Peabody Energy Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 8, 2024

There are 9 speakers on the call.

Operator

Good morning, and welcome to the Peabody 4th Quarter 2023 Earnings Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Carla Kimrey, Vice President of Investor Relations.

Operator

Please go ahead.

Speaker 1

Good morning, and thanks for joining Peabody's earnings call for the Q4 full year of 2023. With me today are President and CEO, Jim Grech CFO, Mark Sperbeck 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.

Speaker 1

Thanks, Carla, and good morning, everyone. For the full year 2023, our operations

Speaker 2

standing by over 11%. We also continue to strategically reinvest in our met portfolio for our Centurion development project, The pending acquisition of a large portion of the Ward's well reserve adjacent to the project and the purchase of the new longwall kits at our Shoal Creek and Metropolitan operations. In the Q4 of 2023, we produced strong results despite a non Peabody related train derailment on the mainline in Australia It interrupted some deliveries in December. We continue to advance development of our Centurion Premium Hard Coking Coal project And successfully put the new longwall at Chill Creek into production ahead of schedule. Given the March mine fire at Chill Creek, This was an incredible achievement that would not have been possible without the efforts of our dedicated employees working in close coordination with MSHA.

Speaker 2

Before we expand on the markets, I want to thank our global employees for their continued focus and commitment to working safely and efficiently. Coming off our lowest annual global injury rate in company history last year, this year we achieved our 2nd best annual global injury rate And a record low injury rate in Australia for a calendar year. Our open yard mine celebrated 2 years with no lost time incidents. Our 20 mile mine won the Sentinels of Safety Award for the 2nd year in a row, recognizing the mine as the safest underground mine in the U. S.

Speaker 2

Now turning to the global coal markets. Seaborne thermal coal markets were range bound during the quarter. Elevated coal and natural gas inventories in the Northern Hemisphere have continued to weigh on demand for high energy thermal coal, coupled with an increased supply from the East Coast of Australia, resulting in Newcastle coal trading within a range of $120 to $150 a ton. Asian thermal coal imports continued to grow With China reporting that thermal coal imports totaled 354,000,000 metric tons for 2023, Increasing by 62% compared with the year ago level and were by far the largest contributor to Asian import growth. In contrast, Japan and Korea are on track to record mild decreases in imports for 2023.

Speaker 2

Within the seaborne metallurgical coal market, the volatility which characterized the 1st 9 months of 2023 continued during the balance of the year. The steel sector outside of China showed growth in crude steel output during the 3 months ended December 31, 2023, led mainly by India and its ongoing strong economic Total crude steel output during the period, however, contracted because of the sharp decline in Chinese production where steel producers reported thin margins and slower domestic demand. Premium hard coking coal indices finished the quarter marginally lower $3.23 a ton. The outlook for the metallurgical coal market remains positive with seaborne supply remaining below historical levels, Combining with strong Indian purchase interest and new import demand for steelmaking coals within Southeast Asia. In comparison, PCI and semi soft coking coals observed more substantial price reductions.

Speaker 2

In the United States, electricity generation from thermal coal has declined year on year due to low gas prices and the impacts of renewable generation. The near term demand outlook is anticipated to be challenged by comparatively high generator inventories as we transition into the post winter shoulder season. Renewables continue to grow as part of the energy mix. However, we have seen several of our customers delay the retirement Our seaborne thermal 4th quarter coal volumes came in at 3,700,000 tons, which was lower than anticipated primarily due to a train derailment on the mainline which serves our Oponyon mine. The development occurred on December 6 and impacted shipments for 10 days.

Speaker 2

Segment costs per ton were at the high end of our range due to the lower shipments. Our Seaborne Met segment shipments were 2,100,000 tons in the quarter, in line with expectations, While total segment costs were better than anticipated at $108 per ton, in December we were able to successfully commence new longwall production at Shoal Creek the newly developed L panel district ahead of schedule. New PRB shipments of 23,600,000 tons were better than anticipated. This quarter Peabody increased our production share of the total PRB shipments from 39% in the 3rd quarter to 43% in the 4th quarter. Another U.

Speaker 2

S. Thermal shipments were 3,700,000 tons, slightly below expectations as we had a few customers reduce their demand due to high inventories and natural gas pricing. Outside of our active operations, we continue to make progress at the Centurion mine, our key metallurgical co growth project. In December, we renamed North Goonyella as a Centurion mine, signifying a new chapter in our operations. The Centurion complex will include the former North Goonyella mine along with the new Ward's Well deposit, which is adjacent to our existing property.

Speaker 2

We anticipate closing on the Wardswell transaction in the Q2. At site, we continue to advance on initiatives to The commencement of development call in April, including installation of a new conveyor system and the commissioning of equipment for underground development. We're also making progress with building out the workforce as we welcomed our 1st group of permanent underground workers. We'll continue to onboard additional underground operators and maintenance We continue to expect our first sales of development coal in the second half of twenty twenty four and longwall coal in 2026. We entered the New Year with a diverse platform that gives us the stability and consistency to deliver results, allowing us to return cash to shareholders and advance major projects as we reweight our portfolio to more seaborne coal.

Speaker 2

As we look forward to 2024, we are focused on executing our strategy by continuing to deliver consistent, Predictable and reliable performance from our operations advancing Centurion, our Tier 1 premium hard coking coal development project and delivering value to our shareholders through our previously announced shareholder return program. I'll now turn it over

Speaker 1

to Mark to cover the financial details. Thanks, Jim. In the Q4, we recorded net income attributable to common stockholders of $192,000,000 or $1.33 per diluted share and adjusted EBITDA of $345,000,000 For the full year, we recorded net income of $760,000,000 or $5 per diluted share and adjusted EBITDA of $1,400,000,000 The company generated $1,100,000,000 of operating cash flow from continuing operations $724,000,000 of available free cash flow.

Speaker 3

Based on

Speaker 1

these results, we have announced the return of $471,000,000 to shareholders, Primarily through share buybacks. Through December 31, we have repurchased 16,100,000 shares, better than 11% of shares outstanding which limited Wilpin Young shipments and moved costs toward the higher end of guidance. For the full year, the Seaborne thermal segment reported 577,000,000 of adjusted EBITDA, export shipments increased to 10,000,000 tons and the segment achieved adjusted EBITDA margins of 43%. The Seaport Metallurgical segment generated $166,000,000 of adjusted EBITDA in the 4th quarter, more than double the prior quarter's result As both shipments and realized prices were substantially higher, cost of $108 per ton were below the low end of guidance as Shoal Creek achieved a great Earlier than expected start of a new longwall in the L panel district. For the full year, the Seaborne Metallurgical segment $438,000,000 of adjusted EBITDA.

Speaker 1

Shipments increased to 6,900,000 tons despite a tough transition year at Shoal Creek. The segment achieved adjusted EBITDA margins of 34%, a favorable result considering our average realized price was $55 per ton lower than last year as a result of weaker PCI coal prices. The PRB mines shipped 23,600,000 tons, our highest Quarterly volume since 2019, a testament to our team's full recovery from the mid year tornado disruption, Putting themselves in a position to seize an opportunity to load additional trains. Higher shipments were partially offset by additional repairs and other costs, resulting in $38,000,000 of adjusted EBITDA for the quarter. For the full year, adjusted EBITDA was 154,000,000 More than double last year as we continue to benefit from the sales book we built during 2021 2022 where we favored longer term contracts with improved pricing over shorter term contracts at spot pricing levels.

Speaker 1

Year over year, our PRB average realized price increased $0.85 per ton or nearly 7%. And over the last 2 years, Our PRB average realized price is up 25%. The other U. S. Thermal mines delivered 42,000,000 Adjusted EBITDA in the Q4.

Speaker 1

Production was impacted by the planned longwall move at 20 mile and lower volumes from certain customers reduced shipments below guidance. However, we benefited from a substantial increase in the average realized price to $57 per ton due to buyouts and compensation payments from these customers. As a result, segment EBITDA exceeded implied guidance. For the full year, adjusted EBITDA was $208,000,000 and we achieved segment adjusted EBITDA margins of 23%. Together, the U.

Speaker 1

S. Thermal mines produced $361,000,000 of adjusted EBITDA in 2023, an increase of $51,000,000 over the previous year. Looking ahead to 2024, we expect another year of consistent operating and financial results. Seabourn thermal volumes are expected to be very similar to 2023. However, we anticipate benefiting from a higher proportion of Newcastle Spec product due to mine sequencing at the Wambo Open Cut Mine.

Speaker 1

Shipments are anticipated to be 15,000,000 to 16,000,000 tons, including 10,000,000 export tons and costs are projected to be consistent with 2023 levels at $45 to $50 per ton. Seaborne Metallurgical volumes are projected to increase by 1,000,000 tons to 8,000,000 primarily due to a full year of production from the newly installed longwall Segment costs are expected to improve to $110 to $120 per ton. In the PRV, we are forecasting shipments of 80,000,000 to 87,000,000 tons and we have 85,000,000 tons priced at 13.70 Costs are expected to remain mostly flat with 2023 levels at $11.75 to $12.5 per ton. Other U. S.

Speaker 1

Thermal volume is expected to be 15,000,000 tons, down slightly from 2023 as we transition from the El Segundo to Lee Ranch reserves out We have 15,200,000 tons priced at $53.70 and expect costs in the range of $41 to $45 per ton, largely consistent with last year. Total capital expenditures are estimated at $375,000,000 including $235,000,000 of project capital, primarily for the continued development of Centurion and sustaining capital of $140,000,000 Additionally, we expect to close the previously announced Acquisition of the Wards Well Cove deposit. Specifically for the Q1, seaborne thermal volumes are expected to be 3,900,000 tons, Including 2,500,000 export tons as we ramp up from the Wambo underground longwall move from the Q4 of last year. Cost per ton are expected to be consistent with prior quarter at $48 to $53 per ton. Seaborne metallurgical are expected to be lower than ratable at 1,400,000 tons with cost temporarily elevated at 130 to 140 per ton, primarily due to a longwall move at Metropolitan and mine sequencing at the CMJV.

Speaker 1

We also continue to monitor the Demopolis lock situation, A lock under repair that has the potential to temporarily increase transportation costs at Shoal Creek, but we don't anticipate a finance to impact the Q1 results. We expect to ship 21,000,000 tons of PRB coal in the quarter with costs largely consistent with the prior quarter $11.75 to $12.50 per ton. Other U. S. Thermal coal shipments are expected to be in line with the prior quarter at 3,600,000 Tons, while costs improved to $41 to $45 per ton.

Speaker 1

In summary, Peabody delivered another year of consistently strong results and generated substantial EBITDA and most importantly free cash flow. Peabody's diversified portfolio of mines is uniquely positioned having generated approximately 40% of adjusted EBITDA from the Seabourn Metallurgical segment, 40% from the Seabourn Thermal segment and 20% from the U. S. Thermal segments over the last 2 years. After repaying the last of our secured debt in 2022, last year we pre funded all future mine closure and reclamation obligations, Further enhancing the company's financial strength and flexibility.

Speaker 1

With our financial and environmental liabilities addressed, We reinstated a robust shareholder return program and announced the return of $471,000,000 to our shareholders based on 2023 results. Last month, we announced a new $320,000,000 revolving credit facility, further enhancing the company's financial resiliency During the development period at Centurion, we anticipate achieving our goal of further weighting Peabody's long term cash flow towards premium hard coking coal Maximizing free cash flow and shareholder returns and continuing development of Centurion, all while maintaining our financial strength. Operator, I'd now like to turn the call over for questions.

Operator

We will now begin the question and answer session. And our first question comes from Lucas Pipes of B. Riley Securities. Please go ahead.

Speaker 4

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

Speaker 1

Good morning, everyone.

Speaker 4

Good morning, everyone. My first question is on the met coal guidance for 2024, Nice outlook there. And twofold question. First, would you be able to provide a breakdown of the quality Of met coal at the midpoint, call it 8,000,000 tonnes. And then how many development tonnes From Centurion would be included in that guide.

Speaker 4

Thank you very much.

Speaker 1

Hi, Lucas. Good morning. Yes, we're real pleased with the 8,000,000 tons for the full year 2024, really Stepping up a 1,000,000 tons and really based on good production from Shoal Creek. As you're aware, we have A little bit of development coal we expect out of Centurion. We'll be getting that coal and building inventories.

Speaker 1

Probably sales will be light Closer to 150,000 tons. When we look at the total over the portfolio, we're probably looking at about 4,000,000 tons of PCI and about 1,500,000 high vol A product primarily from Shoal Creek.

Speaker 4

Thank you. The balance, maybe I didn't catch it all.

Speaker 1

Yes, the rest of that is Metropolitan.

Speaker 3

Got it. Which is kind of

Speaker 1

a semi hard coking call.

Speaker 4

What would be the best index for Metropolitan?

Speaker 1

I mean, we continue to look at the whole portfolio and achieving that off of a premium hard coking COVID 65% to 70%. But Malcolm, maybe you want to address the relative to those products?

Speaker 3

Yes, look, we don't list independently each of our assumed relativeities, but Metrop is clearly priced against prime low vol hot coking coal at a small discount to that.

Speaker 4

Very helpful. I appreciate that. Thank you. Then kind of staying on the met coal side, for Centurion, could you remind us of the CapEx budget, the total CapEx budget, has that evolved? Is that under review?

Speaker 4

And kind of looking out to 2025 and beyond, what would be left in terms of capital expenditures at the end of this year? Thank you very much.

Speaker 1

Yes, Lucas, I'll break that down. So as we previously announced the North Goonyella Historical legacy portion of Centurion, it's a total CapEx of $489,000,000 125,000,000 of Has been spent as of twelvethirty one. We have in the budget $150,000,000 for 20.24 And that would leave about $200,000,000 for 2025 for the North Goonyella side. Now the awards well piece, we look to close that Here in the Q2 of this year, we do have $50,000,000 of capital development for the words well portion of Centurion in 20 24. We haven't come up with full project CapEx beyond that.

Speaker 1

We're still in the process of developing an integrated mine plan And we'll provide that guidance at a later date. And Lucas, I'd like to add to that that CapEx, The portions of it that

Speaker 2

are associated with equipment and conveyors and settle on and miners It's pretty much been spent ordered and those costs are known. A large part of what Mark is talking about is the development costs Which get capitalized until we get into production. So as far as equipment and being exposed to inflationary pressures, we feel that's pretty much behind us Yes, we feel pretty good about those capital numbers because again it's mainly associated with development going forward.

Speaker 4

Very helpful. Thank you for that. I'll squeeze one last theme and it's around your balance sheet and capital returns. So kind of 3 pronged question. I'll try to be brief.

Speaker 4

But congratulations on the revolver. How does that Fit into kind of your capital structure going forward, does that unlock additional capital return opportunities? And related, how do you think about kind of cash on your balance sheet today? Is that the right level going forward? Again, Kind of ties into the revolver, of course.

Speaker 4

And then how should we think about net interest income or expense given that Cash balance, would appreciate your thoughts on this. Thank you.

Speaker 1

Yes. All right. So you stuck kind of 3 questions in there and the last one, Lucas. Happy to answer those questions though. And I'll start and industry mind that everything we've done from a balance sheet Over the last 2 years has addressed the evolving capital markets for our industry, which operates with above average volatility in both demand and market pricing.

Speaker 1

We will not risk the company's financial strength and we took an opportunity to solidify our financial resiliency for the inevitable dips in the market with this new revolving credit facility. We think that was particularly prudent during the development phase of Centurion, our premium Seabourn Meadows are coal growth engine. The revolving credit facility does provide an attractive opportunity to utilize it for letters of credit for surety and other commercial requirements, Something that we would be particularly comfortable doing at a Tier 1 met coal mine with a 20 plus year life. I will add that Moody's did take note, bumped our rating up a notch and while this financial strength At a cost of additional liquidity, we continue to benefit from lower surety bonding fees, lower FX hedging costs, as well as lower D and O premiums. So there is a net benefit there in addition to the interest income that you've mentioned.

Speaker 1

We We get a safe treasury like yield. So at today's market, it's probably 4.5% to 5% is a good market to use on those MX cash balances.

Speaker 4

Got it. Okay. That's helpful. I'll leave it here for now. Appreciate it and best of luck.

Speaker 1

Thanks Lucas. Thank you Lucas. Next question please.

Operator

The next question comes from Katya Gisenick of BMO Capital Markets. Please go ahead.

Speaker 5

Hi. Thank you for taking my questions. First, just to confirm, You expect Shoal Creek to add 1,500,000 tons this year?

Speaker 1

Yes, we haven't provided guidance on the individual mine level, but that's in the right ballpark. We had a really good start to the quarter. We probably think production is probably in that ballpark.

Speaker 5

And can you just remind us what is the production capacity at Shoal Creek at this point, the max?

Speaker 1

That mine has done more than 1.5 historically, but given where we're at in the mine geological Conditions, we're comfortable with those levels.

Speaker 5

Okay. And then just quickly, you The major project CapEx is at $235,000,000 And I think you mentioned the Centurion is about 150,000,000 Can you talk a bit about what the rest that is what are some of the other projects included in that?

Speaker 1

Yes, there is $150,000,000 for the North Goonyella portion of Centurion. There is about $50,000,000 for the Wards Well portion of that as soon as we get that closed In the Q2, there's also probably $15,000,000 $20,000,000 down at the Lambo Open Cut joint venture that were That's my my Glencore.

Operator

Okay. Thank you very much.

Speaker 1

Welcome. Thank you. I think we can take the next question. Oh, I'm sorry, Katya, did you have more?

Operator

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

Speaker 6

Thanks, operator. Good morning, everyone. Thanks for taking my questions. Neil, starting the seaborne thermal side, guiding to 9,000,000 to 11,000,000 tons of exports there. What's the approximate production split between the high quality tons, you get the Newcastle like pricing and then the higher ash lower quality Product that prices off the API too.

Speaker 6

I know you guys mentioned in your release, the split is roughly even on the unpriced tons. But just Specifically wondering on production between Guombo and Wopanjan this year, I think, Mark, you might have mentioned some positive sequencing along the lines there. And then How do you guys see going forward the overall production levels and quality splits of that segment changing over the next several years just Given some of the extension projects I believe you've talked about you're working on?

Speaker 1

I'll take that first And you're right, there's some better Newcastle spec product this year on an overall portfolio basis, just given the mine sequencing At the open cut, probably looking somewhere in the neighborhood of 4,500,000 to 5,000,000 tons of Newcastle spec products, Which as you know are all exporting tons.

Speaker 2

Go ahead. Great, Mark.

Speaker 6

And I was just wondering any thoughts on how the splits in the production levels in that segment Trend over the next couple of years, just given some of the projects it looks like you guys are working on?

Speaker 1

So we haven't given any guidance beyond 2024. I will say that that outlook is fairly stable for the next several years. There are extension projects that are under study. We haven't announced anything. But as we get further down the road and complete those studies, we'll be updating the market.

Speaker 6

Okay, got it. Maybe over to the met segment quickly, forecasting Quarter over quarter drop bearing shipments, I think to $1,400,000 from $2,100,000 in the 4th quarter. Maybe get a little more color on that Decline, is it vessel timing, is it something else? I know, Mark, you mentioned you're keeping an eye on the lock outage in Demopulos as well. So any additional thoughts there?

Speaker 6

Maybe are you investigating any transportation alternatives if that continues? And then on the cost per ton side, I'm assuming, if you expected shipments driving that range higher For the Q1 versus the full year range, but any thoughts on maybe how you expect both those items met segment shipments and cost to trend throughout the year? Any other long haul moves or so to flag? I think you flagged 1 in the Q1.

Speaker 1

Yes. I'll start with The volumes just addressed the Q1, some of that was covered in my remarks. This is typical or I should say we've had that we've experienced this the last couple of years. Really, there's a longwall move at Metrop that's bringing down some first quarter volumes and then there's just typical mine sequencing at the CMJV. It did have a Absolutely fantastic Q4, but just where they're at in the mines, in the pit, there will be lower production coming in the Q1.

Speaker 1

So it is less than ratable, similar to last year circumstances. It will increase as we go throughout the year to make up that full balance. And then, Jim, do you want

Speaker 2

to cover the lock issue? Yes, Nate. With the lock issue, the timing that we have The industry has from the Army Corps of Engineers is for the locks to be back in service sometime in mid May. That's their current estimate. And so In the interim, we've made alternate transportation routes.

Speaker 2

We've got 2 different ones. One is all barge and the other one is barge and rail that we're putting in place To keep the call moving, we don't see that impacting our Q1 volumes or our full year volumes for Shoal Creek sales volumes. We do think there may be a dip in the 2nd quarter depending when that lock gets back in place with the sales tons in the 2nd quarter, but again it won't affect The full year sales numbers for Shoal Creek.

Speaker 6

Very helpful color guys. Thank you. And then maybe just one more. Looking at the U. S.

Speaker 6

Thermal business, you've tried how low nat gas prices, high stockpiles are weighing on demand. They did a couple of contract buyouts, I think so. If I look at PRB in particular, fantastic year for you guys from that segment, guiding to sales that are maybe only down 1,000,000 2 tons I think is a midpoint year over year. Obviously, you've already contracted 85,000,000 tons there as well. So maybe can you talk about how conversations Gone are going with your utility partners out there, whether or not you feel like there could be pressure on that number eventually just given the current market dynamics we are seeing?

Speaker 3

Yes. Hi, it's Malcolm here. I'll take that one. Look, we're very comfortable with the way that we're sold and the level that we're sold to. I think in terms of the market this year, we might see the generators going to the spot market to a lesser degree than they have in previous years, We're pretty comfortable with that contracted level and getting it delivered.

Speaker 6

Thanks, Malcolm. I appreciate that. I'll leave it there. Very helpful, everyone. Thank you for your time and information and best of luck in 'twenty four.

Speaker 1

Thank you. Thank you so much. The next question please.

Operator

The next question comes from Chris Lefebvre of Jefferies. Please go ahead.

Speaker 7

Thanks, operator. Hey, guys. Thanks for taking my question. So just actually a couple of questions around the net coal business And around capital allocation, so you have the ramp up of North Goonyella, which I assume is going to be premium low vol Product that gets benchmark pricing, is that accurate?

Speaker 3

Absolutely. In my opinion, A lot of people's opinion is that this is the supreme coal, the top level coal and most likely at the top level or at a premium.

Speaker 7

And is that true over the reserve life of the asset or does the quality degrade over time?

Speaker 2

That's very true of the hold off of the asset. Yes. And the worthwhile reserve addition is the same type of quality. So we don't expect any degradation in the quality at all as we transfer from the old North Goonyella reserves to the Woods Well reserves, Same quality.

Speaker 7

That's very encouraging. So the markets are beginning to believe in kind of stronger for longer met coal pricing. And You're generating cash flow now. You're pivoting to growth in met coal. You have fairly substantial organic growth, but would you consider looking at M and A opportunities, particularly in met coal, if they were to arise or is really the focus now on delivering the organic growth projects and continuing with the capital returns?

Speaker 2

Yes. Chris, our focus is on delivering the shareholder returns and the organic growth is always the top of our list It's the least risk. We have the most control over that and that continues to be our focus Internally, as M and A comes along, we opportunistically look at anything that comes our way. We always take a look Chris, how active we are is a different thing. But as things come our way, we take a look at it and then make a determination if it could benefit our shareholders or not.

Speaker 2

But It's down the list. Organic opportunities are at the very top of the list.

Speaker 7

What's nice about the buyback is that you're basically increasing your production on a per share basis at a lower valuation. And as you're ramping up your met coal volumes and reducing your share count, The leverage of the met coal market obviously becomes much greater. So just an observation, we definitely like that and good luck with it all and thanks for taking my questions.

Speaker 2

Thank you, Chris. That's the exact same observation we have too.

Speaker 1

Thanks for your comments. I think we can take the next question.

Operator

The next question comes from Michael Dudas of Vertical Research Partners. Please go ahead.

Speaker 2

Good morning, Carla and gentlemen.

Speaker 8

Good morning. Two questions. First on Thermal U. S, Jimmy, you mentioned about some and we've seen in the market some coal plants closures being deferred Given the dynamics on grid and reliability, etcetera, maybe you could share with us like relative to maybe 6 to 12 months ago and how you're looking at your Customer base and has there been any major changes on over the next several years or maybe even sooner the retirement On your customers and where you're selling the coal, has that changed? Is that maybe going to lengthen the opportunity to monetize your reserves In the U.

Speaker 8

S, just wanted to get a thought about that.

Speaker 2

Mike, the discussions we have with our customers One of the things that we've noticed is now desires to have longer term contracts put in place because of the combination of The concern about the reliability of supply and the potential for plants having longer lives than was originally thought to be the case. And I would say that the conversations we're having with our customers and what we're seeing is, a plant that maybe we're going to close in the next years looking at them going out to 29 or 30. It's not a nobody's making commitments or predictions beyond that, but it is a very good trend To see that occurring and again, Mike, as I'm sure you know, the issue is reliability, right? The reliability of the grid Backed up by base load power and the need to keep these plants around to do that. So it's an encouraging start, Getting us pretty stronger through the end of this decade and we'll see where it leads to from here.

Speaker 2

I appreciate those thoughts. Secondly,

Speaker 8

As you know, a little bit of market intelligence on your part, as you look out maybe to the second half of this year, do you think there is better chance for the Thermal markets to recover nicely or see pressure on the seaborne met side, given where Fundamentals, I agree with Chris' thought about the scarcity of met coal, but how are you thinking given what you're seeing and obviously relative to, of course, And gas prices, how that plays through with on the supply side and such for

Speaker 2

as we move over the next 6 to 12 months? Before we answer this, I want to make sure we got the question clear. Are you talking about seaborne thermal and seaborne met and

Speaker 1

Yes. Thank

Speaker 2

you. Yes, sure. I'll take that.

Speaker 3

When it comes to the seaborne met market, We are quite encouraged by what we saw during Q4 with increased crude steel production rates outside of China, and we expect those rates to continue during Q1 and into Q2. And we also are encouraged in the metallurgical coal space by Very constrained supply. So supply hasn't got back to those 2019 levels, which we use as a bit of a baseline To look at that and we still see supply challenge moving through 2024.

Speaker 2

Thanks to thermal coal.

Speaker 3

Newcastle coal is in Solid demand. However, at times, we get a little ahead of the demand. So where we sit right now with prices around $120 We think that supply is a little ahead. We had quite a strong supply growth out of East Coast Australia during Q4. Look, we think the prospects for Newcastle thermal coal and that's the coal that we really put into the export market improve as we move through the year.

Speaker 3

As we still have inventories to be taken down in the Northern Hemisphere. So we're optimistic about the rest of the year.

Speaker 8

Excellent. Thank you very much.

Speaker 1

Thank you. Operator, we have another question.

Operator

The next question is a follow-up from Lucas Pipes of B. Riley Securities. Please go ahead.

Speaker 4

Thank you very much, operator. Thank you very much taking my follow-up question. My first one is on Guelpiniong. I looked at the technical report some time ago and it That's last year's technical report, I believe, and it showed kind of lower volume starting this year. I wondered if you could maybe comment on that.

Speaker 4

I guess we'll get an updated version with the 10 ks, but if you could maybe comment on kind of Mine of Life of Woe Bin Yang and your outlook on production for this year and the coming years. And then I guess you have to kind of net that against what goes Domestic versus export, so if you could comment on that and kind of the net contribution of Wobanyang to your C1 thermal portfolio Over time, we would really appreciate the color. Thank you.

Speaker 2

Yes. Lucas, we'll start and we'll have Malcolm talk about the contracting of the domestic Versus the export and some color on that to the extent that we can talk about that. And then I will follow-up with your question about the reserves and the outlook. So Malcolm, if you could go first. Yes.

Speaker 2

As we move past

Speaker 3

2027, 2028, the proportion of export coal, we expect to increase. However, there are some extension options and production options to increase beyond that as well at Wolfenjan, which we can Yes, we've got a very busy drilling program there, come on.

Speaker 1

Year over year, we're probably looking at it's only about 300,000 tons, 400,000 tons lighter in 'twenty four versus 'twenty three. So, and as Malcolm says, I would say export volumes are probably So pretty consistent performance there. And obviously, we already mentioned the better performance out of the Wambo time, Increasing the proportion of new gas.

Speaker 4

Got it. And should I think about kind of the higher output versus The prior plan is efficiency gains and unanticipated Kind of optimization opportunities, how should I think about that?

Speaker 1

Yes, I think it's a combination of both of those things, Lucas. We continue to mine, have various looking forward going out beyond 2024. Certainly, there are studies we talked about that earlier that we are conducting. There's several expansion opportunities and we'll continue to study those. And when we get further down the line, you'll see an updated production profile and technical report.

Speaker 2

Lucas, maybe also you're talking about Wambo, underground would come out of that longwall move at the end of last year And you have the longwall running this year too. I'm not sure what timeframe you're talking about with the tonnage profile.

Speaker 4

Yes, that was kind of Wilpin Young over the next couple

Speaker 2

of years.

Speaker 4

No, very helpful. I appreciate that discussion. I guess some helpful context. A follow-up on warts well, I think earlier you mentioned $50,000,000 Of capital this year. I wondered if you could maybe expand on What you would envision to invest in with that capital?

Speaker 4

Is it machines? Is it Infrastructure for the eventual extraction of those reserves would appreciate your comments on that. Thank you.

Speaker 1

Yes, I think it's a combination of both, Lucas. I mean, there'll be some equipment certainly will begin driving in the underground development toward those reserves, which is all capitalized. So that's the preliminary estimate of $50,000,000 for 2024.

Speaker 4

Okay. That's helpful. And then On the domestic side, I wanted to kind of ask about your contract portfolio beyond this year. Can you frame up kind of where the book stands as a percentage of this year's production for 2025? And ballpark, what sort of pricing direction should we anticipate?

Speaker 4

Thank you.

Speaker 2

Yes. Lucas, for 2025, our domestic book right now, if we look at the PRB and we gauge it against the midpoint of the guidance this year, we're better than 60% Committed. And on the other U. S. Thermal, same way if you look at the midpoint of guidance this year and you take that to 2025, we're About 75% committed.

Speaker 2

And we have not yet issued any outlook on pricing for 2025.

Speaker 4

All right. I appreciate it very much. Again, best of luck.

Speaker 1

Thank you, Lucas. Thank you, Lucas.

Operator

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

Speaker 2

Well, thank you all for joining us today. I'd especially like to thank our employees for remaining focused on safety and for continuing to execute on our various initiatives. I'd also like to thank our investors, customers and vendors for your continued support. Operator, that concludes our call.

Operator

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

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Earnings Conference Call
Peabody Energy Q4 2023
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