Good morning, ladies and gentlemen, and welcome to the Peabody Third Quarter 2020 Earnings Call. At this time, all participants are in a listen-only mode. Following today’s presentation, instructions will be given for the question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded today, the 9th of November, 2020. I would now like to turn the conference over to Julie Gates, Vice President of Investor Relations and Corporate Communications. Please go ahead, ma’am.

Good morning, and thanks for joining Peabody’s earnings call for the third quarter 2020. With me today are President and CEO, Glenn Kellow; and CFO, Mark Spurbeck. Within the earnings release, you’ll find our statement on forward-looking information as well as a reconciliation of non-GAAP 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 Glenn.

Thanks, Julie, and good morning, everyone. 2020 has been a year unlike any other. Peabody has certainly been active over the past several months. We saw the quarter results reflecting our progress, despite challenged demand fundamentals. In addition to our ongoing portfolio enhancements, we’ve been working on several specific financial objectives. We still have more to achieve but our recent surety agreement is a step in the right direction and underpins our longstanding commitment to reclamation. In fact, over the last several years, we have achieved final Phase 3 bond release in more than 20,000 acres across 10 mine sites in United States. And just recently, our management practices related to the successful revegetation at our North Antelope Rochelle Mine recognized with the Excellence in Mining Reclamation Award by the Wyoming Department of Environmental Quality. Mark will be covering more on our financing activities, but now I’d like to touch on the market fundamentals. While Peabody’s ongoing protocols and approach to health and safety have allowed us to maintain essential operations, the global economy and broader markets continue to be impacted by the pandemic. Recently, we have seen early signs of recovery take shape, including improved industrial production. We are, however, cautiously optimistic that improvements can be sustained given recent surges in COVID-19 cases worldwide. Within the steel industry, improved fundamentals are being led by China, with steel production up 6% year-to-date. Even so, Chinese imports of met coal have been muted given unofficial import controls. India met coal imports have also been challenged, declining 8 million tons a year of year through September on COVID inflicted demand pressures. Met coal demand remains blow pre-pandemic levels and continues to pressure seaborne prices. We do believe prices will ultimately rise from current levels. However, the timing is unknown. Major fact is…

Thanks Glenn and good morning, everyone. I’d like to start with our recent success on the surety front. We have reached what we believe is the first of its kind agreement with substantially all of our surety providers to resolve outstanding collateral request and limit future collateral requirements. I would personally like to thank all of our surety providers for their collaboration and immense support that further enabled our longstanding commitment to land reclamation. Based on the terms of the agreement, we will post $75 million of additional collateral and provide second liens on $200 million of mining equipment. On an annual basis thereafter, we will provide an additional $25 million of collateral through 2025 for the benefit of the sureties. The collateral will further increase to the extent the company generates more than $100 million of free cash flow in any 12 month period, or has assets sales greater than $10 million. In exchange for this, the surety providers agreed to a collateral standstill, not to demand additional collateral through December 2025 or the maturity date of the credit agreement, whichever comes sooner. They’ve also agreed not to draw on the letters of credit or cancel any existing surety bonds during this time period. The collateral standstill is contingent upon us reaching an agreement with our revolving credit lenders and an ad-hoc group of the 2022 note holders. Based on our fourth quarter outlook, it’s probable our results will not be sufficient to meet the net leverage ratio requirement under the revolving credit agreement. Given this and the additional collateral requests prior to the surety resolution, U.S. GAAP required that our debt would be report is current on our balance sheet at September 30. While we have not yet reached an agreement with the credit group, our primary objectives…

Thank you, sir. [Operator Instructions] We’ll take our first question from David Gagliano from BMO Capital Markets. Please go ahead with your question.

Okay. Thanks for taking my question, first. I actually had a question regarding the – I guess with separate 8-K that was filed today, the Cleansing Material. There’s quite a bit of projections in there. It’s like from 2021 through 2024, lot of good information, I think. And I’m just wondering, are you going to talk through any of those projections here on this call or on a subsequent call?

Yes, Dave. Thanks for the question. The 8-K does include projections for the Wilpinjong asset through 2024. They’re out there. I’m happy to answer questions. The remainder of the business has projections through 2021 and 2022.

Okay. Let me ask this question. On the RemainCo projections for 2021 and 2022, is there any reason I’m assuming not, I just want to make sure that any reason to expect those not to be, effectively guidance for those next two years for the RemainCo and if we just add Wilpinjong together for total company as exams now?

David, the projections, whereas of kind of mid-year 2020, we are undergoing, obviously, our annual budget process now, we typically will come out with formal guidance at the – our next call.

Okay. And then just one other question on other filings, the 10-Q that came out this morning, it looked like it showed cash balance went down or total liquidity, I think went down cash balance, I don’t know $40 million or so from September to October, what was the reason for the $40 million drop in the month?

I think, I think post-quarter or some of that is just regular working capital movement, potential changes in the availability under the company’s accounts receivable securitization facility as well.

Okay. That’s it from me. Thanks.

Thank you.

Thank you. [Operator Instructions] And now, we’ll take our next question, Mr. Mark Levin from the Benchmark Company. Please go ahead.

Great, thanks and congratulations on your surety bond agreement. A couple of questions, Glenn Kellow, I think you referenced that the commercial process is still ongoing. Any updates there? any thoughts on probabilities of getting to decision this quarter and maybe, does it look like a sale? Does it look like – I mean what are sort of the range of possibilities and how would you probability wait them occurring?

Yes. as you’d probably expect Mark, I wouldn’t want to probably wait, but the process is ongoing as we continue that I think we talked about. Previously, we were looking at a range of options at Road South potential joint venture develop – ongoing development options. The process has probably been going a little bit slower than what we would have anticipated and in part around diligence challenges associated with COVID, but also the overall market conditions. Not going to put a time – a time on it, but excited that the process is still ongoing.

Okay, got it. And are there any other assets sale off come here, you guys, I mean, sort of the answer both quarters when I ask this is, you’re always looking at kind of optimizing the portfolio, but are there any asset sale opportunities that you think that start – that look attractive to you or something that could happen over the next three to six months that would materially change your cash position?

Probably going to give the same answer to what we’ve given in the past and look we’re agnostic as to how value is created. We continue to look across our portfolio, but I wouldn’t want to speculate on only individual items.

Okay. And then my final question is just for 2021, on the PRB you guys report – didn’t reporting pricing, I guess in the 11 sort of in the low 11, is that kind of the way to think about where the market is or where you guys would be contracting today for 2021? And then, if you can provide any thoughts on what your book looks like in 2021?

Yes. We’ve given some view around through the additional materials around our projections into 2021, to bring around 90 million tons, but we wouldn’t typically give guidance until the first quarter of next year. We’re probably contracting and so look with respect to the payoff, and obviously, the same has done an amazing job, and continue to do an amazing job, highlighted this quarter, poising the gas prices have moved up that, that should be encouraging. But probably, the level of contracting activity that we’re seeing would be below what we typically associate with this level of improved market fundamentals. That means that we’ve seen a drawer on stockpiles and we probably anticipate having further stockpile draws next year. I’m not going to comment on current contracting conditions, but the fundamentals would support improved conditions into 2021.

Got it. And my last question is around the unofficial import ban into China, you guys don’t sell, but so much coal into China, but I’m just curious how you guys have been impacted by it and what you’re seeing, and maybe, what your expectations are around what’s going on there, how that’s impacting the seaborne market and yes, just any comments?

Well, we have sold thus far up just under about 2 million tons into China this year about 1.4 million tons of thermal, but half a million tons of metallurgical coal mostly, PCI. Our crystal ball is not – is the same as everyone else, but clearly, it has gone to sentiment in terms of what’s been impacted on markets and probably suppressing seaborne markets more than what I otherwise would the case, particularly in the case of metallurgical call, which when you look at the fundamentals of probably supporting a higher price. at the moment, hard coking coal, arbitrage into China would otherwise represent about $50 a metric ton, if it wasn’t for those import – apparent import restrictions that are taking place. We don’t have any more power than that in terms of what’s likely to happen going forward, but the fundamentals would support more favorable, stable on conditions.

Okay, great. Thanks very much. Appreciate it.

[Operator Instructions] And now, we’ll take our next question from Lucas Pipes from B. Riley Securities. Please go ahead.

Hey, good morning, everyone.

Good morning, Lucas.

Mark, good job on the surety agreement and you mentioned, Mark, some contingencies in the prepared remarks, could you walk us through those one more time, just want to make sure I catch all of them. And then secondly, would there be any ongoing maintenance, covenants related to that surety agreement? Thank you very much.

Yes. Lucas, thanks for the comments and questions. First, on the surety agreement, the collateral standstill is contingent upon reaching an agreement with the RCF lenders in the 2022 noteholders that needs to be completed by December 31, or extended the company’s option to increase participation by the end of January. I wouldn’t speculate – and then there’s no – there’s no maintenance covenant, if you will on the surety agreement or the collateral standstill. And certainly it wouldn’t speculate on any terms that we would negotiate with the secured creditors and ongoing transaction.

Got it. But as it relates to the sureties, if these contingencies are met and the agreement goes into effect, effectively you would have no additional demands through 2025.

That’s right. The collateral would be the – in addition to the upfront collateral post today, it will be $25 million per year. And then, again, if we generate more than $100 million of free cash flow in 12 month period, there is a mechanism in there to provide additional collateral along with assets sales greater than $10 million.

Perfect. Very helpful. Thank you. And good job on that. And then, secondly, you had the 8-K out on Shoal Creek and provided some additional color today. But can you elaborate on elevated cost structure that was mentioned in the 8-K at the time of the idling announcement, was really appreciative, a better sense kind of how this minus operative, what challenges you have encountered and how you anticipate to address them going forward? Thank you.

Thanks, Lucas. I think, as we said last quarter, probably one of the biggest challenges that we’ve had in adjusting to certain – market disruption is playing with our longwall operations and being able to – we seem to have had much more success on the surface over room and pillar operations to be able to adjust those back. On the longwalls, it’s been more challenging and Shoal Creek has been one of those areas. It also came in a year that we talked – had talked about doing upgrades improvements around, belt work conveyor system, those sorts of things. On top of that, we did in encounter geological challenges at the close out of our H-panel and it also think at the time in the third quarter that mine was also being impacted by the community – the transmissions that were occurring in the broader community around COVID. All of those factors, looking at the – would have led to the elevated cost position. And I think, what we’re focused on now is really looking to try and reset the cost base going forward and at the same time seek to move when demand continues to strike them. So it – the team are busy on a range of activities and are targeting an improved cost position moving forward.

Thank you. I appreciate that. I’ll turn it over and best of luck.

Thank you.

Thank you. It appears there are no further questions at this time. I’d like to turn the call back to your host for any additional or closing remarks.

No, thank you, operator, and look, thanks everyone for the questions and participating in today’s call. To our employees, you continue to impress amid these most difficult and dynamic industry conditions. We’re grateful for your ongoing commitment to health and safety and the spirit of continuous improvement. And to all of our investors, we appreciate your ongoing support and engagement as we transition into the year ahead. Operator, that concludes our call. Thank you.

This concludes today’s call. Thank you for your participation. You may now disconnect.