Peabody Energy Corporation

Welcome to the Peabody Fourth Quarter Earnings Call. All participants will be in listen-only mode. Since you need assistance, please signal a conference specialist 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 a touch-tone phone. To withdraw your question, please press star then two. Please note, today's event is being recorded. I would now like to turn the conference over to Carla Kimrey, Vice President of Investor Relations. Please go ahead.

Good morning and thanks for joining Peabody's Earnings Call for the fourth quarter of 2022. With me today are President and CEO Jim Grech and CFO Mark Sperbeck. 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, Carla, and good morning, everyone. Before we get started this morning, I'd like to take a moment and welcome Carla Kemre to her new role as Vice President of Investor Relations and Communications for Peabody. Carla has over 25 years of experience in investor relations, with seven of those in the coal industry. In the fourth quarter and full year 2022, Peabody's diverse portfolio produced substantial, and in many cases, record-breaking results. We had record-free cash flow in the quarter and record net income attributable to common stockholders. This performance enabled us to retire all our remaining senior secured debt, which was a key milestone in the execution of our anticipated shareholder return program. which we expect to be implemented in the near future. We did have weather challenges in the quarter that we had to overcome in both the US and Australia. In the US, the extreme cold weather in December resulted in a substantially disrupted rail service for the PRB. In Australia, the intense rainfall during the quarter impacted production, sales, and in turn costs. Additionally, we did feel the impact of greater than anticipated anticipated inflation across all our operations, and we're working diligently to control those costs. Before I go into the discussion on markets and our platform, I speak for our entire management team as we would like to sincerely thank our global employees for their continued hard work and their focus on working safely. In 2022, we had our lowest annual global injury rate ever, and three of our mines reported zero incidents. Dedication and commitment of our employees allowed us to deliver the strong results we're announcing today. As we look forward, the diversity of our platform from a product standpoint to a geographic one has allowed us to take advantage of favorable market conditions while safely managing through the operational challenges. Now, turning to the global coal markets. Seaborne coal prices remain volatile with near-term markets being driven by shorter-term issues, such as an abnormally warm European winter, reduced coal production levels during the wet season in Australia and Indonesia, and the trade flow of LNG. Market focus is now on the reopening of China's industrial activities post their stringent COVID-19 suppression efforts. This is expected to set the trajectory of China's energy requirements in the near term, and early indications suggest an increase in demand for seaborne thermal coals. During January, Australian thermal coal producers began supplying coal to China, the first time in over 18 months. Elsewhere, there is evidence of economies taking measures to ensure adequate supply of scarce seaborne thermal coal, such as India, where a new minimum import requirement for domestic power stations has been set for 2023. Overall, we anticipate continued near-term market volatility as coal demand fluctuates and supply remains constrained across the globe. Global thermal coal markets remain fundamentally sound, with pricing above historical levels. And this takes into account recent downward trends in seaborne thermal prices that are in response to a warm European winter leading to higher gas storage levels and coal inventories. Within the seaborne metallurgical market, steel output remains subdued, but there are signs of increasing output in response to improved steel prices in some markets. Even under these conditions, the supply of key metallurgical products has remained constrained due to geopolitical issues and production disruptions from wet weather and coal operation outages, which have led to a further tightening of the market, resulting in higher prices. The metallurgical coal market is also expected to be supported by increased import demand for steelmaking raw materials as China increases steel production rates in response to an anticipated rebound in economic growth. In the United States, overall electricity demand increased more than 3% year-over-year, positively impacted by weather and economic activity. However, electricity generation from thermal coal has declined year-over-year due to coal conservation by utilities, transportation issues impacting coal deliveries, and higher renewable generation. In 2022, coal inventories at utilities declined approximately 6% or 5 million tons. Natural gas prices have come off due to a combination of very mild winter weather and near record gas production levels. U.S. natural gas prices are approximately $2.50 for MMBTU, the lowest level since January 2021. Yet the EIA is currently forecasting that the Henry Hub natural gas spot price will average approximately $3.40 per MMBTU for 2023. Now, moving on to the fourth quarter. Our operations generated record-free cash flow in the quarter despite ongoing recovery from heavy rains in Australia and weather-related rail disruptions in the PRB. Our Seabourn thermal segment had its highest quarterly sales volume for the year as Wolfenjohn and Wambo bounced back from the prior quarter's heavy rains, which continued into the fourth quarter, resulting in a quarterly rainfall which was about 40% higher than the historical 10-year average for the fourth quarter. Our Seabourn MET segment benefited from 22% higher realized prices over the third quarter 2022 realizations. We successfully completed a long-haul move at Metropolitan and are ramping back up to full production in the first quarter of 2023. In the U.S., TRB sales volumes were negatively impacted in the quarter primarily because of the abnormally cold weather in late December, which significantly restricted rail movements in the basin. We had two cold snaps in December. During the first one, our PRB operations only had eight or nine trains a day versus the planned 18. During the second cold snap, we only had one train a day when 18 were planned. Our other U.S. thermal mines performed well. Gateway and Bear Run produced strong volumes and ramped up as expected, while Boer opened two new pits, enabling us to sell some higher-priced coal, albeit at higher costs to produce, but at much better margins. We're able to extend the life of our operations in New Mexico with a new eight-year contract extension at attractive terms. We are essentially sold out at all of our U.S. domestic operations for 2023, and the railroads are focusing on improving service levels from last year's challenges, including weather and staffing levels. I'm proud to say that in 2022, our company's operations had very effective reclamation efforts, In the U.S., we were able to reclaim 1.5 acres for every acre disturbed and 1.25 acres overall, including our Australian operations. At North Gunyala, we have begun the initial redevelopment efforts and expect to spend approximately $120 million in 2023. Our drilling program is underway with two rigs operating 24 hours a day to support the reventilation and planned reentry to a previously sealed area called Zone B. We are commissioning the main ventilation fan, and that is targeted to start operating in the very near future. Also, orders have been placed for critical equipment, including two new continuous miners, shuttle cars, conveyors, and electrical installation equipment. As a reminder, North Cuniello is a premium-grade hard coking coal longwall operation in Queensland, Australia, with over 70 million tons of reserves. This operation's grade of coking coal is considered to be the cornerstone of coking coal feedstocks globally. North Canela is expected to meaningfully increase Peabody's metallurgical coal production and generate approximately 25% returns at historical long-term prices in this initial phase. We continue, along with other companies, to urge the Queensland government to roll back their extreme royalty structure. This is resulting in discouraging investment and the loss of jobs and local business opportunities that we can deliver to local communities. I am proud to say we had a terrific 2022, setting the stage for another strong year with a significantly improved balance sheet, which allows us to focus on implementing shareholder value return programs. I'll now turn it over to Mark to cover the financial details.