Ladies and gentlemen, thank you for your patience and standing by. Welcome to the Peabody Fourth Quarter 2017 Earnings Call. Just a reminder, today's conference is being recorded. I would now like to turn the conference over to Senior Vice President, Global Investor and Corporate Relations, Vic Svec. Please go ahead, sir.

Okay. Thank you, and good morning. Thanks so much for joining Peabody's fourth quarter and year-end 2017 earnings call. With us today are President and Chief Executive Officer, Glenn Kellow; and Executive Vice President and Chief Financial Officer, Amy Schwetz. Before we begin, I would like to direct you to our supplemental presentation that will accompany today's remarks. It's available on our website at peabodyenergy.com. Now on Slide 2 of the deck, you will find our statement on forward-looking information. We do encourage you to consider the risk factors that are referenced here along with any public filings with the SEC. I would also note, we use both GAAP and non-GAAP measures. We refer you to our reconciliation of those measures in our earnings release as well as the supplemental presentation. And I'll now turn the call over to Glenn Kellow.

Thanks, Vic, and good morning, everyone. Beginning on Slide 3, our fourth quarter performance concluded what I believe to be a year of both considerable change and significant accomplishment. You'll recall that it was just past April, that we really listed on the New York Stock Exchange and have observed a nearly 80% increase in BTU share price through year-end. Our 2017 revenues rose 18% over the prior year led by robust seaborne coal pricing and higher U.S. demand and adjusted EBITDA reached the highest level since 2012. In 2017, Peabody increased liquidity to $1.24 billion as of year-end, released approximately $220 million of restricted cash and closed on and then upsized a $350 million revolving credit facility. I’ll note that we refinanced our term loan lowering our interest rate by 100 basis points and modifying terms to provide us with additional flexibility. As part of our commitment to de-leveraging, we repaid $500 million of debt reaching our 2018 targets a year early. These voluntary payments coupled with our meaningful cash position reduced our net debt by nearly 50% since our emergence. In addition, we completed approximately $175 million in share buybacks and continue to execute on our authorized $500 million share repurchase program. At the operation level, our global safety performance continues to pass industry averages. While our incidence rate edged up overall from the prior year, our Australian platform had a record year improving 17% from 2016. As always, we are ever vigilant on our journey of continuous improvement and safety. We are continuing to see productivity improvements across the platform in particular North Goonyella which had record annual production in 2017. Continued strong performance from the operations has led the team to significantly advance projects in mine planning particularly at North Goonyella and Moorvale for our seaborne…

Thanks Glenn. No question as the fourth quarter had the year of substantial achievement for Peabody as evidenced by the financial results highlighted on Slide 4. Fourth quarter revenues improved 5% over the prior year to $1.52 billion. The Australian Metallurgical Coal segment increased shipments 21% at mid robust seaborne pricing leading to Australia's largest quarterly revenue contribution in five years. For the year, Peabody reported revenues of $5.58 billion, an increase of 18% over 2016 driven by higher seaborne pricing and a 11% increase in PRB shipments on a strong rebound in demand. Australia’s full year revenue contribution increased $632 million as seaborne pricing remained vigorous throughout the year despite moderating volume. As a reminder, Peabody adopted fresh start reporting in April. So certain income statement items are not comparable to prior periods. Income from continuing operations net of income taxes totaled $378 million this quarter and benefited from strong operational results. $83 million of gains on disposals, $45 million in gains on net mark-to-market adjustments related to actuarially determined liabilities, and a net tax benefit of $82 million partly offset by DD&A expense of $179 million and $36 million of interest expense. Gains on disposals included the previously announced Burton transaction, as well as the non-core liability management transaction both of which are excluded from our adjusted EBITDA results. These transactions demonstrate our continued commitment to a strong balance sheet. Interest expense totaled $36 million for the quarter in addition we incurred an $8 million one-time non-cash charge as a result of our fourth quarter debt repayment. Once again this quarter we recorded a net tax benefit that we expect to materialize as cash in future periods. Fourth quarter taxes include an estimated tax benefit for newly and active tax legislation primarily related to AMT credits. We expect…

Thanks Amy. On Slide 8, I'd like to touch on global industry fundamentals which remained strong throughout the majority of 2017 due to stable Asia Pacific demand and overall supply tightness. First seaborne thermal coal demand rose approximately 25 million tonnes in 2017 against the base of 925 million tonnes. South Korea led demand growth increasing 16 million tonnes over the prior year on new coal capacity and limited nuclear availability. Import demand was also supported by a 5% increase in China, electricity generation as well as solid economic growth and rising coal fuel generation in other developing Asian countries. Whilst India coal import demand was tempered for better part of the year the fourth quarter import stood 17% as domestic stock piles were depleted and domestic production continues to lag. Overall seaborne thermal coal demand outpaced supply in 2017 as we saw declines in exports from Australia, Colombian and Indonesia due to weather impacts. As a result pricing for the benchmark Newcastle product remained elevated holding at an average of $95 per metric tonne during the last six months of the year and above that level now. Turning to seaborne metallurgical coal, 2017 global steel production rose 5% partly driven by increased production in China and India. Also note we saw significant steel production growth in just about all major steel producing regions. Chinese steel production output reached a record high during the year leading to an approximately 10 million tonne increase in imports. In addition, Indian metallurgical coal imports increased approximately 6% compared to 2016. For the full year total Australian metallurgical exports declined more than 15 million tonnes due to impacts of Cyclone Debbie in the first quarter as well as logistical constraints and industry-wide operational challenges. As supply and demand fundamentals remain tight in the fourth…

[Operator Instructions] And we'll take our first question from Paul Forward with Stifel.

I wanted to ask about the - little more about the life extension projects that you're talking about in Australia. You had mentioned the new longwall at North Goonyella is a big one. Could you provide some details on the others ones? And specifically, what's the magnitude of the tonnes per year that we're talking about that could be added with these extensions?

Sure, I'd maybe start by - so we've talked about the extension project at North Goonyella which will extend the life of that mine through 2026. We also have extension projects at our Wambo surface operation which includes the joint venture with Glencore that Glenn referenced and at our Wilpinjong mine. These extension projects really provide us access to those reserves over the long term. It's not necessarily expected to greatly increase our volume over the period, but does underwrite a stable production profile for some time out of the thermal platform. What I'd say about our CapEx and really the elevated levels that we're seeing in 2018 which could continue a bit into 2019 is that it really is about those high quality projects at those operations that we think are really are best in class out of Australia between the quality of the North Goonyella and Wambo coal and the low cost profile at Wilpinjong. And over time, we really see that sustaining profile to look closer to the $200 million a year or just under $200 million a year that we saw in 2017.

Maybe a little bit more color on the North Goonyella decision which I think is a good new story. So the longwall top coal caving system itself which was introduced in 2013 was a leased system. You may recall that at the end of 2016, we actually just continued longwall top caving at North Goonyella and continued using a conventional methodology into 2017. 2017 as we've indicated, we had record productions through the year, and that accelerated with record production in Q3, record production in Q4. When we've looked at the mine plan, we think there was an opportunity to resequence a lower quality panel and go into a higher quality area which as Amy said has extended the life to 2026. All three factors mean that we made the decision to move into that southern area in 2019. In large part this is reflecting the success of North Goonyella particularly through the 2017 period. It's a better match for the conventional methodology they're mining now to the geology. It has benefits in both 2018 and 2019 in lower maintenance cost on the longwall moves, and we also expect to reduce both moves as a result. Also on met, and as we've been working through and we've updated you about work around, strengthening the met platform, we also I think there's some opportunities at Moorvale. And that is actions which we've talked about - will enable us to underwrite a double digit met volume into the foreseeable future.

I was just going to follow up on that double digit. So that's - you're guiding 11 million to 12 million short terms per year or that will be in 2018. Just clarify, so you're talking about a platform that you would anticipate would stay in that above 10 million short terms per year going forward. I wanted to clarify that that was true. And then I also think about as you look at this platform, would you anticipate any product mix shifts over time of significance within that? Thanks.

Well, Paul that's exactly what I've been saying. I think most investors would know probably that we've been looking at a decline in our met platform that we've been talking about for a couple of years, but also be aware that we've been undertaking a number of actions to look to optimize our mine plan, I've announced a few of those in the past. I think this step at North Goonyella and further actions at Moorvale will enable us to support a double digit number going forward. The mix issue…

Yes, in terms of product mix, we are starting to see a little bit of shift in that already as Millennium production declined in 2018. So you'll see this year just in terms of product mix that we're targeting more around the lines of 55% to 60% of PCI coal in the mix versus hard coking coal in the past that mix has been closer to 50-50.

And we'll go next to Mark Levin with Seaport Global.

I wanted to ask a question in the United States. So when looking at your PRB guidance for '18 versus '17, it looks like you're guiding to down anywhere from flat to 8% with a midpoint of down 4%. And I'm just trying to understand, I mean, obviously there is maybe some more optimism around the fact that inventories are a lot lower, natural gas prices clearly not great at 275, but not horrific either, and the weather has been a lot better. So maybe if you could talk a little bit about the reasons why you think your PRB production will be down year over year.

And I think down would be marginally down in the grand scheme of things with the midpoint being just under our 2017 levels. Thinking in general, we're contemplating a number of things for 2018. Obviously we take into account what we see as the demand based on plant closures. And also I'll say we have an outlook that we'd like to go into the year nearly fully committed for our tonnes across the platform and the PRB is no different than that. So as we look at 2018, we looked at what we saw our customers needing, we look at where we thought we needed to produce in order to keep our cost extremely competitive particularly against natural gas, and we've elected to kind of be in that range of 115 to 125. We'll take a look at where our customer requirements are later as we progress through the year and see where we end up but we are very focused on maintaining strong margins out of that basin. We count on the PRB to be the anchor to our U.S. platform. We'd like to see both strong margins and strong cash generation out of that platform.

And Amy, when you guys - I think you referenced being 90% of your U.S. volumes are priced. How does that break out in terms of the PRB versus the Illinois basin? Is it ratable? I mean, is it 90% in both basins or you fully priced in the PRB? I mean, how should we think about that?

Nearly all of that uncommitted tonnage would be in the PRB. So for the rest of our U.S. basins, we are essentially fully committed.

And then my last question, it seems like the focus is going to be at least with regard to the cash that you generate toward returning it to shareholders either through buybacks, and you guys announced the dividend this morning. I'm just curious. Has management or the Board's view toward selective asset acquisition opportunities either in Australian met or Australian thermal, has that changed at all? Is that something you guys would look at, or is there a clear preference on just returning cash to shareholders and then focusing on the internal projects you're talking about?

Well, I think our position hasn't changed. I've mentioned perhaps on the last call that we've got a critical eye and healthy skepticism around acquisition. So I did outline the filter around that ensuring that our financial approach of maintaining financial strength becomes paramount. We would look at any investments having to be against the criteria of returning cash to shareholders as the default position. Returns would need to be above our cost of capital for a reasonable buyback period. Strategy is key, so that's Powder River basin, Illinois basin, seaborne met, seaborne thermal. And we look to the existence of physical, commercial, logistical, financial synergies. And any opportunity must present significant value most importantly to our shareholders as opposed to others. So that critical eye and healthy skepticism still remains amongst Management and the Board.

And we'll go next to Lucas Pipes with B. Riley FBR.

I wanted to follow up on the CapEx side as well. You identified these three discrete items that push CapEx up a little bit here. So I wondered could you maybe take another crack at breaking it down in between spending capital in the U.S., sustaining capital in Australia, outside of these extension in Goonyella project. And then I think Amy you mentioned you expect capital to return to $200 million sustaining longer term. How quickly do you expect to get back to that level? Thank you.

I think 2017 is probably a pretty good proxy for what our recurring sustaining capital levels is, and that's really spreads fairly evenly between the two basins. These projects that we're talking about really impact 2018 and 2019. And based on our project pipeline right now, we would assume that 2020 is the return to more normalized sustaining-only capital spend. The one thing that I'd point out in addition is, we're going to continue to make economic decisions about aspects of our capital spend. And I did point out in my remarks that we've got about $40 million of spending in Australia in 2018 that 12, 16 months ago we'd have assumed that we needed to make new arrangements to re-lease equipment going forward. And obviously that has an impact on operating cost. Based on the cash that we currently have on hand, we do see an opportunity to end those leases, pay them off. And although it's a bit of an increase to capital spend in 2018 we think it's the right economic decision. So we'll continue to try and do things like that over time to create value for our shareholders.

Thank you, Amy, for that additional color on the leasing item as well. I had a whole number of questions on the tax side maybe just to check them off. First, I think Amy you mentioned in the prepared remarks that you have return of cash coming through here in the first quarter. Could you remind us how much that is? And then also I think with the AMT credit carry-forward that took the cash coming in at 2019, that may be also 2020, how much would that be? And then to finish off the tax question, little bit off the wall, you've pivoted to Australia for met coal some while ago. With the tax reform impact, how you think about met coal out of the U.S.? Thank you.

So, a couple of things. One with the third quarter 2017 benefit that we took that was divided into two tranches. A refund that we originally expected to get in 2017, that was about $78 million. We've received most of that refund already this year. We expect the remainder of that to come in over the first six months of the year. We'll additionally file another refund later on this year for an incremental $20 million-ish on that amount. With respect to the AMT credits, that was about $85 million benefit that we took in the fourth quarter. Those refunds will start coming in 2019, about half of that amount in 2019. And then that trickles down over time. So, about half of the remaining in 2020 and the remainder in 2021.

It might be with respect to the strategic question around U.S. met, clearly, tax reform positive to U.S. economy, potential infrastructure action, positive to U.S. economy. So that should be positive to the U.S. met market, positive to the global met market. I imagine the strengthening around that. Our strategy hasn't changed. Seaborne metallurgical coal is our focus, and I outlined the criteria around that just prior.

And we'll go next to Jeremy Sussman with Clarksons.

If I look back, I think spent about three quarters of a billion dollars in 2017 on bankruptcy payments and buying back debt. So I take your current cash balance of just over a billion restricted cash. It sounds like now you believe it will get unrestricted this year and sort of just some assumptions around implied free cash flow based on your guidance. Clearly you're going to end up with a little more cash on the balance than you'll need. I guess how should we think about priorities in terms of what you’re going to do with the cash in 2018 is it buyback, is it special dividend, is it M&A how should we think about this?

We've just announced a dividend of reintroduction of a quarterly dividend program. We’ve taken some pains in the past to outline our capital returns approach which has been now on top of the quarterly dividend has been the buybacks. We still have room under that program and we look to execute against that in the period ahead. If we continue to execute in the way that you indicated and I’d also like to give a big shout out to both our Australian reclamation efforts and with our operating team and also the finance and the treasury groups for what was a first of its kind surety program in Australia, but looks as though it’s going to continue to be executed to enable another arm of getting access to that restricted cash. And we’re happy to reassess our target as we continue to execute once we've executed on.

Yes, I would double down on that Jeremy. I think that we purposely evolved our thinking in terms of where we’re at from reduce debt to maintain financial strength. We understand the shifting as we progress into 2018 from really debt reduction to shareholder returns. We think that we got a couple of good programs that are going to enable us to do that now in terms of the initiation of the sustainable dividend, as well as - what we have left in our share and our share buyback program and we’ll continue to have discussions going forward about whether or not those programs need to be supplemented. As of right now, I will say that those two mechanisms remain our preferred mechanisms to generate shareholder returns aside from a special dividend but obviously we’ll continue to evaluate as we move forward.

And maybe just one unrelated follow-up. So if I think about when the new longwall systems installed at North Goonyella, how should we think about production, our annual production coal quality and your cost profile there basically compared to what we're seeing today and also in Australia? Are you guys happy with, with some of the current JV structure Middlemount or is that something that you think can maybe get altered one way or other?

I think moving forward maybe specifically with North Goonyella, we are trying to put them in the best position possible to continue the strong production performance that they have seen. We’ve got a large reserve area at North Goonyella, we got a great product quality and we want to ensure that we're getting as much out of that mine from a productivity standpoint. So our goal would be to maintain current productivity levels and actually as we transition one of the reasons why we’re transitioning into that Southern area early is because we really like the coal quality in that area of the reserve. So we’re very confident that that’s going to be a premium product out of that reserve area going forward.

And the journey over the last three years has been quite remarkable and clearly we’ll be attempting to help them but also challenge them going forward.

With respect to Middlemount, what I would say is we have a good relationship with our joint venture partner here. It is one that has started to pay dividends literally in the last several months and I don’t necessarily see us looking to change that situation. But I think what we are trying to do for our investors is highlight that that 2 million tonnes of exposure to relatively low cost met coal can be ignored. It does provide us that exposure and effective mechanisms to return cash to us as a 50% owner of the operation, again $17 million in the fourth quarter along with respect to cash generation.

And we'll go next to Michael Dudas with Vertical Research.

Glenn looking out to annual contract negotiations for thermal coal in Asia into next couple months, certainly how do you foresee the early strong negotiations given where markets are and the urgency of the customer base to secure who have been surprised of some of the tightness in the market. Like how up would be India seems like there is some interesting things going on there, can some of that momentum continue into 2018 and benefit the market?

I think we obviously don’t participate or don’t take the lead in the JFY negotiation as I understand that those negotiations will take place - towards the end of this month they would be expected to commence. As you’ve indicated though conditions at the moment for seaborne thermal have been quite supportive. What I can say from bilateral negotiations that we would participate - I think quite constructive at levels which would be above the fourth quarter sort of averages of last year. So, I think those conditions are currently quite favorable as we move into that JFY settlement. Specifically India that's right there, they have demand issues but also their supply side challenges have probably met that we are moving to this first quarter into 2018 with supported demand for Indian imports as well. So, in the short-term at least the conditions around seaborne thermal are quite constructive.

And Mike I just note that we generally price about 3 million tonnes under that JFY contract, so with that we will have 50% of our thermal export volumes at the current guidance range priced for 2018 at levels that we think will continue their strong performance in 2018. We’ve come to expect that from them.

And we’ll take our last question from Daniel Scott with MKM Partners.

I just want to ask Amy on the Powder River Basin guidance for 2018 obviously the cost looks very good. The realized prices is now guided to $12 a tonne at 90% hedged or maybe even a little bit more and it was $12.7 previously. Is that incremental decline in the hedged book, is there any slippage or cancellations or deferrals or is that all just lower market prices?

We do have a tiny bit of deferrals in there, I want to say it’s incredibly material to the mix if you look at what’s been pushed into 2019. What it is reflective of is our strategy to try and sell the products that we generate the highest margins on. So you would anticipate that incremental tonnage was not 8800 coal in the mix and that’s okay with us. What we like to do is to take a look at the products that we can sell at a cost profile that is most competitive and ensure that we’re generating the largest margin possible out of those reserves basin. So obviously what we see coated a lot is a price for that more higher heat coal and we will tend to go where the margins are at.

And that comes from the fact that we have over dozen open pits in the Powder River Basin across those three mines. We do allocate people, equipment and contracts as necessary to optimize margins and we did note the reduction in cost there. I think that overall story is consistent with the strategy.

Second I just want to piggyback on the question about from the capital expenditures in Australia to extend 10 plus million tonne of your production rates and there is - you did mention a mix change towards now 55.60 of PCI. Once all the spending is completed, is that still going to be the mix or is it going to revert back some?

I think that’s generally a pretty good mix to take a look at going forward. We always try and true that up as much as we can in any given year based on what we have going on but as of right now I'd say that that mix is probably what we view as the new norm.

And then lastly could you speak a little bit to kind of Australian port rail performance now, it’s pretty clear that, that Dalrymple Bay maintenance outage impacted pricing and now they are back online but generally spot pricing is still extremely hot on the seaborne market. Is there continued logistical issues in Australia or is it still just supplies outpacing demand or vice versa?

I think there is no doubt the conditions have improved. I’m not sure - I’d say it’s back to normal levels but there is no doubt that the conditions have greatly improved.

And that concludes our question-and-answer session. I'd like to turn the conference back to our speakers for any additional or closing remarks.

Yes, thank you for joining us today and for participating in our call. Improved market conditions and Peabody's execution have fundamentally altered the trajectory of the company in the most positive ways. And I credit our team of more than 7,000 employees for a job well done. Whilst we had a highly successful year, we are not complacent rather we enter 2018 committed to actions that will drive continued valuation uplifts throughout the commodity cycle. I'd like thank our shareholders for your interest and support as BTU continues to deliver results, and generate value in 2018 and beyond. Operator, that concludes today's call.