Ladies and gentlemen, thank you for standing by, and welcome to the Peabody's First Quarter Earnings Call. As a reminder, today's call is being recorded. I'd now like turn the conference over to Mr. Vic Speck, Senior Vice President, Global Investor and Corporate Relations. Please go ahead, sir.
Okay. Thanks, Amanda, and good morning, everyone. Welcome to BTU's earnings call for the Q1 of 2019. With us today are President and Chief Executive Officer, Glenn Kellow as well as Executive Vice President and Chief Financial Officer, Amy Schwetz. During our formal remarks, we'll reference a supplemental presentation and that's available on our website atpeabodyenergydot com.
Now on Slide 2 of this deck, you'll find our statement on forward looking information. We do encourage you to consider the risk factors that we reference here as well as our public filings with the SEC. And I'd also note that we use both GAAP and non GAAP measures. We refer you to our reconciliation of those measures in this presentation as well as in our earnings release. I'll now turn the call over to Glenn.
Thanks, Vic, and good morning, everyone. Before Amy covers the financials in more detail, I'd like to spend a few minutes reviewing the highlights of the quarter. First of all, this was our 1st full quarter of ownership following the highly accretive Shoal Creek mine purchase. I'm pleased to note that the mine had an outstanding quarter. In fact, Shoal Creek rose to the top earnings contributor for Peabody in this period.
Although it's early days, its Q1 cash flows imply a payback period pace of less than 2 years. Next, our Seaborne Thermal segment once again delivered leading margins in the quarter. On average, over the past 2 years, our seaborne thermal segment has delivered 40% adjusted EBITDA margins. Also, we reached an agreement for insurance recoveries for North Goonyella in the quarter. We recorded a benefit to operating profit, including a portion to adjusted EBITDA and have already collected all $125,000,000 in cash proceeds.
Once again, we generated strong cash flows and returned even more to our shareholders. In fact, we returned nearly double our free cash flow to shareholders this quarter. We bought back shares, issued our ongoing quarterly dividend and deployed another tool in the kit with a supplemental dividend. The quarter wasn't without some short term external challenges on several fronts though. I believe the strength of the platform will be more evident in the second half of twenty nineteen.
This year, we expect to generate more than half of our adjusted EBITDA in that second half of the year. Throughout 2019, we are looking to build on our strengths and implement 3 strategies to create value. 1st, we are continuing to reweight our investments towards greater seaborne thermal and met coal access to catch a high growth Asian demand. To that end, in the Q1, our seaborne segments comprised more than 60% of mining adjusted EBITDA. 2nd, we are optimizing our lowest cost, highest margin U.
S. Thermal assets in a low capital fashion to maximize cash generation. Our U. S. Thermal platform continues to represent strong cash flow generation that well exceeds capital requirements.
3rd, we are executing our financial approach of generating cash, maintaining financial strength, investing wisely and returning cash to shareholders, having returned more than $1,400,000,000 in cash to shareholders since August 2017. I'd like to take a moment here and reflect on the first and third components of our strategy, greater seaborne access and execution of our financial approach. Shoal Creek is both an example of strategic execution and financial strength. The acquisition upgrades our seaborne met portfolio as the mine exclusively sells to Asian and European Steel Mills. Shoal Creek offers a substantial increase in both the quantity and the quality of our met coal portfolio.
Shoal Creek delivered exceptional operational results in the Q1. For some time now, we have outlined a strict set of investment filters. One of those filters is to provide a reasonable payback period. The mine's 1st quarter operating cash flows imply a rapid payback period of less than 2 years. And to be clear, that's less than 2 years from the day the first dollar was invested as opposed to organic investment that may not cash flow for multiple years.
Shoal Creek also clearly meets each of our other investment filters. It's a strategic portfolio fit as it expands our seaborne metallurgical coal assets. It maintains our financial strength as the acquisition was financed with cash on hand and at a highly attractive valuation of 2 times adjusted EBITDA. The acquisition is expected to generate returns well above our weighted average cost of capital of 10%. It provides tangible synergies as we were able to move quickly to monetize our NOL position and we are realizing synergies from our shared services platform.
And certainly not least, it creates significant value for our shareholders. As both CEO and investor, you can imagine that I've challenged the team to find more of these opportunities within our strict filters. I'll now turn things over to Amy to cover the financials in more detail.
Thanks, Glenn, and good morning, everyone. I characterize the Q1 performance as quite positive given the timely settlement of the North Goonyella insurance claim, improved seaborne thermal performance and cash discipline, even while we gave some of those benefits back due to U. S. Rail issues from the substantial flooding. Let's delve into the details.
Peabody's first quarter revenues of $1,250,000,000 reflect the impact of 16% lower volumes. Winter weather and severe flooding across the Plains states Rail outages and delays primarily impacted PRV shipments, which were down 22% over the prior year. We did recognize the benefits of $125,000,000 for the North Camilla insurance claim in the quarter, the maximum recovery allowed under the applicable insurance policies. Approximately $34,000,000 offset recovery costs in the quarter and therefore was reported as a benefit to adjusted EBITDA. The remaining $91,000,000 of insurance proceeds related to the known equipment losses from current and prior quarters.
That amount was excluded from adjusted EBITDA given the related charges were excluded when incurred. 1st quarter DD and A was largely stable with the prior year as lower contract amortization was mostly offset accelerated DD and A related to the planned Tayanta mine closure and the inclusion of Shoal Creek. Over the course of the year, we expect DD and A to decline and we're targeting full year expense of $600,000,000 to $650,000,000 SG and A for the quarter was in line with the prior year and below quarterly guidance ranges. And I would note that Peabody's SG and A as a percentage of revenues remains the best in the sector. Income from continuing operations, net of income taxes, totaled $133,000,000 compared to $208,000,000 in the prior year.
Diluted earnings per share totaled $1.15 marking a $0.32 improvement over the prior year. First quarter EPS benefited from the company's ongoing share repurchase program and the conversion of preferred stock in the prior year. 1st quarter adjusted EBITDA totaled $254,000,000 versus $364,000,000 in the prior year. Adjusted EBITDA included the impact of $23,000,000 related to PRB logistical challenges in the quarter and $37,000,000 in re ventilation and reentry costs related to North Goonyella, partly offset by the aforementioned $34,000,000 insurance proceeds benefit. Let's begin with our Seaborne Thermal segment, which once again was a leading segment with 38% adjusted EBITDA margins.
Seaborne thermal export shipments increased 24% over the prior year to 2,600,000 tons with an average realized price of $80.40 per short ton. The operations benefited from improved operating performance at the Wambo complex, in part due to no longwall move in the quarter at Wambo. In fact, the Wambo underground mine led the segment in adjusted EBITDA margin this quarter. From a mix perspective, Newcastle spec shipments comprised 71% of export sales. That's slightly above the high end of Peabody's full year expectations.
Seaborne thermal adjusted EBITDA of $95,000,000 increased 54% compared to the prior year results. Continued high demand for seaborne thermal coal, coupled with Peabody's low cost operations, resulted in increased volumes, higher pricing and lower costs. Cost per ton totaled $35.03 in the quarter, marking a $2.06 decline from the prior year. Let's now turn to the seaborne met coal segment, which shipped 2,300,000 tons in the quarter at an average realized price of $142.33 per ton. As we guided previously, 1st quarter volumes were less than ratable, largely due to mine sequencing plans at Coppabella.
Strip ratios were temporarily higher due to required re handle of legacy overburden from the prior owner. In addition, costs were elevated due to the cumulative impact of the dragline outage. Combined, these factors at Coppabella resulted in about $8 per ton of higher cost year over year for the segment. In addition, Shoal Creek shipped its remaining acquired inventory in January, resulting in elevated costs associated with the tons required to be reported at fair value. This adjustment increased segment costs by approximately $3.50 per ton in the quarter.
As a result, segment costs totaled a bit north of $103 per ton, excluding impacts from North Goonyella. Every other met mine in the category with the exception of Coppabella delivered cash costs within or below the company's original annual cost guidance range. And this includes Shoal Creek, whose cash cost came in at the lower end of its guidance range of $85 to $95 per ton. Even with the longwall transition during the quarter, the mine led the company's 23 operations in adjusted EBITDA contribution. With regard to North Goonyella, as expected, 1st quarter project cost came in above the per quarter cost guidance range.
We had noted previously we would look to mitigate those costs throughout the year and we were able to do so this quarter with the sale of approximately 90,000 tons that contributed some $4,000,000 to adjusted EBITDA. These sales along with the recognition of the insurance claim of $34,000,000 mitigated project related costs that totaled 37,000,000 dollars You'll also recall that our investment in Middlemount mine adds some 2,000,000 tons of incremental economic metallurgical coal exposure to Peabody. Our share of Mill Mount shipped some 400,000 tons in the Q1. Equity affiliate accounting mandates that Peabody is required to report middle mouse results as the company's share of the Mine's NIM income, which totaled $3,900,000 in the quarter. To give you a deeper sense of the income statement components, this included about $7,500,000 in DD and A, ARO, net interest expense and income taxes.
We expect Dittlenow's performance to strengthen over the course of 2019 on improved mining conditions. Let's now move on to the U. S. Thermal segment, where winter weather and severe flooding limited rail performance and shipments from the PRB, suppressing our adjusted EBITDA by an estimated $23,000,000 Across the entire Southern PRB, March shipments marked the lowest level in over 20 years given these rail outages and delays. Peabody saw 1st quarter PRB shipments decline 22% to 25,300,000 tons, even following a strong start to the year in which January shipments were above our ratable averages.
Railroad closures and rerouting of shipments, particularly for the midsection of the U. S. Where many of our PRV customers are concentrated drove lower volumes. They also resulted in $1.02 and $1.02 per ton increase to PRB cost from the prior year. The good news is that the PRB largely seems to have recovered from these issues and customer stockpiles are at their lowest level since 2014.
Midwestern and Western adjusted EBITDA rose year over year. The Midwestern segment benefited from lower repairs and higher realized pricing. Strong performance from the 20 Mile Mine contributed into an $11,000,000 increase Western segment's adjusted EBITDA over the prior year. In addition, Western realized revenues per ton rose in part due to accelerated billings associated with the plant closure of the Kayenta mine in the Q3 of 2019. In total, the U.
S. Thermal operations earned total adjusted EBITDA of $112,000,000 compared to $138,000,000 in the prior year, even with some 8,000,000 tons of lower sales volume. Turning now to Slide 6, let's discuss key balance sheet and cash flow metrics. We ended the quarter with $798,000,000 of cash and cash equivalents and $1,100,000,000 in available liquidity even after nearly $315,000,000 in cash returns to shareholders in the quarter. Operating cash flows of $198,000,000 and CapEx of 36,000,000 dollars led to free cash flow totaling $162,000,000 in the first quarter.
During the quarter, we deployed another tool in capital allocation kit with a supplemental dividend of $200,000,000 or $1.85 per share, further underscoring our commitment to returning cash to shareholders. I would note that our ongoing quarterly dividend pace and supplemental dividend already equates to a 2019 yield of some 8% based on our current share price. We have been consistent in stating that our default position has been to return cash to shareholders and we have made substantial progress on that front with $1,420,000,000 of cash returned through buybacks and dividends since August of 2017. We plan to return an amount equal to or greater than our free cash flow to shareholders in 2019 and the Q1 was no exception with cash returns nearly doubling our free cash flow in the quarter. As our actions show, we are willing and able to be flexible with regards to our approach and we remain committed to returning cash to shareholders.
We have approximately $357,000,000 remaining under our authorized share repurchase program and we'll continue to implement buybacks as we believe our shares represent a compelling investment opportunity. Our commitment to shareholder returns is evident not only in the absolute to Glen to cover the industry conditions on Slide 7.
Thanks, Amy. The Q1 of 2019 was marked by a series of unusual near term challenges to the coal industry logistics chain in multiple parts of the world. Traditional coal flows were altered by flooding here in the U. S. And the plain states, port restrictions in China, wet weather and train derailments in Australia and a cyclone in Mozambique.
While in some instances these challenges simply resulted in a shifting of products between multiple demand centers, in other instances coal flows were disrupted. In China, cutting through the noise and looking at the math, Chinese imports are largely in line with prior year levels for this time of the year and Australian coal exports were up some 2,000,000 tons. That's not to say that traditional coal flows weren't disrupted as China shifted the mix of their imports a bit, but overall demand remains. Specific to seaborne thermal pricing, low LNG prices, above average stockpiles in several large importing nations and a mild winter all contributed to a rebasing of pricing. Newcastle pricing reached a 2 year trough pricing level in April and has since rebounded.
And our 2019 committed volumes are locked in in prices above prompt Newcastle prices. And that's even when those volumes noting that those volumes include a portion of the lower API5 product as well. Our 2019 seaborne thongle price volumes include a little more than 2,000,000 tons linked to the Japanese reference price settlement, which was recently settled at $94.75 per ton. Including these expected commitments, we now have some 5,700,000 short tons of Australian export thermal coal price for the last three quarters of 2019 at an average price of $83 per short ton. And as expected, we've seen a converging of the spread between the Newcastle spec product and API5.
The 2019 forward curve price ratio as of the end of March was approximately 70% versus closer to 60% just a quarter ago. Our Australian mines are well positioned to meet the growing seaborne thermal demand centers. Over 80% of global seaborne demand stems from the Asia Pacific region even with customs clearing clearance delays in China during the quarter. Getting into some specifics, Chinese thermal coal imports eased 8% in the quarter. While our internal estimates would have projected Chinese imports to be down year on year for 2019, recent news from China actually indicates the goal of imports being on par with 2018 levels.
India thermal coal imports are up some 16% through March given the demand for higher CB industrial coals that cannot be supplied by domestic producers. Avian continues to prove to be a strong driver of seaborne thermal demand as well. We've imports up 23% year to date. We expect this trend to continue without the underman leading the growth in 2019 seaborne thermal coal demand. Moving now to seaborne met coal.
Tight supply demand fundamentals continue to support robust seaborne met coal prices. Spot hard coking coal prices averaged $206 per ton in the quarter with the Q1 settlement locked in at $2.10 per ton. Continued safety checks in China, strong steel production and quality limitations on domestic supply are leading to tight domestic supplies, which in turn have resulted in netbacks supportive of imports. As a result, net coal imports rose 35% through March. Looking ahead, we are estimating 2019 met coal imports to increase some 5000000 to 10000000 tons over 2018 industry wide with India leading the growth in demand.
Global steel demand rose 5% last year and we're expecting additional 2% growth this year. Supply increases are largely expected to be sourced from Australia. It occurs to me that the industry conditions for coal are often miscast, particularly in relation to seaborne coal demand. So it's worth taking a moment to offer some context on Slide 8. We've begun to emphasize what I would call a surprisingly sustainable case for coal where the choice is not one of good versus evil, but a pursuit of 2 goods abundant reliable energy supply and reduced emissions.
For the first time ever in 2018, global coal fuel generating capacity topped 2,000 gigawatts. That's a massive 62% increase since the year 2000. And some 50 gigawatts of new coal fuel generation are expected to come online this year alone. To put that in perspective, each gigawatt uses about 3,000,000 tons of coal per year. Coal also is an essential ingredient in original steelmaking, which consumes 1,000,000,000 tons of coal each year.
And coal provides about 70% of the energy needed to create cement. Life expectancy, educational attainment and income all correlate with third capital electricity use and more of the world's electricity is fueled by coal than any other source. Simply put, the world plans and needs to use coal for the foreseeable future. Our seaborne portfolio is well positioned to serve this growing demand for some time with some 570,000,000 tons of coal reserves between Australia and Shell Creek. That said, recent industry challenges may paradoxically enable greater financial strength for those that take a contrarian position and remain.
The world that used coal for many decades more into the future also needs sustainable coal companies more than ever. Let's now review the U. S. Thermal space on Slide 9. Customer demand remained strong in the Q1 even though shipments were impacted by rail outages and delays due to heavy flooding across the Heartland.
In fact, implied customer demand by way of coal nominations with the rail was some 60% higher than actual trains loaded in March. Production declines of 12% outpaced our internal estimates given rail outages and delays. PRB shipments were down some 5000000 to 10000000 tons on weather impacts. Reduced coal shipments have further driven down already low utility stockpiles. In fact, Southern P and D utility stockpiles declined 4,000,000 tons in March, which compared to an average build of 1,000,000 tons in the month.
U. S. Coal fuel generation declined some 9% in the Q1 as total load was down and increased natural gas generation brought with it excess capacity and continued weak gas prices. Natural gas generation rose 11% while all other fuel sources declined with wind generation down some 6% year to date. In 2019, we expect retirements and gains by natural gas to continue to weigh on coal demand.
On the other hand, strong seaborne pricing provides an outlet for U. S. Thermal exports. I'd now like to turn things back to Amy to discuss expectations for the upcoming quarter.
Thanks, Glenn. We are anticipating a strong second half of twenty nineteen that will contribute more than half of our full year adjusted EBITDA. PRB, seaborne met and seaborne thermal volumes are expected to escalate throughout the back half of the year. In addition, met coal costs are expected to decline from elevated Q1 levels. 2nd quarter performance is expected to be impacted by 2 longwall moves in Australia and PRB shipments are targeted to be in line with the Q1 as rail recoveries offset typical shoulder season demand.
We are expecting strong seaborne thermal shipments and in line with this are increasing our full year guidance range by 250,000 tons at the midpoint. Given elevated met costs in the Q1, we are tightening our met coal cost guidance to $90 to $95 per ton. Related to North Goonyella, in the Q1, we completed segmenting of the mine into multiple zones to facilitate a Phase 3 ventilation and reentry. In addition, all physical activities in advance of reventilating the first segment of the mine have been completed. Gas readings are at acceptable levels and we are currently complying with the directive concerning documentation from the Queensland Mine Inspectorate following a thorough review.
This has resulted in a multi week delay to our initial project plan. Should our re ventilation and reentry plan now progress as originally contemplated, we would expect to produce approximately 2,000,000 tons from North Goonyella in 2020. If further delays occur, we will evaluate our plans, including longwall production targets, quarterly project costs and capital expenditures. From a cash perspective, we pushed out some project capital spending, primarily related to the Wambo JV into 2020. As a result, we've lowered our 2019 CapEx guidance to $350,000,000 to $375,000,000 And we are continuing to accelerate cash collections to support reclamation and post retirement liabilities at Kayenta.
We remain focused on delivering results and generating value, and we believe we've done a good job of that this quarter. As discussed, we recognized the maximum allowable amount of the North Sea Nella insurance claim. We've lowered our capital guidance and raised our C1 thermal volume guidance. And we've delivered SG and A below our average quarterly rate. And while we flagged lower than ratable first quarter volumes, our expectations did not take into account the severity of rail issues.
Had PRB rails performed in the normal fashion, we would have generated over $275,000,000 of adjusted EBITDA this quarter. Furthermore, we remain committed to executing on our financial approach, generating cash, maintaining financial strength, investing wisely and returning cash to shareholders. On the heels of our highly accretive Shoal Creek acquisition, we are continuing to pursue opportunities to create substantial value for our shareholders. For some time now, we've discussed our strict set of investment filters and we will continue to employ these filters as we evaluate both internal and external investment decisions. In addition, we are committed to returning our shareholders an amount equal to or greater than our free cash flow in 2019.
And with that, I'd like to turn the call over for questions. Operator?
Yes. Thank We'll take our first question from Lucas Pipes with B. Riley FBR.
I wanted to first ask a question on the seaborne thermal coal side. I believe you said you sold 2,600,000 tons. So if I kind of start at the midpoint of the guidance range, I think you would sell about 9,700,000 tons over the remainder of the year, and then that would leave about 4,000,000 tons that are unpriced.
And I wondered if
you can give us some perspective as to what sort of quality this is, what sort of price we might be looking at? And then also just in terms of cadence, when do you expect how many volumes on a quarterly basis between now year end? Thank you very much.
Sure. So starting with our price position, in Q2 to Q4 of the year, we've got about 5,700,000 short tons of that price. That's at about $83 per ton. That does include some ATI 5 tons in that mix. But we are the balance of our tons to sell throughout the remainder of the year is weighted towards that lower quality spec.
So about 40% to 50% of our unpriced seaborne export volumes would be that Newcastle spec tonnage. If we look at our thermal volumes for the remainder of the year, we do anticipate while we have a longwall move at Wambo beginning this quarter, so that will depress volumes a bit But so we will see a ramp once again into the back half of the year, and that's a component of our second half of twenty nineteen comprising more than half of our EBITDA for the year.
Got it. That's very helpful. Thank you very much for that, Amy. And then switching to the domestic side, obviously, Q1 was impacted with the weather issues. And I just wanted to kind of put it directly.
Do you expect to make up the shortfall over the remainder of the year? So I think it was a roughly $20,000,000 impact or so. Should that all come back Q2 spread out over the course of the year? Or was this just lost EBITDA? Thank you very much.
Much. Yes. Well, no, we don't expect it to be lost EBITDA. As you saw through the chart that we outlined on the rail has started to recover already, so much so that we would typically expect Q2 to see a reduction due to the traditional shoulder period. We're probably expecting them to be about flat to offset that with the improved rail performance that we've been seeing.
So we would expect to look to recover most, if not all of those tons through the balance of the year, but it will take more than the Q2.
And Lucas, I would note that if you think about the impact that we saw in the Q1 as a result of this, It is because we've done everything that takes the coal out of the pit in these instances. So the mine got ready for the Q2 when we saw rail shipments improving. We stand by with coals in the pits ready to load out of the PRB. And as Glenn pointed out, we would generally see the sort of fall off as we move into April May and more mild weather. And this year, we're anticipating we're going to be about flat quarter on quarter.
What was unusual about what we saw as well was clearly probably the biggest impact in a month in the PRD in nearly 20 years. But what was unusual was where your customer was, was incredibly important. And unfortunately, looking at how that played out and with the predominantly depressed derail corridor being impacted by the flooding, it appears as though some people may have been better off than others as that worked its way through based on the location of where our customer deliveries were occurring through that month in particular.
Got it. Very helpful. I appreciate all the detail and best of luck.
Thank you.
We'll take our next question from Mark Levin with Seaport Global.
Great. Thanks very much. So a couple of quick questions. One about the cadence of EBITDA, particularly as it relates Q2. I think you mentioned 2 longwall moves in Australia, flat PRB shipments and a couple of other
I guess there are a
couple of other items. So when you if you were to use the $254,000,000 base, I realize there's a $34,000,000 insurance recovery benefit in there. But if you were to use the $254,000,000 base, what would Q2 or how would you expect Q2 to look just directionally versus Q1 from an EBITDA perspective?
Sure. So as you noted, a number of the moving parts, Mark, I mean, starting with obviously no insurance proceeds in the Q2. Thermal pricing has come off a bit as we go in from go from Q1 to Q2. That will be a factor. And we do have the 2 longwall moves in Australia.
A couple of positives that we're anticipating for the quarter is those flat PRB shipments, but those flat PRB shipments will be at a more ratable cadence than what we saw in the Q1. So that should improve our PRB costs going into the 2nd quarter. And then lastly, as we noted in our release, we are anticipating North Goonyella cost to come in more at the low end of the range.
Got it. And when you put all that together, does that look more flat or down? Or how would you kind of think about that just relative to the quarter?
I think so much of it is going to be dependent on the pricing that we see that it may be difficult to handicap that at this point in time and we also will need to see how significant that rail recovery is as we look from May to June.
Got it. Okay, great.
And then to North Goonyella for a second and some of the issues maybe that you flagged in the press release and in your comments. Can you maybe frame for us what a worst case situation looks like? It sounds like the bottleneck is administrative now, but maybe walk us through like what happens if things don't go the way we hope they do, which is to say that you're in the mine in weeks or months or whatever the case may be. But maybe explain what the bottleneck is and how we should be thinking about this if things don't go the way we want them to?
Sure. I'll work through that, Matt. So we've as we've indicated, we've essentially done all of the engineering, all of the activities required to be able to re ventilate that first segment. As Amy indicated, gas levels would support our ability to do that. So we are ready to go from our perspective.
The Queensland inspector who have been working with us as we continue to progress and develop the plans and done the activities on-site have asked to review a number of documents in terms of working through the details of that. That has put us behind some weeks and where we thought we would be. And it's difficult to sort of quantify how long that will take place. It could be imminent. It could be a little bit longer than that.
Our focus at this point is working through that process, responding to their request for information and then being able to everything's ready to flick the switch and to be able to re ventilate and that will enable us to monitor and then reenter the mine and have a better assessment. At that point, we look to reexamine the overall timing and sequencing on the project plan. But just to reiterate, we're ready to go. So we're just working through that what is the final part of the process.
Got it. And to be clear, there's been no rejection of the plan. It's just an administrative holdup. Is that the best way to frame
this point? It's nodding the I's and crossing the T's around supporting documentation with respect to CISLAD procedures and protocols that are on-site. We've had no feedback that it's not the right plan. We've had no feedback that anything additional from an engineering or technical perspective is required. The focus appears to be to ensure that we have a full and robust complete set of risk assessments and protocols to support the re ventilation and reentry process of this first phase.
Got it. And that's very helpful. And then just one last question as it relates to CapEx. I know you it looks like you spent a de minimis amount of CapEx this quarter so that there's a big CapEx spend to get to the even the bottom end of your range, Q2 to Q4. Amy, maybe how will that affect the trajectory of cash return Q2 to Q4?
Well, I'd say what it does, Mark, is even though we're anticipating larger EBITDA contributions in the back half of the year. It probably makes our free cash flow a bit more ratable over the course of the year based on the phasing of CapEx. We do have some chunky spending that we'll see over the course of the year, including some payments on the longwall to be installed at North Goonyella as we move over the course of the year. I think that the delay of the open cut JV into 2020 has provided us an opportunity to bring CapEx down over the course of 2019, which we see as a positive thing in terms of increasing our cash balances for shareholder returns over the course of the year.
Thank you. We'll take our next question from Chris Terry with Deutsche Bank.
Hey, this is actually Jeremy from SCC. Good morning. Good morning, Jeremy.
Regarding your seaborne thermal volumes, you have about 2,000,000 tons contracted out for 2020. That's about half
the level that you guys had at this point last year. So is this based on
customers and clients looking for lower prices in the future? Or are you guys actually trying to get towards more of a spot market
rate? So we generally contract out more than a year in two ways. The first would be tons that are priced under the JFY. So there will be some tons that are carried over from this settlement that we saw of $92 or $94 and into Q1 of next year. We also use our hedge book from time to time to lock in those tonnages.
And so this is more of a reflection of where that book stands today and not necessarily an indication of where demand stands in the market. And we do have one large DFI customer that's on a calendar year basis as well, which impacts that.
All right. Switching up to free cash flow. Of the $300,000,000 or so that you guys have returned so far this year, how much of that was generated in 2019 versus 2018? Just trying to figure out how much delay there would be in any kind of generation this year versus paybacks to shareholders?
I'm sorry. Could you repeat that question? I'm not sure I follow.
The $300,000,000 that you've returned to shareholders in the 1Q, how much of that was generated in 2019? Just trying to figure
out what you explained generation and the actual payback.
Sure. So I would say what we've done in Q1 is actually reduce our cash balances and increased our net debt position fairly substantially. So we generated free cash flow of about $162,000,000 in the Q1 and we returned over $300,000,000 of cash to shareholders over that same period.
Right. But of the 100 and 62 that was generated in 1Q, was any of that returned to shareholders yet?
I guess I would view the cash as fungible in the mix. So certainly, there will be working capital movements that are in that mix. Generally, we both collect and pay within 30 days of a coal shipment. So yes, there will be working positive working capital movements or working capital movements that go into that mix.
Okay. Thank you so much.
We'll take our next question from Scott Shere with Clarkson.
Good morning, everyone. I was hoping you could talk a little bit more about your thermal demand expectations, especially in the recent fall in international thermal pricing, it could result in more tons competing in the domestic market?
Certainly, you've seen imports come off in the U. S. That's not entirely unexpected. We've always viewed the U. S.
As a bit of a swing supplier and API2 has been their primary destination. We don't swim in those waters primarily. We're in the Asia Pacific area primarily through our Australia thermal coal shipments. Those have actually come they came down and then retraced pretty nicely. And in fact, that lower quality product is almost even with where it would have been a quarter ago, and we did see some easing and therefore some compression from the Newcastle coming down, which is something that was contemplated.
Now I will point out that, that Newcastle product is in a slight contango for probably 4 to 5 years running in what is a pretty liquid market out there. So having hit that floor and come back, it seems to have some decent legs to it.
And maybe I'd jump in there too because I think the question was on U. S. Thermal and clearly it probably wouldn't impact on PRB shipments to that degree. And then as we look at the Illinois Basin, that's probably going to be a question around the extent to which producers have hedged those shipments and maybe have take or pay commitments on the logistics train that may take place. So potentially that would move it out of the 'twenty nine issue to more towards the back end or into 2020 potentially.
But when we look at our Illinois Basin position, it's actually more of an Indiana position, we often refer to as a submarket within that activity, which focuses probably more on domestic customers and competition is within that basin versus significant export competition.
And just maybe to triple down on that, Scott, as it relates specifically to Peabody. We are fully committed in the Illinois Basin for the year at an average price of about $42 a ton. So we'll continue to watch these dynamics as it relates to API2 moving into 2020 beyond, but we feel very good about our position for 2019.
Great. That's excellent color. Thank you for that. Switching gears, could you talk about any potential for more M and A? Obviously, you guys recently closed Shoal Creek, but are there any other assets out there that look attractive at this stage as you kind of turn your focus to your seaborne portfolio?
Look, I think we've repeatedly said that our support position is to return cash to shareholders, but we've also been clear on what the way we would think about deployment of any reinvestment back into the business, be it sustainable capital, life extension capital, growth capital or M and A. And I think Shoal Creek represented a good example of the sort of things we'd be prepared to do, but they don't necessarily come along all the time. And I think we've also demonstrated that we're prepared to be disciplined in that front. But if there's another Shoal Creek asset, we'd be more than interested in looking at execution of that. And we've been clear, as I said, on our investment filters and we think a Shoal Creek type deal ticked all of those boxes as we've articulated.
But then going back, the full position is to return cash to shareholders and we've also been doing that in quite significant space.
Great. Thank you for that and thank you for taking my questions and good luck going forward.
Thank you. Thanks.
We'll take our next question from John Bridges with JPMorgan.
Hi, good morning, Gabriel and Amy.
Good morning, John.
Hi. I just wondered you mentioned DD and A coming down, which makes sense. I recall some longer term guidance, the DD and A and other amortization was coming down over the next few years, I just wondered if you could give us any sort of indication as to direction of those sort of long term charters?
Sure. So the most significant component that we see coming down over time is we do have sales contracts that were established in Freshstart that are amortizing over time. We'll see a chunk of that come off in 2019 and then that number will be cut by about a third as we move into 2020 and those sales contracts roll off in their entirety. The big movements that we're seeing in 2019 itself are truly around our two mines that are closing during the year, Kayenta being the largest impact of that, but also Millennium. And that's just being partially offset, not by large amounts, but being partially offset by the inclusion of Shoal Creek depreciation and depletion over that period.
Okay. That's very helpful. And then in your introduction, you spoke about high client hitting Mozambique. I'm not seeing a lot of comment from the company there, but what are you seeing in terms of exports from there, especially given that they've had a second up the cycle in there?
Yes. They've certainly been coming up the curve the last year or 2 off of, obviously, a base of near 0, but probably no additional color except obviously our thoughts are with those who are affected from the cyclone. And it was just one more example of supply disruptions, which typically over the last couple of years have been exacerbated from a relatively benign period there and a sign of those supply demand conditions, which remain pretty snug out there on the net side.
We'll take our next question from Michael Dudas with Vertical Research.
Good morning, gentlemen, Amy.
Good morning, Michael.
Shoal Creek, so it seems like out of the box, very good asset for you. Can you just share a little bit about how productivity trends have been? And as you look through as transitioning to a Peabody asset from Drummond, has there been many major changes in structure or management there? And also just to remind us again the customer base and type of contracts that are being provided in that from the shipments that are out there.
So off well out of the gains as you've indicated and we're pleased with the strong quarter that they've had. And I didn't highlight they've also had a strong quarter from a safety perspective as well, which is probably the best news from our perspective. But production that. There has been 1 or 2 changes amongst my management and the team have really looked to embrace and work hard at integration across a number of Peabody systems and processes. And we've seen pretty good productivity to date.
Customers and contracts are Europe and Japan. In fact, we cover some of the same customers out of Australia as well. So there is a natural overlap around that and they tend to be longer term type contracts through that period.
Appreciate that, Glenn. And then my follow-up would be, you mentioned in the previous answer a previous question about M and A and opportunities there. But how are you look how do you look at what Peabody you said you had 23 minuteing operations contributing to results this quarter? How are you looking how those operations look over today in the immediate future relative to say what your plans were when you had your Investor Day, was it 1.5 years or so ago to looking at how that's all played out and what how that portfolio could maybe shift as we move through 2019 into 2020, again, trying to maximize the returns and value given some of the given what's going on in North Goonyella, etcetera, to maybe accelerate some of the generation and value creation?
Well, I think we've seen and we would have outlined 2 years ago and we've been consistently executing against that. Continue to see us reweight those investments towards the seaborne markets, seaborne thermal, seaborne net. The move into Shoal Creek was also a design not only in seaborne but to upgrade the quality that have taken place. It wasn't I think it was 3 years ago that at one point we were looking at the potential of nearly 5,000,000 tons of net coal. So I think that strategy has continued to be successful in its execution notwithstanding where we're at with North Goonyella and our focus is getting that mine back on its feet.
We've committed to life extension projects at Wolfendrome and at Wambo and you've seen those go through and you can understand with those average 40% returns why we're attracted to that in a high growth center. And we continue to work hard on the portfolio in the U. S. To ensure that it is generating cash, it is maintaining competitiveness. And the team has been executing that extremely well.
You look at their performance this year versus last year and adjust for the weather impacts, they've actually held up very, very, very strongly. Unfortunately, Kayenta, 2 years ago, we would have foreseen or would have desired that that plant, which is economic, and we think there's a compelling case, we probably didn't foresee the extent to which that would move out of the portfolio. And now we're looking at transitioning that mine into reclamation. So it's a good question in terms of the walk down memory lane, but I think it's an example of the team having to be consistently executing against the strategy that we articulated 2 years ago. And I think we're continuing to see many of those benefits today.
And clearly, part of our job is to be portfolio managers. And Shoal Creek is an example of that. I know we hit on this a lot, but recognizing we've been we've said for a number of quarters in a row that we have a desire upgrade our met coal portfolio. This was an opportunity to swap that in. So we see our opportunities as both what we have, but also opportunistically making portfolio moves over time to continue to increase the strength of the portfolio.
Thank you.
We'll take our last question from Lucas Pipes with B. Riley FBR.
Yes. Thank you very much for taking my follow-up question. Amy, I wanted to circle back on the supplemental dividend and kind of what sort of metrics you were looking at for returning capital that way versus buying back more stock, for example? Thank you.
Sure. So I would comment just as we think about the supplemental dividend and deploying that as a tool, we were very careful not to call it a special dividend. And I think it's something that our Board of Directors takes a look at our dividend levels on a periodic basis. In the Q1 specifically, although we like buybacks, we frankly favor them given our current share price. We recognize that to deploy capital in a large scale, it was going to be difficult given liquidity in the market at that point in time.
And so we saw this as an opportunity to show some flexibility in terms of how we deploy capital returns. And I think we wanted to be careful that we acknowledge that this was a supplemental and not necessarily a special.
Meaning there could be more supplemental dividends depending on circumstances?
What I would say is, although we favor share buybacks, at this point in time, we recognize that, one, it may not be possible to deploy the amount of capital that we want to deploy in that manner or cash flow projections frankly may change short term. And we have we talked about liquidity targets of being around $800,000,000 We've operated above those levels. And so we've tried to make strides over the last several quarters to operate at closer to that targeted liquidity level.
Got it. That's very helpful. Thank you and best of luck.
Thanks.
At this time, I'd like to turn the conference back over to our presenters for any closing and additional remarks.
Thank you, operator, and thank you for your questions and participating in today's call, everyone. To all of our employees listening today, I want to thank you for your persistent dedication to safety and operational improvements. And to all of our current and future investors, we look forward to continuing to create value for each and every one of you. We appreciate your continued support and interest in BTU. And operator, that concludes today's call.
Thank you for your participation. You may now disconnect.