Q1 2022 Peabody Energy Corp Earnings Call
Good morning, ladies and gentlemen, and welcome to the Peabody Q1, 2022 earnings conference call.
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. If.
If anyone needs assistance at any time during the conference. Please press the star followed by the zero as.
As a reminder, this conference is being recorded today April 28th 2022 .
I would now like to turn the conference over to Alister knows. Please go ahead.
Good morning, and thanks for joining Peabody's earnings call for the first quarter of 2022 with me today are president and CEO , Jim Grech and CFO Mark Sperbeck within the earnings release, you'll find our statement on forward looking information as well as a reconciliation of non.
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.
In the first quarter, we set the phase III realized strong results for the remainder of the year.
Our operations performed well given the operational and logistical issues you face.
And with strong market dynamics persisting for our products globally.
Poised to deliver a strong 2022.
During the quarter, we overcame production and logistic challenges in Australia related to record rainfall and Covid induced labor shortages and.
<unk> instituted recovery plans to recapture volume over the remainder of the year.
While progressing efforts to increase volumes at our U S mines.
We strengthened the balance sheet and mitigated financial risks.
And we advanced several strategic initiatives with.
With the launch of our three renewables progression of our U S sales strategies and expansion plans for the seaborne platform.
Our focus remains to advance access to position the company to be resilient in all market cycles.
Capturing expanded margins through production and sales strategies, while remaining long term cost competitive and reducing our debt levels.
Before I expand on the quarter I'd like to thank our global employees for their continued focus on working safely and efficiently.
Particularly given distractions from weather Covid labor shortages and logistical challenges.
Our success is a result of the dedication and efforts of our talented workforce.
I'd like to specifically highlight the significant achievement of the Shoal Creek and Francisco <unk> teams. Both have now gone over four years without a recordable injury.
Turning to the market.
Across the globe, all coal price indices and demand in each of our market segments continues to be strong.
The near term outlook for all our operating segments continues to be favorable with strong market indicators increased global demand and continued supply constraints.
Seaborne coal market fundamentals remain robust with significant volatility in the markets driven by the Russia, Ukraine conflict.
The EU total ban on Russian coal imports as European buyers seeking to mitigate exposure to Russian coal imports.
And it has caused an upswell in our already elevated demand and pricing for supply from regions outside of Russia.
Japan is now also announced the band.
Albeit with an unclear timeline.
And we anticipate this to further impact market dynamics of the already tight and turbulent seaborne markets.
Within the seaborne thermal market.
Demand and supply balance is stretched.
Thermal coal supplier was already pressured prior to the Russia, Ukraine conflict.
With Indonesian producers impacted from wet weather and a January government imposed export ban on coal.
And Australia producers impacted by heavy rains and Covid interruption.
Overall, we expect the global thermal coal prices remain elevated and the market volatile as certain imported with to fuel demand with KOL outside of Russian supply.
Unlimited incremental supply available in the near term.
Within the seaborne metallurgical market.
Market indicators are robust with global steel production outside of China, a decade high levels and steel product margins remaining strong.
Going impact from Covid wet weather and logistics constraints continues to suppress global met supply.
Strong demand persists from buyers attempting to mitigate Russian exposure, especially.
Especially for PCI products, given Russian Russia accounts for about 35% of global traded volumes.
China's unofficial banner and Australian coal remains in place.
<unk> continues to redistribute traditional trade flows.
Energy shortages in some markets present, a risk to industrial activity, but the underlying market fundamentals remain constructive as strong demand and pricing.
In the United States overall electricity demand increased more than 3% year over year.
Positively impacted by weather.
In the first quarter electricity generation from thermal coal declined year over year due to strong comparative in February 2021.
As well as record renewable generation.
Coal share of electricity generation declined slightly to approximately 22%.
Coal inventories have continued declines since December 2021, with a reduction of approximately 5% or 5 million tons.
Utility consumption of CRB coal rose approximately 1% compared to the prior year period.
Combined this increased <unk> demand with increased demand for U S export coal due to the Russia, Ukraine conflict.
And it makes for a U S market is very tight.
With the supply side being pushed even harder with its logistics challenges.
Natural gas prices have hit high is about $7 limit btu.
Levels, we have not seen since 2008.
I expected to remain high for the remainder of 2022 due to record demand for LNG exports.
<unk> modern moderate production levels and storage levels below the five year average.
With these dynamics, we are seeing U S thermal coal demand remaining strong with recent increases in sales proposal requests and.
And contracting for 2023 at prices above our 2022 averages.
All of these dynamics that are compelling phase through 2022 in terms of demand and pricing of our coal products.
Now turning to the first quarter.
As projected our first quarter sales volumes were below ratable levels across our platform as we set the stage for stronger results as we progress through the remainder of the year.
And our seaborne thermal segment after severe range in the fourth quarter.
Mine sequencing re establishment plans were hindered by further record rainfalls and Covid related staffing staffing shortages in the first quarter.
Additionally, we started a scheduled longwall move at Lambeau underground.
Against these production challenges, we drew down inventory to deliver sales in line with guidance and instituted recovery plans to recapture full year projected volumes over the remainder of 2022.
And with an eye to the future.
We started development efforts at Huambo underground for three additional longwall panel that will extend the mine life until 2026.
Our seaborne met segment performed as projected with higher volumes anticipated as the year progresses.
And Metropolitan we commenced a longwall move which is now completed.
Shoal Creek, we continued to ramp up longwall production in the quarter <unk>.
Producing 270000 tonnes, while only selling 70000 ton bill.
Building inventory that will be drawn down in the second quarter, and we expect to receive prices substantially in line with other Prime high vol. A type coals.
The <unk> saw higher costs and lower volumes as compared to prior quarters as a result of timing of mine sequencing.
Which is higher coal production in the second half of the year.
We are on track with development of more of El South at our <unk> complex.
With first call anticipated mid year.
And outside of our operating mines, our 50% ownership share of middle market continues to benefit from strong metallurgical market dynamics and our productivity improvements.
<unk> $500 attributable tons in the first quarter.
Our <unk> sales volume were reflective of rail performance and our investment to ramp up production for following quarters.
And costs for both our <unk> and other U S. Thermal mines increased as a result of higher fuel prices and onetime costs.
And the <unk> as we work through logistics challenges to meet strong annual customer demand we have.
<unk> been setting the stage to deliver higher volumes for the remainder of 2022 by continuing to remove overburden completing equipment overhauls and recruiting and training and expanded workforce.
And then the Midwest, where we are not experiencing logistic challenges like the other basins where.
We are executing on the development of several projects at incremental volumes this year.
Demand for this product remains strong and we continue to place new business with both existing and new customers.
We continue to explore sales strategies have positioned us to be the long term producer of choice.
Riding our customers long term supply security and capturing strong market prices.
And the <unk> for 2023, we have approximately 59 million tons committed.
While our other U S. Thermal segment is essentially committed for 2023.
We have also expanded our value offering for our customers by strengthening our ESG commitment to better support the ESG ambitions of our stakeholders.
We believe that investments in practices that support their net zero emissions targets can be value, adding in complementary to being a coal producer of choice.
Our commitment includes establishment of emissions reduction targets for our operation and taking action on our pipeline of projects targeted to meet emissions reduction goals by leveraging our existing assets and new technology.
As an important step forward in supporting our ESG ambition. This quarter, we launched our three renewables our renewable energy joint venture formed to pursue the development of utility scale solar and battery storage six tracks of previous coal mining land in Illinois and Indiana.
These projects not only create value from existing assets.
It also allows us to better support our customers net zero emission ambitions.
Our vision for the future is simple.
We want to continue to strengthen our position as a coal producer of choice.
We will do this by maintaining financial strength.
Delivering a diversity of products to support our customers' needs.
Practicing operational excellence and champion ESG practices.
This will allow us to be resilient in all cycles and to grow with our stakeholders.
We are progressing this vision through multiple strategic initiatives.
And our met platform. In addition to advancing development of more bell south to improve quality and extend life at the CMV.
We advanced project activity to potentially re entered the south working with Merck in yellow and develop 70 million tons of reserves.
And in our seaborne thermal platform, we have begun development of three additional longwall panel extend the life of the womble underground until 2026.
In the U S. We continue to implement sales strategies and plans to capture short term returns on incremental volumes.
And to give us flexibility in our mine plans to meet changing customer demands.
Some examples of these activities our expansion into new areas that are wild boar complex in the Midwest.
And <unk> Refurbishments.
And most importantly, we remain focused on the financial strength of the balance sheet.
This quarter, we made additional debt repayments and completed a convertible notes offering.
I'll now turn things over to Mark to cover the financial details.
Thanks, Jim and good morning, everyone first quarter coal sales were over $1 billion or 58% increase from the prior year, a result of substantially higher realized prices from each of our operating segments.
Costs were impacted by higher sale sensitive costs.
Broad inflationary pressures and investments in the U S thermal platform to meet full year production volumes in response to strong customer demand.
We recorded a net loss attributable to common shareholders of $120 million or <unk> 88 per share. This included a $301 million charge for unrealized mark to market losses from coal hedging activities and a $24 million loss on early debt extinguishment.
Absent these items net income would have been substantially higher than the prior year period.
Reported adjusted EBITDA of $327 million.
More than five times, the $61 million reported in the prior year quarter.
Turning now to segment results the seaborne thermal segment generated EBITDA of $91 million less in the fourth quarter due to lower volumes and higher costs in the delivery of 264000 metric tons of <unk> coal at $84 per ton under the hedge program and 215000 metric tons priced in 2000.
'twenty one on average at 116.
The segments totaled $3 8 million tons in the first quarter about 575000 tons lower than full year ratable production as expected.
Both production and cost per ton were impacted by record rainfall COVID-19 related staffing shortages higher overburden removal and the start of a longwall move at Lambeau underground.
As part of the seaborne thermal segment will open the arm shipped 3 million tons, including 1 million export tons costs increased to $28 per ton due to higher overburden removal cost and staffing shortages.
Open young realized an average sales price of $50 per ton higher than the prior quarter, Despite lower export sales.
Generating an EBIT margin of approximately 43%.
<unk> young recorded $64 million of adjusted EBITDA for the quarter and had over $210 million of cash at March 31.
The seaborne met segment generated EBITDA of 181 million higher than the prior quarter as average realized prices of $258 per ton compared favorably to cost of 113.
<unk> and 56% EBITDA margins.
The segment delivered expected volumes for the quarter of $1 2 million tonnes above 500000 tons less than full year ratable production due to the start of a longwall move at Metropolitan and mine sequencing at the <unk> JV.
Cost per ton were up from the fourth quarter due to higher royalties, resulting from higher realized prices and the lower volumes.
In the U S R minus delivered $58 million of EBITDA.
<unk> mines shipped $20 6 million tons in the quarter.
Cost per ton increased $1 81, compared to the fourth quarter with more than $1 of the increase related to onetime cost to achieve higher expected production levels for the remainder of the year.
Higher fuel prices and other inflationary pressures also impacted costs during the quarter.
The other U S thermal mines shipped $4 2 million tons, while production increased to 175000 tons to $4 4 million.
Costs increased due to higher fuel prices, one time activities to enable higher production and certain rehabilitation costs at 20 miles.
Higher realized prices in the first quarter increased segment EBITDA margins to 25%.
Next a quick update on financing items.
We continue to demonstrate our commitment to strengthen the balance sheet we.
We retired an additional $42 million of senior secured debt in the quarter and utilized proceeds from the $320 million three in a quarter percent unsecured convertible notes offering to retire higher cost senior secured debt and extend maturity to 2028.
As a result of the unprecedented upward volatility of Newcastle coal prices, we had $482 million of cash posted in support of our coal hedges at March 31.
It is important to note we expect to recover all of this cash as we deliver the underlying physical coal over the next 15 months.
In light of volatile cash margin requirements, we completed the previously announced financing facility and drew $225 million.
That was fully repaid in the quarter with proceeds from the sale of $10 1 million shares under the related ATM program.
We also reduced exposure to additional margin requirements in the event of even higher prices by converting 750000 hedge tons of fixed price sales.
These transactions eliminated further margin requirements on the underlying tons and resulted in a return of approximately $50 million of exchange related initial margin.
Our remaining hedge exposure is $1 4 million metric tons with 900000 of those tons projected to settle over the remainder of 2022.
At March 31, we had $848 million of cash cash equivalents and restricted cash.
Now, let's turn to our 2022 outlook.
With the first quarter investments and planned production levels in subsequent quarters, we are maintaining full year production and cost targets.
In the seaborne thermal segment cost per ton for the full year are anticipated to be at the higher end of the guidance range due to production challenges in the first quarter continued inflationary pressures and increased royalties due to higher anticipated prices.
Based on price volume and more than 5 million export tons exposed to currently much higher spot prices, including 2 million tons of Newcastle benchmark coal and 3 million tonnes of higher ash will be.
Stronger margins are expected for the remainder of the year.
Second quarter, we expect production and cost impacts from the open Young's elevated overburden removal rate to continue and we reestablished mine sequencing and Whammo completes the longwall move.
Second quarter seaborne thermal export sales are expected to increase to $2 2 million tons with one 2 million tons priced at an average of $95 and 700000 tons of higher ash product from Wilson young and 300000 tons of Newcastle benchmark coal unpriced.
Moving to the seaborne met segment second quarter volumes are anticipated to increase to $1 6 million tonnes at Shoal Creek continues to ramp up.
Cost per ton for the quarter are expected to be higher than the first quarter due to a higher mix of Shoal Creek coal longwall restart costs at Metropolitan and mine sequencing at Capa Bella.
Although we have considered impacts to our full year guidance continued uncertainty regarding COVID-19 staffing shortages and supply chain disruption exists.
And may negatively impact our seaborne operations beyond the guidance provided today.
And the production is anticipated to ramp up due to the third quarter to meet higher contracted customer demand fully.
Full year cost for the U S platform are anticipated to be at the higher end of guidance due to widespread inflationary pressures.
In the second quarter <unk> sales are expected to be higher than the first quarter, assuming rail performance does not further diminish.
Other U S thermal volumes are expected to increase to 5 million tonnes.
For both segments are expected to be lower in the first quarter as a result of higher volumes and lower onetime investment costs.
Lastly, we will maintain our disciplined approach to capital allocation further reducing debt.
In summary, first quarter results reflect our investments in building a platform for improved results for the rest of the year. This was achieved despite the challenges we face and we are on track to deliver full year volumes with higher margins and increasingly strong cash flows across all segments for the remainder of the year.
I'd 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 phones.
Questions will be answered in the order they are received.
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One moment please for the first question.
Mr. David Gagliano with BMO capital markets. Please go ahead with your question.
Okay. Thanks for taking my questions, obviously, there's quite a bit going on within the company.
With regards to the Guangzhou hedges in.
<unk> costs should come down and all that stuff.
So we're still working through it on our side, so I'm going to actually cut right to the cash flow question.
Cash from operations was a negative $273 million in the quarter can you just.
I don't have a full I don't believe cash flow statement I think that comes in the Q in a few days can you just give us a sense as to what were the main.
Drivers for the big negative in there I think there is some fairly meaningful onetime cash outflows.
First question.
Good morning, David It's Mark Yeah.
Negative operating cash flow that is largely due to the mark to market unrealized mark to market on the womble coal hedges that you referenced.
It was $352 million for the quarter of additional margin and posted there's also working capital charges build in inventory and the timing of AP, which is about $110 million.
Included in that.
Okay, sorry, it was $3 52 of an actual cash outflow, which is the previously disclosed.
Cash outflow from the hedges is that correct and then there was $110 million working capital build as well on top of that.
That is correct.
Okay.
Alright Thats helpful. Thank you and then just along those lines.
I know you've been asked this question not just by me, but by me and others.
You mentioned capital allocation focus is debt reduction.
Setting aside the first quarter for a second here can you give us a sense as to.
Additional plans regarding shareholder returns addressing surety bond covenants and updated thoughts there.
Yes, Dave a couple of things.
We've been very transparent that we want to reduce the level of debt that the company is outstanding.
We are very pleased with the.
<unk>, 3.25% convertible note that we completed in the quarter.
And I would look at further debt reduction going down to eliminate all the other senior secured debt and just leaving that convertible debt outstanding. So that's that's job number one and getting that done once we have senior secured debt repaid.
We will look to to address that.
The $325 million letter of credit facility, which backstops the surety bonds as you mentioned, so we're going to continue to look at.
Funding.
Surety obligations for future reclamation.
Once we are comfortable with that.
Certainly everything we do is in the interest of shareholder value, we would be looking at opportunities to invest in organic opportunities North Danielle that Jim mentioned is one Prime example of that.
Also return of capital to shareholders would be would be on the table.
All things.
Considered we need to take care of the senior secured debt.
Which would prohibit those shareholder returns first.
Okay. That's helpful and then in terms of the 2023 PRP commitments.
There is a bullet I think in the press release increased 2023 P. RB commend commit itself is 59 million times can you give us more information on.
Just an average price for that 59 million tons committed for 2023.
Yeah, Hey, David Jim Greg here.
At 59 million tons for next year, which is ahead of our I'll say, our usual pace for selling coal for the following year at this point.
And time and we also have active rfps in front of us.
For more.
For more potential sales for 'twenty three 'twenty four.
We are seeing from the <unk>.
Rfps a willingness from the customers to go out for multiple years.
That is a change from what we've seen in the past and what led to that.
Strong sold position for us at this time of the year.
The specific pricing, David we're not going to give out at this moment, but I will say that our average pricing. So far is higher than what our average CRB pricing is for this year. So.
That helps some and give you some directional guidance as to where we're going.
And I know you know the complexity of our <unk> with the different qualities. We run about at average Btu of about 86, 7% overall with our portfolio too I just wanted to.
Pointed that out so on average we're seeing numbers higher than we have for our average prices for this year.
Okay. That's actually helpful. Thank you and then just on the volumes for the <unk> next year.
It's already volumes here, 80% to $95 million.
What's the early read on volume growth for 2023, and the CRB for for Peabody given.
Quite a dynamic U S thermal coal market all of a sudden.
Well I would say there is there is two factors into that.
One is the demand there and the demand is very strong for us this year and next year.
Second piece of that is the ability for all <unk> producers to deliver the coal.
With.
The rail challenges that we have and continue to have.
I feel good about both of those areas over the long long run of this year later this year.
The railroad is staffing up it's going to take time for them to <unk>.
Get the crews in and get them trained.
But that capacity will be there later in the year, which should lead us to have.
The opportunity to ship.
Ship as much coal or more this year and the demand is there for next year. So no we're not giving guidance on ranges for next year.
But.
Things keep lining up as they are strong demand.
Our operations with the first quarter investments.
That we've done are in good position to produce.
And the railroad is coming on strong stronger as the year goes on I think next year it could be a very very good year for tonnage for us in the CRB.
Okay. That's that's helpful. Thanks, and sorry, I just one quick last one just really wanted to give the opportunity again to clarify perhaps there might be some confusion out there regarding how the cash outflow works for them.
Unrealized hedge that you flagged earlier.
Can you just clarify that will.
That should come I'll come back to you once the volume is produced correct.
Yes, David Thats right. So essentially today, we have $1 4 million tonnes outstanding.
With regard to the huambo hedges at an average of $84 per metric ton.
I think of $1 per ton for that $1 4 million or whatever above that dollar for dollar as the prices are above that 84 level. We have to postbank margin. It's very important that we keep the trade book open we posted margin and if we used to close that we lock in those losses is something we wont do when we do and when we do deliver.
Deliver that coal will be selling it for the spot prices, which will make up the difference between the 84 than what we posted in March.
Okay. Thanks for clarifying.
Thank you Dave.
And we have Lucas pipes with B Riley Securities with our next question.
Hey, good morning, everyone.
I want to.
Talk a little bit about Q2.
So on the seaborne thermal coal side.
You expect sales of $2 2 million ton CF $1 2 million.
Booked at $95. So that leaves 1 million tons and I think you said that 700000 tons will Ping Yang and 300000 tonnes New castle and.
Wolfgang on price is not the most transparent for investors to observe given that Steve API five I believe so could you maybe point.
As to a reasonable range for will be home prices in today's market.
So yes.
Good outlook there on Q2.
Realizations. Thank you.
Good morning, Lucas, Yes, so on the Youre right. Our seaborne thermal there is $2 2 million tons of export tons for the quarter.
$1 2 million and that is priced at <unk> 95, as you said with the 1 million tons that are unpriced seven.
$700 and relates to the high Ash Wilson yarn products.
That.
At prices at a discount to API five API five today is roughly $190 a ton.
Need to take about a 10% to 20% discount off of that to get to the there will be product and if it's higher ash it could be even a little bit higher discount to that and then there are 300000 tons of Newcastle essentially benchmark product.
That should that should price in line with the forward curve.
Got it and all the prices you mentioned our metric tons. So so for your 1 million tons of short term sheet, you'd do the metrics or ton conversion as well.
Exactly.
No. That's that's that's helpful.
Got it and then what you sell on the on the prompt month for the Newcastle tons or quarter, what's what's a good benchmark there to look at.
Probably a lot of those tons will be on the <unk> the Japanese reference price.
For those 200000 tons.
That has not yet been settled for this year.
As a reference point that was only 110 last year, but it should be in line with kind of a forward view for the year, often and 325 current price.
Okay.
That's helpful very helpful. Thank you I appreciate that and.
Similar question for <unk>.
Met coal so.
Do you expect one 6 million tons, you have 200000 tons hedged at 418.
So what's the.
Realistic.
Composition for.
So the sales price of that open one 4 million tons of cement.
Yes.
It's essentially about 85% of premium hard coking coal, we look at our entire.
Tire met platform and about 85% discount to a premium hard coking coal.
So sorry, you said that was 85% hard coking coal.
And pricing 5% of that.
Pricing also at 85% of the benchmark.
Now to be clear.
As the port on a portfolio level for met coal, we achieved 85% of the premium hard coking coal benchmark price as a variable.
Half a dozen different products or more.
Got it.
That's helpful. So the 48 team that you booked on the 200000 tons.
That would be in this market could be it.
Even a conservative.
Indication of where you would sell the remaining one place for given where prices have been.
Quarter to date.
Yes.
418.
200000 tons priced.
And you get that $1 4 million or whatever unpriced.
At a discount or premium hard coking coal I don't think you'd be much above the price position, but it's completely price dependent as you said.
Got it got it.
Okay.
Yes.
Lucas Hi, Jim here.
As an example, maybe on the pricing.
But we're seeing at the moment.
In our remarks, we mentioned that Shoal Creek has produced 270000 tons, but we'd only sold 70 of it. So we have some inventory to move.
And so far month to date in April we moved about 102000 729000 tons of at numbers in the $420 range.
Month to date in April so that's the type of pricing we are seeing on the Shoal Creek product right now.
Very very helpful. I really appreciate.
Really appreciate that and Thats on a shareholder.
Short ton basis, yes, before thats on a short term basis to keep.
Keep it clear.
Volume and price respectively yet.
Super.
On.
On the hedge side it seems like you've been.
Having to deal with that last October so.
Earlier this year now.
Simply again today, but.
Felipe.
Noise is starting to get cleared up.
So you have 900000 tons for 2020 to 500000 tons for 2023 should we think about kind of 300000 tonnes per quarter for the rest of the year rolling off.
For the 2020 to hedge.
Yes, Lucas, it's not exactly flat.
So youre right on the tons for the rest of the year.
400, just under 450000 tons are going to roll off in the second quarter of this year, so that will leave us with less than 1 million tons remaining at June 30.
And just for reference I would like to see.
If we go back.
It's important to remember we placed we put these hedges in place.
Early in 2021 to extend the life.
The <unk> underground mine without it we would have Santa Cruz home last year and as you saw today, we just announced that we're developing the next three panels to extend that mine life out for several more years. So while we would love to get that spot prices for coal this year.
We're going to be profitable this year, even with those hedges and we've extended we kept that optionality open and how we've been able to extend that life for several more years.
Yes.
I appreciate that thank you very much.
Hi, Mark.
For all the detail Tim Thank you Pascal.
Best of luck.
Thanks, Lucas have a good day thanks Lucas.
Nathan Martin with the benchmark company has our next question.
Hey, good morning, everybody. Thanks for taking my questions, maybe just a follow up on that last one let Lucas.
With the <unk>.
With the conversions on the hedges to fixed price do you guys expect to possibly convert any more of those hedge tons to fixed prices in the near future.
It's something that we continue to look at.
It is challenging if theres an opportunity to do it at favorable terms we will.
Continuing to do that finding counterparties that want to lock in lock in essentially the today's prices of the forward prices.
There is a premium for physical to the forward so.
We want to maintain all of our <unk> P&L. So we continue to look at it we're going to maximize shareholder value and maximize returns of the company, we do feel with the remaining hedge position in the company's current liquidity.
That we're in a good spot from a liquidity perspective.
Thanks, Mark and just to clarify I think you said.
150000, when you convert it reduces future margin requirements by about $15 million is that right.
Yes, so it.
It eliminated any future margin requirements from changes in prices on those tons and then theres a $50 million of exchange related initial margin just opened the physicians that was returned once we once we converted fixed physical sales.
We don't have an open hedge position then we got about $50 million of margin returned back to us.
Okay.
Got it got it.
Maybe maybe shifting over to the cost side I mean, you guys. Despite the challenging start to the year maintaining all your prior cost guidance ranges it looks like across the segments.
Can you just talk about your confidence to get within those ranges or is it a function of higher sales volume as we move towards the back half of the year.
Pricing should be higher some assets that are a headwind.
Place any pressures you talked about and then maybe on the transportation side.
<unk> service.
I'll start cooperating as well so just how do we think about that and maybe any additional one time costs similar to what we saw here in the first quarter. Thank you.
Yes, maybe.
I'll start.
And and work backwards from your question on the onetime costs really that's our investments in the U S platform.
About $1 eight in the U S really that was due to gains that room pit inventory. So a lot of overburden removal cost as well as some equipment refurbishments and onetime kind of contractor mobilization costs.
That that goes away essentially going forward. So we expect a reduction there.
Similar in the other U S thermal position portfolio. There was some head counts and pit development in a dragline refurbishment. So really drove up some costs here in the first quarter again those are behind us.
Obviously volume and the <unk> is critical and ended and as Jim mentioned the rail is a key issue they're.
Getting those volumes out with the rail is going to be important to achieving those overall costs on the seaborne platform.
Wet weather I mean, the record rainfall and <unk>.
Covid related absenteeism or to staff shortages really really drove up cost significantly in the first quarter. There is also a longwall move at at Lambeau that started.
And that'll be finished up here in the second quarter. So those costs are.
All in probably drove up cost eight or $9 in the seaborne platform this quarter.
We do expect.
Cost to continue to be elevated in the second quarter as we kind of reestablish mine sequencing at <unk> young and recover from the record rainfall.
And I think.
And that was really good performance in the first quarter, we do expect that to tick up with with a higher proportion of Shoal Creek coal in the second quarter as it continues to ramp up and finished out a real low yielding panel right now.
But when I look for the rest of the year and gain those guidance I mean, we mentioned it in my earlier remarks, but certainly.
The COVID-19 impacts to staffing as well as supply chain on logistics continues to be a wildcard and hopefully rain.
Still not completely out of the wet season, and rain could have an impact in the seaborne platform.
Nick what I would say, though is.
The investments Mark referenced that we made in the first quarter.
And our fleet in general.
<unk>, whether it's in Australia the U S.
We are in good shape and they're ready to go.
In the second quarter and the rest of the year, we increased our staffing we've.
We've capitalized.
<unk> got equipment in good shape to run we've got our development caught up and ready to go.
So our fleet in general is ready to go to meet the increased demand and I would say the the biggest potential headwind. We have is is the thing that we can't control being.
As Mark just said, whether COVID-19 and rail performance, but operationally it said the investments we've made.
Have put us in a good position to produce well for the rest of the year.
Very helpful guys. Thank you and then maybe.
Shoal Creek, just just for a second Tim you mentioned.
Shipments growing about 71000 colleagues I think around 270000 production building some inventory there.
As far as the rats concerned is everything still seeing on schedule to kind of hit that $1 5 million tonne level. This year.
And when should we start to see the sales tick up to kind of match production.
I mean, you guys have great demand for that coal given the current marketplace.
Yes, those sales.
<unk>.
You were supposed to occur more in the into the first quarter. So they they slid into the second quarter.
And so that's why.
We're off to such a good start in April at the mine because those are those actually March sales. So we expect the sales to be consistent.
Over the rest of the year and we expect mining conditions to improve we are in a panel right now that we are going to get out of in May.
The challenging yield and getting the better mining conditions.
And so we should see our cost structure stabilizing and improving as we get through the rest of the year. So.
Sales are good.
The mine is.
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It is coming along well from Hasnt been shut down like I said, we should be getting better mining conditions say June forward.
For for the facility.
Just just wondering Jim.
The slippage was that largely transportation related or something else with it or rail or barge et cetera.
It's just the congestion down on the ports down there in the Gulf as head things backed up.
And Jonathan.
Yes.
And then just one final one Jim Jim can you I think.
Mark Green yellow you touched on it very briefly in your prepared remarks, I think you said last call you know hopefully.
Be in a position to give more so on that project by this call. So I was just hoping that you could share your current thoughts maybe any updates on the timeline capital cost volume et cetera that would be helpful. Thank you.
Yes. So right now we are currently installing main mine fans to assist feature underground operations and working on surface compares so all of the work is on the surface.
And looking forward.
We're still finalizing our cost estimates and engineering plans and.
Looking at further re ventilation leading to reentry into the mines. So.
We're making progress.
The specifics that you're asking for we're still so don't have them settled so I, just not going to not prepared to comment on timeline and cost other than the.
The detail on I gave you we are making progress.
The reentry into the mine would take us down.
Go toward our southern reserves.
We have about 70 million tons of reserves that are available to us. So.
Looking forward Thats thats.
That's the goal.
Any expectations at this time before you would make a decision whether to move forward or not.
We have to we have to refine the engineering plans and work with the.
The QM either to make sure that they are acceptable and then we can make good better cost estimates.
Just doing that process of making sure our engineering sound our cost estimates are sound before we would.
Make those types of decisions.
Got it very helpful. I'll leave it there I appreciate the time information guys and best of luck.
Thank you Nate.
And that does conclude our question and answer session I would like to turn the call back over to Mr. Jim Greg for any additional or closing comments.
Thank you and we we've stated here a few times in the call.
We had some adversity in the first quarter with the weather and Covid and the railroads and it was also a period of investment in our fleet getting ready to serve our customers and the demands that we have going forward in the rest of the year, but we've been successful on that and we are we are there are mines are ready to go.
So we're looking forward to a good.
Good finished with the second third and fourth quarter for this year.
So thank you all for joining us today, I'd, especially like to thank our employees remaining focused on safety.
And for continuing to execute on our various initiatives and I'd also like to thank our customers investors insurance providers and vendors for your continued support of support.
Operator that concludes our call.
Thank you and this concludes the Peabody Q1, 2022 earnings presentation. Thank you for participating.