Q3 2022 Peabody Energy Corp Earnings Call

Good day and welcome to the Peabody third quarter earnings call. All participants will be in a listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone phone.

And to withdraw your question. Please press Star then two please note. This event is being recorded and at this time I would like to turn the call over to MS. Alice Arena, Vice President of Investor Relations. Please go ahead ma'am.

Good morning, and thanks for joining peabody's earnings call for the third quarter of 2022.

With me today are president and CEO , Jim Grech, and CFO Mark start back.

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.

I'll now turn the call over to Jim.

Thanks, Alex and good morning, everyone.

In the third quarter, our diversified assets delivered strong performance results generating free cash flow of over $460 million and adjusted EBITDA of $439 million.

While recovering from significant weather events in Australia, and the early part of the third quarter.

We have set the stage to finish the year, even stronger with higher projected volume compared to prior quarters and market supporting continuing continued strong margins.

With cash generated we continue to strengthen our balance sheet by advancing our debt reduction strategy with voluntary repurchases.

Bringing us closer to eliminating all senior secured debt.

Will allow us greater financial flexibility in the future.

And I am pleased to share that we have commenced the redevelopment efforts at north pine yellow.

Before I expand on the quarter and the ramp in some of our Australian operations I would like to sincerely. Thank our global employees for continuing to work safely and efficiently and keeping this focus in the face of adverse events and distractions.

Dedication and commitment of our talented workforce allows us to deliver strong results.

I'd also like to congratulate the teams at both 20 mile and Shoal Creek for winning the 2021 Sentinels of Safety award for their outstanding safety performance.

United States, most prestigious award recognizing mining safety.

I'm extremely proud of this accomplishment and our commitment to safety that this exemplifies.

Now turning to global coal markets across the globe, all coal price indices remain at strong levels.

The outlook for all of our operating segments continues to be favorable with constrained supply base, serving a market that is reallocating the scarce availability of coal.

Seaborne coal markets remain volatile with near term market is being driven by continued energy supply security issues caused by the Russia, Ukraine conflict.

The global inflationary environment.

<unk> with the severity of the impending winter in Europe , and the wet season in Australia and Indonesia.

Seaborne thermal coal prices remain elevated as around the globe coal fuel generation is called upon for affordable reliable energy security.

The Russia, Ukraine conflict continues to impact markets cessation of coal imports from Russia by European countries is creating the need to source from alternative locations, including Australia and the U S.

Furthermore, an underwater pipeline explosion is reducing reducing Russian gas pipeline inflows in Europe , and it's putting additional reliance on imported coal to meet the upcoming European winter demand.

Overall global thermal coal markets remained strong with pricing well supported due to market tightness.

Within the seaborne metallurgical market steel output remains depressed.

<unk> by both seasonal and macroeconomic considerations.

However, offsetting this are steelmakers in Atlantic markets switching away from Russian coal imports and seeking supply from other regions, such as Australia U S and Canada, particularly for PCI coals.

While energy shortages in inflationary concerns in some markets present, a risk to near term industrial activity.

Buying market fundamentals remain constructive as metallurgical coal supply has declined and any additional production disruptions from wet weather and cooperation outages will lead to a further tightening of the market.

In the United States, the coal market continues to be very tight.

Demand for electricity generation competes with persisting transportation issues impacting supply to utilities.

Overall electricity demand increased more than 3% year over year.

Positively impacted by weather and economic activity.

However year to date electricity generation from thermal coal has declined year over year due to coal conservation by utilities to build coal stockpile given concerns with rail performance.

U S natural gas prices remain elevated although lower than record highs earlier this year.

Numerous factors will impact coal utilization heading into winter, including resolution of transportation issues, whether renewable generation and natural gas prices.

Across the U S. We continue to see growing caution regarding the pace of energy transition and the value of this basketball capacity.

Evidence of this our announcements of coal plant retirements being delayed.

Most utilities, citing grid reliability concerns or delayed renewable projects.

This speaks to continued strong coal demand for U S coals.

Overall, we anticipate continued near term market volatility as coal demand fluctuates and supply remains constrained across the globe.

Our diversified platform is positioned to participate in each of these markets.

Optimizing results by managing the needs of our diversified customer base.

Now turning to the third quarter, our third quarter results were strong despite recovering from significant weather and logistical challenges experienced in the first half of the year and early part of the third quarter.

During the quarter, we set the stage of finishing your even stronger with higher volume projected for delivery in the fourth quarter.

Whether it continues to be a theme impacting production at our Australian operations.

With current rain, resulting in decreases in fourth quarter estimated production at some of our operations.

And our seaborne thermal segment the impact of additional heavy rain in early July and absenteeism associated with Covid impact in industry wide staffing pressures resulted in lower third quarter production volumes and increased costs as compared to prior quarters.

Year to date Huambo, hoping John have received more than 190% and 155% respectively of their 10 year historical rain averages.

Last week as a result of major rain, we had a temporary stoppage and production of open John .

The continued continuing when you weather conditions in new South Wales pose a risk to these operations.

Even with increased water management capabilities put in place.

Based on weather events in the early part of the quarter, we have reduced our thermal exports sales expectation by over 500000 tons for the fourth quarter.

Our seaborne met segment delivered higher volumes this quarter and is set to deliver even higher volume next quarter.

Metropolitan produced higher volume following completion of a longwall move in the first half of the year.

This higher volume offset lower sales volume at Shoal Creek from continued production challenges due to geologic conditions and the impact of a barge and motor issue at the port impacting timing of September vessels.

We anticipate these issues will continue throughout the year with full year 2022 cell expectations at Shoal Creek reduced to 900000 tonnes.

Wet weather earlier in October has impacted C M JV production expectation for the quarter.

<unk> and anticipated sales being reduced by about 150000 tons.

Outside of our operating segments, our 50% ownership share of the Middle Mountain JV delivered 400000 attributable tons in the third quarter with production continuing to be impacted by the severe range earlier in the year.

This operation has also suffered from additional range quarter to date.

Anticipating to have lower sales lower results in the fourth quarter as compared to the third quarter.

And the P. R b higher customer nominations and improving rail performance resulted in an increase of nearly 4 million tons shipped as compared to the prior quarter.

The higher volume favorably impacted our per ton cost.

We are cautiously optimistic for improving rail performance going into the fourth quarter.

Our other U S thermal mines continue to achieve.

The strong results with the increased volume delivered in the third quarter.

Spite experiencing some real performance issues, primarily at the El Segundo mine in New Mexico.

Going into the fourth quarter, we are expecting to finish the year strong with higher cash flow generation project as compared to prior quarters.

We remained focused on strength strengthening the balance sheet with further substantial senior secured debt retirement and pre funding of our long term reclamation obligations.

After considerable evaluation I am pleased to share that we are moving forward with initial steps to unlock the value of the company's north Daniela mine.

Premium hard coking coal longwall operation, Australia was 70 million tons of company controlled reserves.

The project has a unique opportunity and that it will benefit from substantial existing infrastructure and equipment in place at the mine, including a new 300 meter longwall system, a proven coal handling preparation plant.

Dedicated rail loop for transport to the Dalrymple Bay coal terminal.

And then accommodation village with housing and service amenities for more than 400 workers.

This infrastructure makes this opportunity superior to other green and brownfield projects.

That do not have a significant infrastructure in place.

North can y'all is expected to generate attractive returns at historical long term price assumptions, while re weighting Peabody is long term production and revenue toward metallurgical coal in line with our strategy.

Initial redevelopment capital expenditures of $140 million over the next 18 months has been approved.

Development costs beyond the current board approved amounts are estimated to be an additional $240 million, bringing total estimated capital to approximately $380 million over three years with longwall operation expected to commence in 2026.

Beyond this project.

North can you only has additional strategic value with 50 million tons of remaining company controlled reserves. In addition to multiple other regional options for further extensions.

Options for further development on our existing and regional reserves continue to be assessed in light of the adverse impact of the changes to the Queensland government's royalty regime.

As we take the first steps toward redevelopment at North Daniela.

We continue to urge the Queensland government to roll back their extreme royalty structure, which will not only discourage investment in Queensland, but also with the tens of thousands of jobs and local business opportunities the coal mining deliveries to regional communities.

Finally, as you may have seen Coronado global resources recently issued announcement confirming that we are engaged in discussions about a potential combination.

It is important to note that while there can be no assurance of any such transaction. We do regularly evaluate a range of strategic options to strengthen our position as a coal producer of choice for both thermal and met coal and any actions, we take will always be consistent with our focus and our commitment to creating value for shareholders.

At this time, we do not have any updates to share and we will not be commenting further on that matter today.

I'll now turn things over to Mark to cover the financial details.

Thanks, Jim and good morning, everyone.

In the third quarter, we recorded net income attributable to common shareholders of $375 million or $2 33 per diluted share and adjusted EBITDA of $439 million.

Year to date adjusted EBITDA was $1 3 billion nearly three times the prior year results for.

For the quarter, we reported free cash flow of $461 million. The best result in 18 quarters and had approximately $1 4 billion of cash and cash equivalents at September 30.

Our unique best in class diversified portfolio continues to set Peabody apart our seaborne thermal segment led the way with premium Australian thermal coal price down the average above $420 per metric ton substantially higher than the premium hard coking coal average price of about 250.

Together with higher demand in the U S. Each of our operating segments reported higher per ton margins compared to the second quarter, except seaborne metallurgical coal, which despite achieving $30 per ton in lower costs realized lower market pricing.

Turning now to the third quarter segment results.

Seaborne thermal generated $171 million of adjusted EBITDA and benefited from higher realized prices, resulting in a 48% adjusted EBITDA margin.

The segment exported $1 6 million tonnes at an average realized price of 188, approximately $45 higher than the second quarter.

Costs were $5 per ton higher impacted by both lower weather related production at the window open cut joint venture and higher copper sales price sensitive costs.

Included in the seaborne thermal segment is the Wilton.

Which shipped $2 8 million tons, including over 700000 export tons.

We will send your unrealized and average sales price of $72 per ton about 15% lower than the prior quarter due to less tons available for exports.

We will send you an recorded $115 million of adjusted EBITDA for the quarter repaid $136 million of its debt and had over $200 million of cash at September 30.

Seaborne met generated $113 million of adjusted EBITDA is lower average realized prices of $180 per ton were partially offset by higher production and lower costs compared to the second quarter, resulting in a 36% adjusted EBITDA margin.

The segment sold 1.8 million tons about 13% more than the prior quarter.

Costs were $30 per ton lower due to higher production at metropolitan and lower sales price sensitive costs.

The U S thermal mines delivered $111 million of adjusted EBITDA, our best quarter year to date.

The investments we made early in the year continue to allow for higher production levels and the PRD began to benefit from some of the uncovered coal in the first half of the year.

The PIV shipped 22 3 million tons about 4 million more than the second quarter. Despite rail service meeting only 83% of customer nominations.

Cost per ton or $1 26, lower quarter over quarter due to higher production, resulting in a 13% adjusted EBITDA margin.

The other U S thermal mines shipped $4 8 million tons 400000 tons higher than the second quarter, better realized pricing offset higher labor and repair costs, resulting in higher margins per ton and a 28% adjusted EBITDA margin.

Now if you look at the balance sheet.

At September 30, we had $1 4 billion of cash and cash equivalents 485 million more in total debt.

During the quarter, we retired an additional $186 million of secured debt and have $143 million of additional repurchase offers on the Wilson young 10% debt currently outstanding.

At September 30, reclassified all remaining secured debt as a current liability on the balance sheet underscoring our intent and ability to retire all debt other than the 2028 convertible notes in the next 12 months.

During the third quarter, we posted an additional $31 million of cash collateral toward future reclamation obligations, bringing total cash collateral supporting surety bonds to $88 million.

Based on third quarter free cash flow results, an additional $62 million will be posted in the fourth quarter.

At September 30, we had $466 million of cash margin supporting the Huambo underground mine hedge program $78 million less than the June 30 balance we have approximately 900000 metric tonnes still exposed to margin variations all of which will roll off over the next three quarters.

Now, let's turn to our outlook for the remainder of the year as Jim mentioned, we updated fourth quarter guidance to account for the expected impacts to our Australian mines from the recent range.

Despite these adjustments we expect the seaborne thermal and metallurgical segments to report their highest quarterly sales volumes of the year in the fourth quarter.

The seaborne thermal segment is expected to ship $2 4 million tonnes.

With $1 2 million export tons priced on average at 122, including 564000 metric tons hedged at $84.

Also $1 2 million unpriced tons with 100000 tons expected to price at Newcastle benchmark levels, and $1 1 million tonnes expected to price in line with ATI five coal due to current coal quality and market conditions.

Costs are expected to improve to $40 per ton due to the higher production quarter over quarter.

Seaborne metallurgical volume is expected to be approximately 2 million tons with 200000 tons priced at 244, and the unpriced tons expected to achieve 75% to 80% of the premium hard coking coal benchmark price.

Based on production mix costs are expected to be $125 per ton.

And the <unk>, we expect to ship 23 million tons at an average price of $13.50.

Costs are expected to be $11 50 per ton, resulting in our best quarterly margin of the year at $2 per ton.

Other U S. Thermal volume is now expected to be $4 7 million tonnes with costs at $40 lower segment expectations are primarily due to poor rail service and our El Segundo mines.

These adjustments volumes and costs are expected to be largely in line with third quarter results.

Looking out to 2023 and U S thermal volumes.

We have 82 million tons priced at $13 25.

With some higher quality 8800, Btu coal uncommitted.

And $18 6 million other U S thermal tons priced at $50 70 per ton.

We expect to finish the year with an improved balance sheet and significantly less debt.

$150 million of cash funding for future reclamation enhanced financial flexibility and the redevelopment of northern yellow underway.

I'd now like to turn the call over for questions operator.

Thank you we will now begin the question and answer session.

A question you May Press Star then one on your Touchtone phone.

If youre using a speakerphone please pick up your handset before pressing the keys and Swift draw. Your question. Please press Star then two and at this time, we'll pause momentarily to assemble our roster.

And the first question will come from Nathan Martin with benchmark. Please go ahead.

Okay.

Thanks, operator, good morning, everyone. Congrats on the quarter and thanks for taking my questions.

Makes me you know I guess I'll start moving forward with North Korean yellow redevelopment, obviously, a high quality met coal project. There were confirmed discussions with Coronado, which is obviously the met leopard producers. So maybe it would be great to get your thoughts on kind of the met markets as you see them going forward as they seem to be getting out.

Thanks.

Yes.

Metallurgical seaborne markets as we've said in the past had been a focus.

Area for growth for us, particularly in the Asian markets, which we serve and they continue to be a focus for us and areas that we would look to strategically grow into the future the north Daniela project.

Part of fulfilling that strategy and our outlook on these markets.

And we're very very bullish on that project, because we think it's unique metallurgical coal product versus any other opportunity like that in the world and that is because of two reasons. One is the high quality metallurgical coal and two because we have such a substantial infrastructure in place already with the rail loop the longwall the.

<unk> village.

There's a significant amount of investment already just sitting there.

And to put the incremental investments that we need to to bring that mine enter back into the mine or bring it back into service.

<unk> to US is just an outstanding opportunity that.

We've obviously taken steps to embark upon so again it fits right in with our view that the seaborne met markets are a potential growth area for us in the future.

Okay.

Appreciate those comments Jim.

Maybe kind of looking ahead first you guys raised capex, obviously around looks like $20 million for this year 202, again, driven by the northern Delaware project any early thoughts on what Capex could look like in 'twenty three.

And it's this year. It was about 110 million is that still kind of a fair number to use it what do you expect spending to look like in 'twenty three on corner with good deal, it's a tender for fixed.

Nate it's mark we're not providing any guidance for 'twenty three yet specific to the north Vignali, though.

We announced the essentially 136 million that's going to be spent over the next six quarters and really through the end of the first quarter of about 24. So that's kind of the spend on north can yellow for that first chunk. We also noted that.

There's about 230 or $240 million of additional development at north Daniela above what we've announced and approved that would be spent over the following two years. After the first 136 million. So you're really looking at about $370 million total for for North Daniela now really over the next three and a half years pretty pretty.

Proportionately or or in a straight line.

Got it great. Thanks for that Oh, They're commission Mark and then maybe just coming back to the quarter for a second.

I noticed other operating cost line item was higher at least than I'd expected I know that tends to be a little lumpy because I think it's largely driven by trading and brokerage activities that you guys have noted in the past, but can we get some color there and maybe even more importantly, how do you see that line item shaping up in the fourth quarter and beyond thanks.

Yeah. Thanks for that question two things.

That's mostly that other than we do run through the former working yellow holding cost have been running through there, but that is primarily the trading activities that you mentioned.

We typically use that to maximize our blending opportunities and generally make a modest yet meaningful profit for the company.

Particularly this quarter, though.

It's a good question because as a reminder, we realize some hedge losses in the first quarter of this year as weather related production delays deferred shipment of about 180000 hedge tons.

Fat prices when we delivered into other fixed price contracts other physical contracts, we had delivered to a fixed prices.

That loss was recorded through coal trade in the first quarter and our results simply from a timing difference of delivering that womble physical coal and the hedge contracts now if you recall first quarter average prices was about $264 per metric ton now here in the third quarter, we delivered some of those times when the average price was $420 a metric ton.

So we realized about $27 million and coal trading profits during the quarter just from that timing difference, but those truly all right you know real learnings based on selling that call. It four 'twenty versus $2 64.

And any thoughts Marc on how that might look like going forward or how to model that.

Yeah. So there's still a there's still a you know about 900000 tonnes.

That we have on that program that are rolling off I would say, we probably recovered about half of those deferred tons from the first quarter. So I'd expect a similar you know at the same prices as today I would expect a similar coal trading profit.

In that ballpark for the fourth quarter.

Got it.

That's very helpful. Appreciate that.

And then I guess, just maybe one final item if I could yeah. We've seen obviously the heavy rains you guys spoke about in your prepared remarks.

In October it sounds like you've kind of incorporate that into your guidance as best as possible.

What else are you guys doing to kind of deal with those heavy rains you. How comfortable are you with the $2 4 million tons of fourth quarter exports, you're driving to at this point.

No Nate.

Like you said, we've incorporated our best estimates into the forecast for the impacts of those rains and even we have in our forecast some allowance for other rain events. So we feel we feel good about the forecast we have out there.

Pending anything.

I would call it extensive or out of the ordinary occurring we do have some some allowances for that already in the numbers.

We've been doing is.

On a separate on the site each site is distinctly different different ways to manage the water with the much larger volumes if they are to reoccur and treating the water. So essentially we can remove it from site. So each of the different sites have putting plans in place to handle these larger amounts of water that we already have on site currently.

And that may be coming again in the future. So again, we're taking the steps that we can take to be ready for this these types of events occurring again.

But pension Jim I'll I'll pass it on appreciate the time and best of luck during the fourth quarter.

Okay. Thank you Nate.

The next question will come from Lucas pipes with B Riley Security. Please go ahead.

Thank you. Thank you very much operator, good morning, everyone and good job a little corner.

Thank you.

I do want to follow up on the on the North Dakota yellow decision in and specifically you know that the market puts a very significant premium on capital returns. So how do you think about.

Pursuing this organic growth project while also.

Meeting market expectations for ongoing capital returns, especially as we look out to 2023. Thank you very much for your perspective.

Thanks, Lukas its mark.

I'll take a crack at that we've talked here for a for a few quarters now about about our strategy of first deleveraging the balance sheet. As you know shareholder returns are restricted with our with our secured debt as well as our surety agreement.

Since the start of 'twenty, one we repaid about $700 million of debt in that same time, we've increased our cash balance from about 700 million to $1 4 billion.

But the classification of current liabilities.

All of our secured debt, it's a clear signal that we will eliminate that remaining $550 million over the next 12 months.

Specifically, we opened Jan had about 100 has about $195 million of debt outstanding. We have offers as I mentioned in my remarks.

Outstanding repurchase that debt to date, we have received tenders into those offers for for substantially all of that debt. So I expect that to be cleared up in short order.

We're also addressing the unfunded $300 million LC facility it costs about $20 million a year to maintain.

That matures in 2024 and will not be renewed.

Currently that facility is providing noncash collateral for future reclamation liabilities.

As you May recall, our surety agreement also requires some additional collateral.

Based on free cash flow.

And as noted $62 million of collateral has been posted here in the fourth quarter, bringing our total prepaid reclamation fund to $150 million.

So the last part is that the surety agreement. So let me just add here that we continue to have really good discussions with our charity partners. We've discovered a lot of common ground.

We're certainly aligned and the company's continued deleveraging efforts.

We're seeking a final reclamation surety agreement to cash collateralize their future reclamation to a reasonable level relative to the actual liability and then remove those restrictions from shareholder returns as well.

We expect to continue to finalize that here in the coming months, so with that with those shackle those they removed we have an opportunity to do a couple of things we can regain that financial flexibility. We can reinvest in organic projects like North Daniela Jim mentioned World class premium hard coking coal.

That can deliver.

Three to 4 million tons, a year of that coal for for an investment of $370 million over the next.

Investment of 370 million over the next three and a half years, that's a 25% return and that's the only utilizing 28% of the existing reserves in that project.

While we have great organic portfolio opportunities. We're also looking to do that side by side with our with shareholder returns and elimination of this debt.

Mark really appreciate that comprehensive answer that is that is very helpful.

One of the pieces in all of this is also M. In M&A when you think about capital returns and what's gonna yellow.

And then also M&A, how do those pieces.

Do those pieces fit together. Thank you very much for your perspective on that.

Lucas as Mark said given the strong.

Cash generation projects after we look at.

Strengthening our balance sheet and as Mark said, removing those shackles for us.

We then can.

Look at different things that arent mutually excuse mutually exclusive whether it's shareholder returns organic growth or M&A. So.

Participating one doesn't necessarily preclude participating in the other.

We do have a focus on though is what is the best overall decisions for our shareholders and that overrides.

Anything that we're doing as far as what we're going to be doing with the capital. Once we have these shackles and this financial flexibility too.

To do some more maneuvering with the cash in the company.

Helpful and given that you've seen.

Signalled that go ahead here in Wisconsin yellow is it fair to conclude that that is clearly better than what you're seeing available on the M&A front.

Again, I'm not going to comment on any M&A activities as I said was at shareholder returns organic growth or M&A. They don't have to be mutually exclusive the north can yellow project stands alone on its own merits.

Again with the returns that Mark mentioned and I would say the lower execution risk of a project like that versus something that's greenfield because there's so much infrastructure in place we know the reserves.

As we look at it as a very low risk organic growth opportunity that stand alone is a very very good decision for our company.

Okay. Thank you and then.

Last one from me Unfortunately also on the.

Capital structure allocation front Oh.

Maybe jump back in with operational questions later, but in terms of market.

Again really appreciate the response earlier very helpful.

You mentioned paying off all the secured debt over the next 12 months you're in discussions with the sureties.

Would it be possible to provide a little bit more granularity on the potential timing of the secured debt.

Payments would you expect that to be early 2023 first quarter and then with the surety.

Would you expect.

At the conclusion to those discussions around the same time to say thank you very much for your perspective.

Okay I appreciate those questions Lucas certainly from a secured debt perspective, I mentioned that we opened you on that $195 million or the big piece of that we we have offers outstanding substantially all of that's been tendered so that should be cleaned up here hopefully.

Hopefully in the next quarter and the fourth quarter here.

Other secured debt.

Term loan that can be repaid without penalty in premium.

At a time of our choosing.

2025 notes are currently callable as well at a very small premium to par. So we can take that out and we expect to do so in the next 12 months as far as the Sureties go My partners like I mentioned, we're having a really productive conversations and we have a lot of common ground. So I think the timeline is the same I would expect to have that wrapped up.

Here by the end of the first quarter of next year.

Very helpful.

Again I appreciate all the color on <unk>.

Up the good work thank you.

Thanks Lucas.

The next question will come from David Gagliano with BMO capital markets. Please go ahead.

Hi, Thanks for taking my questions I think you know a lot of the questions that I had on my mind that have already been addressed but I did want to just clarify a little bit on northern yellow.

Just the timing here.

So capex is 140 million by <unk> 24.

<unk> totaled $3 70.

And what's the can you give us a sense as to the timing of the ramp up of production and also what's the early read on no reasonable range for for cash costs.

On the production, we will start seeing development coal coming in in 2020 for Dave. That's that's the plan for that and then longwall coal coming sometime in the first half of 2026. So that's the timing of the Oh.

When we see the production flowing and I'm sorry, what was the other question you had.

I mean, I know, it's early days and I know, we've been in and out of northern yellow over the years. My other question was.

A reasonable range for cash costs in 2026 as best you can tell in 2022.

You're talking North Daniela cash costs I think we're probably are asking at that 90 595 to $100 a ton.

Alright perfect.

And then on the on the M&A commentary.

And the commentary that you know that the northern yellen M&A or not.

Mutually exclusive.

When you look at M&A.

You know we would you are you considering.

You know, what's what's the what's the more likely type of opportunities Youre looking at is it is it full.

Corporate.

Activity or acquisitions or is it asset by asset or.

If you could just give us a sense as to what what types of things are under consideration.

Dave.

Yeah.

Our strategy.

Core growth, whether it's organic.

Or M&A if it were to occur is to go to the seaborne markets with the met markets being preferred over the thermal markets, but again not to say, we wouldn't look at it but at a high preference too.

Expand in the seaborne metallurgical markets as the direction, we'd like to go into the future and we.

We would look at any type of opportunity.

That would make sense to us.

I would put any limits on what we would look at.

As far as the type of opportunity.

Okay, and then just along the same lines in terms of incremental investments elsewhere geographically.

Can you comment a little bit about.

Thoughts about the U S thermal strategic plans it wasn't too long ago, Peabody and arch, we're trying to get together out there obviously didn't work out from an antitrust perspective.

Obviously things have changed a lot.

And I'm just curious what the current thinking is with regards to future meaningful.

<unk> and in the U S Powder River Basin for example, or just in the U S thermal business in general.

Yeah. So you know in <unk>.

Regards to the M&A question I think if that's what you're asking again, our focus is the organic or inorganic both actually yeah.

Yeah.

So.

Our focus is the seaborne metallurgical.

Growth so in the domestic U S thermal.

The assets that we have there low cost assets both in the <unk>.

In the Midwest and early in year, we have announced.

Investments in equipment for those mines.

And we've also in the first half of the year, we invested in uncovering some more coal in the <unk> to be ready.

To meet some demand here, so our investments in our U S assets.

<unk> <unk> to.

I'd call it small incremental growth off of our existing asset base, nothing significant or as far as capital investments. There. It's basically taking what we have been.

Putting some more of the equipment back into service hiring hiring people to man the equipment.

You know that can fluctuate with demand that would be how we're looking at our U S assets.

U S thermal assets.

Understood.

Okay and then just the last one for me on the same topic.

When you assess your existing portfolio.

Do you see divestment opportunities within that portfolio.

I don't like to comment on M&A or divestment.

Again, whatever is it makes the most sense for our shareholders.

We're always open to looking at it and we'll look at for that opportunity.

Okay, great. Thanks, very much for taking my questions.

Yeah. Thank you David.

As there are no further questions I would like to turn the conference back over to Mr. Jim Grech for any closing remarks. Please go ahead.

Well, thank you all for joining us today.

Especially like to thank our employees for remaining focused on safety and for continuing to execute on all our various initiatives.

I'd also like to thank our customers investors insurance providers and vendors for your continued support.

Operator that concludes our call.

This concludes today's teleconference. We do appreciate your participation you may now disconnect.

Goodbye.

Okay.

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