Peabody Energy Corp

NYSE:BTU

Earnings Call Transcript 2021-Q3

[Operator]

Good morning, ladies and gentlemen, and welcome to the Peabody Q3 2021 Earnings Call. [Operator Instructions]. As a reminder, this conference is being recorded today, October 28, 2021.

I would now like to turn the conference over to Alice Tharenos, President of Investor Relations and Communications. Please go ahead.

[Alice Tharenos, IR]

Good morning and thanks for joining Peabody's Earnings Call for the third quarter of 2021. With me today are President and CEO, Jim Grech; and CFO, Mark Spurbeck.

Within the release, you'll find our statement on forward-looking information as well as a reconciliation of non-GAAP financial measures. We encourage you to consider the risk factors referenced there, along with our public filings with the SEC.

I'll now turn the call over to Jim.

[James Grech, President, CEO & Director]

Thanks, Alice, and good morning, everyone. Peabody had a very good third quarter with our results benefiting from current robust global coal market dynamics, strong operational performance coupled with increased seaborne pricing and global demand for the quarterly results we have not seen since 2018. We continue to advance actions to position the company to be resilient in all market cycles. By expanding our margins, reducing our debt levels, and removing obstacles to increase production.

I would like to start by thanking our global workforce for their continued focus on working safely and efficiently. We are excelling not only because of strong coal markets, but also due to the dedication and efforts of our talented workforce. Across the globe, we are seeing record coal index prices in each market segment and demand returning to near pre pandemic levels. The near term market outlook for all our operating segments is favorable with strong market indicators and increased global demand providing a compelling story for coal and Peabody.

The seaborne thermal and metallurgical coal markets are expected to remain tight in the near to medium term, as supply response to elevated demand remains muted. Heavy rains in Indonesia, rail issues in Russia, production issues in Colombia and hampered domestic supply in China. Additionally, gas supply constraints and low wind generation in Europe have all combined to positive pressure on the global thermal market. While a seaborne met market is being bolstered by robust steel production, and decade high steel margins and tight coal availability.

For 2022, with 2 million tonnes of incremental production expected that are met coal mines, and thermal export production in line with 2021. We are well positioned and are looking forward to taking advantage of this demand and the margins that we anticipate will come with it. In the US, thermal coal market indicators are also favorable with increased electricity demand and high natural gas prices leading to gas to coal switching, and robust growth in coal generation as compared to prior year.

Overall electricity demand increased 3% over the last year, with coal shared electricity generation increasing to approximately 23% for the first nine months of 2021. As a result of increased demand and supply response, whole inventories have fallen by approximately 54 million tons year-to-date, the lowest level since 1997.

Natural gas prices at high levels this quarter that we have not seen since 2014, driving up coal generation demand. During the first nine months utility consumption of PRB coal rose approximately 30% compared to prior year. Supply and demand balances are leading to high forward prices for natural gas. Those forward prices and strong coal export demand are supporting expectations of continued elevated coal prices in the near term.

At Peabody PRB operations, the increase volumes and are trending towards the high end of our guidance range for 2021 and anticipate some incremental volumes next year. We currently have some uncommitted tonnes for 2022. However, given current demand exceeds supply, we're only selling those uncommitted tonnes under multi-year contracts.

At our other US thermal operations, we are ramping up volumes next year by approximately 2 million tonnes to meet increased customer demand. So we only have a small portion left to be sold for 2022 and for 2023.

Now turning to the quarter, our operations were able to deliver projected volumes, offsetting the impact of labor shortages and higher fuel costs. In addition, we continue to invest in the future with increased equipment refurbishments and mind development. Within our seaborne thermal segment, the Wilpinjong extension and the Wambo Open-Cut JV development projects continue to advance with over 200 million of capital invested over the past three years. I'm happy to report the box cut development work was completed at both projects in the third quarter, and we anticipate the Wambo JV to operate a full production run rates in Q4.

Our seaborne thermal margins benefited from pricing increases of 66% in the quarter compared to the prior and the segment is on target to deliver higher export volumes in the fourth quarter as compared to prior quarters and 2021.

Our Seaborne Met segment continues to deliver on efforts to expand margins through cost and productivity improvement initiatives, as well as sales strategies. In the quarter, the CMJV complex and Metropolitan delivered 36% higher volumes at 16% lower cost per ton as compared to the prior year. The CMJV continued to realize productivity improvements and metropolitan and metropolitan reach plan long while production rates. At Metropolitan, we reached the long term sales agreement that underpins the mine for the next three years, with the pricing link to seaborne met coal pricing.

And importantly, both Metropolitan and Shoal Creek completed renegotiated labor agreements. The workforce has been back at Shoal Creek since early October, and we expect to restart production later this year. The US thermal mines delivered another solid quarter generating significant EBITDA, availability of labor impacted production at several of our US mines this quarter, but we see this improving through programs that we have put in place.

And finally, robust US coal market dynamics have allowed us to build a strong book afford business, with settlement of several long-term sales agreements, and improved prices as compared to current level. Notably, in addition to multi-year PRB contracts, we have reached agreements that will support the continued operation of our 20-mile mine in Colorado for the next five years, and assign agreements in the Illinois Basin was increased pricing through 2025.

Our globally diversified asset base, which makes us distinctly unique for many other US coal company is allowing us to benefit from these market conditions. Our Q3 results were a confirmation of the value we can generate from our asset mix. During the quarter, we also continue to take actions to reduce our debt levels and raise cash to the issuance of common shares. Date this year, we have reduced our debt levels by approximately $250 million. We also took steps to reduce our close mine and legacy liabilities to the sale of our Millennium and Wilkie Creek closed mines. These actions are part of our commitment to enhance our platform to be resilient in all market cycles.

We're also progressing on multiple initiatives that will allow us to expand and improve near term production. As previously mentioned, Shoal Creek will be back in production later this quarter. And Metropolitan the Longwall was producing at full run rates, resulting in significant year-over-year increases to our seaborne met export volumes.

Moorvale South, which will result in improved quality and extended life at our CMJV is expected to be in production in the first half of 2022. And in the US, we're implementing plans to produce incremental volumes at our mines in the near term, bedding underground production units in the Illinois basin and expanding development at our wild boar complex. In addition, in the PRB, we are refurbishing and relocating equipment to enable increased production.

Our long-term strategy remains to reweighed investments towards seaborne markets, maximize US thermal asset cash generation and enhance financial strength through debt reduction.

I'll now turn things over to Mark to cover the financial.

[Mark Spurbeck, EVP & CFO]

Thanks, Jim. And good morning everyone. Third quarter results demonstrated our ability to capture improve market conditions and generate substantial margins from our diverse asset portfolio. The thermal segments both US and Seaborne as well as our improving Seaborne Met segment reported strong results. Third quarter sales were over $900 million our highest in seven quarters and increased by more than 30% from the prior year. Reported revenue was $679 million, net of $238 million of unrealized mark-to-market losses. Those losses primarily relate to economic coal hedges.

At September 30, we had hedges on 2.9 million metric tons, the majority of which were contracted in the first half of 2021 and relate to 2.1 million metric tons of expected production at our Wambo underground mine. These tonnes are expected to be mined and settled at a rate of 1.4 million tonnes in 2022, and 0.7 million tonnes in 2023. The hedge contracts support the profitability of the mine by securing average prices of $84 per metric tonne through mid-2023 and are a key ingredient of a strategy to extend the expected life of the mine.

The remaining tons relate to brokered cold transactions and other blending and optimization activities, which will settle beginning in the fourth quarter and throughout 2022. Net loss attributable to common shareholders totaled $44 million, including recognition of the $238 million unrealized mark-to-market losses.

We reported adjusted EBITDA of $289 million, more than double the $122 million reported in the second quarter and three times the prior year results of $95 million. Importantly, we took further action to enhance our financial strength, retiring an additional $93 million of senior secured debt in the quarter, resulting in a net gain from early debt extinguishment of $16 million. We also retired an additional 30 million after September 30. That brings debt retired this year to approximately $250 million, more than 16% of debt outstanding at January 1.

In the quarter, we raised net cash proceeds of $112 million by issuing 9 million shares of common stock under the at-the-market equity program. Subsequent to September 30, we raised an additional $39 million and issued 2.8 million shares. Outstanding shares are now approximately $126 million and we have about 5 million shares remaining available under the currently approved ATM program.

At September 30, we had $587 million of cash and cash equivalents. Net of $240 million of cash margin posted related to the economic coal hedges previously discussed. When these tonnes are sold, we will realize either the currently higher spot price or cash margin will reverse as prices decline toward the hedged price.

Turning now to the segment results, the seaborne thermal segment generated EBITDA of $104 million and benefited from a $23 increase in average realized prices compared to the prior year. Cost per tonne were higher than prior year due to lower production at Wilpinjong and the transition to the Longwall joint venture. In addition to unfavorable exchange rates, higher fuel and royalty costs.

Wilpinjong ships 3.5 million tonnes in the quarter, including 1.6 million export tons, at an average cost of $26 per ton. Wilpinjong realized average sales price of $42 resulting in EBITDA margins of approximately 40%. Wilpinjong recorded $56 million of adjusted EBITDA and had $145 million of cash at September 30.

The Seaborne Met segment generated EBITDA of $57 million, with an average realized price of $120 per ton and costs of $82, resulting in 32% margins. Third quarter met shipments were approximately 400,000 tonnes higher than last year due to higher production at Metropolitan and the CMJV. Total costs for the Seaborne Met segment were lower by more than $15 per ton compared to prior year due to elevated costs at Shoal Creek in 2020. And this despite higher royalties, unfavorable exchange rates and higher fuel prices in the current quarter.

The continued improvement in costs and recent rise in international coal prices demonstrate the value of our Seaborne Met segments to the company's diversified portfolio of mines. In the U.S., our mines delivered $82 million of EBITDA, despite challenges with labor availability and COVID related absenteeism impacting production at several operations.

Our PRB mines ship 22.7 million tonnes in the quarter at a 15% margin. The other US thermal mines ship the combined 4.5 million tonnes and generated 24% EBITDA margins. Both the PRB and other thermal segment costs increased due to higher levels of planned equipment maintenance, and higher fuel prices. In the PRB higher overburden removal and weather events also impacted costs and production for the quarter.

Looking ahead to the remainder of the year, we anticipate higher seaborne thermal volumes, including to three to 4 million exports tonnes, of which approximately 50% are unpriced. Costs are expected to be lower than the third quarter as the Wambo Open-Cut is at full production and Wilpinjong development is complete. Wilpinjong volumes are expected to be approximately 4 million tonnes, with 2 million export tonnes to finish the year with its strongest quarter.

The Seaborne Met segment is expected to ship one to 1.5 million tonnes in the fourth quarter, with 75% of those tonnes unpriced. We anticipate production at Shoal Creek do recommence in the second half of the fourth quarter, with ramp up continuing through the first quarter of next year. We are planning for PRB and other US thermal volumes to be flat with third quarter levels and costs for both segments to be slightly higher in the fourth quarter due to mix.

Fourth quarter cash flows are expected to increase substantially over third quarter levels. As we continue to see favorable pricing in each of our segments and the cash margin related to coal hedges begin to reverse. Lastly, we will continue to be disciplined, taking advantage of strong markets, controlling costs and further reducing debt.

I'd now like to turn the call over for questions. Operator.

[Operator]

[Operator Instructions] And we'll go ahead and take our first question from David Gagliano with BMO Capital Markets.

[David Gagliano, BMO Capital Markets]

Thanks for taking my questions. I think maybe I'll just reach out to the 2022 world for a minute. In thermal, you've given us some information, but I was wondering, could you give us more detail on that. The contracts that are committed in the Powder River Basin and the prices for those, the average price is the volumes that's committed and how much what's the average price for 2022 in the PRB? First question.

[James Grech, President, CEO & Director]

David, good morning, Jim Grech here. And I'd like to take this opportunity, since you're asking about 2022 is really just to talk about the whole portfolio addressing the PRB but also our seaborne. So first off, you'd asked about prices. And since we're still in negotiations for 2022 in many of our market segments, we're not going to comment on any specific prices associated with forward sales will do so when we report our Q4 results. But I will in general give you some ideas and the directions we're going.

So starting with our domestic US you asked about the PRB. We're trending towards the higher end of our forecast for this year as shown in our earnings release. And we expect that to be the base for our tonnes for next year, with upside for any 100 BTU areas, we're still looking for volumes. We're still working on net upside volumes. For next year, we have limited times left for sale at that $90 million come level. And as I said in my remarks, we are pricing, we are selling them with multiyear deals.

Now in regards to pricing for next year for the tons that we do have sold. We are layering we have been layering in prices and sales through the whole year. So we're not selling at all at the at the current price decks that are out there. So that is a case. But again, we do have unsold tonnes for next year at that 90-million-ton level and we are looking to improve upon those volumes. And we'll be able to comment on that more on the next call.

The other US thermal that we have, we are going to take the base that we have from the projections in the earnings release and add about 2 million more tons of production on that. That coal is already sold mostly for 2022 and 2023. So in the US again, we have some exposure to the market. We've been layering some of the sales in and we do have some upside in our other US thermal and working on upside and our PRB tonne.

On the international the seaborne gives us significant more market price exposure to classifications of coal that we have there seaborne Met and seaborne thermal and the Seaborne Met. All of our tons are unpriced at the moment, so we have completely open to the market next year and our seaborne maintenance is seven over 7 million tons of coal.

And the seaborne thermal about two-thirds of our tonnes are unpriced for next year, so are open to the mark exposure for pricing next year. David, I think I tried to cover all the segments or maybe get all your questions all at once you have any anything else you'd like me to comment on?

[David Gagliano, BMO Capital Markets]

Yes. Okay. Thank you for that. Well, just a quick follow-up could you - for the PRB, at least tell us you said, shooting for 90 total. Instead of asking about the price directly can you tell us, how much you have left, specifically to price and then roughly when timing wise, you layered in the majority of the contracts that are already locked in?

[James Grech, President, CEO & Director]

And the layering in of the tons. That's been done since I'll say mid-year to till now. And I don't know, the breakdown of mid-year to later in the year. We've been layering it in since mid-year till now, I think, probably did a little bit more in the August, September timeframe, but I don't have that breakdown. David. And as far as what's available to sell at that 90-million-ton level, it's less than 10% of the tons that we have available to sell for next year or so.

[David Gagliano, BMO Capital Markets]

Okay, that's helpful. Thanks. And then just switching gears real quick Shoal Creek, can you just talk about a little more detail on the ramp up, incremental CapEx, expected cash costs and volumes for the full year 2022?

[James Grech, President, CEO & Director]

So we've that signed the contract with the union, and that contract is going to go through the end of 2024, December 31st 2024. So it's a plus three-year contract, the mine has been sitting for might have been sitting for over a year. And so the startup or the startup, now we started with safety training, get calling employees back to work.

The equipment, expecting the belts, and all that work started and we expect the Longwall to start producing some coal sometime here in November, that coal will be used and we'll get that to the surface. And then we'll start commissioning our prep plant, because there was extensive work done at the prep plant, which will result in improved yields for us.

So to get through all of that getting started up, we'll be through the end of this year, and we expect to start hitting our stride towards the end of this year. And the first part of next year. On the production levels. As far as capital for next year, it's just going to be normal, sustaining capital. And right now, we don't have any information to release that unexpected percentages or costs for Shoal Creek for next year.

[David Gagliano, BMO Capital Markets]

Okay, that's helpful. Thanks. And just real quick, I'm assuming that's all going to the export market. And can you remind us the quality of that coal?

[Mark Spurbeck, EVP & CFO]

Yeah, David, Mark, it is. It is also into the export market, I would say, given where the markets are today. Looking forward to 22. I'd be thinking that is kind of a high volley product for 2022. Historically, we've looked at as a premium hard coking coal product and probably going out '23 and beyond I think of it that way.

[David Gagliano, BMO Capital Markets]

Okay, it's helpful. Thank you.

[Operator]

[Operator Instructions]. We'll go ahead and take our next question from Lucas Pipes with B-Riley Securities. Please go ahead.

[Lucas Pipes, B. Riley Securities]

Thank you very much. And good morning, everyone. I have a quick follow up question there on the domestic contract book. Jim for 2023, how much of the PRB is open?

[James Grech, President, CEO & Director]

Lucas, I don't have that number with me. I know we've been selling for 23 and 24. When I mentioned multi-year contracts, we're going out 23 24, maybe even a little bit in the 25. But we'll have to follow up with you on that I'm not sure the percentage that we have open.

[Lucas Pipes, B. Riley Securities]

Got it. But I heard correctly that on other thermal which I assume would be both Colorado and Midwest that you're mostly sold out for 2023?

[James Grech, President, CEO & Director]

Both 2022 and 2023. Even though we've increased production by about 2 million tons a year in that segment, we're going to it's fairly it's pretty much sold out for the next two years. Yes.

[Lucas Pipes, B. Riley Securities]

Got it.

[James Grech, President, CEO & Director]

That would be our Midwest assets in 20 mile.

[Lucas Pipes, B. Riley Securities]

Got it. Okay, now that's helpful. I appreciate that. And then maybe switching over to seaborne thermal, I believe you had about two-thirds open there. And historically, you've sold a lot of tonnage on the Japanese fiscal year. So kind of when would you be selling the remaining two-thirds of that business? Would appreciate your thoughts. Thank you.

[James Grech, President, CEO & Director]

Well, there's some percentage of it that are, probably two thirds of it, I said was unpriced of that, but some of that is sold. But it's related to index pricing, and then the rest of it is comes to market pricing. And as far as the timing of that, we will block that the end of this year and in the first quarter of next year for the unsold amounts.

[Lucas Pipes, B. Riley Securities]

Got it. That's really helpful. Thank you. And then maybe just a last one on the short term outlook, you provided really helpful kind of comments regarding Q4. And obviously, pricing has been terrific in recent months, and I assume much of that would really float flow through in full force in Q4. So I wondered, is it possible to provide additional comments around adjusted EBITDA, free cash flow in Q4, you said substantially better but wonder in these unique times of high prices, if you could maybe help investors?

[Mark Spurbeck, EVP & CFO]

Yes. Lucas, Mark here, I'll try to take a crack. And I think your question is really looking at fourth quarter, maybe starting with seaborne thermal. We probably have three to 4 million tons of export. We have about 1.7 million of those tons priced at an average of $92. The rest would mean floating and open for pricing.

From a Seaborne Met perspective, looking for about 1.3 million tons. We haven't changed our guidance. We have a little over 300,000 tonnes priced at about 161 and 1 million tonnes unpriced for the remainder of the year. Just for reference, Q3 was 1.5 million tonnes at 118.

[Lucas Pipes, B. Riley Securities]

The quality of the unpriced as yet, between PCI coking coal do you have - would you be able to provide a color on that in terms of the quality breakdown of the unpriced [indiscernible]?

[Mark Spurbeck, EVP & CFO]

No, I don't exactly have that in front of me Lucas. I think, again, if you think about the one on the seaborne thermal side first. I think that you got to look at two things one, Wilpinjong is really high ash thermal and it's sold at a 5% to 20% discount the API5. Wambo is truly a benchmark Newcastle product. And majority of the Wambo is unsold.

[Lucas Pipes, B. Riley Securities]

Got it. Okay, well, I appreciate your color comments and best of luck.

[Operator]

All right, we can go ahead and take out next question from Nathan Martin with the Benchmark Capital Company.

[Nathan Martin, Seaport Research Partners]

Hey, good morning, everybody. And congrats on the quarter. And thanks for taking my questions. I guess I'll start on the cost side, I think kind of the pricing side then been discussed. So maybe you guys had a pretty material quarter-over-quarter decline in net costs 3Q and he said some of that was really too high short creep costs a year ago.

I guess the question is, is that number kind of repeatable here in the fourth quarter and beyond? Or do you expect Shoal Creek ramp to kind of put some pressure on that number given their full year guidance of $93 exploiters Shoal Creek? Thanks.

[James Grech, President, CEO & Director]

Yes, and they definitely saw a great costume in that segment in the third quarter. I think really two reasons for that, first the ramp up of Metropolitan. The full production rates at the Longwall, really quarter over quarter improve that as well as significantly higher production in Moorvale. Moorvale is tends to be lumpy. We were certainly on the coal and at higher production drove those costs lower. We haven't changed our overall full year guidance and costs. So it really was as planned and expected. But these costs in the third quarter. We're particularly low for those two reasons.

[Nathan Martin, Seaport Research Partners]

And Mark regarding Shoal Creek, I mean, do you think that would tend to maybe pressure those costs a little bit in fourth quarter

[Mark Spurbeck, EVP & CFO]

Yes, no question is we begin to ramp up at Shoal Creek, there will be some will be some higher costs that will be blended into that met segment, would expect that to also put pressure on the fourth quarter results.

[Nathan Martin, Seaport Research Partners]

Got it. Thank you. And then maybe if we just look ahead to 2022, any early thoughts on how costs are different segments? My trend there, especially given some of the inflationary pressures we're seeing in the marketplace.

[Mark Spurbeck, EVP & CFO]

Yeah, two things. One, we're not providing cost guidance for 2022 today, we'll do that on our next call. Certainly inflationary pressures are being felt across the industry. We look at it and a couple of reasons are a couple of main factors. Labor is tight as well, labor is probably 25% of our global costs, we use about 80 million gallons of fuel as well. So some higher fuel costs, and certainly steel, there's an impact of steel, as well, from some of the underground mines, as well as the components and equipment.

As we're seeing these inflationary costs, it is really a part of the economy that is being felt very broadly. Fortunately, the higher margins that we're expecting to see here is more than offsetting those higher costs.

[Nathan Martin, Seaport Research Partners]

Got it makes sense. And then maybe, Mark, could you could you kind of remind us what percentage maybe of your costs or sales sensitive related for some of the different segments? With prices?

[James Grech, President, CEO & Director]

Yeah, broad brushstroke, I'd say from on the seaborne side, about 10% of revenues, really royalty related, and cost production, and then in the PRB, with the federal royalties, they were probably about 25% to 30% on that number.

[Nathan Martin, Seaport Research Partners]

Perfect, very helpful. And then can you just finishing with a bigger picture question. Maybe Jim, can I get your thoughts around some of the headlines we're seeing in China regarding power shortages, and maybe more recently, the talk of proposed thermal price caps, and maybe how you see that playing out or affecting the body's business in that marketplace? Thanks.

[James Grech, President, CEO & Director]

Yes, need to have a - Good Morning first off, I have a few comments on that, historically, Peabody has not so much of our coal in China in 2020, only about 2% of our product went to China. But obviously, what China does with their coal and their policies affects the world markets. And so, our view is there's a policy, there's a lot of speculative trading that goes on in the markets. But we always go back to the fundamentals of supply and demand, and talk about price caps and so on. But the fundamentals are that demand is strong. And we expect it to stay strong through the winter, at least and into next year. And the supply is, constrained. And any quick responses from supply is going to be muted for a number of factors.

So, if you take the speculative trading out of it that, as a lot of fluctuations in the prices, and announcements about price caps, we still think the fundamentals are very strong for prices, because demand is going to be stronger than supply, as we've seen right now. And we expect that to continue to next year.

[Nathan Martin, Seaport Research Partners]

Got it. Thanks. Thanks for those Jim. And I appreciate the time information. Best of luck to you guys in the fourth quarter.

[Mark Spurbeck, EVP & CFO]

Thank you. And we'll go ahead and take our next question again from David Gagliano with BMO Capital Markets.

[David Gagliano, BMO Capital Markets]

Hi, sorry to hop on. Again, I just have a few follow-ups here. I just want to clarify one thing on the fourth quarter the export thermal implied volumes that are unpriced. I think it's 1.3 to 2.3 million tonnes. How much would you say was Wambo versus Wilpinjong?

[Mark Spurbeck, EVP & CFO]

Yeah, we didn't answer - I don't have that number in front of me. Let us get back to that. David.

[Alice Tharenos, IR]

On Wambo we have 0.3 - 300,000 tonnes and Wilpinjong we have 1.2 million tonnes.

[David Gagliano, BMO Capital Markets]

Right. So, okay, that make sense. Okay. I thought I misunderstood. Okay, thanks. And then just on the other thermal business. Visibility's pretty low in some of these regions in the US and some of this could be going into the export market 20-mile mine, that kind of thing. I'm just kind of curious, can you give us a little more color on the pricing given that it's sold out for the next couple of years, even at the higher volumes and understanding proprietary issues, maybe just give us like a blended average price or something for the other thermal business and some information if possible how much of that other thermal is actually destined potentially for the export market defending?

[James Grech, President, CEO & Director]

Okay, so I'll talk about the markets in. Mark, if you want to comment on the pricing after I talk about the about the markets. First off our other thermal, we have the El Segundo mine in there, we have and the 20-mile mine, and then our Midwestern mine. So there's, there's quite a mix of markets and contracts that cover all of that. So again, it's David saying, one price index, or one thing that you can look at is tough, because of the mix that we have in there. There was a small amount of 20-mile that went to export this year earlier in the year when the market was softer here in the US. But that was just call out a one off, we don't expect to that to continue.

So all of that coal that we talked about is going to be domestic, free for US consumption, we're not really going to be exporting that in the forward sales that we have, at the mines, again, 20-mile, the five-year extension we had, is certainly going to take up almost all the coal that mine net domestic.

And then in the Midwestern mines, we signed a contract for a large amount of that through 2025. And again, through 2023 it's also domestically to utilities in the Midwest. So there'll be no export tonnes at any of those mines. To get into pricing, it's a little complex, because of the mix of the mines that we have in that category. And again, I'm not sure that there's really a specific indicee that we can point to that they follow that for the pricing.

[David Gagliano, BMO Capital Markets]

Right, exactly. And that was really the point of the question on my side that given the broad mix there and things like that, can you just give us just tell us the weighted average price that you've locked in with - because I don't think it would give away any proprietary information within that bucket?

[James Grech, President, CEO & Director]

David, as we said on our next earnings call, we'll give some color on forward pricing and costs and tonnages, we're not giving out any of that information right now, because even though things are mostly sold, we still have negotiations ongoing. So until we close those out here, we're not going to comment on the pricing for next year.

[David Gagliano, BMO Capital Markets]

Okay, then just my last question on back to Shoal Creek for a minute for 2022. I understand the limitations on cost information at this stage. But obviously, there's quite a bit of capital that went into the mine, I'm assuming quite a bit of capital and in the mine last year, so a lot of changes. And in terms of the cost structure, can you frame it, perhaps within the context of the rest of the Seaborne Met segment, our cost at Shoal Creek likely to be on average higher in line or lower than the rest of the Seaborne Met segment.

[Mark Spurbeck, EVP & CFO]

David its Mark couple of thoughts one, I mean, Shoal Creek has historically been on the higher end of that costs will actually be higher than the other met costs. I mean, when you look at this, I would just - when you compare it to prior results that we had, prior to the temporary shutdown, we'd expect it to be higher temporarily as well. And remember, we're in probably less favorable geology, as we ramped this back up where we ended. So yields will be lower, we did invest capital, as you mentioned in the plant to improve that, but we'll certainly be looking at some higher costs as we start this back up.

[David Gagliano, BMO Capital Markets]

Okay, and then just duration of those higher costs, is that through 2022? Or we're just talking about Q1 and then saving to it's kind of a normal number after that?

[Mark Spurbeck, EVP & CFO]

I would say you'd expect it to be higher for 2022 referring back to more normal run rates after that.

[David Gagliano, BMO Capital Markets]

Okay. Thanks.

[Operator]

All right, we'll go ahead and take our next question, again, from Lucas Pipes with B Riley Security.

[Lucas Pipes, B. Riley Securities]

Thank you. Thank you very much for taking my follow-up. Jim and team I wanted to get your thoughts on the M&A environment out there. Are we more or less likely here to see maybe some consolidation, the space? This has been a really elusive subject over the last few years, but I would appreciate your thoughts on that. Thank you very much.

[James Grech, President, CEO & Director]

Yes, well, it's been elusive. And one of the issues has been the availability of capital to do anything, whether it's capital improvements, or M&A. But Lucas, I was just think, along with Peabody and other coal companies, I would just think of the industry in general since everybody's liquidity is better, and stock prices are improving, versus where it was a year or two ago, all of those things lend tools that could be used to have more money than it has been in the past. And my belief is as many others that consolidation does need to occur in the market.

So just, still, even with these strong prices, there's still too many different players out there, the cost structures, the consolidation would do well on the cost side particularly for the US market.

So I think consolidation still needs to occur. And, again, I'll say the industry in general was a lot healthier to do it with stronger stock prices and more liquidity, but the availability of capital is still a challenge for anybody in the coal segment.

[Lucas Pipes, B. Riley Securities]

And when you when you think about your portfolio, are there areas where you'd say this is maybe less of a strategic priority than other areas, that is more of a strategic priority. So if you would to share with investors your thoughts as to how the portfolio could be optimized, I would very much appreciate that?

[James Grech, President, CEO & Director]

Well, just I view on strategy, for the company, I think the first thing that our company is focused on and Mark said, and I said is we have to pay down debt. And that's the number one focus that we have is pay down debt. And once we pay down debt and become more resilient for these market cycles, which we think the volatility is going to be more severe and more frequent than we've seen historically. Because the supply side can't react as quick as it has historically.

So by far and away our first strategies that I'd like to tell any investor shareholders is pay down debt. Then after that, we would be looking at organic growth off of our own assets. We've talked about that, both in Australia and the US, in the tons that we're looking at for increasing next year, very low cost tons, it's minimal capital investment. It's using equipment that we've had, sitting or refurbishing it and hiring the people to run the equipment. So the next part of that would be the organic growth off of what we have, and maybe looking at picking up some reserves selectively to do that.

The next part of that, I would say, Lucas, would be growing with our customers. And I put that into a few buckets. One of them is I thinking our customers in industry is seeing the value of having longer term relationships, longer term contracts, because there are fewer players, even though there's more consolidation that needs to occur. And we need to be capitalized and we need to attract and retain employees at our mines because the longer term contracts, a lot of do that.

But when you start growing with the customers there are other opportunities out there, to look at different ways to do things with general power generation, with renewables, we are a large surface whole property holder. So all of those types of things I would say our growth force and growing with our customers and then for the analysis that get us down M&A. Now what will we look at for M&A, we do favor a weighting towards the seaborne markets. We think that's where the growth is and the sustained demand both on the thermal and met.

But in the US, we are also dedicated to the US thermal markets, even though it's in secular decline, we still think there are going to be demand for the producers that are left to reliable producers. And so again, in the US markets, we're very comfortable with the assets we have, and think they're well placed for what we see the future is of the colonies in the United States.

[Lucas Pipes, B. Riley Securities]

Jim, very much appreciate that. And, again, best of luck. Thank you.

[James Grech, President, CEO & Director]

Thank you, Lucas.

[Operator]

And Jim, it appears there are no further questions at this time.

[James Grech, President, CEO & Director]

Well thank you all for joining us today. I'd especially like to thank our employees for remaining focused on safety, and for continue to execute on our various productivity and cost improvement initiatives. I'd also like to thank our customers, investors, insurance providers and vendors for your continued support. Operator, that concludes our call.

[Operator]

This concludes the Peabody Q3 2021 earnings presentation. Thank you all for participating.