Peabody Energy Corporation

Good day and welcome to the Peabody third quarter earnings call. All participants will be in a listen-only mode. Should you need assistance, please signal conference specialists by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. And to withdraw your question, please press star then two. Please note this event is being recorded, and at this time, I would like to turn the call over To Ms. Alice Dorinas, Vice President of Investor Relations. Please go ahead, ma'am.

Good morning, and thanks for joining Peabody's earnings call for the third quarter of 2022. With me today are President and CEO Jim Grech and CFO Mark Furbeck. 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.

Thanks, Alice, and good morning, everyone. In the third quarter, our diversified assets delivered strong performance results, generating free cash flow of over $460 million and adjusted EBITDA of $439 million. While recovering from significant weather events in Australia in the early part of the third quarter, We have set the stage to finish the year even stronger with higher projected volume compared to prior quarters and markets supporting continued strong margins. With cash generated, we continue to strengthen our balance sheet by advancing our debt reduction strategy with voluntary repurchases, bringing us closer to eliminating all senior secured debt, which will allow us greater financial flexibility in the future. And I am pleased to share that we have commenced the redevelopment efforts at North Piniella. Before I expand on the quarter and the range of some of our Australian operations, I would like to sincerely thank our global employees for continuing to work safely and efficiently and keeping us focused in the face of adverse events and distractions. Dedication and commitment of our talented workforce allows us to deliver strong results. I would also like to congratulate the teams at both 20 Mile and Shoal Creek for winning the 2021 Sentinels of Safety Award for their outstanding safety performance. United States' most prestigious award recognizing mining safety. I'm extremely proud of this accomplishment and the commitment to safety that this exemplifies. Now, turning to global coal markets. Across the globe, all coal price indices remain at strong levels. The outlook for all our operating segments continues to be favorable with constrained supply base serving a market that is reallocating the scarce availability of coal. Seaborne coal markets remain volatile, with near-term markets being driven by continued energy supply security issues caused by the Russia-Ukraine conflict, the global inflationary environment, concerns with the severity of the impending winter in Europe, and the wet season in Australia and Indonesia. Seaborne thermal coal prices remain elevated, as around the globe, coal fuel generation is called upon for affordable, reliable energy security. The Russia-Ukraine conflict continues to impact markets. The cessation of coal imports from Russia by European countries is creating the need to source from alternative locations, including Australia and the U.S. Furthermore, an underwater pipeline explosion is reducing Russian gas pipeline flows into Europe and is putting additional reliance on imported coal to meet the upcoming European winter demand. Overall, global thermal coal markets remain strong, with pricing well supported due to market tightness. Within the seaborne metallurgical market, steel output remains depressed, impacted by both seasonal and macroeconomic considerations. However, offsetting this are steelmakers in Atlantic markets switching away from Russian coal imports and seeking supply from other regions such as Australia, U.S., and Canada, particularly for PCI coals. While energy shortages and inflationary concerns in some markets present a risk to near-term industrial activity. The underlying market fundamentals remain constructive, as metallurgical coal supply has declined, and any additional production disruptions from wet weather and coal operation outages will lead to a further tightening of the market. In the United States, the coal market continues to be very tight, as strong demand for electricity generation competes with persisting transportation issues impacting supply to utilities. Overall, electricity demand increased more than 3% year-over-year, positively impacted by weather and economic activity. However, year-to-date electricity generation from thermal costs declined year-over-year due to coal conservation by utilities to build coal stockpiles, given concerns with rail performance. U.S. natural gas prices remain elevated, although lower than record highs earlier this year. Numerous factors will impact coal utilization heading into the winter, including resolution of transportation issues, weather, renewable generation, and natural gas prices. Across the U.S., we continue to see growing caution regarding the pace of energy transition and the value of dispatchable capacity. Evidence of this are announcements of coal plant retirements being delayed, with most utilities citing grid reliability concerns or delayed renewable projects. This speaks to continued strong coal demand for U.S. coals. Overall, we anticipate continued near-term market volatility as coal demand fluctuates and supply remains constrained across the globe. Our diversified platform is positioned to participate in each of these markets, optimizing results by managing the needs of our diversified customer base. Now, turning to the third quarter, our third quarter results were strong. despite recovering from significant weather and logistical challenges experienced in the first half of the year and early part of the third quarter. During the quarter, we set the stage to finish the year even stronger, with higher volume projected for delivery in the fourth quarter. What weather continues to be a theme impacting production at our Australian operations, with current rain resulting in decreases in fourth quarter estimated production at some of our operations. In our seaborne thermal segment, the impacts of additional heavy rain in early July and absenteeism associated with COVID impacts and industry-wide staffing pressures resulted in lower third quarter production volumes and increased costs as compared to prior quarters. Year-to-date, Lambeau and Wolfenjohn have received more than 190% and 155% respectively of their 10-year historical rain averages. Last week, As a result of major rain, we had a temporary stoppage in production at Wilk and John. The continuing La Nina weather conditions in New South Wales pose a risk to these operations, even with increased water management capabilities put in place. Based on weather events in the early part of the quarter, we have reduced our thermal export sales expectation by over 500,000 tons for the fourth quarter. Our Seabourn Mets segment delivered higher volumes this quarter and is set to deliver even higher volume next quarter. Metropolitan produced higher volume following completion of a long haul move in the first half of the year. This higher volume offset lower sales volume at Shoal Creek from continued production challenges due to geologic conditions and the impacts of a barge and loader issue at the port impacting timing of September vessels. We anticipate these issues will continue throughout the year with full year 2022 sales expectations at Shoal Creek reduced to 900,000 tons. Wet weather earlier in October has impacted CMJV production expectation for the quarter, resulting in anticipated sales being reduced by about 150,000 tons. Outside of our operating segment, our 50% ownership share of the Middlemount JV delivered 400,000 attributable tons in the third quarter, with production continuing to be impacted by the severe rains earlier in the year. This operation has also suffered from additional rains quarter to date and is anticipated to have lower sales, lower results in the fourth quarter as compared to the third quarter. In the PRB, higher customer nominations and improving rail performance resulted in an increase of nearly 4 million tons shipped as compared to the prior quarter. The higher volume favorably impacted our per ton costs. We are cautiously optimistic for improving rail performance going into the fourth quarter. Our other U.S. thermal mines continue to achieve consistent strong results with increased volume delivered in the third quarter, despite experiencing some real performance issues, primarily at the El Segundo mine in New Mexico. Going into the fourth quarter, we are expecting to finish the year strong, with higher cash flow generation projected as compared to prior quarters. We remain focused on strengthening the balance sheet with further substantial senior secure debt retirements, and pre-funding of our long-term reclamation obligations. After considerable evaluation, I am pleased to share that we are moving forward with initial steps to unlock the value of the company's North Bend Yellow Mine, a premium hard coking coal long-wall operation in Australia with 70 million tons of company-controlled reserves. The project is a unique opportunity in that it will benefit from substantial existing infrastructure and equipment in place at the mine including a new 300-meter longwall system, a proven coal handling preparation plant, dedicated rail loop for transport to the Delrimple Bay coal terminal, and an accommodation village with housing and service amenities for more than 400 workers. This infrastructure makes this opportunity superior to other green and brownfield projects that do not have a significant infrastructure in place. North can yell is expected to generate attractive return at historical long-term price assumptions while reweighting Peabody's long-term production and revenue towards metallurgical coal in line with our strategy. Initial redevelopment capital expenditures of $140 million over the next 18 months has been approved. Development costs beyond the current board approved amounts are estimated to be an additional $240 million. bringing total estimated capital to approximately $380 million over three years, with long-well operation expected to commence in 2026. Beyond this project, North Canela has additional strategic value with 50 million tons of remaining company-controlled reserves, in addition to multiple other regional options for further extensions. Options for further development on our existing and regional reserves continue to be assessed in light of the adverse impact of the changes to the Queensland government's royalty regime. As we take the first steps toward redevelopment at North Guinea, we continue to urge the Queensland government to roll back their extreme royalty structure, which will not only discourage investment in Queensland, but also risk the tens of thousands of jobs and local business opportunities that coal mining delivers to regional communities. Finally, as you may have seen, Coronado Global Resources recently issued an announcement confirming that we are engaged in discussions about a potential combination. It is important to note that while there can be no assurance of any such transaction, we do regularly evaluate a range of strategic options to strengthen our position as a coal producer of choice for both thermal and met coal, and any actions we take will always be consistent with the focus and our commitment to creating value for shareholders. At this time, we do not have any updates to share, and we will not be commenting further on that matter today. I'll now turn things over to Mark to cover the financial details.