$31.00
$122.00
bear $31.00
base $77.00
bull $122.00
margin of safety $45.00
market price* $89.94
Warrior Met Coal mines steelmaking (metallurgical) coal from three underground longwall mines in Alabama: Mine No. 4, Mine No. 7 and Blue Creek. Substantially all of it is exported to steel producers. In 2025 the customer mix was 48% Asia, 37% Europe, 14% South America and 1% United States. Coal is priced off benchmark indices, so earnings swing widely with the steelmaking coal price. This is a cyclical, reserve-limited business. Owner earnings, the cash the business generates for shareholders after working-capital swings, stock compensation and the capital needed just to keep the mines running, ranged from about $0.13 per share (2020) to $15.86 per share (2022) over 2017-2025. The nine-year median is $7.41 per share, roughly $390 million a year. We use that as the level for the existing business because nine years covers a full price cycle, including the 2020 trough and the 2022 peak. Recent results are lower: 2025 was $3.38 per share, when the average realized price fell 29.5% to $146.20 per metric ton. One accounting judgement matters a lot here. Since 2022 the company has spent roughly $260 million to $525 million a year on capital, much of it on developing the Blue Creek mine. A simple revenue-based rule would treat nearly all of that as upkeep and produce negative owner earnings in 2024 and 2025. Instead we used the "sustaining capital" the company itself reports each year (for example $87.0 million in 2024 and $61.3 million in 2025) and treated the rest as one-time growth spending. As a cross-check, in 2025 net income plus depreciation and other non-cash charges was $259.3 million; deducting $20.0 million of stock compensation and $61.3 million of sustaining capital leaves $178.0 million, matching the figure built from operating cash flow. What changed in the business: Blue Creek began longwall operations in October 2025, eight months ahead of schedule. It produced about 1.8 million metric tons in 2025, and the company expects at least 4.1 to 4.4 million in 2026. The company has spent about $956.8 million of the $995 million to $1.075 billion project budget, with the remainder mostly due by the end of the first quarter of 2026, and it does not expect further mine development costs. Guided 2026 capital spending is $155 million to $215 million, of which $105 million to $115 million is sustaining, above the $87.0 million and $61.3 million sustaining spending of 2024 and 2025. We carry that higher upkeep cost in every case. Results reported so far for 2026 are consistent with the ramp: first-half revenue was $968.3 million versus $597.5 million a year earlier, and net income was $159.8 million versus a $2.6 million loss. Growth reconciliation: owner earnings fell 44% in 2025 ($6.08 to $3.38 per share). The base case assumes a step up to roughly $8.74 per share in year one. The reason is dated and in the filings: Blue Creek's longwall has been running since October 2025 and 2026 production is guided to at least 4.1 to 4.4 million metric tons versus 1.8 million in 2025, and first-half 2026 revenue is up 62%. Beyond that step, no growth is assumed. The key limit is how long the coal lasts. At December 31, 2025, proven and probable reserves were 45.8 million metric tons at Mine No. 4, 44.3 million at Mine No. 7 and 89.2 million at Blue Creek. At 2025 production rates (2.7 million, 4.7 million and, for Blue Creek, the 4.25 million midpoint of 2026 guidance), Mine No. 7 lasts about nine years, Mine No. 4 about 17 years and Blue Creek about 21 years. Nothing in the filings names a replacement for Mine No. 7, so in every case its earnings end when its reserves do. We did not credit resources that are not yet reserves, a second Blue Creek longwall (the company says it is only evaluating one), price recovery, or further cost savings on the older mines. Each mine's earnings stop when its reserves run out, and reclamation costs after mines close are not separately estimated. Base case, about $77 per share: the existing mines earn the nine-year median (about $390 million a year, split across Mine No. 4 and Mine No. 7 by tonnes produced); higher sustaining capital reduces this by about $41 million a year; Blue Creek adds 4.25 million tons a year at about $26 per ton after tax, based on the margin the company actually earned in 2025 (a $146.20 average price against about $113 of cost of sales per ton, roughly $33 before tax, taxed at an assumed rate of about 21%; 2025 was a low-price year), less the same sustaining capital. That is about $460 million a year, or $8.74 per share, while all three mines run. Each mine's earnings run to the end of its reserves and are discounted at 6%. Bear case, about $31 per share: prices stay near 2025 levels for the life of the mines, so every ton earns about $20.50 (2025 owner earnings of $178 million on 8.7 million tons sold), Blue Creek produces only 4.1 million tons, higher sustaining spending applies, and one year (year three) produces nothing, as 2020 did. Mine lives are the same. Balance-sheet leverage is modest and is not the driver: $156.5 million of 7.875% senior secured notes due December 2028, against $300.0 million of cash at year-end 2025. Bull case, about $122 per share: the existing mines earn about $10.20 per share a year (the average of the 2018 and 2023 results, both years that actually occurred), and Blue Creek runs at 5.4 million tons a year (capacity the company already raised to that level in 2025) at $43.60 per ton, the owner earnings per ton in 2024, a year that actually occurred. Blue Creek's reserves last about 16.5 years at that pace. What would make this wrong: steelmaking coal prices staying below 2025 levels for years, Blue Creek falling short of guided volumes, or sustaining capital running above the $105 million to $115 million guided. We did not add the $300 million cash balance or subtract the notes, because owner earnings are already after interest. First-half 2026 cash flow from operations ($120.6 million) was reduced by a large receivable build, so second-half collections are worth watching. Two quarters do not change our level, but if they annualize well below $8.74 per share the base case is too high. The margin-of-safety price is about $45 per share: roughly 42% below the base case, because earnings are tied to a volatile commodity price and each mine's earnings end when its reserves run out, and even the bear case of about $31 is worth roughly two-thirds of that price.