Executive Summary / Key Takeaways

• Diversified, Low-Cost Platform: Core Natural Resources has transformed into a leading, diversified coal producer with a robust portfolio spanning metallurgical, high-CV thermal, and Powder River Basin (PRB) segments, underpinned by a low-cost structure and flexible logistics designed to generate cash across market cycles.
• Synergy Capture Exceeding Expectations: The post-merger integration is yielding substantial benefits, with annual synergy targets consistently raised to $150-$170 million, driven by product blending, administrative efficiencies, and best practices sharing, significantly enhancing profitability.
• Resilient Financials & Aggressive Capital Return: Despite a challenging market and the Leer South outage, CNR generated $144 million in Q2 2025 Adjusted EBITDA and returned over 100% of H1 2025 free cash flow ($194 million) to shareholders through buybacks and dividends, supported by a $1 billion authorization and a strong liquidity position.
• Strategic Operational Edge: The company leverages advanced mining techniques, sophisticated logistics, and value-added product blending (e.g., thermal byproduct with high-CV coal) to optimize margins and adapt to market shifts, positioning it competitively against peers.
• Favorable Policy Tailwinds & Demand Outlook: Recent U.S. legislation (One Big Beautiful Bill Act) provides a 2.5% tax credit for metallurgical coal and reduced federal royalty rates for PRB, while domestic thermal demand is surging from AI/data centers, creating a constructive long-term market environment.

Unearthing Value: Core Natural Resources' Strategic Transformation

Core Natural Resources, Inc. ($CNR), a company with roots tracing back to 1864 as CONSOL Energy, has undergone a significant transformation, culminating in its merger and rebranding in January 2025. This strategic integration has forged a diversified coal producer, uniquely positioned to capitalize on evolving energy markets. The company's core business revolves around the production, sale, and export of metallurgical and thermal coals, serving a broad spectrum of domestic and international customers.

CNR's overarching strategy is to establish a robust revenue base through a thermal contracted book while retaining the flexibility to capitalize on pricing volatility in the metallurgical market. This diversified approach, coupled with a relentless focus on operational excellence and cost management, aims to generate substantial cash flow across various market conditions. The company's foundational strengths lie in its extensive reserve base, vertically integrated mining and logistics operations, and a commitment to industry-leading sustainability practices.

The global energy landscape, marked by increasing demand from sectors like AI and data centers, is creating a compelling backdrop for CNR's thermal products. PJM recently acknowledged that the data center boom will drive power demand to all-time highs by 2026, with summer peak consumption potentially climbing by 70 gigawatts over the next 15 years. This surge in energy requirements, alongside the strategic importance of metallurgical coal for global infrastructure development, underscores the critical role CNR plays in meeting foundational energy and industrial needs.

Operational Excellence and Differentiated Capabilities

CNR's competitive edge is not solely derived from its scale but also from its differentiated operational capabilities and strategic use of technology within the coal mining sector. This "technology" manifests in several key areas, allowing the company to optimize production, enhance product value, and maintain a low-cost structure.

The company employs advanced mining techniques, including longwall and continuous miner units, which are critical for efficient extraction. The recent Leer South combustion event, while a setback, highlighted CNR's ability to leverage remote monitoring activities, such as infrared cameras, to assess equipment integrity, minimizing potential damage and accelerating recovery efforts. This proactive approach to operational continuity is a tangible benefit, reducing downtime and safeguarding assets.

A significant differentiator is CNR's sophisticated logistics and product blending strategy. The company can cross-sell its diverse product portfolio, tailoring offerings to specific customer needs. For instance, crossover metallurgical coal has generated interest among traditional Leer customers, and Beckley product has been successfully sold to legacy CONSOL customers. This flexibility is crucial in navigating dynamic trade environments.

Furthermore, CNR actively blends different qualities of coal to generate revenue uplift. By blending thermal byproduct from its metallurgical segment with high-CV Pennsylvania Mining Complex (PAMC) thermal product, the company has expanded margins by double digits for the thermal byproduct. This blending synergy is forecast to contribute approximately $30 million in 2025, a quantifiable benefit directly impacting profitability. The strategic ownership of the Baltimore terminal and an interest in the DTA terminal, coupled with a diversified product slate, enhances the value of products through optimized blending and transportation.

The company's focus on best practices sharing across its newly integrated operations is another form of "technological" advancement, leading to cost-saving measures and improved efficiency. This internal knowledge transfer is expected to lower metallurgical coal segment costs and contribute to overall synergy capture. These operational and strategic differentiators collectively contribute to CNR's competitive moat, enabling higher average selling prices, lower operating costs, and stronger margins, thereby supporting its long-term growth strategy.

Segment Performance and Financial Health

CNR's financial performance in the first half of 2025 reflects both the strategic benefits of the merger and the challenges of a mixed market environment.

Metallurgical Segment

The metallurgical segment, comprising mines like Leer, Leer South, and Itmann, demonstrated resilience. In Q1 2025, it sold 2.3 million tons, including 442,000 tons of thermal byproduct. The coking product achieved a realized coal revenue of $113.70 per ton, with the segment's cash cost of coal sold at $91 per ton (excluding Leer South idle costs). Leer mine achieved a second straight quarterly production record in Q2 2025, showcasing strong operational execution.

Despite global coking coal market softness due to sluggish steel production and destocking, CNR maintained its 2025 sales volume guidance of 7.5-8 million tons (excluding 1.5 million tons of thermal byproduct). However, cash cost guidance was slightly increased due to the delayed Leer South restart and reduced production at Itmann, where operations were scaled back to one section to mitigate cash losses. Management anticipates Q3 and Q4 costs to be elevated due to continuous miner (CM) operations at Leer South, but expects costs to drift down to the low $90s per ton once the longwall is fully operational in Q4 2025.

High-CV Thermal Segment

The high-CV thermal segment, including PAMC and West Elk, continues to be a strong performer. In Q1 2025, it sold 7.1 million tons at a realized coal revenue of $63.18 per ton. Cash costs were $42.78 per ton, impacted by three scheduled longwall moves and higher power costs. By Q2 2025, the segment achieved a significant step-up in sales volumes and markedly lowered unit costs.

For 2025, CNR projects sales of 29-31 million tons, with approximately 80% contracted at a projected price range of $60-$62 per ton. This pricing was adjusted due to contracting uncommitted volumes at current spot prices, partially offset by higher power prices. For 2026, approximately 13 million tons are committed, with an average price in the low $60s per ton, assuming a $110 API2 price for linked volumes. The segment benefits from strengthening domestic power markets, driven by the data center boom, and recovering seaborne thermal demand, particularly from Indian cement.

Powder River Basin (PRB) Segment

The PRB segment, encompassing Black Thunder and Coal Creek mines, delivered a strong performance. In Q1 2025, it sold 10.7 million tons at a realized coal revenue of $14.93 per ton and a cash cost of $12.44 per ton. By Q2 2025, sales volumes increased, and the 2025 sales volume guidance was raised to 45-48 million tons, with 47.8 million tons contracted at a realized revenue of approximately $14.40 per ton.

Cash cost guidance for PRB was lowered by $1 to $12.75-$13.25 per ton, reflecting the positive impact of the "One Big Beautiful Bill Act" (OBBBA) which reduces royalty rates on federal lands. This legislation, enacted July 4, 2025, also designates U.S.-produced metallurgical coal as a critical material, providing a 2.5% monetizable tax credit on production-related costs over the next four years. These policy tailwinds significantly enhance the competitiveness and profitability of CNR's PRB and metallurgical operations. For 2026, 33 million tons are already committed at an average price in the mid-$14s per ton.

Financial Strength and Capital Allocation

CNR's financial strategy prioritizes strength and flexibility, underpinning its robust capital allocation framework. In Q2 2025, the company reported a net loss of $36.6 million and Adjusted EBITDA of $144 million. For the six months ended June 28, 2025, net cash used in operating activities was $132.2 million, while net cash used in investing activities was $67.5 million, a significant reduction from the prior year due to fewer large acquisitions.

The company's liquidity remains strong, with total liquidity reaching $948 million by Q2 2025, an increase of $90 million from Q1. This was bolstered by an increased cash balance and higher availability on its revolving and securitization facilities. Post-merger, CNR successfully upsized its revolving credit facility to $600 million and completed $1.2 billion in advantageous financing transactions, including remarketing tax-exempt bonds totaling $307 million at reduced interest rates.

A cornerstone of CNR's value proposition is its capital return program, targeting approximately 75% of free cash flow to shareholders. In Q2 2025, CNR repurchased 1.2 million shares for $82 million and paid $5 million in dividends. Year-to-date, the company has returned $194 million to shareholders, exceeding 100% of free cash flow, demonstrating a willingness to deploy capital counter-cyclically. A $1 billion share repurchase authorization remains largely intact, with $817 million available as of Q2 2025.

The company expects over $100 million in insurance recoveries related to Leer South, which will also be available for corporate purposes, including capital returns.

Competitive Landscape and Strategic Positioning

Core Natural Resources operates in a competitive coal mining sector, vying with established players like Peabody Energy , Arch Resources , Alpha Metallurgical Resources , and Warrior Met Coal . CNR's strategic positioning leverages its diversified portfolio, low-cost operations, and integrated logistics to maintain an edge.

Comparing key financial metrics, CNR's latest TTM Gross Profit Margin stands at 33.67%, Operating Profit Margin at 2.63%, and EBITDA Margin at 13.23%. These figures provide a snapshot against competitors, where Peabody Energy (BTU) reported a TTM Gross Profit Margin of 19%, Operating Profit Margin of 11%, and Arch Resources (ARCH) showed 21% and 17% respectively for 2023. Alpha Metallurgical Resources (AMR) posted TTM Gross Profit Margin of 11% and Operating Profit Margin of 8%. Warrior Met Coal (HCC) reported a TTM Gross Profit Margin of 97% (likely due to specific accounting or revenue recognition, requiring deeper analysis for direct comparison), and Operating Profit Margin of 17%. While direct comparisons can be complex due to varying business mixes and reporting nuances, CNR's margins appear competitive, particularly its Gross Profit Margin, suggesting efficient cost of goods sold.

CNR's Debt/Equity ratio of 150.92% (TTM) indicates a higher leverage profile compared to some peers like ARCH (10% in 2023), BTU (13%), and AMR (0.35%). This is a key area of differentiation, though CNR's management emphasizes maintaining a leverage-neutral balance sheet and has actively refinanced debt to improve terms. The company's P/E ratio of 177.19 (TTM) is significantly higher than ARCH (6.52), BTU (7.06), AMR (13.89), and HCC (11.32), suggesting the market may be pricing in higher future growth or reflecting recent losses that distort the trailing earnings. Management's view that the stock is "cheap" and that buybacks are "highly value creating at current valuations" suggests a belief that current market multiples do not fully reflect the company's intrinsic value or future earnings power.

CNR's competitive advantages stem from its integrated mining and terminal operations, which streamline logistics and reduce costs, particularly for export-oriented customers. This provides a qualitative edge over competitors who may rely more on third-party services. The ability to blend different coal qualities for higher value, a core operational capability, further differentiates CNR's product offerings and enhances its profitability. While some competitors like Arch Resources have demonstrated strong growth in metallurgical coal, CNR's diversified approach, coupled with its flexible logistics, allows it to pivot between domestic and export markets as conditions evolve, preserving margins.

The company's strategic acquisitions, such as Mueller Supply Company and Harvey Building Products Corp., expand its reach into exterior building products, diversifying its revenue streams beyond pure coal, though the primary focus remains on coal. This diversification, while distinct from its coal operations, provides a broader base for revenue generation. CNR's commitment to operational efficiency and best practices sharing across its combined assets aims to lower costs and enhance productivity, positioning it as a cost-advantaged producer in a competitive industry.

Outlook, Guidance, and Risks

Core Natural Resources' outlook for 2025 is shaped by its strategic initiatives, market dynamics, and the anticipated recovery of Leer South. The company projects 2025 capital expenditures between $300 million and $330 million, with cash-based SG&A expected to be $110 million to $125 million, eventually targeting $90 million long-term as synergies are fully realized.

A critical assumption for the metallurgical segment is the resumption of longwall production at Leer South during Q4 2025. While the mine experienced a temporary resealing in June 2025 due to elevated carbon monoxide levels, management remains confident in its ability to deliver on its potential, expecting only minor repairs to the longwall equipment. This recovery is crucial for achieving the low $90s per ton cash cost target for the metallurgical segment in the second half of 2025.

The company faces several risks, including commodity price volatility, particularly in global coking coal markets, which remain soft. Tariff-related uncertainties, while showing signs of abatement with recent trade agreements, continue to pose a risk to supply chains and cost structures. CNR's decision to reduce production at the Itmann mine underscores its market-driven approach, but also highlights the vulnerability to sustained weak pricing. Furthermore, the identified material weakness in internal control over financial reporting related to SDLC information technology general control is a risk that management is actively remediating.

However, the outlook is bolstered by several tailwinds. Domestic thermal markets are strengthening, driven by rising power demand from AI and data centers, and the PJM capacity auction clearing at record prices signals a supportive environment for existing coal-fired generation. The "One Big Beautiful Bill Act" provides significant legislative support, including a 2.5% tax credit for metallurgical coal and reduced royalty rates for PRB, directly enhancing profitability and competitiveness. The company's consistent upward revision of synergy targets, now at $150-$170 million annually, demonstrates strong execution and a clear path to enhanced profitability.

Conclusion

Core Natural Resources stands at a pivotal juncture, having successfully integrated its operations to create a diversified, low-cost, and cash-generative platform. The company's investment thesis is rooted in its ability to leverage operational excellence, strategic product blending, and flexible logistics to navigate dynamic commodity markets. Despite near-term challenges from the Leer South outage and market softness, CNR's aggressive synergy capture, robust capital return program, and favorable legislative tailwinds position it for long-term value creation.

The company's commitment to returning over 75% of free cash flow to shareholders, coupled with management's conviction that the stock is undervalued, presents a compelling opportunity for investors. As global energy demand continues to evolve, particularly with the surge from AI and data centers, and as metallurgical coal remains essential for industrial growth, CNR's strategic positioning and operational mastery are set to unearth significant value for its shareholders.