Good morning, and welcome to today's call discussing Peabody's agreement to acquire Tier 1 Australian metallurgical coal assets from Anglo American. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touch-tone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I will now turn the call over to Peabody's Vice President of Investor Relations, Vic Svec.
Okay. Thank you, Operator, and good morning, everyone. Thank you for joining today's call to take part in what we believe is a very exciting discussion regarding Peabody's acquisition of Anglo American's Tier 1 metallurgical coal assets. We do have formal remarks today. Those are from Peabody's President, the CEO, Jim Grech, and CFO, Mark Spurbeck. We're also joined today by Chief Marketing Officer, Malcolm Roberts, as well as Chief Development Officer, Pat Forkin. Following remarks, we will open the call up to questions, of course. And we do have some forward-looking statements and information today. You'll find our statement on forward-looking information in the presentation, and we encourage you to consider those risk factors that are referenced here, along with, of course, our public filings with the SEC. And with that, I'll turn the call over to Jim.
Thanks, Vic. It was just several weeks ago that we shared with you our excitement of bringing on the Centurion premium hard coking coal mine as the cornerstone metallurgical coal asset in Peabody's coal portfolio, reweighting our portfolio to more than half the company's cash flows coming from metallurgical coal over time. Today, I'm announcing another transformative step in our strategy to reweight our portfolio as we have agreed to purchase four world-class met coal mines from Anglo American, so let's look into some highlights of this transaction. First, we are acquiring premium hard coking coal mines in the best region for steelmaking coal in the world, the Bowen Basin. The four mines include Moranbah North, Grosvenor, Aquila, and Capcoal. We're projecting 11.3 million tons of saleable production from these mines in our first full year of production in 2026.
In addition, this transaction includes the undeveloped Moranbah South metallurgical coal project. Peabody is paying $2.32 billion in cash for the acquisition, including $1.695 billion at close, plus another $625 million in deferred cash over multiple years. I would add that we also have potential payments that are contingent on hard coking coal prices above $240 per metric ton, as well as the successful restart of Grosvenor. We already have in place committed bridge financing, which, as the name implies, will be replaced with permanent financing over time. We expect to close around mid-year 2025 and is conditioned on regulatory approvals, satisfaction of preemptive rights from minority-owned positions in certain assets, and other traditional closing conditions. If you're keeping score, please note that Anglo has already separately committed to a sale of the Jellinbah mine, which is not included in this acquisition.
Also, all of the numbers we are sharing exclude the Dawson mine, which is being acquired by BUMA. With those basics in place, let me tell you why we are so excited about this acquisition. Simply put, we believe we are acquiring generational assets that will deliver substantial shareholder value on both strategic and financial fronts. Let's review what makes the ownership so appealing. This positions Peabody as a leading seaborne met coal supplier, and we believe there are multiple factors that warrant a favorable re-rating of the company's stock over time. Importantly, this is an accretive acquisition across all periods, and the transaction occurs at an implied 3.1 times multiple of expected 2026 EBITDA.
These are tier-one assets from a quality and cost perspective as well as mine lives, and we're particularly pleased to have most of our met coal in close proximity to the largest and fastest-growing demand centers of Asia. We also note that the transaction enhances Peabody's margins and our performance through the cycle, and you will note some of the compelling economics on this slide. We believe there are some $100 million a year in synergies that we can capture from rationalizing offices and further optimization of blending logistics and equipment. We also believe that the strong cash flows of the acquired assets will accommodate continued shareholder returns. This positions us for strong earnings and value creation momentum for many years to come. Mark will talk about several of these points in a moment.
Now, I want to take a moment to recognize that these assets fit into our portfolio not just in a business sense, but also when it comes to values. At Peabody, safety is our first value, and I know we share that commitment to safety and sustainability with the team at Anglo. We look forward to welcoming these highly skilled employees to the Peabody team and successfully integrating these operations so that we continue providing high-quality steelmaking coal to customers around the world. Likewise, we remain committed to the strong ties that we have built in Central Queensland. These communities and the people who live and work there are important to the success of our operations.
The map on slide five shows that premium hard coking coal from the acquired mines, coupled with Centurion, are in a location that contain what is widely believed to be the world's best hard coking coals aimed at the seaborne markets. Premium hard coking coal is essential for coke makers to blend to the target range when they work to balance coke strength and yield as part of their blending activities. Furthermore, high-strength coke is essential for a high-productivity blast furnace and high-productivity coke making, enabling lower CO2 emissions per ton of hot metal produced. I'll refer you to the chart to get a more thorough sense of the premier coal qualities, the long reserve lives, and the rich resource base represented by these assets. You'll note that in addition to the three active operations including the Grosvenor mine, we are also purchasing the Moranbah South reserves.
The vast majority of the output of these mines is hard coking coal, and the rest is a variety of products in high demand by our customers. Assets in the ground include 306 million tons of marketable reserves and 1.7 billion tons of resources. And the average mine life is more than 20 years, quite meaningful when a number of the high-quality met coal mines in the world face short mine lives from depleting reserves. We believe the acquisition is equivalent to purchasing several Centurions, and we're pleased to be transacting with a company that shares Peabody's strong values for safety, sustainability, efficiency, and ethics. You likely don't need to convince you that Asia is a choice destination for hard coking coals, but consider this statistic. During the decade ending in 2023, Asia's steel demand more than doubled.
Steel demand in the rest of the world shrunk slightly during the same time. So it's helpful to target Asian customers and even more helpful when you are located nearby. Considering ocean freight rates to India over the past five years, U.S. and Canadian coals would face $21 a ton and $8 a ton of additional ocean freight costs relative to Australia, respectively, making Australian coals more competitive on a landed cost basis. I'll now turn the call over to Mark Spurbeck.
Thanks, Jim. It's great to be here today. I'd like to spend a little time reviewing how the acquisition positions Peabody on a go-forward basis. This first chart demonstrates that Peabody will move up multiple positions in the league tables of met coal suppliers on a pro forma basis. Peabody's met coal production increases significantly and puts us solidly into 20+ million tons of annual production, from which our core assets will have an average mine life exceeding 20 years, and it's worth noting that these values don't include full production for Centurion or any production from Grosvenor, which could produce another 3-4 million tons per year by itself. As you can see, Peabody's metallurgical coal sales will not only increase dramatically, but the related mix will sharply move toward higher quality coals, materially increasing the anticipated price realizations for the segment.
Looking forward, our metallurgical coal segment production will become half premium hard coking coal, a quarter PCI, and the balance a combination of other Australian coking coals, U.S. High-Vol A, and met coal byproducts. This presents an excellent mix of products that will enable Peabody to serve a wide spectrum of customers' steelmaking coal requirements. This transaction will reshape Peabody into a company that derives more than 90% of its earnings from the seaborne markets. We expect to generate nearly three-quarters of EBITDA from metallurgical coal supplied to the global steelmaking sector, with another 18% from the strong Asian thermal coal markets. This acquisition increases our earnings power tremendously. It is easy to see that Peabody's 2026 EBITDA could more than double from this transaction. Better yet, the nearly three-times increase in met coal reserves and resources provides tremendous longevity and upside potential to shareholders.
We believe today's announcement punctuates a deliberate and logical progression in Peabody's financial and strategic transformation. Since 2020, Peabody has focused on developing a strong and resilient balance sheet by reducing debt and fully funding final reclamation. We then turn to a more balanced capital allocation approach, returning capital to shareholders through share repurchases and dividends, while also reinvesting in our global portfolio of mines, primarily Centurion. Today, we are well-positioned to recharge our global coal portfolio in a foundational way and chose what we believe are the best met coal assets sold in Australia over the last several years. I want to touch on the structure of the acquisition and related financing. First, with manageable initial consideration of just $1.7 billion and the balance deferred and contingent, we've created a flexible financial foundation, which will allow us to prudently manage cash flow over the initial years of ownership.
We're pleased to have a committed bridge facility of over $2 billion from a consortium of lenders led by Jefferies, KKR, and other leading financial institutions. Before closing the transaction, we will take a measured approach toward permanent financing, utilizing a prudent blend of debt, equity, and other strategic options. Our goal is to keep us at or below initial gross leverage of 1.5 times pro forma EBITDA, and we feel very good about our access to the debt markets with this transaction. This is a significant change made possible by the first-tier quality of the acquired assets, premium hard coking coal mines with long lives serving an increasingly undersupplied market.
To conclude, we couldn't be happier as we improve the trajectory of Peabody in a most favorable way, building upon actions that have been executed over multiple years, establishing financial resiliency, restarting our shareholder return program, advancing the Centurion mine, and now acquiring a portfolio of world-class coking coal assets. We are confident that both the earnings and the multiple will benefit over time as we create a sustainable seaborne portfolio for superior value creation. With that, Operator, I'll turn the call over to you for questions.
Thank you. We will now begin the question and answer session. To ask a question, you may press star, then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. The first question today comes from Lucas Pipes with B. Riley Securities. Please go ahead.
Thank you very much, Operator. Good morning, everyone, and congratulations on this transaction. My first question is trying to understand volume and costs in a historical context. You provided attributable guidance in 2026, 11.3 million short tons. In 2023, what was the same? What was the production on an apples-to-apples basis from those two mines, and what was the production cost, cash cost per ton, including royalties? Thank you very much.
Lucas, it's Mark. First thing to be clear, all of the production and economics that we have mentioned is on an attributable basis, so that is net of any minority interests. I don't have the 2023 projections in front of me. What I can tell you is that the implied cost for these mines is in the $130-$140 per short ton range, which is pretty consistent with historical results.
Sorry, what was the recent production on an apples-to-apples basis?
I think there's a couple of things to think about. When you look at 2023, 2024, Moranbah North in particular was in a very different district and panel with different reserves. Productions were lower than what is anticipated both by Anglo and ourselves going forward. So we're back into a district where they have produced these kinds of levels of production from Moranbah. We're looking at probably somewhere between five and five and a half million tons per year from Moranbah going forward.
So it's really kind of Moranbah stepping back up that's driving both the volume and the cost improvement in 2026.
That is correct, and to be clear, all of these projections have nothing in it from Grosvenor. We've assumed zero for now, obviously a premier mine and one of the crown jewels that we anticipate coming back online, but with all the uncertainty and unknowns, that's been excluded from the analysis to date.
Thank you. And that is my second question. What would you expect in terms of a timing of a potential restart and also the capital cost to restart that operation? Thank you very much.
Yeah, Lucas, it's still a little premature for us to get into exact timing and capital cost as obviously we don't own the mine yet and haven't been able to get in and I'll just say that we're not willing to give that in detail at the moment yet. There are some numbers that have been out there that have been thrown around, but we don't have official numbers of our own yet to look at. We do feel that with our experience with the Centurion mine and working with the regulators at the Centurion mine and the expertise that we've built up in bringing that mine back, working with the regulators and physically what we've done to the mine to degas it and make it a safer mine going forward will be directly applicable to the Grosvenor mine. And so we're going to help us with that restart.
Yeah, maybe Lucas, I will add that the initial assessments from Anglo do indicate that there's limited structural damage, but a full reset and some new equipment are going to be required to resume the underground longwall mining. Post-acquisition, Peabody will work very closely with the Mines Inspectorate to safely accommodate reentry. Then maybe lastly, just a reminder that the consideration payable for Grosvenor has been structured as contingent upon that mine reopening. So nothing upfront, $450 million of consideration completely contingent upon reopening that mine. And again, that mine is capable of producing three to four million tons of premium hard coking coal by itself.
Understood. That's very helpful. Real quick, one on capital structure, capital returns. If I heard you right, Jim and you prepared remarks, you commented on the desire to continue capital returns, and I just wondered if you could speak to priority of deleveraging versus buybacks. I noted you also highlighting a potential sell down in the slide deck in the presentation there, so wondering how this might all come together. Thank you very much.
I'll comment on the potential sell downs and then Mark will comment on the other aspects of the question you had. And the numbers that you see in all the projections that you've seen don't anticipate any sell down in any of these assets. Or I shouldn't say that. Yeah, don't anticipate or don't have any numbers in there representing any sell down of these assets or of our Centurion mine as well. But we are open to discussions for the proper value received. We certainly take a look at potential minority stakes in any of those assets. But again, the finances show that we don't need to do that, but we are certainly very open to those discussions with not only these assets, but the Peabody assets, most notably the Centurion mine.
Yeah, maybe Lucas, I'll add that from a shareholder returns perspective, we will continue the dividend throughout the closing period. Post-transaction closing, the flexible consideration arrangements are anticipated to be paid fully and entirely from the acquired cash flows throughout the deferred payment period. We anticipate continuing the shareholder return program based on available free cash flow.
Gentlemen, I appreciate this caller. All the best of luck. Thank you.
Thank you, Lucas.
The next question comes from Katja Jancic with BMO Capital Markets. Please go ahead.
Hi. Thank you for taking my questions. Maybe just to confirm, Mark, I think you mentioned the cost in the range of $130-$140 per ton. Does that include royalty assumptions?
Yes, that $130-$140 is on a short ton basis and includes all royalties.
Perfect. And then maybe shifting gears to CapEx. I know you can't comment on the Grosvenor right now, but let's say on a pro forma basis, what would be kind of the maintenance CapEx for the full portfolio?
Yeah, I think, Katya, there's probably a range of 200- 250 a year on the acquired assets.
And then maybe just lastly on the permanent financing, I know Jim, you mentioned you don't really have any information right now or data on selling some of the minority interests. But initially, you did kind of mention that permanent financing could be a combination of debt and equity. What is your willingness to issue equity at this point?
Katya, we're going to look at all of the different levers we have to pull financing. Again, with the flexibility we have in this financing, the upfront cash of the $1.625 billion we feel is very, very manageable. With the cash we have on hand, certain high-yield notes, term loans, and the possible minority sales of Centurion are all things that we would be looking at, which would obviously mean less equity, if any, needs to be used. Yeah, Katya, maybe I'll refer you to page 11 of the presentation in that permanent financing. The order of those alternatives are probably an order of preference. So really looking at secured notes and those minority stake sales as being a key driver here, potentially doing some equity linked or even common equity. But we also have some strategic alternatives in the reclamation bonding.
So we will look at all of the options, as Jim mentioned. We'll pick a prudent mix depending on the terms and market conditions as we go to market here soon.
Okay. Thank you.
Thanks, Katya.
The next question comes from Nathan Martin with the Benchmark Co. Please go ahead.
Thanks, Operator. Good morning, everybody, and congratulations on the announcement. Maybe could we get a little bit more detail around what you are including in the potential $100 million of synergies and when those are anticipated to be realized?
Yeah, there is a combination of looking at blending, looking at logistics, looking at marketing, looking at organizational synergies. So it's all of those things: marketing, logistics, organizational. And that's on a full-year basis. So depending on when we close, there will be some layering in of that over time. But we fully expect to have them as quickly as possible in the time frame. So if we're looking into next year sometime closing, our goal is to have most, if not all, of those synergies in place for 2026. Of course, it'll depend on the closing time, but that's our expectation at the moment.
Okay. Great, Jim. Appreciate that. And then maybe talking about the closing, could you maybe highlight some of the potential closing conditions you'll need to satisfy as well as any more details on that timeline? Do you foresee any issues from a regulatory perspective?
We have to get the FIRB approval, and then we have to get some regulatory approval from international markets that we go to. Right now, we think we're going to be in good stead with all of those markets, of course, or all of those regulatory agencies that we need to go to. And then there is, of course, for the minority owners, they do have preemptive rights if they do elect to choose them. And we have to go through the process with them. And so that all leads to the timeline we're thinking of there of June, July next year closing as a pretty reasonable timeline.
Okay. Thank you. And then maybe when we just think about the assets that you're acquiring, you guys said EBITDA margin per ton $65-$70, roughly 11.3 million tons. So we can kind of back into an assumed EBITDA estimate for these assets. But is there any way you could help us bridge the potential free cash flow? I think, Mark, you just mentioned in a prior answer sustaining CapEx maybe $200 million-$250 million. Anything else there to consider? And also, what kind of legacy liabilities are you guys going to be assuming in this transaction? Is there any cash outlay there?
Nate, I think you got the key markers on the free cash flow. Nothing really to add from that perspective. That's at the assumed $225 million benchmark price. We look at this. We think a better way to look at this is probably more on a probabilistic basis. Given the change in the markets and the volatility that we've experienced in the hard coking coal prices in the last decade, probably somewhere between $120 and $380 a ton, we look at this on a probabilistic basis. We think the free cash flows will be much richer than that margin on a per ton basis. I think on a $225 flat price, we'd look to make all the deferred payments and probably generate another $300 million of free cash flow over that five-year deferred and contingent period.
On a probabilistic basis, taking in that volatile pricing, it's probably making all the deferred and contingent payments and generating $850 million of free cash flow on top of that over that initial deferred payment period, so I think we got to look at it both ways. That just underscores the upside optionality that we're bringing to our shareholders, not only in those first five years, but over the 20+ years of reserve life and probably three or four times that kind of life on a resource basis.
Okay. That's helpful, Mark, and then just any comments on legacy liabilities you guys are going to be assuming in this transaction?
Yeah. I think there's nothing out of the ordinary. From a reclamation perspective, it's about a $230 million liability.
Okay. Got it. Thanks. I'll leave it there. Appreciate the time and information, guys.
Thanks, Nate.
As a reminder, if you would like to ask a question, please press star, then one to enter the question queue. The next question comes from Chris La Femina with Jefferies. Please go ahead.
Hey, guys. Thanks for taking my question. Just had some question on the cost guidance. And first, just quickly on the synergies. I assume the 100 million of synergies is fully reflected in the EBITDA per ton of $65-$70, right? That's fully included there?
That's correct.
So if I look at Anglo's kind of prior costs at these assets, I think first half of the year their C1 cash costs were $125 per metric ton. The royalty was $55. It was at a higher price. So the royalty would be lower today. But the guidance for the second half of the year implied C1 cash costs, I think, north of $140 per metric ton. And when you add the royalty at $225, you're at something like $180. And so at a $225 per metric ton price, I would assume the margin per ton would be like $45, $50 per metric ton and lower on a per short ton basis. Now, some of that incremental margin you're referring to, I guess, comes from synergies. But I just want to understand the cash cost guidance that you're providing versus what Anglo provided.
I mean, obviously, Anglo is dealing with the Grosvenor situation, and that's affecting costs to some extent in the second half of the year. So my question really comes down to the confidence you have in your cost guidance versus what Anglo had guided to in the second half of the year.
Yeah. Chris, one thing we got to keep in mind, and I think I mentioned it previously, the production and the costs at Moranbah North is a very different look. It's a very different district. Higher production, lower costs on the overall portfolio. So that's probably the biggest driver there. And the guidance you're quoting from Anglo is just for the second half of 2024. We're looking out to the end of 2025 and 2026. So that's probably the difference.
Got it. And then just on Moranbah North and Grosvenor, obviously, they were part of the same complex, basically. We haven't seen reported financials from Anglo since Grosvenor has gone down. So just wondering what sort of risks are the risks around the costs at Moranbah North without Grosvenor in operation? I mean, obviously, you're fully accounted for that in your own guidance, but do you feel comfortable with the cost structure there as a standalone asset without Grosvenor being online?
Yes, absolutely. Some of that infrastructure is shared. It'll obviously help when Grosvenor does come back online. But our projections are without Grosvenor and fully confident in that.
Okay. That's all from me. Thank you very much. I appreciate it. Bye.
You bet, Chris.
I will now turn the call back over to Peabody's President and CEO, Jim Grech, for closing remarks.
Thank you, Operator. And thanks to the entire Peabody team in the United States and Australia, which is working every day to be safe and productive and has been putting in extra hours on value-adding initiatives such as the startup of Centurion and the acquisition of these premium coal assets. This is an exciting day for us. And as I said, we're looking forward to integrating these operations into our portfolio and continuing to practice safety, sustainability, and integrity every day. We appreciate everyone's time this morning and look forward to keeping you apprised as the acquisition reaches key milestones. Thank you.