Good day, and welcome to the Peabody Second Quarter 2024 Earnings Call. All participants will be in 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, VP, Investor Relations. Please go ahead.

Good morning, and thank you for joining Peabody's call for the second quarter of 2024. With me today are President and CEO, Jim Grech; CFO, Mark Spurbeck; and our Chief Marketing Officer, Malcolm Roberts. Within the earnings release, you will 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. Now I'll turn the call over to Jim.

Thanks, Karla, and good morning, everyone. Thank you for taking the time to join us today and for your interest in Peabody. I am pleased to report the second quarter results came in as forecasted, and we have a confident outlook for the second half of 2024. More importantly, to date, Peabody is having a remarkable year with safety, our number one value as five of our mines have had zero reportable injuries. Peabody is committed to increasing shareholder value through a balanced approach of maximizing shareholder returns and investing in organic metallurgical coal growth at Centurion. Our resilient balance sheet allows us to be flexible and dynamic in the prevailing market conditions. As a result, and in accordance with our shareholder return policy and favorable outlook for the remainder of the year, we have committed an additional $100 million for opportunistic share repurchases. Centurion, our world-class hard coking coal growth project is going very well. The initial underground development rates are exceeding expectations. We are able to mine our first development coal in June, and in July, we commissioned our second continuous miner. We are on budget and expect to ship coal from this mine to customers in the fourth quarter and are on target for longwall coal in the first quarter of 2026. With the recent acquisition of the Wards Well deposit, we have extended the mine life to over 25 years with an average annual production of approximately 4.7 million tons. This quality of coal is an established cornerstone of coking coal blends highlighting the potential for sustainable financial returns and is a unique opportunity to re-weight Peabody's earnings to Seaborne met. Now moving on to our operating segments. Overall, second quarter operational results came in as forecasted and our mines performed safely. The Seaborne Thermal Segment…

Thanks, Jim. Seaborne thermal coal continue to range trade for the quarter. In Australia, the Newcastle high-energy thermal market is best described as balanced. The United States imposed further economic sanctions on Russia, resulting in some bias reducing Russian coal purchases. Improved Newcastle demand was met with higherrates of production and the Newcastle high energy thermal coal spot price averaged $136 per metric ton during the second quarter. Asian thermal coal imports have grown this year with China continuing to show increases in electricity demand supporting seaborne thermal coal imports, coupled with strong demand growth in Vietnam. Both China and Vietnam have recorded strong year-to-date increases in imports of approximately 15% and 37%, respectively. Within the Seaborne Metallurgical coal market, premium hard coking coal prices during the quarter averaged $242 per metric ton. Parts of the global steel market reported tepid demand and thin profit margins during the quarter subduing demand growth for metallurgical coal. In India, steel production was disrupted due to election activities and the onset of monsoon season while China steel production was mixed with the historically weak market dragging on demand, partially offset by economic stimulus targeted in the real estate sector. Coking coal prices find periodic support during the quarter because of supply side disruptions, including rail and port maintenance containing exports in Queensland restricted USA exports from Baltimore and historically low production in China. The June incident at a major hard coking coal mine in Queensland is expected to constrain premium hard coking coal supply in future quarters. Despite these supply side constraints, coking coal supply proved sufficient to meet demand during the second quarter. In the PCI segment, prices improved during the quarter, supported by constrained supply and some buyers switching to Australian supply in place of Russia. The spot price of PCI increased 23% during the quarter to finish the quarter at $182 per metric ton, a 78% relativity to premium hard coking coal. Overall, the metallurgical coal market remains finally balanced exposed to volatility influenced by the rate of exports from Australia and economic performance in China, India and elsewhere. In the United States, during the six months ended June 30, electricity generation from thermal coal has increased slightly year-over-year, driven by an overall increase in electricity demand. This is despite low natural gas prices and stronger renewable generation. The EIA in its July update to the short-term energy outlook forecast an increase in the use of coal to generate electricity this year, leading to a 12% reduction in inventories by year-end. I'll now turn over to Mark to cover the financial details.

Thanks, Malcolm, and good morning, everyone. In the second quarter, we recorded net income attributable to common stockholders of $199.4 million, or $1.42 per diluted share, and adjusted EBITDA of $309.7 million. During the quarter, we reached an insurance settlement for $109.5 million. We included $80.8 million of the settlement in adjusted EBITDA while the remaining $28.7 million was recorded as the recovery of property and underground development that was previously a written off. This element covers all property and business interruption losses suffered at Shoal Creek last year. We received a $5.6 million advance payment in the second quarter and will receive the remaining $103.9 million this quarter. At June 30, we had $622 million of cash after acquiring Wards Well and making $113 million of income tax payments, which were both noted on our last call. During the quarter, we paid a $0.075 per share cash dividend and for the first quarter since restarting the shareholder return program we didn't repurchase shares. However, with a strong operational recovery in the second quarter and a favorable free cash flow forecast in the second half of the year, today we announced an additional $100 million available for share buybacks. And for the sixth quarter in a row, declared a $0.075 per share dividend. Turning now to second quarter segment results. Seaborne Thermal recorded $104 million in adjusted EBITDA, $10 million better than the prior quarter on much improved production from the Wambo complex, resulting an additional Newcastle quality export tons. The segment's adjusted EBITDA margin of 34% was better than the previous quarter as higher realized prices more than offset the increase in costs from a higher mix of Wambo production. The Seaborne Met segment generated $144 million of adjusted EBITDA, including the insurance settlement, or $63 million related to…

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

Thank you very much, operator. Good morning, everyone. Jim, Mark, my first question is on the capital allocation side. You have a formula for capital returns, I think it's 65% of available free cash flow. And so two questions on the back of this. One, how should we think about the additional allocation of $100 million to buybacks? Is that you saying, look, with this price environment, we really just want to commit. So, maybe if cash flow is a little lower, you have the available cash to return it. So, you want to make that statement. I was just trying to understand it because presumably with the formula that additional allocation would technically not be necessary. So, I appreciate the context. And then bigger picture with capital allocation. There are some met coal assets for sale in Australia. I've heard of some opportunities in the U.S. market, too. How do you think about M&A more broadly? Or are you really just focused on your organic growth opportunities and returning capital to shareholders? Thank you very much for all your color. Jim, did I. Can you hear me?

Hi, Lucas. Good morning.

Good morning.

Lucas, I would like to comment some on your first question and turn it over to Mark, and then we'll come to your second question. So, on the first question I would like to just note that we say on our 65%, we say at least 65%. And we certainly have the optionality to go above that when we have the cash and we feel comfortable to do so. And so what we're doing here is a prime example of that and our commitment to be focused on increasing the shareholder value with the share buyback. But I think you have some more detail on that about the rest of the year. So Mark, I'll let you comment on that.

Yes, good morning Lucas. Listen, with the continued development, it's ensuring, and I think $81 million year-to-date on that capital, probably $200 million since starting in the cash purchase award as well here in the second quarter. We always knew we wouldn't generate a lot of free cash flow in the first half of the year. But as Jim mentioned, our resilient balance sheet allows us to be opportunistic when market presents opportunities. I think our stock recently crossed a 50-day moving average and the 100-day moving average. As coal generally traded off with coal prices. So we see this as a really attractive point in time and an opportunity to further reduce our share count as we steadily march closer to Centurion coming online. As we noted even on our last call, our program is designed to be flexible and give us an opportunity to be opportunistic with the resilient balance sheet. As far as the remainder of the year, we do see good free cash flows in the second half. And depending on where prices shake out, we should continue to generate free cash flow in the second half and into next year. But to be clear, no change to the program.

Lucas in repose to your second I'm sorry, go ahead, Lucas. Any questions on your first – you have a follow-up.

No. Yes, that's – yes, exactly. I think you know what I wanted to follow-up on the M&A side.

Yes. So Lucas, I just want to stress that as a company, our focus is on creating shareholder value and the focus is on that right now. And with that, there is three or four areas that are at the forefront for that. One is maintaining our balance sheet strength and financial stability, which has taken us a long time to get to, and we're going to continue doing that. We're very focused on the share buybacks and maintaining our dividend. As Mark said, we've done the dividend seven quarters in a row, and we've just put another $100 million into the share buybacks. We are also very focused on our organic growth with the investment that we have in the Centurion mine and also just continuing investment in our operations, keeping reliable, and safe and predictable. That is the overwhelming focus. Assets come and go on the market and everything that's out there like with every coal company comes across our desk. But our focus is on maximizing shareholder value. And that's where the number one focus is, and that's where we're at. Assets come by. Certainly, every company takes a look at them. But right now, I think I said up on the points that we're very much focused on.

Very helpful. I appreciate that. I want to turn for my second question to kind of the operational outlook on the met coal side. First, the anticipated geological issues at CMJV, when did you first become aware of those issues? What exactly is the issue? And then how long do you think those could last, could this split into 2025? And then on the hold lock, if you could maybe elaborate on the mitigation efforts, the anticipated impact to 2024 volumes and any costs that might be associated with your mitigation efforts? And then from a numbers accounting perspective if there are additional costs with that be reflected in your met coal cost guidance or would it actually come out of your realizations that you guide to? So just a clarification on that, would appreciate it. Thank you very much.

Yes, Lucas. So first off, on the lock outage, as we said, we were expecting that bulkhead to be installed here towards the end of September. The stability is there on the lock, then the lock would then be expected as well to be opened back up for shipments, maybe not as efficiently as they would without the issue, but for those shipments to resume. We don't think the overall expense that we'll see is material between now and the end of the year. On the high side, may be an incremental $8 million to $10 million of expense if this goes through the end of the year and we keep shipments going. But that's – that would be the extent of it. And again, we're looking at ultimate trans. And that's the cost of alternate transportation and we have a couple of different routes we're looking at again to try to bring that expense down even further. So that would be the extent of the lock outage. As far as Coppabella, defaulting is standard that occurs in the coal seams there. We have it all the time. And what happened is we had more faulting than we anticipated. It's not uncommon to occur. We work through it, and we're working through the section right now that, again, had more than we anticipated, and we expect to get through that here through the end of the year. So again, there's nothing out of the ordinary with what's going on at Coppabella. There's always faulting. We've got a little bit more than anticipated, and we're just working through that right now.

That's helpful. On the $8 million to $10 million of potential costs with the hold lock, would that go through met coal unit costs? Or would it kind of come out of the realizations?

Yes. Lucas, its Mark. That's all included in our segment costs. And it's included at 93%.

Excellent. I really appreciate all the color. And to the entire team continued best of luck. Thank you.

Thank you, Lucas. We can take the next question.

The next question comes from Katja Jancic with BMO Capital Markets. Please go ahead.

Hi, thank you for taking my questions. Maybe staying for a bit on the met segment. Can you provide a little more color on the 600,000 tons decline? How much of that reduction, how much of that is hold lock?

The majority of that is going to be with the CMJV. I think maybe about 100,000 tons of that may be with the approximate catch, about 100,000 tons is the whole lock and the other 500 or so is with the CMJV.

And then maybe I think last quarter, the indication was that two-thirds of Shoal Creek will ship in the second half because of the Demopolis locked outage. So is there a difference between these two locks, how much of impact they can have?

We have the impacts of both of them. But again, in the overall impact because we've been looking at alternate transportation routes, it's all factored into the guidance we have and that's as I said, we think it's going to be about 100,000 tons reduction net after we do the ultimate logistics to the tonnages for Shoal Creek for the year.

Okay. And then on the Centurion, can you remind us how much you expect to ship the development tons in 4Q? And how we should think about shipments going into next year?

Yes. Look, definitely [ph]. Last time, I think we said around 100,000. Right now, we'd be saying probably 60,000 to 70,000 by the end of the year.

And for next year?

I'd call around 200,000 tons.

Perfect. Thank you so much.

The next question comes with Nathan Martin from The Benchmark Company. Please go ahead.

Yes. Thanks operator. Good morning everyone. Congrats on the second quarter results, guys. Maybe just sticking with Centurion for a second. Could you just remind us, are there any permit or regulatory hurdles remaining before you get to the anticipated longwall start up in the first quarter of 2026.

No, Nate. We have all the permits and regulatory regulation hurdles passed. So what we're doing right now is we were focused on the development. And in the month of June, as we said in the comments, development went better than expected in the month of June, we actually developed about three times the amount of footage that we had anticipated getting the prep plant up and running right now and degassing the longwall section ahead of mining. Those are – if you're looking at the thing that we're focused on that we need to stay focused on to get us to mining, and those are really the issues ahead of us not really permitting or regulatory.

Okay. Got it. Thanks, Jim. And then just related to the spend, I think you guys mentioned in the release, you spent about $200 million thus far of the expected $489 million. Mark, I think I caught you saying you spent about $81 million year-to-date versus that correct? Secondly, how much would that leave for the second half? And then how much of the remaining that $489 million would be spent in 2025 and 2026 at this point.

Yes, that's right, Nate. We got about $81 million through the June 30. There's probably about $75 million more for the second half of the year. That would bring us up to about $275 million from the start of the project. We probably have about $165 million in 2025 and the remainder of $30 million, $40 million would be in 2026. Still on budget for the $489 million.

Okay. Perfect. Thanks, Mark. And then maybe over to CMJV. I know Lucas asked a little bit about this. But I guess, maybe my question is – and I'll tie it into this other piece, too. I know you guys mentioned, I think it was you, Mark, as well that we now expect to achieve roughly 70% to 80% of the [indiscernible] benchmark net price versus 65% to 70% previously. I think I heard part of that with the increase in PCI prices likely driven by some of the Russian PCI full coming out of the market. But is there anything else that's driving that increase there? I was curious to CMJV, what kind of coal qualities are you mining right now that are going to be reduced? Is that helping your mix overall? Just it would be great to get any thoughts there.

Look, no I'll say that our mix is pretty constant, and our full year guidance has about 55% PCI sales incorporated within it.

Yes. So most of that – most of that increase is the PCI price recovery relative to the benchmark. I think there is a slight increase in the mix with in semi-hard coming out of Moorvale to improve the mix as well.

Okay. Great. Appreciate the time guys. Best of luck in the second half.

Thanks, Nate.

Thanks, Nate.

The next question comes from Lucas Pipes with B. Riley. Please go ahead.

Thank you very much operator. Thank you very much for taking my follow-up question. In the release this morning, you described Centurion as a 25-year opportunity at 4.7 million tons. And I remember February 26 presentation where you kind of break out Centurion volumes by year 2026, 3.7, 3.5, the year after, 4.5, 4.4, 3.4. So obviously below that the 4.7 million you cited this morning. Is the 4.7 million is that reflecting words well. And if I remember right, you were planning to update the market maybe on a more comprehensive mine plan update. So just wondering if that process has been completed, and if we should expect anything else. Thank you very much for your color.

Lucas a couple of things. One, the – you're right; the presentation only showed the GM South or the North Goonyella proper area that we originally acquired. Those guidance, those tons, 3.7 million to 4 million tons for the first four years has not changed. The 4.7 million tons over the 25-year life takes into account the awards well area as well. Longer panels, more tons between longwall moves, we're going to get more production on an annual basis. But nothing's changed in those first few years. It just again, demonstrates the value of the awards well brings to this project. As far as an overall update, we are still doing that study, again, maximizing those volumes, figuring out costs and integrating that plan together. We do plan to come to the market here in the second half of the year and give a full update and maybe a presentation on a project on a stand-alone basis.

Really appreciate the clarification. Look forward to that. And again, best of luck.

Thanks, Lucas.

This concludes our question-and-answer session. I would like to turn the conference back over to Jim Grech for any closing remarks.

I'd like to thank everyone for joining our call today, and I'd especially like to thank our employees for their outstanding focus on safety in the first half of 2024. Also you at our Kayenta Mine and our North Antelope Rochelle Mine, they were both recognized for their outstanding reclamation efforts, and I really want to thank our employees for the work they've done on the reclamation at those mines to achieve those awards. I'd also like to thank our investors, customers and vendors for their continued support. Operator, that concludes our call.

This concludes the conference call. Thank you for attending today's presentation. You may now disconnect.