Vic Svec - Senior Vice President of Investor Relations & Corporate Communications Michael C. Crews - Chief Financial Officer, Executive Vice President and Principal Accounting Officer Gregory H. Boyce - Chairman, Chief Executive Officer and Chairman of Executive Committee

Michael S. Dudas - Sterne Agee & Leach Inc., Research Division James M. Rollyson - Raymond James & Associates, Inc., Research Division Brian D. Gamble - Simmons & Company International, Research Division Andre Benjamin - Goldman Sachs Group Inc., Research Division Meredith H. Bandy - BMO Capital Markets Canada Shneur Z. Gershuni - UBS Investment Bank, Research Division Timna Tanners - BofA Merrill Lynch, Research Division David Gagliano - Barclays Capital, Research Division Brandon Blossman - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division Mitesh Thakkar - FBR Capital Markets & Co., Research Division Brian Yu - Citigroup Inc, Research Division Lucas Pipes - Brean Murray, Carret & Co., LLC, Research Division J. Christopher Haberlin - Davenport & Company, LLC, Research Division Mark A. Levin - BB&T Capital Markets, Research Division Richard Garchitorena - Crédit Suisse AG, Research Division

Ladies and gentlemen, thank you for standing by, and welcome to the Peabody Energy Second Quarter 2012 Earnings Call. [Operator Instructions] As a reminder, today's call is being recorded. With that being said, I'll turn the conference now to the Senior Vice President of Investor Relations and Corporate Communications, Mr. Vic Svec. Please go ahead, sir.

Okay. Well, thank you, John, and good morning, everyone. Thanks very much for taking part in the conference call this morning for BTU. And with us today are Chairman and CEO, Greg Boyce, as well as Executive Vice President and Chief Financial Officer, Mike Crews. And we do have some forward-looking statements today, as always. They should be considered, along with the risk factors that we note at the end of our release, as well as the MD&A sections of our filed documents. We also refer you to peabodyenergy.com for additional information. And with that, I'll turn the call over to Mike.

Thanks, Vic, and good morning, everyone. I'll start with some high-level comments and then review our financial results in more detail. Peabody continues to manage through difficult market conditions, both in the U.S. and internationally. Our U.S. operations performed well in the second quarter, but at the same time, we experienced mixed results from our Australia platform. We also further improved our strong financial standing by reducing our leverage in capital spending during the quarter. I will now review the quarterly results beginning with the income statement. Second quarter revenues of $2 billion were consistent with prior year results as stronger U.S. realized pricing and Australian volumes were offset by lower U.S. production, a decline in Australia prices and lower margin shipments from Trading and Brokerage. Adjusted EBITDA of $453 million was down from the prior year from mainly the lower pricing from the Australian operations. In the year-ago quarter, benchmark pricing for metallurgical coal was $330 per ton and $130 for the annual thermal coal settlement, which is $120 and $15 per ton, higher than this quarter, respectively. Compared with our expectations, adjusted EBITDA was at of the low end of our guidance due to production challenges to contractor operated mines, weather issues and late-quarter shipping issues in Australia that impacted volumes and margins. Greg will discuss our actions to improve performance at contractor mines in a moment. With higher ongoing DD&A related to the acquisition and expansion projects, as well as increased interest expense, diluted earnings per share totaled $0.78 with adjusted diluted earnings per share of $0.73. The results included $60 million net tax benefit related to the integration of acquired assets into our Australian consolidated tax group. So we expect the third quarter effective tax rate to be approximately 25%. Including the second quarter tax benefit,…

Thank you, Mike. Peabody's weathering the macroeconomic storms well. We've taken steps on the commercial, operational and financial front to continue to position the company for success. I'll start with a review of the market conditions and then discuss Peabody's many operational initiatives. Peabody is guarded in our near-term view of global market fundamentals. U.S. coal markets have shown some positive signals, a significant recovery is not yet at hand. Europe is weak economically, but surprisingly strong on coal use. And while Asia has downshifted, it continues to power the world's economic growth. All told, we continue to look for seaborne coal growth of some 10% in 2012. Now in terms of China's performance. Met coal imports hit a record 75 million metric tons in the second quarter and are up 74% in the first half. And while thermal coal imports are up significantly, we also show net metallurgical coal imports up over 60% year-to-date into China. Generation growth slowed in the second quarter, but is still growing at 6% year-to-date. And I'd say for now, the pullback of the China economy appears to be manageable, and China clearly has more tools than most governments to foster domestic growth. In India, generation is up 11% year-to-date, with thermal coal imports rising 13%. And while strong, they are slightly lower than we expected by this time. The developed economies, such as Japan and Europe, have also shown increases in coal generation and imports year-to-date, running counter to their economic trends. In some, coal remains the fastest growing fuel in the world and was the only fossil fuel to record above average growth in 2011. Coal now accounts for more than 30% of global energy consumption. That's its highest share since 1969. Longer-term, we continue to see a major positive trend for…

[Operator Instructions] First from the line of Michael Dudas with Sterne Agee. Michael S. Dudas - Sterne Agee & Leach Inc., Research Division: First question, you talked -- so Peabody's going to have it looks like a 5% reduction in production and output in the United States. It looks like the industry is tracking it, plus 10. Given where current strip prices for Illinois and PRB coals, are you carefully looking at potentially pulling back a little bit more, given where inventory still haven't been yet and where pricing is today? For 2013, of course.

Yes. I think, as you look at 2013, that's really the question that everybody is looking at. I mean, we are very encouraged by the summer burn and the current downward trend in stockpiles, particularly when you look at the stockpile response in the Powder River Basin markets and Illinois Basin markets, vis-à-vis the east coast markets. But it is something we're watching very closely. We're just now starting to see customers come back into the marketplace. Some for this year and a few for the out years. We had already adjusted our expectations and our sales position for 2013, 70% to 75% sold at current production rates. We'll have to see how the next 2 to 3 months play out, in terms of inventories and demand, to really be able to have a sense for 2013 volumes. But suffice it to say, we'll look at all of the things relative to adjusting volume based on what the market needs for 2013. Michael S. Dudas - Sterne Agee & Leach Inc., Research Division: And the follow-up on that same volume question for as Australia, so are we -- to look at 2012's performance, is it more operational that's not getting the tonnage to the marketplace or are you pulling back because of pricing or demand? And as you look to 2013 for your Australian platform, is this just the limiting of how much Peabody can get these changes and owner-operated mines to get production to the marketplace? Or are you looking at the market for a little bit depending on your quality of coals to pull back on delivery because of price?

Yes, kind of a multi-point question maybe and in different points in time, a slightly different answer. The volumes that we've reduced in Australia are really a result of underperformance at our contractor-operated mines. And as we looked at the second half of the year, we looked at what opportunities we had to try and make up that volume, not only would it be very high cost, but we would be looking to, if you will, force it into the market at a time when the market is moving but is not robust. So we decided that we would not try and make up those tons this year. For 2013, all of our production forecast, internally that we had, we have not changed. The contractor, owner-operated conversions we're always scheduled to complete in the first half of 2013, most in the second quarter. Those are still online, and we've not changed any of our forecast internally for volumes out of Australia for 2013.

And next, go to Jim Rollyson with Raymond James. James M. Rollyson - Raymond James & Associates, Inc., Research Division: Greg, going back to that owner-operator switch-over from contracting, can you -- obviously, it's still early, but when you're thinking along the lines of how switching to Peabody-operated mines will play out in terms of efficiencies and costs, et cetera, how -- what kind of benefit do you think you'll get once you're switched over. I think you said up to 75%, but how big a magnitude is that as you go through the next few quarters?

Yes. Well, we're going to see the major impact in 2013 as we complete the changeovers in that latter part of the first half, although we'll start to see some of the incremental benefits in the beginning of, or in the first quarter of next year. But you've got benefits from a number of areas. Number one is you've got a margin that contractors make that you bring internal and you recapture that cost, number one. Number two, as we've talked before, we're replacing smaller equipment that is normal for contractors to use with larger-class equipment. That drives lower manpower for our unit of output and it drives much higher productivity. And then the last piece is, it's all about variability. And one of the things that you've seen is a bit more variability in this Australian platform than we would like to see. You don't see that much operating variability in the U.S. because we run all of our operations. And so as you make the combination of savings in terms of the contractor margins, productivity improvements because of upsizing equipment, labor savings because you've got lower manpower per unit of output, and reducing variability, all of those things we would expect to begin to see significant improvements through 2013. James M. Rollyson - Raymond James & Associates, Inc., Research Division: Maybe switching gears for my follow-up, you guys usually have a pretty good handle on your view and the outlook for the export market out of the U.S., which we've been clipping along here at a pretty good pace compared to what most people expected at the beginning of the year. Kind of wondering what you're thinking how this plays out for the second half of the year, kind of where do you think annualized U.S. exports are going to be, just given the softness we've had in the international pricing here in the last couple of months or so?

Well, it's always a bit difficult to determine because we don't have visibility into how much forward people were contracting some of the international sales. But suffice it to say, when you look at thermal pricing and the international marketplace, and you take that back into, say predominantly the East Coast, those producers are going to see pressure in terms of their margins. And the same thing with met coal, depending on what happens with -- certainly, the mid-quality and the lower-quality met coals are taking the brunt of market softness right now. 128 million annualized today, I don't think that's going to -- our view would be that wouldn't be hold at that high-level. By the end of the year, we're going to be down around 120 million total exports, by the end of the year, somewhere in that range.

And the next question is from Brian Gamble with Simmons. Brian D. Gamble - Simmons & Company International, Research Division: I wanted to follow-up on something you mentioned in your prepared remarks, Mike, I think it was to you, you mentioned a mix shift in Australia. Is that limited to Q3? Is that a back half of '12 issue? How long does that persist and maybe you could give us some semblance of what buckets in the magnitude of change in each one, just to kind of help us out on that shift?

When you talk about and then you look at the guidance that we gave for Q3 relative to what our performance was for Q2, the range is lower. The bulk of that impact is going to be around the production and sales mix. So there's a combination of -- we expect to realize lower thermal pricing in the third quarter. We've had a little bit shift in mix toward some of the higher ash thermals, so that's going to have an impact on margins. As we transition at Burton, as we've been discussing from the current operations into the new operations, that's going to have a quality impact in the third quarter. And then we'll look to see some benefits once we get whole Burton widening project coming on. And then there is a little bit of carryover pricing, about 0.5 million tons, out of 2Q into 3Q. So all told, that's in the probably a $50 million range as it relates to the third quarter and we would look to improve from the third quarter going into the fourth quarter. Brian D. Gamble - Simmons & Company International, Research Division: You think the fourth quarter can be back to Q2 levels? You think it's a step-change improvement, but maybe not back to Q2?

Well, I mean, ultimately, when you look at the full year, we do have a shift of more met tons. We do still have the contributions from the required operations that are at higher cost this year due to the remediation efforts. So that's going to have an impact on the margins that we have in the fourth quarter as well. Brian D. Gamble - Simmons & Company International, Research Division: Okay, great. And then...

And some of that -- sorry, I'm sorry to stop you, but then, part of the impact on that is we do expect the ramp-up in some of the volume in the back half that would mitigate some of that impact. Brian D. Gamble - Simmons & Company International, Research Division: Okay, that's helpful. And then, Greg, the follow-up on one of your answers to Jim's question. You gave a pretty decent breakdown of the benefit that you guys can expect as you shift over to just a BTU-run mine versus contractor mines. Can you give any sort of quantified data around how much of an impact on your overall cost, your overall output you expect? I mean is it in the 3% to 5% range? Are we talking more like 10% or 15% when BTU runs those mines?

Yes. Our view would be when you roll it all up, our expectations are -- it's 15% to 20%. Now that, to a certain degree, offsets other pressures that we're having in the platform in terms of cost. So net-net, it may be around the 10% overall improvement. But at the operations themselves, just for those changes, it would that 15% to 20% gross improvement that would be netted off by inflation and another cost pressures that we have. I guess, I would just, on all of these discussion here, just provide a little bit more color here. When you look at the contractor operations that we run in Australia, in the case of our open-cut operations at Wambo, those are our premium higher-margin, typically higher-margin thermal coal coming out of New South Wales. And with the Burton and the Millennium operations in Queensland, again, Burton is a premium hard coking coal, so any delay in tons coming out of those operations carry a very high margin impact with them and to the extent that at Millennium, you recall, we had a bit of a delay in receiving the expansion permits and to the extent that contractors' productivities are not where they need to be, then those tons get shifted out in time. So when you really add those things up, what we're seeing here is a movement out, in terms of getting those operations stabilized, based on the plans that we've had to expand them. And so volumes are moving out, that's impacting the near quarter. But we still expect to benefit from all those programs as we begin in the fourth quarter and then into next year.

Next question is from Andre Benjamin with Goldman Sachs.

Two questions. First, on your discussion of the expansion plans that you are now reevaluating. Do you feel that the reevaluation was more driven by demand or of price, i.e. if the prices stay constant but demand were to pickup, would you feel more comfortable committing to a timeline for those mines to be developed? And what -- how long I guess after you decide on that, would you -- could you say that those mines can be developed?

Yes, we're really talking about 2 mines and maybe take them one at the time. At our Metropolitan Mine in New South Wales, we had a 2-phase program there. One was modernization of the surface facilities and all of that program is on track and in place. And then we had one of the main aspects of that program for expansion was a new drift. And the drift contractor that we had and the drift progress that we were making was falling significantly behind schedule. So we replaced the contractor and that's put us at a different time frame for completion. And that's why we've made the decision to delay that project to make sure that we get that drift down. Now the good benefits of that is we've got an opportunity now to do some additional work, particularly underground that will allow us to upsize the expansion. It was originally going to be a little less than 1 million tons a year. We think when we're complete, a year later, it'll be 1.5 million tons a year of hard coking coal. At Codrilla, the issue really was -- the more that we did engineering around Codrilla, we realized that we wanted to do some more technical evaluations around, not only the near-term mine plan, but also to do some value engineering around the optimization of surface facilities, particularly in relationship to surrounding deposits that might co-use those facilities going forward. So we took the logical decision that you would take in any market, to just step back and make sure that you've got the engineering right, and the mine plan right, before you begin spending the large amounts of money for mining equipment and everything else. So I guess, you would say that the market, taking a breath, has allowed us not to go at a pace too fast and I think both of these projects are going to be much stronger at the end of the day than maybe they would have been before. The only other one that we reevaluating is the Wambo open-cut, but that's really an issue of -- with the contractor issues we're having in Australia, most likely that would be one that we would want to do as owner-operated and so that's just a matter of timing, doing a bit more engineering work and drilling on the surface to make sure we've got the right mine plan for that.

That's helpful. And I guess for my follow up, we've heard one of the rails indicate that the PRB burn utility's inventory that peaked and/or are beginning to improve. How much of a decline and the percentage of your un-priced coal for 2013 was due to new contracting versus just shifting out some of the volumes from 2012? And then the pricing on the new business, has that been kind closer to the strip pricing of 10 to 12 that we saw for most of the quarter or has it been more toward the mid-cycle level say of 13, 14 or higher?

Yes. Well, I would say most of the change in the 2013 contracted volumes was the establishment of this year's production as the base production for 2013. If you look at what we're saying is base, if we use of this year's production as the surrogate for 2013, we are 70% to 75% sold out. We've had our normal price reopeners that we've negotiated during the course of the quarter, those have a number of different mechanisms. Their baskets, their indices, there are all types of things that relate to those reopeners in terms of setting price. We've had a -- some of our business that -- contracts that we renegotiated with some of our customers for this year, deferred some time into 2013 but that's really only about 4 million tons. Now in part of those restructurings, we were also able to pick up new business for 2013, to the tune of about 6 million tons in the quarter. So net-net, I would say the only business that we've really booked new for 2013 in the quarter would have been around the $6 million worth of new business. And because those were all part of contract restructuring, the market pricing at the time really didn't come into play.

The next question is from Meredith Bandy with BMO Capital Markets.

I was just wondering if I could get an update on a couple of reports. First, the agreement that you guys signed with Kinder Morgan. I know you said that takes you to 5 million to 7 million tons in the Gulf. What are you -- in terms of total export capacity, what are you moving from in the U.S., maybe, including a little bit through Canada, Westshore, or whatever?

Yes. I think, this year, our estimate will be -- we're looking at about 10 million tons for the year. That's a combination of exports through DTA, some exports through the West Coast and then the rest would go out of the Gulf. So this would allow us expanded capacity out of the Gulf. Primary targets for us would be Colorado coals, Illinois Basin coals and PRB coals, as the market strengthens internationally during the course of the back half of this year and into next year. So it allows us access to multiple ports in the Gulf and it allows us the ability to deliver the coal to those ports through multiple methods, whether that's by rail or by barge down the river from the Illinois Basin.

And then any color on the SSA Marine port?

Well, that port is -- it's in the permitting phase right now. They're finalizing all the terms to be able to launch the EIS. That's a couple of year process, and you get beyond that 2-year period of time to go through the permitting and then there's about an 18-month to 2-year construction period. So we've still got that 4-year window, 3.5, 4-year window of time out in front of us, assuming no major objections due to the permitting process.

And next, go to Shneur Gershuni with UBS.

My first question is just related, I guess, to the PCI market. Spreads have kind of widened out. Some of that blame, obviously, could due to the fact that you've had some strikes and industrial actions at some specific hard coking coal mines. How do you think about the PCI market going forward? Do we go back to the traditional spread? Or does kind of the moving but not robust market kind of limit that option in the near-term?

Well, we think eventually we'll get back to that historical spread, particularly once we start to see economic activity pick up. Right now, the demand for hard coking coal is remaining firm. And as always in these markets, the lower quality coals, particularly the semi-soft, not necessarily the PCI coals, but the semi-soft coking coals begin to widen on that differential to hard coking coal. But we see as -- that strong market, straightening markets, we see those historical differentials return.

And my follow-up question is, in your prepared remarks, you talked about the share buybacks and some debt being taken in. You also, in some of the earlier questions, sort of talked about potential reevaluation of M&A -- sorry, of CapEx and so forth. At this stage in the game, kind of where your stock is currently trading at and so forth, where does share buybacks kind of rank in your view of where you want to deploy capital kind of in the near-term relative to the longer-term?

Good question. I think that we continue to put additional deleveraging at the top of our cash list, but share buybacks are probably right behind that. We are able to accomplish a ratio of both in the second quarter. We're going to watch the cash generation during the back half of the year. We'll see where our final capital numbers come out. And we'll opportunistically look at doing the same things during the rest of this year and into 2013. But I would say that we still want to do some more deleveraging as our first priority. And then we'll continue to watch the share market as a secondary one.

We'll go to Timna Tanners with Bank of America.

I just really want to explore a little bit more of what you're seeing the hard coking coal market since I was gratified to see in your release that you're getting contracts in line with recent settlements, but does seem like the spot market has really collapsed or fallen sharply, I guess, in the last couple weeks. So just any of your thoughts on what's causing that? What might cause it to recover? Whether or not some of your other colleagues out there might cut capacity in a bigger way? Anything on the met marketplace?

Yes. I think in the last couple of weeks, obviously, the market's trying to determine what it really means out of Australia when BMA indicates that they're coming to closure on some on their labor unrest. And I think people are still trying to sort through what does that mean and how can quickly they really begin to return to the market in terms of production. I think in terms of -- most people have got contracts that they're still delivering under, to the extent that folks have additional capacity and are trying to sell that into the spot market. You've got Europe that remains down in terms of any of their steel sector. You've got Korea and Japan, what you're not seeing growth right now. China is up about 1% the last quarter, a couple of percent in the first quarter. So overall, 1.5% to 2% up on their steel production, so they're lower than we've been historically. So I think that we like the fact that we're in a good contracted position on our met coal, and it'll take a bit of time now to see where the production impacts may or may not come into play in terms of the current spot market translating into future pricing.

Okay. So anything specific you're looking for in the fourth quarter with regard to some of that activity in China, infrastructure builds or anything in the economic front?

Well, I mean, everything that we hear and see is, China is continuing to look at ways to keep their economy going, certainly in that 7.5% to 8.5% GDP range and infrastructure spend is always a significant component of that. And they've got very aggressive plans for new spending. So the question is how quickly that translates back into a market impact, particularly in the steel sector.

The next question is from Dave Gagliano with Barclays.

I just have a couple of follow-ups related to the -- specifically to the PCI market. First of all, how much PCI, specifically PCI coal, have you sold thus far in 2012? And what is your target within that 13 million to 14 million tons, what's your target for PCI sales for 2012? That's my first question.

Well, overall PCI sales are about 35% to 40% of our overall met volumes out of Australia. Out of the -- we had given you the estimates for the full year out of the new, what we call PCI mines, which are the former Macarthur properties and that's in that 4 million to 5 million-ton range for the year. We're on track for that kind of a pace. That is primarily low-vol PCI coal. And then we also have some PCI coal out of the Millennium Mines.

Okay. And then just -- as a follow-up, what prices are you signing your PCI coal for? At least some recent indications in terms of where the PCI, low-vol PCI market is right now for you?

Yes, we're still seeing that as a 72% kind of spread to the high-quality hard coking coal price and that's really 5 quarters running, it's been in that 72%, 73% kind of band. So you are seeing some discussion out there of widening spreads, but we would point out that PCI and low-vol PCI are not the same things. Some people use PCI as a surrogate for semi-soft, which, of course, is always kind of a swing product that can be an upgrade to thermal as opposed to a discount off of the high-quality. That's where some of the U.S. folks tend to be swing suppliers on that and you're seeing -- you're definitely seeing widening spreads as witnessed by the latest Indian deals, which show major discounts from the U.S. players compared to we're able to get out of Australia.

Okay. So then, I'm sorry, just one more follow-up, sorry and I'll let -- we'll move on to the next person. 4 million to 5 million tons of PCI, 13 million to 14 million in total. Is the balance all high-quality hard coking coal? If not, can you break down the differences there?

Yes, we get about 40% to 50% on the hard coking coal or the high-quality hard coking coal and the difference there is typically about $5 to $7. And then the remainder would be the semi-hard product.

And we'll go to Brandon Blossman with Tudor, Pickering, Holt. Brandon Blossman - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division: Let's see. Let's do a couple of thermal questions. One domestically, so you guys are still looking at 100 to 120 tons down year-over-year for U.S. thermal production. Does it give you pause to see the supply response, say, over the last 6-plus weeks given some better coal burns but that doesn't help inventories perhaps as much as you'd like and perhaps puts at jeopardy a good supply response in '12 and setting up '13 perhaps not as cleanly as you'd like?

Well, as I've said earlier on the call, we're watching the next couple of months very closely. We're seeing stockpiles come down at a record level, certainly in the June time frame. Temperature itself continued here in July and we'll see what August and September bring. Certainly, what August brings. The PRB inventories are coming down very quickly. So I think it will depend on how we come out of the summer season and go into the shoulder seasons, September and October to really determine what inventory levels are and what 2013 is going to look like. And what, if any, additional response may be needed in terms of the production-end of the industry to make sure that inventories continue to come back down to normal levels.

Certainly, July is going like gangbusters from the standpoint of cooling degree days. And typical of July, you get 1 million tons of drawdown on stockpiles every 3 days. We would certainly hope that it's a larger amount than that's going on right now given the weather patterns across the U.S. Brandon Blossman - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division: Fair enough. And then on the seaborne thermal side of things, obviously, a pretty loose market over the last 3 or 4 months. Demand looks okay, which implies supply is a little bit too much. How do you that supply trajectory going, say over the next 12 months or so?

Yes, I think, we're going to simply supply tightness. I mean, we've seen a significant amount of thermal coal from the East going into the Atlantic market at current pricing levels. We think that's going to come off -- start to come off significantly, certainly, over the next 12 months. In addition, we've seen amazing growth of volumes out of Indonesia. In fact, higher than we would have projected. Part of that has been -- they really have not had any weather impacts. Part of it has been, they've been producing quite well. Our view is that those levels of increases are probably not sustainable. So as they -- as the market demand continues and their rate of growth slows, we start pulling some of the cap tons out of the market. We see the thermal market, seaborne thermal market, tightening to a certain degree, even potentially some of the very high-end cost curve mines out of Australia beginning to cut back as well.

The next question is from Mitesh Thakkar of FBR. Mitesh Thakkar - FBR Capital Markets & Co., Research Division: A quick question, just revisiting the domestic thermal coal contracting. You mentioned you had about 6 million tons of new business and I know you usually don't give up the pricing information, but can you just directionally talk about some sort of -- give us some sort of color on the price? Then if you look at the cost structure of NPRB, it doesn't make a whole lot of sense to contract below 1250. So can you provide additional color around it?

Well, you have to remember that, that new business was part of contract restructuring. As we've always said when we restructure contracts we maintain NPV value in those contracts. So I -- not really going to talk about specific pricing or where we were relative to the price curve. Suffice it to say, when we restructure a contract, we retain economic value in that contract. And all of those tons were originally contracted at a different time frame. Mitesh Thakkar - FBR Capital Markets & Co., Research Division: Okay, great. I think most of my other questions are answered.

And we'll go to Brian Yu with Citi.

Excuse my attempt to parse your earnings release like a Fed statement, but I noticed that when you talked about net coal price Australia, you add the word "largely" in there and I'm wondering if that means you're selling some of that coal at discount? And if any of that just relates to your perhaps not enough uptake on the quarterly side and you're selling on a monthly basis. If that's the case, what percentage of your volumes is being sold monthly?

Yes, I guess, it's just -- I can't sit here today and say we sold 100% of our coal at the benchmark, so we put in the word "largely" just to reflect that there's a few customers with quality. The other thing is, we always have to negotiate around the quality differentials that we have in each of our properties relative to the benchmark. And whether that's North Goonyella, a couple of dollar, whatever it is, Burton, there's a different differential. Some of the coal we're producing out of Mavis Downs and Metropolitan. So when we say, "largely" it's just meant to reflect essentially -- quality adjusted, we're selling at the benchmark.

Okay. And you were able to place the majority of those tonnes [ph] on a quarterly basis?

Yes. Well, all of our tonnes [ph] are under our framework agreements that have volumes in them on a quarterly basis. So it's really that -- once the price changes, but the volumes are consistent.

The next question is from Lucas Pipes with Brean Murray, Carret. Lucas Pipes - Brean Murray, Carret & Co., LLC, Research Division: A quick follow-up question on kind of Q3 guidance. Could you kind of walk us through, again, why exactly prices are expected to come down, given that the benchmark is higher in Q3 versus Q2? And you're Australian thermal coal volumes, I believe, are largely contracted at the benchmark earlier this year?

So when you look at -- on the thermal coal side, you see prices have come down. On the met coal side, while they've been a bit stronger, there's some mix in there and as we talked about with the Burton operation, as we transitioned to the new Burton widening area, there's going to be a differential in mix that's going to be a lower average price relative to what we would have typically experienced on the Burton property. So those are the 2 big items. As I also mentioned, we did have 0.5 million tons of carryover, so that's going to lower our average price on the met side as well.

Yes, I guess, maybe just to into little more detail as we look at third quarter and we set our targets for the third quarter, and I just kind of rundown a list of things that we take into consideration and Mike's hit the bigger ones in terms of changes in met mix. We do have a move of our Longwall at Wambo, which is our highest margin thermal operation in Australia. We do have the Burton Millenium volumes, the contractor issues at those higher-margin met operations. Mike mentioned the carryover volume, the carbon tax. We also -- on our trading shop, we're conscious of looking forward and seeing what's happening with counterparties and volumes in that particular area. Resource management, that market is soft. We don't see changes in the near-term in that market. And then even in the U.S., we talk about the rest of July and August, we don't know what that shoulder month of September is going to look like. And we haven't really talked about it, but the lack of rainfall in the Midwestern part of the country, the river levels are low. We're starting to see some issues with barging and in a number of utility customers in the Midwest because of low water levels in the rivers, the water temperature are high, which means their discharge temperatures coming out of their power plants are higher than they should be, so they're starting to cut back on production for those reasons. So you start to wrap all of these up and look at the third quarter, and we try and come up with a best estimate we can with these uncertainties in terms of the range and where we think we're going to be. Lucas Pipes - Brean Murray, Carret & Co., LLC, Research Division: That's helpful. And on the domestic side, you talked about the inventory drawdown in the West, could you maybe quantify where inventory stands in the West versus in the East?

On a days burn basis, we're probably in the mid-70s on southern PRB type of days burn. You compare that with Central Appalachia where you're well over 100 days burn and that's based on both the fact that they are high stockpiles, as well as, obviously, a lower burn this year than typical there. So PRB is definitely better than any of the other basins from a -- probably by 25% or more.

The next question is from Chris Haberlin with Davenport. J. Christopher Haberlin - Davenport & Company, LLC, Research Division: Can you give us an update on the plans for Mongolia coming off the recent election results there?

Sure. I mean, obviously, Mongolia continues to be a work in progress. Where post-election, the government is all about trying to establish their coalitions, trying to seat their parliament in, later in August and in September. And if all of that goes well, we would expect to begin discussions again with the government, latter part of the third quarter, end of the fourth quarter. Those discussions, I think, will take a bit of time, so probably won't see much in terms of movement and clarity until the beginning of 2013. J. Christopher Haberlin - Davenport & Company, LLC, Research Division: Okay. Then as my follow-up, can you just kind of discuss your exposure to Patriot's bankruptcy and I know that there's been speculation of potential fraudulent conveyance, can you give us your reaction to that?

Yes, sure. I'll make a few points, I guess, regarding Patriot's reorganization since you've raised the issue. Understandably I need to limit my remarks due to the bankruptcy proceedings. But first of all, since we spun Patriot in October of 2007, the world on Patriot has changed significantly. If you've read the Patriot filings, they say in their own filings with the bankruptcy court, these changes included Patriot's acquisition of Magnum Coal, which had its own substantial assets and liabilities and made significant changes in their capital structure. They decreased demand for coal due to sharp declines in natural gas prices and the softening of global steel markets and more burdensome environmental and other government regulations. We have consistently stated in our SEC filings that at the time of the spinoff, we believe that our only exposure, materiality, was about $150 million of possible black lung liabilities for which Patriot has primary liability. Patriot indicated in their filings that they obtained the right to self-insure those liabilities with the Department of Labor and they posted a $15 million in collateral to secure those obligations. We've got a small number of commercial agreements with Patriot. We believe the exposure under those agreements is immaterial. We'll continue to watch the bankruptcy proceedings, but that's where it stands today.

And we'll go to Mark Levin with BB&T Capital Markets. Mark A. Levin - BB&T Capital Markets, Research Division: A couple of very quick questions. The first, just a question with regard to the test for impairment and how you will approach that with regard to the Macarthur acquisition, given the massive fall in met prices? I mean what are the tests that are applied and what is the time frame?

This is Mike. I think, when you look at -- when you refer to met coal price, I'm assuming you're referring to what we've seen in terms of near-term weakness -- which is what is now what you use for a whole life of mine assessments. When you look at an acquisition like Macarthur, with a couple of operating locations, we've got the Middlemount joint venture, we've got significant development properties, we've got ramping up volumes, you have to take all of that into account and look at our long-term price expectations as we get through the remediation efforts that we're doing on the existing operations, we'll take all that into account. I mean, it's something that, ultimately, it comes down to what are the cash flows expected to be. And of the cash flows are expected to be higher than what the book value of the assets that you acquired are, then there is no impairment issue. Mark A. Levin - BB&T Capital Markets, Research Division: Okay. And then the second question is, if the world doesn't get better in 2013, let's just say it gets worse, I mean, how far could you drive CapEx down if things didn't improve or even got worse?

Yes. I mean, when you look at just -- we always put our capital in 2 different buckets, sustaining capital and growth capital. We've stated that our sustaining capital is about $1.25 to $1.75 a ton, which, at current production rates, would be $300 million to $400 million. Now some of the growth CapEx, whether it's owner-operator or some things that we would need to finish, but as it relates to development projects, there are things that can be put on hold temporarily in response to market conditions. So we've taken $200 million off our capital targets for this year. When you look back to what we did in the global financial crisis, we had an even more significant reduction in our capital, which had less growth capital built into that number. So it's something we stay very focused on throughout all the operations. We're looking at where we can reduce either -- we'll have some normal deferral -- deferrals or delays we've talked about at our Analyst Day and also on the call today. There is some natural push out there. We'll continue to look at other things we may be able to delay. And even on the sustaining side, we'll go operation by operation and say, "Do you really need that haul truck next year? Or is there something else that we can -- can we go buy used equipment? Can we put something off until future periods?" So it is a primary lever for us, you've seen us use it, in terms of redeploying cash for other things like debt repayment, share repurchases. And that's something we stay very, very focused on. Mark A. Levin - BB&T Capital Markets, Research Division: So is it fair to say, Mike, I mean, if the world didn't get better, I mean, if it got worse, I mean, you could drive CapEx down into the $700 million, $800 million range, if not lower?

Yes, we could drive -- yes, I think it would likely be in that range, maybe a little bit wider a range. It's just a question what you have in the pipeline that needs to be completed. Then we would balance that off against our sustaining capital requirements over the next 12 to 18 months.

Our final question today will come from the line of Richard Garchitorena with Credit Suisse. Richard Garchitorena - Crédit Suisse AG, Research Division: I wanted to basically touch on the Macarthur integration. In the past you've highlighted $60 million to $80 million in annual synergies. Given the issues you have with the contractor-operated mines, do you still see that as possible in 2013? And then also, related to that, you did mention that costs were going to be in high 70s, I think, for the rest of this year. How should we think about costs going into 2013?

Yes, a couple of things on Macarthur. First, Coppabella was -- is an owner-operated property and Moorvale had a contractor and actually the contractor performance of Moorvale has been improving quite nicely, as we put in the improvement programs at both Coppabella and Moorvale. So we're pleased with the progress today. We've got productivity increases, both with the major equipment, the drag line and truck shovel fleets at Coppabella ahead of where we would've forecast and the same thing at Moorvale. We've got additional work to do as we restructure those operations. We're just now mobilizing the equipment and the people to make major additional inroads in the overburden removal that we needed to do at Coppabella. That'll have to go through the back half of this year. Obviously, that will flow through our costs for the back half of the year. And then we're doing some additional -- or doing a bit of capital investment at Moorvale prep plant to improve the yields. We'll see that improvement flow-through next year. But I think overall, our synergy values, we feel good about where we are at. We're targeting ahead of where we thought they would be at this point in time. And the long-term synergies that we had forecast as part of the acquisition, that $750 million to $1 billion of NPV synergy value, we see that today, same as we did when we made the acquisition.

And I'll turn it back to you, Mr. Boyce, for any closing comments.

Okay. Well thanks, operator. And I, obviously, appreciate everyone's interest on the call today. And I want to thank the Peabody team for its continued focus on safe, low-cost operations and the commercial excellence they continue to show as we succeed in these uncertain markets. The global market conditions and the world economies are clearly challenging, but we believe our platform is well-positioned to succeed both in the near-term and long-term. I look forward to keeping you updated on our progress, and thanks again for your interest.

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation. You may now disconnect.