Ladies and gentlemen, thank you for standing by, and welcome to Peabody's Third Quarter Earnings Call. Following the presentation, there will be a question and answer session. Instructions will be given at that time. As a reminder, today's call is being recorded today, October 29, 2019. I'd now like to turn the conference over to Mr.
Vic Speck, Head of Investor Relations and Communications. Please go ahead, sir.
Okay. Thank you, Paula, and good morning, everyone. Welcome to BTU's earnings call for the Q3. And with us today are President and CEO, Glenn Kellow as well as Peabody's CFO, Amy Swetz. During our formal remarks, we'll reference a supplemental presentation and that's available on our website at peabodyenergy.com.
Now on Slide 2 of this deck, you'll find our statement on forward looking information. We encourage you to consider the risk factors that are referenced here as well as our public filings with the SEC. I would also note that we use both GAAP and non GAAP measures. We refer you to our reconciliation of those measures in the presentation as well as our earnings release. And with that, I'll turn
the call over to Glenn. Good morning, everyone. We had an active quarter with some notable achievements, several challenges and multiple changes to our portfolio and organization. 1st on the achievement front, I'd like to recognize the Powder River Basin, which turned in multiyear low costs. In addition, we are advancing what we expect to be a highly synergistic joint venture with Arch Coal involving our PRB and Colorado assets.
On the ESG front, our operating teams continue to excel in safety and land restoration taking a coveted Sentinels of Safety award as well as 2 Office of Surface Mining Reclamation Awards this month. The quarter wasn't without challenges and as we noted last month, we were affected by reduced seaborne volumes and pricing, recovery from a high wall failure at the Middlemount joint venture and deferrals of shipments. You've also seen us pare back in the Midwest given reduced demand. Finally, I mentioned ongoing changes to the portfolio and organization. We believe the completion of the pending PRB Colorado JV represents a tremendous opportunity to create substantial value.
With North Goonyella, while we remain frustrated along with everyone by the protracted timing, we've also identified a path forward. We continue to work to ensure safety, de risk the process, optimize the mine plan, reduce and stage costs and maximize the value of the asset. Also as expected, we have closed the profitable Kayenta mine and announced the likely closure of the Wildcat Hills operations in the Midwest. In Australia, the United Wambo JV with Glencore has received a major permit approval and we've also decided to proceed with the Moorvale South extension. There's no question that downdrafts in industry conditions can lead to pressures, but also opportunities And we continue to evaluate those opportunities with an eye to improve asset quality, generate cash flows, unlock synergies and create shareholder value.
Finally, we've made significant strides to streamline our organization, reset operational performance and strengthen our portfolio. And work here will continue in coming months. With that, Amy will now cover the financials in more detail.
Good morning, everyone. As I characterized the last year, we recognized that challenges, particularly from our Met segment, have led to a lack of consistency in results, a consistency that both you and we rightly came to expect. We would note that the met coal segment continues to be challenged in part due to asset quality we have long acknowledged as middle of the road and we continue to work to upgrade. Shoal Creek has been a great addition to the portfolio and more needs to be done. As we move through the call, we will discuss actions underway to address these issues.
On the other hand, here is what Peabody has delivered. Our U. S. Operations continue to generate cash flows many times that of our CapEx, even with the industry backdrop. Our seaborne thermal operations are highly profitable even as higher domestic obligations have pressured export volumes.
And we put nearly $4,000,000,000 into investments in the business, liability reduction and shareholder returns in the last 2.5 years. Against that broader backdrop, let's look at the quarter in more detail beginning on Slide 4. 3rd quarter revenues totaled $1,110,000,000 down 22% from the prior year, reflecting reduced met coal volumes and $90,000,000 in lower pricing, excluding the impact of higher Kayenta revenues. As expected, DD and A in the 3rd quarter declined $28,000,000 versus the prior year from portfolio changes and lower contract amortization. We also reduced SG and A by 17% to approximately $32,000,000 on a decline in personnel costs.
Other items to note include $8,000,000 in legal expenses related to the PRB Colorado joint venture as well as the $20,000,000 impairment charge associated with the Wildcat Hills mine in the Illinois Basin. Earnings from Equity affiliates reflects a loss of approximately $21,000,000 related to independently operated Middlemount joint venture after the high wall failure in late June. These impacts resulted in a loss from continuing operations net of income taxes of $74,000,000 and a loss per share of $0.77 Adjusted EBITDA totaled $150,000,000 for the quarter compared to $372,000,000 in the prior year with the largest factor related to the decline of
more than
$300,000,000 in revenue on lower pricing and volume. Let's take a closer look at operating performance starting with our Seaborne Thermal segment. In line with expectations, seaborne thermal volumes picked up quarter over quarter, increasing to 3,000,000 tons of export thermal sales at an average realized price of $72.24 per short ton. Higher quality Newcastle volumes represented 74% of the mix and accounted for favorable realizations even as Newcastle spec prompt pricing moved below the 10 year average. The segment generated 3rd quarter adjusted EBITDA of $77,000,000 despite some $60,000,000 of lower pricing.
Margins for seaborne thermal totaled 31%, underpinned by a strong cost performance at both the Wango Underground and Wupenzhong mines. Within met coal results, sales were impacted by customer driven deferrals and a lack of production from North Goonyella. 3rd quarter shipments totaled 1,800,000 tons at average realizations of $120,94 per ton. Lower volumes along with higher ratios at the Coppabella mine and an extended longwall move at Metropolitan Mine resulted in elevated met coal cost of $113.63 per ton excluding North Goonyella. In addition, lower yields and conveyor downtime followed by subsequent upgrades led to elevated costs at Shoal Creek.
Within U. S. Thermal, adjusted EBITDA of $153,000,000 was largely in line with the prior year as cost improvements in the PRB and Midwest offset the impact of lower pricing and volume. The PRB achieved cost per ton at $8.69 a multi year low. That's 4% below prior year and 12% lower than the first half of twenty nineteen.
This led to PRB margins of 21% during the quarter and levels that continue to be the best in the basin again this year. In the Western segment, adjusted EBITDA increased $18,000,000 versus the prior year on strong performance from 20 miles and increased revenues associated with customer funding for post mining costs at Kayenta. Even with a 14% reduction in sales volumes, the Midwest delivered adjusted EBITDA in line with the prior year as margins increased both over the previous quarter and 2018 levels. On slide 5, free cash flow totaled $92,000,000 driven by operating cash flows of $176,000,000 and CapEx of $86,000,000 As of quarter end, cash and cash equivalents totaled $759,000,000 with continued healthy liquidity levels of 1,350,000,000 dollars We remain committed to ensuring financial strength and we've taken considerable steps to ensure that strength And we believe we have a balance sheet that is well positioned for volatility inherent to the mining industry. Year to date, cash return to shareholders has been largely balanced between buybacks and dividends.
Share repurchases accelerated in the 3rd quarter relative to the second, totaling $144,000,000 As a result, Peabody share count has been reduced by 30% since our listing to about 97,000,000 shares today. We remain committed to shareholder returns as a basic tenant of our investor appeal, understanding that modest deleveraging and reduced coal pricing moderate our near term cash flow generation. Our balance sheet is strong, our cash level is high, liquidity has only increased since last quarter and our reduction in liabilities has nearly matched our substantial shareholder returns in the past 10 quarters, which by themselves nearly total our entire market cap. Turning to Slide 6, we are updating our full year guidance ranges for a number of items. Starting with our seaborne thermal export volumes, we now expect about 11,500,000 to 12,000,000 tons for 2019 on increased required domestic shipments.
This reflects the lower end of the initial range we gave at the beginning of the year. Our cost guidance remains unchanged. Met coal sales for the full year are now expected to be between 8,500,000 and 9,000,000 tons. This reflects the softer PCI spot market as well as production challenges. We've seen some recent interesting pricing dynamics between imported and domestic coal in China and are keeping a close eye on the arbitrage between December January pricing and will defer volumes if it's economically rational.
As a result, we anticipate full year met coal cost of about $100 per ton. In the U. S, we have tightened our ranges for PRB volumes and lowered Midwest volumes. The midpoint of our PRB volume guidance remains at 110,000,000 tons, reflecting strong Q3 and October shipments. Given the events of the summer, the majority of shipments for the remainder of the year represent lower quality coals per customer request.
In the Midwest, we are now expecting volumes of about 60,000,000 tons due to production declines at several mines on lower customer requirements along with negotiated deferrals. We have lowered the higher end of our overall U. S. Cost guidance and now expect cost to be between $13.95 $14.45 per ton. We also continue to refine our capital requirements and are reducing our 2019 CapEx range to $300,000,000 to $325,000,000 4th quarter adjusted EBITDA is expected to be lower than the 3rd quarter, primarily as a result of the closure of the Kayenta mine, which contributed $30,000,000 in the quarter.
We also expect higher volumes across multiple segments, an increase in required Australian domestic thermal shipments and lower pricing to impact results. Looking ahead to next year, about 75% of our PRB volumes are now committed for 2020. Current mine plans show increasing volumes of higher BTU coal in 2020 than in 2019. We continue to have a strong contracted position in the Midwest. We have about 13,000,000 tons of Midwest volumes priced for 2020 and an average of $39 per ton, with some 11,000,000 tons priced at a similar level for 2021.
This reduced volume reflects portfolio changes made during 19 as well as an already fully priced book for 2020. In a basin with significant swings in export demand, we see this committed position as a significant competitive strength. From a seaborne perspective, we are now anticipating closure of Millennium in early 2020 as we've been quite successful at High Wall Mining, which has continued to expand its life by multiple months. We are anticipating some 900,000 tons to be sold this year for Millennium and we've also extended the lives of our seaborne thermal open cut operations through both the Woop and Chongq Extension and United Wambo JV and therefore we'd expect similar volumes as 2019. Let's now look at the industry fundamentals that have been at play beginning on Slide 7.
Recently, we've seen a rebounding in met prices following a 20% decline in the average prices from the second to the Q3 of 2019. Chinese met coal imports remain strong with August marking a new monthly met coal import record of more than 9,000,000 times. We expect the pricing spread between domestic Chinese coking coal and imports to create tension with import restrictions and incentivize imports as we move into the New Year. In addition, rising India met coal imports are projected to maintain momentum on growing steel needs, which India is unable to source at home. Growth in met exports by Australia, Russia and Mongolia have been muted by declining U.
S. Shipments. And as we look ahead, capital investment in both metallurgical and thermal coal has declined in recent years as coal use continues to rise. From 2011 through 2013, dollars 154,000,000,000 of capital investment was deployed by major coal producing regions. In the last 3 years, only $72,000,000,000 was deployed, representing less than half the capital that was invested during the last peak cycle.
Moving to seaborne thermal, prices have lifted from their September lows in recent weeks. As expected, ASEAN import demand continues to drive seaborne thermal growth. Vietnam imports have more than doubled year to date through September. China and India have continued to show strength with imports rising some 20,000,000 tons. On the supply front, both U.
S. And Colombia exports have declined sharply through August in response to unfavorable netback pricing. And as we look ahead, we would expect ASEAN countries to continue to offset declines in Atlantic demand over time as urbanization and new coal fuel capacity creates greater need for imports. It's no coincidence that Peabody is positioned in Australia as we expect it to serve these growing demand centers. Glenn?
Thanks, Amy. Okay. And that's the industry backdrop. And now I'd like to walk through a full agenda of business updates starting on Slide 8. We're taking aggressive back near term actions centered on our 3 strategies targeted toward long term success and creating value for shareholders.
Activities in each of these areas are well underway to seize opportunities as well as combat pricing pressures, rising overburden ratios and reduced scale. We also believe these actions will be enhanced by steps to streamline the organization and strengthen the portfolio. Last quarter, I noted that we're advancing a review of the company's organizational structure with the assistance of outside advisors. Currently, we are continuing to transition from a business unit structure and are reshaping the organization to ensure the operations are squarely focused on safety, costs and volume. This centers our operations on the basics while streamlining the typical corporate functions of finance, IT, supply chain among others.
We believe this new structure will increase efficiencies and lower costs in 2020 and beyond. In the broader project, we have identified annualized cost improvements totaling $50,000,000 and further analysis is underway to capture additional savings over time. Let's now look at our seaborne strategy on Slide 9. We offer Tier 1 seaborne thermal coal operations and are actively exploring means to upgrade a met coal platform we've always characterized as mid tier. Any changes to our seaborne portfolio would include both organic and inorganic growth opportunities over time.
Some examples of this. Firstly, with Peabody and our partners, we've approved the Moorvale South Extension project. This extends the mine life to 2029 and we also expect increased coal quality. We will transition from a greater mix of PCI to an enhanced coking coal profile as early as next year. The project also provides optionality for future extensions and allows continued blending with Coppabella Coal.
Moorvale South utilized equipment transferred from our Millennium mine, which leads to low capital requirements of about $30,000,000 for the project. Next, we are planning to operate 2 longwall kits at Shoal Creek in November. The mine is transitioning to a new district, which provides an opportunistic window to run both longwalls at once for a brief time. We expect this will result in increased 4th quarter production at a muted 3rd quarter levels. We are also upgrading the conveyor system to improve long term reliability.
Other activities include improving equipment utilization and mining methodology at the Coppabella mine given a several year elevation and overburden ratios. Our progress continues at North Goonyella. To date, we've stabilized the mine, ventilated and reentered Zone A, preserved opportunities to access reserves and ensured the safety of every individual on-site. In July, we noted we're evaluating past to recognize value from this asset given the long delays, but tasks that should have taken days were taking weeks and even months. We have since completed our detailed review and assessment and will forego attempts to access the 10 North panel that would have required us to explore and mediate the most impacted areas of the mine under unusual and protracted measures.
Overall, we believe the highly restrictive approach from QMI has required a greatly disciplined approach from Peabody. As such, we've identified a preferred path, which is to mine the southern middle seam reserves beginning with the 6 South panel. We believe this path represents significantly lower risk, the best path to return to regular way mining and maximizes the value of a mine with a potential life of several decades. Peabody's preferred path would include the ventilation of Zone B using boreholes from the surface. Incremental spending for ventilation is contingent on obtaining pre approval from QMI and that process is underway.
Following planned ventilation, we intend to reenter Zone B and assess conditions with a target of developing the southern panels. These panels include approximately 20,000,000 tons of high quality hard coking coal. At this point, we have completed most of the essential work needed in zone A. Let me be clear, all steps we've taken thus far have not only been necessary, but beneficial to preserve access to an additional 65,000,000 tons of hard coking coal in the Lower Seine. Development of that longer term project is now in the pre feasibility stage.
During our review, we considered a host of options, including the mine to mine the southern panels from the surface to access multiple seams. Given current barriers such as the cost of the box cut, timing of permits and cash flows, this was determined not to be the preferred path. At this point, we believe it's far easier to control money than time. Given the expected length of time to ventilate Zone B, we are significantly lowering labor requirements and planned holding costs. As such, we reduced most of the remaining salaried NALI workforce and are looking to offer potential employment opportunities to fill vacancies at other Peabody mines where practical.
We are also reducing our quarterly run rate estimates for 2020 to approximately half that of recent levels. In addition, steps are being taken to market our take or pay commitments as well as our use of our prep plant and loadout infrastructure, which could further reduce quarterly costs by a further half again. Only if we gain preapproval, we would then expect to incur additional costs of $12,000,000 to $15,000,000 to ventilate Zone B over a multi month period. Assuming the successful ventilation or reentry of Zone B, we estimate 2020 project capital costs are approximately $50,000,000 to $75,000,000 beginning in the second half of the year with development of 6 South. A panel of this length should require about 18 to 24 months to develop based on typical development rates.
And then we would have been in a position to begin longwall production. As you would expect, we will continue to refine capital and cost estimates as work progresses through Zone B. I'll reiterate that we are not committing to incremental capital until we've ventilated and explored Zone B. We'd also look to mitigate cash outliers by selling development tonnes into the market. Within seaborne thermal coal, the United Wambo joint venture received a key approval from the New South Wales Planning Commission in late August.
The final step is a federal permit that we expect to be granted later this year. Sharing of production is projected to begin by the end of 2020. The JV is expected to optimize mine planning and improve strip ratios, enhance quality and has the potential to extend the life of this mine beyond 2,040. We are also working to improve 4th quarter production volumes at Wambo Open Cut and Wilpinjong through the use of additional equipment from Millennium. Equipment was transferred to Wambo and Wupenjong late in the Q2 of this year to improve second half production volumes.
Turning to Slide 10. Within the U. S, we are continuing to take necessary actions to adjust to challenging industry conditions through a combination of optimizing mine plans, carrying back operations and matching our workforce with customer demand. Our focus is on maximizing cash generation. And Amy noted earlier, our U.
S. Adjusted EBITDA has outpaced cash outlays by 5.5 times in recent years, demonstrating the significant benefits of this business even at a time of declining demand. First, the centerpiece of activities in the U. S. Is certainly the pending PRB Colorado joint venture with Arch.
The JV is continuing to progress through the regulatory approval process. Recently Peabody and Arch agreed to a time line with the FTC with review anticipated to include during the first half of twenty twenty. Assessment continues to validate that the JV is expected to unlock synergies with a pretax NPV of $820,000,000 Next, in the Illinois Basin, we are centering the portfolio around our core mines to maximize value. We are shifting contracts to more productive mines, extending contracted volumes into future years and scaling back production and workforces at several mines. Just this month, we announced the likely closure of the Wildcat Hills mine, which was essentially breakeven on a year to date perspective.
Finally, we are continuing commercial negotiations with the power plant owner regarding the final closing obligations at the Kayenta mine. As a result, we'd expect potential incremental near term cash flows. I'll turn it back to Amy to cover our 3rd strategy around our financial approach.
Our financial approach was one of our earliest commitments upon emergence and I believe we have made tremendous progress. On Slide 11, to briefly recap our actions since mid-twenty 17, the company has generated $2,500,000,000 in free cash flow and reduced total liabilities by approximately $1,300,000,000 We've reinvested $1,000,000,000 in the business through sustaining capital expenditures, life extension projects and the acquisition of the highly profitable Shoal Creek mine. We advanced the PRB Colorado JV and returned $1,600,000,000 to shareholders. As you can see, we've been quite holistic in our approach and still have over $1,300,000,000 in liquidity at quarter end. During the Q3, we initiated an opportunistic refinancing initiative with key requirements and a robust set of objectives.
Through this process, the company successfully upsized its revolving credit facility from $350,000,000 to $565,000,000 and extended the duration of $540,000,000 of the capacity to 2023. We also obtained amendments to the credit facility as a necessary step to enable the pending PRB Colorado JV, while leaving the company's existing 2022 2025 notes outstanding at this time. We are planning to move to the lower end of our gross debt range of $1,200,000,000 to $1,400,000,000 while maintaining our liquidity target of $800,000,000 With our increased revolver capacity, we can move to a lower debt level in a liquidity neutral manner. In addition, a lower debt target better accommodates future portfolio changes and lowers fixed charges, in turn further enables cash returns to shareholders. We will continue to evaluate appropriate gross leverage targets taking into consideration company specific and industry related factors as we move into 2020.
That's a review of the quarter, the industry and our steps to create value. With that, I'd like to turn the call over for questions. Operator?
Thank you, and answer session. We'll go to Lucas Pipes with B. Riley FBR.
I want to follow-up a little bit more about the pathway for North Goonyella. So the way I understand it, you will have ongoing quarterly costs, call it $10,000,000 after the reductions you announced, then $10,000,000 and then 12 to 15,000,000 to ventilate Zone B. And if that's successful, 50,000,000 to 75,000,000 to develop 6 South. What could come after that? I think the market is really looking for some holistic guidance on what the total cost could be to bring this operation back into production.
So if there's anything else that would have to be spent, I think that would be really helpful to know now. Thank you.
So Lucas, I'll start and I'm sure Glenn will jump in. I guess to start with, we've talked about reducing the holding cost essentially by half and that is in part due to the labor reductions that are underway in Australia right now. We're looking at ways to reduce that by another 50% through reduction in take or pay costs and the costs associated with idling the prep plant. We've talked about you're right about the $12,000,000 to $15,000,000 that would be incremental to ventilate Zone B. And then in the back half of the year, we'd anticipate moving into development of those southern panels.
The first panel we're going to develop is quite a large panel, longer than the one that we would have developed from the other end of the mine had we progressed further into the affected zones. And so we'd anticipate depending on when development starts that we would spend between $50,000,000 $75,000,000 of capital in 2020. We've not commented before that or beyond that for a couple of reasons. 1, the amount of capitalization will depend on when we switch over to development. So some of the costs that we're spending today, if we were in development mode, would be part of the capital expense of the project.
And the other element of this is that we need to get our labor strategy firmed up in terms of what the labor will be employed on-site during these processes and also what the revenue is that we'll generate from the development tons that we produce during that period of time. That won't necessarily impact the cost or the capital deployed to the project, but it will impact the net cash outflows from that project as we move through that period of development. The one comment that I would make and one of the reasons why we feel confident moving forward with this preferred path is as we look at the southern panels of the mine, we've become more and more confident that the cost structure in the south is at or lower than the cost structure that North Goonyella was at previously and the returns under a range of options that we've looked at have appeared robust.
And maybe just a few other things there. And obviously what we're talking about is a staged and derisked approach. And step 1 is to get the cost structure down, which Amy indicated by half and then a further half being targeted. We're then not going to commit to additional capital, which in part increases the has the potential to increase the time, but I think is a more prudent and derisked approach. The first initial milestone we'll be getting, which is unusual, but based on discussions and negotiations attempting to get a preapproval of our plan with QMI prior to undertaking and committing to the reentry of Zone B.
Based on whether we assess that as Amy and move our way through, it's our intention then that we move into development. This is a 3,200 kilometer panel initially and sorry, meter panel initially and that would require about an 18 to 24 month development. Now you would get development tons or significant development tons out through that process, but longwall production wouldn't occur until the end of that 24 months or 18 to 24 months period.
Okay. That's helpful. I think it would still be helpful to know, if there's ballpark additional capital required beyond the 50 to 75, especially given the duration of that development and the uncertainty we've seen to date. But I'll switch over to my second question. On September 5, you confirmed full year targets.
And I think at the time, you met coal and this does not include North Pyonya, met coal production cost guidance was $90 to $95 Now it's about $100 And could I think you alluded to it in terms of cost drivers, but that's still a very significant cost increase in 2 months. What happened? And if you could put dollar signs next to the unanticipated cost increases, I would very much appreciate it. Thank you.
Yes. So as we look at the increase from what we had indicated, we'll be at the high end of the range of about $95 to around $100 in this release. I'd really characterize that in 2 components. The first is some unplanned outages and some changes that we have in volumes from Shoal Creek. Shoal Creek has had a fantastic start to the year in our portfolio.
This quarter we saw that performance change a bit for two reasons, one of which we had anticipated changing yields. We had anticipated it flagged as something that from time to time will generate volatility in their costs. But some unplanned downtime on the belt system at the mine was not factored in our cost and our volume guidance ranges for the back half of the year. And then the second piece of this is really the performance out of the CMJV in the back half of the year. And I would characterize that as two things.
1, we're moving through areas of higher overburden. We've talked about that at length, but impacting that as well is just overall demand for that product as we look to move spot volumes in the back half of the year. So some of those deferrals of shipments and when we say shipments, you're talking about sort of 5 boats, maybe or 5 shipments in the back half of the year that we see will likely be deferred as we move forward and that impact of volumes is likewise impacting costs and pushing us pushing that to that $100 a ton level.
Got it. I appreciate it. Thank you very much.
Moving on, we'll go to Chris Terry with Deutsche Bank.
Hi, Gwen and Amy. Yes, a few from me. Hi. Yes, maybe just starting on North Goonyella, I appreciate all the detail you've given on that first answer. But just maybe reflecting on what you how you're seeing things now versus when you first started to go back into the mine, Would you say that the majority of it has just been the time delays that has meant that you've had to change the approach?
Has it been technical?
Has
it been cost driven? Maybe if you could just summarize where you got to in the review and what the key findings were for the change intact at the moment? Or is it somewhat market driven as well? Thanks.
Yes. It's a good question, Chris. So a couple of dimensions to that. And I think I'd say it's been the approach as part of the regulatory protocols that we've been operating under that are different to what we envisaged when we started. I don't think we've seen anything significant as we described on the call last time, that was unusual in what we were expecting versus what we would have anticipated as being conditions.
But tackling those conditions and working our way through in what has been a highly well, an unprecedented process in Queensland, although it's not unprecedented globally, has meant the protocols that we were operating with under have just required a different technical approach and that in turn has led to significantly greater time. As we look ahead, if we extrapolate at that time and to some degree the uncertainty of gaining approval for elements within that from QMI, it just became impossible to predict being able to reach the 10 North panels in a commercial way. That's enabled us to focus on the Zone B reentry process, which in turn is likely to give us a greater chance of success in gaining approval of QMI, which will then enable us to get into regular way mining in terms of back to regular way gate road development of the longwall operation. So the long answer is the regulatory protocols, which we've described in the past, have really necessitated, I think, a different approach and a derisked based approach as we work our way through. Having said that, we are cognizant of the market conditions and we're continuing to drive to lower holding costs through the immediate period.
Okay. Thanks for the color. A question for you, Amy. Just on the total CapEx this year, dollars 300,000 to $325,000,000 How do we think about the setup into 2020 for that number against the cost savings that you're trying to achieve? I assume you'll give guidance at a later date, but I just wanted directionally if you could talk through the moving parts.
Yes. So I think we generally talk we'll generally talk about sustaining capital across both the U. S. And Australia being around $200,000,000 annually. We've talked about Wambo and Wupen Jeong being about $100,000,000 of spending.
I will say a good portion of our deferrals have come from Wambo Open Cup. But as we look at our reduced CapEx for the year, some of that has just been understanding what it is that we can afford and what there are returns on in that mix as well. So our shifting of guidance involves both reductions and deferrals out of that amount. And then of course we've talked about North Goonyella potentially $50,000,000 to $75,000,000 next year dependent on achieving the approval that we've talked about.
Okay. Yes. I'd add more Val South sorry, Chris, I'd add more Val South into that as well. And as we look to that to look to that project, we had over 100% returns associated with that and sort of mix mix changing the mix to a greater quality in there as well as the relevance of the significant life extensions. I would say, I think Amy was talking about indicative levels.
We're obviously working through the capital budgeting process now and those sustaining numbers we'd expect to be able to manage.
Okay. Thanks. So last one for me. Just on the Arch JV, you said first half twenty twenty to provide an update. I just wondered if you could give some comments on the feedback you provided to date and whether the existing framework is one that you think will still pass in the next year?
Thanks.
Yes. I think what we've entered into is an agreement that outlines a timeline for the completion of the review, which we'd expect to occur in the first half of this year. That's been entered into by both parties and the FTC. I think the indications to date, everything we see continues to support the fact that we believe that it's an oil fuels market, that coal is competing significantly against subsidized renewables and cheap natural gas. As we've looked at the synergies and once again this is really a unique transaction by nature of the assets coming together.
But everything we've done to date has reconfirmed those synergies and we feel comfortable about that. So we think we continue to have a very strong case. We've received a lot of support from stakeholders through that process. But it is one in which as you can understand is a methodical and rigorous process with the FCC. But I think the good news there is we have an agreed timetable and we're focused on delivering the transaction and the joint venture and the significant synergies that we've outlined.
Okay. Thanks, Scott.
Next, we'll go to David Gagliano with BMO Capital Markets.
Okay, thanks for taking my questions. Just regarding North Goonyella again, are you exploring any other alternatives besides the development process, I. E. Perhaps selling some or all of it to spread some of this longer term development risk?
Yes. I'd say all options are on the table, David. We indicated previously that we would explore commercial options and alternatives and synergies. I think the other addition which I called out is that we do have a project in pre feasibility which is about the lower seams. But Mount Goonyella is a fantastic resource and reserve, of which this mine should have a multi decade mine life with a high quality hard coking coal product.
We have the infrastructure and the returns on any of the projects that we see with respect to North Goonyella are extremely attractive. And that's why we continue to be focused on finding a way to bring North Goonyella back online in a way that's commercially prudent. And this approach which we believe is low cost derisked we think represents the best part to do that. But all commercial alternatives are on the table, Dave, which we in part flagged 3 months ago.
Right. Okay. And okay, I'll leave it at that for that question. Just on foregoing the 10 North path, how many reserves, proven power reserves are impacted from that change?
Yes. It's 3,000,000 tons. There may have been a little bit in an adjacent panel, which we weren't mining beyond that, but I'm going to say 3,000,000 tons.
About 1 year's worth of mine?
Yes, that's right.
Okay.
All right. That's helpful. Thank you. And then just on the CapEx question again for 2020 or sort of indicative commentary, I guess, sustaining CapEx you mentioned was $200,000,000 annually and then an additional $100,000,000 for Wambo and Wilpinjong and then $50,000,000 to $75,000,000 for North Goonyella. I heard all those numbers.
Are there any other numbers we should be thinking about? And are those numbers
So I think the other number to think about is the $30,000,000 on Moorvale South. The one thing that I would comment on is the caveat that Glenn made is that we are working through our capital plans for 2020 as we speak and certain numbers particularly that sustaining number and the timing of project capital continue to get quite a bit of scrutiny internally. So, we'll work through that particularly in light of volume profiles as we look at 2020.
Moving on, we'll go to Matthew Fields, Bank of America Merrill Lynch.
Hey, Glenn and Amy. Can you give us
Good morning, Matt.
I'm glad you got a timetable on the Arch JV finalization, hopefully. Can you give us an idea about how you plan to come back to holders of the 22s and 25s to affect the changes you need to complete the transaction?
Yes. So Matt, we're currently in process of developing plans for those bonds at this point in time. We got feedback from the market in September. We're taking a look at that feedback with our advisors and determining our next move. Based on that feedback and partially in part due to that feedback, we've indicated in this release that we're moving towards the low end of our targeted debt range of $1,200,000,000 dollars We also referenced that we'll continue to evaluate those levels as we move into 2020 based on company specific and industry factors.
And I would say our strategy for those bonds may be part of those company specific factors that we look at going forward. Obviously, we have options to look at this as a partial refinance or as a consent process and we're still working through those details. Okay. We do I would just reiterate with respect to this joint venture that we definitely believe that this is a credit positive transaction and so it's something that we think is to the benefit of bondholders as we move forward.
Thanks. And as a follow-up, I'm happy to hear that you're saying you'd continue to evaluate those gross debt targets. If met coal stays at 150 a ton, is that something that would sort of move the goalpost on where you think that gross debt number should
be? Certainly, as we shake out what 2020 looks like for us, we'll take a look at that. I'll comment that we believe that $150 for met coal is a price that we should be able to make money at. And we've talked about corrective actions that we want to take with respect to our met coal mines to bring our cost structure down. But you're absolutely spot on, not necessarily with met coal costs, but with our overall view of the market and our overall view of cash flows that as we progress, we'll certainly take a look at those factors as we develop a debt range our gross debt range.
I just comment overall that and we need to be more specific about this because I don't think that the capital markets fully understood this that our financial targets are always what I would determine is flexible, meaning they are under review on a fairly continual basis. So that's not something that we woke up in September and said, oh, we need to continually look at these, but it's something that I don't think we made clear to the market. So when we talk about our financial objectives being generate cash and maintain financial strength, we really do view those as sort of the tickets to entry to reinvesting in the business and allocating and providing shareholder returns, but that's something that we certainly understand that we need to make that point clear to the markets as we move forward.
That's very helpful. Thanks very much.
Thanks, Matt.
Next, we'll go to Matt Sartorius with Jefferies.
Yes, good morning. I guess just on the back of Matt's question, maybe thinking about the capital allocation plan and how you've executed thus far. Obviously, no one can predict where equities are going to go and whatnot. But you've spent some cash on buying back equity in the quarter. I'm just wondering how you sort of weigh sort of the uncertainty of whether or not you'll get rewarded or not for buying back equity and clearly in this quarter, at least thus far, you've not been rewarded for buying back $150,000,000 of equity versus, say, potentially looking at your 6.3 8s note to $25 trading at $0.95 on the dollar.
You've also got to come back to those holders and potentially pay them a consent or do something to get them to go along with this JV. You can almost get a guaranteed positive return in addressing your debt here and that return gets better and better every day. How do you weigh that against buying back equity while your EBITDA is coming down, which clearly the equity market does not like?
So I think that we indicated how we feel about it because we've said that we're moving to a lower gross debt level as we progress forward here. So understand the math on that. We understand the cost of the debt that was sort of put out in front of us in the September timeframe and we made an economic decision at that point in time in terms of how we wanted to handle these things going forward. So as we think about our capital allocation approach, I'd just state again that generating cash and maintaining the strength of our balance sheet are the first two tenants of that approach. We're committed to those.
As we think about moving forward, we've indicated to maintain that financial strength, we want to move to the low end of that targeted debt range. We referenced company specific factors as something that might change that moving forward. That would include reduced EBITDA levels. It would also include company specific factors that are necessary to obtain approval for that joint venture going forward. As we look at shareholder returns, there's a lot of work that we've done over the last couple of years.
Our buyback program has certainly been the largest component of shareholder returns. But this year, you've seen us move to a more balanced approach between shareholder returns and dividends, and not quite fifty-fifty, but not far off of that through the 1st three quarters of the year. And you've also seen us at times raise our sustaining dividend. So I think that I just want to reiterate first two steps of the financial approach, maintain or inflexible in terms of how we look at the second two pieces. But in terms of shareholder returns, we have and we will continue to exhibit flexibility in terms of that allocation between dividends and share buybacks.
Got it. Okay. Thanks.
Next we'll go to Mark Levin with Seaport Global.
Yes, great. Thanks for the time this morning. A couple of questions. First on met coal cash cost, you mentioned some of the things that you may be working on to help drive down the cost. What do you think is a reasonable long term met coal cash cost assumption at, let's say, today's met prices?
So Mark, I guess as we move into 2020, I think it's fair to say that we're targeting improvement over the levels that we're operating at now. And so thinking about that $100 it's something below there. We've generally maintained a target of between $85 $95 a ton which has given us some leeway for generally operating issues and currency and pricing impact on royalties. And as we look at our production plans going into 2020, we're going to be working hard to reduce that $100 number down to those more historical levels.
Okay, great. And then next question just has to do with volumes in 2020. And I guess not looking for guidance per se, but just how you guys see the U. S. Thermal market evolving in 2020 at, let's say, today's gas forward gas and power prices.
When you think about what your volumes could or should look like in 2020, if we kind of have the same environment next year that we do the last 6 months of this year? What do you think is a reasonable way to think about Peabody's thermal volumes in 2020?
So first starting with the PRB, as we talked about the 75 percent price in that basin that's at the midpoint of our current range. So we actually are in a pretty decent committed position today out of that basin, probably better than what we were at last year at this time in terms of committed volume. So that would be my guide as we looked at it. Secondly, on the Illinois Basin, we highlighted a couple of portfolio moves that we have made in the Illinois Basin, potential closure of mines that were not necessarily generating cash flow and we're at near breakeven. So as we think about 13,000,000 tons next year that we have priced at that $39 per ton, we certainly would have capacity at certain mining operations to go beyond that, but going into 2020, that's going to be pretty close to our production plans with upside if customer requirements would necessitate.
I comment that as we look at that 13,000,000 tons committed for 2020, we have 11,000,000 tons committed for 2021. So we continue to have a pretty healthy committed level out of that basin, which we think is a key to success.
And Amy, last question from I'm
sorry, go ahead.
One element, Mark, a lot of the Powder River Basin and other regions, of course, are pretty highly sensitive to natural gas prices. So you've heard us say before that probably a $0.20 move in gas prices can be 25,000,000 tons for the industry as a whole, and obviously, we're a portion of that. As you look right now, you see gas prices that are probably roughly in line, as you noted, with where we are today on the forward strip out there. So it gives you some indicator of where you start from.
Last question for me. The SG and A came down a lot. I think you guys were down maybe $8,000,000 less than what we were thinking or what was in guidance. Is that the new quarterly run rate going forward that $32,000,000 or should we go back to something higher than that?
Well, I'd indicated that we have an organizational review that's underway that we've got quite an extensive activity of not only looking at streamlining our organization adjusting the changes in the portfolio, but finding ways in which we can improve our processes and at the same time strengthen the operating assets focus on safety, volume and cost. So it is a comprehensive exercise. It's going down to each role in the non operational areas plus a range of improvement activities. I think you've started to see some of those benefits flow through As we look to firm up those plans, we'll be able to talk more about that impact. But you can assume a lower run rate, which is what we've indicated.
The cost we've identified to date, which largely focused on SG and A or overhead areas, but would also touch on some OpEx as we've identified some $50,000,000 in savings. And I think the team are looking to generate our own catalysts and the things that we can do to improve our business that significantly add to cash flows.
And our final question will come from Michael Dudas with Vertical Research.
Thanks for letting me in. Just two quick ones. Most have been addressed and answered. 1, with regard to Shoal Creek, what you're doing there, does that have any potential positive impact on productivity volumes, quality for 2020 beyond? And second question is, once you get approval from FTC or things go as according to expectation, what's the timeframe of affecting the closure?
And is this could potentially be done by the second half of the year? What's the I don't recall, maybe you've said this before what the original plan is to affect that joint venture and get
it completed. Yes. So maybe on Shoal Creek. And as Amy said, Shoal Creek has been off to a great start with us in the portfolio. But we are working through what we had as some belt outages conveyor system outages that we're looking to upgrade.
You're right that improvement in availability and reliability we would hope would flow through into 2020 and beyond on what already we believe is a good mine, a strong mine. The second part, we'd always well, the conversation around the consents required with respect to financing has already been covered. But we would actually see that once we had approval in order to be able to proceed from a regulatory perspective that this would be a reasonably quick execution. We believe we operate within the region. We've got common a lot of commonality across the operations.
And we believe that this can be completed within a I'll say 90 day period of time. So certainly, first half of the year FTC, I think within 3 months of gaining that approval, we'd be able to look to target to close.
And Mr. Kellow, I'll turn it back over to you for any additional or closing comments.
Thank you and thank you for your questions and participating in today's call. I would like to express my appreciation to our employees who bring to the workplace dedication, skills and equipment to safety each and every day. To all of our shareholders, thank you for your continued support as we work to build sustainable value. Operator, that concludes today's call.
Thank you. And this concludes the Peabody Q3 2019 earnings presentation. Thank you for participating.