Good day, and welcome to the Peabody Energy Corporation Q1 2026 Earnings Conference Call. 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 Chief Executive Officer, 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 metallurgical 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 seven-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 metallurgical 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 Powder River Basin 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 an 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-fueled 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 metallurgical 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, two 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-fueled 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 three 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 one-quarter of its exports if fully implemented. We've grown accustomed to such announcements 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 metallurgical 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 metallurgical 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 Powder River Basin 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 metallurgical 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 Powder River Basin, 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 number one 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.

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 and 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 in the second quarter due to the traditional 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 about $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 movement was simply a change in how we collateralize some of those obligations. There was no change in the underlying liabilities.

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, the majority of our contracts are fixed-price contracts that do not include a fuel rise-and-fall mechanism.

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?

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, and it's just not been cost-effective to hedge.

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

Thanks for the question, Katja. The potential is substantial given the quality of PRB coal—low sulfur and low ash levels. Many power-generating plants in Asia are configured to burn this type of coal. That was originally based on Indonesian coal, but Indonesian coal is being retained domestically and grades have decreased. There is a real opportunity for high-grade PRB coal to be consumed in Asia. We're excited we were able to work with the port operator and Union Pacific to do a trial shipment. The potential will be limited by logistics at Guaymas, and there are other West Coast port opportunities currently being discussed that could expand capacity. That encourages us as we move forward.

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

Malcolm, maybe just sticking with you for a second. You mentioned 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 from some of the recent peaks?

I think we could see further strengthening over the coming months. The tide that lifts all boats is the Chinese import price and we've seen that rally reasonably strongly; I'm hearing talk of API5 around $100 a ton at the moment, which is well above year-ago levels. Once that tide comes up, it will also support Newcastle pricing. LNG pricing remains a multiple of seaborne thermal coal as a fuel cost and we're moving into the Northern Hemisphere summer. Overall, I think there's more to come.

Okay. Great. That's helpful. And then maybe going to Centurion. I know you guys 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? Is this kind of an end-of-quarter completion? How confident are you that the longwall should be up and running at full rates in the second half and when that might occur?

Nate, we have a lot of confidence this will occur in the second quarter. I'll give you detail around where we are now and how we see progress in May and June. Our plan gets us to optimized longwall automation by the end of May. By optimized longwall automation, we mean the commissioning of the equipment is complete and we are in regular production mode for our forecast. To get to that position by the end of May, we're working to achieve the optimal position in the coal seam: the correct floor, horizon and longwall face level. We have made significant progress toward those conditions. This is an iterative process: we advance the shields, align the shields, fortify the coal roof or face if needed, cut coal, and then advance the shields again. We're having very good success with that sequence. We'll keep repeating that process for the next few weeks until we reach optimized longwall automation. From there, we'll be running per forecast. A lot of good progress has been made in the last two weeks; every day we move further along our plan. We feel very good about completing this by the end of May, getting out of the commissioning phase and moving into regular production 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. Can you share thoughts around the potential timeline for that development? You mentioned previously the possibility of building a pilot plant. Any updates on timing would be great.

Yes. We're referring to the grant from the Wyoming Energy Authority to build a pilot plant. We're looking at Rawhide as the likely site currently, though other sites are being considered. We expect initial development and construction to take about 18 months to get to initial operations. After that, it could take an additional one to two years to scale up toward full development of the plant. So siting first, initial construction, then start operating, hopefully to some extent in about 18 months, and then ramp over an 18- to 48-month time frame. We have multiple opportunities we are pursuing across several feedstocks, whether coal or overburden at our other mines. This pilot is the one we're discussing at present; other projects are in progress but not yet ready to discuss publicly.

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 the audio was muffled. Are you hearing me okay right now? What we've had is a longer-than-anticipated commissioning period at the mine. During initial commissioning, we encountered some unanticipated electrical and mechanical issues that we hadn't picked up during surface testing. Once we got the equipment underground and under full load conditions, we started having electrical issues—components needed troubleshooting, parts and repairs. After resolving electrical issues, we had mechanical issues with conveyors and chutes, which are standard commissioning challenges with equipment that had been unused for a period of time and was integrated with updated technology. These issues took longer than expected to diagnose and fix. Because the longwall advanced very slowly during commissioning, localized ground conditions developed where the longwall was sitting. Moisture accumulated in roof cavities above the longwall and the floor beneath the shields softened. We've addressed roof conditions with void fill and they are under control where the longwall is currently located. The floor conditions have been adjusted for, but we have some misalignment in a limited number of shields. We're in the final stages of remediation—getting those shields in alignment through a cycle of advancing the longwall, adjusting shields, and repeating that process. We anticipate getting through that by the end of the month. Each time we advance, we progressively improve the remediation. Once we get onto fresher ground beneath those shields, we'll be running at forecasted rates. I hope that answers your question.

Yes. Are you testing the shields to make sure they're carrying the roof load? Is that something you can do and are doing?

Yes. The shields themselves are performing well. The primary issue is that some were out of alignment between the floor and the roof, and we have to get them straightened out. That's the main remediation work underway now.

Okay. That's super clear. And then one quickly for Malcolm: margins in the PRB are just over $1 a ton now. Are there risks to margins getting back toward $2 and higher going forward with U.S. gas prices at $2.80 and cost pressures impacting the other end, too?

With current oil and diesel prices, margins are pressured, and this quarter is impacted by shoulder-season volumes. However, electricity demand continues to increase and as we move into summer, I expect the spot market to be robust. New deals tend to reflect the higher cost base, and I expect pricing to adjust over time, which should support margins as we move forward.

George, I would add that if you look at our implied guidance and the additional volumes coming in the second half of the year, once we achieve full production rates this will translate into improved margins and material free cash flow in the second half.

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 metallurgical cost revisions, I think most of which were driven by Centurion timing being pushed out. Can you just touch on the other operations and where costs stand today at those mines? Diesel isn't as impactful as the PRB, but has anything changed as far as input costs at your non-Centurion operations?

Nick, two changes we made to full-year guidance were: PRB up $0.50 per ton on a full-year basis entirely due to higher diesel pricing, and seaborne thermal up $2 per ton, also entirely due to higher diesel pricing. Seaborne metallurgical cost guidance is up $15 per ton and that is entirely due to lower volumes at Centurion. There are some higher diesel costs in seaborne metallurgical and other U.S. thermal, but those segments use much less diesel compared to PRB and seaborne thermal, so the impact there is smaller and we were able to maintain the original cost guidance ranges for those segments.

Got it. Very helpful. And then maybe just one on the Centurion product itself. Can you talk about how the commercial process has gone to date with customers? How much is contracted? How much is left to be contracted? And do you feel that with higher freight rates globally Centurion has become more competitive? How are you thinking about percentage realization versus PRB?

Generally, discussions have gone very well because Centurion produces a high-quality premium hard coking coal, around 8% to 8.5% ash. Historically, North Asia has been a big customer when this mine was producing, and there's strong demand there. The main focus today is on India, and we have concluded several contracts there—probably eight or nine. In terms of how fully contracted we are for the year, that's commercially sensitive, but there's plenty of demand for the product.

The next question is a follow-up from Christopher LaFemina with Jefferies.

Just one quick follow-up. If you hit your operational targets, you're going to be generating lots of free cash flow in the 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. Yet you have an opportunity in the market to buy back your stock at a relatively inexpensive level. How are you thinking about that? Can you take advantage of the opportunity where the market is not pricing in the cash flow you will generate and buy back stock at these levels?

Chris, we share your outlook for the business. Certainly, when Centurion comes fully back online in the second half of the year there will be a substantial amount of free cash flow. There are a couple of opportunities to deploy that capital: buying back shares is one, and another is addressing our 2028 convertible to manage potential dilution. We will evaluate the best use of capital given market conditions and our priorities.

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

When will we get some details on this PRB West Coast opportunity—potential tons you could ship, washing and cleaning costs, CapEx, timelines and all the various factors for us to potentially model it up?

I'll start and Jim can add. This cargo is going out in May and we'll get customer feedback. We have another customer visiting our PRB mines soon and we're in a detailed qualification process. Trains are being discharged and the first one is being discharged in Mexico this week; we'll load it on the ship and get the customer's feedback. Union Pacific has been working constructively with us on the railway logistics, which is encouraging. Exactly where we go with the Port of Guaymas is a bit of a trial—it's a proof of concept. In terms of CapEx and port investment, we expect port promoters and developers to make those investments; we would be a user of port capacity. We'll evaluate options based on port performance and customer feedback.

George, to add, the key takeaway is that demand exists and PRB coal qualities compare very favorably to Indonesian coal. The proof of concept with Union Pacific and the work with U.S. and Mexican authorities shows we can move product to those markets. The next steps are figuring how to scale volumes, whether through Guaymas or other West Coast ports currently under consideration. This is not likely to be a large-scale change in the next three to six months because port capacity needs to be developed, but there is significant longer-term opportunity.

Okay. Great. What is the port capacity you could tap here? Is 5 to 10 million tons the right range to think about?

Guaymas could get to that range or slightly higher, and other West Coast ports under consideration could be at the upper end of that range.

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.

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