Peabody Energy Q4 2024 Earnings Call Summary

Overall Summary & Tone

• Positive Business News: Peabody had a strong quarter, highlighted by the shipment of the first coal from the Centurion mine, the acquisition of premium hard coking coal assets from Anglo-American, and agreements to develop renewable energy on reclaimed mines.

• Tone of the Call: Mostly positive, with confidence in met coal demand and strategic acquisitions. However, concerns remain about near-term US coal demand, pricing challenges, and regulatory uncertainties.

• US Government Change Impact: The new administration is coal-friendly, with policies aimed at slowing coal retirements, increasing coal-fired generation utilization, and facilitating greater LNG exports. Peabody expects this to support domestic coal demand.

US Coal Market Outlook

State of the Coal Industry

• Coal Industry Facing a Transition: While global demand remains strong, the US market is still adjusting.

• Policy & Regulations:

  • New administration is expected to support coal plants, reversing premature retirements.

  • 51 coal units (26 GW capacity) have extended operational lives across 17 states.

  • Increasing coal-fired capacity utilization from ~42% back toward historical 72% levels.

• Utilities & Power Generation:

  • Peabody confirmed data center-driven power demand growth of 2-3% annually.

  • New private equity interest in backing reliable coal plants for growing electricity loads.

• US Coal Contracting:

  • H1 2025 thermal coal largely committed. Additional procurement expected as stockpiles tighten.

Production Levels

• 2024 US Thermal Production: 72M-78M tons projected for Powder River Basin (PRB), with 71M tons already priced at $13.85/ton.

• Other US Thermal: 14M tons projected; 13.6M already priced at $52/ton.

• US Stockpiles Drawn Down: Cold winter demand and stable shipments led to reduced stock levels.

Coal Prices & Cost Trends

• PRB Costs: $12.00 - $12.75 per ton, flat YoY.

• Other US Thermal Costs: $43 - $47 per ton, in line with 2024.

• Thermal Coal Demand Expected to Grow: Due to higher power loads and policy shifts.

• Met Coal Prices: Down $44/ton YoY, but premium hard coking coal expected to strengthen in 2025+.

Export Market & Tariffs

• China Tariffs on US Coal: 15% tariff reintroduced, reducing US competitiveness in Asian markets.

• Alternative Markets: Peabody expects US exports to shift toward India and Europe, while Australia benefits from higher Chinese demand.

• US Coal Export Impact: 600K tons from Shoal Creek went to China in 2024; now reallocated.

Global Coal Market Outlook

Seaborne Coal Demand & Prices

• Metallurgical Coal Outlook:

  • China steel demand weak (-5% YoY in 2024).

  • India steel production up 8% YoY in 2025, with several new blast furnaces online.

  • Seaborne met coal prices up 45% YoY, but short-term supply remains ample.

• Thermal Coal Outlook:

  • China coal imports hit 543M tons in 2024 (+14% YoY).

  • Australia’s exports to China up 50% YoY.

  • Colder Atlantic winters vs. warmer Asian winters caused mixed demand.

• Price & Demand Uncertainties:

  • LNG Restocking in Europe could influence coal pricing.

  • Trade policies & tariffs affecting flows (e.g., US exports to China).

  • China’s post-New Year industrial activity will dictate demand trends.

Production & Cost Forecasts

• Seaborne Thermal Coal:

  • 2025 volumes to decline due to Wambo Underground closure mid-year (-800K tons YoY).

  • Wambo Surface to increase output (+300K tons YoY).

  • Wilpinjong to decline 1.4M tons until Pit 9 & 10 open in a few years.

  • Targeted export volumes: 14.7M tons (9.3M export, 5.4M domestic).

  • Projected costs: $47 - $52/ton (flat YoY).

• Seaborne Met Coal:

  • Production +1M tons YoY to 8.5M tons in 2025.

  • Centurion contributing 0.5M tons in 2025, ramping to 3.5M in 2026.

  • Cost guidance: $120 - $130 per ton, slightly higher due to Capabella mine restructuring.

  • Longer-term outlook: Premium coking coal spreads expected to increase.

Coal Contracting & Fundamental Factors

US Coal Contracting Trends

• 2025 Summer Expectations:

  • Power sector expected to increase procurement due to policy shifts and demand growth.

  • PRB & Midwest production largely sold for H1 2025; buyers expected to return for H2 purchases.

• Contracting vs. Spot Market:

  • Long-term contracts remain stable, but spot demand may increase if summer weather is hot.

Operational & Transport Insights

• Production Challenges:

  • Capabella mine undergoing waste removal & reconfiguration.

  • Shoal Creek performed better than expected in Q4.

• Transport & Infrastructure:

  • Australian monsoons impacted some coal logistics (7-day disruption).

  • US Rail & Port Logistics Stable.

Management Comments (Presentation vs. Q&A)

Presentation Key Takeaways

• Peabody’s Growth Focus:

  • Transitioning toward a higher-margin met coal business.

  • Major Anglo acquisition on track for Q2 2025 completion.

  • Expecting $100M in synergies post-acquisition.

  • Free cash flow targeted at $800M+ over the next five years.

• US Market Optimism:

  • Supportive policies could increase coal plant utilization & delay retirements.

  • Growing data center power demand presents new coal supply opportunities.

Q&A Highlights

• Anglo Acquisition:

  • On track for Q2 close.

  • $1.7B funding mix: Debt (~$1.2B secured notes), potential minority asset sales.

• China Tariffs:

  • 15% tariff on US coal shifts trade flows but benefits Australian exports.

• Seaborne Thermal:

  • 2025 guidance lower due to Wambo Underground closure.

• Grosvenor Mine (Anglo Asset):

  • Limited damage seen; potential for earlier restart than expected.

• Private Equity Interest:

  • Investors exploring baseload coal plants for growing data center demand.

Final Thoughts

• Short-Term: US coal fundamentals improving due to policy shifts, higher power demand, and supply constraints. Near-term pricing remains uncertain due to tariffs and global LNG dynamics.

• Medium-Term: Anglo met coal acquisition will reshape Peabody’s portfolio and boost margins. Indian steel demand should drive long-term met coal growth.

• Long-Term: PRB production is flexible and could increase based on demand. Seaborne thermal to remain under pressure, while premium coking coal spreads are expected to widen.

Peabody’s Q4 2024 results were solid, with growth catalysts in place for 2025 and beyond. The company’s pivot to premium met coal, policy-driven US coal demand growth, and increasing global power needs could create upside potential. However, tariffs, trade flows, and regulatory uncertainties remain key risks.