Peabody reports 2022 second quarter results

NARM - courtesy Peabody
Heavy equipment operates at Peabody Energy's North Antelope Rochelle mine in Wyoming's Powder River Basin. (Peabody Energy)

GILLETTE, Wyo. — Peabody Energy reported Thursday that it made its highest quarterly adjusted earnings in more than a decade last quarter, following record seaborne pricing.

Its earnings before interest, taxes, depreciation, and amortization, or EBITDA, was $578 million in the second quarter of 2022, a company news release said. In the second quarter of 2021, Peabody’s adjusted EBITDA was $122.1 million.

Generated cash flow was $283.1 million last quarter, compared with a cash use of $93.8 million in the second quarter of 2021. Revenue increased more than 80% to $1.3 billion since last year, with higher realized prices in each segment.

Peabody’s net income attributable to common stockholders was $409.5 million, or $2.54 per diluted share, for the second quarter of 2022, compared to a net loss attributable to common stockholders of $28.6 million, or $0.28 per diluted share in the prior year quarter.

Costs in the second quarter included a $24.5 million charge for unrealized mark-to-market losses related to its coal hedging activities and a $2.3 million net loss on early debt extinguishment.

“This quarter we delivered Free Cash Flow of over $340 million and Adjusted EBITDA of $578 million despite significant weather and logistics challenges.  For the first time as a public company, cash exceeds our debt balance,” Peabody President and Chief Executive Officer Jim Grech said in the report. “While we expect a strong second half, severe July rains in Australia will impact third quarter production, sales, and costs, and we have revised full year expectations to reflect these continuing challenges.”

Its cash and cash equivalents balance exceeds its total long-term debt by $74 million.

In the second quarter, Peabody’s seaborne thermal segment shipped 4.0 million tons. Its exported tons increased 22%, from 1.8 million tons in the first quarter to 2.2 million tons. The average export realized price increased 21% to $143.43 per ton, despite 264,000 metric tons sold at $84.00 under the hedge program that extended the life of the Wambo underground mine. Higher sales price sensitive costs and fuel prices raised second quarter seaborne thermal segment costs of $43.85 per ton and average Wilpinjong costs. Average Wilpinjong costs, $33.50 per ton, were up 19% from the past quarter. Substantial rain and COVID impacts reduced overburden removal productivity 18%. This will impact second half volume, the report said. Adjusted EBITDA margins were 50%, and adjusted EBITDA was $176.8 million.

Wilpinjong shipped 3.3 million tons at an average realized price of $85 per ton, which included 1.5 million tons of export sales at an average realized price of $167 per ton and 1.8 million domestic tons. In the second quarter, Wilpinjong contributed $169.8 million to adjusted EBITDA and had $202 million of cash.

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Average seaborne metallurgical segment realized prices rose 28% in the second quarter, to $330.56 per ton. Production volume rose from the Coppabella and Moorvale Coal Mines Joint Venture, including the first shipments from Moorvale South, and the sale of Shoal Creek inventory, raising sales by about 0.4 million tons. Shoal Creek’s higher costs from the transition to the J2 longwall panel, completion of a longwall move at Metropolitan, additional sales price sensitive costs and higher fuel prices contributed to 28% increases in total segment costs of $144.91 per ton from the prior quarter. The segment reported 56% Adjusted EBITDA margins and Adjusted EBITDA of $299.7 million, in the second quarter.

The Powder River Basin, or PRB, segment shipped 18.5 million tons at an average realized price of $12.44 per ton in the second quarter.

“Tons sold for the quarter were impacted by further degradation of PRB rail performance resulting in four million less tons shipped than nominated by customers,” the report said.

PRB costs per ton increased 6% over the prior quarter to $12.55 per ton, primarily due to lower production volume and higher fuel costs. The PRB segment reported an Adjusted EBITDA loss of $2.0 million. Overburden removal costs stayed higher than sales volume.

The other U.S. thermal segment shipped 4.4 million tons at an average realized price of $51.40 per ton, up 6% over the first quarter. Costs per ton increased 2% because of  higher repair spend and fuel prices. The segment reported 28% Adjusted EBITDA margins and Adjusted EBITDA of $61.9 million, in the second quarter.

Peabody’s equity affiliates income was $48.7 million in the second quarter. That income primarily related to its 50% interest in Middlemount and related 0.3 million attributable tons of metallurgical coal (0.8 million tons year to date).

Second quarter production was lessened by severe rains and COVID related absenteeism which is expected to impact third quarter production, the report said.

Peabody’s $1.121 billion of cash and cash equivalents at the end of the second quarter exceeded its total debt, $1.047 billion.

The company generated $283.1 million in operating cash flow and $59.3 million in inventing cash flow, including $96.2 million in cash receipts from Middlemount, leading to free cash flow of $342.4 million. Cash margin with the company’s coal hedging increased $62.5 million in the second quarter due to higher prices for premium Australian thermal coal, resulting in approximately $544.2 million posted at June 30.

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The company retired about $51 million of senior secured debt during the quarter. Since June, it retired another $116 million. The company posted $6.25 million more in cash collateral for future reclamation obligations, bringing year-to-date cash deposits to $12.5 million.

Based on second quarter Free Cash Flow results, an additional $32 million of cash will be posted in the third quarter in accordance with the Company’s agreement with its reclamation bonding providers.

Peabody anticipates its full year seaborne thermal volume will be down 1.0 to 1.3 million tons because rain and COVID absenteeism delayed re-establishing mine sequencing. Cost guidance has increased $8 per ton because of rain impacts on production and higher sales price sensitive costs and fuel costs. In the third quarter, seaborne thermal exports are expected to be 1.8 million tons, with 1.1 million tons priced at $147 per ton (includes 264 thousand metric tons hedged at $84), and approximately 0.5 million tons from Wilpinjong and 0.2 million tons from Wambo remain unpriced.

Peabody raised its full year expectations for seaborne metallurgical, to at least 0.3 million tons. Higher second half production at Metropolitan, after the longwall move, and the production ramp-up at Moorvale South are supposed to more than offset lower Shoal Creek production. The company increased cost guidance $15 per ton because of higher royalty costs from the additional price sensitive Queensland royalty rates and higher fuel cost. Peabody anticipates third quarter exports will be 1.9 million tons. The current product mix is expected to achieve 75% to 80% of the premium hard coking coal index price.

The 2022 outlook for PRB volume has decreased between 5 million to 8 million tons because of increasingly weak rail performance and lack of certainty of improvement to meet current year customer nominations.

Other U.S. thermal volume increased 0.5 million tons because of higher customer demand.

“All volume for the U.S. thermal segments are priced and committed, sales volume is dependent on rail availability,” the report said.

For the full year, PRB cost guidance has increased $1.25 to $1.50 per ton to reflect continuing high fuel price, general inflationary pressures and the anticipated lower volume. Other U.S. Thermal cost guidance increased $4 per ton to reflect continuing high fuel price and general inflationary pressures.

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A recording of the 2022 second quarter earnings call is available on the company’s website.

The coal giant said July 14 it anticipated reporting earnings between $570-$590 million and total revenues as high as $1.3 billion.

Peabody wholly-owned subsidiaries PIC AU Holdings LLC and PIC AU Holdings Corp. on Thursday bought $112.7 million in aggregate principal amount of senior secured notes from Peabody and trustee Wilmington Trust, National Association, Peabody announced July 22.