Peabody Energy Corporation Stock

Good day, and welcome to the Peabody Quarter 2 2026 Earnings Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Kala Finklang. Please go ahead.

Thanks, operator, and good morning, everyone. We appreciate you joining us for Peabody's Second Quarter 2026 Earnings Call. Joining me today are Peabody's President and CEO, Jim Grech; Chief Financial Officer, Mark Spurbeck; and Chief Commercial Officer, Malcolm Roberts. After our prepared remarks, we will open up the call for questions.

Before we begin, I want to remind you that our remarks today will include forward-looking statements. Please review the full statement contained in our earnings release and consider the risk factors referenced there, along with our filings with the SEC.

I'll now turn the call over to Jim.

Thanks, Kala, and good morning, everyone. Peabody delivered on a number of important accomplishments during the second quarter while continuing to manage through some near-term operating and cost challenges. Most importantly, we maintained our focus on safety across the portfolio, which remains the foundation of everything we do.

During the quarter, we also made meaningful progress on a number of key priorities. At the Centurion Mine, we are now approaching targeted production levels. I'll provide [Technical Difficulty] Centurion in a moment. Our seaborne thermal operations delivered on volumes and costs, supported by strong execution despite the higher fuel cost environment. We completed multiple strategic financial actions that further strengthened our capital structure, lowered our interest expense, freed up restricted cash and effectively returned cash to shareholders. Mark will provide more detail on these actions shortly, but I'll steal part of his thunder and note that we have effectively repurchased 5 million shares.

In addition, Peabody was selected by the Department of Energy for a grant to advance rare earth element and critical mineral development opportunities in the Powder River Basin. This recognition reinforces the strategic value of our existing asset base and the opportunities to unlock value beyond our core coal mining business. At the same time, the quarter included several challenges. In U.S. thermal, volumes were impacted by the extended shoulder season in the Powder River Basin and heavy rainfall across the Midwest.

In seaborne metallurgical, costs were temporarily elevated by commissioning-related spend at Centurion. And as expected, we faced some of the highest fuel costs in years. Bottom line, $24 million of adjusted EBITDA is nowhere near the type of quarter that this platform is capable of or that we expect going forward. And overall, we exited the quarter with improving operational momentum, a stronger financial foundation and continued confidence in the long-term value of our diversified portfolio.

With that, let me provide a more detailed update on Centurion. The primary challenge that we addressed was realignment of shields that have been impacted by the roof conditions we encountered due to the longer-than-planned commissioning period. This shield alignment process was laborious and time-consuming and more expensive than we expected, but it is now behind us. The longwall is in excellent shape and remaining roof control issues are largely limited to a rock faulting zone spanning about 20% of the longwall face that we will continue to work through during the third quarter.

I'll also note that run-of-mine production, prep plant yields and rail shipments have all strengthened in recent weeks. Given where we are against plan, we are targeting 1.5 million to 2 million tons of sales in the second half with 500,000 to 700,000 tons expected this quarter, factoring in anticipated shipping schedules. Our focus now is on safely accelerating production rates and improving consistency. As this occurs, we expect the elevated cost of the first half to begin to trend more in line with long-range projections as we move through the second half of the year.

It's worth recounting the extraordinary potential represented by Centurion. It's the highest quality coking coal product in the world. Its projected long-term cost structure is first quartile for this type of coal, further expanding margins and has a 25-year mine life that further solidifies Centurion's role as Peabody's cornerstone asset in Australia. That's a summary of Centurion's progress.

Given the importance of the mine to the portfolio, we'll look to provide updates to the market in both August and September, ahead of the next earnings review. Beyond our core business, our Peabody Development Group continues to advance multiple initiatives and opportunities we have to develop rare earth elements and critical minerals from our extensive asset base. We were honored to receive a conditional award from the U.S. Department of Energy to demonstrate the feasibility of recovering rare earth elements from coal-related feedstocks. Our work on rare earth elements extends across multiple mining operations and includes several initiatives beyond the projects supported by the DOE award.

In critical minerals, we continue to make encouraging progress in our expanded exploration and evaluation of germanium across our existing operations. We're working with leading process technology partners and an industrial consumer of germanium to demonstrate technical and commercial feasibility with the objective of establishing domestic production and creating a new high-value revenue stream for Peabody. Each of these opportunities is viewed through a capital-light prism aiming to work with partners, create new pathways for Peabody growth and further monetize our resource base.

While we are highly focused on near-term execution, I'd also like to take a step back for a minute and note that we have spent the last several years building a platform from which to generate meaningful shareholder returns for many years to come. This platform includes flagship operations in our seaborne met, seaborne thermal and U.S. thermal businesses, sustainable operations with a number of capital-light extension projects progressing in Australia, a fortress balance sheet with a capital structure built for the long haul, a portfolio positioned to benefit from mid-cycle seaborne thermal and metallurgical pricing and several early-stage initiatives within Peabody development that add important growth optionality.

We look forward to delivering the earnings and cash flow generation capabilities of our platform in the future. With that, I'll turn it over to Malcolm for a discussion of U.S. and global market fundamentals.

Thanks, Jim. The second quarter saw continued strength in both seaborne metallurgical and thermal coal markets amid some softness in U.S. thermal coal. Starting with seaborne metallurgical coal, prices reached a several year high in the second quarter with premium hard coking coal averaging $238 a ton, a 29% improvement over year ago levels. Driving that was steel demand that was good, but not great and a met coal supply picture that saw sharp tightening due to a tragic mine accident in China's Shanxi province. That accident has led to widespread safety inspections and curtailed production in Shanxi, along with several other Chinese provinces that experienced a similar dynamic from less widely reported safety incidents. The actions of one province in China may not appear to be significant in the world market, but Shanxi produces more met coal than the entire seaborne met market and in fact, twice as much coal in total as the entire United States.

The effects of production constraints have been stark. We estimate that 30 million tons of production were already taken out of supply in the second quarter compared with the seaborne market that only totals 85 million tons a quarter. Continued supply reductions are expected throughout the second half of the year.

Switching to seaborne thermal coal markets. Demand remained strong throughout the second quarter due to strong coal fuel generation across multiple countries in Asia. Liquefied natural gas, the key competitor to seaborne thermal coal saw prices move higher because of ongoing conflict in the Middle East. Japan, Korea market LNG prices started the year in the $10 to $11 per MMBtu range. This soared to $24 to $25 per MMBtu and even now remain just below that mark. As we've seen so often, major events remind numerous countries why coal fuel generation is so reliable and affordable. The Iran conflict is no different. Seaborne thermal prices have responded to strong coal fuel generation.

Newcastle 6,000 kcal product averaged $137 in the second quarter, more than 35% above prior year levels. We've also seen the lower heat API 5 product respond in a similar fashion. While seaborne thermal demand looks to remain strong as we move through the summer in the northern hemisphere, supply is likely to be constrained by Indonesian policy settings. Indonesia continues to tweak its policies relating to coal production, exports and domestic market obligations. Indonesia is the largest seaborne thermal coal exporter, yet we are hearing of rolling blackouts in Indonesia as coal fuel generators run short of coal. Indonesia's 2026 coal output is expected to be meaningfully lower than prior year levels.

Shifting to U.S. thermal coal markets. The demand picture was impacted by what seemed to be a 4 to 5 month spring in many parts of the country. 18 degree days were off sharply in the first quarter with a second quarter that was also mild. That led to natural gas prices that averaged 13% lower than the strong first half of 2025, driving some coal to gas switching. I will also note, though, that we've seen a return to what I would call longevity maintenance actions by a number of coal fuel plants in the U.S. In prior years, maintenance outages were more modest given expected retirements. Why maintain a plant that's going out of service?

Now though, we've seen a trend of plants taking longer seasonal outages to enable more comprehensive repairs and maintenance. Customers recognize that these plants may be operating for longer than originally expected. While those longer outages dampened the springtime coal loadings, they also set up for a stronger long-term thesis. Summer, of course, has now settled in across the U.S. and grid statistics are showing the important role of coal-fired generation in meeting grid demand loads. We've begun to see an increased level of offtake in line with the established trend of recent years when July to December is the period where coal burn is at its strongest.

That's a quick review of the markets. Now over to Mark for a discussion of the financials.

Thanks, Malcolm, and good morning to all. For the second quarter, we reported a net loss attributable to common stockholders of $90.6 million or $0.74 per diluted share and adjusted EBITDA of $24 million. The quarter reflected significant progress at Centurion, strong seaborne thermal results and lower U.S. thermal volumes. We also completed several strategic financial transactions to unlock shareholder value, which I will discuss in more detail after walking through the segment results.

The seaborne thermal platform shipped 3 million tons, in line with expectations and consistent with the first quarter. Export shipments totaled 1.9 million tons and the average realized export price of $95.87, increased 11.2% quarter-over-quarter and 31.6% compared to the prior year period.

Segment costs of $58 per ton were at the low end of guidance, resulting in a 23% adjusted EBITDA margin and over $52 million of adjusted EBITDA. Seaborne metallurgical shipments totaled 2.5 million tons, exceeding expectations by 200,000 tons due to higher volumes from Metropolitan and the CMJV. Costs were above guidance at $155 per ton, primarily reflecting higher commissioning costs at Centurion. The segment reported an adjusted EBITDA loss of $17 million as higher Centurion costs were only partially offset by a 7% quarter-over-quarter improvement in realized pricing.

Our U.S. thermal business reported $19.8 million of adjusted EBITDA in the second quarter, marked by the extended shoulder season, which resulted in lower volumes across the platform. In the Powder River Basin, shipments totaled 16.4 million tons, significantly below our 19 million ton expectation as mild weather extended into June and coal generation plants undertook the extensive longevity maintenance that Malcolm noted. We kept a keen eye on labor efficiency and equipment utilization, moving an additional 11 million cubic meters of overburden uncovering additional coal. The related costs naturally ran through second quarter results and temporarily increased unit cost to $14 per ton, but they will provide a significant benefit to costs for the rest of the year. In fact, we expect cost to be $2 lower or about $12 per ton in the third quarter.

Other U.S. thermal shipped 3 million tons, 400,000 tons below guidance, reflecting the extended shoulder season and heavy rainfall across the Midwest late in the quarter that delayed shipments. Despite lower volumes, costs were kept in line at $46 per ton, demonstrating focused disciplined cost control. The segment contributed $26.9 million of adjusted EBITDA in the quarter.

Turning to the balance sheet and capital structure. At June 30, the company had over $500 million in cash and total liquidity over $900 million. In the second quarter, we completed several strategic financial transactions that unlock shareholder value, jump-start shareholder returns, lower borrowing costs and increased financial flexibility. First, we issued $250 million of convertible notes due 2031 with a 0.5% coupon and together with the related capped call transaction, established a conversion price of $50.61 per share.

Second, we utilized the net proceeds together with cash from the balance sheet to redeem $241.2 million of the 2028 convertible notes with a 3.25% coupon for cash consideration of $386.8 million. The $145.6 million premium paid with cash represents a share repurchase of more than 5 million shares using a weighted average price of $28.92 per share. The convertible note transactions increased the average conversion price on the convertible notes from $18.99 to $38.31 per share, reduced the diluted share count by 6.2 million shares and lower annual interest expense by $6.6 million.

Third, we significantly enhanced our global surety program. The financial profile built over the last several years provided for a transition to standard indemnification agreements, lower collateral requirements and the replacement of cash collateral with asset-backed facilities. These changes unlocked $350 million of restricted cash and collateral while maintaining one of the best well-collateralized reclamation bonding programs in the industry.

Lastly, we increased our revolving credit facility to $400 million, extended the maturity to June 2030 and lowered borrowing costs by 25 bps. Year-to-date, we've generated $145.3 million of available free cash flow, including the reduction in restricted cash and collateral. We used $145.6 million for the convertible note repurchase premium and have also paid cash dividends of $18.3 million, bringing our payout ratio to greater than 100% through the first half of the year.

Now for a quick look at the third quarter. We expect seaborne thermal volume of 3.0 million tons, including 1.9 million tons of export coal with a product mix of 1.1 million tons of Newcastle benchmark coal and 800,000 tons of higher ash coal that we sell at about a 10% discount to API 5. We expect costs of $52 to $57 per ton, a nice improvement quarter-over-quarter.

For seaborne metallurgical, we expect volume of 1.9 million to 2.1 million tons as Metropolitan has a longwall move and a scheduled lock outage will reduce sales at Shoal Creek. Costs are expected to improve to $130 to $140 per ton, a $20 improvement compared to the second quarter as Centurion volumes increase.

In the PRB, we anticipate shipments of 22 million tons at cost of $12, substantially improving margins and free cash flow from the segment. Other U.S. thermal shipments are expected to increase to 3.7 million tons at an average price of $58.20 with costs at $45 to $49 per ton, in line with full year expectations.

In closing, Peabody exits the quarter with an even stronger financial foundation and tighter capital structure, poised to generate significant free cash flow as Centurion advances to expected production rates. Anticipation for a better second half and strong market fundamentals points to further support for our shareholder return program. With that, I'll turn the call back over to you, Jim.

Thanks, Mark. As we move into the second half of the year, our focus is on execution, Centurion reaching targeted longwall production rates, U.S. thermal positioned for stronger seasonal demand and our seaborne platform well placed amid constructive global markets. With improving operational momentum and a strong financial foundation, we believe our Peabody platform is well positioned to deliver improved results and create long-term value for shareholders. With that, operator, we are pleased to open up the call to questions.

[Operator Instructions] Our first question comes from Nick Giles with B. Riley Securities.

Maybe just starting with Centurion. I was just hoping for more color to what extent the longwall is running today? I mean, how much stoppage is this rock faulting causing? Or how are advance rates ultimately impacted here?

Jim here. Yes. So first, I'll give you a little background on the longwall and where it's at and then how it's running today. So the issue that we had that we talked about was the shields being out of alignment or sometimes it's called racking. And we have that issue behind us now. The longwall, the shields are straight and they're squared to the face. And so it's in good shape. And it took a little longer than we thought it was going to be to address this issue. And again, just to give you maybe a little explanation what it is, a picture of what it is, is the shields themselves, if you can look at it as like a row of dominoes and then some of those dominoes got knocked over on top of each other, not all of them, but some of them. But each one of those dominoes weighs 53 tons. And so to straighten them out and do it safely, which is a hard thing to do with the weight of those shields underground, it took a little bit longer than we thought and through the month of June. So now that's done, a longwall square and it's running.

So we're running right now when running -- it's running back and forth this year. And at times, we have stoppages to address the faulting that we have. Now to address the faulting, we've taken 4 different actions to address the faulting ahead of us. So we either do underground in-seam drilling to -- ahead of the fault inserting grout that way. We have drilling from the surface further away from the longwall face addressing the faulting that way. And then right at the face, if it's needed, there's a localized faulting at the face, we can do some geo-flexing right at the face or some rock sill right above the shield.

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So the first 2 things that we do for the faulting are more in advance of the longwall and the other 2 with the geo-flex and rock sill are sort of like active mining zone with the longwall. So with that, and over the last 2 weeks, we've really picked up the pace on the longwall. We have some days where we've run 7, 8 shears a day and some days where we're running 3 or 4 shears a day because we have that faulting to address. And that's where that consistency is that we're looking for to go forward is running at a steadier rate.

And as we keep advancing through this faulted zone and running at a steadier rate, it really solves itself. The quicker you can move through it, the more shears per day that you can get done. And so with that, looking at the faulting, the rate that we're going forward, having to stop occasionally to address the faults in front of us, that's where we've given that projection, that 500,000 to 700,000 tons for the third quarter because there is some variability not only on the speed or the number of shares per day, Nick, but also on the yield because when we hit in the faulting area, the yield goes down, we get more rock. So there's variability in both of those. And so we take that all into account, and that's how we came up with that projection. But again, the longwall phase has been in the best shape that it has been in since we started the mine, and we're out of the commissioning phase, and we're in the production phase now.

Jim, I really appreciate all that color. Apologies for my ignorance, but just to clarify. So the racking issue, was that ultimately caused by the faulting that you're running into? And then my second question was just, I think you answered it already, but how much visibility do you have quarters down the line that you won't run into this faulting zone again?

Yes. So your first question is, it was a continuation of the long commissioning, the slow start-up process. We started out with the electrical issues that were -- as we started the longwall, we had a series of electrical issues and had to shut down. It took us a while to address that. Then the longwall started running, we ran into a series of mechanical issues with belts and conveyors and transfer points. All of that delay in the start-up and the longwall stopping and starting, Nick, is not good, especially in a new longwall mine and a new panel like we were. That led to making the situation degrade where the faulting is.

If we would have just started up and ran and not had the delays at the start-up and had the normal advance rate, we wouldn't have had the conditions leading to needing the shield realignment. And so now going forward, the conditions that we have are really specific to this panel and how we're looking at it. We have about 300 meters left in front of us of this faulted area, and it's in a very specific area between our Shields #20 to Shield #50. So we can see an end of sight to this faulting. It will be during the third quarter. And so we don't expect this in the fourth quarter. We have good geologic, good control, and we'll be out of this come the fourth quarter.

Now because of that variability, Nick, in advance rates and yield because of the faulting is why we've said that we will also give out updates in August and September of how we're doing, right, to make it more accurate and to tighten those ranges up as we go forward.

Our next question comes from Matthew Key with Texas Capital Securities.

I had a question just kind of on PRB volume guidance. Based on where coal volume was in the first half of '26 and the guide in 3Q, it seems to achieve the midpoint of that range. It would imply a pretty impressive 4Q shipping quarter. Just given where natural gas prices are trading, is it safer to assume the lower end of that guidance? Or are you pretty confident kind of going into that 4Q will be a strong quarter?

Malcolm here. Look, as I said in my remarks, the second half of the year and what we're looking at here, it doesn't seem that different to prior years. Obviously, gas price is a little lower. But if you look at the grid at the moment, coal has been called upon very heavily. So what we're looking to do in the second half of the year, probably is not much different if you overlay the pattern from '23 through '25. And probably quite rightly, you should be assuming the midpoint of the guidance range that you spoke to. That would be my response to that question.

And I was wondering, and you mentioned this a little bit in the prepared remarks, but I just wanted to talk about kind of capital allocation plans over the coming quarters. Do you think buybacks make sense kind of on the back of this pullback? Or what are the major priorities for you in the second half of '26?

Yes, Matt, as I mentioned in the prepared remarks, continue to execute against our existing shareholder return program, pay out over 100% year-to-date, look to generate some substantial free cash flow in the second half of the year as Centurion achieves its targeted production rates. And we'll look to continue to execute against that shareholder return program. We'll look at outright share repurchases. We'll also look at the remaining stub of the convertible notes depending on where they trade. We were able to buy those 241 million back at a very small premium, less than 4 points, I believe. And was pretty opportunistic in the sense that they had traded down significantly. So I think going forward, we'll execute against the program, and we'll look at both of those avenues.

Our next question comes from Katja Jancic with BMO Capital Markets.

Maybe just quickly back to Centurion. Jim, you mentioned that you're going to provide updates in August and September. Can you maybe talk about when specifically we should be expecting those updates?

Well, in August, for certain, we have a site tour out at Centurion on August 11. And there will be an update given at that site tour, which again, of course, which would be filed and made public information, which, by the way, we still have 6 spots left open on that site tour of Centurion. We got a very good response. So a little bit of -- you gave me a chance, Katja, to push that out there. So at that site tour, we'll give an update. And then we have some Investor Day. I'm not sure the specific dates off the top of my head in September, and we'll also give updates then.

And maybe staying on the site visit, I guess, you're going to take investors and analysts to actually see the longwall?

Yes. It's a great tour. You can -- the site, we'll show the longwall. We'll show the surface facilities. You'll see every piece of the mine -- operating piece of the mine that we have there.

And maybe shifting gears to the $350 million of restricted cash that was unlocked. Is there -- is that fully available right now? Or are there any still restrictions to that -- to using that?

Katja, the $350 million that was returned, it was really reclassed from restricted cash and collateral. So to your question, it is fully available. It's included in our cash balances as of June 30. Look forward to seeing you at the Centurion visit, Katja.

Our next question comes from Nathan Martin with The Benchmark Company.

Sticking with the restricted cash piece, Mark, a question for you. I mean, are there any more opportunities to unlock restricted cash, whether it be surety related or otherwise? It looks like there's still about $460 million or so left there on the balance sheet.

Yes, Nate, we've pretty much done all the work we can there. We reduced the collateral significantly, went to an asset-backed facility in Australia and then reduced the collateral to about 40% in the U.S. So I'm not looking for any more step changes there. I think we should probably look at this as kind of a permanent fix.

And then going back to Centurion, I guess, have you guys noticed anything during the ramp-up stage now heading into the production stage at Centurion that makes you feel like you can't operate the mine at a cost per ton within your prior expectation? Jim, you talked about this a little bit in your comments, so just hoping to get a little bit more detail.

No, Nate, I'd say when we have been running well without an issue, I'd say it's the opposite. The rate that the shear can transit is as good or better than we thought it would be. So I'll say we have some optimism that once we get the steady-state running of the mine that we will be at that cost structure or possibly better. It's just getting from this commissioning phase now into the production and getting the steady-state production actually to see the results of that. But when we are running well, we run very well.

And maybe just kind of one higher-level market question for Malcolm. Malcolm, maybe just get your thoughts on how you believe El Nino conditions or Super El Nino could impact Peabody and the broader coal markets.

Thanks for the question, Nate. I'll probably bifurcate the answer here for seaborne and then U.S. domestic. Talking about seaborne, the biggest thing is drought, particularly in Asia and China. So we've seen very strong coal burn in China. There's a lot of noise around how much coal China actually is consuming that they're consuming a hell of a lot of coal. And production at the moment isn't keeping up domestic production. So the main thing we've seen here with this weather pattern is that -- is the hydro production from the great river system in China is down. So that's having an influence. And then we're looking to Europe, and we're looking at a very warm summer in Europe, and we're seeing even increased coal generation in countries such as Germany. And then pretty much across North Asia, so you're talking Taiwan, Korea and Japan, we're also seeing strong coal burn as air conditioners are being turned on, and we expect them to stay on for some time.

And then, look, I'm in the U.S. here and enjoying the warmth and looking at the grid pretty much across MISO and the like, we're seeing very strong coal loads and expect that to continue. So a good hot summer is really going to contribute to coal burn in the U.S. And that's why I reiterated that I think the midpoint for PRB guidance is where people should be looking at it. Hopefully, that gives you some color, Nate. Thanks for the question.

Our next question comes from George Eadie with UBS.

Perhaps for Jim, the 4.7 million tons life of mine average target and 105 cash cost, is that number still stale, I guess, more on the cost front, you called out in this update, supply and material pressures? How confident are you in this estimate still, or do you think it's still achievable when the tons come there? And maybe just a reminder as well, with Centurion, there's 5 panels in the south before you go north. So given this delay, is it still 2029 when you get to the north?

George, yes. So yes, we still feel there's a couple of things you asked about there. The 4.7 million tons when we get to the steady state production, yes, we still feel that's a good number. And the 105 was a 2024 dollar number. So it does need to be escalated. And again, when we get to the steady state production, we assume a normalization on -- not the diesel prices, but that big an impact there with that, some of those things that are -- we think are not standard impacts on the cost of supplies. Yes, we still feel good about both those numbers once we get to our steady-state production. And the delays you're talking about here are not significant over the 4 or 5 years that we have in the south here. So yes, to the extent that we're not going to mine the initial tons that we thought this year, that does tack on some time until we transfer to the Northern reserves. I mean, you're looking at months here, though, you're not talking years.

And then maybe just one more and, Mark, I guess, the buyback, why not go early like at spot and guidance, your available free cash should get to at least $50 million a quarter. Clearly, like, that's what investors are chasing and wanting here and sort of rereading the tech report like this appears to be the only really known concerning faulting zone, the outlook looks clearly better. Like why not go early before the stock potentially gets more expensive and buy out of this pullback given the balance sheet is in a pretty good state?

Yes, George, we're going to continue to execute against the plan. We wouldn't foreshadow what we're going to do, of course, ahead of market conditions. We like where we're at today. We like how our execution on the converts, really opportunistic and bought those back at $140 million discount to where they previously traded. We'll continue to take opportunistic looks at this, and we'll continue to execute throughout the second half.

Our next question comes from Nick Giles with B. Riley Securities.

Just wanted to clarify, the 600,000 tons of Centurion output in 3Q, how much of that is CM coal versus longwall coal? I assume there's a little bit of longwall coal at the end of the quarter, but I wanted to make sure we have that straight.

Yes. There is some CM coal in there. It's probably in the range of 150,000 tons, give or take.

And then as we look out to 2027, there was the longwall move that had been pushed out from the fourth quarter. So should we expect that move to occur in Q1? And what would be the kind of duration of that move?

Yes, we haven't given that specific guidance yet for '27 yet, Nick, and the timing of that longwall move. And we're also working on some ways to shorten the duration of that move based on what we've learned so far with the mine and accelerate it. So that move will occur in '27. But again, we're working on the timing of when that is and also the duration of it again, because we have some optimism that we can accelerate from what we thought before would be the length of the outage.

Understood. And maybe one more, if I could. Just on the rare earths piece. You mentioned a capital-light approach, bringing in some partners. Where do those potential partnerships stand? Do you have any that are kind of a non-binding nature? Or when should we expect more of an update on that front?

Yes. I don't want to get too far into it because it's some proprietary information because we're in discussions. So when we have something that's solid with some detail behind it to answer the questions you're asking, we'll make those announcements.

This concludes our question-and-answer session. I would like to turn the conference back over to Jim Grech for any closing remarks.

Yes. I'd like to remind everybody again that the August 11 tour at Centurion, there are some spots open and maybe some of these questions that have been asked today, we can have -- we should have more detail on. And if you're interested in going over to Australia or going out to our mine, you can contact our IR group and get on the list to go out there. So with that, thanks to everyone for your time today as well as your long-standing support. And we look forward to keeping you apprised of our progress at the investor events as the quarter proceeds. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, and welcome to the Peabody Energy Corporation Q1 2026 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded.

I'd now like to turn the conference over to Kala Finklang. Please go ahead.

Thanks, operator, and good morning, everyone. We appreciate you joining us for Peabody's First Quarter 2026 Earnings Call. Joining me today are Peabody's President and CEO, Jim Grech; Chief Financial Officer, Mark Spurbeck; and Chief Commercial Officer, Malcolm Roberts.

After our prepared remarks, we will open up the call for questions.

Before we begin, I want to remind you that our remarks today will include forward-looking statements. Please review the full statement contained in our earnings release and consider the risk factors referenced there, along with our filings with the SEC.

I'll now turn the call over to Jim.

Thanks, Kala, and good morning, everyone. Peabody's first quarter was marked by a number of accomplishments amid a positive time for both thermal and metallurgical coal markets. We delivered better-than-expected volumes, pricing and costs in our Seaborne Thermal segment, supported by sharply higher global LNG prices in March.

Our U.S. thermal coal volumes continued at a strong pace, driven by continued strong electricity demand. And across our seaborne met portfolio, operations performed in line with expectations, with the notable exception of Centurion.

Focusing on our top priority, Centurion, I'll provide a thorough update of where we are today.

As you know, as part of our commissioning of equipment in February, we encountered temporary mechanical and electrical issues. While those challenges were resolved, the disruptions led to a slower cutting speed, which in turn contributed to roof control conditions. Maintaining roof integrity is critical to sustaining optimal cutting speeds. As a result, early in the ramp-up, progress was slower than we were anticipating even after resolution of the mechanical and electrical issues.

Importantly, once the mechanical and electrical issues were resolved, the team implemented a comprehensive response plan centered on proactive strata management and disciplined execution with safety as a top priority. We have brought together a highly experienced group of engineering and operational personnel from across the platform to address these challenges. Since that time, we have been systematically working through what was at its core an iterative cycle of slower equipment performance affecting roof conditions.

Over the past several weeks, we have taken deliberate steps to stabilize the operation by reinforcing the roof and face, realigning shields and improving overall cutting conditions. Naturally, every mine is unique with different geology, equipment and operating conditions, and it has taken some time to apply the right solutions at Centurion. While this has required a longer-than-anticipated commissioning period, it ensures that safety remains paramount as we work toward durable solutions.

Our safety performance has remained strong, and I want to be clear that we have had no carbon monoxide events, no methane issues, no ignition events and no regulatory challenges. While we are not yet at full cutting speed, the key remediation steps are largely in place, and we are encouraged by what we're seeing. We believe the remaining temporary headwinds are largely confined to the second quarter, with performance in the back half of 2026 expected to reflect a return to full longwall production rates.

We expect to sell roughly 300,000 tons in the second quarter, reflecting strong June production, but a traditional lag in converting production at the mine into sales at the port. Additionally, the 7-week longwall move that had been planned for the fourth quarter is now expected to shift into early 2027, which will support stronger production in the second half of this year. As a result, our full year sales outlook for Centurion is now 2.5 million tons compared to our original expectation of 3.5 million tons.

With that said, we've updated full year met segment volumes to reflect the 1 million ton decrease and increased cost to a range of $123 to $133 per ton. Stepping back, Centurion remains one of the most attractive assets in our portfolio with a strong position on realized pricing, cost, structure and mine life.

In addition to our coal mining and marketing business, we continue to make progress in our Peabody development initiatives in recent months, focused on unlocking additional value from our vast array of land, reserves, operations and commercial relationships.

When we spoke last quarter, we had been recommended for a $6.25 million grant from the Wyoming Energy Authority, and that grant was awarded later in the first quarter. Peabody is now advancing initial plans for the pilot plant to process rare earth elements using PRB coal as feedstock. We also continue to advance additional opportunities related to rare earths and critical minerals. We have a particular focus on germanium, where we see good concentrations, strong end market engagement and favorable supply-demand dynamics.

For proprietary reasons, we'll need to keep details at this level for now.

I'm also pleased to note that initial test shipment is occurring this quarter for West Coast thermal coal exports. We have sent PRB coal from our North Antelope Rochelle Mine, transported by Union Pacific Rail to Mexico's Port of Guaymas, which is being loaded for export to an Asian customer. This test run reflects close coordination with U.S. and Mexican governments, port authorities and logistics partners. It demonstrates the potential of a West Coast export route for PRB coal.

While this is a proof-of-concept shipment, Guaymas has infrastructure that could support additional volumes over time. More broadly, this effort underscores Peabody's ability to connect the largest coal basin in the Western Hemisphere with the largest global demand center for thermal coal imports. We would also note that recent U.S. policy actions continue to affirm the value of reliable coal supply chains and baseload generation capacity to national security and grid resilience priorities. That follows an executive order during the quarter that directed U.S. defense facilities to purchase power from coal fuel generation.

We view these moves as highly constructive, both symbolically and practically for longer term coal use in the U.S.

For more on the U.S. and global supply-demand fundamentals, I'll turn things over to our Chief Commercial Officer, Malcolm Roberts.

Thanks, Jim, and good morning, all. Last quarter, I noted that we had seen strong upward moves in the past year, first in U.S. coal demand and later in the year in met coal pricing, but that seaborne thermal coal had been stuck in a middling trading range. Recent events in the Middle East, though, have changed the seaborne thermal coal fundamentals.

Leading into Q1, seaborne thermal coal had been somewhat range bound with a mild winter in much of Asia suppressing burn and strong domestic production running in China and India had kept seaborne demand modest. However, 2 major forces emerged that both increased demand and constrained supply. First, the Iran conflict in late February caused a sharp re-rating of thermal coal demand and prices moved upward with March Newcastle averaging more than $20 a ton higher than pricing pre-conflict levels.

At the same time, high LNG prices and limited availability pushed multiple countries to rely more heavily on coal fuel generation. We've seen both policy support and practical actions for seaborne thermal coal across Japan, Korea, Taiwan, Vietnam, Thailand and the Philippines, among others. As history has reminded us, whether it be Fukushima, Ukraine or the Middle East, coal remains by far the largest source of electricity in the world and continues to play a critical role in global energy security.

Coal is abundant, transportable, storable and reliable and today still fuels more than one out of every 3 electrons worldwide, far more than any other form of generation. The second major factor impacting thermal coal fundamentals was Indonesia's directive to keep more coal domestically, which has begun to take a real bite out of supply. Indonesia exports over half of the world's seaborne thermal coal and its government has announced cuts in production that would represent about 1/4 of its exports if fully implemented.

We've grown accustomed to such acclamations coming in short of original estimates over the years, but even a portion of that dramatic cut would mean a tightening of thermal coal fundamentals. I will note that not all developments in the seaborne coal markets are favorable. Freight rates have roughly increased 50% from pre-conflict levels, affecting the delivered cost of our products. While the market excitement has centered on thermal coal, seaborne met markets remain very constructive.

First quarter benchmark pricing for premium hard coking coal averaged more than 25% above year ago levels and could be characterized as more mid-cycle after the temporary dip we saw in 2025. I'll note the stratification of prices across lesser grades of met coal has become more pronounced. Low-vol PCI is up a more modest 14% over a year ago, while high-vol A pricing was actually 12% lower in the first quarter than in quarter 1 of 2025..

Turning to the U.S. markets. Power demand has remained strong early in the quarter due to a very cold January. Henry Hub gas prices lagged as the quarter wore on and ultimately ran below the fourth quarter and year ago levels. Coal is still dispatched at a decent rate and U.S. coal demand was solid. We're working through the shoulder season and soft gas prices at the moment, but expect overall U.S. load growth to help balance that out as we begin to enter the strong summer burn.

With that brief overview of the markets, I'll turn the call over to Mark.

Thanks, Malcolm, and good morning, all. In the first quarter, we recorded a net loss attributable to common stockholders of $32.4 million or $0.27 per diluted share, while delivering adjusted EBITDA of $82.5 million. Results were underpinned by outstanding performance from our seaborne thermal platform, which benefited from higher realized prices and strong demand from Asian markets. The seaborne thermal platform delivered 3 million tons, exceeding expectations and increasing export shipments by 200,000 tons.

Realized export prices averaged $86.25 per ton, up more than 5% from the prior quarter, driven by higher Asian demand amid elevated LNG prices in the latter part of the quarter. Higher production from both Australian thermal mines helped reduce cost to $50.26 per ton, below the low end of guidance, resulting in a 25% adjusted EBITDA margin and $48.5 million of adjusted EBITDA. Seaborne metallurgical shipments totaled 2 million tons, 400,000 tons below plan due to the longwall ramp-up challenges at Centurion and unfavorably wet weather at the CMJV, partially offset by higher-than-anticipated production at Metropolitan, where we completed a longwall move ahead of schedule.

Costs were higher than our guidance at $142 per ton, largely due to lower volumes at Centurion, partially offset by realized prices that increased 13% quarter-over-quarter. The segment recorded an adjusted EBITDA loss of $7 million as an otherwise strong quarter was reduced by $80 million from the Centurion ramp-up, including $10 million of additional commissioning costs. Our U.S. thermal business delivered $61.5 million of adjusted EBITDA in the first quarter. The PRB shipped 21.2 million tons, exceeding expectations.

Costs were above guidance due to sales mix, which included additional shipments of higher heat coal from NARM and timing of certain repairs and maintenance costs. Net-net, costs outpaced higher average realized prices, resulting in lower margins in the quarter and $23.7 million of adjusted EBITDA. Other U.S. thermal shipped 3.3 million tons at better-than-expected costs, demonstrating continued disciplined cost control.

I'm also pleased to report that Twentymile continued to perform well in its new longwall panel. Together, the other U.S. thermal mines contributed $37.8 million of adjusted EBITDA. Moving forward, like the rest of the industry, we are keeping a close eye on oil prices. I'll share a few points here for context.

Peabody uses approximately 100 million gallons of diesel fuel a year, with the majority used in the U.S. at our large surface mines. Each $10 per barrel change in oil price impacts EBITDA by $6 million per quarter, ignoring potential benefits from higher coal prices. With the continuation of the Middle East conflict, we increased expected full year PRB costs $0.50 per ton to reflect the current forward curve. We also increased seaborne thermal cost guidance by $2 per ton to reflect the current price strip.

We have not experienced any disruption to imported fuel deliveries in Australia, and we are working closely with our primary supplier to monitor continued availability. While higher fuel costs are anticipated across the business, the seaborne met and other U.S. thermal segments are expected to remain at beginning of year costs. A firm resolution of the Middle East conflict may result in an improved forecast with lower costs.

Looking ahead to the second quarter, we expect seaborne thermal volume of 3 million tons, including 1.9 million tons of export coal, 300,000 of which are priced on average at $64.60 per ton. 1 million tons of Newcastle product and 600,000 tons of higher ash coal remain unpriced. Costs are expected to be between $57 and $62 per ton with approximately $3.50 related to higher fuel costs as well as a stronger Australian dollar and planned repairs and maintenance at Wilpinjong.

We expect seaborne metallurgical volume of 2.3 million tons with realizations of 75% of the premium hard coking coal index. Costs are expected to continue at higher than full year run rates due to lower production at Centurion before achieving full longwall volume in the second half of the year. In the PRB, we anticipate shipments of 19 million tons at cost of $13.25, reflecting the traditional second quarter shoulder season and the $0.50 adjustment to higher fuel costs. Other U.S. thermal coal shipments are expected to increase to 3.4 million tons with costs at $45 to $49 per ton, in line with full year guidance.

In closing, our first quarter results highlight the value of our diversified global assets. Strong performance from our thermal segments, both abroad and here in the United States, continues to generate substantial free cash flow. Peabody ended the quarter with just under $500 million in cash and total liquidity above $850 million. This financial position reflects the resilience of our balance sheet and provides financial flexibility to navigate near-term challenges, support our shareholder return program and continue to invest in long-term value creation.

With that, I'll turn the call back over to Jim.

Thanks, Mark. As we look toward the rest of the second quarter, priority 1 is continuing the positive momentum at Centurion and progressing toward our targeted production rates in a safe and productive manner. Beyond Centurion, we remain focused on delivering strong performance across the broader mining portfolio while maintaining a rigorous cost discipline. Finally, we'll continue unlocking additional value from our extensive asset base over time.

With that, operator, we are pleased to open up the call to questions.

[Operator Instructions] The first question comes from Chris LaFemina with Jefferies.

I just wanted to ask first on the PRB cost guidance. So second quarter cost is going to be a bit higher than the first quarter. But then the full year guidance is materially lower than what your first half average would be. And I wanted to understand how you're going to get there. I understand that part of it is, I would assume, a function of higher volumes in the second half of the year, and part of it is that on the strip, diesel prices, I guess, are a bit lower, but it is a substantial drop-off in costs and I just wanted to better understand that. That's my first question.

Chris, you're exactly right. You kind of answered your own question there for the PRB. Costs were higher in the first quarter a little bit, going higher in the second quarter, mainly due to diesel fuel. That's probably about a 75% impact in the second quarter, $0.50 impact over the full year. So you're right, that forward strip declines. That's the biggest change there on the PRB cost. We have lower volume. I think you mentioned lower volume as well, right? I mean second quarter shoulder season, we're looking at about 2 million tons less. So a big denominator difference there as well.

Okay. That makes sense. And then secondly, just on the balance sheet, I noticed that the restricted cash balance fell by like $33 million in the quarter. And I'm not sure I saw the offsetting decline in any associated liabilities. So I might just be missing something there, but what was going on with the cash balance?

Yes. The restricted cash, there was just a movement in how we collateralize some of those obligations. No change in the liabilities.

And the next question comes from Katja Jancic with BMO Capital Markets.

Maybe staying on PRB. I know that the prices are currently locked in or mostly locked in. Do your contracts in any way allow you to potentially share some of the cost burdens from diesel right now? Or is there an opportunity for that?

Katja, Malcolm here. Look, the majority of our contracts are fixed price contracts that don't have a fuel rise or fall.

And then if this environment continues, are you potentially looking at hedging any of the diesel costs? Or do you have any hedges in place?

Yes, Katja, we do not hedge diesel. We've looked at this over the years multiple times, whether fixed pricing with our suppliers or hedging it with derivatives is just not cost effective to hedge.

And maybe one more, if I may. You mentioned the potential for West Coast exports of PRB. Can you talk a bit more about right now currently, what the opportunity could potentially be in more near term?

Yes. Thanks for the question, Katja. Malcolm here again. Look, the potential there in terms of the coal quality is pretty much unlimited. This PRB coal quality is fantastic in terms of its sulfur level, in terms of its ash level. And what we've seen in Asia is a lot of power generating plants have been set up to burn on this type of coal. And that was originally based on Indonesian coal.

Now Indonesian coal is being kept more domestically and also we're seeing grades decrease. So there's a real opportunity, particularly in terms of the environment and this high-grade PRB coal to be consumed in Asia. So it was really quite positive and exciting that we're able to work with the port operator down there and also the Union Pacific to do a trial shipment. And the potential there will be limited by the logistics in terms of the Guaymas port. But then also, you'd note that there are West Coast port opportunities currently being discussed and that is something that really encourages us as we move forward.

And the next question comes from Nathan Martin with the Benchmark Company.

Malcolm, maybe just sticking with you for a second. You mentioned about some of the additional seaborne thermal opportunities you're seeing in the market driven by conflict in the Middle East as well as Indonesia. So is there still demand and price out there? Or have you seen that retreat maybe some of the recent peaks?

Look, I think we're going to potentially go to the next level over the coming months. We've -- I mean the tide that lifts all boats is the Chinese import price. And we've seen that rally reasonably strongly, and I'm hearing appeals for API 5 around $100 a ton at the moment, which is over 1 year ago levels, that's probably $25 in excess of that. Now once that tide comes up, that will also support Newcastle pricing. And LNG pricing is still at quite a multiple as a fuel cost than seaborne thermal coal. And we're just starting to move into the summer in the Northern Hemisphere. So I think there's more to come.

Okay. Great. That's helpful. And then maybe going to Centurion. I know you guys obviously mentioned aiming to complete the commissioning and production ramp here in the second quarter. Can you talk a little bit more about the timing there? I think maybe Jim has mentioned, but is this kind of an end of quarter completion? How confident are you that the longwall should be up and running or fulfilled in the second half and when that might occur?

Nate, Jim Grech here. And we have a lot of confidence that's going to occur here in the second quarter. I'll give you a little detail around where we're at right now, how we see us getting through the month of May and then the month of June, why we have so much confidence. So right now, our plan gets us to optimize longwall automation by the end of May. And what do we mean by optimized longwall automation? That means we're all done with the commissioning of the equipment, and we are in regular production mode for our forecast.

And so to get us to that position by the end of May [technical difficulty] in the coal seam. We have shared optimal position, both the floor and the horizon and the coal seam longwall face straighten level. So our goal is to get us to those conditions by the end of the month and we have made significant progress to getting to those conditions. But it is an iterative process, Nate, that we're in. We advance the shields, we align the shields. If there's any fortifying of the coal roof or face, we do that if needed.

And we do another pass with the shield, we cut some coal and then we advance the shields again. So we're going through that process right now, advance the shield, align, fortify, cut, and we're having some very good success with that. And so we're going to keep repeating that process for the next few weeks until we get to this optimized longwall automation position. And then from there, we'll be running per forecast. So a lot of good progress made in the last 2 weeks. We're -- every day, we move further along with our plan. And we, again, feel very good about getting this completed by the end of May, getting out of this commissioning phase and getting into regular production mode starting in June.

Okay. That's very helpful, Jim. I appreciate that. And then maybe just one more, if I can. You guys had a small update on your rare earth and critical minerals project there. Maybe can we just get some thoughts around the potential time line for that development? You mentioned previously as well as today, the possibility of building a pilot plant. Again, just any updates on time line would be great.

Yes. So you're referring to the grant we got from the Wyoming Energy Authority to build a pilot plant, and we're looking at building at the moment at our Rawhide mine is the site at the moment, but there are some other sites being looked at it. So we expect the development operations and so on to take about 18 months. and then you're going to have some time after that of a year or 2 to get it up to full development of the plant.

So we're going to work on the siting first and then initial construction and then get it operating, hopefully, at some extent, 18 months out and then over that 18- to 48-month time frame, just keep ramping it up and with the project. So that's what we're doing on that one project. I just want to remind you, though, that we've got several opportunities that we're pursuing. We've got this option-based approach because we've got multiple feedstocks, whether it's coal or overburden and looking at other of our mines. So we have other projects underway. We're not ready to talk about them yet, but this is the one here that we're talking about at the moment.

And the next question comes from George Eadie with UBS.

Jim, your audio was muffling, I think, before, so sorry if this is a bit of a repeat. But what specifically at Centurion were the electrical and mechanical issues experienced? And were there any issues with the shields not bearing the roof weight properly due to roof conditions or undulations at all in the roof?

Yes, George, I'm not sure why. I'm right next to the microphone, and I think I'm talking loud enough. I'll start screaming into this. Are you hearing me okay right now?

Yes, yes. I got you good.

Okay. If you hear me catching my breath because I'm talking at the top of my voice. So what we've had is a longer-than-anticipated commissioning period at the mine. So to get to the situations you talked about, during the initial commissioning, we encountered some unanticipated electrical and mechanical issues that we hadn't picked up during -- we did testing, we did a mini build on the surface to test the equipment. But once we got the equipment underground, put it together and put it under full load conditions, we started having some issues with it.

So fundamentally, what happened with that is we had 8-year-old unused mining equipment. We put an updated technology in it and then we put it underground. And when I got under full load, we started having issues that we weren't anticipating electrically. And we had to troubleshoot that, order parts and repair. And once we got past the electrical issues, we had some mechanical issues with conveyors and shoots and so on.

What I would call standard commissioning issues that you have with this type of situation in a new mine and equipment that's been sitting on the shelves for a while, all taking much longer than we had anticipated. So with that situation going in the longwall sitting, and what happened was the longwall was advancing very slowly during this commissioning period. So the slow progress of the longwall gave rise to some localized ground conditions where the longwall was sitting, we had moisture accumulating in some roof cavities above that, combined with the softening of the floor beneath the shield. So the roof conditions have been addressed with void fill and under control where we have the longwall right now in its current position.

The floor conditions we've adjusted to, but what's happened is the -- with the floor conditions, we've got misalignment in a limited number of shields. And that really is where we are in the final stages of remediation that I had outlined to Nate is getting those shields in alignment. And the only way to do that is to advance the longwall, adjust the shields, advance the longwall, adjust the shields. And that's going to take us another week or 2 to do that. So we anticipate getting through that by the end of the month.

And as we -- each time we advance, we progressively improve with our remediation. And once we get a little further along here, we get on to some fresh ground underneath those shields, we'll be going at forecasted rates. So George, did I answer the question you had asked there?

Yes.

I'm assuming you...

Exactly. Yes. No, that was great. Appreciate all that. And so are you guys like testing the shields to make sure they're carrying the roof load? Is that something you can do and are doing, I guess?

Yes. The shield themselves are performing well. It's just they're out of alignment, and we just have to get them straightened out between the floor and the roof. That's really what's going on here at the moment, George.

Okay. That's super clear. And then maybe one quickly for Malcolm. Just margins in the PRB just over $1 a ton, a few questions on it before, and we've guided down there. Are there risks to margins getting back sort of $2 and higher going forward with U.S. gas prices at $2.80 and cost pressures impacting on the other end, too?

Yes. Look, with where oil prices are at the moment, margins are being challenged and also this quarter with lower volumes being in shoulder season. But one thing that -- what's pretty evident is that electricity demand is continuing to increase. And as that -- and I think we've just seen the statistics for April. So with this increased demand, we get out of shoulder season, get into the summer.

I still expect the spot market to be quite robust and for pricing as we move forward to reflect this higher cost base because I don't think anybody is on their own in terms of the dirt that needs to be moved and the cost of that diesel. So it's a function of the higher cost base being reflected in new deals and the like as we work through that.

Yes, George, I might just add to that. If you look at the implied guidance, the costs and the additional volumes coming in the second half of the year, we're going to be back to margins rate within spinning this into a few dollars a ton.

And the next question comes from Nick Giles with B. Riley Securities.

A lot of my questions have been answered. But just maybe on the seaborne met cost revisions, I think most of which were driven by Centurion timing being pushed out. But can you just touch on the other operations and where costs stand today at those mines? I think diesel isn't as impactful as the PRB, but I was wondering if anything has changed as far as input costs at your kind of non-Centurion operations?

Yes, Nick, I think I'll start with the 2 changes we made to the guidance for the full year in the Thermal segment. So PRB is up $0.50 on a full year basis. That's entirely due to higher diesel pricing. Seaborne thermal as well, up $2 a ton for the full year, entirely due to higher diesel pricing. The seaborne met, that is up $15 a ton, and that's entirely due to the lower volume at Centurion. Now there is some higher diesel costs, obviously, in met and other U.S. thermal, but that's a much smaller use, about 2/3 of our oil in both regions. 2/3 of the U.S. oil or diesel is used at the PRB and about 2/3 of Australian fuel is used in the Seaborne Thermal segment. So the seaborne met and the other U.S. thermal, much smaller impact from diesel, and we were able to maintain those original cost guidance ranges.

Got it. Very helpful. I appreciate that, Mark. And then maybe just one on the Centurion product itself. Can you just talk about how the commercial process has gone to date with customers? How much is contracted? How much could -- is left to still be contracted? And then do you feel that with the higher freight rates globally that Centurion has become more competitive? Or how are you thinking about kind of percentage realization in terms of PRB?

Yes. Thanks for the question, Nick. Look, generally, discussions have gone very well because this product is the highest quality premium hard coking coal at around an 8% to 8.5% ash. And in terms of where it's being sold, traditionally, North Asia has been a big customer when this mine was producing last decade. There's strong demand there. But really, the main focus is on India, and we've concluded a number, probably 8 or 9 contracts there. In terms of how contracted I am for the year, I'd like to treat that as commercially sensitive. So -- but there's plenty of demand there for that product. Hopefully, that answers your question.

And the next question is a follow-up from Christoph LaFemina with Jefferies.

Just one quick follow-up. If you look at the -- like the outlook for the business, if you hit your operational targets, you're going to be generating lots of free cash flow in second half of this year and into 2027. Your balance sheet is very strong. Your share price has been under some pressure, but it really seems like it's a timing issue on the cash flow rather than anything more structurally problematic. And yet you have an opportunity in the market to buy back your stock at a relatively inexpensive level. So I was wondering how you think about the share price weakness and how you can defend the stock?

Maybe that's the way to think about it, but can you take advantage of an opportunity here where the market is not pricing in the cash flow that you guys are going to generate and maybe the opportunities for you to buy back your stock at this relatively inexpensive level?

Yes, Chris, we share your outlook for the business, certainly when [indiscernible] comes back online or gets online at full production rates in the second half of the year. There will be a substantial amount of free cash flow in that second half of the year. I think there are a couple of opportunities, buying back shares is one, but also looking at our 2028 convert that's outstanding and addressing maybe some of the dilution there as well.

And next question is a follow-up with George Eadie with UBS.

Jim or Malcolm, when will we get some details on this PRB West Coast opportunity, I guess, chasing potential tons you could ship washing, cleaning costs, CapEx and sort of time lines and all the various factors for us to potentially model it up?

Look, I'll start and maybe Jim could give some further details. Look, this cargo is going to go out in May, and we'll get customer feedback. We have another customer visiting our PRB mines next -- I think it's next week or the week after. We're in a detailed qualification process there. And we'll discharge trains and the first one is discharged down in Mexico this week, and we'll see how that goes. We'll load it on the ship and see how that goes and then get the ultimate feedback from the customer.

One thing is for sure is that there are opportunities and people are really focusing on this and the railway, particularly Union Pacific, is working with us really constructively. That's encouraging. And then you're also hearing about other West Coast port opportunities. But exactly where we go with the Port of Guaymas, that's going to be a little bit of a suck and see. Let's see how the port performs and the like. But this is more of a proof of concept and the like.

In terms of CapEx and the like, we'll be leaving other promoters to develop ports and do those things. We'll be a user of those ports and the like. So I hope I haven't set out a light here. I'll just check with Jim if there's anything he'd like to add.

No, Malcolm. I think the thing to take from this, George, is Malcolm said proof of concept, and most importantly, is there a market for this coal? And as Malcolm pointed out, there's a significant almost unlimited market in terms of what the PRB can produce and move as far as demand because of the comparably -- very favorable comparison to Indonesian quality coal, which is big on the export market. So the opportunity is significant.

And the proof of concept is us working with the Union Pacific Railroad. We have been very good to work with the U.S. government, the Mexican government. Can we then do the logistics to move the coal to this very large market? And we've done that. So the next steps are how do we scale this up? How do we get significant tonnages? And whether that's through Guaymas or other ports that are being looked at on the West Coast that are being looked at actively. And I think there's some great opportunity there for those ports to move those Western coal.

So there's a lot more opportunity to come. Is it on the horizon like in the next 3 to 6 months? No, there's nothing significant because you need to get to port capacity there. But the demand is there. The demand is not going away. The ability to work with the rail carriers and the U.S. government to develop these opportunities is there. So there's a lot of good potential for us out into the longer term, but not just in the near term.

Yes. Okay. Great. And just on that, what is the port capacity you guys could tap here? Is it sort of 5 million to 10 million tons? Is that the right range for me to think?

Well, I think it's what's the port capacity potential. Guaymas could get to those ranges or slightly higher and other ports that are being looked at on the West Coast would be at the upper end of that range.

And this concludes the question-and-answer session. I would like to turn the conference back over to Jim Grech for any closing comments.

Thanks to everyone for your time today as well as your long-standing support. We're going to get back to work and look forward to keeping you apprised of our progress.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.

Good day, and welcome to the Peabody Quarter Q4 2025 Earnings Conference Call [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Kayla Finkling, Director of Investor Relations. Please go ahead. .

Thanks, operator, and good morning, everyone. We appreciate you joining us for Peabody's Fourth Quarter and Full Year 2025 Earnings Call. Joining me today are Peabody's President and CEO, Jim Grech, Chief Financial Officer; Mark Spurbeck; and Chief Commercial Officer, Malcolm Roberts. After our prepared remarks, we will open up the call for questions. Before we begin, I want to remind you that our remarks today will include forward-looking statements. Please review the full statement contained in our earnings release and consider the risk factors referenced there, along with our filings with the SEC.

I'll now turn the call over to Jim.

Thanks, Kayla, and good morning, everyone. I couldn't be more proud of the work of our Peabody team, which turned in an excellent quarter and year that was marked by a number of achievements. We are also seeing improving market fundamentals and have a full agenda of priorities for the new year. Safety always comes first at our operations, and we turned in another record safety year with an incident rate of 0.71 per 200,000 hours worked. That's 12% better than our prior all-time record set just a year ago. It is still safer to work in a Peabody coal mine than a grocery store or shopping mall based on national incident rates.

Peabody also prides itself on environmental excellence as witnessed in 2025, where we reclaimed twice as many acres as we disturbed. This allows us to shrink our footprint and reduce our financial obligations over time. We also tied our all-time record low for environmental notices of violation. Operationally and financially, the quarter was right down the fairway in meeting or surpassing expectations across key metrics. Mark will cover these results in more detail in a few minutes. .

I'm pleased to announce that I was in Australia last week, where the team was installing the very last shield and putting the finishing touches on the Centurion mine and advance starting longwall mining, well ahead of its original schedule. I have to say the culture that has been built at Centurion is outstanding, and our team is charged up and have started mining some of the best metallurgical coal in the world. Let me remind you of some of the extensive benefits Centurion has on the Peabody portfolio. First, Centurion is expected to ship an average of 4.7 million tons per year of premium hard coking coal and a world that we remain convinced is structurally short of that product over time.

We expect the mine to deliver 3.5 million tons in 2026 and ramping up to that 4.7 mark by 2028. Second, Centurion's product is of the highest quality and coupled with proximity to key demand nodes in Asia results in full benchmark pricing. Our realizations across our entire met coal segment are expected to increase from 70% of the recognized benchmark in 2025 to 80% this year. And as volumes ramp to 4.7 million tons, we expect it will further exceed that 80%.

Third, this mine is a long-lived asset combined with the Wards Well acquisition in 2024 that allow significant development to the North, Centurion accesses the coveted Gunell Milsein and is expected to have a mine life of 25-plus years with an integrated mine plan of 140 million tons. Finally, we previously reported a net present value for the price of $1.6 billion with all-in costs of $105 per short ton and 2024 at an average benchmark price of $210 per metric ton, a level we are already above today.

Our latest assessment of the Centurion alone represents an NPV of $2.1 billion at $225 benchmark pricing. So top realizations with full benchmark pricing, low cost and a long mine life. Centurion is truly the cornerstone asset and our strategy to maximize long-term shareholder value and to intentionally reweight our portfolio toward higher-margin metallurgical coal. This event marks the culmination of years of disciplined strategic investment and a position Centurion to deliver the scale, cost performance and premium product quality needed to meet the growing global demand for high-grade steelmaking coal.

Also during the quarter, we continued to make good progress in our asset optimization activities. Here, our goal is straightforward. Our Peabody Development division is tasked with evaluating our vats, land and mineral holdings to maximize our long-term earnings and cash flow potential from these assets. Actions include our work to locate renewable projects and formerly mined lands, notably in the United States with R3 renewables.

We're also working on Australia at the Centurion mine, developing a gas power station to convert waste gas to electricity, starting at 5 megawatts and expanding to 20 megawatts. Activities also include a small plant facility to capture coal gas that will then be converted into LNG. During the fourth quarter, Peabody development advanced activities in several developing areas. First, we conducted additional work to assess the rare earth and critical mineral potential at our U.S. mines with extensive testing conducted at our PRB mines.

Second, we held initial discussions with government officials and private partners regarding the siting of power plants that would make use of Peabody's extensive U.S. coal reserves. And third, we are working with the Trump administration to increase U.S. coal exports from the West Coast to the growing Asian coal markets. Earlier this week, I had the opportunity to participate in the CSIS sponsored event securing cold mineral supply, a government industry dialogue held in partnership with the Critical Minerals Ministerial and the Trump administration. I want to express our appreciation to the White House National Energy Dominance Council and Department of Energy for including us in this dialogue. This discussion underscore the growing national focus on strengthening domestic critical mineral supply chains and the important role U.S. companies complain that effort.

We were pleased to contribute our perspective, particularly as we continue to evaluate opportunities where Peabody's assets, expertise and partnerships may support emerging critical mineral initiatives. We look forward to continued engagement as the federal government and industry work together to address strategic supply chain challenges. Regarding Peabody's progress in pursuing opportunities with rare earth and credible Minerals, let me share where we are at this stage. Peabody has conducted a robust critical mineral testing program since the middle of last year. in excess of 800 samples from the PRB alone. In addition to the standard array of light rare earth elements, our assessments to date have uncovered promising concentrations of heavy rare earth and other critical minerals. We're encouraged by the presence of heavy rare earth, which account for an estimated 21% to 28% of the critical mineral oxide concentrations.

I would also note that targeted concentrations of germanium and gallium and select locations show good potential. In addition to our testing program, PD is developing flow sheets with multiple third parties to support the technical and economic assessments as well as the ultimate production of rare earth products. Peabody is also continuing to work with government agencies at the state and federal level. We were pleased to be recommended to receive funding of a $6.25 million grant by the Wyoming Energy Authority for a pilot processing plant in the state. The application now goes through a public comment period before consideration by the governor later this month.

At this time, we are taking an options-based approach using multiple feedstock locations and process partners. We do so to expand our opportunities for success and potentially accelerate time to market. These are still early days in our rare earth and critical mineral journey. We are sufficiently encouraged to continue our progress here to further evaluate the commercial potential. We look forward to sharing more detail as this work reaches appropriate milestones.

Turning to energy policy. Several weeks ago, I was honored to be appointed by the U.S. Secretary of Energy to tear the newly reconstituted National Coal Council. Key priority of the NCC will be to advice administration and ways to expand use of cold fuel generation, building coal plants and export greater quantities of U.S. coal. Why should coal decentral to any discussion of U.S. energy policy, coal is quite simply America's largest energy asset. More than that, America has more energy in its coal than any nation has in any 1 energy source. More energy than Saudi Arabia has in its oil and more energy than Russia has in its natural gas. It would be irresponsible to not use this unique asset for the benefit of the American people.

It's clear that Peabody is at the intersection of multiple policy and market trends, both structural and cyclical that are moving in a highly favorable direction. To set the stage for our market discussion, I'll note that the International Energy Agency recently came out with their annual coal report. 2025 once again set an all-time record for global coal use at 8.8 billion metric tons. That means that real coal use has nearly doubled in the 25 years since the new Century started as nations pull people from poverty, urbanized and electrified, a trend that continues today. This occurs at a time when U.S. entered a deep freeze and unsurprisingly to us, coal moved to the top of the dispatch list on many of the most extreme days. Renewables are largely unavailable in multiple regions. Natural gas prices more than doubled in just 1 week.

As utilities were forced to compete with residential customers and businesses at their most vulnerable times. Not so with coal plants which can stack come on fuel supplies and face numeric close to the price volatility and surges of some other forms of energy. Peabody is seeing substantial strength in the markets for both domestic thermal in seaborne metallurgical coal markets. For more on supply-demand dynamics, I'll turn things over to our Chief Commercial Officer, Malcolm Roberts. .

Thanks, Jim, and good morning all. I'll start with the seaborne metallurgical coal markets, where benchmark pricing has risen to its highest mark in 18 months and increased 15% from $190 per tonne levels of the beginning of the fourth quarter. Since the beginning of the year, pricing has increased to further 15%. For several quarters now, we've been projecting the Chinese anti evolution policies would tighten up the supply and demand dynamics in the global metallurgical coal markets. That trend continues in China. We've seen a shuttering of unprofitable steel mills, increased safety checks at coal mines, implementation of 276-day work limits and other on-the-ground changes that have worked together to form the foundation for met coal pricing as we moved into 2026. 2025 saw the increase of blast furnaces along the coast in India and the gradual transition of global steel production from China to India is a trend that we expect to continue during 2026.

We expect to increase its direct purchase of coking coal as well as supportive coke imports from countries such as Indonesia, that also don't have major domestic metallurgical coal supplies. China is still exporting more steel than the world needs and in the process of suppressing steelmaking from other nations that rely on the seaborne markets for a much greater percentage of their coking coal needs. We have begun to see some protectionism coming to play in Europe and India that will likely support domestic steel production during 2026.

The Metallurgical coal and in particular, hard coking coal markets were tightening and prices were improving even before the monsoon season settled into Queensland, further constraining cement coal production and transportation. Overall, this market backdrop makes it perfect time to bring on increased shipments from the Centurion mine. Thermal markets have remained marginally stable in recent months. The benchmark Newcastle product is approximately $115 per tonne. That's within 10% of where it was 2 years ago, 1 year ago and 1 quarter ago. That's the epitome of a trading range even with the substantial amount of individual countries supply and demand dynamics affecting individual coal flows but it also remains a highly profitable trade for Peabody with lower-cost seaborne thermal coal production.

A fundamental to watch on the supply side is the recent government policy adjustments in Indonesia where production quotas for thermal coal, if enforced could have the effect of removing more than 100 million tonnes of thermal coal from the seaborne market in 2026. How all this plays out is yet to be seen. However, it followed through on this dynamic can be seen as positive for Newcastle pricing as the year progresses. This occurs against the backdrop in which Asian countries continue to add coal generation capacity. China added some 80 gigawatts of new capacity in 2025, and China is expected to launch more than 100 coal units this year.

India's coal-fired capacity has been projected to rise 87% to reach 420 gigawatts by 2047. Indonesia, the world's largest thermal coal exporter saw power capacity more than double in the last decade. In Southeast Asian coal demand is growing at a 4% compound annual growth rate, while Vietnam set another record for coal use in 2024. Turning to U.S. coal markets. I'd point to 1 number that is most noteworthy of all, coal fuel generation was up an estimated 13% year-over-year in 2025. And 13%, that ran well ahead of any projections. That occurred at the time when coal production was up just an estimated 4% in 2025. To make that equation work utility stockpiles declined an estimated 15% year-over-year.

Coal has reemerged as a solution because demand growth was not only unforeseen but unplanned for because other forms of energy are constrained and because existing U.S. coal plants can run much harder. That's why Peabody coal plants the best form of incremental generation for the next several years. Other forms will struggle to provide incremental growth versus what is planned. Let's check through the list. Renewables continue to be built out, but don't solve the problem of data centers and factories that the 24/7 generation. Natural gas has been increasingly relied upon but gas generation has a substantial backlog. Many gas spends ordered today are unlikely to be placed in service before 2030.

Gas prices have remained highly volatile in recent months, of course. Nuclear generation faces lead times and permitting that making a best a 10-, 15- or 20-year solution. And then there's existing coal plants which ran at 42% of capacity in 2024 versus 72% at historical high levels. Running those plants harder could add up to 10% of total U.S. power generation from 2024 levels and accommodate U.S. power demand growth by itself for multiple years. That would also translate into more than 250 billion tonnes per year an additional coal amount. Coal plants offer a direct cost advantage for utilities and consumers. A recent report punch away this. Energy Ventures analysis looked at the cost of replacing existing coal plant generation with comparable new generation from other sources. And these results strongly favor continuing to operate existing coal plants. For instance, replacing retiring coal plants with new solar sources would be 10x more expensive than continuing to operate the coal plants. Coupled with economics, grid stability supports coal plant extensions.

Last that were slated for retirement have been extended in record numbers, with 35 gigawatts of coal plants having seen their proposed retirements be deferred. Just several weeks ago, we saw another plant extended into 2026. Ours is changing utility behavior in 1 more punctuation point added to the coal is back story, Peabody reached agreement recently with a major Midwestern utility for more than 20 million tonnes of Illinois Basin coal over 5 years. The contract exceeds $1 billion in total sales over time. We are sourcing flexibility for multiple mines and market reopeners. This is just 1 more slide, of course, that U.S.A. coal plants are here for the long term. Mark, over to you.

Thanks, Malcolm, and good morning all. Let me start with a brief overview of our financial performance. In the fourth quarter, we reported net income attributable to common stockholders of $10.4 million or $0.09 per diluted share and adjusted EBITDA of $118 million, a 19% increase from the prior quarter supported by higher seaborne thermal realizations and consistent focus on controlling the controllables. We generated $69 million of operating cash flow from continuing operations during the quarter and $336 million for the full year.

Peabody ended the year to $575 million in cash and total liquidity above $900 million, reflecting disciplined capital deployment through the period of intense development at Centurion and consistent cash generation despite lower than mid-cycle seaborne coal prices. We ended 2025 with another quarter of strong execution. For the full year, results met or exceeded our original guidance for 7 of 8 volume and cost metrics. Seaborne Thermal delivered 3.3 million tonnes, exceeding expectations. Realized export pricing averaged $81.80 per ton, up 7% from the third quarter.

Costs came in below the low end of guidance and 12% lower quarter-over-quarter supporting a robust 31% adjusted EBITDA margin and $63.5 million of fourth quarter EBITDA. For the full year, the segment reported $222 million of adjusted EBITDA and total capital requirements were a near $40 million. Costs were down over $3 per ton year-over-year, driven by disciplined cost management and higher production at the WOW open cut. Seaborne Met shipped 2.5 million tons, up $400,000 from the third quarter and above the fourth quarter target. Realized pricing began to improve and cost at $113 per ton were consistent with expectations. The segment delivered $24.6 million of adjusted EBITDA in Q4.

For the year, the segment generated $56 million of adjusted EBITDA. Shipments increased 1.3 million tons year-over-year to $8.6 million, but better yet, full year cost beat original guidance by more than $10 per tonne. Peabody's met segment will be further meaningfully improved with the start-up of Centurion, increasing volume to 10.8 million tons in 2026, and increasing segment-wide price realizations 10% versus the premium hard coking coal index. The U.S. thermal platform contributed $63 million of adjusted EBITDA in the fourth quarter. For the full year, the segment generated nearly $250 million of adjusted EBITDA against only $57 million of CapEx demonstrating the consistent free cash flow generation capability of our reliable low-cost U.S. thermal portfolio.

Over the last 5 years, the U.S. thermal business has generated $1.1 billion of cash net of capital investment. The PRB operations shipped 22.3 million tons in the quarter and 84.5 million tons for the full year almost 5 million tons or 6% more than the prior year, answering the call for more reliable and affordable power as a result of increasing load growth. The segment contributed $44.8 million of adjusted EBITDA in Q4 and $175.8 million for the full year. Interestingly, a 6% increase in tons resulted in a 20% increase in EBITDA margin year-over-year in a mostly flat price environment, demonstrating torque to higher volumes, tight cost management and the benefit of reduced federal royalties.

The other U.S. thermal segment contributed $18.1 million of adjusted EBITDA in the fourth quarter on shipments of 3.7 million tonnes, exceeding expectations. Twentymile is performing well in its new longwall panel and mining is expected to continue through the second half of 2027 as we fulfill the existing contract with the Hayden plant in Colorado. Full year adjusted EBITDA reached $71.4 million. Looking ahead to 2026, I'll briefly review guidance for the full year. Seaborne thermal volumes are expected to be lower than 2025 due to the closure of the Wambo underground mine in Q3 last year, and lower production at Wilpinjong due to reduced operating phases as the mine progresses into narrowing pits ahead of the pit 9 and 10 extensions. Shipments are targeted at 12.5 million tons, including 8 million export tons.

Costs are projected to be above 2025 levels at $50 per ton on lower production. We anticipate a quality mix of 45% Newcastle and 55% higher ash product. Seaborne Met volumes are projected to increase over 2 million tons to $10.8 million with the start of longwall production at Centurion. At the CMJV complex, we expect production to increasingly transition to the Coppabella mine as it completes the additional bench of pre-strip to improve high wall stability in the third quarter of 2026 and depletes its reserves. Met coal costs are targeted at $113 per ton, about $1 lower than last year, and we anticipate segment-wide average price realizations increasing to 80% of the premium hard coking coal index.

For U.S. Thermal, we expect a very similar year to 2025. In the PRB, we expect shipments between 82 million and 88 million tons and have 78 million tons priced at $13.40. Costs are expected to be consistent with 2025 levels at $11.50 per ton. Other U.S. thermal volumes are expected to be 13.7 million tons. We have 13.2 million tons priced at $54.40 and expect cost of $47 per ton also in line with or better than 2025 results. Total capital expenditures are estimated at $340 million, $70 million lower than 2025 as Centurion begins long-haul production. As we reflect on 2025, Peabody delivered a year marked by disciplined execution and strategic investment. Our balance sheet remains robust and provides sufficient flexibility through price cycles, and the step change in met coal production reshapes our competitive position. We have invested approximately $750 million of organic cash flow to develop and expand Centurion, an investment that significantly enhances our leverage to premium hard coking coal markets and provides a cornerstone asset for the next 25 years.

As a result, Peabody enters 2026 from a position of strength with an enhanced met platform, rapidly improving PLV benchmark prices, continued strong cash flowing thermal operations and overall supportive market conditions. Together, these factors position the company exceptionally well for the year ahead.

I'll now turn the call back over to Jim.

Thanks, Mark. That closes the book on a successful 2025 and let's focus for a minute on our full slate of priorities for the new year. Peabody's key focus areas include driving safe, reliable and efficient operations across the portfolio. That's essential in the mining industry and remains our clear #1 priority, achieving full operational performance at the Centurion mine. The promise of Centurion now turns to reality for our shareholders. I'll remind investors that this feeds into the increasingly short premium hard coking coal market.

Continuing the strong EBITDA to CapEx margins from Peabody's high cash flowing thermal coal assets. That's true for both the seaborne and U.S. thermal business preserving balance sheet strength and improving free cash flow to support shareholder -- advance and monetize commercial Peabody development opportunities.

With that, operator, we're happy to turn the call over for questions. .

[Operator Instructions] The first question comes from Katja Jancic with BMO Capital Markets. .

Starting on the cost guide for '26, especially for your Australian operations. What do you assume for the Australian dollar in the cost guide -- and then also, what do you assume on the met side from that pricing?

For the Australian dollar, we're looking at $0.70 pretty much where we're at today, and then now we're using a $225 benchmark pricing. .

And then on the Centurion development, just looking ahead, can you remind us how much CapEx is potentially still left, especially to get to that northern part?

Yes. So we're obviously starting the longwall here imminently in the south. So that initial $500 million has been spent we talked about $750 in total. There were some already allocated to the north as well as the acquisition awards well. When we move forward now into 2026, nothing's changed to what I said before. It's probably about $100 million a year in development for the north for the next 3 years. On top of that, there's some sustaining capital in the South, call it, $25 million a year. .

Next question comes from Nick Giles with B. Riley Securities.

My first one was just on the domestic thermal side. I mean, pricing in the PRB stepped down in 2025, volumes rose. It seems like there could be a similar setup in 2026. So my question is -- how should we think about pricing in '27 and beyond? I mean, is there a scenario where prices revert to the upside? Or is there kind of limited torque because of existing contracts? I appreciate any color there.

Malcolm, would you like to comment on that, please?

Yes, sure. Look, the way we price is we layer in volumes probably on -- from 3 to 4 years before the delivery period. And I'm not going to give specific guidance in terms of how contracted we are for '27, but there's still quite a lot of contracting to be done there. And so that should be exposed to a favorable pricing environment because our view is is that this is a favorable pricing environment vis-a-vis the last 2 or 3 years. .

Got it. And then on the volume side, I mean, do you think there is demand for incremental tons beyond your current guide? I know increasing volumes is a different story, but would there be incremental demand? .

Absolutely. I think so. I mean we started the year with quite a lot lower inventories. We've had a reasonable cold snap and we're already seeing those RFPs out there in the market, we're responding to those today. So I still see incremental demand. There was incremental demand last year. I see something playing out fairly similar. And I guess in terms of Peabody participating on that, our view is value over volume. So it will be about where the price point is for those incremental tons. But I think, as we said in previous calls, the latent supply and capacity in the basin is starting to become quite stretched. So I expect that people were pretty careful as to how they bid into these opportunities moving into this year. .

Understood. I appreciate all that color. One more, if I could. I mean when we look at seaborne thermal costs, the midpoint is at $50 a ton, a pretty meaningful step-up there year-on-year. So just was curious on are the drivers there? Is it really just the lower volumes? Is it mainly the drag at Wupen young? And how should we see things improve over the course of the year?

Yes. Nick, for year-over-year cost in seaborne thermal, it's really a story of the lower production volume. So certainly an increase from lower production at Wilkenyoung a bit also lower production in Wambo open cut, but much less so. And then the answer to Katja's question there about a $0.70 dollar, that's about $0.04, $0.04 higher than we realized last year. So that has probably about a $3, $4 impact as well. .

Next question comes from Nathan Martin with the Benchmark Company.

Mark, just curious how should we think about the cadence of shipments as the year progresses? -- especially for the seaborne met and seaborne thermal segments, I would see in the first quarter probably anticipated to be the weakest, just given the Century and longwall will just be starting up. And obviously, you've got the sequencing you called out Wilpinjong. So -- any other operational items as well to keep in mind for the year, longwall moves, et cetera. Just when we think about that cadence? Thank .

Yes. You got your finger on the right items there, Nate. Seaborne thermal much less than ratable in the first quarter. And that's Wilpinjong and Wambo Open-Cut being less than ratable, just simply from a mine sequencing perspective. So that will bounce up nice for us. in Q2 and even higher in Q3. When we think about Seaborne Met, we do have a 2 longwall move. So both Metro and Shoal Creek are going through a longwall move. So that's going to lower the production and obviously, just getting about 2 months of production from Centurion versus a full quarter. When we think about Centurion, that's going to ramp up probably about 700,000 tons about $1 million to $1.1 million in Q2 and Q3, and then it will fall back down in Q4 as we have a longwall move.

Very helpful, Mark. Appreciate that. And then maybe sticking with the Seaborne Met segment. I understand you guys now expect to realize approximately of the benchmark there with the additional Centurion tons coming on. But could you maybe just give us a sense of kind of the quality breakdown there, like maybe a percentage selling at PLD index versus high-vols PCI, et cetera?

So not -- really the only change year-over-year is Centurion. So think of all of those tons, 300 million tons selling at benchmark, full benchmark pricing, maybe even a small premium. And then the rest of that portfolio, we'll be selling what is historically done in that 70% range.

Okay. Perfect. And then just maybe 1 on shareholder returns. -- as you guys said, spend for Centurion kind of winding down here, net prices have improved here in the near term. When do you expect to be able to begin generating enough available free cash flow in order to return to your share buyback?

Yes. As Jim mentioned, it's our #1 focus from a capital allocation perspective is shareholder returns. I think back in 2025, on the amount of dollars we invested to get Centurion online $250 million, $260 million last year alone. So we'll be down substantially at Centurion from a capital perspective, probably $150 million less going forward. We also had a lot of expenses related to the previously announced proposed transaction with Anglo. So we're starting the year at about $230 million better. And then when you look at premium hard coking coal prices being at 250 right now, substantially better than prior years, particularly with Centurion coming online. So at today's prices, I think anyone could look at the guidance you provided and see some substantial free cash flow generation, and our policy remains the same to return that to shareholders Jim mentioned is the #1 priority with the ensuring development risk off the table, that return should be much closer to 100% versus 65%.

The next question comes from George Eadie with UBS.

Yes. Jim, Mark, Malcolm. So maybe first question for Malcolm. Can you just following up on the question before, can you help me what percent of prices in the PRB cost link? I guess my question is if you're locking in contracts for late 2027 delivery, at just under $17 a short ton, which it looks like the future is now at. If costs held flat for those tonnes alone, can you essentially capture all that $5 a short-term margin. Is that right? And a good way to think about it? .

George, it's a little difficult for me to get into the specifics of each of the contracts. But generally, -- we don't have a lot of horizon for costs within the PRB contracts. They rise and fall on the basis of government policy, impositions, taxes, those types of things. So with pricing business, we've got to take a view of what Asa and what the market can bear out there. but we're not really a cost-plus business. We look at what we think the fair market level is out there and we'll pitch that in that year's dollars effectively.

Okay. Then like in terms of taxes and so forth, rebates, like how much of that sort of run out? Like is it fair to assume that 20% of that price upside gets taken away in those sort of factors? Or is it more about given take negotiation and those contracts props are like exactly what you'll get.

Yes. Look, I think you got it about right. I mean, if you go across our book, you could say royalties taxes and the like. could be 20%, 25%, something like that. So if you think about that, if prices go up, some that gets taken away.

Yes. Okay. Maybe back to Jim and Mark, just on volumes in Australia, more about when does that deplete exactly which quarter? And just on that, given a better '27, hopefully, for Coppabella is sort of 1 million tons down year-on-year net for that JV sort of the right way to think about it potentially?

George, first question on Moorvale, I think, was the question. We will be mining there all of this year and into 2020. Well, probably second half of the year will wind down at Marvell, and it will really transition all the Campabella. So looking for a little bit of decline year-over-year as the combined entity. But I would say we'll be done midyear at Marvell.

Okay. Yes. Mark. And sorry, just on volumes as well can you remind us where that's at operationally and CapEx, is there anything sort of material to come back end of the decade with the sort of sequencing of that going on?

Yes. So it's really sustaining capital for the next 2, 3 years. We talked about the pit kind of 8, 9, 10 extensions back end of the decade, probably 2029, where we'll see a slug of capital, and that will be fleet and equipment as well, maybe a total of $100 million that far out.

This concludes our question-and-answer session. I would like to turn the conference back over to Jim Greg for any closing remarks.

Well, thanks for your time today, both for our long-standing investors as well as the -- many of you have been new to the story in the recent months. I believe we have a great year ahead of us, and we're looking forward to keeping you updated as the year goes on. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, and welcome to the Peabody Q3 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Vic Svec of Investor Relations. Please go ahead.

Thanks, operator, and good morning, all. Thank you for joining today to take part in Peabody's third quarter call. Remarks today will be from Peabody's President and CEO, Jim Grech; CFO, Mark Spurbeck; and Chief Commercial Officer, Malcolm Roberts.

Following the remarks, of course, we'll open up the call to questions. Now we do have some forward-looking statements today, and you'll find our full statement on forward-looking information in the release. We do encourage you to consider the risk factors referenced there as well as our public filings with the SEC.

And I'll now turn the call over to Jim.

Thanks, Vic, and good morning, everyone. I'm pleased to report that Peabody continues to perform quite well with great safety results, good volumes, strong cost containment, a pristine balance sheet and an outlook that points to more of the same.

Our third quarter was punctuated by strong thermal coal shipments and historically low met coal costs. Also, I'm delighted to say that the longwall production at our flagship Centurion mine begins next quarter.

We expect shipments of Centurion's premium hard coking coal to expand sevenfold in 2026 to 3.5 million tons and even more beyond that time.

Development and hiring remains on track and longwall equipment is beginning to be installed underground ahead of the February start.

Over the 25-plus year mine life, we expect Centurion to be our lowest cost metallurgical coal mine. And by itself, the mine should boost our average met coal portfolio realizations as a percent of benchmark from the 70% mark this year to roughly 80% in 2026.

All of this occurs against market pricing that is toward the lower end of the pricing cycle. To steal a bit of Malcolm's thunder, I'll share our belief that all 3 of our end markets could have upside pricing pressure in 2026.

Mark will tell you that we have designed Peabody to produce positive EBITDA even during the toughest times while generating substantial cash flows during mid- to higher parts of the cycle.

We're now at an interesting inflection point on how investors should be looking at our company.

Our capital investment in Centurion is tapering down even as the longwall mining begins in the next quarter, setting us up to expand free cash flows in both directions. That bodes well for shareholder returns using our established policies.

Let's now turn to what we're seeing in U.S. fundamentals. One of the world's largest hedge funds recently commented to us that Peabody was at the intersection of some of the most significant themes going on in America, and I couldn't agree more. Consider a few of these.

The AI data center theme continues to play out with new investments being announced weekly. When coupled with plans for increased U.S. manufacturing, this means power generation will struggle to keep up with demand for the foreseeable future. U.S. coal plants reliability and affordability also continues to be emphasized.

During the coldest days of last winter, for instance, fossil fuels provided more than 90% of the additional U.S. generation needed versus just 4% for wind and solar. The often quoted national average of 16% of electricity from coal also doesn't do justice to the workload, reliability and economics that coal power generation provides in certain states.

For example, our home state of Missouri gets approximately 60% of its electricity from coal, while California has virtually no coal-fuel power. As a result, Missouri's average cost of electricity was just $0.11 per kilowatt hour last year, but California power averaged $0.27, nearly 2.5x that of Missouri.

The third quarter continued to see 202 (c) executive orders to keep coal-fueled generating plants open and utilities announcing additional extensions.

The count of life extensions for U.S. coal fuel generation now totals 58 units and 46 gigawatts of generation, more than 1/4 of the total installed base. This comes as the Trump administration continues to implement common sense policies.

In the third quarter alone, we saw federal funding and emergency orders to extend the lives of coal plants, a 5.5% reduction in the federal coal royalty rate and an upcoming 2.5% production tax credit from the one big beautiful bill.

We also saw a growing national focus on securing rare earth elements and critical minerals.

We have long said that our leading U.S. thermal coal platform and particularly our Powder River Basin position represents a free option for investors. To extend that analogy, today, that option is nicely in the money. With that brief overview, Malcolm, I'll now turn the call over to you to give more color on the markets.

Thanks, Jim, and good morning, everyone. I'll begin with a look at the seaborne markets, where the notable change in metallurgical coal this past quarter has been how unchanged those markets have been.

Consider this, the normally volatile premium hard coking coal benchmark price averaged $184 per metric ton in the third quarter, which is the same as the price it averaged in Q2 and just $1 per ton lower than Q1.

The global steel story has continued to center around China's anti-involution policies, which appear to be firming as the country looks to trim unprofitable supply.

China's crude steel production is down roughly 3% year-to-date. Unfortunately, domestic steel demand has also been sluggish, so Chinese steel exports are still running at elevated levels.

Lower crude steel production in traditional markets outside China has tempered the benefit of new blast furnaces in India and the incremental coal imports they represent. I'll remind listeners that while China imports less than 20% of its metallurgical coal demand, India imports 90% of its steelmaking coal needs.

We note that in recent days, China has been aggressively pursuing imports of premium seaborne coking coals as domestic pricing in China has risen to a level that makes imports attractive.

Seaborne met coal supply continued to see challenges this past quarter with some producers struggling at these sustained low pricing levels. we estimate that 45 million tons of seaborne met coal production or 15% of seaborne supply is earning an unsustainable level of revenue at current price levels.

Benchmark prices today stand at approximately $195 per metric ton.

Next year's forward curve is in the $215 range. This coming quarter, we'll be looking at the pace of Chinese policies and the strength of the restocking cycle in both India and China.

Seaborne thermal coal saw some support in the third quarter with the average benchmark price up 8%.

Positives for demand include developed Asian markets in Korea and Taiwan favoring Australian imports over Russian coals, while Chinese coastal plant stockpiles stand at a 12-month low.

Anti-involution policies are touching all of China's coal mines, where the 276-day work limits, safety checks and production quotas invariably have an impact on most. Enforcement has been observed, but has been sporadic.

On the supply side, seaborne thermal production is adjusting with large exporting nations such as Indonesia and Colombia curtailing unprofitable production. An improving market balance is reflected in the forward seaborne thermal benchmark price contango with next year's Newcastle pricing up 9% above current levels.

During Q4, we anticipate winter restocking post shoulder season, and we'll see if the recent rebound in Chinese imports accelerates.

Within U.S. markets, I'll reinforce Jim's initial remarks. The favorable trends we've discussed all year are well intact. Through 9 months, total U.S. electricity demand is up 2% over the prior year. That relates mostly to the early-stage build-out of data centers and increased load growth from AI.

Electricity demand growth only looks to expand with ICF International, for instance, forecasting 25% growth within 5 years and 78% growth within 25 years.

Peabody has been saying that increasing utilization of existing coal plants represents the best form of incremental power in the U.S., and that's exactly what has occurred year-to-date.

Percentage growth in U.S. coal generation has been 5x greater than overall electricity generation growth.

The 11% increase in U.S. coal burn this year has been driven by good fundamentals, including natural gas prices that have averaged $3.45 per MMBtu, leading to gas generation being down 3%. And those trends may well be repeated next year with a forward curve for natural gas averaging an even stronger $4.

Our view is spare generation capacity could provide substantial growth in coal consumption while filling the electron gap. First, consider the landscape in the U.S.

Renewables continue to be built out, but don't solve the massive 24/7 reliability needs when the wind doesn't blow and the sun doesn't shine. Renewable saturation is a real concept. Gas plants are being built. However, new turbines ordered today may be 5 years away from being delivered given backlogs.

Additional nuclear generation is fine, but at least a decade or 15 years away from reality.

For those keeping score on coal plant longevity, add 3 coal-fueled plants in North Carolina to the list of those being extended. And these plants aren't just being kept in service, they are generating more electrons.

The U.S. coal fleet ran at just 42% of capacity in 2024. The fleet can never run at 100%, of course, but optimal levels could look a lot like 2008 when coal plants ran at 72% utilization.

Closing that gap could add 10% of generation to the U.S. electrical grid without needing to add any new plants. And that increase could translate to some 250 million tons or more per year of additional thermal coal demand. Now that isn't a projection, of course. It's just simple math. However, it does provide a compelling case for coal rebound in the U.S. and one that has already begun to play out this year.

From a supply standpoint, providing those additional tons to meet growing U.S. generation can come somewhat from running mines harder and utilizing latent capacity. You've seen that from Peabody with U.S. shipments up 7% year-to-date.

With higher coal burn, we also estimate that U.S. generated inventories are down 14% from this time last year. Market fundamentals continue to tighten. We've begun to see price indices increase while natural gas prices have risen across the curve.

Coal continued to present attractive economics. That's a brief review of the coal market dynamics. I'll now pass the call over to Mark.

Thanks, Malcolm, and good morning, all. I'll start with a quick overview. We delivered another strong financial quarter with adjusted EBITDA increasing from Q2, driven by higher Powder River Basin shipments, better-than-expected seaborne thermal coal volume and the lowest metallurgical coal costs we've seen in several years despite burdensome Queensland royalties.

At September 30, our cash position was $603 million and total liquidity exceeded $950 million, ensuring we have the financial flexibility to manage short-term market volatility while fully capturing upside from more favorable pricing.

Together with the increased operating leverage from Centurion, we expect to be positioned to generate free cash flow and deliver outsized returns to shareholders.

Let's take a closer look at our financial performance for the third quarter.

We recorded a GAAP net loss attributable to common stockholders of $70.1 million or $0.58 per diluted share, which included $54 million of acquisition termination costs, primarily related to financing arrangements, transition services and legal fees.

We reported adjusted EBITDA of just under $100 million, generated $122 million in operating cash flow and continued completing development at Centurion South, now just 3 months away from starting the longwall.

Turning to operating segment performance. Seaborne Thermal recorded $41 million of adjusted EBITDA and 17% margins. Sales volumes exceeded company expectations with an increase of 500,000 tons quarter-over-quarter as the company recovered the delayed tons from long Newcastle shipping queues in Q2 and then some.

The segment expanded margins by 10% from Q2, demonstrating the continued strength of our low-cost Australian thermal platform.

The Seaborne Metallurgical segment reported adjusted EBITDA of $28 million.

Revenue per ton rose 6% quarter-over-quarter due to a higher product quality mix, enhanced by 210,000 tons of Centurion premium hard coking coal.

Costs were significantly better than company targets with cost improvements achieved at all 5 met coal operations.

The U.S. thermal mines generated $59 million of adjusted EBITDA on the improved domestic demand that Jim and Malcolm discussed.

On a year-to-date basis, our U.S. thermal platform has delivered nearly $150 million of cash flow and EBITDA has outpaced capital by an almost 5:1 margin.

The Powder River Basin delivered $52 million of adjusted EBITDA, a 20% increase from the prior quarter.

Margin per ton improved 6%, driven by higher volume and reported costs at the low end of guidance.

The new lower federal royalty rate improved costs by $0.70 per ton, but reduced revenue by $0.30 as certain contracts require law changes to be passed on to customers.

To get a better sense of the momentum building in the PRB, shipments are up 10% year-over-year, yet margins have improved by 39%, resulting in a 53% increase in reported EBITDA compared to the prior year.

The other U.S. Thermal segment contributed a modest $7 million of adjusted EBITDA in the third quarter. Sales volumes met company expectations despite an unplanned 5-week dragline outage at Bear Run, which led to a production loss of 400,000 tons. That was mostly offset by a drawdown of inventory, resulting in a net sales reduction of 100,000 tons.

Related repair costs totaled $2.5 million, temporarily increasing costs above expected levels.

The dragline resumed operating on September 18, and we don't anticipate any impact on fourth quarter production. Also, the Twentymile team completed the longwall move to the 11 East Panel in October, and we expect to return to normal production rates going forward, though we anticipate less than ratable sales in the fourth quarter as we rebuild inventory.

Lastly, we recorded a onetime $5.5 million charge in the Corporate and Other segment for the settlement of claims related to a dispute over the calculation of overtime at our U.S. operations.

Looking ahead to the fourth quarter, seaborne thermal volumes are expected to be 3.2 million tons, including 2.1 million tons of export coal, 200,000 tons of which are priced on average at $100 per ton. 800,000 tons of Newcastle product and 1.1 million tons of high ash coal remain unpriced.

Seaborne thermal costs are expected to be between $45 per ton and $48 per ton, an improvement over prior implied fourth quarter guidance.

As a reminder, Wambo Underground came offline in the third quarter. Going forward, we anticipate a seaborne thermal quality mix of 40% Newcastle and 60% higher ash product.

Seaborne met volumes are targeted at 2.4 million tons, up 300,000 tons from the third quarter, while costs are expected to be $112.50 per ton better than prior full year guidance.

In the PRB, we expect shipments of 23 million tons at cost of $11.25 per ton, both better than prior implied fourth quarter guidance.

Other U.S. thermal coal shipments are expected to be just slightly below third quarter at 3.6 million tons as we rebuild inventory and production ramps up at Twentymile following the longwall move.

Costs are anticipated to be approximately $45 per ton, a $5 improvement from prior quarter.

With Wambo Underground closing as planned, we anticipate certain non-reclamation costs to be reported in the Corporate and Other segment. These costs are very much front-end loaded and estimated at $9 million in the fourth quarter.

After third quarter's results, we are making favorable changes to full year guidance for the second quarter in a row. Seaborne thermal volumes are anticipated to be 350,000 tons higher at 15.1 million to 15.4 million.

Seaborne met cost targets have improved by an additional $2.50 per ton to $115 per ton at the midpoint.

PRB volumes are anticipated to be 3 million tons higher at 84 million to 86 million, while costs are being lowered another $0.25 per ton to $11.25 per ton to $11.75 per ton.

With the recent challenges at Bear Run and Twentymile behind us, we are adjusting other U.S. thermal full year volume to be at or slightly below the previous low end of guidance at 13.2 million to 13.4 million tons and full year cost $2 per ton higher at $45 per ton to $49 per ton.

In summary, we delivered another straightforward quarter, underscoring the continued discipline of our operations team.

With the Centurion South investment nearly complete, we're well positioned to significantly expand margins.

We expect another consistent quarter to end the year.

We remain confident in our ability to bring Centurion online early next year and deliver stronger cash flow.

Our robust balance sheet provides flexibility to navigate near-term seaborne weakness, capitalize on accelerating cash flows as conditions improve and create significant value for our shareholders.

Thank you. I'll now turn the call back over to Jim.

Thanks, Mark. I'd like to briefly review our core priorities, which play into Peabody's compelling investment themes. First, we are highly focused on safe, productive and environmentally sound operations. That's our key to everything else we do.

Second, we are on our final approach to Centurion's longwall start-up. Centurion joins our multiproduct met coal platform that will see a volume increase of approximately 25% in 2026.

Third, we believe our low-cost thermal coal platform will continue to deliver EBITDA well ahead of its modest CapEx needs.

Fourth, our leading U.S. thermal position will continue to benefit from the rising domestic generation trends.

And fifth, we will maintain a fortress balance sheet with a focus on maximizing shareholder returns.

Our sixth priority is also our newest, which is to leverage our #1 U.S. coal production position to assess our potential to meet growing U.S. needs for rare earth elements and critical minerals.

We told you last quarter that we saw rare earth and critical mineral potential in preliminary studies performed in conjunction with the University of Wyoming and that a new sampling and laboratory analysis program was beginning in the third quarter.

Preliminary data from our targeted zones indicate that we have similar or better concentration than others have reported in the PRB.

We acknowledge that we are in the early stages in our assessment of our potential to produce critical minerals and rare earth elements with sustainable processes that could potentially generate attractive returns for our shareholders.

In continuation of this assessment, we have multiple activities currently underway. We have accelerated our drilling program as we continue our assessment of both types and concentrations of rare earth elements in conjunction with several third-party labs.

We are in discussion with multiple departments in the Trump administration regarding rare earth and critical mineral priorities and potential for funding. We also have been in early discussions with a number of potential technology partners regarding processing platforms. I would describe our actions as aggressive and pacing yet disciplined in approach.

By our year-end reporting early next year, we will look to provide a greater sense of mineral types and concentrations while also discussing next stage plans. With that, operator, we can now open up the line to questions.

[Operator Instructions] First question comes from the line of Nick Giles with B. Riley Securities.

My first question, obviously, some key tailwinds for domestic thermal this year. And Malcolm, you mentioned optimal coal-fired utilizations could be in the 70s. That would imply 250 million tons of demand. In this blue sky scenario, how should we think about Peabody's response? I mean, what's the maximum level of output we could see Peabody producing the PRB? How much capital would be required? And how long would it take to ultimately achieve this level?

Look, Nick, I'll talk about the market and then capital, I'll hand over to Jim or Mark, depending on who wants to take it. Look, when we look at this market, there was quite a bit of latent capacity available over the last couple of years that we're seeing fill up very quickly. And so it's a great question that you asked because the expansion is going to come from really 2 things. One is going to be customer commitments and adding on capacity is not something you do for 1 year. So it's going to need customer commitments.

And then we'll be looking for the price signals. And we'll see what the market does in terms of price signals to bring those additional tons on. I think that's the best way to look at it. But I would say we see ourselves approaching absorbing the latent capacity that we've had over the last couple of years. Mark or Jim?

Nick, I think Malcolm's got it exactly right. I mean you look at what we've done, particularly in the PRB, increasing our volumes by 10 million tons from the beginning of the year. So that latent capacity really being taken up in the market. We've seen our peers do something similar. So there's going to be additional demand if any of these projections for load growth continue to bear out like we've seen so far this year. The amount of capital it's going to take remains to be seen. But certainly, we're going to have to see the economics and prices in the coal to justify the additional investment. I think there's 2 things, Nick, when I think about additional production, one is the capital, and that's mainly the equipment fleet, but two, also the labor and getting a workforce assembled to produce those additional tons.

So Malcolm had it right, latent capacity being taken up and additional volumes are going to come at higher costs.

This is really helpful. Just as a follow-up here. I mean, you mentioned price signals, customer commitments. What would you need to see from a duration perspective? Would you need to see 2030 type commitments at this point to deploy incremental capital? And then just any volume figure, I mean, could we see 10 million more tons, 20 million more tons? I appreciate any clarity there?

Well, we've -- with that 10 million ton increase this year, that's pretty much running at our full run rate. So there's no additional latent capacity to speak of, particularly at our NARM mine, which is the largest mine. With regard to the type of commitments, we're seeing those types of commitments. We're seeing multiyear commitments from customers already, a lot of inquiries around that. It would be -- it would look the same as any other investment. We'd have to see a return. How much can we do on an as-needed basis on a leasing basis versus outright investment and purchase. So to be determined, Nick, on that. But we fully expect with that latent capacity being taken up this year to see that upward pricing pressure. We're seeing it already. We expect that to continue next year, particularly if that forward curve on gas above $4 is right next year.

Got it. Switching gears. Obviously, you have Centurion coming on here shortly, and that will reweight you more towards the benchmark. But with the termination of the Anglo deal, I just wanted to ask how you're thinking about M&A opportunities in met going forward. I mean do you still have a desire to further reweight your met portfolio to higher quality grades beyond what we'll see at Centurion?

Nick, Jim here. And our focus has been on growing the seaborne metallurgical coal. And with the position we're in right now, our entire focus is on getting that Centurion mine up and running and getting it to the maximum capacity possible. And we're in good shape to do that. One of the things that we are addressing, which is going well, as Mark said, is labor. We've got 260 of the 400 employees hired that we need to get to full capacity, and we anticipate being able to get up to full labor complement as the longwall is coming online.

So our focus really is on getting the Centurion mine up and running, maximizing the output from that mine and then really taking advantage of the U.S. tailwinds that we have and following up on your questions of getting as many tons out as economically as we can from our U.S. platform. That's really where our focus is. And if the market unfolds as we think it has the potential next year to do so with the upward pricing pressures domestically, internationally, our focus on our organic assets, we see some very robust cash flow potential. And of course, that can work back to share buybacks and so on for our shareholders. So that's really where the focus of our company is going forward.

The next question comes from Nathan Martin with Benchmark Company.

Just back to the PRB for 1 second. You said the operation, I think, Mark, is basically running at the max at this point. If we look out to the next 2 years, '26, '27, are you guys seeing enough demand to continue running at that max? And roughly how contracted are you and what price at that level?

Malcolm here. Look, I think there are 2 questions. Are we confident about running at max capacity for the next couple of years? The answer is definitely yes in the PRB. I think your second question was what we think price levels will be. It's I can't comment on that, except we are encouraged by where we've seen index price movements and where we're doing business today.

And Malcolm, just to clarify… go ahead, sorry.

I'm sorry, Nate. If there's something to take from what Malcolm has been saying and Mark as well is that we're seeing an environment in the market where it's certainty and demand increase and the ability for U.S. producers to quickly add production is going to be the challenge, and that should result in upward pricing pressure. So there's going to be some value to the first movers on the customer side that step out and enter into these multiyear agreements and securing the reliability that they're looking for. And we've been seeing some of that.

So -- but this inflection point has a real potential to hit the market of the demand increasing quickly, the coal plant utilization wanting to increase to go along with it and how quickly can the production side respond. And for that production side to respond, we need to see more long-term agreements put in place where we can justify the investment, as Mark was talking about. So it's going to make for, I think, a pretty volatile pricing environment going forward if these demand projections hold as we're seeing many consultants forecasting.

Got it. I appreciate those comments, guys. And then shifting to the Met segment, clearly, a nice quarter-over-quarter improvement in cost per ton there. If you look ahead to '26 and the start of Centurion longwall, should we expect that to drive another incremental improvement? I think I believe you said that was going to be the lowest cost operation in the segment. How should we think about how met segment costs could compare to 2025 guidance? Would just be helpful to get some puts and takes there?

Yes, Nate, Mark. We're not sharing guidance for 2026 yet. We'll do that, obviously, on our next call. Over that 25-year life Centurion will be the lowest cost producer in the portfolio. We talked about the South having some shorter panels, lower production run rate of 3.5 million tons or so next year versus life of mine of 4.7 million. So there'll be some give or takes there. I wouldn't look for any step change next year.

Mark, that's fair. And then maybe just one final -- it would be great to get thoughts on potential scenarios for how you guys see the arbitration process with Anglo playing out. And then specifically, are there any further adjustments to your results like the $54 million charge, let's say, that we saw this quarter expected going forward?

Yes. Nate, I'll talk about the process, and then I'll let Mark comment after that about any other adjustments. And our analysis of the MAC, which was a prospective analysis, we feel has been confirmed by events and the passage of time and of course, the enormous loss of value that we see.

So we've hired 2 prominent law firms, Jones Day and Quinn Emanuel, and they've done their analysis and they join us in their high level of confidence in our position. An arbitration process probably takes years, all right? And we're on the front end of that arbitration process. I can't predict you how long it's going to take, but it will take a while to get to any resolution. But as each day passes by, we get more and more firm in our conviction of our position. And now as far as any other expenses with that or looking forward, I'll give that to Mark.

Yes, on the $54 million charge for the quarter, that really brings the year-to-date charge to $75 million. That's a lot of costs that would have been capitalized had we been able to complete the transaction, primarily related to the bridge financing arrangements. That was significantly most of it, about $45 million of the charge year-to-date. There's also about $15 million of professional fees and transition services that is really a catch-up to where we're at, and that's obviously stopped now.

So Nate, I wouldn't expect anything significant like you've seen. There will obviously be some legal defense costs going forward. We estimate that at about $5 million a year.

The next question comes from the line of George Eadie with UBS.

Can I ask more about rare earths and the PRB? So in terms of details, we'll get by year-end, should we expect to see grades volumes, costs and potential time line to get to market all of those by year-end?

So George, what we said is we're in the very early stages of our assessment, which is ongoing, and we're getting some preliminary data in. It's analyzed. We're getting more data in and more analysis is needed. We've accelerated our drilling program with that as well. So what we're planning to give at the end of the first -- at our year-end results, which we'll do in February, is a preliminary analysis of indicative element types and concentrations. So that's what we're looking -- that's what we're saying we'll be giving at that point in time.

Okay. And you guys called out earlier similar or better grades than peers. Is it reasonable then for me to assume that it's a similar mix like other peers, so sort of heavy in scandium and gallium where the value is? And just sort of lastly on that, like can you help maybe elaborate on discussions on partnerships with the current administration? I guess you're a leading player in both coal and critical minerals, 2 clear top priorities. Like how can you help us understand a bit better like what could happen and how they're approaching this in your discussions?

George, so there's a few things there. First off, I'm not going to get speculative on the types and concentrations. We'll have that in just a few months here.

We just want to make sure that we're very thorough in how we approach this. We take a disciplined systematic approach to how we're going to do this. And we'll get all the sampling done. We'll get all the data in and at the -- and when we give our year-end reports at the end of the -- in February, we'll give the information we have at that time. So we're not going to get too speculative at all right now on the concentrations and types.

We have been very active within the -- with the Trump administration, meeting with various departments in Washington and we even have some more upcoming here in the near future. So we're working closely with them.

And as you said, we are -- with the volumes that we do in coal and with the rare earth elements, we do have a unique position. And we also have a unique position that we do that both in the U.S. and Australia. And with the Trump administration and the recent agreement with Australia, we are looking at the potential for rare earth elements along with -- at our coal mines in Australia as well. So we're very unique in that position.

And one other thing I'd like to point out that we're very unique in when it comes to the potential for rare earth elements is the massive scale, which we have in the PRB, which cannot be duplicated. We have the workforce, we have the equipment. We have the logistics facility, and we're currently mining 80 million tons of coal a year and moving over 400 million cubic yards of earth a year.

No one else can duplicate that. And I would just say, while we aren't trying to get shovel ready here if there is an opportunity, we are already shoveling in the PRB. So that is a unique position we have. And as we get data and we can solidify our analysis, we'll certainly bring that out.

Okay. Yes. No, that's clear. And just sorry, one last one, maybe for Mark. But on the Anglo termination, I might have missed it slightly earlier, but there was a $29 million deposit return. Is there another $46 million to come still? Is that right, the $75 million total? And can you just maybe remind me what the $54 million that has gone through in Q3? And if there's anything more in terms of costs beyond that legal $5 million a year you flagged before?

You're right, George. On the remaining deposit, we expect that to be returned to us. We've asked for that in short order. Not clear why only a portion of the deposit was returned to us.

Secondly, on the $54 million of costs, about $35 million of that was related to the financing, the bridge financing, which has now been terminated as we announced previously. And the additional amount was almost entirely related to kind of professional fees and transition services, which have completely been halted at this point. So they won't be going forward.

The only thing we'll have going forward is kind of the arbitration legal fees, and we anticipate that to be about $5 million per year.

The next question comes from Matthew [ Key ] with Texas Capital.

I have a macro one on the rare earth side. We saw this morning that the U.S. and China reached a tentative deal to pause some of those export controls on rare earth elements for about a year. What impact, if any, do you think this will impact government support for domestic rare earth projects?

Yes, Matthew, that's -- I'm not really sure I have a specific answer to that. I will comment on is that I know that there is a strong desire to have a domestic supply of rare earth elements here by our government. So there could be an international supply, maybe things with China. I'm not sure how that will play out. But I do know there is a very strong desire for conventional or unconventional supply right here native in the United States. And so I would expect that would continue, but I don't want to speak for the administration on that. That's just my expectation.

Got it. That's helpful. And just a follow-up on M&A in the seaborne met side. Given that you are in arbitration with Anglo and that could take some time, would you not really be considering any additional M&A in seaborne met until that arbitration process with Anglo is completed?

Well, first off, I'll just say that, again, our belief that the arbitration process will be successful for us isn't going to be a hindrance in anything we -- is not going to hold us back from doing anything in the future. We have 100% confidence in that process, and we are not going to stop anything strategic with our company because of that process. So I'd just like to put that out there right now and clear that up. But as you're asking about M&A, again, I'll just say our focus right now is on our organic assets, getting Centurion online, getting the full value of that for our shareholders and leaning into this market upside that we see happening both U.S. and internationally next year and making sure our platform is capitalized. We have the maintenance in order, we have the staffing in order to take full advantage of the upside we see coming in the market and to generate some very robust cash flows. That's where our focus is right now.

Okay. Thank you, operator, and thanks to everyone for the time today. I'll thank our Peabody team, which amid everything else turned in safety performance that remains near our all-time record performance of 2024. We look forward to keeping all of you up to date on our progress as we finish up in 2025. Thank you.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. Thank you.