Executive Summary / Key Takeaways

• Warrior Met Coal operates as a low-cost, high-quality producer and exporter of metallurgical coal, leveraging efficient longwall mining technology and a flexible cost structure to maintain profitability even in weak market cycles.
• The company's core investment thesis is underpinned by its premium Blue Creek coal seam assets and the transformative Blue Creek development project, which is on schedule and budget, poised to significantly increase production and enhance margins starting in the second half of 2025.
• Despite a challenging Q1 2025 marked by significantly lower steelmaking coal prices leading to a net loss and reduced Adjusted EBITDA, operational performance remained strong with increased production volumes, and cash costs per ton demonstrated favorable variability with lower prices.
• Warrior maintains a robust liquidity position and a clean balance sheet, enabling it to fully fund the substantial Blue Creek capital expenditures from internally generated cash flow while continuing to return capital to stockholders through dividends.
• Key factors to watch include the trajectory of global steelmaking coal prices, the impact of evolving trade and tariff policies, successful execution and ramp-up of the Blue Creek project, and ongoing labor negotiations.

Setting the Scene: A Premium Producer in a Cyclical Market

Warrior Met Coal, Inc. stands as a dedicated U.S.-based supplier to the global steel industry, focused exclusively on mining non-thermal steelmaking coal, also known as hard-coking coal (HCC). Operating underground mines in Alabama, the company has carved out a niche as a large-scale, low-cost producer and exporter of premium quality HCC. This strategic focus began with the acquisition of key assets from Walter Energy, establishing a foundation centered on the high-quality Blue Creek coal seam. The global steel industry, and consequently the demand for metallurgical coal, is inherently cyclical, influenced by macroeconomic conditions, technological advancements in steelmaking, and the availability of substitute materials.

The company's overarching strategy is built upon leveraging its high-quality reserves, maintaining operational efficiency, controlling costs, and strategically positioning itself in the export market, primarily serving steel manufacturers in Europe, South America, and Asia. This approach is designed to enable the company to perform across various market cycles, capitalizing on strong periods while demonstrating resilience during downturns.

Operational Strength and Technological Edge

At the heart of Warrior Met Coal's operational capability are its highly efficient longwall mining operations at Mine No. 4 and Mine No. 7. This technology is a key operational differentiator, enabling large-scale, continuous extraction of coal from deep underground seams. The tangible benefit of longwall mining is its contribution to the company's low production cost structure and high productivity rates compared to other mining methods. The coal extracted from the Blue Creek seam is particularly prized for its very low sulfur content and strong coking properties, making it a premium product essential for blast furnace steelmaking. Mine No. 7 produces a premium Low Volatility (LV) coal, while Mine No. 4 yields a High Volatility A (HVA) quality product.

Operational performance has remained a highlight despite challenging market conditions. In the first quarter of 2025, the company increased production volume by 9.9% year-over-year, reaching 2.0 million metric tons, driven in part by initial production from the Blue Creek development. Mine No. 4 achieved a record high annual production volume of 2.8 million short tons in 2024, demonstrating the efficiency of the existing operations. The company has also demonstrated agility in managing external disruptions, such as temporary failures at the Demopolis and Holt Locks in 2024, by effectively utilizing rail transportation to maintain customer shipments without interruption.

Competitive Positioning in the Global Met Coal Market

Warrior Met Coal operates within a competitive global landscape dominated by producers from countries like Australia, the United States, Canada, and Russia. Key publicly traded competitors in the U.S. include Alpha Metallurgical Resources (AMR), Arch Resources (ARCH), Peabody Energy (BTU), and CONSOL Energy (CEIX). Warrior distinguishes itself through its singular focus on premium metallurgical coal and its strategically advantageous variable cost structure.

While competitors like AMR and ARCH also boast strong operational efficiency and focus on premium products, Warrior's cost discipline, particularly the variable nature of significant expenses like transportation and royalties which adjust with coal prices, provides a critical advantage in weak pricing environments. This flexible cost base helps Warrior maintain positive cash margins ($23 per short ton in Q1 2025) even when prices challenge higher-cost producers. Despite lacking proprietary, quantifiable technology differentiators, Warrior's consistent export volumes and brand recognition for quality support its position in key international markets. The company's clean balance sheet, free from legacy liabilities that some competitors may carry, also offers greater financial flexibility for strategic investments and capital returns. However, Warrior, like its peers, faces potential long-term pressure from indirect competitors such as renewable energy sources and alternative steelmaking technologies, which could eventually impact demand for coal-based steel production.

Recent Performance Reflecting Market Headwinds

The first quarter of 2025 saw Warrior Met Coal's financial results significantly impacted by a sharp decline in global steelmaking coal prices. Total revenues decreased by 40.6% to $299.9 million compared to $503.5 million in Q1 2024. This was primarily driven by a 42% decrease in the average net selling price per metric ton, which fell from $257.90 in Q1 2024 to $149.71 in Q1 2025. The lower pricing environment resulted in a net loss of $8.2 million, or $0.16 per diluted share, a stark contrast to the net income of $137.0 million, or $2.62 per diluted share, in the prior-year quarter.

Adjusted EBITDA mirrored this trend, dropping to $40 million in Q1 2025 from $200 million in Q1 2024. Despite the revenue and profit decline, the company's operational cost management was evident. Cash cost of sales per short ton FOB port decreased to approximately $112 in Q1 2025 from $133 in Q1 2024. This reduction was largely attributable to the variable nature of transportation and royalty costs, which decreased as selling prices fell, demonstrating the effectiveness of the company's cost structure in mitigating the impact of lower revenues.

The Blue Creek Growth Catalyst

The most significant strategic initiative for Warrior Met Coal is the development of its world-class Blue Creek mine. Relaunched in May 2022, this project is designed to tap into one of the last remaining premium High Vol A steelmaking coal reserves in the U.S. Management anticipates that the combination of low production costs from this asset and the high quality of the coal will generate some of the highest steelmaking coal margins in the country, delivering strong investment returns and rapid payback.

Progress on Blue Creek has been consistent and on schedule. As of March 31, 2025, the company had invested approximately $771.8 million in the project, including $55.3 million during Q1 2025. The total baseline project cost is estimated to range from $995 million to $1.07 billion. The project is being funded entirely from internally generated cash flows.

Key milestones were achieved ahead of schedule in late April 2025, including the completion of the AIM module of the preparation plant, the start of coal washing, and the completion of the rail loadout, enabling the loading of the first trains. Small shipments of Blue Creek product are expected to begin in Q2 2025. The longwall startup remains on track for no later than the second quarter of 2026. The project is expected to ramp up production significantly, targeting approximately 900 thousand metric tons in 2025, 2.7 million metric tons in 2026, and 4.4 million metric tons in 2027. This will increase the company's overall nameplate capacity by 75% to 12.7 million metric tons per year, with potential for further expansion.

Financial Health and Forward Outlook

Warrior Met Coal maintains a strong balance sheet and robust liquidity, providing a solid foundation to weather market volatility and fund its growth initiatives. As of March 31, 2025, total liquidity stood at $616.6 million, comprising cash, short-term investments, long-term investments, and availability under its ABL facility. The company has no outstanding borrowings under its ABL facility. This liquidity position is deemed sufficient to fund the remaining capital expenditures for Blue Creek, which are expected to be $225 million to $250 million in 2025.

The company's capital allocation policy includes a regular quarterly cash dividend, currently $0.08 per share, and the potential for special dividends or stock repurchases from excess cash. The company has demonstrated a commitment to returning capital, paying $5.2 million in regular quarterly dividends in Q1 2025 and repurchasing shares under its authorization.

For the full year 2025, Warrior's guidance reflects a cautious outlook on market conditions, assuming a Platts PLV FOB Australia price of $200 per metric ton. Production volume is anticipated to increase, incorporating the ramp-up from Blue Creek. Cash cost of sales per short ton FOB port is guided between $117 and $127, demonstrating the expected impact of lower prices on variable costs. Average net selling price realization is targeted at 85% to 90% of the PLV index, though Q1's 83% suggests it could trend lower if spreads remain wide. Spot volume is expected to be around 15%. Management is keeping the full-year guidance unchanged for now, pending clarity on the impact of recent trade and tariff policy announcements.

Risks and Challenges

Despite its strengths, Warrior Met Coal faces several pertinent risks. The most immediate is the continued weakness and volatility in global steelmaking coal prices, driven by factors like excess Chinese steel exports and soft global demand. This directly impacts revenues, profitability, and cash flow, as seen in Q1 2025. Evolving trade and tariff policies, including potential retaliatory measures, could disrupt trade flows, increase costs, or alter pricing dynamics.

Operational risks include potential transportation disruptions (like the 2024 lock failures), inflationary pressures on supplies and labor, and the inherent complexities of underground mining. The ongoing labor negotiations, with the CBA expired since April 2021, remain a potential risk for operational stability. Furthermore, while Blue Creek is progressing well, large-scale development projects carry execution risks related to timeline, budget, and successful ramp-up. Regulatory obligations, such as the ongoing discussions with the DOL regarding black lung liability collateral requirements under new rules, also present potential financial demands.

Conclusion

Warrior Met Coal''s investment narrative is one of a fundamentally strong, low-cost producer navigating a challenging market cycle while executing a transformative growth project. The company's core operational efficiency, underpinned by longwall technology, and its flexible cost structure provide a degree of resilience in the current weak pricing environment. While recent financial performance reflects significant market headwinds, the underlying operational strength and cost management capabilities remain intact.

The Blue Creek project represents the primary catalyst for future value creation, promising substantial incremental production of high-quality coal and enhanced margins. With the project on track and well-funded by internal cash flow, its successful ramp-up starting in the second half of 2025 is critical to the long-term thesis. Investors should weigh the company's demonstrated operational resilience and the significant upside potential from Blue Creek against the persistent risks of market volatility, trade policy impacts, and execution challenges. Warrior's strategic positioning and asset quality suggest it is well-equipped to emerge from the current downturn in a stronger competitive position, particularly as global demand for premium metallurgical coal evolves.