Warrior Met Coal, Inc. HCC

Key data

The business

Warrior Met Coal does one thing. It runs two deep underground mines in Alabama and pulls up premium hard coking coal, the grade steelmakers bake into coke to feed a blast furnace. It sells almost none of it at home; the coal goes onto ships bound for steel mills in Europe, South America and Asia, priced off an Australian benchmark and sold by the ton. A little natural gas comes up as a byproduct and gets sold too, but the whole company is one product against one price. The moat, such as it is, is geological: the seams are deep, high quality and cheap to mine relative to what the coal fetches, which keeps Warrior profitable at prices that idle weaker competitors. The thing changing the story is Blue Creek, a third mine the company has spent four years and well over a billion dollars building, which roughly doubles the reserve base and adds a long runway of new low-cost tons. 2026 is the year those tons start showing up in the numbers.

The numbers

Read the last five quarters and you watch a trough turn.

Q2 2025 was the bottom. Every quarter since has climbed, and the latest was the biggest in company history, revenue up 70.6% year over year and net income up more than fifteenfold, with gross profit swinging from almost nothing to $162.6M. That jump is not the coal price, which has stayed weak; it is volume, the new Blue Creek tons arriving on top of the base mines while the fixed cost of digging spreads over more of them. The Street looked for $1.40 and got $1.65. The question hanging over the last quarter, whether Blue Creek would run at rate and hold its cost per ton, got answered here: the volume showed and the operating leverage came with it.

The yearly view is the cycle in one frame. 2022 was the peak, when coking coal spiked after Russia invaded Ukraine, and earnings fell every year after to a trough in 2025 as prices normalized and Blue Creek's spending weighed on results. The first half of 2026 already earned nearly triple all of last year. Across 2022 to 2025 revenue shrank 9% a year and diluted EPS fell 56% a year, the record of a company riding a commodity down from a peak while pouring cash into a mine.

Free cash flow tells the real story. Warrior threw off its peak cash in 2022 and then spent itself negative in 2024 and 2025, not because the business broke but because it chose to build Blue Creek. Capex peaked in 2023 at $491.7M and has fallen since. As it continues to roll down and Blue Creek's tons ramp, free cash flow should swing hard positive, and the leverage that lifted Q2 earnings works on the cash line too. What this memo believes that the tape does not: the market prices Warrior on a soft coal price and a trough-inflated P/E, and underweights how much cheaper and larger the company becomes once Blue Creek is at full rate and the capex is behind it. The print that settles it is 2027 free cash flow at a normal coal price.

Management

Walter Scheller has run this company since before it went public and knows the cycle cold. Insiders have been sellers, not buyers: no open-market purchases in the last twelve months against $26.4M of sales, with Scheller alone selling $10.0M in January and another $10.8M across two August sales as the stock traded near its high. The data does not split those into pre-scheduled 10b5-1 plans versus discretionary decisions, so read them as a view on price, not on the mine. Pay is reasonable for the sector, about $7.3M for Scheller in 2025, roughly 13% of a depressed year's profit and mostly stock. The 2025 buyback was tiny but well timed, about $9.4M at an average $57.63 against today's $104. The balance sheet is the tell that management is not stretched: approximately $323M of cash against approximately $250M of debt, a net cash position of roughly $73M even in the heaviest year of the build.

How it fails or surprises you

The coal price stays down. Warrior sells one product at a global price it does not set. Premium hard coking coal has traded soft through 2026, and if it grinds lower the Blue Creek volume gets sold into a weak market and margins compress fast. Watch realized price per ton against cash cost per ton; if that spread narrows while cost holds, the earnings recovery stalls no matter how many tons come up.

Blue Creek ramps into an upcycle (right tail). Blue Creek adds low-cost tons just as years of thin mining investment starve new supply. If coking coal turns up while Warrior reaches full rate with capex behind it, the company earns peak-style profit on a bigger base with a clean balance sheet. Nothing in today's 25x trailing multiple pays for that; the first sign is realized price rising while tons sold keep climbing.

The cash never turns the way the story promises. The whole read rests on free cash flow swinging positive as capex rolls off, yet capex has run above operating cash flow two years straight. If Blue Creek needs more spending than guided or the ramp slips, free cash stays thin and the "cheaper and larger" case waits another year. TTM free cash flow is still barely positive at 0.1% of the price; that is the fact this memo's bull read explains least well.

Closing thoughts

This is an uncertainty a handful of prints resolves, not an exposure you can only survive. The evidence points to a wide range: on the downside, a soft coal price and a stumbling ramp leave earnings near trough with the stock already priced for recovery; on the upside, Blue Creek at full rate plus any price recovery drives free cash flow and earnings well past what today's price assumes. The right tail looks the fatter one, because the net-cash balance sheet removes the usual way a commodity name dies, and the volume growth is company-specific rather than a pure bet on the coal price. If the downside linchpin breaks, the cost is a year or two of dead money and a re-rate toward the low end of the range; if the upside lands, it is a materially larger, cash-generative business the market has not underwritten. Call that skew favorable, as judgment, not a number.

The bet is still that steelmakers keep buying the coking coal Warrior bakes out of Alabama, and that Blue Creek keeps ramping into lower costs. It breaks if the coal price falls faster than the new tons can offset, or if the mine cannot hold its cost as it scales. The one pair of numbers that tells you first: tons sold and cash cost per ton over the next two quarters. Tons up and cost flat or falling, the story is intact; cost creeping up as volume grows, and the leverage was a mirage.