This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk01: Good day and welcome to the Peabody second quarter 2024 earnings call. All participants will be in 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 your telephone keypad. To withdraw your question, please press star then choose. Please note, this event is being recorded. I would now like to turn the conference over to Carla Kimrey, VP, Investor Relations. Please go ahead.
spk05: Good morning, and thank you for joining Peabody's call for the second quarter of 2024. With me today are President and CEO Jim Grech, CFO Mark Sperbeck, and our Chief Marketing Officer Malcolm Roberts. Within the earnings release, you will 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. Now, I'll turn the call over to Jim.
spk02: Thanks, Carla, and good morning, everyone. Thank you for taking the time to join us today and for your interest in Peabody. I am pleased to report the second quarter results came in as forecasted and we have a confident outlook for the second half of 2024. More importantly, to date, Peabody is having a remarkable year with safety, our number one value, as five of our mines have had zero reportable injuries. Peabody is committed to increasing shareholder value through a balanced approach of maximizing shareholder returns and investing in organic metallurgical co-growth at Centurion. Our resilient balance sheet allows us to be flexible and dynamic in the prevailing market conditions. As a result, and in accordance with our shareholder return policy and favorable outlook for the remainder of the year, we have committed an additional $100 million for opportunistic share repurchases. Centurion, a world-class hard cocaine coal growth project, is going very well. The initial underground development rates are exceeding expectations. We were able to mine our first development coal in June, and in July we commissioned our second continuous miner. We are on budget and expect to ship coal from this mine to customers in the fourth quarter and are on target for long-wall coal in the first quarter of 2026. With the recent acquisition of the Ward's Well Deposit, we have extended the mine life to over 25 years with an average annual production of approximately 4.7 million tons. This quality of coal is an established cornerstone of coking coal blends, highlighting the potential for sustainable financial returns and is a unique opportunity to reweight Peabody's earnings to Seabourn Med. Now moving on to our operating segments. Overall, second quarter operational results came in as forecasted and our mines performed safely. The Seabourn thermal segment performed to expectations. Our Wolpenjohn mine continued to operate well with improved equipment availability and truck utilization. As Malcolm will address, the Asian thermal market continues to see demand growth for our Wilkin joint product, and as such, we have increased volume expectations for the remainder of 2024. The seaborne met segment also came in as forecasted. Our volumes, costs, and realized prices were as expected. Australia did experience some significant rain in the last week of the quarter, and some shipments out of the CMJV were delayed. Additionally, CMJB will be mining through challenging geotechnical conditions, which is reflected in our reduced four-year guidance. The Demopolis Lock in Alabama was opened ahead of schedule in mid-May. While we were pleased with U.S. Army Corps of Engineers bringing the Demopolis Lock online earlier than expected, unfortunately, another lock, the Holt Lock, was determined to be unstable on June 22nd. The Corps is planning to install a bunkhead as a temporary fix by the end of September to early October, which could open the lock intermittently to allow traffic to pass until a permanent fix is achieved. As we did while the Maples lock was down, we will continue to utilize alternative rail transportation at Shoal Creek at slightly reduced volumes reflected in the full year guidance. I want to thank our rail and other logistics providers for their continued partnership and support. In the PRB, shipments were slightly higher than expectations as we came out of the shoulder season. The segment had strong cash performance with a continued emphasis on operational efficiency, resulting in improved margins. While we expect a stronger second half of the year, we felt it was prudent to reduce full year guidance as customer inventories remain high, along with depressed natural gas prices. Other U.S. thermal costs and revenues were in line with expectations. Shipments were slightly less than expected, but up 16% as we began delivering against new contracts originated during the first quarter. In total, for the U.S. thermal markets, we saw nominations and volumes increase as the quarter moved on. We continue to see this in July also. Malcolm Roberts, our Chief Marketing Officer, will be delivering our outlook on the markets today. Malcolm?
spk10: Thanks, Jim. State-born thermal coal continued to range trade for the quarter. In Australia, the Newcastle high-energy thermal market is best described as balanced. The United States imposed further economic sanctions on Russia, resulting in some buyers reducing Russian coal purchases. Improved Newcastle demand was met with higher rates of production and the Newcastle high-energy thermal coal spot price averaged $136 per metric tonne during the second quarter. Asian thermal coal imports have grown this year, with China continuing to show increases in electricity demand supporting seaborne thermal coal imports, coupled with strong demand growth in Vietnam. Both China and Vietnam have recorded strong year-to-date increases in imports of approximately 15% and 37% respectively. Within the seaborne metallurgical coal market, premium hard-coking coal prices during the quarter averaged $242 per metric tonne. Parts of the global steel market reported tepid demand and thin profit margins during the quarter, subduing demand growth for metallurgical coal. In India, steel production was disrupted due to election activities and the onset of monsoon season, while China's steel production was mixed with the historically weak market dragging on demand. partially offset by economic stimulus targeting the real estate sector. The coking coal prices found periodic support during the quarter because of supply-side disruptions, including rail and port maintenance containing exports in Queensland, restricted USA exports from Baltimore and historically low production in China. The June incident at a major hard coking coal mine in Queensland is expected to constrain premium hard coking coal supply in future quarters. Despite these supply-side constraints, coking coal supply proved sufficient to meet demand during the second quarter. In the PCI segment, prices improved during the quarter, supported by constrained supply and some buyers switching to Australian supply in place of Russian. The spot price of PCI increased 23% during the quarter to finish the quarter at $182 per metric tonne. a 78% relativity to premium hard coking coal. Overall, the metallurgical coal market remains finely balanced, exposed to volatility influenced by the rate of exports from Australia and economic performance in China, India and elsewhere. In the United States, during the six months ended June 30, electricity generation from thermal coal has increased slightly year over year, driven by an overall increase in electricity demand. This is despite low natural gas prices and stronger renewable generation. The EIA in its July update to the short-term energy outlook forecast an increase in the use of coal to generate electricity this year, leading to a 12% reduction in inventories by year end. I'll now turn over to Mark to cover the financial details.
spk02: Thanks, Malcolm, and good morning, everyone. In the second quarter, we recorded net income attributable to common stockholders of $199.4 million, or $1.42 per diluted share, and adjusted EBITDA of $309.7 million. During the quarter, we reached an insurance settlement for $109.5 million. We included $80.8 million of the settlement in adjusted EBITDA, while the remaining $28.7 million was recorded as the recovery of property and underground development that was previously written off. This settlement covers all property and business interruption losses suffered at Shoal Creek last year. We received a $5.6 million advance payment in the second quarter and will receive the remaining $103.9 million this quarter. At June 30, we had $622 million of cash after acquiring Wardswell and making $113 million of income tax payments, which were both noted on our last call. During the quarter, we paid a $0.75 per share cash dividend And for the first quarter since restarting the shareholder return program, we didn't repurchase shares. However, with a strong operational recovery in the second quarter and a favorable free cash flow forecast in the second half of the year, today we announced an additional $100 million available for share buybacks. And for the sixth quarter in a row, declared a 7.5% per share dividend. Turning now to second quarter segment results. Seabourn Thermal recorded $104 million in adjusted EBITDA. $10 million better than the prior quarter on much improved production from the Wombo complex, resulting in additional Newcastle quality export tons. The segment's adjusted EBITDA margin of 34% was better than the previous quarter, as higher realized prices more than offset the increase in costs from a higher mix of Wombo production. The Seabourn Met segment generated $144 million of adjusted EBITDA, including the insurance settlement, or $63 million related to second quarter productions. a 30% increase compared to first quarter's $48 million result in an apples-to-apples comparison. Each mine in the segment increased shipments quarter over quarter. And as noted earlier, we expect to collect over $100 million of cash at Shoal Creek in the third quarter. The U.S. thermal mines produced 53 million of adjusted EBITDA. The PRB shipped 15.8 million tons below first quarter's volume as expected due to the traditional second quarter shoulder season. The segment reported 17.8 million of adjusted EBITDA as the mines did an outstanding job managing costs, which despite significantly lower tons, kept average unit costs flat and increased margin approximately 30% from first quarter levels to $1.13 per ton. The other U.S. thermal segment generated 35 million in adjusted EBITDA. Shipments increased 450,000 tons from the first quarter, and we are expecting even stronger shipments in both the third and fourth quarters. Our U.S. thermal platform continues to demonstrate strong, positive margins and free cash flows. On a combined basis, the U.S. thermal operation shipped 19.5 million tons and realized an adjusted EBITDA margin of $2.73 per ton in the second quarter, after shipping 21.9 million tons at an adjusted EBITDA margin of $2.88 per ton in the first quarter. For the first half of the year, our U.S. thermal lines have produced $116 million of adjusted EBITDA while requiring only $17.7 million of capital. With the first half in the books, we expect robust free cash flow in the second half despite a couple of challenges. As Jim noted, we've adjusted four-year guidance for three items. Seabourn thermal volume increased 500,000 tons as Wilpin Young continues to outperform expectations particularly with the strong demand and price support for higher ash products. Seabourn Met volume was reduced to 600,000 tons due to the challenging geological conditions of the CMJV and the impact of two successive lock outages on the Black Warrior River at Shoal Creek. The combined volume impacts are expected to increase segment costs for the full year by $8 per ton. We lowered PRD volumes by 5 million tons as customer inventories remain high, and natural gas prices remain stubbornly low. We have not negotiated a deferral on any of the 85 million price tons, and as we have done previously, we will manage customer volumes while maintaining Peabody's value in all contracts. Taking a look at the third quarter, we expect another Seabourn thermal quarter very consistent with the first two. Shipments are expected to be 4 million tons, including 2.5 million export tons. 600,000 tons are priced on average at $120.45, while 1 million tons of Newcastle product and 900,000 tons of high ash product are unpriced. Costs are anticipated to remain stable at $48 to $53 per ton. Seabourn Met shipments are expected to be 1.7 million tons at the midpoint of the first and second quarters. Lower tonnage from Tutu is due to a planned long, long move at Shoal Creek, And we should also see production and shipment levels rebalance at metropolitan after shipments ran ahead of production by 200,000 tons in the second quarter. After the recent recovery in PCI prices, we expect to realize better prices relative to the benchmark and achieve 70% to 80% of the premium hard coking coal price. Costs are expected to be slightly better than the midpoint between the first and second quarters and land between $120 and $130 per ton. Following the traditional shoulder season and building on the momentum we experienced in the latter part of the second quarter, we expect PRP volume to increase nearly 6 million tons to 21.5 million in the third quarter. With higher shipments, we also expect to benefit from lower fixed costs per unit and our forecasting costs at $11.50 to $12.50 per ton, increasing margin quarter over quarter again to $1.75 per ton in the third quarter. Other U.S. thermal shipments are also anticipated to be ahead of prior quarter at 4 million tons, and costs are expected to remain flat at $44 to $48 per ton. In summary, we hit all operating targets in the second quarter, reached a key milestone by achieving first development coal at Centurion, and negotiated a favorable settlement for last year's loss at Shoal Creek. The third quarter outlook is equally good, and today we announced another $100 million available for share buybacks.
spk07: Operator, I'd now like to turn the call over for questions.
spk09: Certainly.
spk01: We'll now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the key. If at any time your question has been addressed and you'd like to withdraw your question, please press star then two. At this time, we'll pause momentarily to assemble a roaster. The first question comes from Lucas Pikes with B. Riley. Please go ahead.
spk06: Thank you very much, operator. Good morning, everyone. Jim, Mark, my first question is on the capital allocation side. You have a formula for capital returns. I think it's 65% of available free cash flow and And so two questions on the back of this. One, how should we think about the additional allocation of $100 million to buybacks? Is that you saying, look, with this price environment, we really just want to commit. So maybe if cash flow is a little lower, you have the available cash to return it. So you want to make that statement. I'm just trying to understand it because presumably with the formula, that additional allocation allocation would technically not be necessary. So I'd appreciate the context. And then bigger picture with capital allocation, there are some met coal assets for sale in Australia. I've heard of some opportunities in the U.S. market too. How do you think about M&A more broadly or are you really just focused on your organic growth opportunities and returning capital to shareholders?
spk07: Thank you very much for all your color. Jim, did I... Do you hear me? Hi, Lucas. Good morning.
spk02: Good morning. Lucas, I'd like to comment some on your first question and turn it over to Mark, and then we'll come to your second question. On the first question, I'd like to just note that we say on our 65%, we say at least 65%. And we certainly have the optionality to go above that when... You know, when we have the cash and we feel comfortable to do so. And so, you know, what we're doing here is a prime example of that and our commitment to be focused on increasing, you know, the shareholder value with the share buyback. So, but I think you have some more detail on that about the rest of the year. So, Mark, I'll let you comment on that. Yeah, good morning, Lucas. Listen, with the... continued development at Centurion, I think $81 million year-to-date on that capital, probably $200 million since starting in the cash purchase awards well here in the second quarter. We always knew we wouldn't generate a lot of free cash flow in the first half of the year. But as Jim mentioned, a resilient balance sheet allows us to be opportunistic when market presents opportunities. I think our stock recently crossed the 50-day moving average and the 100-day moving average as coal equities are generally traded off with coal prices. So we see this as a really attractive point in time and an opportunity to further reduce our share count as we steadily march closer to Centurion coming online. As we noted, even in our last call, our program is designed to be flexible and give us an opportunity to be opportunistic with a resilient balance sheet. As far as the remainder of the year, we do see good free cash flows in the second half, and depending on where prices shake out, we should continue to generate you know, free cash flow in the second half and into next year. But, you know, to be clear, you know, no change to the program. Lucas, in response to your second question. I'm sorry. Go ahead, Lucas. Any questions on your first question?
spk06: No, no. Yeah, exactly. I think you know where I wanted to follow up on the M&A side.
spk02: So, Lucas, I just want to stress that as a company, our focus is on creating shareholder value, and the focus is on that right now. And with that, there's three or four areas that are at the forefront for that. One is maintaining our balance sheet strength and financial stability, which has taken us a long time to get to, and we're going to continue doing that. We're very focused on the share buybacks and maintaining our dividend. As Mark said, we've done the dividend seven quarters in a row. and we've just put another $100 million into the share buybacks. We're also very focused on our organic growth with the investment that we have in the Centurion mine and also just continuing investment in our operations and keeping them reliable and safe and predictable. That is the overwhelming focus. Assets come and go on the market, and everything that's out there, like with every coal company, comes across our desk. But our focus is on maximizing shareholder value, and that's where the number one focus is, and that's where we're at. Assets come by. Certainly, every company takes a look at them.
spk08: But right now, I think I fit up on the points that we're very much focused on.
spk06: Very helpful. I appreciate that. I want to turn for my second question to kind of the operational outlook on the MedCall side and First, the anticipated geological issues at CMJB, when did you first become aware of those issues? What exactly is the issue? And then how long do you think those could last, could this bleed into 2025? And then on the hold lock, if you could maybe elaborate on the mitigation efforts, the anticipated impact to 2024 volumes. and any costs that might be associated with your mitigation efforts. And then from a numbers accounting perspective, if there are additional costs, would that be reflected in your METCO cost guidance, or would it actually come out of your realizations that you guide to? So just a clarification on that, would appreciate it. Thank you very much.
spk07: Yeah.
spk02: Lucas, so first off on the lock outage, as we said, we were expecting that bulkhead to be installed here towards the end of September. And if the stability is there on the lock, then the lock would then be expected as well to be open back up for shipments, maybe not as efficiently as it would without the issue, but for those shipments to resume. We don't think the overall expense that we'll see is material between now and the end of the year. On the high side, maybe an incremental $8 to $10 million of expense if this goes through the end of the year and we keep shipments going. But that would be the extent of it. And again, we're looking at the cost of alternate transportation. And we have a couple different routes we're looking at, again, to try to bring that expense down even further. So that would be the extent of the lockoutage. As far as Copabella, you know, the faulting is standard. It occurs in the coal seam there. We have it all the time. And what happens is we have more faulting than we anticipated. It's not uncommon to occur. We work through it, and we're working through the section right now that, again, had more than we anticipated, and we expect to get through that here through the end of the year. So, again, there's nothing out of the ordinary with what's going on at Copabella. There's always faulting.
spk08: We've got a little bit more than anticipated, and we're just working through that right now.
spk06: That's helpful. On the 8 to 10 million of potential costs with the hold lock, would that go through METCO unit costs, or would it kind of come out of the realizations?
spk02: Yeah, Lucas, Mark, it's all included in our segment costs.
spk06: Excellent. I really appreciate all the color and to the entire team continued best of luck. Thank you.
spk09: Thank you, Lucas. We can take the next question.
spk01: The next question comes from with BMO Capital Markets. Please go ahead.
spk03: Hi. Thank you for taking my questions. Maybe staying for a bit on the MET segment, can you provide a little more color on the 600,000 tons decline? How much of that, or reduction, how much of that is halt lock?
spk08: The majority of that is going to be with the CMJV.
spk02: I think maybe about 100,000 tons of that may be with the approximate COTCHA. About 100,000 tons is the halt lock, and the other 500 or so is with the CMJV.
spk03: And then maybe, you know, I think last quarter, the indication was that two-thirds of Shoal Creek will ship in the second half because of the Demopolis lock closure. So is there a difference between these two locks, how much of an impact they can have?
spk02: We have the impacts of both of them, but, you know, again, in the overall impact, because we've been looking at alternate transportation routes, That's all factored into the guidance we have, and they said we think it's going to be about 100,000 ton reduction net after we do the alternate logistics to the tonnages for Shoal Creek for the year.
spk03: Okay. And then on the Centurion, can you remind us how much you expect to ship the development tons in 4Q and how we should think about shipments going into next year?
spk10: Yeah, look, Malcolm here, last time I think we said around 100,000. Right now we'd be saying probably 60,000 to 70,000 by the end of the year.
spk07: And for next year? I'd call it around 200,000 tons.
spk09: Perfect. Thank you so much.
spk01: The next question comes with Nate and Martin from the Benchmark Company. Please go ahead.
spk04: Hey, thanks, operator. Good morning, everyone. Congrats on the second quarter results, guys. Maybe just sticking with Centurion for a second, can you just remind us, are there any permit or regulatory hurdles remaining before you get to the anticipated long wall startup in the first quarter of 26?
spk02: No, Nate, we have all the permits and regulatory hurdles regulation hurdles passed. So what we're doing right now is we were focused on the development, and in the month of June, as we said in the comments, development went better than expected. In the month of June, we actually developed about three times the amount of footage that we had anticipated. Getting the prep plan up and running right now and degassing the longwall section ahead of mining, those are, if you're looking at a thing that we're focused on that we need to stay focused on to get us to mining. Those are really the issues ahead of us, not really permitting a regulatory.
spk04: Okay, got it. Thanks, Jim. And then just related to the spend, I think you guys mentioned in the release you spent about $200 million thus far of the expected $489 million. Mark, I think I caught you saying you spent about $81 million year-to-date. First, is that correct? Um, how much would that leave for the second half and then how much, uh, of the remaining, you know, that 489 would be spent in 25 and 26 at this point?
spk02: Yeah, that's right. Uh, Nate, uh, we got about 81 million, uh, through the, uh, through June 30. There's probably about 75 million more for the second half of the year. Uh, that would bring us up to about 275 million from the start of the project. Um, we probably have about 165 million, uh, in 2025. The remainder 30, 40 million would be in 2026. Still on budget for the 489.
spk04: Okay, perfect. Thanks, Mark. And then maybe over to CMJV. I know Lucas asked a little bit about this, but I guess maybe my question is, and I'll tie it into this other piece too. I know you guys mentioned, I think it was you, Mark, as well, that You know, you now expect to achieve roughly 70% to 80% of the FOB-LC benchmark met price versus 65% to 70% previously. I think I heard part of that was the increase in PCI prices, likely driven by some of the Russian PCI bull coming out of the market. But is there anything else that's driving that increase there? I was curious to see, MJV, what kind of coal qualities are you mining right now that are going to be reduced? Is that helping your mix overall? It would be great to get any thoughts there.
spk10: Look, Malcolm, our mix is pretty constant, and our full-year guidance has about 55% PCI sales incorporated within it.
spk02: Yeah, so most of that increase is just the PCI price recovery relative to the benchmark You know, I think there is a slight increase in the mix with some semi-hard coming out of Morvale to improve the mix as well.
spk08: Okay, great. I appreciate the time, guys. Best of luck in the second half.
spk07: Thanks, Nate.
spk08: Thanks, Nate.
spk01: The next question comes from Lucas Pipes with B Riley. Please go ahead.
spk06: Thank you very much, operator. Thank you very much for taking my follow-up question. In the release this morning, you described Centurion as a 25-year opportunity at 4.7 million tons. And I remember February 26th presentation where you kind of break out Centurion volumes by year, 2026, 3.7, 3.5, the year after, 4.5, 4.4, 3.4. So obviously below the $4.7 million you cited this morning. Is the $4.7 million, is that reflecting Ward's well? And if I remember right, you were planning to update the market maybe on a more comprehensive mine plan update. So just wondering if that process has been completed, and if we should expect anything else. Thank you very much for your color.
spk02: Lucas, a couple of things. One, you're right. The presentation only showed the GM South or the North Camdella proper area that we originally acquired. Those guidance, those tons, you know, 3.7 to 4 million tons for the first four years has not changed. The 4.7 over the 25-year life takes into account the awards area as well. longer panels, more tons between long-wall moves. We're going to get more production on an annual basis. But nothing's changed in those first few years. It just, you know, again, demonstrates the value that Ward's Well brings to this project. As far as an overall update, we are still doing that study, again, maximizing those volumes, figuring out costs, and integrating that plan together. We do plan to come to the market here in the second half of the year and give a full update and maybe a presentation on the project on a standalone basis.
spk06: Really appreciate the clarification.
spk07: Look forward to that, and again, best of luck. Thanks, Lucas.
spk01: This concludes our question and answer session. I would like to turn the conference back over to Gene Gregg for any closing remarks.
spk02: I'd like to thank everyone for joining our call today, and I'd especially like to thank our employees for their outstanding focus on safety in the first half of 2024. Also in June at our Kayenta Mine and our North Antelope Shell Mine, they were both recognized for their outstanding reclamation efforts, and I really want to thank our employees for the work they've done on the reclamation at those mines to achieve those awards. I'd also like to thank our investors, customers, and vendors for their continued support.
spk07: Operator, that concludes our call.
spk09: This concludes the conference call. you for attending today's presentation. You may now disconnect.
Disclaimer