Welcome to the Peabody Second Quarter Earnings Call. All participants will be in a listen-only mode. [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please also note that this event is being recorded. And at this time, I would now like to turn the conference over to Karla Kimrey, Vice President of Investor Relations. Please go ahead.

Good morning. And thank you for joining Peabody’s earnings call for the second quarter of 2023. With me today, our President and CEO Jim Grech, CFO Mark Spurbeck and our Chief Marketing Officer Malcolm Roberts. Within the earnings release, you'll find our statement on forward-looking information as well as a reconciliation of non-GAAP financial measures. We encourage you to consider the risk factors referenced there along with our public filings with the SEC. I'll now turn the call over to Jim.

Thanks, Karla. And good morning, everyone. In the second quarter of 2023, our unique diversified portfolio allowed us to successfully execute against our plan while operating in a volatile market environment. In the quarter, we initiated our annual shareholder return program with a fixed dividend and a meaningful share buyback plan. We returned $262 million through our shareholder return program in the last quarter. For address the markets, I want to thank our global employees for their continued focus on working safely and efficiently. Now turning to the global coal markets, seaborne thermal coal markets remain volatile, with prices declining during the second quarter, comparatively high coal and natural gas inventories in the northern hemisphere following an unseasonably warm winter have weighed on demand leading to a weaker pricing environment for high energy thermal coals. China's year-to-date thermal coal imports point to significant increases in consumption of seaborne thermal coal, with an annual thermal coal import run rate of approximately 400 million tons per year, representing approximately a 90% increase over 2022 levels. India too has shown signs of improved economic activity during the first half of 2023 and with it increased power demand and elevated coal imports. Overall, demand for seaborne thermal coal is robust and supply remains constrained across major supply regions. We anticipate at the onset of peak summer energy demand in the northern hemisphere followed by a restocking in preparation for winter will contribute to a normalization of inventory levels, providing support to seaborne thermal coal markets. Within the seaborne metallurgical market, global crude steel output during the quarter was variable with interruptions that European blast furnaces, offset by notable year-on-year crude steel production growth in both China and India. Metallurgical coal supply has remained constrained primarily due to residual impacts of wet weather events in…

Thanks, Jim. In the second quarter, we recorded net income attributable to common stockholders of $179 million or $1.15 per diluted share and adjusted EBITA of $358 million. The second quarter results included a $34 million charge for the write-off of certain underground development and equipment at Shoal Creek and property losses related to the tornado at NARM. The company's leading diversified portfolio of mines generated $353 million of cash flow from operations enhanced by $109 million working capital benefit, which will largely reverse next quarter. With our balance sheet built to withstand the volatility and lower prices we saw in the second quarter, we were pleased to return $262 million to shareholders, including a cash dividend of $11 million and share repurchases of $251 million. This reduced our share count by 8.3% in just one quarter. We currently have 749 million of remaining authorization under the 1 billion share repurchase program. We remain committed to returning at least 65% of annual available free cash flow keeping returns right sized based on operating and financial performance. After the recently declared second quarter cash dividend of $0.075 per share at least $142 million remains available for shareholder returns expected to be used for additional share repurchases. Turning now to the second quarter segment results. Seaborne Thermal recorded $198 million of adjusted EBITA 20% higher than the prior quarter despite a significant decline in the average Newcastle benchmark price. Higher production rates drove costs to the low end of our guidance range and higher export shipments resulted in adjusted EBITDA margins of approximately $50 per ton. The seaborne metallurgical segments generated $103 million of adjusted EBITDA shipments of 2 million tons exceeded expectations and were over 50% higher than the previous quarter, due to higher sales from the CMJV as they recovered…

Thank you [Operator Instructions] At this time, we will take our first question from Lucas Pipes with B Riley. Please go ahead.

Thank you very much, operator. Good morning, everyone. And great to see those capital allocation to shareholders during the quarter.

Thanks, Lucas.

And I wanted to start my first question on that point of shareholder returns, you know that the $142 million that remain available. So we kind of think of as those being used for buybacks over the next three months. So it's kind of you deploy $142 million to buybacks between now and the time you report Q3 results and then essentially when those Q3 results get announced, you reup it with whatever then free cash 65% of the free cash flow during available free cash flow from Q3 results that kind of the cadence now going forward?

Yes. Good morning, Lucas. And thanks for hanging in us. And I know what is a very, very busy earnings call day. So appreciate the questions. With regard to the shareholder return program, you are correct. We remain committed to returning at least 65% of available free cash flow on an annual basis. And you'll see the calculation in the earnings release that sums up to that. Certainly last quarter, we did above the 65%.

Got it. Got it. Okay, that's -- but it's not like it'd be more than $142 million over the next three months in terms of buybacks, you would kind of reconvene in three months look at Q3 results and that would determine the forward pace?

Again, we're going to return at least 65% and, we don't share any specific details. It's fair to think of it that way Lucas, but I'll refer you to last quarter where we didn't do a bit more than the 65% in the last quarter. But we will [indiscernible] it up each quarter and show 65% on a year-to-date annual basis.

Got it. That's clear. That's clear. Thank you for that. And then turning to operations, good to see the increase in the thermal guidance for the year. I wondered if you could maybe elaborate a little bit on the key drivers for that. And then on Shoal Creek, should we think of that mine as a one longwall mine going forward? Thanks for your color on that.

So I'll talk about Shoal Creek first. And hi, Lucas, Jim Grech, here. Good to hear your voice again.

Same here. Thank you, Jim.

Yes. So the -- we have the new longwall coming in delivery has already started. So we're expecting to get that delivered here by the end of this year and have it operating so very early into 2024. The intention prior to the mine fire was to have the two longwalls operating at the mine. And we saw the second longwall, it's behind the sealed area. And we have to wait until we have permission to enter back into that area Lucas to see the status of the equipment and what we can do with it? Can we start operating again, in that panel? Do we have to extract the longwall? So I would say the timing and the certainty of the second one is in question. The first one the new longwall certainly is on track to be installed. So I would say by the end of this year, we're certainly a one longwall mine. Next year, we're for sure one longwall mine with the potential for two but we really don't know till we get back behind those seals, which is at best a couple months away.

And maybe I'll follow up on the seaborne thermal. A couple of things for the additional terms. More higher ash tons at a Wilpinjong in the Wambo Open-Cut joint venture are doing extremely well. So volumes are up there. You also note pretty good reduction in costs for the next quarter. And again, I think it's Wambo Open-Cut the production going up and cost doing better as well as some additional Wilpinjong tons there. And also some lower sales price sensitive costs.

And, Lucas just if another point I wanted to make on Shoal Creek was, even though we're looking at the one longwall, it's in the L panels where we have started our development coal mining and the coal seams look very good. Very good conditions for us right there. So, we've given -- we've talked about the output of the mine before and I'm confident with the one longwall mine in the mining conditions we're in, there's going to be no drop-off from our expectations from the production levels that we've had in the past, we're going to be again, the L panel has some very, very good mining conditions from what we're seeing so far.

Very helpful color on both fronts. Thank you for that. And then a quick follow up on the JV and I looked at the cash flow statement for the quarter and contributions to JV were roughly equal to distributions from the JV. And that's -- is that only Middlemount or does that also include Wambo and if it is Middlemount, we expect maybe additional cash to come in from that side would appreciate your perspective and clarification on that point.

Yes, Lucas, it is only Middlemount there. So not a lot of cash flow from Middlemount currently, I'd expect the results to be kind of similar in the second half of the year as well, certainly not what we saw last year.

All right. Well, I have more questions, but I'll jump back in the queue. Thank you very much.

Thank you.

[Operator Instruction] Our next question here will come from Nathan Martin with The Benchmark Company. Please go ahead.

Hey, good morning, everyone. Thanks for taking my questions.

Good morning, Nathan.

Maybe I'll just start on North Goonyella. I Appreciate the update there in the release, could we maybe get a refresher on the expected spending and timing of that spending on the project as you guys move towards anticipated longwall production in 2026? And then what and when are some of the regulatory hurdles you expect?

Yes, Nathan, the first we've got it in two tranches of spending as we've discussed in the past, the first one is $140 million, which we're spending this year a lot of that this year and early next year. And the -- and what we're seeing is the major regulatory hurdle that we have to overcome or I should say overcome to get approval of is the permission to reenter the Zone B area which is the sealed area. And at the combination of degassing that area and the ventilation of that area. And we expect to be able to reenter Zone B in sometime in September. That is the major regulatory hurdle that we have to get through. So after we can reenter Zone B and we get a good assessment of the situation there. Then we have to go back to with our board and get the approval of spend the remaining it's approximately $230 million to $240 million. And then that would get us into full longwall production there early in 2026. So, again, I just like to reiterate the major regulatory hurdle that we have to get through is the permission to reenter Zone B and we're looking for that to come sometime in September of this year.

Great, Jim, appreciate that refresher there. And then maybe just shifting gears over to the domestic thermal side of the house. You did obviously update your guidance there. You talk a little bit about some of the conversations you're having with utility customers. Do you guys believe at least at this point that that guidance fully incorporates potential domestic thermal deferrals or are you still having ongoing conversations and negotiations?

Nate, we believe that fully encompasses all of the potential deferrals in the guidance that we've shown there.

Hey got it Jim. And then actually what have you as well, in the past you've been helpful kind of given us an idea of where you guys are committed for 2024 in PRB and other thermal any updates you can give us there, maybe what percentage of tons are committed there and also what base would be great as well?

Yes, it's about 70% committed at midpoint and guidance, I'd say there hasn't been a specific change over the quarter. That was specifically done on purpose given the fact that it's been a pretty slow market, declining price market. So we'll look to see more coming through here in the next quarter as the market picks up. So again 70% on the Illinois Basin and probably about 85% in the PRB for next year.

Perfect. Appreciate that up to their mark. And then maybe just one kind of bigger question -- bigger picture question for you Jim to wrap up. There's some M&A opportunities out there a few met coal assets in Australia up for sale. I know you'd like we can't make specific comments regarding Peabody and M&A. But if you kind of remind us how you guys think about and rank your potential purchases of maybe seaborne net assets or thermal assets and how would you kind of compare those two maybe the progress you're making on reopening North Goonyella? Thanks.

Nate, what I would say is in orders of prioritization organic growth investing in our own assets, extending leases, investing in equipment to bring down costs, increase efficiencies, those always have the best returns for our shareholders, and those always our number one emphasis or number one priority, and that's what's exhibited by North Goonyella. Then secondly, if we do get into M&A not saying we are -- we aren't -- we've stated many times, and it hasn't changed, that our focus is on the seaborne markets, we see the seaborne markets as growth markets in demand in both metallurgical and thermal. And we have more -- much more of a focus on the metallurgical seaboard markets, but we certainly would look at both markets for potential growth in the future.

Great. Very helpful. I appreciate the time, guys. Best of luck in the second half.

Thanks so much.

Thank you, Nate.

Next question.

Our next question will come from Lucas Pipes with B Riley. Please go ahead on your follow up.

Thank you very much for taking my follow up question. It's a quick one. In terms of hedges on the thermal coal side, I may have missed it. But I didn't see a disclosure in the press release this morning. And so I wondered if you could remind us what's outstanding there. And I know there was cash collateral requirement in the past as those hedges roll-off. Could there be cash coming back here in the third quarter from that side would appreciate just discussion and I think we're close to the end. So it would be good to just make sure I have everything in my model as that program concludes? Thank you.

Yes, Lucas, the program has fully been unwounded June 30. So all the initial margin was returned, I think was about $11 million in the second quarter. And all the variation margin was returned by a higher realized prices and taken into our EBITDA results. So programs fully unwound and we're no longer got hedges for coal sales.

That's very good to hear. That's it from now. I appreciate the color. And best of luck to you and to team.

Thanks, Lucas.

And with that, there are no further questions. So I'd like to turn the conference back over to Mr. Jim Grech for any additional closing remarks.

Thanks. Thank you all for joining us today. I'd especially like to thank our employees for remaining focused on safety and for continuing to execute on our various initiatives. I'd also like to thank our customers, investors, insurance providers and vendors for their continued support. And finally, I'd like to thank everyone in the [Gillette] community who responded during the tornado at NARM. Operator, that concludes our call.

The conference is now concluded. Thank you very much for attending today's presentation. You may now disconnect your lines. And have a wonderful day.