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spk01: Good morning, ladies and gentlemen, and welcome to the Peabody Q1 2022 Earnings Conference Call. At this time, all participants are in a 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, April 28, 2020.
spk00: I would now like to turn the conference over to Alice Thurnos. Please go ahead.
spk03: Good morning, and thanks for joining Peabody's earnings call for the first quarter of 2022. With me today are President and CEO Jim Grech 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 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.
spk07: Thanks, Alice, and good morning, everyone. In the first quarter, we set the stage to realize strong results for the remainder of the year. Our operations performed well given the operational and logistical issues faced, and with strong market dynamics persisting for our products globally, we are poised to deliver a strong 2022. During the quarter, we overcame production and logistic challenges in Australia related to record rainfall and COVID-induced labor shortages and instituted recovery plans to recapture volumes over the remainder of the year, while progressing efforts to increase volumes at our U.S. mines. We strengthened the balance sheet and mitigated financial risks, and we advanced several strategic initiatives with the launch of our three renewables, progression of our U.S. sales strategies, and expansion plans for the Seabourn platform. Our focus remains to advance actions to position a company to be resilient in all market cycles by capturing expanded margins through production and sales strategies, while remaining long-term cost competitive and reducing our debt levels. Before I expand on the quarter, I'd like to thank our global employees for their continued focus on working safely and efficiently, particularly given distractions from weather, COVID, labor shortages, and logistical challenges. Our success is a result of the dedication and efforts of our talented workforce. I'd like to specifically highlight the significant achievement of the Shoal Creek and Francisco Prep Plant teams, who both have now gone over four years without a reportable injury. Turning to the market, across the globe, all coal price indices and demand in each of our market segments continues to be strong. The near-term outlook for all our operating segments continues to be favorable, with strong market indicators, increased global demand, and continued supply constraints. Seaborne coal market fundamentals remain robust, with significant volatility in the markets driven by the Russia-Ukraine conflict. The EU total ban on Russian coal imports has European buyers seeking to mitigate exposure to Russian coal imports, and has caused an upswell in already elevated demand and pricing for supply from regions outside of Russia. Japan has now also announced a ban, albeit with an unclear timeline. And we anticipate this to further impact market dynamics of the already tight and turbulent seaborne markets. Within the seaborne thermal market, demand and supply balance is stretched. Thermal coal supply was already pressured prior to the Russia-Ukraine conflict, with Indonesian producers impacted from wet weather and a January government-imposed export ban on coal. producers impacted by heavy rains and COVID interruptions. Overall, we expected global thermal coal prices to remain elevated and the market volatile as certain importers look to fuel demand with coal outside of Russian supply and limited incremental supply available in the near term. Within the seaborne metallurgical market, market indicators are robust with global steel production outside of China at decade-high levels and steel product margins remaining strong. Ongoing impacts from COVID, wet weather, and logistics constraints continues to suppress global net supply. Strong demand persists from buyers attempting to mitigate Russian exposure, especially for PCI products given Russia accounts for about 35% of global traded volumes. China's unofficial ban on Australian coal remains in place and continues to redistribute traditional trade flows. Energy shortages in some markets present a risk to industrial activity, but the underlying market fundamentals remain constructive for strong demand and pricing. In the United States, overall electricity demand increased more than 3% year-over-year, positively impacted by weather. In the first quarter, electricity generation from thermal coal declined year-over-year due to strong comparatives in February 2021, as well as record renewable generation. Coal's share of electricity generation declined slightly to approximately 22%. Coal inventories have continued to decline since December 2021, with a reduction of approximately 5% for 5 million tons. Utility consumption of PRB coal rose approximately 1% compared to the prior year period. Combined, this increased PRB demand with increased demand for U.S. export coal due to the Russia-Ukraine conflict, and it makes for a U.S. market that is very tight, with the supply side being pushed even harder with its logistics challenges. Natural gas prices have hit highs above $7 per MMBTU, levels we have not seen since 2008, and are expected to remain high for the remainder of 2022 due to record demand for LNG exports, relatively moderate production levels, and storage levels below the five-year average. With these dynamics, we are seeing U.S. thermal coal demand remaining strong with recent increases in sales proposal requests. and contracting for 2023 at prices above our 2022 averages. All these dynamics set a compelling stage for 2022 in terms of demand and pricing of our coal products. Now turning to the first quarter. As projected, our first quarter sales volumes are below rateable levels across the platform as we set the stage for stronger results as we progress through the remainder of the year. In our seaborne thermal segment, After severe rains in the fourth quarter, our mine sequencing reestablishment plans were hindered by further record rainfalls and COVID-related staffing shortages in the first quarter. Additionally, we started to schedule a long-haul move at Wanmo Underground. Against these production challenges, we drew down inventory to deliver sales in lines with guidance and instituted recovery plans to recapture full-year projected volumes over the remainder of 2022. And with an eye to the future, We started development efforts at Wambaugh Underground for three additional longwall panels that will extend the mine life until 2026. Our Seabourn MET segment performed as projected, with higher volumes anticipated as the year progresses. At Metropolitan, we commenced a longwall move, which is now completed. And at Shoal Creek, we continued to ramp up longwall production in the quarter, producing 270,000 tons while only selling 70,000 tons. building inventory that will be drawn down in the second quarter, and we expect to receive prices substantially in line with other prime high vol A type coals. The CMJV saw higher costs and lower volumes as compared to prior quarters as a result of timing of mine sequencing, which has higher coal production in the second half of the year. We are on track with development of Morville South at our CMJV complex, with first coal anticipated mid-year. And outside of our operating mines, our 50% ownership share of Middlemount continues to benefit from strong metallurgical market dynamics and productivity improvements, delivering 500,000 attributable tons in the first quarter. Our PRB sales items were reflective of rail performance and our investment to ramp up production for following quarters. And costs for both our PRB mines and other U.S. thermal mines increased as a result of higher fuel prices and one-time costs. In the PRB, as we work through logistics challenges to meet strong annual customer demand, we've been setting the stage to deliver higher volumes for the remainder of 2022 by continuing to remove overburden, completing equipment overhauls, and recruiting and training an expanded workforce. And in the Midwest, where we are not experiencing logistic challenges like the other basins, we are executing on the development of several projects at incremental volumes this year. Demand for this product remains strong, and we continue to place new business with both existing and new customers. We continue to explore sales strategies that position us to be the long-term producer of choice, providing our customers long-term supply security and capturing strong market prices. In the PRV for 2023, we have approximately 59 million tons committed, while our other U.S. thermal segment is essentially committed for 2023. We have also expanded our value offering for our customers by strengthening our ESG commitment to better support the ESG ambitions of our stakeholders. We believe that investments and practices that support their net zero emissions targets can be value-adding and complementary to being the coal producer of choice. Our commitment includes establishment of emissions reduction targets for our operations and taking action on a pipeline of projects targeted to meet emissions reduction goals by leveraging our existing assets and new technology. As an important step forward in supporting our ESG ambition, this quarter we launched R3 Renewables, a renewable energy joint venture formed to pursue the development of utility-scale solar and battery storage on six tracks of previous coal mining land in Illinois and Indiana. These projects not only create value from existing assets, but also allow us to better support our customers' net zero emissions ambition. Our vision for the future is simple. We want to continue to strengthen our position as a coal producer of choice. We will do this by maintaining financial strength, delivering a diversity of products to support our customers' needs, practicing operational excellence, and championing ESG practices. This will allow us to be resilient in all cycles and to grow with our stakeholders. We are progressing this vision through multiple strategic initiatives, and our MET platform In addition to advancing development of Moorville South to improve quality and extend life at the CMJV, we advanced project activity to potentially reenter the south workings of North Ginella and develop 70 million tons of reserves. And on our Seabourn thermal platform, we have begun development of three additional longwall panels to extend the life of the Womble underground until 2026. In the U.S., we continue to implement sales strategies and plans to capture short-term returns on incremental volumes and to give us flexibility in our mine plans to meet changing customer demands. Some examples of these activities are expansion into new areas that are wild boar complex in the Midwest and PRB refurbishments. And most importantly, we remain focused on the financial strength of the balance sheet. This quarter, we made additional debt repayments and completed a convertible notes offering. I'll now turn things over to Mark to cover the financial details.
spk05: Thanks, Jim, and good morning, everyone. First quarter coal sales were over $1 billion, a 58% increase from the prior year, a result of substantially higher realized prices from each of our operating segments. Costs were impacted by higher sales sensitive costs, broad inflationary pressures, and investments in the U.S. thermal platform to meet full-year production volumes in response to strong customer demand. We recorded a net loss attributable to common shareholders of $120 million, or $0.88 per share. This included a $301 million charge for unrealized mark-to-market losses from coal hedging activities and a $24 million loss on early debt extinguishment. Absent these items, net income would have been substantially higher in the prior year period. We've reported adjusted EBITDA of $327 million, more than five times the $61 million reported in the prior year quarter. Turning now to segment results. The Seabourn Thermal Segment generated EBITDA of $91 million, less than the fourth quarter due to lower volumes and higher costs, and the delivery of 264,000 metric tons of Wamba coal at $84 per ton under the hedge program. and 215,000 metric tons priced in 2021 on average at 116. The segment sold 3.8 million tons in the first quarter, about 575,000 tons lower than full-year rateable production as expected. Both production and cost per ton were impacted by record rainfall, COVID-related staffing shortages, higher overburden removal, and the start of a longwall move at Wambo Underground. As part of the seaborne thermal segment, Wilpenyong shipped 3 million tons, including 1 million export tons. Costs increased to $28 per ton due to higher overburden removal costs and staffing shortages. Wilpenyong realized an average sales price of $50 per ton, higher than the prior quarter, despite lower export sales, generating an EBITDA margin of approximately 43%. Wilpin Young recorded $64 million of adjusted EBITDA for the quarter and had over $210 million of cash at March 31. The Seabourn Met segment generated EBITDA of 181 million, higher than the prior quarter, as average realized prices of $258 per ton compared favorably to costs of 113, resulting in 56% EBITDA margins. The segment delivered expected volumes for the quarter of 1.2 million tons about 500,000 tons less than full year rateable production due to the start of a long, long move at Metropolitan and mine sequencing at the CMJV. Cost per ton were up from the fourth quarter due to higher royalties resulting from higher realized prices and the lower volumes. In the U.S., our mines delivered $58 million of EBITDA. The PRB mines shipped 20.6 million tons in the quarter. Cost per ton increased $1.81 compared to the fourth quarter, with more than $1 of the increase related to one-time costs to achieve higher expected production levels for the remainder of the year. Higher fuel prices and other inflationary pressures also impacted costs during the quarter. The other U.S. thermal mines shipped 4.2 million tons, while production increased 175,000 tons to 4.4 million. Costs increased due to higher fuel prices, one-time activities to enable higher production, and certain rehabilitation costs at 20 miles. Higher realized prices in the first quarter increased segment EBITDA margins to 25%. Next, a quick update on financing items. We continue to demonstrate our commitment to strengthen the balance sheet. We retired an additional $42 million of senior secured debt in the quarter and utilized proceeds from the $320 million 3.25% unsecured convertible notes offering to retire higher cost senior secured debt and extend maturity to 2028. As a result of the unprecedented upward volatility of Newcastle coal prices, we had 482 million of cash posted in support of our coal hedges at March 31. It is important to note we expect to recover all of this cash as we deliver the underlying physical coal over the next 15 months. In light of volatile cash margin requirements, we completed the previously announced financing facility and drew $225 million, which was fully repaid in the quarter with proceeds from the sale of 10.1 million shares under the related ATM program. We also reduced exposure to additional margin requirements in the event of even higher prices by converting 750,000 hedge tons to fixed price sales. These transactions eliminated further margin requirements on the underlying tons and resulted in the return of approximately $50 million of exchange related initial margin. Our remaining hedge exposure is 1.4 million metric tons with 900,000 of those tons projected to settle over the remainder of 2022. At March 31st, we had 848 million of cash, cash equivalents and restricted cash.
spk04: Now let's turn to our 2022 outlook.
spk05: With the first quarter investments and planned production levels in subsequent quarters, we are maintaining full-year production and cost targets. In the seaborne thermal segment, costs per ton for the full year are anticipated to be at the higher end of the guidance range due to production challenges in the first quarter, continued inflationary pressures, and increased royalties due to higher anticipated prices. Based on price volume and more than 5 million export tons exposed to currently much higher spot prices, including 2 million tons of Newcastle benchmark coal and 3 million tons of higher ash Wilpin Young coal, stronger margins are expected for the remainder of the year. Second quarter, we expect production and cost impacts from Wilpin Young's elevated overburden removal rate to continue as we reestablish mine sequencing and WAMO completes the Longwall move. Second quarter Seabourn thermal export sales are expected to increase to 2.2 million tons, with 1.2 million tons priced at an average of $95, and 700,000 tons of higher ash product from Wilpin Young and 300,000 tons of Newcastle benchmark coal unpriced. Moving to the Seabourn MET segment, second quarter volumes are anticipated to increase to 1.6 million tons as Shoal Creek continues to ramp up. Cost per ton for the quarter are expected to be higher than the first quarter due to a higher mix of Shoal Creek coal, longwall restart costs at Metropolitan, and mine sequencing at Capabella. Although we have considered impacts to our full-year guidance, continued uncertainty regarding COVID staffing shortages and supply chain disruption exists and may negatively impact our seaborne operations beyond the guidance provided today. In the PRB, production is anticipated to ramp up through the third quarter to meet higher contracted customer demand. Full-year costs for the U.S. platform are anticipated to be at the higher end of guidance due to widespread inflationary pressures. In the second quarter, PRB sales are expected to be higher than the first quarter, assuming rail performance does not further diminish. Other U.S. thermal volumes are expected to increase to 5 million tons. Costs for both segments are expected to be lower in the first quarter as a result of higher volumes and lower one-time investment costs. Lastly, we will maintain our disciplined approach to capital allocation, further reducing debt. In summary, first quarter results reflect our investments in building a platform for improved results for the rest of the year. This was achieved despite the challenges we faced, and we are on track to deliver full-year volumes with higher margins and increasingly strong cash flows across all segments for the remainder of the year.
spk04: I'd now like to turn the call over for questions. Operator?
spk01: 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 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 2. One moment please for the first question.
spk00: Mr. David Gaglione with BMO Capital Markets.
spk01: Please go ahead with your question.
spk06: Okay. Thanks for taking my questions. Obviously, there's quite a bit going on within the company with regards to the wombo hedges and PRB costs that should come down and all that stuff. So we're still weeding through it on our side. So I'm going to actually cut right to the cash flow question. Cash from operations was a negative $273 million in the quarter. We don't have a full, I don't believe, cash flow statement. I think that comes in the queue in a few days. Can you just give us a sense as to what were the main drivers for the big negative in there? I think there's some fairly meaningful one-time cash outflows. That's my first question.
spk05: Good morning, David. It's Mark. Yeah, negative operating cash flows. That is largely due to the mark-to-market, the unrealized mark-to-market on the Wamba coal hedges that you referenced. It was $352 million for the quarter of additional margin that's been posted. There's also working capital charges, building inventory, and some timing of AP, which is about $110 million included in that.
spk06: Okay. Sorry. It was 352 of an actual cash outflow, which is the previously disclosed cash outflow from the hedges. Is that correct? And then there was 110 million working capital billed as well on top of that?
spk05: That is correct.
spk06: Okay. All right. That's helpful. Thank you. And then just along those lines, I know you've been asked this question, not just by me, but by me and others. You mentioned capital allocation focuses debt reduction. You know, setting aside the first quarter for a second here, can you give us a sense as to additional plans regarding shareholder returns, addressing surety bond covenants, and updated thoughts there?
spk05: Yeah, Dave, a couple of things. You know, we've been very transparent that we want to reduce the level of debt that the company has outstanding. We are very pleased with the three and a quarter percent convertible note that we completed in the quarter. And I would look at further debt reduction going down to eliminate all the other senior secured debt and just leaving that convertible debt outstanding. So that's job number one in getting that done. Once we have senior secured debt repaid, we'll look to address the $325 million letter of credit facility, which backstops the surety bonds, as you mentioned. So we're going to continue to look at that. funding the surety obligations for future reclamation. Once we are comfortable with that, certainly everything we do is in the interest of shareholder value. We would be looking at opportunities to invest in organic opportunities. North Guinea that Jim mentioned is one prime example of that. Also, return of capital to shareholders would be on the table. All things considered, we need to take care of the senior secured debt, which would prohibit those shareholder returns first.
spk06: Okay, that's helpful. And then in terms of the 2023 PRB commitments, there's a bullet, I think, in the press release that says increase 2023 PRB commitments to 59 million times. Can you give us more information on just an average price for that 59 million tons that's committed for 2023.
spk07: Yeah. Hey, Dave. Jim Breck here. It's 59 million tons for next year, which is ahead of our, I'll say, our usual pace for selling coal for the following year at this point in time. And we also have active RFPs in front of us for more potential sales for 23 and 24. It's, you know, we're seeing from the RFP, the willingness from the customers to go out for multiple years. So that is a change from what we've seen in the past and has led to that, you know, strong sole position for us at this time of the year. The specific pricing, Dave, we're not going to give out at this moment, but I will say that our average pricing so far is higher than what our average PRB pricing is for this year. So that helps some and give you some directional guidance as to where we're going. And I know you know the complexity of our PRB with the different qualities. You know, we run about an average BQ of about 86.70 overall with our portfolio, too. I just wanted to point that out. So on average, we're seeing numbers higher than we have for our average prices for this year.
spk06: Okay. That's actually helpful. Thank you. And then just on the volumes for the PRB next year, Target volume this year, 88 to 95 million. What's the early read on volume growth for 2023 in the PRB for Peabody, given quite a dynamic U.S. thermal coal market all of a sudden?
spk07: Well, I would say there's two factors into that, Dave. One is, you know, there's a demand there, and the demand is very strong for us this year and next year. The second piece of that is the ability for all PRB producers to deliver the coal with the rail challenges that we have and continue to have. I feel good about both of those areas over the long run of this year, later this year. The railroad is staffing up. It's going to take time for them to get the crews in and get them trained. But that capacity will be there later in the year, which should lead us to have the opportunity to ship ship as much coal or more this year, and the demand is there for next year. So, you know, we're not giving guidance on ranges for next year, but, you know, the things keep lining up as they are, strong demand. Our operations with the first quarter investment that we've done are in good position to produce, and the railroad's coming on stronger as the year goes on. I think next year could be a very good year for tonnages for us in the PRB.
spk06: Okay, that's That's helpful, thanks. And sorry, just one quick last one. Just really wanted to give the opportunity, again, to clarify, perhaps there might be some confusion out there regarding how the cash outflow works for the unrealized hedge that you flagged earlier. Can you just clarify, that should all come back to you once the volume is produced, correct?
spk05: Yeah, Dave, that's right. You know, essentially, today, we have 1.4 million tons outstanding, you know, and with regard to the wombo hedges, it's an average of $84 per metric ton. Think of a dollar per ton for that 1.4 million or whatever, above that, you know, dollar for dollars, the prices are above that 84 level. we have to post that margin. It's very important that we keep the trade book open and we post this margin. And if we were just to close it, we'd lock in those losses. It's something we won't do. When we do, and when we do deliver that coal, we will be selling it for the spot prices, which will make up the difference between the 84 and what we've posted in margin.
spk02: Okay. Thanks for clarifying. Thank you, Dave.
spk00: And we have Lucas Pipes with B Reilly Securities with our next question.
spk08: Hey, good morning, everyone. I want to talk a little bit about Q2. So on the C1 thermal coal side, you expect sales of 2.2 million tons. You have 1.2 million booked at 95, so that leaves 1 million tons. And I think you said that's 700,000 tons. Wilping Yong, and 300,000 tons of Newcastle. And the Wolpingong price is not the most transparent for investors to observe, given it's the API 5, I believe. So could you maybe point us to a reasonable range for Wolpingong prices in today's market so we have good outlook there on Q2 realizations? Thank you.
spk04: Good morning, Lucas.
spk05: Yeah, so on the, you're right, for Seabourn Thermal, there's 2.2 million tons of export tons for the quarter. 1.2 million of it is priced at 95, as you said. With the 1 million tons that are unpriced, 700,000 relates to the high ash Wilk & Yon product. That price is at a discount to API 5. API 5 today is roughly $190 a ton. You need to take about a 10% to 20% discount off of that. to get to the will be product. And if it's higher ash, it could be even a little bit higher discount to that. And then there are 300,000 tons of Newcastle, essentially benchmark product that should price in line with the forward curve.
spk08: Got it. And all the prices you mentioned are metric tons. So for your 1 million tons of short tons, you do the metric short ton conversion as well. Exactly. No, that's helpful. Got it. Would you sell on the prompt month for the Newcastle tons or prompt quarter? What's a good benchmark there to look at?
spk05: Probably a lot of those tons will be on the JRP of Japanese reference price for those 300,000 tons. That has not yet been settled for this year. As a reference point, it was only 110 last year, but it should be in line with kind of a forward view for the year off of that 325 current price.
spk08: Okay. That's helpful. Very helpful. Thank you. I appreciate that. And a similar question for Metco. So you expect 1.6 million tons. You have 200,000 tons hedged at 418. What's a – realistic composition for the sales price of that open 1.4 million tons of met?
spk05: Yeah, it's essentially about 85% of premium hard coking coal.
spk04: We look at our entire met platform at about an 85% discount to premium hard coking coal.
spk08: Sorry, you said that was 85% hard coking coal? And pricing also at 85% of the benchmark.
spk05: Now, to be clear, on a portfolio level for Metco, we achieve 85% of the premium hardcooking benchmark price. There's a various, you know, there's half a dozen different products or more.
spk08: Got it. That's helpful. So the 418 that you booked on the 200,000 tons, that would, be, in this market, could be even a conservative indication of where you'd sell the remaining 1.4, given what prices have been quarter to date?
spk04: Yeah, it's 418 on 200,000 tons priced, and you've got that 1.4 million or whatever unpriced price.
spk05: you know, at a discount to premium higher coking coal, I don't think you'd be much above the price position, but it's completely price dependent, as you said.
spk02: Got it.
spk04: Lucas. Yes.
spk07: Lucas, hi, Jim here. You know, as an example, maybe on the pricing that we're seeing at the moment, you know, in our remarks, we mentioned that Show Creek had produced 270,000 tons, but we'd only sold 70 of it. So we have some inventory to move. And so far month to date in April, we've moved about 120, 729,000 tons of it at numbers in the $420 range month to date in April. So that's the type of pricing we're seeing on the Shoal Creek product right now.
spk08: Very, very helpful. I really appreciate Really appreciate it.
spk07: And that's on a short- That's on a short-ton basis. You know, you asked before, that's on a short-ton basis, too, just to keep it clear.
spk02: Volume and price, respectively. Yes.
spk08: Super. On the hedge side, it seems like you've been having to deal with that. Last October or so, earlier this year and now, possibly again today, but hopefully that noise is starting to get cleared up. So you have 900,000 tons for 2022, 500,000 tons for 2023. Should we think about kind of 300,000 tons per quarter for the rest of the year rolling off for the 2022 hedge?
spk05: Yeah, Lucas, it's not exactly flat. So you're right on the tons for the rest of the year. just under 450,000 tons are going to roll off in the second quarter of this year. So that'll leave us with less than a million tons remaining at June 30. And just for reference, I'd like to, if we go back, it's important to remember, we put these hedges in place early in 2021 to extend the life of that Wambo underground mine. Without it, we would have sent the crews home last year And as you saw today, we just announced that we're developing the next three panels to extend that mine life out for several more years. So while we'd love to give spot prices for the coal this year, you know, we're going to be profitable this year, even with those hedges. And we've extended, you know, we kept that optionality open, and now we've been able to extend that life for several more years.
spk08: Yeah, I appreciate that. Thank you very much. Mark, for all the detail. Tim, thank you as well. Best of luck.
spk04: Thanks, Lucas. Have a good day. Thanks, Lucas.
spk01: Nathan Martin with the Benchmark Company has our next question.
spk09: Hey, good morning, everybody. Thanks for taking my questions. Maybe just a follow-up on that last one by Lucas. With the With the conversions on the hedges to fixed price, do you guys expect to possibly convert any more of those hedge funds to fixed prices in the near future?
spk05: It's something that we continue to look at, Nate. It is challenging. If there's an opportunity to do it at favorable terms, we will continue to do that. Finding counterparties that want to lock in essentially today's prices or the forward prices. And, you know, there is a premium for physical to the forward. So, you know, we want to maintain all of our optionality for that P&L. So we continue to look at it. We're going to maximize shareholder value and maximize returns of the company. We do feel with the remaining hedge position in the company's current liquidity that we're in a good spot from a liquidity perspective.
spk09: Thanks, Mark. And just to clarify, I think you said that the $750,000 you converted reduced future margin requirements by about $50 million. Is that right?
spk05: Yeah. So it eliminated any future margin requirements from changes in prices on those tons. And then there's $50 million of exchange-related initial margin just to open the positions that was returned once we converted the fixed physical sales and don't have an open hedge position, then we've got about $50 million of margin returned back to us.
spk09: Okay. Got it, got it. Maybe shifting over to the cost side, I mean, you guys, despite the challenging start to the year, maintained all your prior cost guidance ranges, it looks like, across the segments. Maybe just talk about your confidence to get within those ranges. Is it a function of higher sales volume to move towards the back half of the year? Obviously, pricing should be higher, so imagine it's a bit of a headwind. Inflationary pressures you talked about. And then maybe on the transportation side, with rail service, hopefully that will start cooperating as well. So just how do we think about that and maybe any additional one-time costs similar to what we saw here in the first quarter? Thank you.
spk05: Yeah, maybe I'll start and work backwards from your questions. You know, on the one-time cost, really that's our investments in the U.S. platform, about $1.08 in the U.S. Really that was to gain set room, pit inventory, so a lot of overburden removal costs, as well as some equipment refurbishments and one-time kind of contractor mobilization costs. That goes away essentially going forward, so we expect a reduction there. Similar in the other US thermal portfolio, there was some pit development and a dragline refurbishment. So really drove up some costs here in the first quarter. Again, those are behind us. Obviously, volume in the PRV is critical. And as Jim mentioned, rail is a key issue there. Getting those volumes out with the rail is going to be important to achieving those overall costs. On the Seabourn platform, You know, wet weather, I mean, the record rainfall and COVID-related absenteeism or staff shortages really drove up costs significantly in the first quarter. There's also a long wall move at WAMBO that started, and that'll be finished up here in the second quarter. So those costs, you know, all in probably drove up costs $8 or $9 in the seaborne platform this quarter. We do expect costs to continue to be elevated in the second quarter. as we kind of reestablish mine sequencing at Wilpin Young and recover from the record rainfall. And, you know, I think when you, and in MET, you know, MET was, you know, really good performance in the first quarter. We do expect that to tick up with a higher proportion of Shoal Creek coal in the second quarter as it continues to ramp up and finish out a real low-yielding panel right now. But when I look for the rest of the year and getting those guidance, I mean, and we mentioned it in my earlier remarks, but certainly, you know, the COVID impacts the staffing as well as supply chain logistics continues to be a wild card and hopefully rain. I mean, we're still not completely out of the wet season and rain could have an impact on the Seabourn platform.
spk07: And Nate, what I would say though is, you know, the investments that Mark referenced that we made in the first quarter, and our fleet in general, our mines, whether it's in Australia or the U.S., are in good shape and they're ready to go in the second quarter and the rest of the year. We've increased our staffing. We've capitalized and got the equipment in good shape to run. We've got our development caught up and ready to go. So our fleet in general is ready to go to meet the increased demand. And, you know, I would say the biggest potential headwind we have is the thing that we can't control being, you know, as Mark just said, weather, COVID, and rail performance. But operationally, like I said, the investments we've made have put us in a good position to produce well for the rest of the year.
spk09: Very helpful, guys. Thank you. shulcrete just just for a second jim you mentioned uh you know shipments were only about 71 000 tons i think on 270 thousands of production building some inventory there um you know as far as the ranch concerned does everything still seem on schedule to kind of hit that one and a half million ton level this year uh and when should we start to see you know those sales kick up to kind of match production Because it seems to me you guys have great demand for that coal given the current marketplace. Thanks.
spk07: Yeah, those sales were supposed to occur more into the first quarter, so they slid into the second quarter. And so that's why we were off to such a good start in April at the mine, because those are actually March sales. So we expect the sales to be consistent over the rest of the year. And we expect mining conditions to improve. We're in a panel right now that we're going to get out of in May as some challenging yield and getting the better mining conditions. And so, you know, we should see our cost structure stabilizing, if not improving it as we get through the rest of the year. So sales are good. The mine is coming along well from having been shut down. Like I said, we should be getting better mining conditions, say, June forward. for the facility.
spk09: Just wondering, Jim, the slippage, was that largely transportation related or something else? Was it a rail or barge, et cetera?
spk07: It's just the congestion down on the ports down there in the Gulf just had things backed up.
spk09: And then just one final one. Again, Jim, to you, I think, you know, North Bruniella, you touched on it very briefly in your prepared remarks. I think you said last call, you know, hopefully you'd be in a position to give more info on that project by this call. So I was just hoping if you could share, you know, your current thoughts, maybe any updates on timeline, capital costs, volume, et cetera, that would be helpful. Thank you.
spk07: Yeah, Nate. So right now we are currently installing main mine fans to assist future underground operations and working on surface conveyors. So all of the work is on the surface and and looking forward, we're still finalizing our costs and estimates and engineering plans and, you know, looking at further ventilation leading to reentry into the mine. So we're making progress. but the specifics that you're asking for, we still don't have them settled, so I'm just not prepared to comment on timeline and cost other than the detail that I gave you. We are making progress. The reentry into the mine would take us down. We plan to go toward our southern reserves. We have about 70 million tons of reserves there available to us. So looking forward, that's the goal.
spk09: Any expectations, Jim, at this time before you make a decision whether to move forward or not?
spk07: We have to, you know, we have to refine the engineering plans and, you know, work with the QMI there to make sure that they're acceptable and then we can make, you know, get better cost estimates. Just doing that process of making sure our engineering sound, our cost estimates are sound before we would, you know, make those types of decisions.
spk09: Got it. Very helpful. I will leave it there. Appreciate the time and information, guys, and best of luck.
spk02: Thank you, Nate.
spk01: And that does conclude our question and answer session. I'd like to turn the call back over to Mr. Jim Gregg for any additional or closing comments.
spk07: Thank you. And as we've stated here a few times in the call, you know, we had some adversity in the first quarter with the weather. and COVID and the railroads, and it was also a period of investment in our fleet getting ready to serve our customers and the demands that we have going forward in the rest of the year. So we've been successful in that, and we are there. Our minds are ready to go. So we're looking forward to a good finish with the second, third, and fourth quarter for this year. So thank you all for joining us today. I'd especially like to thank our employees remaining focused on safety. and for continuing to execute on our various initiatives. And I'd also like to thank our customers, investors, insurance providers, and vendors for your continued support. Operator, that concludes our call.
spk01: Thank you. And this concludes the Peabody Q120 22 earnings presentation. Thank you for participating.
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