Peabody Energy Corporation

Good morning, ladies and gentlemen, and welcome to the Peabody Energy Q2 2020 earnings call. At this time, all participants are in listen-only mode. Following today's presentation, instructions will be given for the question and answer session. If anyone needs assistance at any time during the conference, please press the star followed by the zero. As a reminder, this conference is being recorded today, August 5th. I would now like to turn the conference over to Julie Gates. Please go ahead, ma'am.

Thank you. Good morning, and thanks, everyone, for joining Peabody's earnings call for the second quarter 2020. With me today are President and CEO Glenn Kellogg and CFO Mark Spurbeck. Within the earnings release, you'll find our statement on forward-looking information as well as a reconciliation of non-GAAP measures. We encourage you to consider the risk factors referenced there along with our public filings with the SEC. I'd like to now turn the call over to Glenn

Thanks, Julie, and good morning, everyone. First and foremost, I'd like to thank our employees for their continued dedication to providing essential products that are vital to so many in these uncertain times. As always, the health and safety of our employees is paramount to everything we do. We continue to operate under robust protocols and procedures in line with the CDC and other health department guidelines to help mitigate against COVID. Obviously, COVID has had a significant impact across the global economy. Specific to coal supply and demand impacts are key to understanding the backdrop in which we are currently operating. So today, I'd like to start with an overview of current market conditions and then move into actions we have taken to reposition our cost structure. I'll then provide an update on key initiatives before turning the call over to Mark to cover the financials. While the global economy continues to navigate through the pandemic, the timing, scope and scale of the recovery remains uncertain. Idle steel capacity across Europe and the Asia Pacific has greatly impacted metallurgical coal demand. Year-to-date through June, global steel production was down 6%. Excluding China, global steel production was down 14%. As a result, demand from major met coal importing countries, excluding China, has been down year to date. While we have seen some supply responses, prolonged uncertainty has resulted in continued pressure on seaborne metallurgical pricing. Highlighting how uncertain this market is, China was a net importer of steel for the first time in 11 years in June, and that was even with record daily crude steel production during the month. On the thermal side, weak overall electricity generation and competition from both natural gas and LNG has resulted in challenging fundamentals as well. Furthermore, slower economic activity continues to weigh on large importing nations, In particular, India's thermal coal imports are down 20 million tonnes from the prior year through June. While Chinese thermal coal imports were up earlier this year, uncertainty around the imposition of import restrictions have begun to impact demand. Many thermal coal imports from China were down 20% year over year. Even though we've seen some supply responses, seaborne thermal coal prices remain depressed. Indonesia exports are down 17 million tonnes through June and US exports down 7 million tonnes through May. In addition, we'd expect further supply cuts as most major seaborne suppliers have revised guidance lower. In the US, COVID disruptions have been coupled with extremely weak natural gas prices and growth in renewable generation, further pressuring coal demand and potentially accelerating the secular demand decline already underway. Through June, total load was down 4%, while coal generation fell 31% to just 17% of the generation mix. Natural gas and wind both took share, rising to 39% and 9% of the generation mix, respectively. Preliminary data for July indicates improved coal generation, And just recently we've seen an uptick in natural gas prices, that if that holds, should provide a more favourable backdrop for coal, and should the railroads be able to flex up to the increased demand. Notwithstanding this, the overall weak demand, coupled with depressed pricing, has required us to continue to aggressively pursue our cost repositioning program. To date, we've made significant progress, and we have needed to. yet still more needs to be done. We have temporarily idled production at some lines, adjusted shift schedules, scaled back our workforce, and reduced the number of units in operation. I'll go into a bit of the details. From a workforce perspective, we've eliminated an additional 450 positions since April. In total, since the beginning of the year, we've scaled back our global workforce by 15%, as we continue to adapt to dynamic conditions. Over the past 18 months, our global headcount has declined by 24% due to a combination of accidents taken as well as natural attrition. Where possible, we furloughed workers, allowing them to retain benefits while we adjust to lower demand profiles. Most notably, in mid-June, we furloughed about 280 employees and contractors at our Wombo underground mine, We have restructured the Copperbella and Morvale mines to operate as a single mining complex. We have parked three production units, which includes trucks, graders, dozers, and supporting equipment. And as a result, we've also scaled back our workforce by about 15% from the complex. We'd expect these structural changes to result in increased efficiencies moving forward. In part due to these benefits, 10 out of 17 currently owned and operated mines have demonstrated cost per tonne improvements when comparing second quarter actual results to the financial year 2019 performance, and that's even with substantially lower volumes. These improvements are most notable across our surface operations that quickly responded to and overcame rapidly declining demand. Cost per tonne at our surface operations improved 6% compared to the prior year, even as volumes dropped nearly 30%. Our underground room and pillow operations have also responded well to challenging conditions. Our long-wall operations, however, have not been able to respond as quickly to lower demand. As you could imagine, slowing down production in a long-wall operation is a bit more difficult given complexities with fixed costs and often the geotechnical desire to advance the wall. While we have made significant progress, we know we cannot stop here. We will continue to pursue aggressive actions, particularly at our long-haul operations, to improve our cost performance across the entire platform. We also continue to advance several commercial processes, including the pending PRV Colorado joint venture with ARCH and options for North Gunyella, Closing arguments in the joint venture hearing will be held next week. While we have always believed in the benefits the joint venture would bring to multiple stakeholders, the case has only grown stronger in 2020. Challenging demand conditions have underscored the need for this transaction to remain competitive with other fuel sources. We look forward to the judge's ruling by the end of the third quarter. We also recently concluded the first round of the North Gunilla commercial process in which we continue to have interest from multiple counterparties. The second round is underway and we look forward to providing an update at the appropriate time. We will continue to weigh these options against strategic development alternatives. Market conditions and the status of the commercial process are continually monitored to determine the timing of any incremental spend related to ventilation and reentry of Zone B. With that, I'll now turn things over to Mark in his first official call as Chief Financial Officer to cover the quarterly results.