Peabody Energy's 2025 Q3 Earnings Call: Contradictions Emerge on Wyoming Royalty Rate, Centurion Mine Sales, Rare Earths Strategy, and PRB Demand

Date of Call: October 30, 2025

Financials Results

• EPS: GAAP net loss of $70.1M, or $0.58 per diluted share (includes $54M acquisition termination costs; YTD related charges $75M)

Guidance:

• Q4 seaborne thermal volumes ~3.2M tons (2.1M export; 200k priced ~ $100/ton); seaborne thermal costs $45–$48/ton.
• Q4 seaborne metallurgical volumes ~2.4M tons; seaborne met costs ~ $112.50/ton.
• Q4 PRB shipments ~23M tons at ~$11.25/ton.
• Q4 Other U.S. thermal shipments ~3.6M tons; costs ~ $45/ton; Corporate non-reclamation costs estimated at ~$9M in Q4.
• Full-year updates: seaborne thermal 15.1–15.4M tons (up 350k); seaborne met midpoint cost ~$115/ton; PRB 84–86M tons (up 3M) at $11.25–$11.75/ton; Other U.S. thermal 13.2–13.4M tons, costs $45–$49/ton.

Business Commentary:

• Strong Financial Performance and Market Outlook:
• Peabody Energy reported adjusted EBITDA of just under $100 million for Q3, with seaborne thermal sales exceeding expectations by 500,000 tons.

• This performance was driven by higher Powder River Basin shipments, better-than-expected seaborne thermal coal volumes, and low metallurgical coal costs.

• Centurion Mine and Metallurgical Coal Expansion:

• Centurion mine's longwall production is expected to start in Q1 2026, with premium hard coking coal shipments projected to expand sevenfold in 2026 to 3.5 million tons.

• The mine is anticipated to be the lowest cost metallurgical coal mine, boosting Peabody's average met coal portfolio realizations from 70% to 80% by 2026.

• U.S. Thermal Coal Demand and Utilization:

• U.S. thermal coal demand grew by 11% year-to-date, with Peabody's U.S. shipments up 7% year-to-date, driven by increased demand from data centers and AI load growth.

• This trend is supported by natural gas prices averaging $3.45 per MMBtu, leading to a 3% decline in natural gas-generated electricity.

• Rare Earth Elements and Critical Minerals:

• Peabody is assessing the potential for rare earth elements and critical minerals in the Powder River Basin, with preliminary data indicating similar or better concentrations than others.
• The company is accelerating its drilling program and discussing potential processing platforms, aiming to provide more details on mineral types and concentrations by year-end.

Sentiment Analysis:

Overall Tone: Positive

• Management: "Peabody continues to perform quite well"; Centurion longwall startup expected next quarter and "should boost our average met coal realizations...from the 70% mark this year to roughly 80% in 2026"; CFO: "delivered another strong financial quarter...adjusted EBITDA just under $100 million...generated $122 million in operating cash flow"; multiple statements on tightening fundamentals and accelerating free cash flow.

Q&A:

• Question from Nick Giles (B. Riley Securities, Inc., Research Division): In a blue-sky scenario where U.S. coal-fired utilization rises into the 70s implying ~250M tons of demand, how should we think about Peabody's response — maximum PRB output, capital required, and timing to achieve that level?
  Response: Expansion depends on customer multiyear commitments and price signals; latent capacity is being absorbed now, and incremental output requires capital and labor build‑out justified by returns.

• Question from Nick Giles (B. Riley Securities, Inc., Research Division): From a duration perspective, would you need very long commitments (e.g., to 2030) to deploy incremental capital, and could incremental volumes be ~10M–20M tons?
  Response: They need multiyear commitments to justify capex; recent ~10M ton increase reflects running at near full run rate, so additional tons depend on contract lengths and economics.

• Question from Nick Giles (B. Riley Securities, Inc., Research Division): With Centurion coming online and the Anglo deal terminated, do you still pursue M&A to reweight the met portfolio toward higher-quality grades beyond Centurion?
  Response: Primary focus is on bringing Centurion to full production and organic growth; not actively pursuing met M&A while executing the Centurion ramp.

• Question from Nathan Martin (The Benchmark Company, LLC, Research Division): Looking out to 2026–2027, do you see enough demand to continue running PRB at max, and how contracted are you and at what price?
  Response: They are confident PRB can run at max for the next couple years; price levels are uncertain but index movements are encouraging.

• Question from Nathan Martin (The Benchmark Company, LLC, Research Division): Will Centurion longwall start in 2026 drive incremental met cost improvements versus 2025 guidance?
  Response: Centurion will be the lowest‑cost met asset over its life, but management does not expect a material step-change in met costs in 2026 and will provide 2026 guidance later.

• Question from Nathan Martin (The Benchmark Company, LLC, Research Division): Thoughts on arbitration with Anglo and any further adjustments beyond the $54M Q3 charge?
  Response: Arbitration likely takes years; company is confident in its position; Q3 $54M largely financing-related (YTD $75M); expect only ongoing legal defense costs of ~ $5M/year, no additional similar one‑time charges anticipated.

• Question from George Eadie (UBS Investment Bank, Research Division): Regarding rare earths in the PRB, should we expect grades, volumes, costs and timelines to market by year-end?
  Response: They will provide a preliminary analysis of indicative element types and concentrations at the year‑end (February) report; detailed timelines/volumes not yet available.

• Question from George Eadie (UBS Investment Bank, Research Division): You said grades are similar or better than peers — is the mix like peers (e.g., scandium/gallium) and what about partnership discussions with the administration?
  Response: They will not speculate on specific element mix yet; they are actively engaging multiple U.S. government departments and view their U.S./Australia scale as a unique advantage for potential partnerships.

• Question from George Eadie (UBS Investment Bank, Research Division): Clarify Anglo deposit return and the $54M Q3 charge — is the remaining deposit expected back and what comprised the $54M? Any further costs beyond ~$5M/yr legal?
  Response: Remaining deposit is expected to be returned; the $54M this quarter was mainly bridge financing (~$35M) and professional fees; future costs should be limited to ~ $5M/year in legal/arbitration fees.

• Question from Unknown Analyst (Texas Capital / Matthew): The U.S.-China tentative deal to pause some export controls on rare earths — will that affect government support for domestic rare earth projects?
  Response: Management expects continued strong U.S. desire for domestic rare earth supply and anticipates ongoing government support, though they won't predict policy outcomes.

• Question from Unknown Analyst (Texas Capital / Matthew): Given arbitration with Anglo could take time, would you refrain from seaborne met M&A until resolution?
  Response: Arbitration won't hinder strategic actions; however, current priority remains executing the Centurion ramp and organic value creation rather than pursuing M&A now.

Contradiction Point 1

Mineral Resource Authority of Wyoming Royalty Rate

It involves a discrepancy in the inclusion of the MRAW royalty rate in cost guidance, which affects the company's financial outlook and strategic positioning.

What details on rare earths in the PRB, including grades, volumes, costs, and market timeline, will be provided by year-end? - George Eadie (UBS Investment Bank)

2025Q3: Yes, the 7% royalty rate is included, bringing a $0.40 per ton benefit in the second half. This improves PRB competitiveness and could increase future sales. - [Mark Spurbeck](CFO)

Does the PRB cost guidance include the new royalty rate? - Katja Jancic (BMO Capital Markets)

2025Q2: The $0.12 per ton higher average realized coal price in the Illinois Basin and PRB was mostly offset by a $0.10 per ton higher average realized coal cost in the PRB. - [Mark Spurbeck](CFO)

Contradiction Point 2

Centurion Mine Sales Target

It involves a change in the sales target for the Centurion mine, which could impact revenue expectations and operational planning.

What details will be provided by year-end on rare earths in the PRB, including grades, volumes, costs, and market timeline? - George Eadie (UBS Investment Bank)

2025Q3: Production could accelerate a longwall move, but the 2026 sales target remains at 3.5 million tons. - [Mark Spurbeck](CFO)

Does the PRB cost guidance include the new royalty rate? - Katja Jancic (BMO Capital Markets)

2025Q2: Centurion coal sales grew by approximately 44% to 1.4 million tons. - [Mark Spurbeck](CFO)

Contradiction Point 3

Rare Earths Market and Government Support

It involves potential shifts in the company's strategic plans regarding rare earths, which are critical for future operations and market positioning.

How will the U.S.-China rare earth export deal affect government support for domestic projects? - Unknown Analyst

2025Q3: There is strong domestic demand for rare earth supply, but the impact of the U.S.-China deal is uncertain. There is continued interest in U.S. domestic supply. - [Jim Grech](CEO)

How do new regulations and executive orders impact your business? - Nathan Martin (The Benchmark Company, LLC)

2025Q1: The new administration is supportive of domestic rare earths production and focus on ending foreign dependence. We see potential for enhanced investment through this effort. - [Jim Grech](CEO)

Contradiction Point 4

PRB Demand and Capacity

It involves differing statements about the demand and capacity expectations for the Powder River Basin, which are crucial for production planning and investor expectations.

How does Peabody see the PRB operating at maximum capacity over the next few years, and how is that capacity level contractually secured? - Nathan Martin (The Benchmark Company, LLC)

2025Q3: Peabody sees continued demand in the PRB, but prices are uncertain. The market is experiencing demand increase and limited production response, which should result in upward pricing pressure. - [Malcolm Roberts](CMO)

Please explain the process after a MAC notice for Moranbah North and what defines a sustained resolution? - Nick Giles (B. Riley Securities)

2025Q1: In our PRB or Powder River Basin, we see demand there remaining strong but we also see a limited supply response, which we think will result in upward pricing pressure. - [Malcolm Roberts](CMO)

Contradiction Point 5

Greater Peabody Output and Demand

It addresses the potential for increased coal production and demand, which could impact business strategy and market expectations.

What is Peabody's maximum output at 70% optimal coal-fired utilization? How much capital and time would be required? - Nick Giles (B. Riley Securities, Inc.)

2025Q3: The expansion would come from customer commitments and price signals. There is latent capacity available that could be used, but additional demand would need higher costs and potentially more equipment and labor. - [Malcolm Roberts](Executive VP & Chief Commercial Officer)

What regulatory approvals remain for the Anglo acquisition? - Nathan Martin (The Benchmark Company, LLC)

2024Q4: We're seeing strong demand in the U.S. thermal market. The market in the PRB continues to be very strong. We're also seeing an uptick in export demand as well. - [Malcolm Roberts](Executive VP & Chief Commercial Officer)