology and operating conditions of the Leer South reserves. We've honed our operating skills in that area through years of experience with the Leer mine. We're able to leverage and optimize our existing mining, preparation and transportation infrastructure and finally, we've cultivated a large and geographically diverse customer base that understands and appreciates the value of Leer branded product, knowing it could be in their coke blends for years to come. Frankly, it's hard to imagine a situation for a producer any better embarking on a new mine project this stature.
While we are excited about Leer South, we're also pleased with the new mine plan developed for Mountain Laurel. As indicated, we plan to transition Mount Laurel to a room-and-pillar operation at the end of 2019 and redeploy the longwall equipment to Leer South at that time, following a major refurbishment. Clearly there are real advantages for Leer South project in this transition, but there's also real advantages for Mount Laurel as well.
To begin with, Mount Laurel is increasingly well suited to room-and-pillar mining at this point in its life cycle. While Mount Laurel still has extensive reserves, we believe transitioning to continuous miners will significantly enhance the operation -- the mines operational flexibility. That's important given the variability of the geology going forward. Moreover, we believe we can affect this transition away from the longwall, while achieving a modest reduction in the average cash cost and a meaningful improvement in the product quality.
Beyond 2019, we expect coking coal volumes at Mount Laurel to average around 1.3 million tons per year. While this is lower than our 2018 output by around 20%, it still provides us with a significant and value creating presence in the High-Vol B market and affords us the ability to provide a broad slate of products to our global customer base.
In summary, we believe there's great things in store for Arch in the intermediate term as we add Leer South to portfolio, and a very positive picture in the near term as well, which brings me to our 2019 guidance. In the Metallurgical segment, we are guiding our sales volume to a range of 6.6 million tons to 7 million tons of coking coal output in 2019, which at the midpoint represents a modest year-over-year increase. In addition, we expect the segment cash cost to average in the range of $61 to $66 per ton, which at the midpoint represents about a 5% decrease relative to our average cost per ton in 2018.
As to the quarterly cadence of our coking coal shipments during 2019, it's important to point out that we expect our first quarter volumes to be as much as one-third lower than the fourth quarter of 2018. This change in the quarter-over-quarter volume is due to having two scheduled longwall moves during the period, the extra shipments we made in the fourth quarter of 2018 and the impact of the normal winter time closure of Great Lakes shipping channels for some of our North American customers. Of course, lower volumes generally translate into higher average unit costs and the first quarter will be no exception. In fact, we expect our segment costs in the first quarter of 2019 to be generally comparable to those we experienced last quarter. To reiterate, however, we expect cost to come in line with our annual guidance as we move through the year.
On the Thermal front, we expect our mines to ship between 80 million tons and 85 million tons in 2019. Within this, our Powder River Basin volumes should be down slightly, ranging from 70 million tons to 80 million tons and our full year cash costs are projected to increase slightly and range from $10.70 to $11 per ton. This change in costs year-over-year is due to a greater percentage of high quality Black Thunder coal in the sales mix, as well as assumed diesel price increases.
In the other thermal segment, we are guiding to cost of $29 per ton to $33 per ton for 2019. However, we anticipate margins in that segment to be significantly compressed in the first quarter of 2019, due to lower anticipated West Elk production and correspondingly a smaller percentage of high margin West Elk coal in the mix. As for capital expenditures, we expect to hold maintenance capital at roughly 2018 levels or around $90 million at the midpoint. As already noted, we run a very tight ship when it comes to capital spending and we view this as a disciplined but an adequate CapEx level for our existing operations. On top of that, we expect to invest around $90 million of growth capital at Leer South. The good news, as John has already pointed out, is that we believe we can do this while still maintain very substantial levels of cash for our capital return program.
Finally, I'd be remiss if I didn't mention the strong safety and environmental performance achieved by our mining operations and exceptional employees during 2018. Our mines won the Top Safety Award in each of our four operating states. We are honored with the prestigious Sentinels of Safety award for the seventh time in eight years. We had a lost time incident rate nearly three times better than the national average and our environmental compliance record again set the standard among large integrated coal companies. These are exciting times for Arch, our mines are running well. We've been able to reward our shareholders with a successful capital return program and at the same time we're building toward a powerful future.
With that, I'll turn the call over to John Drexler. John?
John T. Drexler -- Senior Vice President, Chief Financial Officer and Treasurer
Thanks, Paul, and good morning, everyone. Allow me to echo the excitement already expressed by John and Paul regarding the Leer South project. During the course of my remarks, I will share with you our plans for utilizing our strong balance sheet and existing low cost cash generating platform to maintain ample liquidity, while at the same time meeting our sustaining capital needs, progressing the Leer South project and driving forward with our highly successful capital return program. I believe you will see that we can in fact do it all and do it all very effectively.
Let me begin with a brief recap of our capital return program and liquidity position. During the fourth quarter, Arch continued to execute on its capital return program spending $89 million to buy back 1 million shares of stock or 4% of our initial shares outstanding. Across the full year, we spent a total of $282 million or 80% of our free cash flow to buy back 3.2 million shares or 13% of the Company's initial shares outstanding. As John indicated, we have repurchased 7.2 million shares of stock for $584 million in just seven quarters, that's nearly 30% of our initial shares outstanding at an average price of $87 per share. We view that as a significant and value creating change in our capital structure in the course of a very short span of time. Moreover, we have $166 million of capacity remaining under our current $750 million authorization.
In addition, we paid our normal recurring dividends during the quarter, bringing total dividends paid under the capital return program to $56 million. Between our share repurchases and dividends, we have returned a total of $640 million of capital to our shareholders essentially all of our free cash flow over that timeframe. Further illustrating our strong commitment to rewarding our shareholders in light of the Company's strong and ongoing financial performance, the Board has approved a 12.5% increase in the quarterly dividend to $0.45 per common share. That dividend is payable on March 15th to stockholders of record as of the close of business on March 5th.
Turning to our liquidity, we successfully amended our inventory only asset-backed lending facility during the fourth quarter, increasing the size of the facility from $40 million to $50 million, extending the term to 2021 and reducing our borrowing costs. When combined with the amendment to our accounts receivable securitization facility during the third quarter, we have now increased our unused borrowing capacity under the facilities to nearly $65 million at December 31st. Including our cash balance of $428 million, total liquidity at the end of the year was nearly $500 million.
Subsequent to the end of the year, we were successful in replacing a $60 million letter of credit associated with self-insurance obligations with surety bonds, freeing up still more borrowing capacity. As we look at our liquidity for 2019 we would expect to have availability under our borrowing facilities in the range of $80 million to $120 million based on our current -- based on current market conditions. As we have stated, we like to maintain our liquidity in the range of $400 million to $500 million with an important component of that being cash. However, in light of the steps we've taken to increase borrowing capacity, we are comfortable allowing our cash levels to drop to $350 million at various times during the course of the year.
I would now like to turn our attention to the Leer South opportunity. In short, we are in an excellent position to build the new Leer South mine, which should create value for Arch shareholders for decades to come, while driving ahead on our path of returning cash to shareholders. We have posted a slide deck to our website that provides additional detail on the Leer South opportunity and I would like to walk through a couple of slides that demonstrate the truly remarkable cash generating capacity of the platform.
On Slide 20, you will see on the left side, our projected sources of cash and cash availability in 2019. As indicated, we ended the year with $428 million of cash on hand. Consensus EBITDA for 2019, which we will use as a proxy for cash flow is $423 million. And during 2019, we expect to receive AMT refunds for a large percentage of the tax benefit we recognized in 2018, estimated here at $50 million. That puts us at approximately $900 million of cash availability for 2019. On the right side of the slide with our enhanced borrowing capacity under our credit facilities, we are comfortable targeting a lower level of cash of $350 million, leaving $550 million to fund our capital needs and debt service.
Turning to Slide 21, after taking into account our guidance of $90 million of maintenance capital, $90 million of capital for the first year of the Leer South development and a modest amount of debt service, our cash available for capital return and other needs is $350 million. As a reminder, we have spent an average of $320 million on our capital return program in each of 2017 and 2018. Obviously, then we have tremendous firepower to continue the program.
Looking beyond 2019, we will be prudent and opportunistic in funding Leer South. There are scenarios, which we might elect to fund all our Leer South needs through internally generated cash and scenarios in which we might choose to take on modest responsible leverage to achieve a similar outcome. I assure you that we will weigh these options carefully when the time comes and act in a manner that we believe will optimize long-term value for our shareholders.
To conclude, we are thrilled to announce the Leer South project. We believe that this new mine combined with our existing Leer complex will define our Company for the foreseeable future. Our strong cash generating platform will allow us to fund our 2019 maintenance capital needs and the Leer South development project, while still affording us the capability to drive forward rapidly and aggressively on our capital return program should we so choose.
With that, we are ready to take questions. Operator, I'll turn the call back over to you.
Questions and Answers:
Operator
Thank you very much. (Operator Instructions) Our first question will come from Mark Levin, Seaport Global.
Mark Levin -- Seaport Global Securities -- Analyst
Hey, gentlemen, congratulations on the announcement. Just a couple of quick questions. First, if I go to Slide 18, I just want to make sure that I'm thinking about this correctly, mathematically, you present a number of different met price scenarios and payback periods. And just to make sure that I'm clear on how you get to the payback period, if you were to take that -- let's just say the $200 met price, which is where we are today and multiply that by 0.9 and do a short ton, you get roughly 180. I'm going to assume you're using a rail rate like $30, $35 to get down to 145 and I think in the past you guys have talked about cash cost at Leer 1 in the $50 to $55 range. So if I subtract that to $52, I get a $93 margin times the 3 million tons to get EBITDA of roughly 280 million. Am I thinking about this correctly or wrong in anyway?
Deck S. Slone -- Senior Vice President, Strategy and Public Policy
Hey Mark, it's Deck. And you certainly are -- that's exactly the right way to look at it. We actually also put in a little bit of maintenance CapEx -- ongoing maintenance CapEx of existing facility, but that is the calculation. And as you can see what you end up with is a payback of less than 18 months.
Mark Levin -- Seaport Global Securities -- Analyst
Okay, perfect. Just want to make sure that was right. Second question has to do with Sentinel. Gotten some questions recently about the reserve life at Sentinel being relatively short. How does Sentinel fit into the production profile. I know you guys talk about going from 6 to 8 this year to ultimately 9. Is Sentinel part of that mix? And then when you get past 2022, where you're at 9 million tons and you look at the reserve life of the first Leer and Sentinel, how do we think about the production profile after that point as well?
Paul A. Lang -- President and Chief Operating Officer
Hey, Mark, this is Paul. Let me take a shot at that. The short answer is that, Sentinel will become part of Leer South and in many respects will manage all of the mining operations on the Tygart Reserve effectively as a single complex going forward. Yes, as you think about it, Mark, it's the same equipment operating in the same scene, using the same rail and port facilities going to the same customers. So in 2022, you think about between Leer and the combined Leer South Sentinel property, we expect production to approach about 7 million tons, that's versus about 4 million tons today produced at Leer and Sentinel.
So Sentinel won't go away in name (ph) until 2022 by any means. We'll still continue to produce coal with continuous miners as well as the longwall and we'll be using the surface facility, the mining equipment, of course the exceptional workforce, but it will be basically consumed by Leer South. And as we talk about further down the line, we expect to produce about 1.3 million tons at Mount Laurel. So that -- there is opportunity there, also for some low capital expansion, you know, simply because those facilities were built with about a 4 million ton capacity. And you add in about 1 million tons of Beckley, that's where you get to about 9 million ton level in 2022. So I guess another way to look at is, the net addition will approach 2 million tons to 2.5 million tons relative to 2018.
Mark Levin -- Seaport Global Securities -- Analyst
Got it. And then one final question, as it relates to Mountain Laurel and some of the comments that you were making about reducing production, when you think about the production profile, let's say in 2020 after you've I believe moved the longwall to Leer South, what does that mean in terms of mix in 2020 and cost? I think you referenced, typically when you think about going from a longwall to a continuous miner, you would expect maybe cost to go up not down, but I think you referenced cost coming down. Maybe you can provide some more color on the -- how Mountain Laurel will look over the next few years?
Paul A. Lang -- President and Chief Operating Officer
You think about it. And I think I was pretty open about this about a year ago. The operation is a good mine, but it's not what it used to be. And although we have a very good remaining reserve base at Mountain Laurel, what's remaining as you think about it is kind of the outskirts of the heart of the reserve, we've been mining there for about 15 years. What we got left tends to be, what I'd call more uneven in terms of quality and coal thickness. So the transition to Mountain Laurel will start this year and we mine out the remaining three panels of the Cedar Grove, which should happen in December. But you think about it, with the reinvention of the mine, I think we have a lot better and stronger operation. First and foremost, we'll be able to selectively mine the remaining reserve base and improve the quality and overall recovery.
I think one of the most startling numbers out there is, our plant recovery in 2018 was about 24.8%. As you look at switching this mine to a room-and-pillar operation, will jump up to about 40% or 45%. So that's because we can stay and assume (ph), we can select where we mine and we can very carefully just avoid the bad areas. And the other thing we're going to end up doing there is, we're going to downsize the underground footprint, simplify the operation. It will be a smaller mine to maintain and ventilate. And I think you add all these things together, it is a little bit counterintuitive, but I think this is definitely the right way to go to Mountain Laurel. I think frankly, it's going to really help the portfolio down the road.
Mark Levin -- Seaport Global Securities -- Analyst
And the cost you say will be down as a function of this. Are we talking like $1 or $2? Or something even more...
Paul A. Lang -- President and Chief Operating Officer
I think -- I say they're down marginally. I expect plus or minus $1, which is about as good as, I believe we are guessing.
Mark Levin -- Seaport Global Securities -- Analyst
Great. Sounds good. Well, congratulations on this big day for the Company.
John W. Eaves -- Chief Executive Officer
Thanks, Mark.
Paul A. Lang -- President and Chief Operating Officer
Thank you, Mark.
Operator
Thank you. Our next question will come from Jeremy Sussman of Clarksons.
Jeremy Sussman -- Clarksons Platou Securities -- Analyst
Hi. Thanks very much for taking my questions. And I guess congratulations on another strong quarter and it's great to see you guys reinvesting in the business.
John W. Eaves -- Chief Executive Officer
Thanks, Jeremy.
Jeremy Sussman -- Clarksons Platou Securities -- Analyst
If I -- anyway despite the additional $90 million or so in spend for Leer South in 2019, you noted in your opening remarks that capital return to shareholders this year could be similar or even above kind of the robust 2018 levels that we saw. So clearly that's great to see and maybe, with that said, do you expect to be able to continue returning cash to shareholders, let's say in 2020 or 2021, when Leer spend is obviously going to be a little bit higher. Obviously, I know market conditions matter, but let's just for argument sake, say the forward curve is reasonable.
John T. Drexler -- Senior Vice President, Chief Financial Officer and Treasurer
Jeremy, I think as we've discussed, our focus right now is that we're in a tremendous position to be able to fund the initial capital required for Leer South and as we've demonstrated, be in a position throughout the course of 2019 to move forward aggressively, if we so choose on that capital return program. And as you've seen, it has been this management teams' and Boards' commitment to executing on that, we would expect that as we move forward.
As you move beyond 2019 and you move into '20 and '21, you are correct, capital does step up. And I think in my discussion, we did talk about the fact that we'll continue to evaluate a wide variety of scenarios, market condition, cash flow for the Company, et cetera. And there are scenarios where we'd be willing to take on some modest responsible leverage as we move forward and evaluate opportunities to continue in the capital return program. So I can't speak to '20 and '21 from Board management perspective, but clearly, we're focused on that now. We've been focused on it over the last several years. We're focused on it while we are developing Leer South. And so, I think that does lend itself to where our mindset could be as we move forward into '20 and '21.
John W. Eaves -- Chief Executive Officer
Jeremy, this is John. Listen, when I talk to my Board about our capital return program, when we started the discussions a couple of years ago, we didn't go into this short-term. I mean, we want to have a dividend that was in place, it was sustainable and you saw we increased that twice. The share buyback obviously has been a big part of this capital return program. So, I think the interesting thing about this is, we actually can do both. I mean we fund Leer South, we can return shareholder capital and we would expect to do that post '19 too. So I can tell you from a Board perspective, we look at this capital return program a long-term.
Jeremy Sussman -- Clarksons Platou Securities -- Analyst
That's super helpful and great to hear. And then maybe just as my follow up sort of more mechanical. But you have now bought back almost a third of the float, which obviously again, in the short time span is quite impressive. But as you sort of look toward -- toward the future, I mean, I think your stock is trading about $20 million today plus or minus. Is there a tipping point, where maybe you'd be more inclined to ratchet up dividends? I know you just raised it again, but more so, at the expense of buybacks or how does the Board think of the balancing act there?
John T. Drexler -- Senior Vice President, Chief Financial Officer and Treasurer
Jeremy, as we sit here today, I think we've clearly indicated the direction we intend to head as we sit here on this call and as we move forward. Those were things -- are things that will be under constant evaluation, but I think we've been clear in our intent right now as we move forward.
Jeremy Sussman -- Clarksons Platou Securities -- Analyst
Got you. Well, thanks very much and good luck guys.
John W. Eaves -- Chief Executive Officer
Thanks, Jeremy.
John T. Drexler -- Senior Vice President, Chief Financial Officer and Treasurer
Thank you.
Operator
Thank you very much. (Operator Instructions) Our next question will come from Lucas Pipes, B. Riley FBR.
Lucas Pipes -- FBR Capital Markets -- Analyst
Hey, good morning gentlemen. And I would like to add my congratulations. Very exciting to see this reinvestment in the industry, especially with such an attractive growth project.
John W. Eaves -- Chief Executive Officer
Thanks Lucas.
Lucas Pipes -- FBR Capital Markets -- Analyst
Gentlemen, I wanted to ask a little bit about the target market for this product. Is this more Europe, is it Asia? Where do you envision this coal to go? Thank you.
Paul A. Lang -- President and Chief Operating Officer
Well, Lucas. This is Paul. I'll start that out and let john pickup on it. But if you look at Leer, it's been very well received worldwide. We have customer base in Europe, South America and all over Southeast Asia, Japan, Korea. The fact is, we're almost rationing in our sales product to the various customers. If we have more demand, then we have the ability to fulfill it. Now some of those customers place a lot more value on it in their mix and those are obviously the customers that we target.
So as we look going forward and increasing our volume High-Vol A, it's pretty much going to be the same basic game plan. We've got a good product out there. It's known by the steel producers and they're happy with it. But I think the real value, they see in it is that, this is a product that's coming from basically one mine, that's a homogeneous seam, and they can keep this in their blend for effectively a generation. So, beyond its attributes, it's also kind of a long-term tactical play for them.
John W. Eaves -- Chief Executive Officer
Hi, Lucas. This is John. if you think about Arch, we think we're pretty unique. I mean in 2017, 50% of our mix was domestic, 50% was international. We evaluate the markets every year and try to go where we can create the most value for our investors. In 2018, we happen to be 80-20. So each year, we'll look at that, but if you look at our logistics and our cost structure, we have the ability to pivot and go where the market creates most value.
Lucas Pipes -- FBR Capital Markets -- Analyst
That's helpful. Thank you -- thank you for that. And then my second question is kind of taking a look at Slide 17, where you showed the decision tree for your capital allocation and highlight in green, kind of what you're currently pursuing, a special dividend sounds like not at this time and then M&A is also grayed out. And I wondered, could -- obviously studied Leer South very carefully and I'm sure you've studied the M&A market out there, but when you kind of put Leer versus this M&A, can you give us more flavor for some of the metrics you were looking at? What was lacking on the M&A side that you decided to pursue this organic growth project? Thank you for any elaboration.
John W. Eaves -- Chief Executive Officer
Yes. Thanks, Lucas. Yes, as you can imagine over the last couple of years, we've looked at about every external opportunity from an M&A standpoint, that's out there. And again, we always benchmark that against what we have in the Tygart Valley and really hadn't found anything that we thought was strategic to what we were doing, created the synergistic value that we felt we needed to have.
I think we have the ability to continue to look at external M&A. But again, even after Leer South, we got 150 million tons in that Tygart Valley that we own in fees. So we actually can replicate Leer South again a couple of times. So we'll continue to look, but the fact that we're producing a High-Vol A met coal at a cost structure that will travel all over the world, we think puts Arch in a very unique position. As we look around the globe and we've studied this pretty hard from a supply and demand standpoint, there is less than 25 million tons of High-Vol A being produced around the world. Arch is going to be producing almost 25% of that.
We think that's a good place to be, given the fact that High-Vol A continues to get a premium in the marketplace. So we like the way we're positioned. We will continue to look at M&A, but I will tell you this management team is laser-focused on making sure that we get Leer South execution right. I mean, Paul and this team has done Mountain Laurel in the past, they've done Leer in the past. We've learned a lot, we think we can take those lessons forward to Leer South and create a powerful product for the market.
Lucas Pipes -- FBR Capital Markets -- Analyst
That's excellent. Great, thank you. And maybe I'll sneak one last one in. Any sense you can give us on the capital expenditures by year. I think earlier you didn't quite go as far, but just for modeling purposes, this would be very helpful.
Paul A. Lang -- President and Chief Operating Officer
Lucas, are you talking about Leer South or just in general?
Lucas Pipes -- FBR Capital Markets -- Analyst
Sorry, specifically -- specifically Leer South.
Paul A. Lang -- President and Chief Operating Officer
Yes. So if we do, just kind of round numbers, if the total project call it the midpoint of 375, you take 90 out of that, you're at 280 or 285. It's not quite even those last two years, there is a slight uptick in 2020 and there's actually some that spilled into 2022. So for modeling, you may just want to divide it by two.
Lucas Pipes -- FBR Capital Markets -- Analyst
Perfect. Thank you very much and best of luck. That's great to hear.
Paul A. Lang -- President and Chief Operating Officer
Thanks, Lucas.
Operator
Thank you very much. (Operator Instructions) Our next question will come from Rob Chavez, OppenheimerFunds.
Rob Chavez -- OppenheimerFunds -- Analyst
Hey guys, good morning. You guys made (multiple speakers) comment on your seam thickness for Leer South versus Leer, but could you provide some comments on what your seam thickness looks like at Leer for 2019 versus 2018 and perhaps what 2020 looks like? Just to get a sense of what you're longwall moves look like?
Paul A. Lang -- President and Chief Operating Officer
Yes, just I guess on seam thickness, I may have this a little off, but we're going from about 4.1 feet to about 5 feet or 5.1 feet in 2019 versus 2018. As far as longwall moves, right now we have two scheduled at Leer, one has already occurred. There's going to be one in the second quarter. If we keep running as well as we are, we could have a third longwall move in the fourth quarter.
At Mountain Laurel we'll have a longwall move starting here in about two weeks. We'll have another one in the second quarter and if it keeps operating as it is, it will mine out in December. West Elk, which is our third longwall, currently, we have no longwall moves scheduled, but if we run slightly ahead, there's one planned in January of '20. So if we produce ahead of schedule, we could have a longwall move West Elk in December.
Deck S. Slone -- Senior Vice President, Strategy and Public Policy
And Rob, this is Deck. So in 2019 at Leer, we do get into thicker coal and 2020 thicker still. And in fact, if you look at 2020 forward, we actually will be in about a foot thicker coal than we were -- than we have been at Leer up to this point. So average seam thickness goes from to 62 inches to this point to 72 inches for the rest of the life of the mine. So clearly that's a really positive story from a geologic perspective at Leer going forward.
Rob Chavez -- OppenheimerFunds -- Analyst
Great. Thanks.
Paul A. Lang -- President and Chief Operating Officer
Thank you.
Operator
Thank you. Our next question will come from Jessica Austin, Archmedium (ph).
Jessica Austin -- Archmedium -- Analyst
Hello, my name is Jessica Austin.
Deck S. Slone -- Senior Vice President, Strategy and Public Policy
Good morning Jessica.
Paul A. Lang -- President and Chief Operating Officer
Good morning.
Jessica Austin -- Archmedium -- Analyst
Congratulations on a really successful quarter. I was just hoping you guys could talk a bit about what we're seeing in the export market right now and what you expect to see in 2019, like how much did you ship and how much do you expect to ship moving forward, given the state of global market?
Paul A. Lang -- President and Chief Operating Officer
Yes, Jessica, I think in general what we're expecting is both the thermal and met export market to be generally comparable to 2018. Maybe arguably, a 1 million tons plus or minus either way. Obviously, there's been a pretty sharp pull back in API-2, and Newcastle, but -- and I think most people have those hedged forward for the year. So I think taking that all into account, that's where we come up with a relatively flat year-over-year period. And we think we'll be down -- call it about 1 million tons from our round numbers 12 million to about 11 million.
Jessica Austin -- Archmedium -- Analyst
And how much have you contracted so far and -- for the year. And how much of that is going, I mean, for thermal and for met coal? And how much of that is going overseas?
Paul A. Lang -- President and Chief Operating Officer
Jessica, that's in our earnings table on the -- or in our guidance table. So on the met side, we're going to be pretty heavily again on the seaborne market. On the thermal side, is where we'll pull back about 1 million tons versus 2018.
Operator
Thank you very much. Our next question will come from David Gagliano, BMO Capital Markets.
David Gagliano -- BMO Capital Markets -- Analyst
Hi, great, thank you so much for taking my questions. First of all, congratulations.
Deck S. Slone -- Senior Vice President, Strategy and Public Policy
Good morning, Dave.
David Gagliano -- BMO Capital Markets -- Analyst
Hi, good morning, congrats by the way on the next met coal workhorse. And also really solid 2019 outlook. Also thank you for the detailed information about both. Lot of my questions have been answered at this point, but I just have a couple of questions. First, I do want to follow up on Mark's questions earlier regarding the longer term production profile. Can you talk a little bit about the cadence of 2023 and beyond met volumes in total, particularly with regards to the existing Leer mine? I didn't hear commentary on Mountain Laurel and Sentinel, I didn't hear much so on the existing Leer mine beyond 2022? That's my first question. Thanks.
Paul A. Lang -- President and Chief Operating Officer
Mark, excuse me, David, Leer I think on paper has 10 years. I think it's always difficult for people as, the Tygart reserve is one solid block of coal and it's always interesting as the engineers at the operations kind of draw the lines where one mine starts, the other one stops. And also based on the reserves that we've put forth, there is about 10 years assigned to Mount -- excuse me to Leer. Beyond that we have some options. As John said we could either continue on Leer for some period of time or there could be a point where it's more economic to start another operation.
This Leer or this Tygart reserve development, we're in Phase 2 or 4 possible phases. And, we got a pipeline out there that I think is unmatched in the industry in the US.
David Gagliano -- BMO Capital Markets -- Analyst
Okay. So question specifically is 9 million tons per year, reasonable assumption -- 2023 to 2028 or...
Paul A. Lang -- President and Chief Operating Officer
Yes, I mean, you think about it and just use that next couple of years, Leer South and Leer just kind of continue on. Mountain Laurel sits there at 1 to 1.3, 1.4 and Beckley sits there at about 1. So it's just kind of a unexciting quiet period for us.
David Gagliano -- BMO Capital Markets -- Analyst
That's what we like. And then just a second question. Just shifting over to the thermal business. I realize it's relatively small to the overall (inaudible), but you do have I think about 20 million tons remaining to price in the PRB for 2019 delivery. I'm just wondering if you can talk about the current pricing environment for that 20 million tons left. Looks like fourth quarter prices were locked in in the mid $11 per ton range, is that a reasonable assumption for that remaining 20 million tons or so after price?
Paul A. Lang -- President and Chief Operating Officer
Yes, I think David, you're math is close. I think our average price in Q4 that we contract for '19 was about $11.65, $11.70. I think what we see heading into this quarter and we've placed quite a bit of business in January, those numbers are starting to move up. We are seeing actually closer to have about a $12 handle on all these.
David Gagliano -- BMO Capital Markets -- Analyst
Got it. That's very helpful. Thank you very much.
John W. Eaves -- Chief Executive Officer
Thanks, David.
Paul A. Lang -- President and Chief Operating Officer
Thank you, David.
Operator
Thank you. (Operator Instructions) Our next question comes from John Bridges, J.P. Morgan.
John Bridges -- J.P. Morgan -- Analyst
Hi, good morning, everybody. Just following on from Dave's question on the PRB, what can we expect from Coal Creek, obviously pricing for the 840 products weak, you've got some contracts there that keep you going for a while, but once those contracts are gone, will you be putting Coal Creek out to pasture or do you think you may be able to roll those contracts over? Thank you.
Paul A. Lang -- President and Chief Operating Officer
John, this is Paul. Look, I'll just be pretty open. As we were heading into last year, we saw prices of 8400 coal take a hell of a drop. The difference between 8400 to 8800 up -- opened up. I think the published numbers were about $4, but I think the physical numbers were actually closer to $4.5. And we frankly decided that we weren't going to play in that game. We had the flexibility to -- we operate two mines basically as one. We just shifted the people around, you know, so we expect Coal Creek to operate, at what I'd call 2 million ton to 3 million ton a year level this year.
In a longer term, we're going to do what we have to do. I tell people, I closed Coal Creek in 1999 and we had to do it again, but right now I think it's -- it's in a good place. We'll see how this plays out in the 8400 market. Frankly the prices that are out there and the spread between the two products is not sustainable.
John Bridges -- J.P. Morgan -- Analyst
Right. Right. But presumably the utilities are going to have to pay your costs at least, otherwise, they're just not going to get the coal they need.
Paul A. Lang -- President and Chief Operating Officer
I mean at some point mines have to generate cash.
John Bridges -- J.P. Morgan -- Analyst
Absolutely. One of the thing -- my Bloomberg stream showed PRB prices jumping in the last, last month or two of '18. I'm guessing that was some spot effect because 13 (ph) seems different to what you were -- report you were getting for 2019.
Paul A. Lang -- President and Chief Operating Officer
Yes, John. What I'd say about the OTC and the screen prices is, they're directional, but, the OTC is not what it used to be in the PRB. The last analysis, I saw it represents about 1% of the sales in the PRB. I think the prices tend to be very directional in the prompt month and prompt quarter, but you get beyond that, their value kind of diminishes, but at the same time, it's the only real public view of pricing in the basin. So I think what you're seeing is directionally correct.
John Bridges -- J.P. Morgan -- Analyst
Okay. Well, let's hope that continues. Congratulations on the results and best of luck with Leer South. Thank you.
John W. Eaves -- Chief Executive Officer
Thanks, John.
Paul A. Lang -- President and Chief Operating Officer
Thank you, John.
Operator
Thank you. Speakers at this time we have no further questions in the queue.
John W. Eaves -- Chief Executive Officer
I want to thank everybody for their interest in Arch Coal. We certainly, as you can tell are excited about Leer South as well as 2019. We look forward to updating you on our first quarter results and Leer South in April. So thank you very much for your interest.
Operator
Thank you very much. Ladies and gentlemen, at this time we would like to conclude today's conference. Please disconnect your phone lines and have a great rest of the week. Thank you.
Duration: 52 minutes
Call participants:
Deck S. Slone -- Senior Vice President, Strategy and Public Policy
John W. Eaves -- Chief Executive Officer
Paul A. Lang -- President and Chief Operating Officer
John T. Drexler -- Senior Vice President, Chief Financial Officer and Treasurer
Mark Levin -- Seaport Global Securities -- Analyst
Jeremy Sussman -- Clarksons Platou Securities -- Analyst
Lucas Pipes -- FBR Capital Markets -- Analyst
Rob Chavez -- OppenheimerFunds -- Analyst
Jessica Austin -- Archmedium -- Analyst
David Gagliano -- BMO Capital Markets -- Analyst
John Bridges -- J.P. Morgan -- Analyst
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