Please stand by. Ladies and gentlemen, thank you for standing by, and welcome to Peabody's second quarter earnings call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. If you would like to ask a question on today's call, please press star one on your telephone keypad. As a reminder, today's call is being recorded. I'd now like to turn the call over to Mr. Vic Svec, Senior Vice President, Global Investor and Corporate Relations. Please go ahead, sir.
Okay. Thank you, Ebony. Good morning, everyone. Welcome to BTU's second quarter earnings call. With us today are President and Chief Executive Officer, Glenn Kellow, and Executive Vice President and Chief Financial Officer, Amy Schwetz. During our formal remarks this morning we'll reference a supplemental presentation. That's available on our website at peabodyenergy.com. In slide two of the deck, you'll find our statement on forward-looking information. We encourage you to consider the risk factors that we reference here, along with 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. They're in the presentation and our earnings release. With that, I'll now turn the call over to Glenn.
Thanks, Vic, and good morning, everyone. Peabody had yet another active quarter, with several positive steps taken at both the operational and portfolio levels. We are also conducting a review of the project path for North Goonyella, and I'll talk more about that later. Let's start with a few of the highlights. Once again, we had strong performance from our seaborne thermal business, with 34% adjusted EBITDA margins. Our seaborne metallurgical segment also generated healthy adjusted EBITDA margins of 29% when excluding project costs related to North Goonyella. These results were aided in part by our Shoal Creek mine, which remains a standout performer. Cash flows from that mine continue to be on pace for a less than 2-year payback period. As we strive for operational excellence, I'm pleased to note that multiple operating segments improved costs compared to the prior year.
We also continue to shape our portfolio to create value for our shareholders. In June, we announced the joint venture of our PRB and Colorado assets with Arch. This combination is aimed at unlocking extraordinary synergies and creating exceptional value for customers and shareholders by strengthening the competitiveness of coal against natural gas and renewables. We remain firmly committed to executing on our shareholder return program. Year to date through June, we have returned more than 120% of our free cash flow to shareholders through our share repurchase program, ongoing quarterly dividend, and supplemental dividend. We plan to accelerate our share repurchases in the second half of 2019 following the required blackout period related to the JV transaction. With that, Amy will now cover the financials in more detail.
Thanks, Glenn. Good morning, everyone. Second quarter revenues totaled $1.15 billion, reflecting the combined impact of reduced metallurgical coal volumes and lower realized seaborne pricing compared to the prior year. In the second quarter, DD&A totaled approximately $165 million, in line with the prior year and below the first quarter of 2019. We expect this downward trend to continue through the back half of the year. Second quarter SG&A was also in line with our expectations, declining 12% to $39 million on lower outside services. Income from continuing operations, net of income taxes totaled $43 million compared to $120 million in the prior year. Diluted earnings per share declined $0.56 from the prior year to $0.37 per share.
Adjusted EBITDA in the second quarter was $228 million versus $370 million in the prior year. Adjusted EBITDA includes $2.3 million in charges associated with voluntary employee reductions at North Goonyella and $1.6 million in transaction costs related to the PRB Colorado joint venture. As reflected on slide four, our seaborne segments delivered over half of our total mining Adjusted EBITDA in the second quarter. Excluding North Goonyella project costs, our seaborne met segment led the company in Adjusted EBITDA contributions of $86 million with second quarter shipments of 2.1 million tons and an average realized price of $138.42 per ton.
Shipments in the quarter were impacted by a planned long wall move at the Metropolitan mine and ramp down of the Millennium mine, as well as lower than ratable volumes from the Coppabella mine. Coppabella continues to improve from challenging conditions experienced in the first quarter of 2019, as evidenced by some $50 per ton of cost improvements in the second quarter at the mine. Seaborne met costs, excluding the impact of North Goonyella, totaled $97.61 per ton. Year-over-year, met costs rose $8 per ton, largely attributable to the timing of the Metropolitan long wall move. This impact was muted by the inclusion of lower cost Shoal Creek volumes. In regard to North Goonyella, project costs totaled $28 million and were below the quarterly guidance range of $30 million-$35 million, given activity levels at the mine.
This is even with $2.3 million in charges related to a voluntary reduction program extended at the mine. Adjusted EBITDA contributions were driven by another quarter of exceptional performance from the Shoal Creek Mine, which delivered costs below the low end of the prior annual guidance range for the mine. During the first six months of the year, the mine has generated $110 million in adjusted EBITDA. I'd also note that our share of the Middlemount Mine added another $10 million to adjusted EBITDA this quarter. As a reminder, this includes DD&A, asset retirement obligation expense, net interest expense, and income taxes, which totaled about $9.5 million in the second quarter. Moving on, approximately $74 million of adjusted EBITDA was contributed by our Seaborne Thermal segment, which sold 2.7 million tons of export thermal coal at an average realized price of $68.53 per short ton during the quarter.
As expected, export volumes were muted by a scheduled longwall move at the Wambo Mine. The longwall move also impacted our mix, with Newcastle spec product representing only 58% of shipments during the quarter. With the longwall move now complete, we still expect to be within our guidance range of 60%-70% for Newcastle spec shipments for the year. Even with the longwall move, cost per ton for this segment improved 4% compared to the prior year. Cost came in below the low end of our annual guidance range, thanks to strong performance from our low-cost Wilpinjong Mine, improved mining conditions, and favorable FX. Within our U.S. thermal operations, cost per ton improved 4% versus the prior year due to fewer repairs and favorable pit sequencing at the Kayenta and El Segundo mines, even with lower volumes.
Overall, U.S. thermal adjusted EBITDA totaled $123 million compared to $138 million in the prior year. Moving to slide five. I'd like to walk through some key points on the balance sheet and cash flow. Second quarter operating cash flows of $179 million and CapEx of $61 million led to $154 million in free cash flow. As of quarter end, cash and cash equivalents totaled $853 million with $1.2 billion in available liquidity. Year to date through July, Peabody has returned $436 million of cash to shareholders. Share repurchases during the second quarter totaled $57 million, reflecting limitations on buying due to relatively low trading volumes and a required blackout period in relation to the joint venture announcement in mid-June. We have since resumed buyback activities with an additional $51 million repurchased in July.
I'm pleased to note that since the initiation of that program, we have repurchased 25% of our initial shares outstanding. That's a total of $1.2 billion bought back with approximately $283 million remaining under the current program. Furthermore, in May, we announced the third increase to our quarterly dividend per share in just one year. Dividends year to date have totaled $229 million, including our $200 million supplemental dividend announced in February. With that, I'll now turn the call back to Glenn.
Thanks, Amy. I'd now like to focus on the three strategies we're executing to create value for our shareholders. We are continuing to reweight Peabody's investments to have greater access to seaborne thermal and seaborne metallurgical coal to capture higher growth demand. Case in point, Shoal Creek, which has been a tremendous addition to our seaborne met portfolio over the past six months. In the U.S., we are focused on maximizing cash generation in a low-capital fashion through our low-cost, higher-margin operations. Our recently announced joint venture is a prime example of industrial logic put into meaningful action. Finally, for some time now, we've been advancing our stated financial approach of generating cash, maintaining financial strength, investing wisely, and returning cash to shareholders. The result, some $1.5 billion has been returned to shareholders in less than two years.
Let's now consider the industry fundamentals that play into each of these strategies and the actions we're advancing in response beginning on slide seven. Within Seaborne Met, we saw resilience in both hard coking coal and High Vol A pricing on stable demand growth and muted supply responses during the quarter. Pricing has since eased, largely due to global concerns around trade and economic growth. In China, seaborne metallurgical coal demand was up 7 million tons year-to-date through June on increased steel needs and stimulus measures. In addition, India seaborne demand increased some 7% year-over-year. We would expect India to continue to be the major growth driver over the longer term. Given this backdrop, we are continuing to capture value from our high-quality, low-cost Shoal Creek mine. We are also paving the way to expand volumes from existing sources in the near term.
This would include opportunities to extend the life of the Moorvale mine beyond 2025 with increased quality as early as 2020, as well as reducing mech costs in the back half of the year. Turning to North Goonyella, major progress has been made to date, including reventilation and re-entry of the mine. We've also learned a substantial amount since we commenced activities underground earlier this month. While the milestones achieved in recent weeks have been significant, we also have progressed at a much slower rate than originally contemplated. We recognize that this work is unprecedented in Queensland. All advancement during the recovery phase has been subject to the discretion of the regulatory authority, special protocols, and substantial related administrative requirements. As you recall last quarter, we noted that if further delays were to occur, the company would reevaluate our plans for the mine.
We did in fact experience greater delays than we would have anticipated. We continue to take action to appropriately scale on-site activities based on underground conditions and external factors. Be assured that all work has been and is currently being undertaken, including the highest regard for safety and as required to preserve value. These actions include the completion of a voluntary redundancy program, as well as further engagement with the Queensland Mines Inspectorate on the evolving recovery protocols. Because this new information likely influences our future progress, now is the right time to review the project and determine if delays can be overcome, current plans should be advanced, or other alternatives should be pursued to create the most value out of this significant asset. Let's focus a moment on the prospective paths we are assessing.
Right now, our team is performing extensive value engineering activities aimed at maximizing returns on a risk-adjusted NPV basis and payback period, as well as reducing spending on non-critical items. Paths we are pursuing include determining if the base case to access the 10 North panel remains the most attractive given timing, costs, and project risk. We are also evaluating an alternative route through the second zone to the southern panels of the mine, among other scenarios. Note that all paths fully preserve the opportunity to access more than 40 million tons of high-quality, hard coking coal from the lower seam reserves over time, as well as potential for commercial alternatives. Given our ongoing activities, we are suspending North Goonyella related targets at this time and intend to resume targets around production, timetables, and costs when the preferred path is chosen.
We would expect to complete the evaluation within the next three months. I would note that costs related to activities conducted in July were consistent with our previous run rate of $30 million-$35 million per quarter. Our preferred path will ultimately determine our costs going forward. The underlying goal of our approach is simple: to create the most value from this asset over time. Moving to seaborne thermal on slide nine. Quarter after quarter, this segment achieves adjusted EBITDA margins well in excess of 30%. While seaborne thermal pricing declined due to weak Atlantic demand, strong supply, and temporarily low-cost LNG, Newcastle spec pricing has since rebounded from the lows observed in the second quarter. API5 pricing for Asia Pacific demand has held in nicely compared to other benchmarks such as API2, which is tied to imports in Northwestern Europe.
As you see in the graph to the right, the spread between Newcastle and API5 has compressed over the last year. As we look closer at demand fundamentals, we've seen a surge in thermal imports into China in the second quarter. India thermal imports were up some 13 million tons year to date through June, driven by strong industrial sector demand. Strong demand from ASEAN countries, including Vietnam and Malaysia, continues as well. Through the first half of the year, increased generation and new coal-fueled capacity led to an 11 million ton increase in the ASEAN seaborne demand. Refocusing now on Peabody. We benefit from strong contracting strategies, particularly on the seaborne thermal side of the business. Let's consider our positioning for a moment. In the second quarter, average spot Newcastle pricing declined 23% compared to the prior year.
In contrast, Peabody's realized seaborne thermal pricing declined only 14% as we previously locked in contracts at more favorable pricing. That's with only 58% of our volumes equivalent to a Newcastle spec product in the quarter. We believe we are well-positioned with 3.6 million export tons priced at an average price of about $83 per short ton for 2019. We also have 2.1 million tons of both Newcastle and API5 coal priced for 2020 at an average price which is currently above the Newcastle forward curve. In regard to our thermal portfolio, we have tier 1 assets and are continuing to enhance these operations through avenues such as the United Wambo joint venture with Glencore. The JV is anticipated to form later this year, with production expected in 2020. Let's now move to U.S. thermal, which continues to face headwinds.
Through June, total electricity generation declined 2% year-over-year on fewer cooling and heating degree days in the demand-heavy months of January and June. Year to date, coal accounted for just 24% of the generation mix as natural gas pricing declined to a three-year low and captured additional share. Also during the quarter, flooding across the U.S. again impacted rail shipments and contributed in a 6% reduction in production year to date. In addition, the PRB has had more activity during the past quarter than we've seen in years between the Chapter 11 filings, as well as our JV announcement. On the regulatory front, the implementation of the Affordable Clean Energy, or ACE rule, offers individual states greater flexibility in the development and timing of state implementation plans, avoiding a one-size-fits-all approach to managing distinct and diverse needs.
While early days would suggest that this new rule could potentially increase coal consumption by about 3% annually, all other things being equal. Given the challenges that remain in the current U.S. environment, Peabody is taking what we believe to be the appropriate actions to improve our competitiveness within an all-fuels market. To start, we are continuing to operate complexes where possible, allowing us to move contracts, people and equipment as needed to meet customer demand. As mentioned, we're executing a highly synergistic joint venture to allow us to better compete against natural gas and subsidized renewables for the benefit of many, including our customers and our shareholders. Let's talk about those synergies in more detail on slide 11. The JV expects to unlock synergies with a pre-tax NPV of $820 million.
We expect the average synergies on 100% basis to be approximately $120 million per year over initial 10 years. Perhaps the greatest synergies can be achieved through optimization of mine plans, particularly for North Antelope Rochelle Mine and Black Thunder Mine. These two adjacent operations are well capitalized and share a common border that stretches more than seven miles. There are four load-out facilities and numerous mining pits with multiple products and cost profiles. Additional synergies include better deployment of fleets and more efficient procurement. Through the transaction, we believe we will be able to enhance our blending capabilities to more closely meet the requirements of our customers. We also expect to improve utilization of the combined rail load-out system, among other rail efficiencies. With more efficient mine planning and deployment, we also expect to reduce long-term capital requirements while leveraging our scalable shared services model.
Since our announcement in June, the necessary Hart-Scott-Rodino filings have been submitted to advance regulatory approval, and the transaction is under review by the U.S. Federal Trade Commission. To date, we've received early support from multiple stakeholders. At this time, synergies are continuing to be refined and evaluated for further opportunities. I'll now turn the call back to Amy to discuss our third strategy, which emphasizes our financial approach.
Strong operational performance drives our cash generation, and prudent deployment ensures our financial strength. In fact, we converted two-thirds of our adjusted EBITDA into free cash flow in the second quarter, in part due to our substantial NOL position in both the U.S. and Australia. Within that context, I'd like to focus on the last two components of the approach: invest wisely and return cash to shareholders. In terms of investment, whether that be investment in our current portfolio of assets or M&A, our investment filters remain the centerpiece of all activity. The hurdles for investment are considerable but not impossible, as demonstrated by transactions over the past year. Our dollars also continue to be spent on the investment in the company that we believe represents the best value, BTU. As such, we have continued to execute a robust share repurchase program in addition to a quarterly and supplemental dividend.
To date, we have returned more than $1.5 billion to our shareholders in just under two years. In 2019, we intend to return to our shareholders an amount greater than our free cash flow, with second half share buybacks expected to accelerate relative to the first six months of the year. Turning to slide 13, I'd like to discuss our outlook for the second half of 2019. First, based on current pricing levels, we expect second half adjusted EBITDA contributions to be largely in line with first half results and would expect the fourth quarter to be stronger than the third. Second half adjusted EBITDA reflects North Goonyella and JV-related expenses, as well as two mines reaching the end of their economic life. We would anticipate a progressive increase in our seaborne thermal and met coal volumes in the third and fourth quarters.
In addition, Kayenta Mine is scheduled to cease production and sales early in the third quarter of 2019, despite strong year-to-date demand from the Navajo Generating Station. As we talk about the timing of shipments, I'd also note that Coal Creek shipments will generally be ratable throughout the year, given the seamless nature of longwall moves at the mine and inventory levels that are expected to offset any planned reductions in yield. Third, we continue to believe our share price represents a compelling investment, and we are committed to accelerating our share repurchase activity in the second half of the year. Glenn?
On slide 13, I will note that we've launched a review of the company's organizational structure and functional support activities. The aim is to further enhance our capabilities while streamlining processes across a number of fronts. We are also working to ensure our operational leadership continues to focus on key value drivers within those portfolios and have the best resources readily available. We have retained the process improvement arm of Alvarez & Marsal to assist us in this comprehensive review. We have also made several changes to the company's leadership. Charles Meintjes has been named Executive Vice President and Chief Operating Officer with responsibility for operations, sales and marketing, and technical services, as well as the responsibility of achieving the PRB Colorado joint venture synergies. As some of you may recall, Charles has led both business units in the past and has deep operational experience on three continents.
In addition, Amy's role as Executive Vice President and Chief Financial Officer has been expanded to include responsibility for corporate development, information technology, shared services, and coal generation emissions technology. The aim of these changes also allows for Amy and Charles to guide their respective operational and functional areas as part of the organizational review. Current Group Executive of U.S. Operations, Marc Hathhorn, has been named head of our Australian operations, bringing sharp operating focus to these important assets. To wrap up today, Peabody is defined by our diverse set of assets and our ability to continue to shape the portfolio. Take the PRB Colorado JV, as well as Shoal Creek, which, by the way, contributed more adjusted EBITDA this quarter than North Goonyella did in quarter 2 2018.
Add to that our commitment to sharing our returns with shareholders in a tangible way, I believe the result is a compelling value opportunity. With that, I'd like to turn the call over for questions. Operator?
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. We do ask that you please limit yourself to one question and one follow-up. Again, press star one to ask a question. We'll pause just a moment to allow everyone an opportunity to signal. We'll take our first question from Daniel Scott with Clarksons Platou. Please go ahead.
Yeah, thanks. Good morning. Glenn, looks like a real good quarter. Shares are getting hit a little bit, I assume, on the North Goonyella developments. Is there a scenario where potentially this mine would be closed, or are you really just trying to find the most optimal way to continue production?
From our perspective, we're looking at the most optimum way to create value and to continue to capture value. That's the scenarios around the base case of accessing 10 North. We talked in the past about alternatives, and at this point, we're continuing to evaluate an alternative path for moving through the second zone and optimizing or accessing those southern panels. In any scenario, having reentered the mine, and particularly having opened up now Zone A, opens up the lower seams available to us. This is about seeking to maximize the value given what we now know about the operating conditions, particularly the regulatory environment, the protocols that we're operating under.
Given the reserve life, it sounds like it's highly unlikely that this mine would be closed. It's just finding a way to get to the coal most economically.
That's exactly right from our perspective. We believe this is a tremendous mine with great infrastructure and significant reserves of high-quality, hard coking coal. We want to make sure that we execute the right path using appropriate evaluation.
Okay, great. Interesting comment. Obviously, Coal Creek has been a real positive, and having it outperform the year-ago levels of North Goonyella is impressive. It still looks like a one-off asset, given it's, whatever, 13,000 miles away from the next coking coal asset in the portfolio. You talked in the slides about reweighting investment towards greater seaborne met and thermal. At some point, does that mean more add-ons? Is it North America? Is it Australia? On both sides, really, thermal and met.
Look, we've talked about our strategy being about reweighting to seaborne met, seaborne thermal, as you've indicated. I think Coal Creek has been an example of that. What we talked about, although Coal Creek is closer to St. Louis than some of our U.S. thermal operations, really what we liked about Coal Creek, other than the quality of the coal, the cost structure, was its access to those seaborne markets. That indicates that if we could do a Coal Creek, if Coal Creek comes along, we'd certainly be highly interested in it. As we said, we've also articulated a pretty strict set of investment filters to which you've seen us being disciplined by operating within that.
Wouldn't leave out the U.S. portfolio because you can see we've been highly active on that front as well. What I think and believe it can potentially be a transformation transaction in the Powder River Basin, with the objective of that being about increasing the competitiveness against coal, against natural gas or renewables.
We'll take our next question from Michael Dudas with Vertical Research. Please go ahead.
Good morning, everybody.
Morning, Michael.
First question is, you talked about the joint venture that was announced last month. In the slides, you talk about stakeholder support. Maybe you can elaborate a little bit, like what type of stakeholders? What's been some of the feedback, positive and even some negative, you can share that from what you've had for the last five, six weeks?
Sure, Mike. Well, we've been pleased from the reaction from a variety of stakeholders, be they government organizations, the state authorities, representative organizations, suppliers. We've certainly had some positive comments from some customers. Probably the negative, not unexpected, is we've seen some criticism being directed at us from environmental agencies. Overall, I'd say to date, we've been pleased by the reaction that we've received.
Do you think some of the difficulties we've seen in the Powder River with some of the bankruptcies, et cetera, has helped support or detriment from the opportunity to drive this forward?
Well, there's no doubt, I think what we've seen in some of the challenges in the last quarter have really underlined the fact that a transaction of this nature, in order to be able to shape the competitiveness of coal against natural gas and renewables, really does highlight that objective. Look, I think, obviously, what's been going on in that basin has attracted a lot of publicity in the last several weeks, and there's no doubt that we recognize the impact that has occurred on the workforce, on their families, and on the community in that area and thoughts, and certainly we appreciate and understand how tough it is in that county. We've actually taken on 30 employees, we believe, highly skilled to be able to fill existing positions. We do recognize how tough it has been.
Having said that, I think with what we've seen on the filings, there's really been no change in pricing following either announcement as far as we can tell. I think that just underscores the fact that for us, this is about day in, day out competition versus natural gas and renewables.
Our next question will come from Chris Terry with Deutsche Bank. Please go ahead.
Hi, Glenn and Amy. A couple questions from me. Just following on the JV, do you have an update on when you might potentially expect the deal to close?
Chris, at this point in time, I think we're doing everything that we can to move the process forward. As we indicated, we have made the necessary regulatory filings this month, and we're continuing to see that process play out. We understand that it is fluid in nature, and we'll continue to update as we hear back from those agencies. I would only just highlight what Glenn pointed out, which is we think that the market backdrop that we're having these discussions in certainly highlights the need for a transaction of this nature to increase competitiveness and ensure surety of supply out of what is a very important basin for electricity generation.
Okay. Thanks, Amy. Then just another one for you. On the buybacks where you said you'll accelerate from here, is that taking the July rate of $51 million? Are you talking about accelerating from the second quarter run rate or accelerating from the July run rate? Thanks.
Looking at really accelerating from that first half of the year run rate. We experienced a first part of the year, where we were under blackout under numerous situations and also saw some lower trading volumes over that period of time, which hampered our ability to execute buybacks quickly. We have been back in the market late in June and into July, and we would expect to see that program continue throughout the remainder of the year.
Our next question will come from Mark Levin with Seaport Global. Please go ahead.
Great. Just a quick question on capital. I think the budget is $350 million-$375 million, and then maybe through the first half of the year, you got to spend a little less than $100 million. I guess two questions related to that. One is, I realize the CapEx is back-end loaded, but do you feel like there's more of a likelihood of cutting that budget or keeping it where it is? Second, related to the buyback question, I guess you guys are guiding to EBITDA in the second half that is roughly the same as the first half, but there's still, I guess, a lot of capital to spend. How should we think about that in terms of buyback activity second half versus first half if there's still a lot of capital to spend?
Sure, maybe starting with your question on capital. We did anticipate that the capital would be back-end loaded. We had some progress payments that we'll be making on the long wall at North Goonyella throughout the remainder of 2019. We also have some project capital associated with the extension of the life of Wilpinjong and the United Wambo open cut JV that fall in the back half of the year. You can rest assured that capital discipline is something that we employ at Peabody, and that relates not just to the dollars that we're spending, but the timing of the dollars that we're spending and if there's no impact on operations, we view that later is better. We'll continue to look at that capital budget and make the right decision for our operations over time while not accepting incremental risk at the operating level.
As we look at the back half of the year, certainly CapEx is something that will impact our free cash flow as we move into the back half, but I'd also note that we are operating well above our current liquidity target. As we approach the back half of the year, we would anticipate drawing down our cash balances to get us closer to that liquidity target as we close out 2019.
We'll take our next question from Lucas Pipes with B. Riley FBR. Please go ahead.
Hey, good morning, everyone, Amy and Charles, congratulations on the additional responsibilities. I wanted to ask Glenn a follow-up question on North Goonyella. It sounds like you look at a couple different options there, keeping the mine open. I understand it's early and we'll get an update within three months, but could you share kind of rough figures in terms of ballpark for CapEx of the various options that you're looking at? I would appreciate your thoughts.
Lucas, I think those sorts of things are still under review as we reevaluate the respective paths. Our original approach to access 10 North is something that we're considering as to whether it still remains attractive based on timing, costs, and what we reflect now as risk. I mentioned the alternative, which would probably be accessing through that second zone and accessing the southern panels through that zone. They're all things that we've got under evaluation at this point in time. Really, we'll get back to you as soon as we can, but we'd expect that evaluation within the next three months.
Lucas, the only thing that I would point out is that the mix of those costs between capital and OpEx would look different under the two scenarios as we've gone down the path that we're under currently, which is, as Glenn has pointed out, is the path that we need under any scenario to sort of recover Zone A and moving into Zone B. The costs associated with that have all been included in our operating expenses. If we look at options towards the southern panels of the mine, the mix of that between OpEx and capital would look different, and we would anticipate there would be more capitalization of the costs associated with the project as we would focus on development. Still early days on that, and we'll look forward to providing an update as soon as we can.
I appreciate that. Thank you. One quick follow-up question on North Goonyella and then another one on the domestic market. On North Goonyella, could you explain a little bit more the voluntary reduction program? Labor in Australia has a reputation for being pretty tight. How long would those folks be kind of away from Peabody before potentially being hired back, I assume, when the mine is up and running again for that program to be economical? That's question number one. Question two, on the JV, obviously very exciting in terms of the synergies. Do you think that is a blueprint for potentially other JVs in other regions of the U.S.? Those are my two follow-ups. Thank you.
Yeah, I think we'd expect the voluntary reduction program, which had about 20 people participate in that program, to have a relatively quick payback on that activity. As you'd indicated, we'd expect to rehire as appropriate as we continue to re-phase production. At this point in time, we want to make sure that we're appropriately matching our expenses with the level of work required as we progress along the path. With respect to the joint venture, I think it's an extraordinary combination of assets that has been put together as part of the Powder River Basin in Colorado between ourselves and Arch. This type of methodology, as you can imagine, is not uncommon outside of the U.S. We participate in a number of joint ventures in Australia, and we mentioned the joint venture between ourselves and Glencore related to the United Wambo.
It's not unusual in that sense and really is a template that we thought was appropriate in being able to bring together this unique set of assets in a unique combination that will enable that competitiveness against natural gas and renewables.
As we look at our investment filters that include and highlight payback period in that the idea and the concept of cashless transactions like this joint venture continue to be extremely compelling when there's synergies involved in them.
We'll take our next question from Matthew Fields with Bank of America. Please go ahead.
Hey, everyone. I wanted to talk about the domestic market as well just a little bit. With difficulties at Cloud Peak and Blackjewel, are you seeing potentially any opportunities for your Illinois Basin mines to get into some of these adjacent states that Powder River has gotten into, like Illinois, Iowa, Missouri, where these guys are selling into, and you'd have an extraordinary cost advantage?
Yeah. Obviously, we believe that the customers that are being supplied through those types of operations and those types of activities would tend to be customers that came out of the Powder River Basin-type areas. They obviously manage wider portfolios with respect to having gas in their mix or having other burn or other coal generation activities in their mix. I would've thought that we'd probably look to supply out of the broader Powder River Basin market.
Okay. Then on the flip side, your fellow Illinois producers like Alliance and Foresight are taking down their export guidance and bringing some tons home. Are you seeing difficulties contracting with sort of competing additional domestic volumes that potentially weren't there last year?
As we look at our Midwestern operations, we are fully committed for 2019, and that tends to be our strategy, particularly with the Midwest as we go into each year, but also with our Powder River Basin operations, that contracted position is really important going into any given year. We're not heavily dependent. In fact, we export little to no coal out of the Illinois Basin that would factor into our sales plans. As we look at our export position into markets out of Australia, we continue to be extremely pleased with where we sit from a contracted position, not only for the remainder of 2019, but really going into 2020, with over 2 million tons priced above the Newcastle forward curve currently going into 2020.
I would also note that as we look at export prices that have dipped a bit, we are benefiting from that corresponding dip in FX that we've seen over this period of time as well, which highlights sort of the strength of that seaborne thermal position out of Australia.
We'll take our next question from Matt Vittorioso with Jefferies. Please go ahead.
Yeah. Good morning. Just in the context of accelerating returns to shareholders in the back half of the year, could you comment on your ability to do so under the indentures of the existing or the outstanding secured bonds?
Sure. With respect to our capacity, we believe that we have capacity to execute our current buyback program under the indenture, that has factored into our plans for the back half of the year.
Is there any point where that starts to get tight? How do we think about the outstanding RP capacity under the bonds? Is that something you can quantify for us?
It's not something that we quantify, but it is a calculation that's based on net income. Net income is calculated on a quarterly basis, so it builds throughout the year as we generate net income with some adjustments that have been made to that. As you probably recall, we had put an amendment in place back in 2018 to address that RP capacity to give us a one-time basket as well, with an indication of that. We don't see the bond indentures at this point as a constraint to our current program.
Our next question will come from Nick Jarmuzek with Stifel. Please go ahead.
Good question. Piggybacking on the indenture question, given that you need to go to bondholders for consent for the JV, how do you balance an overall refinancing of the '22s and '25s so you can free up cash flows, not have to go back to bondholders for additional RP baskets, not have to go to bondholders for JV approvals versus having to go and pay consent fees? Thanks.
Sure. We're going through or working through our strategy right now with respect to refinancing, and I think you've pointed out a couple of options that are available to us as we do so. Over time, we would aspire to get to a more regular way bond indenture that would allow us appropriate flexibility with respect to shareholder returns. We're also not insensitive to pricing of these types of transactions. The team is looking at the way to best execute this to achieve what is really two separate objectives over time. The most urgent of one being to ensure that we've got the flexibility to complete the joint venture arrangement and secondarily, making sure that we have the flexibility over time to execute our shareholder returns program.
Thank you.
Our next question will come from Paul Quinlan with Morgan Stanley. Please go ahead.
Sorry to
Sorry to harp on the RP issue, but correct me if I'm wrong, but I think you had a one-time $650 basket and then $175 annually. Can you just clarify if anything's left on the $650, and then if you are in the sort of second year period where the new $175 kicks in?
I wouldn't comment specifically what basket we're using, but I think the other piece that is missing from that equation is the fact that we have a builder basket as well that is based on net income that builds quarterly over time that also is included in that indenture.
Okay. Got it. Thanks.
We'll take our next question from Karl Blunden with Goldman Sachs. Please go ahead.
I guess it's another one for Amy here, just on the capital structure. Interested in thoughts you have there with regard to timing of a refi. I understand you're monitoring the markets. Markets have performed pretty well. Do you need to see more progress toward getting the JV finalized for the market to give you credit for those savings and therefore potentially a better interest rate, or how do you weigh those factors, the strong credit market today versus getting full credit for the operating initiatives that you're planning?
I think that certainly we want to hit the market right, and we want to get the market to understand that this is a credit-enhancing transaction that we're looking at over time. We're working through that strategy right now in terms of the right time to hit the market. There again, maybe other objectives that we hope to that we would achieve as part of a broader transaction. Certainly weighing the benefits of trying to get a one-off approval for a transaction like this to a larger scale transaction or a larger scale set of transactions that would achieve both flexibility around the joint venture, but also move us to a more regular way of bond indenture over time.
I think that under any scenario, the second, that regular way indenture is something that for a company with the strength of credit that Peabody has should be doable. The timing of that, though, is something that we've yet to determine.
Thanks.
We'll take our next question from Lucas Pipes with B. Riley FBR . Please go ahead.
Thank you very much for taking my follow-up question. A quick one in regards to the seaborne hedges for 2020. Could you give us a breakdown of what is hedged against API5 and what is hedged against Newcastle?
What I would say, Lucas, is that that blended cost of $77 per ton is a blend of Newcastle and API5, and that overall the range of quality that we see in 2019 is consistent with the range of quality that we would expect to see in 2020. That blended rate would be consistent with our current portfolio.
Essentially, I should think about the hedges being proportional to the quality of your sales book in 2020?
That's right.
Got it. Very helpful. Thank you.
Take our next question from Matthew Fields with Bank of America. Please go ahead.
Hey, thanks for the follow-up. I don't mean to sound rude here, but you guys have spent about $1 billion on share repurchases over the last year, and the stock has gone from $40 to $20. I know you're fighting a very difficult environment on multiple fronts, but what are the other strategies for capital deployment to boost shareholder returns in a way that sort of works for all stakeholders?
Matt, I would say we've actually engaged in what is a very comprehensive approach to capital allocation throughout the year. Frankly, throughout the period since April of 2017, we've paid down over a half a billion dollars of debt. We've used cash and put that towards liability management in the form of pension and retiree healthcare. We've performed reclamation over that period of time.
I'd add the acquisition of Shoal Creek.
We've engaged in investing, reinvesting in our business, the acquisition of Shoal Creek and the transaction with Arch that we've announced, which is perhaps the most synergistic transaction that could be pondered in the U.S. coal space. We've initiated a sustainable dividend, which we've increased three times. We have announced a supplemental dividend of $200 million in the first quarter of the year. I can't control the share price, but I'm pretty proud of the actions that we've taken to date to provide value to shareholders. You can question our methods. I'm not going to. I think that we've been flexible, we've been comprehensive, The results have not yielded what we wanted them to, We don't think it's because it's the wrong path.
ladies and gentlemen, this concludes today's question and answer session. I'd like to turn the call back over to Mr. Glenn Kellow for additional or closing remarks.
Well, thank you for your questions and participating in today's call. At Peabody, our mission is predicated on creating superior value for our shareholders. That's our commitment, and that's our focus every single day, and we look forward to keeping you apprised of our progress. Operator, that concludes today's call.
Thank you. Once again, ladies and gentlemen, this does conclude today's conference. Thank you for your participation. You may now disconnect.