Q3 2019 Earnings Call
Welcome to be bodies third quarter earnings call.
In the presentation, there will be a question and answer session instructions will be given at that time.
If anyone needs assistance at any time during the conference. Please press Star <unk>.
Followed by zero.
As a reminder, today's call is being recorded today October 29 to 2019.
Now, let's turn the conference over to Mr. <unk> head of Investor Relations and Communications. Please go ahead Sir.
Okay. Thank you Paul and good morning, everyone welcome to be two years earnings call for the third quarter with US today, our president and CEO , Glenn Kelo as well as Peabody CFO , Amy sweats during our portable remarks, we'll reference a supplemental presentation and that's available on our website at Peabody energy Dot com.
Now on slide two of the stack, you'll find our statement on forward looking information.
We encourage you to consider the risk factors that are referenced here as well as our public filings with the FCC.
I would also note that we use both GAAP and non-GAAP measures. We refer you to our reconciliation of those measures in the presentation as well as our earnings release and with that I'll turn the call over the glut.
Good morning, everyone.
We had an active quarter with some notable achievements several challenges and multiple changes to our portfolio and organization.
First on the achieved in fraud.
I'd like to recognize the powder River basin, which turned in multi year low costs.
In addition, we're advancing what we expect to be a highly synergistic joint venture, we Dodge call involving L.P. I'll be in Colorado assets.
On the E.S.J. fraud.
Operating teams continue to make selling safety and laying restoration, taking a covenant sent also safety award as well as two office of surface mining Reclamation Awards. This month.
Recovery from a hardware fire at the Middle Man joint venture.
And deferrals of shipments.
You've also seen us pay back in the Midwest given reduced demand.
We believe the completion of the pending PRB, Colorado JV represents a tremendous opportunities great substantial value.
We'd note and yellow.
While we remind frustrated along with everyone by the protracted timing.
We've also identified a path forward.
We continue to work to ensure safety.
The risk the process optimize the mine plan reduce end stage costs and maximize the value of the asset.
Also as expected we have caused the profitable came to mind and announced the likely closure of the walk past hills operations in the Midwest.
In Australia, United one much I'd with Glenn Cool has received a major permit approval.
And we've also decided to proceed with immobile South extension.
There's no question the downdraft in industry conditions can lead to pressures, but also opportunities.
And we continue to evaluate those opportunities with an all its an improved asset quality generate cash flows unlock synergies and create shareholder value.
Finally, we made significant strides to streamline our organization reset operational performance and strengthen our portfolio and what you will continue in coming months.
With that Amy will now cover the financials in more detail.
Good morning, everyone is I characterize the last year, we recognize that challenges, particularly from our best segment.
Led to a lack of consistency and resell a consistency the both you and we rightly came to us back.
We would note that the met coal segment continues to be challenged impart due to asset quality. We have long acknowledged as middle of February and we continue to work to upgrade.
So creek, it's been a great addition to the portfolio and more needs to be done.
As we move during the call we will discuss actions underway to address these issues.
On the other hand here is what key bodies have celebrate.
Our U.S. operations continued to generate cash flows many times that of our capex, even with the industry backdrop.
Our seaborne thermal operations are highly profitable even as higher domestic obligations have pressured export volume.
And we put nearly $4 billion into investments in the business liability reduction and shareholder returns in the last two and a half years.
I guess that broader backdrop, let's look at the quarter in more detail beginning on slide four.
Third quarter revenues totaled 1.11 billion down 22% from the prior year, reflecting reduced met coal volumes and $90 million and lower pricing, excluding the impact of higher financing revenues.
As expected DDNA in the third quarter don't declined $28 million versus the prior to your front portfolio changes and lower contract the amortization.
We also reduced that's DNA by 17% to approximately $32 million on a decline in personnel.
Other items to note include $8 million, a legal expenses related to the PRB, Colorado joint venture as well as the 20 million dollar impairment charge associated with the Wildcat Health mine in the Illinois Basin.
Earnings from equity affiliates reflects a loss of approximately $21 million related to the independently operated middle Mount joint venture after the highwall failure in late June .
These impacts resulting in a loss from continuing operations net income taxes at 74 million and a loss per share of 77 cents.
Adjusted EBITDA totaled $150 million for the quarter compared to $372 million in the prior year with the largest factor related to the decline of more than $300 million in revenue on lower pricing and volume.
Let's take a closer look at operating performance, starting with our seaborne thermal segment.
Inline with expectations seaborne thermal volumes picked up quarter over quarter, increasing to 3 million tons of export thermal sales at an average realized price 70 224 per short ton.
Higher quality, new capital Volume's represented 74% of the mix and accounted for favorable go realizations, even at Newcastle spectrum pricing move below the 10 year average.
The segment generated third quarter, adjusted EBITDA of 77 million, despite some $60 million of lower pricing.
Margins for seaborne thermal totaled 31% underpinned by strong cost performance at both the Womble underground and woman John mine.
Within met coal results sales were impacted by customer driven deferrals and a lack of production from north Gianella.
Third quarter shipments totaled 1.8 million tons at average realization of 120 Ninee four per ton.
Lower volumes, along with higher ratio is that the copper Belo mine and an extended longwall move that Metropolitan mine resulted in elevated met coal cost of 113 63 per tonne, excluding north Daniela.
In addition, lower yields and conveyor downtime followed by subsequent upgrade but the elevated cost that show Creek.
Within U.S. thermal adjusted EBITDA of 153 million was largely in line with the prior year as cost improvements in the PRB and Midwest offset the impact of lower pricing and volume.
The PRB achieved cost per ton at $8, a 69 cents a multiyear about.
That's 4% below prior year, and 12% lower than the first half of 2019.
This was the PRB margins of 21% during the quarter.
And levels that continue to be the best in the basin again this year.
In the Western segment, adjusted EBITDA increased $18 million versus the prior year on strong performance from 20 mile and increased revenues associated with customer funding for post mining costs that tie into.
Even with a 14% reduction in sales volumes the Midwest delivered adjusted EBITDA in line with the prior year as margins increased over and over the previous quarter and 2018 levels.
On slide five free cash flow totaled $92 million driven by operating cash flows of 176 million and Capex of 86 million.
As of quarter in cash and cash equivalents totaled $759 million with continued healthy liquidity levels of 1.35 billion.
We remain committed to ensuring financial strength.
And we've taken considerable steps to ensure that strength.
And we believe we have a balance sheet that is well positioned for volatility inherent to the mining industry.
Year to date cash returned to shareholders has been largely balance between buybacks and dividends.
Share repurchases accelerated in the third quarter relative to the second totaling $144 million.
As a result, Peabody share count has been reduced by 30% since our listing to about 97 million shares today.
We remain committed to shareholder returns at the basic tenet of our Investor appeal understanding that modest de leveraging and reduced coal pricing moderate our near term cash flow generation.
Our balance sheet is strong our cash level is high liquidity is only increase since last quarter and a reduction in liabilities have nearly matched our substantial shareholder returns in the past headquarters, which by themselves nearly total our entire market cap.
Turning to slide six we are updating our full year guidance ranges for a number of item.
Starting with our seaborne thermal export volumes, we now expect about 11 and I have to 12 million tons for 2019 on increase required domestic shipments.
This reflects the lower end up the initial range, we gave at the beginning of the year.
Our cost guidance remains unchanged.
Met coal sales for the full year are now expected to be between eight and a half and 9 million ton.
This reflects the softer PCR spot market as well as production challenges.
We've seen some recent interesting pricing dynamics between imported in domestic coal in China and are keeping a close eye on the arbitrage between December and January pricing and we'll defer volumes if it's economically rational.
As a result, we anticipate for your met coal cost of about $100 per ton.
In the U.S., we have tightened our ranges for PRB volumes and lower Midwest volume.
The midpoint of our PRB volume guidance remains at 110 million ton.
Reflecting strong third quarter in October shipments.
Given the events of the summer the majority of shipments for the remainder of the year represent lower quality coal for customer requests.
In the Midwest, we're now expecting volumes of about 16 million from due to production declines at several mine on lower customer requirements, along with negotiated deferral.
We have lowered the higher end of our overall U.S. cost guidance and now expect cost to be between 13, 95, and 14 45 per ton.
We also continue to refine our capital requirements and our reducing our 2019 cap AF Pak capex range to $300 million to $325 million.
Fourth quarter adjusted EBITDA is expected to be lower than the third quarter, primarily as result results of the closure of the clients a mine, which contributed $30 million in the quarter.
We also expect higher volumes across multiple segments, an increase in required Australian domestic thermal shipments and lower pricing to impact to read impact results.
Looking ahead to next year about 75% of our PRB volumes are now committed for 2020.
Current mine plans show increasing volumes higher BTM colon 2020, then in 2019.
We continue to have a strong contracted position in the Midwest, we have about 13 million tons of mid west volumes price for 2020, and an average of $39 per ton.
Some 11 million tons priced at a similar level for 2021.
This reduced volume reflects portfolio changes made during 2019 as well as an already fully priced book for 2020.
In a basin with significant swings in export demand, we see this committed position as the significant competitive strength.
From a seaborne perspective, we are now anticipating closure of millennium in early 2020, as we've been quite successful at Highwall mining, which has continued to expand its like by multiple months.
We are anticipating some 900000 tons to be sold this year from millennium.
And we've also extended the lives of our seaborne thermal open cut operations through both the woman drawing extension and United Weibo JV and therefore, we'd expect similar volumes as 2019.
Let's now look at the industry fundamentals that have been a play beginning on slide seven.
Recently, we've seen a rebounding and we've seen a rebounding and met prices following a 20% decline in the average prices from the second to the third quarter of 2019.
Chinese met coal imports remains strong with August marking a new monthly met coal import record of more than 9 million time.
We expect the pricing spread between domestic Chinese coking coal imports to create tension with import restrictions and incentivize imports as we move into the new year.
In addition, rising India met coal imports are projected to maintain momentum on growing steel needs, which India is an unable to source at home.
Growth in med exports by Australia, Russia in Mongolia have been muted by declining U.S. shipments.
And as we look ahead capital investment in both metallurgical and thermal coal has declined in recent years. This coal you continues to rise.
From 2011 through 2013, I $154 billion of capital investment with deployed by major co producing region.
In the last three years, only 72 billion was deployed representing less than half the capital that was invested during the last peak cycle.
Moving to seaborne thermal prices have lifted from their September lows in recent weeks.
As expected I'll be on import demand continues to drive seaborne thermal growth Vietnam imports have more than doubled year to date through September China, and India have continued to show strength with imports rising some 20 million ton.
On the supply product for us both U.S. in Colombia exports have declined sharply through August in response to unfavorable netback pricing.
And as we look ahead, we would expect I'd be on countries to continue to offset declines in Atlantic demands overtime as urbanization and new cold fuel capacity creates greater need for imports.
It's no coincidence that Peabody is positioned in Australia, as we expect it to serve these growing demand centers.
Glenn Thanks Irene.
Okay, and that's the industry backdrop, and now a lot to walk through full gender a business updates starting on slide eight.
We're taking aggressive buyback need same actions centered on out three strategies targeted toward long term success and creating value for shareholders.
Activities in each of these areas are well underway to seize opportunities as well as combo pricing pressures rising I've been ratios and reduce go.
We also I believe these actions will be enhanced by steps to streamline the organization and strengthen the portfolio.
Last quarter I noted that we are advancing a review of the company's organizational structure with the assistance of outside advisors.
Currently we are continuing to transition from a business unit structure and a reshaping the organization to ensure the operations are squarely focused on safety cost and volume.
Incentives our operations on the basics, while streamlining the typical corporate functions of finance IC supply chain among others.
We believe this new structure will increase efficiencies and lower costs in 2020 and beyond.
In the broader project, we've identified annualized cost improvements totaling $15 million and further analysis is underway to capture additional savings I have a tall.
Let's now look at how seaborne strategy on slide nine.
We also T. One seaborne thermal coal operations and are actively exploring remains to upgrade a midcoast platform, we've always characterized as mid tier.
Any changes to ask seaborne portfolio would include both organic and inorganic growth opportunities I would talk.
Some examples of this.
Firstly with Peabody and our partners, we've approved the Moevao South extension project.
This extends the mine life to 2029.
We also expect increased coal quality.
We will transition from a greater mix of PCR.
To enhance coking coal probably fall as early as next year.
The project also provides optionality for future extensions.
And allows continued blending with copper bill a call.
Mobile south we utilize equipment transferred from millennium on.
Which leads to low capital requirements for about $30 million for the project.
Next we are planning to upright to longwall kits that show Creek in November .
The mine is transitioning to a new district, which provides an opportunistic window, it's around growth levels at wants for free time.
We expect this will result in increased fourth quarter production at a muted third quarter levels.
We're also upgrading the conveyor system to improve performance and reliability.
Other activities include improving equipment utilization and mining methodology at the couple of Belmond, given a several years elevation and I've gotten ratios.
Hi progress continues at North can you have.
To date, we've stabilized the mine ventilated reentered cyanide present opportunities excess reserves and in short the safety of every individual on sought.
In July we noted we were evaluating pasta written my aside from these assets given the long delays with toss it should have taken dies, we're talking weeks and even months.
We have since completed have detailed review and assessment.
And we'll go attempts to access the 10 north panel that would have required us to explore and maybe at the most impacted areas of the mine.
The unusual and protracted measures.
Overall, we believe the highly restrictive approach from July has required a greatly disciplined approach from Peabody.
As such we've identified a preferred path, which has some on the southern middle same reserves beginning with the success panel.
We believe this path represent significant low risk the best popped return of the regular by mining and maximizes the value of Oman with a potential loss of several decades.
Hey bodies preferred pop would include the ventilation designed be using bowl halts from the surface.
Incremental spending for ventilation is contingent on a tightening pre approval from two Oman and that process is underway.
Following plant ventilation, we intend to redesign b and assess conditions for the target of developing the seven panels.
These panels include approximately 20 million tons of high quality hard coking coal.
At this point, we've completed most of the essential with needed inside.
Let me be clearly all steps we've taken thus far have done only been necessary that's beneficial to preserve access to an additional 65 million tons of hard coking coal in the lowest saying.
Development of that one that same project is now in the Prefeasibility stage.
During our view, we considered a host of options, including the mine demand the southern panels from the surface to access multiple seems.
Given current barriers such as the cost of the bulk Scott timing of permits and cash flows. This was determined not to be the preferred path.
At this point, we believe its fire easier to control money than Todd.
Given the expected length of time to been lines IP, we are significantly lowering library requirements and planned holding costs.
As such.
As most of the remaining salaried and hourly workforce and I'm looking to offer potential employment opportunities to food licensees and other Peabody mines, where practical.
We're also reducing our quarterly run rate estimates for 2022, approximately half that if recent levels.
In addition steps being taken to market that take a pie commitments as well as our use of our pet plant and light and infrastructure, which could further reduce quarterly costs.
But for the half again.
Hi, only if we gain pre approval.
We would then expects to incur additional costs, a 12 to 15 million to visualize design be over a multi month period.
Assuming the successful ventilation or reentry to sign the we estimate 2020 project capital costs are approximately 50 to 75 million beginning in the second half of the year with development of success.
A panel these swings should require about 18 to 24 months to develop based on typical development rights.
And then we would have been a position to begin longwall production.
As you would expect we will continue to refine capital cost estimates as would progress through inside.
I'll reiterate that we are not committing to incremental capital until we ventilated and exports Ivy.
We'd also look to mitigate cash outlays are selling development tons into the market.
Within seaborne thermal coal.
United One by joint venture received a key approval from the new So far planning Commission in late August .
The final step is a federal permit.
That we expect to be granted later this year.
Sharing it production is projected to begin by the end of 2020.
The JV is expected to optimize mine planning and improve strip ratios enhanced quality and has the potential to extend the life of this mine beyond 2040.
We're also working to improve fourth quarter production volumes have jumbo I've been caught and Wilson Jones.
Through the use of additional equipment from millennium.
A quick one was transferred to one Bell open John light in the second quarter. This year, so improved second half production volumes.
Turning to slide 10.
Within the U.S.
We are continuing to take necessary actions to adjust to challenging industry conditions through a combination of optimizing mine plans paring back operations and matching our workforce with customer demand.
Focus is on maximizing cash generation.
And I noted earlier, how U.S. adjusted EBITDA has outpaced cash outlays, but five and a half times in recent years, demonstrating the significant benefits of this business even at a time it declining demand.
First the centerpiece of activities in the US is certainly the pending PRB, Colorado joint venture with much.
The JV is continuing to progress through the regulatory approval process.
Recently, Peabody, a notch agreed to a timeline with the FCC with review anticipated to include during the first half of 2020.
Assessment continues to validate that the JV is expected to unlock synergies with a pre tax NPV of $820 million.
Next in Illinois Basin, we have centering the portfolio around our coal mines to maximize value.
We are shifting contracts to more productive mines, extending contracted volumes into future years, and scaling back production and Workforces had several months.
Just this month, we announced the likely closure of the Wildcat Hills mall, which was essentially breakeven on a year to date perspective.
Finally, we are continuing commercial negotiations with the power plant Amadeu regarding the final closing obligations at the cadence Oman.
As a result, we'd expect potential incremental need to cash flows.
I'll turn it back to I need to cover our third strategy around our financial approach.
Our financial approach with one of our earliest commitments upon emergence and I believe we've made tremendous progress.
On slide 11 to briefly recap our actions since mid 2017. The company is generated $2.5 billion on free cash flow and reduce total liabilities by approximately 1.3 billion. We've reinvested a billion dollars in the business through sustaining capital expenditures life extension projects and the acquisition of a highly profit.
We will show Creek mine.
We've advanced the PRB, Colorado, JV and returned $1.6 billion to shareholders. As you can see we've been quite holistic in our approach and still have over $1.3 billion and liquidity at quarter end.
During the third quarter, we initiated an opportunistic refinancing initiative with key requirements and our robust set of objective.
Through this process the company successfully upsize its revolving credit facility from 350 million to $565 million and extended the duration of $540 million of the cat capacity to 2023.
We also obtained amendments to the credit facility at the necessary steps to enable the pending PRB, Colorado, JV, while leaving the company's existing 2022 and 2025 notes outstanding at this time.
We are planning to move to the lower end of our gross that range of $1.2 billion to $1.4 billion, while maintaining our liquidity target of $800 million.
With our increased revolver capacity, we can move to lower debt level and our liquidity neutral manner.
In addition, a lower debt target better accommodates future portfolio changes and lowers fixed charges in turn further and in turn further enables cash returns to shareholders.
We will continue to evaluate appropriate gross leverage targets, taking into consideration company specific and industry related factors as we move into 2020.
That's a review of the quarter the industry and our steps to create value with that I'd like to turn the call over for questions operator.
Thank you ladies and gentlemen at this time, we will now begin the question and answer session.
Have a question. Please press star followed by the one on your push button phone.
If you are huge speaker equipment, you will need to lifting handset before pressing the numbers.
We ask that you please limit yourself to one question and one follow up.
If you find your question has been answered you may Rightmove yourself from the Q by pressing star too.
One moment please for the first question.
We'll go to Lucas pipes with B Riley FBR.
Hey, good morning, everyone.
Good morning wages.
I want to follow up a little bit more about the pathway for North Dakota.
So the way I understand it you will have ongoing quarterly costs, so call it 10 million after that.
Adoption you announced.
10 to 12 to 15 million to ventilate soon be and if that successful 50 to 75 million.
To develop.
South.
What could come after that I think the market is really looking for.
Holistic guidance on what the total cost could be to bring this operation back into production.
If there's anything else that would have to be spend I think that would be really helpful to know to know now. Thank you.
So little gets all I'll start and I'm sure I'm sure Glenn will will jump in I guess, it just start with we've talked about reducing that a holding cost essentially by half and that is is in part due to the labor reductions that better underway in Australia.
Right now.
We're looking at ways to reduce that by another 50% or reduction in take or pay costs and the costs associated with with idling the prep plant.
We've talked about you're right about the $12 million to $15 million that would be incremental to ventilate zombie.
And then in the back half of the year, we'd anticipate moving into development at those those southern panel that first steel we're going to develop is quite a large panel longer than than the one that we would have that.
Would have developed from.
The other end of the mine had we've progressed further on into the affected zones and so we'd anticipate depending on when development starts that we would spend between 50 and $75 million of capital in 2020.
We've not commented before that are beyond that for a couple of reasons one.
The the amount of capitalization will depend on when we switch over to development. So some of the cost that were spending today. If we were in development mode would be part of the capital expense of the project and the other elements of this is that we need to get our labor strategy firmed up in terms of what the labor will be.
Employed on on site during these processes and also what the what the revenue is that will generate from the developments on that is that we produce during that period of time that will necessarily impact the costs are that the capital.
Applied to the project, but it will impact the net cash outflows from that project as we move through that period on period of development. The one comment that I that I would make and one of the reasons why we feel we feel confident moving forward with its preferred path is as we look at.
The southern panels at the mine, we have become more and more confident that the cost structure in the south is at or lower.
And.
Then the cost structure that and working yellow with that with that previously and and the returns under a range of a range of options that we've we've looked at have appeared robust and maybe maybe just a few other things there and obviously, what we told me about is a staged and de risked approach and step one is to get the cost structure, there, which I am you indicated by.
Hi off and then a further.
At the half.
If they think targeted where they're not going to commit.
Two additional capital.
Which in part.
Increases.
As potentially increase the time, but I think is a more prudent and and theorist approach.
The first initial milestone will be getting which is unusual but but.
Based on discussions and negotiations attempting to get a pre approval of our plan with Q Amod.
Prior to undertaking and committing to the reentry design.
Based on whether we assess that design these and and we've got why through town intention then that we'd move into development. This is a 3200 kilometer panel initially.
And as sorry late cycle, Lisa Battle, initially and that would recall our about an 18 to 24 month development that you would get.
Development Tonsils significant development tons.
At through that process, but longwall production wouldn't occur until the end of that 24 months or icing to 24 months period.
Okay. That's that's helpful. I think it would still be helpful to know I'm scared.
Ballpark additional capital required beyond the 50 to 75, especially given.
Duration that development and the uncertainty be seen to date.
But I'll switch over to my second question.
On September fish, you confirm full year targets and I think at the time you met coal.
And this does not include north.
Medical production cost guidance with 90 to 95 now it's about $100 and could I think you alluded to it.
In terms of cost drivers, but that's still a very significant cost increase in two months what happened and if you could put a dollar signs next to the unanticipated cost increases that would very much appreciate it. Thank you.
And so if we looked at the increased from from the from what we have indicated would be at the high end of the range of about $95 to to around $100. In this in this release I'd really.
Im characterize that as in two components. The first is some unplanned outages in some changes that we have in volumes from show Creek Show Creek has had a fantastic start to the year and in our in our portfolio.
This quarter at this quarter, we saw that performance.
Change a bit for two reasons, one of which we'd anticipated changing yield we had anticipated at a flag that something that from time to time will will generate volatility in their cost, but some unplanned downtime on the health system at the mine.
Was not factored in our cost in our volume guidance ranges.
For the back for the back half of the year and then the second piece of this is really the performance.
Out of out of the cm JV and the back half of the year and I would characterize that as as two things one we're moving through areas of of higher overburden, we've talked about that at length, but impacting that as well as just overall demand for for that.
For that product as we as we look to move spot volumes in the back half of the year. So some of those deferrals of shipments and when we say shipments.
You're talking about sort of.
Five boat and maybe four or five shipments in the back in the back half of the year that that we see will likely be deferred and as we move forward and that impact of volumes.
Likewise impacting.
Impacting cost and pushing us.
Pushing that to add to that $100 a ton level.
Uh huh.
Got it.
I appreciate it thank you very much.
Moving on we'll go to Chris Terry with Deutsche Bank.
Hi, Brian Hi me.
Before we see from me.
Yeah, maybe just starting on milk Aneel I appreciate all the detail you've given in that first answer, but just maybe reflecting on what how are you, saying things now versus when you. When you first started to go back into the mine would you say that the majority of it. It's just been the timing delays. It has meant that you've had to change the.
Approaches it seemed to go to being cost driven.
Maybe you could just just summarize where you got to in the review and what's the key findings would fit the change in tact.
I'm in or is it somewhat market driven as well thanks.
Yes. Good question, Chris a couple of dimensions to that and I think I think I'd I'd, but I'd say, it's been the approach.
As part of the the the regulatory.
Protocols that we've been operating under the different to what we envisage when we when we started on I think we've seen anything significant as we described.
On the call last time that was unusual in what we were expecting.
Versus versus what we would anticipate is bank conditions, the tackling those conditions and working why through and what is bringing up the Holly and well an unprecedented process in Queensland.
Although it's not.
Unprecedented globally.
Has met the protocols that we.
We're operating with on the.
Just as it you're caught a different technical approach and that in turn has led to significantly grow to write a time.
As we look ahead.
If we extrapolate at that time.
And to some degree the uncertainty of gaining approval for elements within that from Q Amod just became.
Impossible to predict.
Putting out a rich the terminal panels into commercial wide.
It's enabled us to focus on the signed 30 reentry process, which in turn is is likely to give us your credit chance of success.
In in guiding approval of Q Omar.
Which will then enable us to get into regular way mining in terms of back to regular why.
Got it right development over the long wall of the longwall operation So that so long answer is.
Is the regulatory protocols, which we've we've described in the past.
And I really necessitated I think a different approach and at the wrist based approach as we work out why through.
Having said that we are cognizant of the of the of the market conditions in wheat, and we're continuing to drive at two to allow us to low holding costs through the through the immediate period.
Okay. Thanks, Thanks for the color.
A question for you I mean, just on the total Capex. This year 300 325, how do we think about the set up into 2020 for that so that number against the cost savings that you're trying to achieve.
Jimmy will give gone sort of led to die, but just wanted directionally. If you could talk through the moving parts.
So I think we generally talk will generally talk about sustaining capital across both the U.S. and Australia being around $200 million annually, and we've talked about Weibo and welcome John being about being about $100 million of spending I will say a good portion of our of our deferrals have have.
Come from Longbow Open top but as we look at our reduced capex for the here. Some of that has just been understanding what it is that a bit so that we can afford and what their returns on in that mix as well. So are shifting out of guidance involve both folk reductions and deferrals out of that.
Out of that out of that amount and then of course, we've talked about north myalept potentially $50 million to $75 million next year dependent on it achieving the approval.
That weve that we've talked about.
Okay.
I'd mobile so sorry, because I'd add moevao south into that as well and as we look to that to look for that project.
We had.
We had.
Over 100% returns associated with that in a sort of move mix changing changing the mix.
Two I.
Two of our credit quality.
In there as well as we're able to the significant lock extensions.
Oh, I would say I think I mean was was talking about indicative levels were obviously working.
Working through the the capital budgeting process now and those by society numbers, we'd expect to be able to manage.
Hi, guys. Thanks, Sir just the last one from me just on a on the I'll show you said first half 2020 to provide provide an update im just wondering if you could give some comments on the feedback you provided today.
Existing framework is one that you think we'll we'll we'll we'll still Pos in the next year. Thanks.
Yes, I think I think what we've entered into isn't agreement that at Lonza, a timeline for the completion of the review.
Which we'd expect to occur in the first half of this year thats been entered into by both parties in the FTC.
I think the indications today everything we see continues to support.
The fact that.
We believe that it's an old fuels market the call is competing significantly against subsidized renewables and and cheap natural gas.
As we've looked at the synergies and once again.
Yes. This is really make transaction by nature of the assets coming together, but every with everything we've done the tight as reconfirmed.
Those synergies and we feel comfortable about that so we think we continue to have a very strong case.
We've received a lot to support from state call those through that through that process.
But it is one in which as you can understand is a methodical.
And rigorous process with the FCC, but I think the good news there as we havent gotten a great Tom title.
And with focused on delivering the so that the transaction in the joint venture in the significant synergies that we that one.
Okay. Thanks.
Next well go to David Gagliano with BMO capital markets.
Okay. Thanks for taking my questions I'm, just regarding north and yet again.
During any other alternatives besides.
The the development process I.
Selling some or all of it to spread some of this longer term development risk.
Yes, I'd say all options are on that probably will David we indicated previously that we would explore commercial commercial options and alternatives and synergies I think the did the other edition, which I pulled out is that we do have a project improved visibility, which is about the lower Lois things, but milk.
And yet or is.
He is a.
Fantastic resource and reserve.
All of which.
This mine should have a multi decade.
Mine life with a high quality, a hard coking coal products.
We have the infrastructure.
And and the returns on any of the projects that we see with respect to north Daniela.
All right are extremely attractive and that's why we continue to be to be focused on.
On a funny or why do to bring north can you look back online why that's commercially prudent then this approach, which we believe is low cost de risk.
It will.
Yes, we pick up represents the best Pops do that but all all commercial alternatives are on the title.
Which we impart flags.
Through three months ago.
Right, Okay and.
Okay I'll leave it that for that question just on foregoing the 10 north.
Path.
Uh huh, how many reserves.
For Apollo reserves or.
Impacted.
From that change.
Yeah.
It's 3 million tons, they might have been a little bit Jason panel, which we will have mining.
Beyond that but I wouldn't say 3 million tons that one years worth of mining, yes, that's right.
Okay, Alright Thats helpful. Thank you and then just on the Capex question again.
For 2020, I, ER or sort of indicative commentary I guess sustaining Capex you mentioned was 200 million annually.
And then an additional 100 million for Weibo and Wilton John .
And then 50 to 75 for north and yellow.
I heard all those numbers are there any other numbers, we should be thinking about.
Are those I think.
Yes, I think the other number to think about is that $30 million on more build on more bell south.
The one thing that I would comment on is the caveat that is the caveat that that Glenn made is that we are we are working through our capital plans for for 2020, as we as we speak and certain numbers, particularly that sustaining number and the timing of project capital continued again.
At.
Quite a bit of scrutiny in internally so.
But we'll work through that particularly in light of volume profiles as we look at as we look at 2020.
Moving on we'll go to Matthew Fields Bank of America Merrill Lynch.
Hey claim the Amy.
Can you give us warning that.
Got a timetable on the yards JV.
Finalization hopefully can you give us an idea about how you plan to come back to holders of the 20 twos and 25 to two.
Affect the changes you need to complete the transaction.
Yes, so Matt we're currently in process of developing plans.
For for those bonds at this point at this point in time.
Yeah, we got feedback from the market and in September .
We're taking a look at that feedback and with our with our advisors and determining our next moves based on that feedback and and partially in part due that feedback. We've we've indicated in this release that we're moving towards the low end of our of our targeted debt range of a 1.2 billion.
We also reference that we'll continue to evaluate those those levels as as we move in to 2020 based on company specific in industry.
Industry factors and I would say our strategy for for those bonds and maybe part a part of the company specific factors that that we look at.
Going going forward, obviously, we have options to to look at this is a partial refinance or is that or is that consent process and we're still working through those details.
We do I would just I would just reiterate with respect to this joint venture that we definitely believe that this is a a credit positive transaction and so it's something that we think it's to the benefit.
A bond holders as as we move forward.
Thanks, and as as a follow up.
I'm happy to hear that you're saying you continue to evaluate those growth gross debt targets.
If if met coal stays at a 150 itron is that something that would sort of move the goal posts on where you think that gross debt number should be.
Certainly as we shake out what what 2020 looks like for US well, we'll take a look at that I'll comment that we believe that $150 for met coal is a price that we should be able to make money.
And we've talked about corrective actions that we want to take with respect to our two are met coal mines.
To bring our to bring our cost structure cost structure down, but you're you're absolutely spot on not necessarily with met coal cost that with our overall view of the market and our overall view of a cash flows that as we as we progress.
Well certainly we'll certainly take a look at those factors as we develop a a debt rate or our gross debt range I, just comment overall that and and we need to be more specific about this because I don't think that that the capital markets fully understood. This that.
Our financial targets are are always what I would determine its flexible meaning they are they are under review on a on a fairly continual continual basis. So we.
We.
That's not something that we woke up in September and said all we need to continually and look at these but it's something that I don't think we made clear to the market. So when we talk about our financial objective being generate cash and maintain a maintain financial strength, we really do view, though is that sort of the tickets the entry to reimburse.
Testing in the business and allocating and.
Providing shareholder returns, but that's something that that we certainly understand that we need to make that point clear to the markets as we move forward.
That's very helpful. Thanks very much.
Thanks, Matt.
Next well go to Matt Vittorioso with Jefferies.
Good morning, I guess, just on the back of Matts question.
Maybe maybe thinking about the capital.
Allocation plan and how you've executed thus far.
No one can predict where equities are going to go and whatnot, but.
You know spent some cash on buying back equity in the quarter Im just wondering how you sort of way.
Sort of the uncertainty of of whether or not you will get rewarded.
Not for buying back equity and clearly in this quarter.
And at least thus far you've not been rewarded for buying back hundred 50 million of equity versus say potentially looking at your six in three.
No. It's a 25 trading at 95 cents on the dollar.
Also going to come back to those holders and potentially pay them consent or or do something to get them to go along with this JV.
You can almost get a guaranteed positive return in addressing your debt here in that return gets better and better every day.
You weigh that against buying back equity, while your EBITDA is coming down, which clearly the equity market does not like.
So I think that.
We we indicated how we feel about it because we've said that we're moving to a lower gross debt level as we as we as we progress as we progress forward here. So I'm I'm I understand I understand the math on that we understand and the cost of the debt that was sort of put out in front of us.
In in the September timeframe, and we made it we made an economic decision at that point in time in terms that in terms of how we wanted day to handle these things going forward. So as we think about as we think about our capital allocation approach I, just state again that generating cash and maintaining the strength of our balance sheet.
The first two tenants of that approach we're committed to those.
As we as we think about moving forward, we've indicated to that to maintain that financial strength, we want to move to the low end of that targeted debt range.
We reference company specific factors is something that might change that moving forward that would include reduced EBITDA levels. It would also include company specific factors that are necessary to obtain approval for that joint venture.
Going forward as we look at shareholder returns.
There's a lot of work that we've done.
Over over the last over the last couple of years, our buyback program has certainly been the largest component of shareholder returns, but this year, you've seen us move to a more balanced approach between shareholder returns and dividends and not quite 50, 50, but but not far off of that through the first three quarters.
As a first three quarters of a year and you've also seen us at times raise our sustained sustaining dividend so.
So I think that I just want to reiterate first two steps of the financial approach.
Maintain or are in flexible in terms of how we look at the second two pieces.
But in terms of shareholder returns, we have and we will continue to exhibit flexibility in terms of that allocation between between dividends and share buybacks.
Got it okay. Thank you.
Next we'll go to Mark Levin with Seaport Global.
Great. Thanks.
For the time this morning on a couple of questions first on met coal cash cost mentioned some of the things that you may be working on it helped drive down the cost what do you think is a reasonable long term met coal cash cost assumption. It lets say todays you know today's met prices.
So so mark I guess as we move into as we move in to 2020.
I think it's fair to say that we're targeting improvement over the levels that that we're operating that we're operating at now.
And so thinking about thinking about that $100, it's something it's something below there.
We have generally maintained a target up between 85 and $95 upon which has given us some leeway for for generally operating issues and currency and and pricing impact.
Impact on royalties and as we as we look at our production plans going into.
Going into 2020, we're going to be.
Working hard to reduce that hundred dollar number down to those more historical levels.
Okay, Great and then.
Next question just has to do with volumes in 2020, and again not looking for guidance per se, but just how you guys see the U.S. thermal market evolving in 2020, it let's say today's gas for gas and power prices. You know when you think about what your volumes could or should look like in 2020, if we kind of.
I have the same environment.
You know next year that we do that.
Last six months. It this year, what do you think is a reasonable way to think about.
You know peabody's thermal volumes in 20.
So so first starting with the with the PRB as we talked about the 75% price in that basin that said the at the midpoint of our of our current range. So we actually arena in a pretty decent committed position today out of out of that basin.
Probably better than what we are at last year at this time in terms of in terms of committed volume and so so that would that would be my guy.
As we looked at it.
Secondly, on the Illinois Basin add we highlighted a couple portfolio moves that we have made in the Illinois basin.
Potential closure of a mindset, where we're not necessarily generating generating cash flow and where it near breakeven. So as we think about 13 million tons next year that we have that we have priced at that $39 per time, we certainly would have capacity at certain mining operations to go beyond that but going into.
Going into 2020, that's going to be pretty close to our production plans.
With that with upside if a customer requirements would would necessitate I'd I comment that as we looked at that 30 million tons committed for 2020, we have 11 million times committed for 2021. So we continue that they have a pretty healthy committed level out of that basin, which we think it.
That is the key to success.
Last question from I'm, Sorry go ahead.
One element Mark you know a lot of the powder River basin in other regions of course are pretty highly sensitive to natural gas prices. So you've heard us say before that probably a 20 sat moving gas prices can be 25 million tons for the industry as a whole and obviously, we're we're a portion of that.
As as you look right now you see gas prices that are probably roughly in line as you noted with where we are today on the forward strip out there. So it gives you some indicator.
Where are you start from.
Last question for me the SNA came down a lot I think you guys were down maybe 8 million less than what we were thinking or what was in guidance.
Is that the new quarterly run rate going forward that 32 or should we go back to something higher than that.
Well I'd indicated that we have a organizational review that's underway that we've got probably an extensive.
Activity of.
Not a looking at streamlining our organization adjusting the changes in the in the portfolio, but finding ways in which we can improve our processes and science on.
Strengthened the operating assets focus on safety volume and costs. So it is a comprehensive exercise, it's going down to two to two each role in the non operational areas plus a range of improvement activities I think you've started to see some of those benefits flow through.
As we as we look to to firm up those plans will be ought to talk more about about that impact that you can you can assume a lot will run right.
Which is what what we've indicated that that the cost we've identified to date, which largely focused on MSG and I are either hit areas, but would also.
Touch on some opex as we've identified some $50 million in savings and I think the tumor looking to generate around catalysts and the things that we can do to improve our business that significantly at two to cash flows.
And our final question will come from Michael.
Research.
Thanks, Ryan let me in just two quick ones most has been dressed and answered one.
With regard to show Creek, what you're doing there.
Heavy potential positive impact on productivity volumes quality.
Or 2020, Dion and second question is.
Once you get approval from FTC or things go as according to expectation, what's the timeframe move affecting your closure and just to potentially be done by the second half of your what Steve.
We've said this year for what the original tends to affect that joint venture.
Yeah, So maybe maybe I'll, maybe I'll take it as I said sheltered spin off a bright spot with us in the in the in the portfolio, but we.
We are working through what we had is.
Some some build outages conveyor system.
Outages that we're looking to two upgrade.
You're right that improvement in availability and reliability, we would hope would flow through into 22020 and beyond on what already we believe is is a good modest strong mine.
The second pot we.
We don't wife will the conversation around the the the consensus required.
With respect to financing is already as already thing being covered we we actually see that once we had.
Approval.
In order to be of proceed from a regulatory perspective, but this would be a reasonably quick execution. We believe we operate within the region.
We've got problem.
A lot of commonality across across the operations and we believe that that the this can be completed within.
Yes, I'll say 90 day period of time so.
Certainly.
First off the year FTC, you know I think within three months.
Guiding that approval, we'd be able to look to target to close.
Mr. Kilo I'll turn it back over to you for any additional or closing comments.
Thank you and thank you for your questions and participating in todays cool I would like to express my appreciation to employees they bring to the workplace dedication skills and a commitment to safety each and every day to its shareholders. Thank you for your continued support as we work to build sustainable value operator that concludes today's cool.
Thank you and this concludes the Peabody Q3, 2019 earnings presentation. Thank you for participating.