Good day, and welcome to the Peabody Q3 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Vic Svec of Investor Relations. Please go ahead.

Thanks, operator, and good morning, all. Thank you for joining today to take part in Peabody's third quarter call. Remarks today will be from Peabody's President and CEO, Jim Grech; CFO, Mark Spurbeck; and Chief Commercial Officer, Malcolm Roberts. Following the remarks, of course, we'll open up the call to questions. Now we do have some forward-looking statements today, and you'll find our full statement on forward-looking information in the release. We do encourage you to consider the risk factors referenced there as well as our public filings with the SEC. And I'll now turn the call over to Jim.

Thanks, Vic, and good morning, everyone. I'm pleased to report that Peabody continues to perform quite well with great safety results, good volumes, strong cost containment, a pristine balance sheet and an outlook that points to more of the same. Our third quarter was punctuated by strong thermal coal shipments and historically low met coal costs. Also, I'm delighted to say that the longwall production at our flagship Centurion mine begins next quarter. We expect shipments of Centurion's premium hard coking coal to expand sevenfold in 2026 to 3.5 million tons and even more beyond that time. Development and hiring remains on track and longwall equipment is beginning to be installed underground ahead of the February start. Over the 25-plus year mine life, we expect Centurion to be our lowest cost metallurgical coal mine. And by itself, the mine should boost our average met coal portfolio realizations as a percent of benchmark from the 70% mark this year to roughly 80% in 2026. All of this occurs against market pricing that is toward the lower end of the pricing cycle. To steal a bit of Malcolm's thunder, I'll share our belief that all 3 of our end markets could have upside pricing pressure in 2026. Mark will tell you that we have designed Peabody to produce positive EBITDA even during the toughest times while generating substantial cash flows during mid- to higher parts of the cycle. We're now at an interesting inflection point on how investors should be looking at our company. Our capital investment in Centurion is tapering down even as the longwall mining begins in the next quarter, setting us up to expand free cash flows in both directions. That bodes well for shareholder returns using our established policies. Let's now turn to what we're seeing in U.S.…

Thanks, Jim, and good morning, everyone. I'll begin with a look at the seaborne markets, where the notable change in metallurgical coal this past quarter has been how unchanged those markets have been. Consider this, the normally volatile premium hard coking coal benchmark price averaged $184 per metric ton in the third quarter, which is the same as the price it averaged in Q2 and just $1 per ton lower than Q1. The global steel story has continued to center around China's anti-involution policies, which appear to be firming as the country looks to trim unprofitable supply. China's crude steel production is down roughly 3% year-to-date. Unfortunately, domestic steel demand has also been sluggish, so Chinese steel exports are still running at elevated levels. Lower crude steel production in traditional markets outside China has tempered the benefit of new blast furnaces in India and the incremental coal imports they represent. I'll remind listeners that while China imports less than 20% of its metallurgical coal demand, India imports 90% of its steelmaking coal needs. We note that in recent days, China has been aggressively pursuing imports of premium seaborne coking coals as domestic pricing in China has risen to a level that makes imports attractive. Seaborne met coal supply continued to see challenges this past quarter with some producers struggling at these sustained low pricing levels. we estimate that 45 million tons of seaborne met coal production or 15% of seaborne supply is earning an unsustainable level of revenue at current price levels. Benchmark prices today stand at approximately $195 per metric ton. Next year's forward curve is in the $215 range. This coming quarter, we'll be looking at the pace of Chinese policies and the strength of the restocking cycle in both India and China. Seaborne thermal coal saw some…

Thanks, Malcolm, and good morning, all. I'll start with a quick overview. We delivered another strong financial quarter with adjusted EBITDA increasing from Q2, driven by higher Powder River Basin shipments, better-than-expected seaborne thermal coal volume and the lowest metallurgical coal costs we've seen in several years despite burdensome Queensland royalties. At September 30, our cash position was $603 million and total liquidity exceeded $950 million, ensuring we have the financial flexibility to manage short-term market volatility while fully capturing upside from more favorable pricing. Together with the increased operating leverage from Centurion, we expect to be positioned to generate free cash flow and deliver outsized returns to shareholders. Let's take a closer look at our financial performance for the third quarter. We recorded a GAAP net loss attributable to common stockholders of $70.1 million or $0.58 per diluted share, which included $54 million of acquisition termination costs, primarily related to financing arrangements, transition services and legal fees. We reported adjusted EBITDA of just under $100 million, generated $122 million in operating cash flow and continued completing development at Centurion South, now just 3 months away from starting the longwall. Turning to operating segment performance. Seaborne Thermal recorded $41 million of adjusted EBITDA and 17% margins. Sales volumes exceeded company expectations with an increase of 500,000 tons quarter-over-quarter as the company recovered the delayed tons from long Newcastle shipping queues in Q2 and then some. The segment expanded margins by 10% from Q2, demonstrating the continued strength of our low-cost Australian thermal platform. The Seaborne Metallurgical segment reported adjusted EBITDA of $28 million. Revenue per ton rose 6% quarter-over-quarter due to a higher product quality mix, enhanced by 210,000 tons of Centurion premium hard coking coal. Costs were significantly better than company targets with cost improvements achieved at all 5…

Thanks, Mark. I'd like to briefly review our core priorities, which play into Peabody's compelling investment themes. First, we are highly focused on safe, productive and environmentally sound operations. That's our key to everything else we do. Second, we are on our final approach to Centurion's longwall start-up. Centurion joins our multiproduct met coal platform that will see a volume increase of approximately 25% in 2026. Third, we believe our low-cost thermal coal platform will continue to deliver EBITDA well ahead of its modest CapEx needs. Fourth, our leading U.S. thermal position will continue to benefit from the rising domestic generation trends. And fifth, we will maintain a fortress balance sheet with a focus on maximizing shareholder returns. Our sixth priority is also our newest, which is to leverage our #1 U.S. coal production position to assess our potential to meet growing U.S. needs for rare earth elements and critical minerals. We told you last quarter that we saw rare earth and critical mineral potential in preliminary studies performed in conjunction with the University of Wyoming and that a new sampling and laboratory analysis program was beginning in the third quarter. Preliminary data from our targeted zones indicate that we have similar or better concentration than others have reported in the PRB. We acknowledge that we are in the early stages in our assessment of our potential to produce critical minerals and rare earth elements with sustainable processes that could potentially generate attractive returns for our shareholders. In continuation of this assessment, we have multiple activities currently underway. We have accelerated our drilling program as we continue our assessment of both types and concentrations of rare earth elements in conjunction with several third-party labs. We are in discussion with multiple departments in the Trump administration regarding rare earth and critical mineral priorities and potential for funding. We also have been in early discussions with a number of potential technology partners regarding processing platforms. I would describe our actions as aggressive and pacing yet disciplined in approach. By our year-end reporting early next year, we will look to provide a greater sense of mineral types and concentrations while also discussing next stage plans. With that, operator, we can now open up the line to questions.

[Operator Instructions] First question comes from the line of Nick Giles with B. Riley Securities.

My first question, obviously, some key tailwinds for domestic thermal this year. And Malcolm, you mentioned optimal coal-fired utilizations could be in the 70s. That would imply 250 million tons of demand. In this blue sky scenario, how should we think about Peabody's response? I mean, what's the maximum level of output we could see Peabody producing the PRB? How much capital would be required? And how long would it take to ultimately achieve this level?

Look, Nick, I'll talk about the market and then capital, I'll hand over to Jim or Mark, depending on who wants to take it. Look, when we look at this market, there was quite a bit of latent capacity available over the last couple of years that we're seeing fill up very quickly. And so it's a great question that you asked because the expansion is going to come from really 2 things. One is going to be customer commitments and adding on capacity is not something you do for 1 year. So it's going to need customer commitments. And then we'll be looking for the price signals. And we'll see what the market does in terms of price signals to bring those additional tons on. I think that's the best way to look at it. But I would say we see ourselves approaching absorbing the latent capacity that we've had over the last couple of years. Mark or Jim?

Nick, I think Malcolm's got it exactly right. I mean you look at what we've done, particularly in the PRB, increasing our volumes by 10 million tons from the beginning of the year. So that latent capacity really being taken up in the market. We've seen our peers do something similar. So there's going to be additional demand if any of these projections for load growth continue to bear out like we've seen so far this year. The amount of capital it's going to take remains to be seen. But certainly, we're going to have to see the economics and prices in the coal to justify the additional investment. I think there's 2 things, Nick, when I think about additional production, one is the capital, and that's mainly the equipment fleet, but two, also the labor and getting a workforce assembled to produce those additional tons. So Malcolm had it right, latent capacity being taken up and additional volumes are going to come at higher costs.

This is really helpful. Just as a follow-up here. I mean, you mentioned price signals, customer commitments. What would you need to see from a duration perspective? Would you need to see 2030 type commitments at this point to deploy incremental capital? And then just any volume figure, I mean, could we see 10 million more tons, 20 million more tons? I appreciate any clarity there?

Well, we've -- with that 10 million ton increase this year, that's pretty much running at our full run rate. So there's no additional latent capacity to speak of, particularly at our NARM mine, which is the largest mine. With regard to the type of commitments, we're seeing those types of commitments. We're seeing multiyear commitments from customers already, a lot of inquiries around that. It would be -- it would look the same as any other investment. We'd have to see a return. How much can we do on an as-needed basis on a leasing basis versus outright investment and purchase. So to be determined, Nick, on that. But we fully expect with that latent capacity being taken up this year to see that upward pricing pressure. We're seeing it already. We expect that to continue next year, particularly if that forward curve on gas above $4 is right next year.

Got it. Switching gears. Obviously, you have Centurion coming on here shortly, and that will reweight you more towards the benchmark. But with the termination of the Anglo deal, I just wanted to ask how you're thinking about M&A opportunities in met going forward. I mean do you still have a desire to further reweight your met portfolio to higher quality grades beyond what we'll see at Centurion?

Nick, Jim here. And our focus has been on growing the seaborne metallurgical coal. And with the position we're in right now, our entire focus is on getting that Centurion mine up and running and getting it to the maximum capacity possible. And we're in good shape to do that. One of the things that we are addressing, which is going well, as Mark said, is labor. We've got 260 of the 400 employees hired that we need to get to full capacity, and we anticipate being able to get up to full labor complement as the longwall is coming online. So our focus really is on getting the Centurion mine up and running, maximizing the output from that mine and then really taking advantage of the U.S. tailwinds that we have and following up on your questions of getting as many tons out as economically as we can from our U.S. platform. That's really where our focus is. And if the market unfolds as we think it has the potential next year to do so with the upward pricing pressures domestically, internationally, our focus on our organic assets, we see some very robust cash flow potential. And of course, that can work back to share buybacks and so on for our shareholders. So that's really where the focus of our company is going forward.

The next question comes from Nathan Martin with Benchmark Company.

Just back to the PRB for 1 second. You said the operation, I think, Mark, is basically running at the max at this point. If we look out to the next 2 years, '26, '27, are you guys seeing enough demand to continue running at that max? And roughly how contracted are you and what price at that level?

Malcolm here. Look, I think there are 2 questions. Are we confident about running at max capacity for the next couple of years? The answer is definitely yes in the PRB. I think your second question was what we think price levels will be. It's I can't comment on that, except we are encouraged by where we've seen index price movements and where we're doing business today.

And Malcolm, just to clarify… go ahead, sorry.

I'm sorry, Nate. If there's something to take from what Malcolm has been saying and Mark as well is that we're seeing an environment in the market where it's certainty and demand increase and the ability for U.S. producers to quickly add production is going to be the challenge, and that should result in upward pricing pressure. So there's going to be some value to the first movers on the customer side that step out and enter into these multiyear agreements and securing the reliability that they're looking for. And we've been seeing some of that. So -- but this inflection point has a real potential to hit the market of the demand increasing quickly, the coal plant utilization wanting to increase to go along with it and how quickly can the production side respond. And for that production side to respond, we need to see more long-term agreements put in place where we can justify the investment, as Mark was talking about. So it's going to make for, I think, a pretty volatile pricing environment going forward if these demand projections hold as we're seeing many consultants forecasting.

Got it. I appreciate those comments, guys. And then shifting to the Met segment, clearly, a nice quarter-over-quarter improvement in cost per ton there. If you look ahead to '26 and the start of Centurion longwall, should we expect that to drive another incremental improvement? I think I believe you said that was going to be the lowest cost operation in the segment. How should we think about how met segment costs could compare to 2025 guidance? Would just be helpful to get some puts and takes there?

Yes, Nate, Mark. We're not sharing guidance for 2026 yet. We'll do that, obviously, on our next call. Over that 25-year life Centurion will be the lowest cost producer in the portfolio. We talked about the South having some shorter panels, lower production run rate of 3.5 million tons or so next year versus life of mine of 4.7 million. So there'll be some give or takes there. I wouldn't look for any step change next year.

Mark, that's fair. And then maybe just one final -- it would be great to get thoughts on potential scenarios for how you guys see the arbitration process with Anglo playing out. And then specifically, are there any further adjustments to your results like the $54 million charge, let's say, that we saw this quarter expected going forward?

Yes. Nate, I'll talk about the process, and then I'll let Mark comment after that about any other adjustments. And our analysis of the MAC, which was a prospective analysis, we feel has been confirmed by events and the passage of time and of course, the enormous loss of value that we see. So we've hired 2 prominent law firms, Jones Day and Quinn Emanuel, and they've done their analysis and they join us in their high level of confidence in our position. An arbitration process probably takes years, all right? And we're on the front end of that arbitration process. I can't predict you how long it's going to take, but it will take a while to get to any resolution. But as each day passes by, we get more and more firm in our conviction of our position. And now as far as any other expenses with that or looking forward, I'll give that to Mark.

Yes, on the $54 million charge for the quarter, that really brings the year-to-date charge to $75 million. That's a lot of costs that would have been capitalized had we been able to complete the transaction, primarily related to the bridge financing arrangements. That was significantly most of it, about $45 million of the charge year-to-date. There's also about $15 million of professional fees and transition services that is really a catch-up to where we're at, and that's obviously stopped now. So Nate, I wouldn't expect anything significant like you've seen. There will obviously be some legal defense costs going forward. We estimate that at about $5 million a year.

The next question comes from the line of George Eadie with UBS.

Can I ask more about rare earths and the PRB? So in terms of details, we'll get by year-end, should we expect to see grades volumes, costs and potential time line to get to market all of those by year-end?

So George, what we said is we're in the very early stages of our assessment, which is ongoing, and we're getting some preliminary data in. It's analyzed. We're getting more data in and more analysis is needed. We've accelerated our drilling program with that as well. So what we're planning to give at the end of the first -- at our year-end results, which we'll do in February, is a preliminary analysis of indicative element types and concentrations. So that's what we're looking -- that's what we're saying we'll be giving at that point in time.

Okay. And you guys called out earlier similar or better grades than peers. Is it reasonable then for me to assume that it's a similar mix like other peers, so sort of heavy in scandium and gallium where the value is? And just sort of lastly on that, like can you help maybe elaborate on discussions on partnerships with the current administration? I guess you're a leading player in both coal and critical minerals, 2 clear top priorities. Like how can you help us understand a bit better like what could happen and how they're approaching this in your discussions?

George, so there's a few things there. First off, I'm not going to get speculative on the types and concentrations. We'll have that in just a few months here. We just want to make sure that we're very thorough in how we approach this. We take a disciplined systematic approach to how we're going to do this. And we'll get all the sampling done. We'll get all the data in and at the -- and when we give our year-end reports at the end of the -- in February, we'll give the information we have at that time. So we're not going to get too speculative at all right now on the concentrations and types. We have been very active within the -- with the Trump administration, meeting with various departments in Washington and we even have some more upcoming here in the near future. So we're working closely with them. And as you said, we are -- with the volumes that we do in coal and with the rare earth elements, we do have a unique position. And we also have a unique position that we do that both in the U.S. and Australia. And with the Trump administration and the recent agreement with Australia, we are looking at the potential for rare earth elements along with -- at our coal mines in Australia as well. So we're very unique in that position. And one other thing I'd like to point out that we're very unique in when it comes to the potential for rare earth elements is the massive scale, which we have in the PRB, which cannot be duplicated. We have the workforce, we have the equipment. We have the logistics facility, and we're currently mining 80 million tons of coal a year and moving over 400 million cubic yards of earth a year. No one else can duplicate that. And I would just say, while we aren't trying to get shovel ready here if there is an opportunity, we are already shoveling in the PRB. So that is a unique position we have. And as we get data and we can solidify our analysis, we'll certainly bring that out.

Okay. Yes. No, that's clear. And just sorry, one last one, maybe for Mark. But on the Anglo termination, I might have missed it slightly earlier, but there was a $29 million deposit return. Is there another $46 million to come still? Is that right, the $75 million total? And can you just maybe remind me what the $54 million that has gone through in Q3? And if there's anything more in terms of costs beyond that legal $5 million a year you flagged before?

You're right, George. On the remaining deposit, we expect that to be returned to us. We've asked for that in short order. Not clear why only a portion of the deposit was returned to us. Secondly, on the $54 million of costs, about $35 million of that was related to the financing, the bridge financing, which has now been terminated as we announced previously. And the additional amount was almost entirely related to kind of professional fees and transition services, which have completely been halted at this point. So they won't be going forward. The only thing we'll have going forward is kind of the arbitration legal fees, and we anticipate that to be about $5 million per year.

The next question comes from Matthew [ Key ] with Texas Capital.

I have a macro one on the rare earth side. We saw this morning that the U.S. and China reached a tentative deal to pause some of those export controls on rare earth elements for about a year. What impact, if any, do you think this will impact government support for domestic rare earth projects?

Yes, Matthew, that's -- I'm not really sure I have a specific answer to that. I will comment on is that I know that there is a strong desire to have a domestic supply of rare earth elements here by our government. So there could be an international supply, maybe things with China. I'm not sure how that will play out. But I do know there is a very strong desire for conventional or unconventional supply right here native in the United States. And so I would expect that would continue, but I don't want to speak for the administration on that. That's just my expectation.

Got it. That's helpful. And just a follow-up on M&A in the seaborne met side. Given that you are in arbitration with Anglo and that could take some time, would you not really be considering any additional M&A in seaborne met until that arbitration process with Anglo is completed?

Well, first off, I'll just say that, again, our belief that the arbitration process will be successful for us isn't going to be a hindrance in anything we -- is not going to hold us back from doing anything in the future. We have 100% confidence in that process, and we are not going to stop anything strategic with our company because of that process. So I'd just like to put that out there right now and clear that up. But as you're asking about M&A, again, I'll just say our focus right now is on our organic assets, getting Centurion online, getting the full value of that for our shareholders and leaning into this market upside that we see happening both U.S. and internationally next year and making sure our platform is capitalized. We have the maintenance in order, we have the staffing in order to take full advantage of the upside we see coming in the market and to generate some very robust cash flows. That's where our focus is right now. Okay. Thank you, operator, and thanks to everyone for the time today. I'll thank our Peabody team, which amid everything else turned in safety performance that remains near our all-time record performance of 2024. We look forward to keeping all of you up to date on our progress as we finish up in 2025. Thank you.

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