Good morning, ladies and gentlemen, and welcome to the Peabody Q4 2021 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, February 10, 2022. I would now like to turn the conference over to Alice Tharenos, Vice President of Investor Relations and Communications. Please go ahead, ma’am.

Thank you. Good morning and thanks for joining Peabody’s earnings call for the fourth quarter of 2021. With me today are President and CEO, Jim Grech; and CFO, Mark Spurbeck. Within the earnings release, you’ll find our statement of 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. With that, I’ll now turn the call over to Jim.

Thanks, Alice, and good morning, everyone. Peabody recorded robust fourth quarter results, demonstrating the capability of our diverse portfolio of mines, which continues to benefit from strong global market fundamentals driven by the vital necessity for coal to produce reliable, affordable energy and steel to fuel the global economy. Overall, our operations performed well and were aligned with our expectations, delivering volumes and results despite industry-wide challenges that were more substantial than we anticipated related to weather and COVID impacts. With strong market dynamics and significant forward sales commitments, we restarted longwall production at our Shoal Creek mine, advanced development of Moorvale South and our positioned for increased production at our U.S. thermal segment to meet near-term demand for our products. Our focus remains advanced options to position the Company to be resilient in all market cycles, by capturing expanded margins through production and sales strategies, while remaining long-term cost competitive and reducing our debt levels. I would like to thank our global employees for their continued focus on working safely and efficiently, particularly in light of meeting the challenges presented by the pandemic. In 2021, our recordable injury rate was the lowest in over a decade, an example of the dedication and efforts of our talented workforce. And for the second year in a row, our Rawhide and Twentymile operations had zero reportable incidents during the year. I’d also like to take the opportunity to compliment the workforces at Shoal Creek and Metropolitan for their efforts and performance during the longwall restarts at these locations. Across the globe, all coal price indices and demand in each of our market segments continues to be strong. The near-term outlook for all our operating segments continues to be favorable with strong market indicators and increased global demand providing a persuasive story for…

Thanks, Jim, and good morning, everyone. Fourth quarter revenue was nearly $1.3 billion, an increase of more than 86% from the third quarter and 72% from the prior year, reflecting robust improvements in seaborne pricing and recognition of $149 million of unrealized mark-to-market gains and financial coal hedges. We recorded net income attributable to common shareholders of $513 million or $3.93 per share. We recorded adjusted EBITDA of $444 million, a 54% increase over the $289 million recorded in the third quarter, and 4 times the prior year results. In the fourth quarter, we generated free cash flow of $427 million, about 25% of our market capitalization, driven by the performance of our seaborne platform, and the return of $110 million of cash margin related to financial coal hedges. Importantly, we continue to execute on our commitment to strengthen the balance sheet. We retired an additional $200 million of senior secured debt in the quarter. For the full year, we retired approximately $420 million, more than 25% of the debt outstanding at the beginning of the year, reducing leverage from 6 times to 1.2 times trailing 12 months EBITDA, or just 0.2 times on a net basis. And just this morning, we announced $106 million repurchase offer for the Wilpinjong term loan and notes. Based on that line, excess cash flows in just the last six months. This offer represents more than 25% of the outstanding Wilpinjong debt. At December 31st, we had $954 million of cash and cash equivalents, an increase of $367 million from the fourth quarter and available liquidity was approximately $1 billion. Turning now to the segment results. The seaborne thermal segment generated EBITDA of $149 million, a 43% increase compared to the third quarter, leveraging a 12% increase in average realized prices. Cost per ton…

[Operator Instructions] We’ll go ahead and take our first question from David Gagliano with BMO Capital Markets.

Hi. Great. Thanks for taking my questions. And congratulations on the significant improvements and the strong results. There’s a lot covered on those prepared remarks. I just have a few questions for a little bit more detail. But my first one is really a bigger picture question regarding capital allocation. Obviously, balance sheet meaningfully improved, high free cash flow. You talked about a number of internal initiatives which I’ll come back to in a second. What are your capital allocation/capital return plans? And if you could just remind us of any constraints on returning cash to shareholders associated with the debt, surety bonding? And also, what’s a reasonable timeline regarding shareholder returns?

Thanks, Dave. Good morning. I appreciate the comment. Respond to your question about capital allocation, we’re very happy with the progress made in our debt reduction levels. $420 million more than 25% of the debt outstanding at the beginning of the year, still leaves us with funded debt of about $1.1 billion. Listen, we’ve been very clear and transparent that reduction of these debt levels need to continue. We expect to do so in the coming year. From next step perspective, I would say that we look at leverage on a one time EBITDA basis in a mid cycle significantly lower than the $900 million to $1 billion, might be looking at next year plus. I would think we would probably try to get that down to a mid-cycle EBITDA closer to $500 million. So, looking to continue the progress of debt reduction. And your last question I believe was kind of restriction and shareholder returns. You are right the credit agreement, as well as the agreement with our surety providers limits the ability to repurchase shares or paying dividends on our stock throughout the extended duration of those agreements, which runs through the end of 2024.

Does it preclude you or just limits? That’s I’m just curious.

It precludes us unless otherwise agreed to.

Okay. All right. Thanks for clarifying. And then, just on operationally, in your prepared remarks, I believe you mentioned considering restarting North Goonyella. I was wondering if you could talk a little bit about that in more detail. What’s the capital costs timeline with respect to volumes? And presumably the sales process for North Goonyella is now off the table. Is that right?

Hey, Dave. Good morning. This is Jim. Yes, we’re in the very early days of looking at the restarting of North Goonyella. And what I mean by early days is we’re looking at this -- the permitting or rechecking our engineering and the geology of all that data and running economic models on it. So, we started that process. And I think, by the time we get to the next quarter’s earnings call, we can probably have a lot better indication in data as to what we’re looking at. Two things that are addressed, some of the questions you had. One is the timeline and what we are looking at mining to the south with those reserves. And the reason that’s important is we have complete control of those reserves going to the south. And we have many, many years of mining -- longwall mining that we can do by going south. The development to go south is probably about a two-year project. So, we’ll have development coal with the miner sections and then eventually bringing on the longwall. So, whenever we initiate that process of starting the actual development, to longwall, starting to run -- be about a two year process by going to our southern reserve. So as far as capital and all of those other questions you have, again, we’re very early in the process, but as we get further along, we’ll have that information.

And then just last question for me for now. On the PRB, in the prepared remarks, I believe it was mentioned 55% is priced in 2023. Can you just give us a sense when was that priced? And if you use this talk around averages for the volumes that are already priced? That would be really helpful. And then, somewhat related question. On the -- I think it’s 2 million to 9 million of potential spot sales for 2022. I was wondering if you could comment a little more about is there any additional flex beyond that. And when we talk about spot, there’s reference prices out there that are kind of all over the place. Can you give us a sense as to what your view is of the spot market right now?

Dave, I’ll do this chronologically and starting with 2022. Referencing the guidance targets we have, we 86 million tons priced for 2022 with the range of 88 million to 95 million of production. So, when we’re looking at sales that could transact in the current market or this year in these pricing conditions, it’s -- what would be above the 86 million tons of somewhere in that guidance range. That’s what we’d be looking for. I think you characterized it as spot. The pricing, I would say that, the way the indexes are out there right now, you’re seeing these pricing in the mid to upper 20s is where the spot market is at the moment. Now, whether that holds for the rest of the year, that remains to be seen. But I will say that there’s some interesting developments on the demand side that are occurring that will add to some pull from our domestic market. We actually have customers coming to us from the Southeast Asia and Atlantic basin asking for PRB coal and deliveries. And it’s a transportation challenge with the rail capacity that we have out west to add even more incremental tons going down to Houston. But the netbacks on those potential deals are attractive. Now, the thing is, logistically, we can pull -- can we pull it off? But the point I’m trying to make is there’s the type of demand that we’re seeing in the PRB, we feel it’s strong. And if somehow the markets remain as strong and there’s more export demand, that will only add to the pool on that market. But I will caution that there is transportation issues to work out before we could do anything like that. For 2023, it’s too early in the year to give you pricing guidance, we’re not going to do that. We did price a lot of that coal and our negotiations in the fourth quarter of last year. As we took 2022 sales, we also took 2023 and quite honestly 2024 sales with those negotiations. And one final point I’d like to make as you’re trying to run your models. The pricing, our average BTU is at about 8,670 across our platform for 2022, not 8,800 or higher BTU. So, you also got to take that into account when you’re looking at the pricing for us for 2022 and beyond.

I will go ahead and take our next question from Lucas Pipes with B. Riley Securities.

Hey. Good morning, everyone. And congratulations on a strong fourth quarter. I wanted to ask a little bit about the cadence of met coal shipments throughout the year, so with Shoal Creek ramping up. What’s a good range here in the first quarter, especially given the current price environment, of course, it’s particularly attractive. And also, with an eye towards Q1, you have, I believe, 4 million tons of seaborne thermal coal priced. Should we assume that essentially, Q1 is fully priced and the 6 million tons of available tons is Q2 through Q4, or would you maybe say that your committed tons are already kind of spread out throughout the year?

Hey, Lucas. Good to hear from you again. Jim Grech here. And as far as the met goes, the Shoal Creek is -- Mark gave the guidance for the year, the 1.5 million tons, and that will be ramping up here in the first quarter and into the second quarter. And also, with our CMJV in Australia, we’re still going to have some recovery from the rains that we had at the end of last year and getting the water out of the pits. So, it won’t be ratable when you look at the numbers that we have on the guidance table, and Mark can give you some color on that and also on your questions on the seaborne thermal. So, Mark?

Starting with met. I know that if you look at our midpoint of guidance, 7 million tons for the year, give you about 1,750 per quarter. We mentioned in the prepared remarks, it will be 500,000 tons lower in the quarter. So probably more like 1.25 million tons in that first quarter as we ramp up more to full run rate. And then on seaborne thermal, I think the question -- we also mentioned how we’d be lower than ratable given some of the mine sequencing issues and Wilpinjong getting that overburden removed. So we’re going to be down from ratable guidance there, about 750,000 tons for the quarter. And I think your last question was how much of that seaborne thermal is open for pricing. Given lower than ratable, we’ll have less than ratable unpriced. It’s not fully priced, but there might be about 0.5 million tons that I’d say is unpriced for that first quarter.

And on Wilpinjong, I wanted to follow-up a little bit on the cost guidance. I believe, it’s 35 to -- sorry, it’s $25 to $28 per short ton on the cost side and that would be somewhat higher than where you’re selling the domestic tons. Are you selling the domestic tons at a loss or is there something else going on with maybe transportation and royalties?

Let me clarify that cost in our guidance table is a consolidated or all ton cost. The domestic tons incurred less washing, less transportation. So they’re at a much lower cost than the export tons. We do not sell the domestic tons and a loss, it is essentially a cost-plus contract. So there’s an incremental margin on those domestic tons. But certainly, all of the juice comes from the export tons.

Then my last question is on the ATM. What’s -- in light of this really strong cash generation here in the fourth quarter and the strong outlook for 2022, what are your expectations around that program? Thank you.

Yes. So, two things, Lucas. I think, one, you saw a slowdown on the sales in the fourth quarter, lowest number of shares sold at about $7.7 million during the quarter compared -- since the program started in the second quarter. A lot of that was earlier in the fourth quarter. We did announce in December an extension of that program. It does give us another 7.5 million tons available to us. It is one tool in our bag. But we will use that very judiciously. And it’s an option for us if it’s the best option, but you did see a slowdown on it, but very happy with the progress we’re making with organic cash flows and ability to continue to reduce bad debt.

And we’ll go ahead and take our next question from Nathan Martin with The Benchmark Company.

Congrats on the quarter. Thanks for taking my questions. I think, the bulk of them have probably been touched on, but maybe I’ll ask around Middlemount. Your big quarter-over-quarter step-up in EBITDA contribution, I think about 9 million tons -- excuse me $9 million to $45 million in the fourth quarter. I guess, I was wondering if the $45 million number somewhat repeatable, assuming that prices remain flat or just any color on there? Thank you.

Hey Nathan, Jim Grech here. I’d like to talk about the tonnages first. We’ve got Middlemount in total was up to about 4 million tons, a little over 4 million tons last year, and we project that to be the same, maybe 100,000 tons more this year. So, that’s at 100%. And of course, we get our 50%. The other piece that I would say of the cash generation is what we’re doing on the cost side. And over the last year to year and a half, we’ve had some significant improvements at the mine, both in productivity and then how the structure of the mine is. We’ve added another fleet there of excavator and trucks, which allowing for more of that increased output. And we’ve had a GM there that has come from Peabody in the last year, year and a half that he’s been there and rebase the mine with the added equipment, and we’ve also invested in the prep plant. And so, we feel from the cost basis and how efficiently the mine is running with the management that we have there, that we feel pretty good about maintaining the cost side of the equation going through this year. And again, the tonnages are going to be in that 50% of a 4.1 million or 4.2 million ton forecast.

Yes. Maybe I’ll just add to adjust the financials, $71 million for the quarter, $12.5 million of that was related to an insurance recovery from a property claim that we had going back to 2019. From a cash flow return perspective, $45 million in the quarter. I would say -- I think your question is repeatable. And certainly, with the -- our share of 2 million tons of production that Jim mentioned and the product they have, it’s kind of a 50% semi-hard coking coal and 50% PCI. So realizing 80% or better of premium hard coking coal prices. We certainly expect to continue to generate cash from that asset. It’s great exposure. It’s hard -- met coal that sometimes people forget since it’s not in our consolidated operating results.

I guess, maybe just going back to Shoal Creek real quickly. What’s kind of been the reception of that coal? Obviously, your fourth quarter production, I think, came in a lot higher than most people had expected, over 400,000 tons. Jim, I think you mentioned you sold about 70,000 tons in the quarter. So, maybe what’s your expectation on inventories for that line going forward? Just any more thoughts?

Nathan, first off, I’d like to say we’re very, very pleased with how the mine has started back up, and we did get that 70,000 tons of sale in Q4 last year pretty much a high-vol A level type of pricing. The start-up has gone well. I will say something that I’m very keen on because it relates in the dollars and cents, the safety at the mine has been outstanding as it started back up. So, we’re going to keep that ramp-up going here through the fourth quarter -- I mean, through the first quarter, that 1.5 million ton level for the year. So, it won’t be completely ratable as you look at the year. Now, as far as the pricing going forward, we’re getting a lot of interest in both, the Atlantic and Pacific markets, more interested than we’ve seen in over 10 years that that might even now has been shut down for a little while here. So, I would say that the market is waiting for us to get these tons out there with the quality and of course, the cost coming from the United States into these markets. So, I think the market is -- we’re getting a very strong reception, but we haven’t booked any long-term sales yet as we’re ramping up. We’re just -- we’re putting out vessels and taking advantage of the spot market at the moment.

And maybe one thing I would add, you mentioned production for Shoal Creek in the quarter, I don’t think we announced that. You mentioned 400,000. It was just over a little over 100,000. We sold 70,000 tons in the fourth quarter. And just to be clear, maybe add to Jim’s comment about the ramp-up of production. Looking at that 1.5 million tons for the full year, it’s certainly not going to be ratable. It’s going to be a ramp-up. If I had to predict, we probably come in at maybe 600,000 or so tons in the first half of the year with better production there on the back end of the year.

And just for reference of $400,000 I mentioned was due to industry [ph] data. So I don’t know maybe there’s some discrepancy there, it sounds like. Okay.

Yes. If it’s so, that was wrong.

Okay. Got it. Good to know then. And then maybe just finally, guys, thoughts around transportation and logistics. Obviously, you called out issues there, labor, COVID, La Niña. What are we seeing today from a logistics standpoint, both here in the U.S. and Australia? Maybe any thoughts on when you hope things could normalize? Thanks.

I think in both countries, the COVID impacts are there and have been affecting the logistics, and I think the weather in Australia had more of an impact. But as we’re looking at it going forward, Nathan, in the United States here, we are seeing some improvement in the rail as here just recently in the last couple of weeks and we’re hoping that momentum carries us through going forward. So, that seems to be in a positive direction, and hopefully that trend continues. In Australia, there were some issues with the rains, and as I mentioned COVID, but not to -- the limiting factors for us, if there are any limiting factors is going to be with our own production here in the first quarter again recovering from all that rain at the end of last year in the COVID absenteeism, and we are recovering from both. And that’s all incorporated into the full year guidance that we gave out on the tons. So, I would say that in Australia, there really isn’t -- the transportation, we’re not seeing it as a limiting factor for us here going forward.

All right. Mr. Grech, it appears there are no further questions at this time.

Well, thank you all for joining us today. I’d especially like to thank our employees remaining focused on safety and for continuing to execute on our various productivity and cost improvement initiatives. I’d also like to thank our customers, investors, insurance providers and vendors for your continued support. Operator, that concludes our call.

This concludes the Peabody Q4 2021 Earnings Call. Thank you for participating.