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spk01: Good day and welcome to the Peabody's earnings call for the third quarter of 2023. All participants will be in a listen-only mode. Should 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 touchtone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Carla Kimrey. Please go ahead.
spk00: Good morning, and thanks for joining Peabody's earnings call for the third quarter of 2023. With me today are President and Chief Executive Officer Jim Grech, Chief Financial Officer Mark Spurbeck, and our Chief Marketing Officer Malcolm Roberts. 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 Securities and Exchange Commission. I'll now turn the call over to Jim.
spk07: Thanks, Carla, and good morning, everyone. In the third quarter of 2023, we delivered strong operational results with better-than-expected production and effective cost management. We also advanced initiatives at Shoal Creek and North Gunyella that illustrate our ongoing commitment to continue investing in our seaborne metallurgical portfolio. During the quarter, our board approved full funding at North Gunyella for the completion of initial development through the commencement of longwall operations in 2026. We are also excited to announce that we have reached an agreement to acquire a large portion of the Wardswell coal deposit adjacent to our existing North Ginella mine. This is a tremendous opportunity to extend our world-class coal deposit and leverage our existing infrastructure and equipment. Before I expand on the quarter, I want to thank our global employees for their continued focus and commitment to working safely and efficiently. Now, turning to the global coal markets. Seaborne thermal coal markets remain volatile during the quarter with modest pricing improvements. Robust but moderating coal and natural gas inventories in the northern hemisphere have continued to weigh on demand for high-energy thermal coal, coupled with better supply prospects due to drier weather on Australia's east coast, resulting in Newcastle coal trading within a range of $130 to $160 a ton. China's year-to-date imports of lower-grade thermal coals continue to significantly surpass the prior year, with an increase in the annual thermal coal input run rate of approximately 93% over 2022 levels. India has also increased seaborne market participation as our power demand continues to grow. Recent import trends have led the IEA to report that elevated global demand for thermal coal imports so far during 2023 are pointing to 6% year-on-year growth in overall seaborne coal trade versus 2022. Within the seaborne metallurgical market, global crude steel output during the quarter continued to be variable, with weaker production rates in Europe and South America, offset by notable year-on-year crude steel production growth in some Asian markets. Metallurgical coal supply has remained constrained, with the rate of exports from Queensland remaining below historical rates and premium hard coking coal remaining highly sought after. Premium hard coking coal indices finished the quarter around $330 a ton, recording a 42% increase during the quarter. The outlook for metallurgical coal remains positive, with seaborne supply remaining below historical levels, combining with strong purchase interest out of India and new import demand for steelmaking coals within the Southeast Asian region. In the United States, electricity generation from thermal coal has declined year on year due to low gas prices. and growing renewable generation, although quarter-on-quarter improvement in coal burn was recorded through a warm end to the summer. Natural gas prices continued to recover during the quarter, with U.S. natural gas pricing currently at around $3 per MMBTU. Near-term demand for U.S. thermal coal is anticipated to be supported by higher gas prices, while also challenged by comparatively high generator inventories. Now, moving on to our operating segments. As expected, our Seabourn thermal third quarter coal exports came in at 2.7 million tons. Segment cost per tons were lower than the second quarter due to stronger production and lower sales price sensitive costs. Our Seabourn METS segment shipments were 1.5 million tons. Total segment cost per ton were 20% lower than the second quarter due to strong production and lower sales price sensitive costs offset by timing of sales. At Shoal Creek, we continue to make significant progress towards resuming targeted longwall production early in the first quarter of 2024 with a potential that this could be pulled forward into Q4 2023 as developmental coal production is ahead of target due to favorable geological conditions in the L panel area and installation of the new fit for purpose longwall is well underway. In the PRB, shipments of 22.7 million tons were better than anticipated. Caballo produced 4.2 million tons, the most in a quarter since 2012. The NARM complex produced almost 16 million tons, similar to the third quarter last year, and the mine has recovered nicely after tornado damage facilities in June. Higher production and lower maintenance costs allowed us to reduce costs by nearly 8% from the previous quarter, while expanding margins by more than 70%. Another US thermal shipments were 4.2 million tons, as expected, and above the 3.8 million tons from the previous quarter due to increased customer demand. Our customers did see their inventories come down in July and August, but September likely saw inventories increase again. Looking to 2024, We sit comfortably with about 80 million tons priced at $13.77 a ton in the PRB and nearly 15 million tons priced at $51.18 per ton in other U.S. thermal. In addition to our active operations, we continue to advance redevelopment efforts at North Gunyala, the key organic growth metallurgical opportunity within the portfolio. As anticipated, we achieved a significant milestone when we received the required approvals to reenter Zone B. Reentry has occurred, ventilation has been established, and we are operating under normal mining processes. The conditions in Zone B are better than expected, with no impediments to the installation of conveyors and access to our southern longwall blocks. Next steps in Zone B include the installation of new ground support, removal of the old conveyor system and installation of a new conveyor system to support commencement of development operations. This new conveyor system, which runs from the surface to the coal phase, will result in improved reliability and capacity. New continuous miners and development equipment that were ordered in late 2022 are scheduled for delivery in Q1 2024 for the commencement of development coal. Since commencing redevelopment in North Kenyella in late 2022, the company has invested $75 million of the initial approved redevelopment capital expenditures, which includes further ventilation, equipment, conveyors, and infrastructure updates. Overall, our operations had an outstanding quarter, enabling us to deliver consistent and predictable results and highlighting the benefits of our unique diversified portfolio. I'll now turn it over to Mark to cover the financial details.
spk08: Thank you, Jim. In the third quarter, we recorded net income attributed to common stockholders of $120 million, or $0.82 per diluted share, and adjusted EBITDA of $270 million. The company generated $87.5 million of operating cash flow from continuing operations, which included an increase in working capital of $81 million, largely reversing the second quarter working capital benefit as expected. We also reached a $72 million cash settlement with the Department of Labor for black lung liabilities related to discontinued operations. The settlement discharged a $76 million legacy liability from the company's balance sheet and eliminated the almost certain risk of a much larger collateral requirement proposed in the new DOL rules. Through October 20th, we have returned $307 million to shareholders, reduced our share count by 9.3%, and have 713 million of remaining authorization under our share repurchase program. We remain steadfast in our commitment to return at least 65% of annual available free cash flow to shareholders. After their recently declared third quarter cash dividend of 7.5 cents per share, based on year-to-date results, 103 million is currently available for additional share repurchases. Turning now to third quarter segment results. Seabourn Thermal recorded $116 million of adjusted EBITDA. Higher production at Wilpinyong and a lower mix of Wambo underground production reduced costs to $43.68 per ton, below the low end of our guidance. Despite lower price realizations from additional high ash Wilpinyong production, adjusted EBITDA margins were approximately 40%. The Seabourn Metallurgical segment generated $79 million of adjusted EBITDA. Costs per ton were below the low end of guidance, mostly due to lower sales price sensitive costs. Lower than anticipated price realizations resulted from the widening price gap between premium hard coking coal and PCI coal. PCI achieved only 64% of the benchmark price in the third quarter compared to 86% in the previous quarter. Despite the relative weakness in PCI coal prices, the segment reported 32% adjusted EBITDA margins. The U.S. thermal mines produced 103 million of adjusted EBITDA, an increase of 32% over the prior quarter, benefiting from much stronger demand for PRB coal. The PRB mines generated 54 million of adjusted EBITDA and shipped 22.7 million tons, exceeding guidance by more than 8%. PRB margins improved substantially to $2.38 per ton, up from $1.38 last quarter, due to higher shipments and lower maintenance costs. The other U.S. thermal mines delivered 49 million of adjusted EBITDA. Shipments of 4.2 million tons were in line with expectations, while costs were a bit higher due to timing of repairs, contracted services, and higher fuel costs. Taking a peek at our outlook, full-year guidance has improved in a couple of areas. We are lowering seaborne thermal cost guidance $5 per ton to $45 to $50, as we expect full-year volumes to be at the higher end of the 15 to 16 million ton range. Our reclamation efforts continue to be efficient, and we are reducing the expected cash required for final reclamation by 5 million to a range of 60 to 70 million. Specifically for the fourth quarter, seaworn thermal export volumes are expected to increase to 2.8 million tons. 500,000 tons are priced on average at $161 per ton, and 1.5 million tons of high ash product and 800,000 tons of Newcastle product are unpriced. Costs are expected to be $45 to $50 per ton. Seabourn metallurgical volumes are projected to be 45% higher at 2.2 million tons due to the absence of a longwall move, continued development coal coming out of Shoal Creek, and a reversal of the mine sequencing and sales timing that impacted the third quarter. 200,000 tons are priced at $164 per ton, and the remaining unpriced volumes are expected to achieve 65% to 70% of the premium hardcoking coal price. Costs are expected to be $110 to $120 per ton. In the PRB, we are anticipating shipments of 21 million tons, resulting in full year volumes at the high end of our guidance range. In the fourth quarter, we expect average realized prices of $13.30 per ton and costs of $11.55 per ton. Other U.S. thermal shipments are expected to be 4.1 million tons in line with the third quarter, resulting in full-year volumes at the low end of our guidance range. In the fourth quarter, we anticipate an averaged price of $51.40 and costs of approximately $43 to $44 per ton. In summary, we delivered another quarter of solid operating results, and we expect to do the same in the fourth quarter. We eliminated a legacy liability and removed a potentially large liquidity requirement. We are excited about our organic growth opportunities in the seaborne metallurgical segment and will maintain rigorous attention to operating costs and capital allocation discipline.
spk06: Operator, I'd now like to turn the call over for questions.
spk01: Thank you, we will now begin the question and answer session. To ask a question, you may press star then one on your touch tone phone. If you are using the speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Lucas Bites with B Riley Securities. Please go ahead.
spk04: Thank you so much, operator. Good morning, everyone. Morning, Lucas. Hey, my first question is on Warts Well, and I want to make sure I understand the structure of that deal, right? It's 136 million cash and then a contingent royalty of 200 million. Does the 136 million of cash, does that get paid on closing? And then the 200 million, exactly what is that contingent upon? I think it says recovery of capital. What capital does that refer to? We just really appreciate some additional color around the timing of initial and later cash flows. And then I have a second question where it's well, and that is when would you expect to to mine that adjacent deposit. Thank you very much for your color on that.
spk07: Hi, Lucas. Jim Breck here. And first off, congratulations on that beautiful daughter you had just a few days ago. Thank you so much. So that's the most important thing on this call. Thank you. So the $136 million is, let me see if I can remember all your questions here, that'll be paid on closing. We expect that to go out sometime in the first quarter of next year. And the $200 million of royalty, again, that's recovered. We start paying that out after we cover a full project investment in the project. So that's going to be some years into the future, probably not if it is at the end of this decade, if not into early into the 2030 timeframe that we would expect that royalty to start being paid. that, I'm sorry, and you had a couple other questions. If I didn't answer, did you repeat them for me?
spk04: Yeah, no, that covered the first part. The second part was about when you would expect to mine those reserves. Yep, thank you.
spk07: Yeah, so what we have, Lucas, we literally closed on this deal just a few hours ago, so we're happy we could do that and get it into the release here. And, you know, what we're looking at is optimizing the mining plan right now. The way it's laid out is we would still mine the North Gunyella reserves first. And what we're looking at is the timing of when we would then jump into the Ward's Well reserves. They're contiguous. They're right up against our property. And so, you know, some of the different scenarios we're running is mine just a few panels in North Gunyella, then jump right up to Ward's Well, or, you know, maybe mine even a few more panels in North Gunyella. which would take us out towards the end of the decade and then jump up towards well. So we're looking at what gives us the best cost structure with a different mine plan. So it could be a few years out to maybe four or five years out, depending on how we, after we start long wall production, right? So it depends on what gives us the best cost structure. What's very good about those reserves, though, Lucas, is us having that optionality is because it's the same coal seam. We're using the same conveyor systems, the same long wall, the same development units. You know, and it's just which direction we take the mine, whether we go to the north or the south faster. We're not going down to a different seam, down at a different elevation. And we have lots of optionality as far as the mine plan now. So, again, we're still looking at that. But, you know, a few years out after long wall starts would probably be the earliest we'd hit those reserves. And, again, we're still... You know, we've just signed the deal, and, you know, when you asked about the payment, again, that would come at closure, which, again, we expect that to be in the first quarter.
spk04: Very helpful. Thank you for that color, Jim. My second question stays with North Gunyella. You raised the CapEx guidance this morning, right? We've seen, obviously, across the industry, pretty material increases in capital costs. And at this stage, how far down the rabbit hole are you in terms of de-risking the capital for North Canela? I would appreciate a sense for your confidence level and where maybe some risks linger in in this broadly inflationary environment. Thank you.
spk07: Yeah, Lucas, as you said, we're not immune to cost increases just like the rest of the industry. But, you know, given the relatively short timeframe, you know, we start development mining here in the first quarter. We've got the miners on order to be delivered here in the first quarter. The conveyor structure, that's all in place. You know, there's still some more capital to be spent, but a lot of it has been ordered or on order or been spent already. A big part of the increase we have has been in labor costs, which at this point is also capitalized. So those have increased, and we think we've captured that in our forecast. That's a big part of the change in the capitalization is on the labor expense. So given the short time frame and the amount that's already been ordered or spent, we feel pretty good about those numbers and them being accurate. based on all those reasons. You know, labor is still a bit of a wild card, but we think we've captured everything with the labor costs that we could see going forward.
spk04: Thank you, Jim. Very helpful. I'll squeeze one last one in. On the medical side, for 2024, a few moving pieces. I know it's a little early to ask for guidance, but just Between development coal, the good update on Shoal Creek, what is a reasonable range for your coking coal volumes in this transition period before North Gundyala is fully rammed? Thank you.
spk08: Yeah, Lucas, Mark, we're not giving guidance for 24 yet. Obviously, Shoal Creek has done a really good job with some of the continuous minor development coal we're getting now, and we expect that to be ramped back up beginning Q1 of next year. You know, that did about 800,000 tons last year. It's probably high point was 2 million tons. They're probably somewhere in the middle there for next year. That's the big change.
spk04: And all the other operations, no major changes that you would expect there?
spk06: That's right. All right. Thank you very much. I'll turn it over. Best of luck. Thanks, Lucas. Thanks, Lucas.
spk01: Again, if you have a reminder, please press star, then one to be joined into the queue. The next question comes from Nathan Martin with Benchmark Company. Please go ahead.
spk03: Hey, good morning, everyone. Thanks for taking my questions. Maybe just one last on North Green Yellow. Now the project's fully approved. We've got the CapEx updates. Did you guys give us any idea on the cadence of that spend? It looks like roughly $400 million or so left between now and 2026. And also, you mentioned something in the release about regulatory costs that increased there. I know you previously said the reentry was the major approval needed, but is there anything else from a regulatory perspective that we need to be mindful of? Thanks.
spk07: Nate, I'll answer the regulatory side of that, and then Mark can – address the cadence question that you had. In Australia, the Safeguard Act was passed, the legislation, I think it was end of July, which affected many industries in Australia, but us included. And so we just got the detail of what that involves and the compliance costs that go along with it. So those regulatory impacts were something that we had to work into and do our forecast for the mine. That's the main one. There's been some other changes legislatively potentially that we see, you know, with the work rules and so on that we've accounted for, but the main regulatory impact that we're talking about is that Safeguard Act that came into effect there, you know, late in the summer.
spk08: Yeah, Nate, we've got about 75 million spent left to date on that redevelopment at North Ganyella. I'd look at cap backs of about 150 to 160 million For 24 from 25, the rest of that capital would come in after long-wall production begins in the beginning of 26.
spk05: Great color there. Guys, appreciate that.
spk03: And then maybe shifting over to the seaborne thermal segment, great job on the cost there. Obviously, four-year cost per ton guidance down by about five bucks. I guess the question is, you know, what's driving that improvement, and is this kind of a new base we should think about going forward in 2024, or are there some other factors to consider?
spk08: A couple of things, Nate. One, you know, certainly hitting volumes on costs have been very helpful in Seabourn Thermo. The Aussie dollar is historically weak. That's also helping us on the costs. We saw costs come down quarter over quarter. Some of that was, you know, lower sales price sensitive costs and the higher production.
spk06: You know, we're not providing guidance for 24 just yet. We'll do that next quarter.
spk05: Okay. Thanks for that, Mark.
spk03: And then maybe at the U.S. thermal business side of the house, Jim, I appreciate your update on 24 thermal sales and price there. Should we kind of assume you guys are close to sold out at those levels? I think you said, you know, PRB 80 million tons at 1377 and other thermal at 15 million at 5118.
spk07: I think if you look at the guidance ranges we're providing this year for the different markets, that can give you a pretty good range of what we think about for the tons for next year at this time and where we sit with these sales within those guidance ranges.
spk03: Okay, just to be sure, so you're saying maybe somewhere within this year's guidance ranges for 24 is not a bad place to start?
spk07: Yeah, and maybe towards the higher end of the guidance ranges.
spk05: Okay, great. Got it. Very helpful. I'll leave it there. Appreciate the time. Best of luck in the fourth quarter. Thanks, Nate.
spk01: With no further questions, this concludes our question and answer session. I would like to turn the conference back over to Jim Gregg for any closing remarks.
spk07: 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 initiatives. I'd also like to thank our customers, investors, insurance providers, and vendors for your continued support.
spk06: Operator, that concludes our call.
spk02: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may all now disconnect.
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