Peabody Energy Corporation

Good morning, ladies and gentlemen, and welcome to the Peabody Q3 2021 earnings call. At this time, all participants are in a listen-only mode. Following today's presentation, instructions will be given for the Q&A 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, October 28, 2021. I would now like to turn the conference over to Alice Theranos, President of Investor Relations and Communications. Please go ahead.

Good morning, and thanks for joining Peabody's earnings for the third quarter of 2021. With me today are President and CEO Jim Grex and CFO Mark Spurback. Within the release, you'll find our statement on forward-looking information, as well as a reconciliation of non-GAAP financial measures. We encourage you to consider the risk factors referenced there, along with our public filings with the SEC. I'll now turn the call over to Jim.

Thanks, Alice, and good morning, everyone. Seabuddy had a very good third quarter with our results benefiting from current robust global coal market dynamics. Strong operational performance coupled with increased seaborne pricing and global demand yielded quarterly results we have not seen since 2018. We continue to advance actions to position the company to be resilient in all market cycles by expanding our margins, reducing our debt levels, and removing obstacles to increase production. I would like to start by thanking our global workforce for their continued focus on working safely and efficiently. We are excelling not only because of strong coal markets, but also due to the dedication and efforts of our talented workforce. Across the globe, we are seeing record coal index prices in each market segment and demand returning to near pre-pandemic levels. The near-term market outlook for all our operating segments is favorable with strong market indicators and increased global demand providing a compelling story for coal and Peabody. The seaborne thermal and metallurgical coal markets are expected to remain tight in the near to medium term as supply response to elevated demand remains muted. heavy rains in Indonesia, rail issues in Russia, production issues in Colombia, and hampered domestic supply in China. Additionally, gas supply constraints and low wind generation in Europe have all combined to exert positive pressure on the global thermal market, while the seaborne met market is being bolstered by robust steel production and decade-high steel margins and tight coal availability. For 2022, With 2 million tons of incremental production expected at our met coal mines and thermal export production in line with 2021, we are well positioned and are looking forward to taking advantage of this demand and the margins that we anticipate will come with it. In the U.S. thermal coal market, indicators are also favorable with increased electricity demand and high natural gas prices leading to gas to coal switching and robust growth in coal generation as compared to prior year. Overall, electricity demand increased 3% over last year, with coal's share of electricity generation increasing to approximately 23% for the first nine months of 2021. As a result of increased demand and supply response, coal inventories have fallen by approximately 54 million tons year-to-date, the lowest level since 1997. Natural gas prices at high levels was reported that we have not seen since 2014, driving up coal generation demand. During the first nine months, utility consumption of PRB coal rose approximately 30% compared to prior year. Site supply and demand balances are leading to high forward prices for natural gas. Those forward prices and strong coal export demand are supporting expectations of continued elevated coal prices in the near term. At Peabody's PRB operations, We increased volumes and are trending towards the high end of our guidance range for 2021 and anticipate some incremental volumes next year. We currently have some uncommitted tons for 2022. However, given current demand exceeds supply, we're only selling those uncommitted tons under multi-year contracts. At our other U.S. thermal operations, we are ramping up volumes next year by approximately 2 million tons to meet increased customer demand. though we only have a small portion left to be sold for 2022 and for 2023. Now turning to the quarter, our operations were able to deliver projected volumes, offsetting the impacts of labor shortages and higher fuel costs. In addition, we continue to invest in the future with increased equipment refurbishments and mine development. Within our seaborne thermal segment, The Wilpen-Young Extension and the Wambo Open Cut JV development projects continue to advance, with over $200 million of capital invested over the past three years. I'm happy to report the box cut development work was completed at both projects in the third quarter, and we anticipate the Wambo JV to operate at full production run rates in Q4. Our seaborne thermal margins benefited from price increases of 66% in the quarter compared to the prior year, and the segment is on target to deliver higher export volumes in the fourth quarter as compared to prior quarters in 2021. Our Seabourn Met segment continues to deliver on efforts to expand margins through cost and productivity improvement initiatives, as well as sales strategies. In the quarter, the CMJV Complex and Metropolitan delivered 36% higher volumes at 16% lower cost per ton as compared to the prior year. The CMJV continued to realize productivity improvements at Metropolitan and Metropolitan reached planned longwall production rates. At Metropolitan, we reached a long-term sales agreement that underpins the mine for the next three years with pricing linked to seaborne met coal pricing. And importantly, both Metropolitan and Shoal Creek completed renegotiated labor agreements. The workforce has been back at Shoal Creek since early October. and we expect to restart production later this year. The U.S. thermal mines delivered another solid quarter generating significant EBITDA. Availability of labor impacted production at several of our U.S. mines this quarter, but we see this improving through programs that we have put in place. And finally, robust U.S. coal market dynamics have allowed us to build a strong book of forward business. The settlement of several long-term sales agreements at improved prices as compared to current level. Notably, in addition to multi-year PRV contracts, we have reached agreements that will support the continued operation of our 20-mile mine in Colorado for the next five years and have signed agreements in the Illinois Basin with increased pricing through 2025. Our globally diversified asset base, which makes us distinctly unique from any other U.S. coal company, is allowing us to benefit from these market conditions. Our Q3 results were a confirmation of the value we can generate from our asset mix. During the quarter, we also continued to take actions to reduce our debt levels and raise cash to the issuance of common shares. To date this year, we have reduced our debt levels by approximately $250 million. We also took steps to reduce our closed mine and legacy liabilities through the sale of our Millennium and Wilkie Creek closed mines. These actions are part of our commitment to enhance our platform to be resilient in all market cycles. We are also progressing on multiple initiatives that will allow us to expand and improve near-term production. As previously mentioned, Shoal Creek will be back in production later this quarter, and at Metropolitan, the Longwall is producing at full run rates, resulting in significant year-over-year increases to our seaborne MET export volumes. Moorvale South, which will result in improved quality and extended life at our CMJV, is expected to be in production in the first half of 2022. And in the U.S., we are implementing plans to produce incremental volumes at our mines in the near term, adding underground production units in the Illinois Basin and expanding development at our wild boar complex. In addition, in the PRB, we are refurbishing and relocating equipment to enable increased production. Our long-term strategy remains to reweight investments towards seaborne markets, maximize U.S. thermal asset cash generation, and enhance financial strength through debt reduction. I'll now turn things over to Mark to cover the financials.

Thanks, Jim, and good morning, everyone. Third quarter results demonstrated our ability to capture improved market conditions and generate substantial margins from our diverse asset portfolio. The thermal segments Both U.S. and Seabourn, as well as our improving Seabourn met segment, reported strong results. Third quarter sales were over 900 million, our highest in seven quarters, an increase by more than 30% from the prior year. Reported revenue was 679 million, net of 238 million of unrealized mark-to-market losses. Those losses primarily relate to economic coal hedges. At September 30, we had hedges on 2.9 million metric tons. the majority of which were contracted in the first half of 2021 and relate to 2.1 million metric tons of expected production at our Wambo underground mine. These tons are expected to be mined and settled at a rate of 1.4 million tons in 2022 and 0.7 million tons in 2023. The hedge contracts support the profitability of the mine by securing average prices of $84 per metric ton through mid 2023. and are a key ingredient of a strategy to extend the expected life of the mine. The remaining tons relate to brokered coal transactions and other blending and optimization activities, which will settle beginning in the fourth quarter and throughout 2022. Net loss attributable to common shareholders totaled 44 million, including recognition of the 238 million of unrealized mark-to-market losses. We reported adjusted EBITDA of 289 million, More than double the 122 million reported in the second quarter and three times the prior year result of 95 million. Importantly, we took further action to enhance our financial strength, retiring an additional 93 million of senior secured debt in the quarter, resulting in a net gain from early debt extinguishment of 16 million. We also retired an additional 30 million after September 30th. That brings debt retired this year to approximately 250 million more than 16% of debt outstanding at January 1st. In the quarter, we raised net cash proceeds of 112 million by issuing 9 million shares of common stock under the at-the-market equity program. Subsequent to September 30, we raised an additional 39 million and issued 2.8 million shares. Outstanding shares are now approximately 126 million, and we have about 5 million shares remaining available under the currently approved ATM program. At September 30, we had 587 million of cash and cash equivalents, net of 240 million of cash margin posted related to the economic coal hedges previously discussed. When these tons are sold, we will realize either the currently higher spot price or cash margin will reverse as prices decline toward the hedged price. Turning now to the segment results, the Seabourn thermal segment generated EBITDA of $104 million and benefited from a $23 increase in average realized prices compared to the prior year. Costs per ton were higher than prior year due to lower production at Wilpin Young and the transition to the Wambo Joint Venture, in addition to unfavorable exchange rates, higher fuel, and royalty costs. Wilpin Young shipped 3.5 million tons in the quarter, including 1.6 million export tons, at an average cost of $26 per ton. Wilpin Young realized average sales price of $42, resulting in EBITDA margins of approximately 40%. Wilpin Young recorded $56 million of adjusted EBITDA and had $145 million of cash at September 30. The Seabourn Met segment generated EBITDA of $57 million, with an average realized price of $120 per ton and costs of $82, resulting in 32% margins. Third quarter MET shipments were approximately 400,000 tons higher than last year due to higher production at Metropolitan and the CMJD. Total costs for the seaborne MET segment were lower by more than $15 per ton compared to prior year due to elevated costs at Shoal Creek in 2020, and this despite higher royalties, unfavorable exchange rates, and higher fuel prices in the current quarter. The continued improvement in costs and recent rise and international coal prices demonstrate the value of our Seabourn MET segment to the company's diversified portfolio of mines. In the U.S., our mines delivered 82 million of EBITDA, despite challenges with labor availability and COVID-related absenteeism impacting production at several operations. Our PRB mines shipped 22.7 million tons in the quarter at a 15% margin. The other US thermal mines shipped a combined 4.5 million tons and generated 24% EBITDA margins. Both the PRB and other thermal segment costs increased due to higher levels of planned equipment maintenance and higher fuel prices. In the PRB, higher overburden removal and weather events also impacted costs and production for the quarter. Looking ahead to the remainder of the year, we anticipate higher seaborne thermal volumes including the 3 to 4 million export tons of which approximately 50% are unpriced. Costs are expected to be lower than the third quarter as the Wambo open cut is at full production and Wilp and Young development is complete. Wilp and Young volumes are expected to be approximately 4 million tons with 2 million export tons to finish the year with its strongest quarter. The Seabourn Met segment is expected to ship 1 to 1.5 million tons in the fourth quarter with 75% of those tons on price. We anticipate production at Shoal Creek to recommence in the second half of the fourth quarter with ramp up continuing through the first quarter of next year. We are planning for PRB and other U.S. thermal volumes to be flat with third quarter levels and costs for both segments to be slightly higher in the fourth quarter due to mix. Fourth quarter cash flows are expected to increase substantially over third quarter levels as we continue to see favorable pricing in each of our segments and the cash margin related to coal hedges begin to reverse. Lastly, we will continue to be disciplined, taking advantage of strong markets, controlling costs, and further reducing debt. I'd now like to turn the call over for questions. Operator?

Thank you. Ladies and gentlemen, at this time, we will now begin the question and answer session. If you have a question, please press the star followed by the number one on your push button phone. Your questions will be answered in the order they are received. If you are using a speaker equipment, you will need to lift the handset before pressing the numbers. If you find your question has been answered, you may remove yourself from the queue by pressing star two. One moment please for the first question. And we'll go ahead and take our first question from David Gagliano with BMO Capital Markets.

Hi. Excuse me. Thanks for taking my questions. I think maybe I'll just reach out to the 2022 world for a minute. In thermal, you've given us some information, but I was wondering if you could give us more detail on the you know, the contracts that are committed in the Powder River Basin and the prices for those, you know, the average prices, the volumes that's committed, and how much is, you know, what's the average price for 2022 in the PRB? First question.

Hey, David. Good morning. Jim Gregg here. And I'd like to take this opportunity, since you're asking about 2022, is really just to talk about the whole portfolio addressing the PRB, but also our seaborne. So, first off, you'd asked about prices, and since we're still in negotiations for 2022 in many of our market segments, we aren't going to comment on any specific prices associated with forward sales. We'll do so when we report our Q4 results. But I will, in general, give you some ideas in the directions we're going. So starting with our domestic U.S., you asked about the PRB. We, you know, we're trending towards the higher end of our forecast for this year as shown in our earnings release. And we expect that to be the base for our tons for next year. uh with upside for uh an 8800 btu area we're still looking for volumes uh we're still working on that upside volumes uh for next year we have limited tons left for sale at that 90 million ton level and as i said in my remarks we are pricing uh we are selling them with multi-year deals now in in regards to pricing for next year for the tons that we do have sold we are layering we have been layering in prices and sales through the whole year so we're not not selling at all at the current price decks that are out there. So that is the case. But again, we do have unsold tons for next year at that 90 million ton level, and we are looking to improve upon those volumes, and we'll be able to comment on that more on the next call. The other U.S. thermal that we have, we are going to take the base that we have from the projections and the earnings release and add about 2 million more tons of production on that. That coal is already sold, mostly for 2022 and 2023. So in the U.S., again, we have some exposure to the market. We've been layering some of the sales in, and we do have some upside in our other U.S. thermal, and we're working on upside in our PRB ton. On the international, the Seabourn gives us significant more market price exposure. Two classifications of coal that we have there, Seabourn Met and Seabourn Thermal. And the Seabourn Met, all of our tons are unpriced at the moment, so we have completely open to the market next year in our Seabourn Met, and that's over seven million tons of coal. And the Seabourn Thermal, about two-thirds of our tons are unpriced for next year, so are open to the market exposure for pricing next year. David, I think I tried to cover all of the segments there. Maybe get all your questions all at once. Do you have anything else you'd like me to comment on? Yeah, okay.

Thank you for that. Well, just a quick follow-up. Could you, for the PRB at least, tell us, you know, you said, you know, shooting for 90 total. Instead of asking about the price directly, can you tell us, you know, how much you have left specifically to price? And then... you know, roughly when timing-wise you layered in the majority of the contracts that are already locked in?

On the layering in of the tons, that's been done since I'll say mid-year till now. And I don't know the breakdown of mid-year to later in the year. We've been layering it in since mid-year till now. I think, you know, probably we did a little bit more in the August, September timeframe, but I don't have that breakdown, David. And as far as what's available to sell at that 90 million ton level, it's less than 10% of the tons that we have available to sell for next year still.

Okay, that's helpful. Thanks. And then just switching gears real quick, Shoal Creek, can you just talk about a little more detail on the ramp up? You know, incremental CapEx, expected cash costs, and volumes for full year 2022.

Please. So we've signed the contract with the union. And that contract is going to go through the end of 2024, December 31, 2024. So it's a plus three-year contract. The mine has been sitting for over a year. And so the startup, we're in the startup now. We started with safety training. YOU KNOW, CALLING EMPLOYEES BACK TO WORK AND, YOU KNOW, INSPECTING THE EQUIPMENT, EXPECTING THE BELTS AND ALL THAT WORK STARTED AND WE EXPECT THE LONG WALL TO START PRODUCING SOME COAL SOMETIME HERE IN NOVEMBER. THAT COAL WILL BE USED AND WE'LL GET THAT TO THE SURFACE AND THEN WE'LL START COMMISSIONING OUR PREP PLANT BECAUSE THERE WAS EXTENSIVE WORK DONE AT THE PREP PLANT WHICH WILL RESULT IN IMPROVED YIELDS FOR US. SO TO GET THROUGH ALL OF THAT, GETTING IT STARTED UP WILL BE, YOU KNOW, THROUGH THE END OF THIS YEAR AND expect to start hitting our stride towards the end of this year and in the first part of next year on the production levels. As far as capital for next year, it's just going to be normal, sustaining capital. And right now, we don't have any information to release on expected tonnages or costs for Shoal Creek for next year.

Okay, that's helpful. Thanks. And just real quick, I'm assuming that's all going to the export market, and can you remind us the quality of that, Cole?

Yeah, David, Mark, it is all going to the export market. I would say, given where the markets are today, looking forward to 22, I'd be thinking that as kind of a high-volume product for 2022. Historically, we've looked at it as a premium hard-cooking coal product and probably going out 23 and beyond, I think of it that way.

Okay, that's helpful. Thank you.

Ladies and gentlemen, if there are any additional questions, please press the star followed by the one at this time. As a reminder, if you're using speaker equipment, you'll need to lift the handset before making your selection. We'll go ahead and take our next question from Lucas Pipes with B Reilly Securities. Please go ahead.

Thank you very much, and good morning, everyone. I have a quick follow-up question there on the domestic contract book. Jim, for 2023, how much of the PRB is open?

Lucas, I don't have that number with me. I know we've been selling for 23 and 24. When I mentioned multi-year contracts, we're going out 23, 24, maybe even a little bit into 25. But we'll have to follow up with you on that. I'm not sure the percentage that we have open.

Got it. But I heard correctly that on other thermal, which I assume would be both Colorado and Midwest, you mostly sold out for 2023.

2022 and 2023, even though we've increased production by about 2 million tons a year in that segment, or we're going to, it's fairly, it's pretty much sold out for the next two years. Yes. Got it. That would be our Midwest assets and 20 miles.

Got it. Got it. Okay. That's helpful. I appreciate that. And then Maybe switching over to Seabourn Thermal. I believe you have about two-thirds open there, and historically you've sold a lot of tonnage on the Japanese fiscal year. So kind of when would you be selling the remaining two-thirds of that business? I would appreciate your thoughts. Thank you.

Well, there's some percentage of it that are probably two-thirds of it I said was unpriced. But some of that is sold, but it's related to index pricing, and then the rest of it comes to market pricing. And as far as the timing of that, we'll lock that in the end of this year and in the first quarter of next year for the unsold amounts.

Got it. Got it. That's really helpful. Thank you. And then maybe just a last one on the shorter-term outlook. You provided really helpful kind of comments regarding Q4, and obviously pricing has been terrific in recent months, and I assume much of that would really flow through in full force in Q4. So I wondered, is it possible to... provide additional comments around adjusted EBITDA, free cash flow. And Kiefer, you said substantially better, but wondered in these unique times of high prices, if you could maybe help investors.

Yeah, Lucas, Mark here. I'll try to take a crack at, I think, your questions. Really looking at fourth quarter, maybe starting with Seabourn Thermal. You know, we probably have three to four million tons of export per We have about 1.7 million of those tons priced at an average of $92. The rest will remain floating and open for pricing. From a Seabourn Met perspective, looking for about 1.3 million tons, as we haven't changed our guidance. We have a little over 300,000 tons priced at about 161, and 1 million tons then unpriced for the remainder of the year. Just for reference, Q3 was 1.5 million tons at 118.

Got it. The quality of the unpriced – I say the – yeah, between PCI, hard coking coal. Do you have a – would you be able to provide some color on that in terms of the quality breakdown of the unpriced met coal?

No, I don't exactly have that in front of me, Lucas. I think – Again, if you think about the one on the Seabourn thermal side first, I think that you got to look at two things. One, Wilton Young is really a high ash thermal, and it's sold at a 5% to 20% discount to API 5. Wambo is truly a benchmark Newcastle product, and the majority of the Wambo is unsold. Got it.

Got it. Okay. Well, I appreciate your color comments, and best of luck.

All right. We can go ahead and take our next question from Nathan Martin with the Benchmark Capital Company.

Hey, good morning, everybody, and congrats on the quarter, and thanks for taking my questions. I guess I'll start on the cost side. I think kind of the pricing side has been discussed. So maybe, you know, you guys had a pretty material quarter-over-quarter decline in net costs in 3Q. I think you said some of that was related to high Shoal Creek costs a year ago. I guess the question is, is that number kind of repeatable here in the fourth quarter and beyond, or do you expect your Shoal Creek ramp to kind of put some pressure on that number given your full year guidance of $93 to exclude Shoal Creek.

Thanks. Yeah, Nate, definitely saw a great cost from the MET segment in the third quarter. I think really two reasons for that. First, the ramp up of METROP to full production rates at the Longwall, really quarter over quarter improved that, as well as significantly higher production at Moorvale. You know, Moorvale tends to be lumpy. We were certainly on the coal, and at higher production drove those costs lower. We haven't changed our overall full-year guidance on costs, so it really was as planned and expected. But these costs in the third quarter were particularly low for those two reasons.

And, Mark, regarding Shoal Creek, I mean, do you think that would tend to maybe pressure those costs a little bit in the fourth quarter?

Yeah, no question. As we begin to ramp up at Shoal Creek, there will be some higher costs that will be blended into that segment. We'd expect that to also put pressure on the fourth quarter results.

Got it. Thank you. And then maybe if we just look ahead to 2022, any early thoughts on how costs for different segments might trend there, especially given some of the inflationary pressures we're seeing in the marketplace?

Yeah, two things. One, we're not providing cost guidance for 2022 today. We'll do that on our next call. Certainly, inflationary pressures are being felt across the industry. We look at it on a couple of main factors. You know, labor is tight as well. Labor is probably 25% of our global costs. We use about 80 million gallons of fuel as well, so some higher fuel costs, and certainly steel. There's an impact of steel as well from some of the underground mines as well as the components and equipment. You know, as we're seeing these inflationary costs, it is really a part of the economy that is being felt very broadly. Fortunately, the higher margins that we're expecting to see here is more than offsetting those higher costs.

Got it. Makes sense. Maybe, Mark, could you kind of remind us what percentage maybe of your costs are sales sensitive related for some of the different segments with prices?

Yeah. Yeah. Broad brushstroke, I'd say from on the Seabourn side, about 10% of revenues are really royalty related and cost production. And then, you know, in the PRB, With the federal royalties there, we're probably about 25 to 30 percent on that number.

Perfect. Very helpful. And then maybe just finishing with a bigger picture question. Maybe, Jim, can I get your thoughts around some of the headlines we're seeing in China regarding power shortages and maybe more recently the talk of proposed thermal price caps and Maybe how you see that playing out or affecting Peabody's business in that marketplace? Thanks.

Yeah, Nate, I have a good morning. First off, I have a few comments on that. You know, historically, Peabody has not sold much of our coal in China. In 2020, only about 2% of our product went to China. But obviously, what China does with their coal and their policies affects the world markets. And so, you know, our view is there's a policy, there's a lot of speculative trading that goes on in the markets, but we always go back to the fundamentals of supply and demand. And, you know, talk about price caps and so on, but, you know, the fundamentals are that demand is strong and we expect it to stay strong through, you know, through the winter at least and into next year. And the supply is constrained and any quick, responses from supply is going to be muted for a number of factors. So if you take the speculative trading out of it that, you know, adds a lot of fluctuations in the prices and announcements about price caps, you know, we still think the fundamentals are very strong for prices because demand is going to be stronger than supply as we've seen right now, and we expect that to continue through next year.

Got it. Thanks for those comments, Jim, and I appreciate the time and information. Best of luck to you guys in the fourth quarter.

Thank you, Nate.

And we'll go ahead and take our next question again from David Gagliano with BMO Capital Markets.

Hi. Sorry to hop on again. I just have a few follow-ups here. I just want to clarify one thing. On the fourth quarter, the export thermal implied volumes that are on price, I think it's 1.3 to 2.3 million tons. How much did you say was Wambo versus Wilpinjohn?

Yeah, we didn't answer. I don't have that number in front of me. Let us get back to you with that, David.

No, I have it. On Wambo, we have .3, or 300,000 tons, and at Wilpinjohn, we have 1.2 million tons.

Okay, right. Okay, that makes more sense. Okay, I thought, yeah, I misunderstood. Okay, thanks. And then just on the other thermal business, visibility is pretty low in some of these regions in the U.S., and some of this could be going into the export market, you know, 20-mile mine, that kind of thing. I'm just kind of curious, can you give us a little more color on the pricing, given that it's sold out for the next couple of years, even at the higher volumes, and understanding proprietary issues? maybe just give us like a blended average price or something for the other thermal business and some information if possible, how much of that other thermal is actually destined potentially for the, you know, the export market, if any.

Okay, so I'll talk about the markets and Mark, if you want to comment on the pricing after I talk about the markets. You know, first off, our other thermal We have the El Segundo mine in there. We have the 20-mile mine and then our Midwestern mine. So there's quite a mix of markets and contracts that cover all of that. So again, it's, you know, David's saying there's one price index or one thing that you can look at is tough because of the mix that we have in there. There was a small amount of 20-mile that went to export this year, earlier in the year when, you know, when there wasn't, when the market was softer here in the U.S. But that was just a call out of one off. We don't expect that to continue. So all of that coal that we talk about is going to be domestic for US consumption. We're not really going to be exporting that. And the forward sales that we have at the mines, again, 20 mile, the five year extension we had is certainly going to take up almost all of the coal of that mine that's domestic. And then in the Midwestern mines, you know, we've signed a contract for a large amount of that through 2025. And again, through 2023, it's all sold domestically to utilities in the Midwest. So there'll be no export tons at any of those mines. So again, the pricing, it's a little complex because of the mix of the mines that we have in that category. And again, I'm not sure that there's really a specific indice that we can point you to that says, hey, follow that for the pricing.

Right, exactly. And that was really the point of the question on my side. Given the broad mix there and things like that, can you just tell us the weighted average price that you've locked in? Because I don't think it would give away any proprietary information within that bucket. Yeah.

David, as we said, on our next earnings call, we'll give some color on forward pricing and costs and tonnages. We're not giving out any of that information right now, because even though things are mostly sold, we still have negotiations ongoing. So until we close those out here, we're not going to comment on the pricing for next year.

Okay. Then just my last question on – back to Shoal Creek for a minute for 2022. I understand the – you know, the limitations on cost information at this stage. But obviously, there's quite a bit of capital that went into the mine, I'm assuming, quite a bit of capital went into the mine last year or so, a lot of changes. And, you know, in terms of the cost structure, can you frame it perhaps within the context of, you know, the rest of the, you know, the Seabourn Met segment, you know, our costs at Shoal Creek likely to be on average higher in line or lower than the rest of the seaborne met complex?

David, it's Mark. A couple of thoughts. One, I mean, Shoal Creek has historically been on the higher end of that cost, so I expect it to be higher than the other met costs. I mean, when you look at this, I would just, you know, when you compare it to prior results that we had prior to the temporary shutdown, We'd expect it to be higher temporarily as well. And remember, we're in probably less favorable geology as we ramp this back up where we ended. So yields will be lower. We did invest capital, as you mentioned, on the plant to improve that. But we'll certainly be looking at some higher costs as we start this back up.

Okay. And then just duration of those higher costs, is that through 2022? Or are we just talking about 4Q to 1Q and then fading to kind of a normal number after that?

I would say you'd expect it to be higher for 2022, reverting back to more normal run rates after that. Okay.

Thanks. All right. We'll go ahead and take our next question again from Lucas Pipes of B Reilly Securities.

Thank you. Thank you very much for taking my follow-up. Jim and team, I wanted to get your thoughts on the M&A environment out there. Are we more or less likely here to see maybe some consolidation in the space? This has been a really elusive subject over the last few years, but I would appreciate your thoughts on that. Thank you very much.

Yeah, well, you know, it's been elusive, and one of the issues has been the availability of capital to do anything, whether it's capital improvements or M&A. But, Lucas, I would just think along with Peabody and other coal companies, you know, I would just think of the industry in general, since everybody's liquidity is better and stock prices are improving versus where it was a year or two ago, all of those things lend, you know, are tools that could be used to have more M&A than has been in the past. And my belief is, as as many others, that consolidation does need to occur in the markets, which is, you know, there's still, even with these strong prices, there's still too many different players out there. the cost structures, the consolidation would do well on the cost side, particularly for the US market. So I think consolidation still needs to occur. And again, I'll say the industry in general is a lot healthier to do it with stronger stock prices and more liquidity. But the availability of capital is still a challenge for anybody in the coal segment.

And when you think about your portfolio, are there areas where you'd say this is maybe less of a strategic priority, and then are there areas that is more of a strategic priority? So if you were to share with investors your thoughts as to how the portfolio could be optimized, I would very much appreciate that.

Well, just a view on strategy. for the company, I think the first thing that our company is focused on, and Mark said and I've said it, is we have to pay down debt. And that's the number one focus that we have is pay down debt. And once we pay down debt and become more resilient for these market cycles, which we think the volatility is going to be more severe and more frequent than we've seen historically, because the supply side can't react as quick as it has historically. So by far and away, our first strategy that I'd like to tell any investor shareholders is pay down debt. Then after that, we would be looking at organic growth off of our own assets. We've talked about that both in Australia and the US and in the tons that we're looking at for increasing next year, you know, very low cost tons. It's minimal capital investment. It's, you know, using equipment that we've had sitting or refurbishing it, you know, and hiring the people to run the equipment. So, The next part of that would be the organic growth off of what we have and maybe looking at picking up some reserves selectively to do that. The next part of that, I would say, Lucas, would be growing with our customers. And I put that into a few buckets. One of them is picking our customers in the industry and seeing the value of having longer-term relationships, longer-term contracts, because there are fewer players, even though there's more consolidation. that needs to occur and we need to be capitalized and we need to attract and retain employees at our minds because these longer term contracts will let us do that. But when you start growing with the customers, there are other opportunities out there to look at different ways to do things with power generation, with renewables. We are a large surface property holder. So all of those types of things I would say are growth for us and growing with our customers. Fourth in that list, I'd get us down to M&A, you know, what we would look at for M&A. You know, we do favor a weighting towards the seaborne markets. We think that, you know, that's where the growth is and the sustained demand, both on the thermal and MET. But in the U.S., we are also dedicated to the U.S. thermal markets. Even though it's in secular decline, we still think there are going to be demand for the producers that are left as reliable producers. And so, again, in the U.S. markets, we're very comfortable with the assets we have, and I think they're well-placed for what we see the future is of the coal needs in the United States.

Jim, very much appreciate that. And, again, best of luck. Thank you.

Thank you, Lucas.

And, Jim, it appears there are no further questions at this time.

Well, thank you all for joining us today. I'd especially like to thank our employees for remaining focused on safety and for continuing to execute on our various productivity and cost improvement initiatives. I'd also like to thank our customers, investors, insurance providers, and vendors for your continued support. Operator, that concludes our call.

This concludes the Peat Body Q3 2021 earnings presentation. Thank you all for participating.