Q3 2021 Peabody Energy Corp Earnings Call
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Good morning, ladies and gentlemen, and welcome to the Peabody Q3, 2021 earnings call.
At this time all participants are in a listen only mode. Following today's present presentation instructions will be given for the Q&A session. If anyone needs assistance at any time during the conference. Please press the star followed by the zero.
As a reminder, this conference is being recorded today October 28th 2021, I would now like to turn the conference over to Alistair now President of Investor Relations and Communications. Please go ahead.
Good morning, and thanks for joining peabody's earnings for the third quarter of 2021.
With me today are president and CEO, Jim Grech, and CFO Mark Sperbeck.
Within the 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.
I'll now turn the call over to Jim.
Thanks, Alex and good morning, everyone.
If anybody had a very good third quarter with our results benefiting from current robust global coal market dynamics.
Wrong operational performance, coupled with increased seaborne pricing and global demand.
For the quarter quarterly results, we have not seen since 2018.
We continue to advance actions to position the company to be resilient in all market cycles.
Expanding our margins and reducing our debt levels and removing obstacles to increase production.
I would like to start by thanking our global workforce for their continued focus on working safely and efficiently.
We are selling not only because of strong coal markets, but also due to the dedication and efforts of our talented workforce.
Across the globe, we are seeing record coal index prices in each market segment and demand returning to near pre pandemic levels.
The near term market outlook for all our operating segments is favorable with strong market indicators and increased global demand, providing a compelling story for coal and Peabody.
The seaborne thermal and metallurgical coal markets are expected to remain tight in the near to medium term and supplier response to elevated demand remains muted.
Heavy rains in Indonesia rail issues in Russia production issues in Colombia, and hampered domestic supply in China.
Additionally, gas supply constraints and low wind generation in Europe have all combined to exert a positive pressure on the global thermal market.
The seaborne met market is being bolstered by robust steel production and decade high steel margins and tight coal availability.
For 2022, with 2 million tons of incremental production expected at our met coal mines and thermal export production in line with 2021.
We are well positioned and are looking forward to taking advantage of this demand and the margins that we anticipate will come with it.
In the U S thermal coal market indicators are also favorable with increased electricity demand and high natural gas gas prices, leading to gas to coal switching and robust growth in coal generation as compared to prior year.
Overall electricity demand increased 3% over last year.
With coal share of electricity generation, increasing to approximately 23% for the first nine months of 2021.
As a result of increased demand and supply response.
Coal inventories have fallen by approximately 54 million tonnes year to date.
The lowest level since 1997.
Natural gas prices at high levels. This quarter that we have not seen since 2014 driving up coal generation demand.
During the first nine months utility consumption of CRB coal rose approximately 30% compared to prior year.
Tight supply and demand balances are leading to high forward prices for natural gas.
Those forward.
Rice's and strong coal export demand are supporting expectations of continued elevated coal prices in the near term.
At Peabody <unk> operations.
We increased volumes and are trending towards the high end of our guidance range for 2021.
And anticipate some incremental volumes next year.
We currently have some uncommitted tons for 2022.
However, given current demand exceeds supply we.
We're only selling those uncommitted tons under multiyear contracts.
At our other U S. Thermal operations, we are ramping up volumes next year by approximately 2 million tons to meet increased customer customer demand.
So we only have a small portion left to be sold for 2022 and for 2023.
Now turning to the quarter, our operations were able to deliver projected volumes.
Setting the impact of labor shortages and higher fuel costs.
In addition, we continue to invest in the future with increased equipment refurbishment and mine development.
Within our seaborne thermal segment, the Wilson Yonge extension and the Huambo open cut JV development projects continue to advance.
With over $200 million of capital invested over the past three years.
I am happy to report the box cut development work was completed at both projects in the third quarter and we anticipate the huambo JV to operate a full production run rates in Q4.
Our seaborne thermal margins benefited from price increases of 66% in the quarter compared to the prior year.
And the segment is on target to deliver higher export volumes in the fourth quarter as compared to prior quarters in 2021.
Our seaborne met segment continues to deliver on efforts to expand margins through cost and productivity improvement initiatives as well as sales strategies.
In the quarter.
<unk> complex in Metropolitan delivered 36% higher volumes at 16% lower cost per ton as compared to the prior year.
The <unk> continue to realize productivity improvements at metropolitan and Metropolitan reach planned longwall production rates.
At Metropolitan we reached a long term sales agreement that underpins the mine for the next three years with pricing linked to seaborne met coal pricing.
And importantly, both Metropolitan and Shoal Creek completed renegotiated labor agreements.
The workforce has been back at Shoal Creek since early October and we expect to restart production later this year.
The U S thermal mines delivered another solid quarter generating significant EBITDA.
Available availability of labor impacted production at several of our U S mines this quarter, but we see this improving through programs that we have put in place.
And finally robust U S coal market dynamics have allowed us to build a strong book of forward business with.
The settlement of several long term sales agreements at improved prices as compared to current levels.
Notably in addition to multiyear <unk> contracts.
We have reached agreements that will support the continued operation of our 20 mile mine in Colorado for the next five years and have signed agreements in Illinois Basin was increased pricing through 2025.
Our globally diversified asset base, which makes us distinctly unique for many other U S. Coal company is allowing us to benefit from these market conditions.
Our Q3 results were a confirmation of the value we can generate from our asset mix.
During the quarter. We also continued to take actions to reduce our debt levels and raised cash through the issuance of common shares.
To date this year, we have reduced our debt levels by approximately $250 million.
We also took steps to reduce our closed mine and legacy liabilities through the sale of our millennium and Wilkie Creek closed mines.
These actions are part of our commitment to enhance our platform to be resilient in all market cycles.
We're also progressing on multiple initiatives that will allow us to expand and improve near term production.
As previously mentioned Shoal Creek will be back in production later this quarter.
In our Metropolitan Longwall is producing at full run rates, resulting in significant year over year increases to our seaborne met export volumes.
<unk>, South which will result in improved quality and extending life at our cm JV is expected to be in production in the first half of 2022.
And in the U S. We are implementing plans to produce incremental volumes at our mines in the near term.
Underground production units in the Illinois basin, and expanding development at our wild boar complex.
In addition in the <unk>, we are refurbishing and relocating equipment to enable increased production.
Our long term strategy remains to re weighed investments towards seaborne markets.
Maximize U S thermal asset cash generation.
And enhanced financial strength through debt reduction.
I'll now turn things over to Mark to cover the financials.
Thanks, Jim and good morning, everyone third quarter results demonstrated our ability to capture improved market conditions and generate substantial margins from our diverse asset portfolio.
Thermal segments, both U S and seaborne as well as our improving seaborne met segment reported strong results.
Third quarter sales were over $900 million, our highest in seven quarters and increased by more than 30% from the prior year ripped.
Reported revenue was $679 million net of 238 million of unrealized mark to market losses.
Those losses, primarily relate to economic coal hedges.
At September 30, we had hedges and $2 9 million metric tons. The majority of which were contracted in the first half of 2021 and relate to $2 1 million metric tons of expected production at our <unk> underground mine.
These tonnes are expected to be mined and settled at a rate of $1 4 million tonnes in 2022, and <unk> 7 million tons in 2023.
The hedge contracts support the profitability of the mine by securing average prices of $84 per metric ton through mid 2023.
And are a key ingredient of a strategy to extend the expected life of the mine.
The remaining tons relate to brokerage KOL transactions and other blending and optimization activities, which will settle beginning in the fourth quarter and throughout 2022.
Net loss attributable to common shareholders totaled $44 million, including recognition of the $238 million of unrealized mark to market losses.
We reported adjusted EBITDA of $289 million more than double the $122 million reported in the second quarter and three times the prior year results of $95 million.
Importantly, we took further actions to enhance our financial strength retiring an additional $93 million of senior secured debt in the quarter, resulting in a net gain from early debt extinguishment of $16 million.
We also retired an additional $30 million after September 30.
That brings that retired this year to approximately $250 million more than 16% of debt outstanding at January one.
In the quarter, we raised net cash proceeds of 112 million by issuing 9 million shares of common stock under the aftermarket equity program.
Subsequent to September 30, we raised an additional $39 million and issued $2 8 million shares.
Outstanding shares are now approximately $126 million and we have about 5 million shares remaining available under the currently approved ATM program.
At September 30, we had $587 million of cash and cash equivalents net of $240 million of cash margin posted related to the economic coal hedges previously discussed.
When these tons are sold we will realize either the currently higher spot price or cash margin will reverse as prices decline towards the hedged price.
Turning now to the segment results the seaborne thermal segment generated EBITDA of $104 million and benefited from a $23 increase in average realized prices compared to the prior year cost per ton were higher than prior year due to lower production at <unk> young and the transition to the one with joint venture in addition.
To unfavorable exchange rates higher fuel and royalty costs.
Wilson Young ship $3 5 million tons in the quarter, including $1 6 million export tons at an average cost of $26 per ton.
Opening on realized average sales price of $42, resulting in EBITDA margins of approximately 40%.
We will send young recorded $56 million of adjusted EBITDA and had $145 million of cash at September 30.
The seaborne met segment generated EBITDA of $57 million with.
With an average realized price of $120 per ton and cost of 82, resulting in 32% margins.
Third quarter met shipments were approximately 400000 tons higher than last year due to higher production at metropolitan and the CMG.
Total cost for the seaborne met segment, where lower by more than $15 per ton compared to prior year due.
Due to elevated costs at Shoal Creek in 2020.
And this despite higher royalties unfavorable exchange rates and higher fuel prices in the current quarter.
The continued improvement in costs and recent rise in international coal prices demonstrate the value of our seaborne met segment to the company's diversified portfolio of clients.
In the U S. Our minds delivered $82 million of EBITDA, despite challenges with labor availability and Covid related absenteeism impacting production at several operations.
Our <unk> mine shipped $22 7 million tons in the quarter at a 15% margin the.
The other U S thermal mines shipped a combined $4 5 million tons and generated 24% EBITDA margins.
Both the <unk> and other thermal segment costs increased.
Due to higher levels of planned equipment maintenance and higher fuel prices.
And the PIV higher overburden removal and weather events also impacted costs in production for the quarter.
Looking ahead to the remainder of the year, we anticipate higher seaborne thermal volumes, including the three to 4 million export tons of which approximately 50% are on price.
Costs are expected to be lower in the third quarter is the one will open cut is at full production and we will send you on development is complete.
Wilson young volumes are expected to be approximately 4 million tons.
With 2 million export tons. The finished the year with its strongest quarter.
The seaborne met segment is expected to ship one to one 5 million tons in the fourth quarter with 75% of those tons unpriced.
We anticipate production at Shoal Creek to recommence in the second half of the fourth quarter with ramp up continuing through the first quarter of next year.
We are planning for <unk> and other U S thermal volumes to be flat with third quarter levels and cost for both segments to be slightly higher in the fourth quarter due to mix.
Fourth quarter cash flows are expected to increase substantially over third quarter levels as we continue to see favorable pricing in each of our segments and the cash margin related to coal hedges begin to reverse.
Lastly, we will continue to be disciplined taking advantage of strong markets controlling costs and further reducing debt.
I would now 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. If you have a question. Please press the star followed by the number one on your push button.
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<unk> start till one moment please for the first question.
And we will go ahead and take our first question from David Gagliano with BMO capital markets.
Hi, excuse me thanks for taking my questions.
I think maybe I'll just reach.
Out to the 2022.
The world for a minute.
In thermal you've given us some information, but I was wondering if you give us more detail on the.
The contracts that are committed in the powder River basin and the prices for those.
The average prices the volumes Thats committed and how much what's the average price for 2022 and the peer Ob Parrish.
First question.
Hey, David Good morning, Jim Grech here and I'd like to take this opportunity since you're asking about 2022 is really just to talk about the whole portfolio addressing the PRP, but but also our seaborne.
So first off you'd asked about prices and since we're still in negotiations for two.
<unk> 2022, and many of our market segments, we aren't going to comment on any specific prices associated with forward sales. We will do so when we report our Q4 results, but I will in general give you some ideas and the direction we're going.
So starting with our domestic U S. You asked about CRB.
We were trending towards the higher end of our forecast for this year as shown in our earnings release, and we expect that to be the base for our tons for next year.
With upside for any 800 btu areas, we're still looking for volumes for.
We're still working on that upside volumes.
For next year, we have limited tons left for sale at that 90 million ton level and as I said in my remarks, we are pricing, we are selling them with multi year deals.
In regards to pricing for next year for the tons that we do have sold.
We are layering we have been layering in prices and sales through the whole year. So we're not.
Not selling at all at the current price decks that are out there so.
That is the case, but again, we do have unsold tons for next year at that 90 million ton level and we are looking to improve upon those volumes and we'll be able to comment comment on that more on the next call.
The other U S thermal that we have.
We are going to take the base that we have from the projections in the earnings release and add about 2 million more tonnes of production on that.
That coal is already sold.
Mostly for 2022.
In 2023.
So in the U S. Again, we have some exposure to the market we've been layering some of the sales in and we do have some upside in our other U S thermal and we're working on upside in our <unk>.
On the international the seaborne gives us significant more market price exposure.
Two classifications of coal that we have there seaborne met and seaborne thermal.
And the seaborne met.
All of our tons are priced at the moment. So we have completely open to the market.
Next year in our seaborne met nets of seven over 7 million tons of coal.
On the seaborne thermal.
Two thirds of our tons are unpriced for next year. So are open to the market exposure for pricing next year.
David.
I think I tried to cover all of our segments. There maybe get all your questions. All at once you have any anything else you'd like me to comment on yes.
Okay. Thank you for that well just a quick follow up could.
Could you at least tell US you said.
Rooting for 90 total.
And instead of asking about the price directly can you tell us how much you have left specifically to price and then.
Roughly when timing wise you layered in the majority of the contracts that are already locked in.
And the layering.
And of the tonnes.
That's been done since I'll say mid year till now.
I don't know the breakdown of mid year to later in the year, we've been layering it into since mid year till now I think probably did a little bit more in the August September timeframe, but I don't have that breakdown David.
And.
As far as what's available to sell at that 90 million ton level less than 10%.
The tons that we have.
Available to sell for next year or so.
Okay. That's helpful. Thanks, and then just switching gears real quick Shoal Creek can you just talk about the a little more detail on the on the ramp up.
Incremental capex.
Expected cash costs.
And volumes for full year 2022. Please.
Okay.
So we've signed that signed the contracts.
With the with the Union and that contract is going to go through the end of 2020 for December 31 2024.
<unk> three year contract.
The mine has been sitting for.
Manav is sitting for over a year and so the startup or the startup now we started with safety training.
Calling employees back to work and inspect.
Inspecting the equipment is expecting the belts and all of that work started and we expect the longwall to start producing some cold sometime here in November.
Coal will be used and we will get that to the surface and then we will start commissioning our prep plant because of his extensive work done at the prep plant, which will result in improved yields for us.
So to get through all of that getting us started up or it will be through the end of this year and we expect to start hitting our stride towards the end of this year and in the first the first part of next year.
On the production levels.
As far as capital for next year, so it can be normal sustaining capital.
And right now we don't have any of the information to release unexpected tonnages or or cost for Shoal Creek for next year.
Okay. That's helpful. Thanks, and then just real quick I'm, assuming that's all going to the export market and can you remind us the quality of that call.
Yeah, David Mark. It is it is all go into the export market I would say given where the markets are today looking forward to 2002 I'd be thinking that as kind of a high vol. A product for 2022, historically, we've looked at as a premium hard coking coal product.
That will be going out 'twenty, three and beyond I think of it that way.
Okay. That's helpful. Thank you.
Ladies and gentlemen, if there are any additional questions. Please press the star followed by the one at this time.
Reminder, if you are using speaker equipment, you'll need to lift the handset before making your selection will go ahead and take our next question from Lucas pipes with B Riley Securities. Please go ahead.
Thank you very much and good morning, everyone.
I have a quick follow up question there on the domestic contract book.
Jim.
23, how much of the <unk> is open.
Lucas I don't have that number with me I know, we've been selling for 'twenty, three and 'twenty four when I mentioned multiyear contracts.
We're going out to 'twenty three 'twenty four.
Maybe even a little bit into 'twenty, five, but we'll have to follow up with you on that.
I'm not sure the percentage that we have opened.
Got it but I heard correctly that on August thermo, which I assume would be close.
Colorado and Midwest, you, mostly sold out for 2023.
For 2022 and 2023.
Even though we've increased production by about 2 million tons, a year in that segment or we're going to it's fairly it's pretty much sold out for the next two years, yes.
Got it.
B, our Midwest assets.
And in 20 mile.
Got it got it okay. That's all.
I appreciate that and then.
Maybe switching over to seaborne thermal.
If you have about two thirds open there and historically you've sold a lot of tonnage on the Japanese fiscal year, so kind of when would you be.
Selling the remaining two thirds of that business would appreciate your thoughts. Thank you.
Well there is.
Some percentage of it that are.
Probably two thirds of what I said was on price.
Of that but some of that is sold.
It's related to index pricing and then the rest of it is kind of to market pricing and.
And as far as the timing of that.
We feel like that.
In the end of this year and in the first quarter of next year for the unsold amounts.
Got it got it.
That's really helpful. Thank you and then.
Maybe just a last one on the on the short term outlook.
Provided really helpful kind of comments regarding Q Q4.
Obviously pricing has been terrific.
In recent months and I assume much of that really flow through in full force in Q4. So I'm wondering is it possible to.
I'll provide additional comments around.
That EBITDA free cash flow in Q4, you said substantially better, but I wonder if.
This unique times of high prices, if you could maybe help investors yeah, Lucas Mark here ill try to take a crack at I think your question is really looking at fourth quarter, maybe staring with seaborne thermal.
We probably have three to 4 million tons of export.
We have about $1 7 million of those tons priced at an average of $92.
The rest of the rest of it remain floating.
And open for pricing.
From a seaborne met perspective.
We're looking for about $1 3 million tonnes is we haven't changed our guidance.
We have a little over 300000 tons priced at about 161.
And 1 million tons then.
Unpriced for the remainder of the year.
Just for reference Q3 was $1 5 million tonnes at 118.
Got it.
Quality of the Unpriced I'd say that yes.
PCI.
Hard coking coal do you have it.
Would you be able to provide.
Some color on that in terms of the quality breakdown on price with coal.
No I don't I don't add.
Exactly have that in front of me Lucas I think.
Again, if you think about.
The one.
On the seaborne thermal side first.
I think that you got to look at two things one.
Wilson young.
Is really high ash thermal.
And it filled at a 5% to 20% discount the API API five.
<unk> is truly a benchmark Newcastle products.
And.
With the majority of that <unk> is unsold.
Yeah.
Got it.
Got it.
Okay, well I appreciate your color comments.
Best of luck.
We can go ahead Lucas next question from Nathan Martin with Benchmark capital Company.
Hey, good morning, everybody and congrats on the quarter and thanks for taking my questions.
I guess I'll start on the cost side, I think kind of the pricing side, it's been discussed so maybe.
You guys had a pretty material quarter over quarter decline in net cost with <unk>. I think you said some of that was related to high sow costs.
So I guess the question is does that number kind of repeatable here in the fourth quarter and beyond or do you expect your shoal Creek ramp to kind of put some pressure on that on that number given your full year guidance of $93 six quarters show great. Thanks.
Yes, they definitely saw great great costs from the Med segment in the third quarter I think really two reasons for that first the ramp up of Medtronic to full production rates at the longwall really quarter over quarter improve that as well as significantly higher production and more available.
More Vale is tends to be lumpy, we are certainly on the coal and a higher production drove those costs lower.
We haven't changed our overall full year guidance on costs. So it really was as planned and expected, but these costs in the third quarter were particularly low for those two reasons.
And Mark regarding Shoal Creek I mean, do you think that would tend to maybe pressure to those costs a little bit in the fourth quarter.
Yeah no.
No question as we begin to ramp up at Shoal Creek, there will be some will be some higher costs that will be blended into that met segment. We'd expect that to also put pressure in the fourth quarter results.
Got it. Thank you and then maybe if we just look ahead to 2022 any early thoughts on how costs with different segments might trend there, especially given some of the inflationary pressures we're seeing in the marketplace.
Yes to two things one we're not providing cost guidance for 2022 today, we'll do that on our next call.
Certainly inflationary pressures are being felt across the industry. We look at it on a couple of reasons a couple of main factors.
Labor is tight as well labor is probably 25% of our global cost we use about 80 million gallons of fuel as well.
So some higher fuel costs and certainly steel.
There is an impact this deal as well from from from some of the underground mines as well as the other components of the equipment.
We as we're seeing these inflationary costs. It is a it is really.
A part of the economy that is being felt very broadly Fortunately the higher margins that we're expecting to see here is more than offsetting those higher costs.
Got it makes sense and then maybe mark could you could you kind of remind us what percentage of your Cogs are sales sensitive related for some of the different segments.
With prices.
Yeah.
Yeah broad brush stroke, I'd say from an on the seaborne side about 10% of revenues.
And really royalty related and in cost reduction and then on the <unk>.
With the federal royalties, there were probably about 25% to 30%.
On that number.
Perfect very helpful. And then maybe just finishing with a bigger picture question maybe.
Maybe Jim can I get your thoughts around some of the headlines we're seeing in China regarding power shortages and maybe more recently the talk of proposed thermal price caps and maybe how you see that playing out are expecting peabody's business in that marketplace.
Yes, and our need to have a good morning first off.
A few comments on that historically Peabody has not sold a bunch of our coal in China in 2020, with only about 2% of our product went to China, but obviously with China.
Does with their coal and their policies effects the world markets.
So our view is there is a policy that has a lot of speculative trading that goes on in the market, but we always go back to the fundamentals of supply and demand.
And as you talk about price caps and so on but the fundamentals are that demand is strong and.
And we expect it to stay strong through through the through the winter at least in and into next year.
And the supply is.
<unk> is constrained and any quick.
Responses from supply is going to be muted for a number of factors.
So if you take the speculative trading out of it that.
As a lot of fluctuations in the prices.
<unk>.
And announcements about price caps.
We still think the fundamentals are very strong for prices because demand is going to be stronger than supply as we've seen right now and we expect that to continue through next year.
Got it. Thanks, Thanks for those comments, Jim and I. Appreciate the time information best of luck to you guys in the fourth quarter.
Thank you Nate.
And we'll go ahead and take our next question again from David Gagliano with BMO capital markets.
Hi, sorry to hop on again I just have a few follow ups here.
Let me clarify one thing on the fourth quarter the export thermal.
Implied volumes that are on price I think it's $1 three to $2 3 million tonnes. How much did you say it was warm boat versus will open John.
Yes, we didn't answer I don't have that number in front of me.
Let us get back to you with that David I have it on one, though we have three or 300000 tons and it will open John we have one 2 million tons.
Right, Okay that makes more sense okay.
I misunderstood okay. Thanks, and then.
Just wondering other thermal business.
Yeah visibility is pretty low in some of these regions in the U S and some of this could be going into the export market.
20 mile line that kind of thing I'm, just kind of curious can you give us a little more color on.
The pricing give.
Given that it's sold out for the next couple of years, even at the higher volumes and understanding proprietary issues. Maybe you can just give us like a blended average price or something for the other thermal business.
And some information if if if.
As possible how much of that other thermal is actually destin potentially for the.
Export market if any.
Okay. So I'll talk about about the markets.
Mark if you want to comment on the pricing after I talk about about the markets.
First off our other thermal.
We have the El Segundo mine and there we have.
And the 20 mile mine and then our Midwestern mine, so theres quite a mix of markets and contracts.
That cover all of that so again.
David thing one price index of one thing that you can look at is tough because of the mix that we are.
There was a small amount of 20 mile. It went to export.
Earlier in the year when when there wasn't a when the market was softer here in the U S.
But.
That was just I'll call. It a one off we don't expect that to continue so all of that coal that we talk about is going to be.
B domestic free for U S consumption, we're not we're not really going to be.
Exporting that and the forward sales that we have at the mines again 20 mile. The five year extension we had.
Certainly going to tick up almost all of the Colo that mine net domestic.
And then in the Midwestern mine.
Signed a contract for a large amount of that through 2025 and again through 2023, it's also domestically.
Utilities in the Midwest, So there'll be no no export.
Tons at any of those mines to get into pricing, it's a little complex because of the mix of the mines that we have in that category.
And again I'm not sure that there's really a specific industry that we can that we can point you to that says hey, followed that further pricing.
Right exactly and that was really the point of the question on my side, given the broad mix there and.
And things like that can you just give us just tell us the weighted average price that you've locked in with because I don't think it would give anyway any proprietary information.
You know within that.
Bucket.
David as we said on our next on our next earnings call, we'll give.
Some color on forward pricing and costs and tonnages, we're not.
Giving out any of that information right now because even though things are mostly sold we still have negotiations ongoing so until we close those out here and we're not going to comment on the pricing for next year.
Okay and then just my last question on <unk>.
Back to Shoal Creek for a minute for 2022 I understand the.
You know the limitations on cost information at this stage, but obviously, there's quite a bit of capital that went into the into the mind I'm, assuming quite a bit of capital and in the mine last year or so.
A lot of changes.
And in terms of the cost structure can you can you frame it perhaps.
Within the context of the rest of the.
The seaborne met segment, our costs with Shoal Creek likely to be on average higher in line or lower than the rest of the seaborne met copper.
David It's Marc couple of thoughts one I mean Shoal Creek has historically been in the higher end of that cost so extra to be higher than the other met costs. I mean, when you look at this I would just.
When compared to prior results that we had prior to the temporary shutdown, we would expect it to be higher temporarily as well and remember we're in and probably less favorable geology.
As we ramp this back up where we ended so yields will be lower we did invest capital as you mentioned in the plant to improve that but.
We'll certainly be looking at some higher cost as we start to stack up.
Okay, and then just duration of those higher cost is that through 2022 or are we just talking about <unk> and that JV.
Kind of a normal number after that.
I would say you would expect it to be higher for 2022.
We bring back to more normal run rates after that.
Thanks.
All right. We'll go ahead and take our next question again from Lucas pipes with B Riley Securities.
Thank you. Thank you very much for taking my follow up.
Jim and team.
I wanted to get your thoughts on the M&A environment out there.
Are we more or less likely to see maybe some consolidation in the space has been a really elusive subject over the last few years, but.
Get your thoughts on that thank you very much.
Yes.
It's been elusive and one of the issues has been the availability of capital to.
To do anything whether it's capital improvements or M&A.
Lucas I would just think.
Along with Peabody and other coal companies.
I would just think of the industry in general.
Since everybody is liquidity is better in stock prices are improving versus where it was a year or two ago all of those things.
Lend or tools that could be used to have more M&A than it's been in the past.
And my belief is as many others that consolidation does need to occur.
And the markets are just they are still even with these strong prices are still too many different players out there.
The.
The cost structures.
The consolidation would do well on the cost side.
For the U S market so.
I think consolidation is still needs to occur and again I'll say the industry in general is a lot healthier to do it with stronger stock prices and more liquidity, but the availability of capital is still a challenge for anybody in the coal segment.
And when you when you think about your portfolio are there areas, where you would say this is maybe less of a strategic priority and then other areas that is more of a strategic priority.
If you would.
Two.
Yeah sure with investors your thoughts as to how that portfolio could be optimized stuff.
I would very much appreciate that.
Well, yes.
Our view on strategy.
For the company I think the first thing that our company is focused on Mark said and I said it is we have to pay down debt.
And Thats the number one focus that we have is pay down debt and once you once we pay down debt and become more resilient.
For these market cycles, which we think the volatility is going to be.
More severe and more frequent than we've seen historically.
Because of the supply side can't react as quick as it has historically.
Far and away our first strategy.
Strategy that I'd like to tell any investors shareholders is pay down debt.
Then after that we would be looking at organic growth off of our own assets, we've talked about that both in Australia and the U S.
And the tons that we're looking at for increasing next year very low cost tonnes, it's minimal capital investment.
Using equipment that we've had sitting or refurbishing it.
And hiring the people to run the equipment. So the next part of that would be the organic growth off of what we have and maybe looking at picking up some reserves selectively to do that.
The next part of that I would say.
Lucas would be growing with our customers.
And I put that into a few buckets one of them is.
I'm thinking our customers in the industry are seeing the value of having longer term relationships longer term contracts because there are fewer players even though there is more consolidation that needs to occur.
And we need to be capitalized and we need to attract and retain employees at our minds. Because these longer term contracts are let us do that but when you start.
Growing with the customers or other our other opportunities out there.
To look at different ways to do things with general power generation with renewables, where large surface.
Pretty holder so all of those types of things I would say our growth for us and growing and growing with our customers and then <unk>.
With an outlook that would get us down the M&A, what we'd look at for M&A.
We do we do favor a weighting towards the seaborne markets.
We think that's where the growth is in the sustained sustained demand both on the thermal and met.
But in the U S. We are also dedicated to the U S thermal markets, even though it's in secular decline. We still think there are going to be demand for the producers that are left to reliable producers and so again in the U S markets, where we're very comfortable with the assets, we have and I think they are well placed for.
What we see the future of the coal needs in the United States.
Kim very much appreciate that.
Again best of luck. Thank you.
Thank you Lucas.
And Jim It appears there are no further questions at this time.
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 productivity and cost improvement initiatives.
I'd also like to thank our customers investment investors insurance providers and vendors for your continued support.
Operator that concludes our call.
This concludes the Peabody Q3, 'twenty is from the line earnings presentation. Thank you all for participating.
Okay.