Good day, and welcome to the Peabody Energy Third Quarter 2024 Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Karla Kimrey, Vice President, Investor Relations and Communications. Please go ahead.

Good morning, and thanks for joining Peabody's earnings call for the third 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. I'll now 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. In the third quarter, Peabody achieved solid performance across all segments, with notable results in both the seaborne thermal and U.S. thermal segments. We completed $100 million in share repurchases during the quarter, leaving our total repurchases for the year to $180 million. This is a reflection of our continued commitment to returning value to our shareholders. Earlier this month, I hope you were able to participate in our Centurion presentation. If not, I encourage you to view it on our website. At Centurion, we continue to make significant progress towards starting the longwall production in the first quarter of 2026. Thus far, we have produced first development coal and commissioned 2 continuous mining units. The prep plant washed its first coal in September, and we have scheduled our first customer shipment for the fourth quarter. As Centurion continues to exceed budgeted development rates, we've had to accelerate the CapEx spend roughly $30 million as a result of the rapid pace of development. Now moving on to our operating segments. Overall, our third quarter operational results aligned with our forecast, and our mines continue to perform safely. Seaborne thermal demand continues to grow, and pricing remains stable. We shipped higher-than-expected export volumes on strong production from Wilpinjong. As part of our ongoing commitment to maximizing value from our portfolio, we have reevaluated the time line to closure for the Wambo underground mine. While initially expecting to run until mid-2026, we have determined that it makes better financial sense to bring forward the mine's closure to mid-2025 due to some challenging geological conditions. In 2025, the Wambo underground mine is expected to produce approximately 800,000 tonnes, which is nearly…

Thank you, Jim. Seaborne thermal processing remained resilient during the quarter. Demand for thermal coal continues to grow, and this growth is Asia centric. In Australia, the Newcastle high-energy thermal market experienced strong restocking demand from the Asia Pacific region to support spot pricing throughout the quarter, pricing averaging $140 per metric tonne. And thermal coal imports in Asia increased year-on-year, with India leading at 12% growth, followed by China at 8% and North Asia at 2%. Earlier this month, the International Energy Agency published its annual World Energy Outlook, a comprehensive review of the likely parts of supply and demand for fossil fuels and renewable sources of energy. Within this context, the agency estimate -- estimates that coal consumption in 2030 will now be 6% higher than their 2023 forecast. To put this into perspective, the 2024 increase on forecast demand is comparable to the total coal consumption of Japan. Within the seaborne metallurgical coal market, premium hard coking coal fell to $180 per tonne in early September for the first time since June 2021. Weak steel demand was the key driver. The global steel market presents thin profit margins as steel exports from China accelerated. These elevated levels of steel export weighed on steel makers globally. Met coal demand was stifled by production cuts at blast furnaces around the world, redirecting term contract cargoes into the spot market. India was unable to absorb this extra spot volume, which has meant that China has resumed its position as the clearing market for spot cargoes. During late September, China announced stimulus measures improving sentiment. Market anticipation of improved demand and lower Chinese steel exports strengthened steel pricing, encouraging steelmakers to ramp up production. This has had a direct impact on steelmaking raw materials, such as metallurgical coal. And as a result, pricing has shown some recent improvement. Overall, the market for metallurgical coal remains finely balanced and exposed to volatility, influenced by the rate of exports from Australia and economic performance in China. In the United States, electricity generation continues to grow, with the grid load increasing by 3% from 2023 levels on a year-to-date basis. Total South PRB coal production volume increased by 33% during the quarter compared to quarter 2, with a total production volume of 51.2 million tonnes. Peabody's South PRB share of total production in Q3 was 43% compared to 38% for the same quarter last year. Generally, the current market dynamic continues to be challenged by comparatively low gas -- natural gas prices. I'll now turn it over to Mark to cover the financial details.

Thanks, Malcolm. It's nice to be here with everyone this morning. In the third quarter, Peabody recorded net income attributable to common stockholders of $101.3 million or $0.74 per diluted share and adjusted EBITDA of $224.8 million. Operating cash flow of $360 million reflects a favorable reduction in working capital, resulting in available free cash flow of $263.2 million for the quarter. During the quarter, we completed the previously announced $100 million share buyback, repurchasing nearly 4.5 million shares at an average price of $22.55 per share. At September 30, we had $773 million of cash and today declared another $0.075 per share dividend. Turning to the segment results. Seaborne thermal recorded $120 million in adjusted EBITDA, $16 million better than the prior quarter. Both Wilpinjong and Wambo increased production and reported lower costs quarter-over-quarter, resulting in segment cost below guidance at $47 per tonne. Together with a $7 increase in realized export prices, segment EBITDA margin increased to 38%. Production exceeded sales by 300,000 tonnes, increasing previously expected fourth quarter sales volumes. The seaborne metallurgical segment generated approximately $28 million in adjusted EBITDA. As Malcolm mentioned, benchmark coal prices fell to their lowest point since 2021, and there was a particularly weak market for spot sales. Shoal Creek shipped only 125,000 tonnes in the quarter as we opportunistically limited spot sales and avoided higher transportation cost due to whole Black outage. Metro had an outstanding quarter and made up for the lower sales volumes at Shoal Creek, keeping the segment in line with previous guidance at 1.7 million tonnes. With the whole Black outage resolved, we expect higher production in sales from Shoal Creek this quarter as reflected in fourth quarter guidance. The U.S. thermal lines produced $80 million of adjusted EBITDA in the quarter, $27 million better than…

[Operator Instructions] And the first question comes from Lucas Pipes with B. Riley Securities.

My first question is on the surety side. And I wondered if you could remind us what the bonding obligations are today with the surety providers underwrite off that obligation and how that might evolve over the next couple of years and to what extent additional capital might be unlocked there.

Lucas, it's Mark. Couple of things or thoughts on the sureties. Nothing has really changed from what I've said previously. We don't expect the bonding requirements to change significantly nor the level of collateral against it. I will remind you, we did get about $110 million in bond reductions early first half of the year and also got some of that collateral back. But that's kind of our run rate right now. And outside of any changes in laws or changes in our footprint, we wouldn't expect to see anything substantially different.

Got it. I appreciate that. On the met coal cost side, things -- costs have been trending a little bit more towards the higher end of guidance. And I wonder to what extent one-offs like the lock on the Warrior River contributed to that development. And so as we look out to 2025, is the Q4 guidance maybe more indicative? Or are there other moving pieces to keep in mind?

Yes. A couple of thoughts, Lucas. One, we're not providing '25 guidance yet, just to be clear, so I won't speak to that. I do think we've been toward the higher end of our guidance for the segment as a whole. I think in fourth quarter, you'll see that Metrop's production is going to come down a little bit after it's a really incredible third quarter. Shoal Creek production is going to be going up. Net-net, there's going to be some additional production, and you're going to see a modest decrease in those costs quarter-over-quarter. But for the full year, we'll probably come in towards the -- maybe a little bit toward the -- above the midpoint on cost guidance for the segment.

I want to quickly touch on capital returns and capital allocation. A lot of your peers have taken a step back from buybacks given the softer met coal price environment today. You had a strong free cash flow quarter in Q3. You pointed to a solid operational outlook for Q4. So should we anticipate a continued activity on the buyback front? Or does this market environment have an impact on how you approach capital returns?

Sure, Lucas. First, you’re right. We completed that $100 million share repurchase in the quarter. I mentioned last quarter, if opportunistically we saw an attractive price point, we could maybe accelerate that buyback based on the favorable outlook for the second half. We were able to accomplish that, getting almost 4.5 million shares bought back at an average price of $22.55. So really pleased with the third quarter performance. Looking out the last quarter, we talked about the $200 million, $300 million of free cash flow in the second half of the year and really had a tremendous third quarter, achieved all of that in the third quarter. That was helped with working capital, as I mentioned in the prepared remarks. The Shoal Creek insurance recovery collection as well as the reduction in receivables really boosted that. Going forward, we’re committed to the 65% to 100% of free cash flow. Nothing has changed there. We’ll continue to look at it. We’ll see where fourth quarter comes in with realized pricing. If you look at year-to-date, we’re probably about $100 million ahead year-to-date, and that was really an acceleration from the third quarter. But stay tuned, and we’ll take a look at it in the fourth quarter, knowing that our program does have the flexibility to step out in front of it if we see an opportunity to do so.

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

Maybe starting on the Wambo shutdown next year. Am I understanding this correctly? So the volume next year on the seaborne thermal is going to be down 400,000 tonnes.

So we -- Katja, Jim Grech here. We haven't given guidance for next year on the tonnages, but we're saying year-over-year in total for Wambo underground itself, the -- typically, it's running about 1.2 million tonnes a year. And next year, with the acceleration of the closure, that mine will be at 800,000 tonnes.

And can you remind me, is that -- that's Newcastle grade, correct?

Correct, yes.

So there could be a negative mix shift a bit next year as well.

That's possible, yes.

Okay. And then maybe on the Shoal Creek. So I think you mentioned 120,000 tonnes were shipped in 3Q, and there should be a meaningful -- a material increase in 4Q. Can you provide a little more color on how much you expected to ship in 4Q?

Yes. It will be around 600,000 to 700,000 tonnes.

And in which -- or which markets are you targeting?

Well, there's going to be a component of spot in there. And as I said in my remarks, the clearing market for spot is China or Southeast Asia right now.

And it's -- because spot market, if we look at the high-vol A pricing, it hasn't really improved that much. So it's still pretty subdued. Is -- do you still see value in selling into the spot market at these prices?

Well, look, there’s the high-vol A market, which is the FOB market. And then there is the CFR market. And look, when I gave the part of the Centurion presentation, I spoke about where all the growth is in Asia, and that’s where the tonnes need to go. So if you have a look at September, when you look at Asian pricing, as I said, we’re down to $180 FOB Australia. And as we sit here today, it recovers to $204. But if you’re selling high-vol into Asia, you have to sell on – really, on a CFR basis. So what that means is cost and FOB, plus freight. And so I could probably give you a work example here to help you sort of get your ideas around that. At the moment, PLV is quoted as delivered in China. That’s Australia – from Australia with freight at $215 a tonne. And then if you look at – generally look at normal high-vol coals, they could probably achieve somewhere between 80% and 90% of that price delivered. So if you do that math, you come to a number, let’s call it, $183. And then you take freight off that, and that’s the freight from the U.S.A. to China. And that would tell you that today, FOB price for a midrange high-vol A coal is around $143 a tonne. Does it make sense? As I said in my remarks, that is where the demand is. So if you want to keep going, that’s the level, and that’s where you need to go.

The next question comes from Nathan Martin with the Benchmark Company.

Congrats on the third quarter results. I'm going to start on the CapEx front, Mark. You guys called out $50 million CapEx increase for full year '24. It looks like $10 million of that was sustaining. So maybe first, what's the driver there? And then the other $40 million growth, is that all Centurion? How does that accelerated spend at Centurion maybe impact the time line going forward?

Yes, you got your math right there, Nate. The $10 million is probably sustaining. That mostly is component capital. So componentized items on the equipment fleet that, really, it's maintenance, but just based on the dollar value and the life we capitalize at as capital. If you add that $10 million to sustaining, that will probably put us towards the top end of our annual range of $150 million, maybe a little bit below, but closer to that $150 million now. Of the growth, $30 million of that is Centurion. Maybe some of -- the other $10 million is some of the Wambo open cut and really pulling that forward from next year into this year. Again, that's for equipment. At Centurion, continuing -- the development rates continue to exceed expectations, doing really well. Part of that is continuing that and getting another mine or kind of a rental or a higher continuous miner in there to keep those development rates going up. They continue to exceed expectations, as I mentioned, but too early to tell or commit to any sort of accelerated time line and bringing that longwall into production.

Okay. Perfect, Mark. Appreciate those thoughts. With the Wambo open-cut capital being spent there, is there an expectation that tonnage from the open cut will offset some of the underground tonnage that's expected to fall off last -- excuse me, next year?

Yes. I do think that next year, we're going to see a little bit better production and more production out of the open cut at Wambo. Again, this spend was kind of orchestrated to get that fully ramped up, and we're close there. But we should see year-over-year increases in production. And that will help offset some of the lower underground productions, as Jim mentioned.

Okay. Got it. Off to what kind of base this year is the expectation to be?

I'm sorry, I didn't quite catch that, Nate.

The Wambo open cut base level of production you're expecting this year, you said next year, hopefully, it would increase year-over-year. So what kind of base are we looking at for '24?

I don't know. We're probably 3 million tonnes and going up from there. Maybe we'll see a 10% increase.

Okay. Perfect. And then maybe shifting over to Shoal Creek, specifically on the whole lock. I appreciate your comments there. What I heard was the fix in place is probably more temporary and not long term. Is that correct? And if so, do you guys expect any impact or future impact to Shoal Creek sales if and when more work needs to be done there?

Nate, there is -- as you said, the repairs are temporary, but we're coordinating with the Army Corps of Engineers. We're not expecting as they do the work to make the permanent repairs to really impact the shipments. They're going to time the work and work with the transporters on the river to minimize or have anything that's even negligible impacts on the shipments in the future. So that's our expectation to not have any negative impacts as these repairs are done in the future.

Okay, Jim. That's good to hear. And then maybe just finally on Centurion. Congrats again on getting initial coal there and washed. As you said, it looks like first coal sales here in the fourth quarter. How should we think about the sale of those development tonnes between now and when the longwall starts up as in potential volumes, costs, et cetera?

So I would have said that next year, we'd sell probably up around 480,000 tonnes in 2025. That's not guidance, that's what I'd estimate. And at that level, that would probably equate to say 6 shipments, so maybe shipment every 2 months, something like that.

Okay, Malcolm. And would that tonnage flow through the normal P&L? Would that be reflected in seaborne met shipments?

Yes, it’ll be recognized as revenue – to the revenue account.

And the next question comes from Chris LaFemina with Jefferies.

So just quickly on Wambo, and I apologize if you got to this earlier, I just -- I hopped on the call late. But what was the EBITDA contribution in the third quarter from Wambo?

Chris, I don't have it in front of me between the 2 and 3 underground mines or thermal mines. Just look at...

Is there a ballpark number you can give us on that? Or no?

No.

Okay. Secondly, just in terms of capital allocation, you guys obviously have a very strong balance sheet. You're generating cash flow. Good to see the buyback in the quarter. There's also obviously some coal asset sales that are being considered in the market today. And I'm wondering how you think about just M&A in general. And should we look at the $100 million buyback in the quarter as a signal that maybe you're not looking at aggressive M&A opportunities? Or is it kind of -- you want to keep those options open if something very compelling arises, you would like to get involved?

Yes. Chris, Jim here. And as is with our past practice, we don’t make any comments on M&A activity. So I’m just going to leave it at that. Thank you.

[Operator Instructions] Our next question comes from again Lucas Pipes with B. Riley Securities.

Jim, with the election next week, I wanted to ask how much of a priority it is to reopen the PRB for leases. I understand it's not a priority today in terms of your capital outlays, but with stronger power demand growth, advancements in CCS, for example, maybe one day it will make sense again. So how would you engage with the new administration on this topic?

Well, Lucas, I'm going to speak from a Peabody perspective, not an industry-wide perspective, but we have leases and reserves in place for many decades to come. So our position there as far as lease holdings and reserve holdings is very, very strong. So if the demand does increase significantly above our projections, we can lean into that very easily with the reserve base that we have. There is nothing more that we need to do with that.

In terms of long-term optionality.

Well, if you're talking about optionality over the long term about optionality being to increase tonnage levels, we have that secured already with the lease holdings that we have, if that's what you meant by optionality. We can increase the output in the PRB if the demand and, obviously, the economics are there with the lease holdings we have for decades to come still.

Yes. Lucas, we got, I think, 1.5 billion tonnes in front of us under lease. So lease is not an issue for us for decades.

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

Well, in closing, I’d like to thank our dedicated team for their hard work and focus on our first value safety. We’re very pleased that 2 of our operations, Shoal Creek and Segundo received the prestigious Sentinels of Safety Award from the National Mining Association for their outstanding safety performance. Additionally, our Metropolitan and Wilpinjong mines were recognized for their outstanding safety achievements at the New South Wales Mining Health, Safety and Community awards. Additionally, I’d like to thank our shareholders, customers, vendors for their continued support. We remain focused on delivering value through operational excellence and the successful execution of our strategic priorities. So operator, that concludes our call.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.