Q2 2026 Peabody Earnings Conference Call

Good day, and welcome to the Peabody Quarter 2, 2026 Earnings Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1, on a touch-tone phone. To withdraw your question, please press star, then 2. Please note this event is being recorded. I would now like to turn the conference over to Kayla Finkeling. 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 Breck, 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. T-Buddy delivered on a number of important accomplishments during the second quarter while continuing to manage through some near-term operating and cost importantly we maintained our focus on safety across the portfolio which remains a foundation of everything we do order we also made meaningful progress on a number of key priorities at the Centurion mine we are now approaching targeted production levels provide 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, Seabody was selected by the Department of Energy for a grant to advance and terraria's 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 as centurion as expected we face some of the highest fuel costs in years bottom line 24 million dollars of adjusted even that is nowhere near the type of quota 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 had 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. 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 one and a half two million tons of sales in the second half with 500 to 700 000 tons expected this quarter factoring in anticipated shipping schedules 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 turn 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. This projected long-term cost structure is first quartile for this type of coal, further expanding margins. It has a 25-year mine life that further solidified Centurion's role as Peabody's Cornerstone asset in Australia. As 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 are 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 project 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 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 due to a capital-like prism aiming to work with partners, create new pathways for Peabody growth, and further monetize our resource base. 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 position 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 tonne, a 29% improvement over year-ago levels. Driving that was steel demand that was good but not great, and a met coal supply fixture that saw sharp tightening due to a tragic mine accident in China's Shanxi province. that accident has led to widespread safety inspection in Chansey from less widely reported site might not appear that Chansey produces more meat coal in that market effects of production 30 million tons of production we're in

golf and significant progress at Centurion 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 seaborn thermal platform shift 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 percent quarter-over-quarter and 31.6 percent compared to the prior year period. Segment costs of $58 per ton were at the low end of guidance, resulting in a 23 percent adjusted EBITDA margin and over 52 million of adjusted EBITDA. Seaborn metallurgical shipments totaled two and a half 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 cost of centurion. The segment reported an adjusted EBITDA loss of $17 million as higher centurion costs were only partially offset by a seven percent core of a quarter improvement in realized pricing our us thermal business reported 19.8 million of adjusted evita 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 costs to $14 per ton, but they will provide a significant benefit to costs for the rest of the year. In fact, we expect costs to be $2 lower, or about $12 per ton in the third quarter. Other U.S. thermals 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 discipline cost control the segment contributed twenty six point nine million of adjusted even within the quarter turning to the balance sheet and at June 30 the company had over 500 million cash and total liquidity over 900 million in the second quarter we completed several strategic financial transactions that unlock shareholder value jumpstart shareholder returns lower borrowing costs and increase financial flexibility she 250 million of convertible notes due 2031 with a 0.5 percent coupon and together with the related capped call transaction establish a conversion price of 50.61 cents per share second we utilize the net proceeds together with cash from the balance sheet to redeem 241.2 million of the 2028 convertible notes with a 3.25 percent 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 increase the average conversion price on the convertible notes from $18.99 to $38.31 per share, reduce the diluted share count by 6.2 million shares, and lower annual interest expense by 6.6 million. to significantly enhance 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 BIPs. $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. For a quick look at the third quarter, we expect Seaborn 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 API5. We expect costs of $52 to $57 per ton, a nice improvement quarter over quarter. For Seaborn Metallurgical, we expect a volume of 1.9 to 2.1 million tons as Metropolitan has a long wall move and a scheduled lockoutage 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 costs 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, an average price of $58.20 with costs at $45 to $40,000 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. I'll turn the call back over to you, Jim.

As we move into the second half of the year, our focus is on execution. Centurion reaching targeted longwall production rates, US thermal position for stronger seasonal demand, and our Seaborn 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 sure. As a set operator, we are pleased to open up the call to questions.

Now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw the question, please press star, then two. At this time, we will pause momentarily to assemble our roster. First question comes from Nick Giles with B. Riley Securities. Please go ahead.

Yeah, thanks, Operator. Good morning, guys. Maybe just starting with Centurion, was just hoping for more color to what extent the longwall's running today. I mean, how much stoppage is this rock vaulting causing, or how are advance rates ultimately impacted here?

Good morning, Jim here. Yeah, so, you know, first I'll give you a little background on the long wall and where it's at and then how it's running today. So, you know, 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 that issue behind us now the the long wall the shields are straight and they're and they're square to the face and so uh it's in good shape and you know it took uh it took a little longer than we thought it was going to be to to address this issue and uh again just to give you maybe a little explanation what it is a picture what it is is the shields themselves you can look at look at it was 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 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 uh and through the month of june so now that's done along wall square and uh and it's running so uh we're running right now uh when uh running it's running back and forth to shear and at times we have stoppages to address the faulting that we have now to address the faulting we've taken a four different actions to address the faulting ahead of us so we either do underground inseam drilling fault and inserting grout that way we have drilling from the surface further away from the long wall 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 geoflexing right at the face or some rock sill right above the shield. So the first two things that we do for the faulting are more in advance of the long wall, and the other two with the geoflex and rock sill are sort of like active, right in the active mining zone with the long wall. So with that, you know, over the last two weeks, we've really picked up the pace on the on the long wall we have some days where we've run seven eight shears a day and some days we're running three or four shares a day because we have that faulting to address and that's where that consistency is that we're looking for to to to go forward is uh running at a steadier rate and as we keep advancing through this faulted zone and running at a steady rate it really solves itself the quicker you can move through it the more shares 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 the faulting area, the yield goes down, we get more rock, so there's 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 long wall face has been in the best shape that it's 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, you know, quarters down the line that you won't run into this vaulting zone again?

Yeah. So, your first question is it was a continuation of the long commissioning, this whole startup process. You know, we started out with the electrical issues that were – as we started the long We had a series of electrical issues and had it 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 startup and the longwall stopping and starting 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 startup and had the normal advance rate, we wouldn't have had the conditions leading, you know, 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 shield number 20 to shield number 50. So, we can see an end of sight to this faulting. It'll be during the third quarter, and so we don't expect this in the fourth quarter. We have, you know, 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 defaulting is why we said that we will also give out updates in August and September of how we're doing right to make it more accurate to tighten those ranges up as we go forward that got it well yeah great no I just want to say thanks again for all the background alum I'll turn over thanks Nick our next question comes from Matthew Key with Texas Capital Securities.

Please go ahead.

Good morning, and thanks for taking my questions. I had a question just kind of on PRB volume guidance. Based on where coal volume was in the first half of 26 and in the guidance 3Q, it seems to, you know, achieve the midpoint of that range. It would imply a pretty impressive 4Q shipping quarter.

Just given where natural gas prices are trade in 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 yeah good morning Matthew Malcolm here the second half of the year and and what we're looking at here doesn't seem that different to uh to prior years obviously gas price a little lower but if you look at the grid at the moment um coal's been called upon um very heavily so what we're looking to do in the second half of the year Probably it's not much different if you overlaid the patent from 23 through 25 and, you know, probably quite rightly you should be assuming the midpoint of the guidance range that you spoke to. That would be – that would be my response to that question.

That's helpful. And I was wondering – 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 the 26th?

Yeah, Matt, as I mentioned in the prepared remarks, continue to execute against our existing shareholder return program, payout over 100% year-to-date. We'll 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 stuff of the convertible notes, depending on where they trade. We were able to buy those at $241 million back at a very small premium, less than four 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.

Appreciate the time, and best of luck.

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

Hi. Thank you for taking my question. 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, would be filed and made public information, which, by the way, we still have six spots left open on that site tour of Centurion. We've 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 here, we'll give an update, and then we have some investor dates. I'm not sure of the specific dates up in 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 long wall?

Yes.

It's a great tour. you can the site will show the long wall will show the surface facilities you'll see every piece of the mine operating piece of the mine that we have there and maybe 50 years to the 350 million of restrictive cash that was unlocked is there is that fully available or right now or are there any so restrictions to that to using that got yet the 350 million dollars of clutter that was returned, it was really, you know, reclassed from restricted cash and collateral.

So, to your question, it is fully available. It's included in our cash balances at June 30.

Okay, perfect.

Look forward to seeing you at the Centurion visit, Patia.

Next question comes from Nathan Martin with the Benchmark Company. Please go ahead.

Thanks, Operator. Good morning, everyone. You know, sticking with the restricted cash piece, Mark, question for you. I mean, are there any more opportunities to unlock restricted cash, whether that be surety-related or otherwise? It looks like there's still about $460 million or so left there on the balance sheet.

Yeah, 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.

Perfect. Helpful, Mark. And then going back to Centurion, I guess, have you guys noticed anything during, you know, 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? Sam, you talked about this a little bit in your comments. We're just hoping to get a little bit more detail.

Well, Nate, I'd say, you know, when we have been running well without an issue, I'd say it's the opposite. The rate at this year can transit is as good or better than we thought it would be. So, you know, 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. We're just getting from this commissioning phase now into the production and getting the steady-state production to actually, you know, to see the results of that. But when we are running well, we run very well.

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

The question, Nate, I'll probably bifurcate the answer here for seaborne and then US domestic. Talking about seaborne, the biggest thing is drought, particularly in Asia and China. So we've seen very strong cold burn in China. There's a lot of noise around how much cold 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 from the great river system in in in china is it is down um so that's that's having an influence and then we're looking to europe and we're looking at you know a very warm summer in Europe and we're seeing even increased coal generation in countries such as Germany 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 US here and enjoying the warmth and looking at the grid pretty much across MISO and the like we've seen very strong coal loads and you know expect that to continue so a good hot summer is really going to contribute to coal burn in the US and that's why I reiterated that I think the midpoint for PRB guidance is is where people should be looking at it hopefully that gives you some colour mate thanks for the question yeah it does Malcolm

and appreciate it. I'll pass it on there. Appreciate the time, everyone. Best of luck in the second half.

Thanks, Nate.

Our next question comes from George Eady with UBS. Please go ahead.

105 cash costs. Is that number still stale? I guess more on the cost front. You call that in this update, supply and material pressures. How confident are you in this S-board? Do you think it's still achievable when the times come there? And maybe just to...

Yeah, so, yeah, we still feel, you know, there's a couple 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 $24 number, so it does need to be escalated. And, again, when we get to, you know, the steady-state production, we assume a normalization, you know, on the diesel prices are that big an impact there with that, some of those things that are we think are not standard impacts on the cost of supplies yeah we still feel good about both those numbers once we get to our steady state production and you know the delays you're talking about here are not significant over the you know the four or five years that we have in the south here so yeah to the extent that we're not going to mind the initial funds that we thought this year that does tack on some time so we transfer to the to the Northern reserves nothing that I mean you're looking at months here though

you're not talking years I guess like the buyback why not go early like it spot and guidance the available free cash should get to at least 50 million a quarter clearly that's what investors are chasing and wanting here and sort of rereading the tech report like this appears to be the only really dull concerning faulting time like the outlook looks clearly better like why not go LLA, before the Fed was told back, given the fact that- Yeah, George, we're gonna 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, you know, really opportunistic and brought those back at $140 million discount to where they had previously traded. We'll continue to take opportunistic looks at this and we'll continue to execute throughout the second half.

This one comes from Nick Giles with B. Riley Securities. Please go ahead.

Great, yeah, thanks for taking my follow-up. 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 wanted to make sure we have that straight.

CM coal in there is probably in the range of 150,000 tons, give or take.

Got it, okay. And then as we look up to 2027, you know, there was the long wall 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?

We haven't given that specific 27 yet, Nick, and the timing of that long wall 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, 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 of a non-binding nature? or when should we expect more of an update on that front?

Yeah, 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.

Understood. Okay, thanks again, guys. Best of luck.

Concludes our question and answer session. I would like to turn the conference back over to Jim Grek for any closing remarks.

Yes, I'd like to remind everybody again that the August 11th tour at Centurion, there are some spots open. Maybe some of these questions that will be asked today 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, everyone, for your time today as well as your longstanding support. and we look forward to keeping you apprised of our progress at the investor events as the quarter proceeds.

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