Good day and welcome to the Peabody's earnings call for the Third Quarter of 2023. 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 note, this event is being recorded. I would now like to turn the conference over to Karla Kimrey. Please go ahead.

Good morning, and thanks for joining Peabody's earnings call for the third quarter of 2023. With me today are President and Chief Executive Officer, Jim Grech; Chief Financial Officer, 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 Securities and Exchange Commission. I'll now turn the call over to Jim.

Thanks, Karla, and good morning everyone. In the third quarter of 2023, we delivered strong operational results with better-than-expected production and effective cost management. We also advanced initiatives at Shoal Creek in North Goonyella that illustrate our ongoing commitment to continue investing in our seaborne metallurgical portfolio. During the quarter, our Board approved full funding at North Goonyella for the completion of initial development through the commencement of longwall operations in 2026. We are also excited to announce that we have reached an agreement to acquire a large portion of the Wards Well coal deposit adjacent to our existing North Goonyella mine. This is a tremendous opportunity to extend a world-class coal deposit and leverage our existing infrastructure and equipment. Before I expand on the quarter, I want to thank our global employees for their continued focus and commitment to working safely and efficiently. Now, turning to the global coal markets. Seaborne thermal coal markets remained volatile during the quarter with modest pricing improvements. Robust, but moderating coal and natural gas inventories in the Northern Hemisphere have continued to weigh on demand for high-energy thermal coal, coupled with better supply prospects due to drier weather on Australia's East Coast, resulting in Newcastle coal trading within a range of $130 to $160 a ton. China's year-to-date imports of lower-grade thermal coals continue to significantly surpass the prior year, with an increase in the annual thermal coal input run rate of approximately 93% over 2022 levels. India has also increased seaborne market participation, as our power demand continues to grow. Recent import trends have led the IEA to report that elevated global demand for thermal coal imports so far during 2023 are pointing to 6% year-on-year growth in overall seaborne coal trade versus 2022. Within the seaborne metallurgical market, global crude steel…

Thank you, Jim. In the third quarter, we recorded net income attributable to common stockholders of $120 million or $0.82 per diluted share and adjusted EBITDA of $270 million. The company generated $87.5 million of operating cash flow from continuing operations, which included an increase in working capital of $81 million, largely reversing the second quarter working capital benefit as expected. We also reached a $72 million cash settlement with the Department of Labor for Black Lung liabilities related to discontinued operations. The settlement discharged a $76 million legacy liability from the company's balance sheet and eliminated the almost certain risk of a much larger collateral requirement proposed in the new DOL rules. Through October 20, we have returned $307 million to shareholders, reduced our share count by 9.3% and have $713 million of remaining authorization under our share repurchase program. We remain steadfast in our commitment to return at least 65% of annual available free cash flow to shareholders. After the recently declared third quarter cash dividend of $0.075 per share based on year-to-date results, $103 million is currently available for additional share repurchases. Turning now to third quarter segment results. Seaborne thermal recorded $116 million of adjusted EBITDA. Higher production at Wilpinjong and a lower mix of Wambo underground production, reduced cost to $43.68 per ton below the low-end of our guidance. Despite lower price realizations from additional high-ash Wilpinjong production, adjusted EBITDA margins were approximately 40%. The seaborne metallurgical segment generated $79 million of adjusted EBITDA, cost per ton were below the low-end of guidance, mostly due to lower sales price sensitive costs. Lower-than-anticipated price realizations resulted from the widening price gap between premium hard coking coal and PCI coal. PCI achieved only 64% of the benchmark price in the third quarter, compared to 86% in the…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Lucas Pipes with B. Riley Securities. Please go ahead.

Thank you very much, operator. Good morning, everyone.

Good morning, Lucas.

My first question is on Wards Well and I want to make sure I understand that the structure of that deal right? It's $136 million cash and then a royalty -- contingent royalty of $200 million. Does the $136 million of cash kind of -- does that get paid on closing? And then the $200 million, exactly what is that contingent upon? I think it says recovery of capital. What capital does that refer to which is really appreciate some additional color around the timing of initial and later cash flows? And then I have a second question on Wards Well. And that is when would you expect to mine that adjacent deposit? Thank you very much for your color on that?

Yes. Hi, Lucas, Jim Grech here. And first off congratulations on that beautiful [indiscernible] you had just a few days ago.

Thank you.

So some important thing…

Thank you.

So the $136 million is -- let me see if I can remember all your questions here. That will be paid on closing. We expect that to go up sometime in the first quarter of next year. And the $200 million of royalty again that's recovered -- we start paying that out after we cover a full project investment with -- in the project. So that's going to be some years into the future probably not if it is at the end of this decade if not into early -- into the 2030 time frame that we would expect that royalty to start being paid. Is that -- and I'm sorry you had a couple of other questions and I'd try to answer. Could you repeat them for me?

Yes. No that covered the first part. The second part was about that -- when you would expect to mine those reserves.

Yes. So what we have Lucas we literally closed on this deal just a few hours ago so we're happy we could do that and get it into the release here. And what we're looking at is optimizing the mining plan right now. The way it's laid out is we would still mine the North Goonyella reserves first. And what we're looking at is the timing of when we would then jump into the Wards Well reserves. They're contiguous. They're right up against our property. And so some of the different scenarios we're running is mine just a few panels in North Goonyella then jump right up to Wards Well. Or maybe mine even a few more panels in North Goonyella, which would take us out towards the end of the decade and then jump up to Wards Well. So we're looking at what gives us the best cost structure with the different mine plans. So it could be a few years out to maybe four or five years out depending on how we -- after we start longwall production right? So it depends on what gives us the best cost structure. What's very good about those reserves though Lucas is having that optionality is because it's the same call scene. We're using the same conveyor systems, the same longwall, the same development units. And it's just which direction we take the mine whether we go to the north of the south faster. We're not going down to a different scene down at a different elevation. And we have lots of optionality as far as the mine plan now. So again we're still looking at that. But a few years out after longwall starts would probably be the earliest we hit those reserves. And again, we're still -- we've just signed a deal. And you asked about the payment. Again that would come at closure which again we expect that to be in the first quarter.

Very helpful. Thank you for that color, Jim. My second question stays with North Goonyella. You raised the CapEx guidance this morning. We've seen obviously across the industry pretty material increases in capital costs. And at this stage how far down the rabbit hole are you in terms of derisking the capital for North Goonyella? I would appreciate a sense for your confidence level and were maybe some risks linger in this broadly inflationary environment. Thank you.

Yes. Lucas as you said, we're not immune to cost increases just like the rest of the industry. But given the relatively short time frame we start development mining here in the first quarter. We've got the miners on order to be delivered here in the first quarter. The conveyor structure that's all in place. There's still some more capital to be spent, but a lot of it has been ordered or on order or been spent already. A big part of the increase we have has been in labor cost which at this point is also capitalized. And so those have increased and we think we've captured that in our forecast. That's a big part of the change in the capitalization is on the labor expense. So given the short time frame and the amount that's already been ordered or spent we feel pretty good about those numbers and then being accurate based on all those reasons. Labor is still a bit of a wildcard but we think we've captured everything with the labor cost that we could see going forward.

Thank you, Jim. Very helpful. I'll squeeze one last one in. On the met coal side for 2024 a few moving pieces. I know it's a little early to ask for guidance. But just between development coal that -- the good update on Shoal Creek what is a reasonable range for your coking coal volumes in this transition period before North Goonyella is fully ramped?

Yes, Lucas, it's Mark. We're not giving guidance for 2024 yet. Obviously Shoal Creek has done a really good job with some of the continuous minor development coal we're getting now and we expect that to be ramped back up beginning Q1 of next year. That did about 800000 tons last year. It's probably a high point with two million tons. They're probably somewhere in the middle there for next year. That's the big change.

And all the other operations no major changes that you would expect there?

That's right.

All right. Thank you very much. I’ll turn it over. Best of luck.

Thanks, Lucas.

Thanks, Lucas.

[Operator Instructions] The next question comes from Nathan Martin with Benchmark Company. Please go ahead

Hey, good morning everyone. Thanks for taking my questions. Maybe just one last one on North Goonyella. Now the project is fully approved. We've got the CapEx update. Can you guys give us any idea on the cadence of that spend? It looks like roughly $400 million or so left between now and 2026. And then also you mentioned something in the release about regulatory costs that increase there. I know you previously said the reentry was the major approval needed. But is there anything else from a regulatory perspective that we need to be mindful of? Thanks.

Yes. Nate, I'll answer the regulatory side of that and then Mark can address the cadence question that you had. In Australia the Safeguard Act was passed the legislation I think it was end of July which affected many industries in Australia but us included. And so we just got the detail of what that involves and the compliance costs that go along with it. So those regulatory impacts were something that we had to work into and do our forecast for the mine. That's the main one. There's been some other changes legislatively potentially that we see with the work rules and so on that we've accounted for but the main regulatory impact that we're talking about is that Safeguard Act that came into effect there late in the summer.

Yes, Nate, we've got about $75 million spent left to date on the redevelopment at North Goonyella. I look at CapEx of about $150 million to $160 million for 2024 and 2025 million. The rest of that capital would come in after the longwall production begins at the beginning of 2026.

Great color there guys. I appreciate that. And then maybe shifting over to the seaborne thermal segment. Great job on the costs there. Obviously full year cost per ton guidance down by about $5. I guess the question is what's driving that improvement? And is this kind of a new base we should think about going forward in 2024, or are there some other factors to consider?

A couple of things Nate. One certainly hitting volumes on costs have been very helpful in seaborne thermal. The Aussie dollar is historically weak. That's also helping us on the costs. We saw costs come down quarter-over-quarter. Some of that was lower sales price sensitive costs and the higher production. And we're not providing guidance for 2024 just yet. We'll do that next quarter.

Okay. Thanks for that Mark. And then maybe at the U.S. thermal business side of the house. Jim I appreciate your update on 2024 thermal sales and price there. Should we kind of assume you guys are close to sold out at those levels? I think you said PRB 80 million tons at $13.77 and other thermal at 15 million at $51.18.

I think if you look at the guidance ranges we're providing this year for the different markets that can give you a pretty good range of what we think about for the tons for next year at this time and where we sit with these sales within those guidance ranges.

Okay. Just to be sure so you're saying maybe somewhere within this year's guidance ranges for 2024 is not a bad place to start.

Yes and maybe towards the higher end of the guidance ranges.

Okay. Good. Very helpful. I’ll leave it there. I appreciate the time. Best of luck in the fourth quarter.

Thanks, Nate.

With no further questions this concludes our question-and-answer session. I would like to turn the conference back over to Jim Grech for any closing remarks.

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 your continued support. Operator that concludes our call. Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may all now disconnect.