Q1 2021 Peabody Energy Corp Earnings Call
Good day, ladies and gentlemen, and welcome to the Peabody Energy Q1, 2020 One earnings conference at this time all participants are in a listen only mode. Following today's presentation instructions will be given for the question and answer session.
And one needs assistance at any time during the conference. Please press Star Zero key.
As a reminder, this conference is being recorded today I would now like to turn the conference over to Mr. Alex <unk>. Please go ahead ma'am.
Good morning, and thanks for joining Peabody's earnings call for the first quarter of 2021.
With me today are president and CEO, Glenn Kellow, and CFO, Mark sorry back.
And within the earnings release, you'll 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 and.
And I'll turn the call over to Glenn.
Thanks, Alex and good morning, everyone.
Before we get started this morning, I'd like to take a moment and welcome Alex to her new role.
As head of IR and communications for Peabody.
Alex has over 20 years of financial and commercial experience with our company and the U S and overseas.
Yes.
Turning now to the quarter, we continue to see operational and productivity improvements take hold across the company.
We were off to a good start on safety, particularly in the United States with injury rate for the quarter was.
Yeah.
Okay.
Hello. This is the operator it does seem as though the speaker's line has been muted and it's no longer broadcasting ordeal to the conference.
Please standby just for a few moments, while we attempt to.
Fix this issue thank you.
Again apologies for the inconvenience, but we are trying to reconnect the speakers.
And cost should be back to normal within a few moments again and thank you for your patience.
And we are still trying to reconnect our speakers today. So please if you could and.
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Yeah.
And again I would like to thank everyone for their continued patience as I do believe and speakers are on the way back and the issue should be resolved shortly thank you.
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Perfect and it doesn't look like we do have our speakers joining us back here today. So I would now like to turn the call back over to Alan Alanis arenas and to continue her remax and again apologies to everyone for D day there.
Well, thank you say on and yes apologies somehow we were we were disconnected.
And David look explain kellow again.
And and look I'm, just going to read through to resume and comments.
And we would be.
Okay.
And we were talking about the the fact that our safety performance had improved probably 50% over last year.
We have lowered cost per ton in three of our four operating segments compared to the prior year and further reduced SG&A spending.
While seaborne thermal volumes and costs were temporarily impacted by flooding and a ship later outage, we anticipate performance progressively improving throughout the year.
S thermal mines also perform well lowering cost per tonne, 9% from the prior year and outstanding performance given volumes were down 13%.
Seaborne met costs per ton improved modestly over the prior year, even as volumes were muted by idled mines and the ongoing pandemic.
Productivity improvements and copper Bella and mobile contributed to the complex overcoming and 11 since unfavorable increase in foreign currency rates.
We can continue to take action to improve and medco operating performance and while we recognize there certainly is more work to do we on Psyching our foot off the pedal.
At Shoal Creek, while the mine remains idled, we are continuing activities to increase productivity lower costs and improved yields and a future.
Resuming production and MIT and shipments are contingent upon completion of these initiatives as well as stable customer demand.
On these fronts and our labor contract expired IPO first and we have been in active negotiations with the union.
We have made the decision all sides to upgrade the prep plant to capture yield improvement and we continue discussions with customers about a mine restart.
As a reminder, that mine has historically had large and long term customer relationships with the majority of volume is pricing after hard coking coal market.
We'd anticipate the prep plant project to be completed in mid quarter three.
At Metropolitan while.
And while discussions are ongoing with customers and the workforce.
Full workforce will return to the mine and early Mike.
Development work is being partly ongoing through the idle period and low low production is anticipated to begin in the second quarter with the ramping up to full production planned in the third quarter of this year.
You'll recall that we have been continuing and commercial process for north Gila.
We've been impacted by a variety of factors and while the process is ongoing at this stage. It is not presented us with and any attractive executable options.
We continue to be active across a range of France regulatory mine planning and commercial and believe north and yellow is a valuable asset with world class infrastructure.
You might also have seen that we recently entered into an agreement to sell our closed millennium line and assign a portion of the related asset retirement obligations to owners of a neighboring deposit.
While this is still subject to closing conditions.
It is an example of our continued evaluation of options.
From a broader market perspective.
Seaborne thermal coal conditions remained favorable while Chinese import restrictions or a significant disruptive factor to seaborne metallurgical coal prices and continue to weigh on Australian hard coking coal, while low vol. PCI has narrowed to near parity.
But supply and low inventory levels have kept Newcastle thermal pricing and improved levels year to date.
China's domestic thermal supply remains hampered by heightened safety inspections.
And these plants stocks have been falling gradually since mid December as government unplanned reduce intake and there has been a delay in typical restocking and of the monsoon season in June.
As at the end of March Indias plant inventory levels risk weighted at approximately 15 day John.
First is some 28 days a year ago.
Our low cost thermal coal platform is well positioned seaborne and to take advantage of these higher near term crisis.
Within the seaborne met coal market theme.
And the imbalance between us try and explore and Chinese delivered prices remains wide.
The delivered price into China is currently trading at roughly doubled low seen F O B, Australia as the unofficial ban on Australian calls remains in place.
In addition increased COVID-19 concerns with the crisis and India are further wining on Australian hard Coke and coal pricing.
These factors continue to pressure the seaborne met market, despite global steel production, increasing 5% year over year.
In contrast, the spread between Australia, and hard Coke and coal pricing and low vol. PCI pricing has recently narrowed to near parity.
Hi, low vol, PCI supply, coupled with China paying a premium for Russian calls have contributed to rising low vol PCI prices.
Here in the U S. Overall electricity demand increased 2% over last year positively impacted by cold weather.
Hi, and natural gas prices resulted in U S thermal coal share of electricity generation, increasing by 37% to.
And to 24%.
While natural gas declined to 34%.
As a result coal inventories have fallen by 20 million tons since December.
During the quarter.
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P. A vehicle drives approximately 35% compared to the prior year.
Okay.
I'll now turn things over to Mark to cover the financials.
Thanks, Glenn and good morning, everyone first quarter results demonstrated our continued focus and cost management and performance improvement as cash flows from operations increased to $71 million compared to a net use and the prior year. This result was achieved despite lower volumes and average realized pricing.
Compared to last year's first quarter total volumes declined 15% with net shipments down 50%, primarily due to the Shoal Creek and Metropolitan mines remaining suspended during the quarter.
Lower pricing also weighed on results as average realized prices declined over $8 per ton for our seaborne met products and 35 cents per ton for P. R. B thermal coals.
Cost savings initiatives continued to garner results at the corporate office as well with SG&A down 13% year over year, allowing us to revise our full year estimated SG&A costs down another $5 million.
At this run rate Peabody's annual SG&A expense would be at its lowest level since 1999.
Interest expense of $52 million includes $11 million of one time fees that were expensed upon completion of the refinancing transactions early in the quarter.
Higher borrowing costs and amortization of related debt issuance costs also contributed to an increase in interest expense year over year.
Loss from continuing operations net of income taxes totaled $78 million adjusted EBITDA of $61 million was 66% or 24 million higher than the first quarter of last year.
Turning now to segment results.
As expected seaborne thermal costs and volumes were unfavorably impacted by the transition to the United Rahmbo joint venture and.
In addition, the stronger Australian dollar historic flooding in new South Wales, and related impacts and the logistics chain and and unexpected ship loader outage at the New Castle NCI G port raised cost and the quarter.
While we are fortunate not to suspend any of these operations first quarter shipments were about 400000 tons lower than expected due to the logistics challenges.
Continued strong performance at Wilson young partly offset these higher costs.
During the quarter, we opened young sold $2 9 million tons, including 1.1 million export tons at an average cost of $23 <unk>.
Wilson Young recorded 25 million of adjusted EBITDA and had 104 million of cash at March 31.
First quarter met volumes were impacted by short Creek and Metropolitan remaining idled. However, we are seeing strong demand return for our PCI products. We continue to take action to lower cost to a more competitive level and indeed variable costs came down year over year.
Cost per tonne were in line with the prior year, despite shipments being down 1 million tonnes.
Excluding idled mine costs net costs were $84 per ton about three and a half dollars lower than our average realized price for the quarter.
Productivity improvements and copper Bella and more Vale contributed to the cost declining $13 per ton, even with the unfavorable exchange rate impact and.
And the U S. P. R V costs decreased 7% year over year due to ongoing cost reduction initiatives and favorable pit sequencing.
Cost per ton reductions were achieved even with shipments down 12% of which and estimated 1 million tonnes was timing related from disruptions due to severe weather in February.
Cost per ton also declined and the other U S. Thermal segment as we continued to benefit from ongoing cost management initiatives and productivity improvements.
From a balance sheet perspective, we used some cash and completed the refinancing transactions repaid approximately $54 million of debt made scheduled interest payments and reinvested and our asset portfolio with capital and net contributions to joint ventures.
In addition, lower receivables largely related to timing of seaborne shipments resulted and outstanding letters of credit temporarily exceeding the balance of eligible receivables under our accounts receivable securitization facility.
This required us to post $44 million of cash collateral recorded as restricted cash to back these lcs.
And as eligible receivables increase this cash collateral would be returned to us.
At March 31, we had nearly $624 million of cash cash equivalents and restricted cash.
Looking ahead to the remainder of the year, we are planning for P. R. B volumes to remain roughly in line with 2020 currently we have about 95% of those volumes priced up.
And their U S thermal shipments are expected to total 16 million tonnes.
Cost for both segments are expected to be largely in line with the prior year.
Seaborne thermal volumes and costs are expected to progressively improve from first quarter levels.
We expect this segment to ship 17 million tons, including nine to 10 million tons of export coal.
Per to 2020 seaborne thermal costs are expected to increase given the lower volumes higher expected royalties and current unfavorable exchange rates.
Seaborne met volumes are contingent upon the ongoing improvement programs and activities at Shoal Creek as well as customer demand.
Metropolitan is expected to ramp up to a normal run rate and the third quarter.
And copper Bella and Marvell volumes are expected to increase due to stronger customer demand and productivity improvements.
As mentioned earlier, we are targeting lower SG&A than previously thought and maintaining our prior capital expenditure guidance of $225 million, which includes a $135 million for significant reinvestment and our Australian based seaborne platforms.
Looking ahead to next year, we are targeting lower capital expenditures due to a substantial reduction and major project spending.
I'd now like to turn the call over for questions operator.
Okay.
Thank you. So if you would like to ask a question. Please signal by pressing star one on your telephone keypad, if youre using a speakerphone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment you can press star one to ask a question.
And we'll now pause for a moment to know everyone and opportunity to signal for questions.
Okay. So we will now take our first question from David S BMO capital markets.
Please go ahead.
Alright, Thank you and and thanks for taking my questions.
I just have I have a I have a few a couple of short term ish and then one strategic question.
On the short term ish type of questions first of all the second quarter outlook for flat.
And or similar results and I was wondering if you could and.
And talk through the puts and takes area and it looks like obviously seaborne thermal prices are higher or some cost issues and the first quarter that seemed like they were one time ish and the seaborne and thermal business.
So I would have expected that.
But of a sequential improvement and in the second quarter. So I'm curious if you could just talk through what the offsets are.
That's my first question and then just.
Real quickly if you could just touch on what the volume expectations are from the Metropolitan mine once it's restarted and the third quarter.
And then my last just sorry, I'm going out talking about my last strategic question is if you could just give us an update on the CEO search.
Hi, David its Mark and Steve.
And thermal you're right, we're seeing improved pricing and the thermal markets Newcastle thermal.
We are continuing to transition to the Whammo open claims and open cut joint venture silver.
And so volumes are improving but they are still lower than run rates I'm not expecting a significant overall improvement and the next quarter.
Maybe I'll take the next one and simple in terms of metropolitan.
We've been.
Continuing some development.
During this idle period, we're bringing back the workforce next week. The reminder of the workforce next week.
And we'd expect a ramp up.
Through the through the press to the second quarter into the into the third quarter that mine by reference produced about one 3 million tons.
Loss last year.
And it is going to vary depending on.
Longwall outages.
And longwall at Longwall move timings.
As well as ongoing customer demand.
The third question on the on the on the CEO search the board have indicated that and in the company's indicated that it's.
Undertaking both an external search and and internal search and.
And that process is still ongoing.
Okay. Just real quick thank you for that by the way and just a real quick follow up on the backlog.
Back to the first question I understand the commentary on the thermal but just overall the commentary was basically a.
Kind of a net.
A similar I believe second quarter result versus the first quarter, So where are the offsets to the positives that we're seeing and thermal seaborne thermal and and the cost situation, probably and seaborne thermal and a quarter over quarter basis.
David and let me, let me reiterate I think will opinion and continues to perform according to the guidance that's out there and and fairly consistent I think.
And the Mambo open cut joint venture, we have that impact the underground as possibly.
Had had some had some inventory reductions and the quarter and the first quarter, we will and policy that and the second quarter.
Yeah.
Does that answer your question.
And so so let me just ask it more directly our unit costs going up flat or down and seaborne thermal quarter over quarter, and the second quarter and and <unk>.
Similar question for the for the met business as well.
Okay.
Thermal volumes.
Unit calmed down.
Okay.
The unit cost per annum and grabbing sequentially over the first quarter.
Okay.
And then on the met side.
Okay.
And on the met and the met costs.
And volume.
Yeah.
And that the met volumes are really going to be contingent upon the ramp up of.
Metropolitan and the C. M JV is having lower production and the second quarter.
Okay. Thank you.
Yes.
Thank you and we'll now take our next question from Lucas FB Riley Securities.
Please go ahead.
Hey, good morning, everyone.
Yes.
Question on Shoal Creek, you mentioned and the release a couple of activities too.
And improve productivity, there and and I wanted to could you elaborate at all.
And at what specifically what would be happening underground ore or maybe at the surface. Even would appreciate that and then also in terms of the negotiations on the labor side anything you could share there.
Would appreciate that thank you.
And the thanks, Lucas and the thing I think I called out in terms of activity. We made the decision to to make some enhancements to the prep plant to upgrade yields and net outage will take us through into the to the third quarter.
Now in the middle of the third quarter.
With respect to the live and flavors discussion says and negotiations as you would expect are.
Probably limited given their active discussions underway and limited in what I can say.
Other than we are in discussions around why is and which we as the company believes that we can improve.
And our competitiveness and productivity.
Through that through that process.
I appreciate that and then a follow up on the prep plant modifications. So is it fair to conclude that so quick wouldn't be restarted before.
All of those upgrades are completed.
Certainly that would be the limiting factor on shipments.
And <unk>.
That would that would be true it could be possible to run underground production before that time.
That's helpful. Thank you and then.
Bigger picture question.
Over the years that had been there have been discussions around.
And the.
And the logic behind and potential separation of the seaborne and more domestic U S assets.
Is that something that is potentially contemplated that could make sense or where do you see kind of.
And the Peabody evolving over the.
Over the foreseeable future we would appreciate any any thoughts you could share.
<unk>.
Yeah and Lucas as.
And as is indicated there is a transition of the CEO and Hawaii.
And.
And that's probably best for the for the incoming CEO and sensors.
Being able to respond to and I.
Clearly the company.
When you look across the portfolio has an extremely strong.
Thermal business we have.
What we regard as the lowest cost and best positioned assets and the best price and in the PRP.
Al.
And Midwest business did exceptionally well and the in the quarter and had very strong returns and similarly, as our seaborne thermal business.
Is a is a strong business that's produced attractive margins.
We've got more work to do on a net on the med front, you've seen and steps we've taken to improve that activity.
And but there is more work to do at the same time Glenn.
And we believe and the long term our.
Outlook for metallurgical coal.
I appreciate that well, thank you and best of luck.
Thanks Louise.
Thank you so that is all the questions. We have in the queue. At this time, so I would like to turn the conference back over to Glenn Kellow.
Thank you operator, and look apologies again for the technical disruption that was at the start of the cool.
Thank you for joining us today.
And I'd, especially like to thank our employees for continuing to keep safety at the forefront of all we do and to continuing to execute on our various cost improvement initiatives and.
I'd also like to thank our customers investors and insurance providers fuel continued support operator that concludes our call Tonight.
Okay.
Thank you. So this does conclude today's call and you may now disconnect.
Goodbye.
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And.