Good morning, ladies and gentlemen, and welcome to the Peabody Q3 2021 earnings call. At this time, all participants are in a listen-only mode. Following today's presentation, instructions will be given for the Q&A session. If anyone needs assistance at any time during the conference, please press the star followed by the zero. As a reminder, this conference is being recorded today, October 28th, 2021. I would now like to turn the conference over to Alice Tharenos, President of Investor Relations and Communications. Please go ahead.
Good morning, and thanks for joining Peabody's earnings for the third quarter of 2021. With me today are President and CEO Jim Grech, and CFO Mark Spurbeck. Within the release, you'll find our statement on forward-looking information, as well as a reconciliation of non-GAAP financial measures. We encourage you to consider the risk factors referenced there, along with our public filings with the SEC. I'll now turn the call over to Jim.
Thanks, Alice, and good morning, everyone. Peabody had a very good third quarter with our results benefiting from current robust global coal market dynamics. Strong operational performance, coupled with increased seaborne pricing and global demand, yielded quarterly results we have not seen since 2018. We continue to advance actions to position the company to be resilient in all market cycles by expanding our margins, reducing our debt levels, and removing obstacles to increase production. I would like to start by thanking our global workforce for their continued focus on working safely and efficiently. We are excelling not only because of strong coal markets, but also due to the dedication and efforts of our talented workforce. Across the globe, we are seeing record coal index prices in each market segment and demand returning to near pre-pandemic levels.
The near-term market outlook for all our operating segments is favorable, with strong market indicators and increased global demand, providing a compelling story for coal and Peabody. The seaborne thermal and metallurgical coal markets are expected to remain tight in the near to medium-term as supply response to elevated demand remains muted, heavy rains in Indonesia, rail issues in Russia, production issues in Colombia, and hampered domestic supply in China. Additionally, gas supply constraints and low wind generation in Europe have all combined to exert positive pressure on the global thermal market, while a seaborne met market is being bolstered by robust steel production and decade-high steel margins and tight coal availability.
For 2022, with 2 million tons of incremental production expected at our met coal mines and thermal export production in line with 2021, we are well-positioned and are looking forward to taking advantage of this demand and the margins that we anticipate will come with it. In the U.S., thermal coal market indicators are also favorable with increased electricity demand and high natural gas prices leading to gas-to-coal switching and robust growth in coal generation as compared to prior year. Overall, electricity demand increased 3% over last year, with coal share of electricity generation increasing to approximately 23% for the first 9 months of 2021. As a result of increased demand and supply response, coal inventories have fallen by approximately 54 million tons year to date, the lowest level since 1997.
Natural gas prices at high levels this quarter that we have not seen since 2014, driving up coal generation demand. During the first 9 months, utility consumption of PRB coal rose approximately 30% compared to prior year. Tight supply and demand balances are leading to high forward prices for natural gas. Those forward prices and strong coal export demand are supporting expectations of continued elevated coal prices in the near term. At Peabody's PRB operations, we increased volumes and are trending towards the high end of our guidance range for 2021 and anticipate some incremental volumes next year. We currently have some uncommitted tons for 2022. However, given current demand exceeds supply, we're only selling those uncommitted tons under multi-year contracts. At our other U.S. thermal operations, we are ramping up volumes next year by approximately 2 million tons to meet increased customer demand.
Though we only have a small portion left to be sold for 2022 and for 2023. Now turning to the quarter, our operations were able to deliver projected volumes, offsetting the impacts of labor shortages and higher fuel costs. In addition, we continue to invest in the future with increased equipment refurbishments and mine development. Within our seaborne thermal segment, the Wilpinjong extension and the Wambo open cut JV development projects continue to advance with over $200 million of capital invested over the past three years. I'm happy to report the box cut development work was completed at both projects in the third quarter, and we anticipate the Wambo JV to operate at full production run rates in Q4.
Our seaborne thermal margins benefited from price increases of 66% in the quarter compared to the prior year, and the segment is on target to deliver higher export volumes in the fourth quarter as compared to prior quarters in 2021. Our seaborne met segment continues to deliver on efforts to expand margins through cost and productivity improvement initiatives as well as sales strategies. In the quarter, the CM JV complex in Metropolitan delivered 36% higher volumes at 16% lower cost per ton as compared to the prior year. The CM JV continued to realize productivity improvements at Metropolitan, and Metropolitan reached planned longwall production rates. At Metropolitan, we reached a long-term sales agreement that underpins the mine for the next three years, with pricing linked to seaborne met coal pricing. Importantly, both Metropolitan and Shoal Creek completed renegotiated labor agreements.
The workforce has been back at Shoal Creek since early October, and we expect to restart production later this year. The U.S. thermal mines delivered another solid quarter, generating significant EBITDA. Availability of labor impacted production at several of our U.S. mines this quarter, but we see this improving through programs that we have put in place. Finally, robust U.S. coal market dynamics have allowed us to build a strong book of forward business, the settlement of several long-term sales agreements at improved prices as compared to current levels. Notably, in addition to multi-year PRB contracts, we have reached agreements that will support the continued operation of our Twentymile Mine in Colorado for the next five years, and have signed agreements in the Illinois Basin with increased pricing through 2025.
Our globally diversified asset base, which makes us distinctly unique from many other U.S. coal companies, is allowing us to benefit from these market conditions. Our Q3 results were a confirmation of the value we can generate from our asset mix. During the quarter, we also continued to take actions to reduce our debt levels and raise cash through the issuance of common shares. To date this year, we have reduced our debt levels by approximately $250 million. We also took steps to reduce our closed mine and legacy liabilities through the sale of our Millennium and Wilkie Creek closed mines. These actions are part of our commitment to enhance our platform to be resilient in all market cycles. We are also progressing on multiple initiatives that will allow us to expand and improve near-term production.
As previously mentioned, Shoal Creek will be back in production later this quarter. At Metropolitan, the longwall is producing at full run rate, resulting in significant year-over-year increases to our seaborne met export volumes. Moorvale South, which will result in improved quality and extended life at our CMJV, is expected to be in production in the first half of 2022. In the U.S., we are implementing plans to produce incremental volumes at our mines in the near term by adding underground production units in the Illinois Basin and expanding development at our Wild Boar complex. In addition, in the PRB, we are refurbishing and relocating equipment to enable increased production. Our long-term strategy remains to reweight investments towards seaborne markets, maximize U.S. thermal asset cash generation, and enhance financial strength through debt reduction. I'll now turn things over to Mark to cover the financials.
Thanks, Jim, and good morning, everyone. Third quarter results demonstrated our ability to capture improved market conditions and generate substantial margins from our diverse asset portfolio. The thermal segments, both U.S. and seaborne, as well as our improving seaborne met segment, reported strong results. Third quarter sales were over $900 million, our highest in seven quarters, an increase by more than 30% from the prior year. Reported revenue was $679 million, net of $238 million of unrealized mark-to-market losses. Those losses primarily relate to economic coal hedges. At September 30, we had hedges on 2.9 million metric tons, the majority of which were contracted in the first half of 2021 and relate to 2.1 million metric tons of expected production at our Wambo underground mine.
These tons are expected to be mined and settled at a rate of 1.4 million tons in 2022, and 0.7 million tons in 2023. The hedge contracts support the profitability of the mine by securing average prices of $84 per metric ton through mid-2023 and are a key ingredient of a strategy to extend the expected life of the mine. The remaining tons relate to brokered coal transactions and other blending and optimization activities, which will settle beginning in the fourth quarter and throughout 2022. Net loss attributable to common shareholders totaled $44 million, including recognition of the $238 million of unrealized mark-to-market losses. We reported adjusted EBITDA of $289 million, more than double the $122 million reported in the second quarter, and three times the prior year result of $95 million.
Importantly, we took further action to enhance our financial strength, retiring an additional $93 million of senior secured debt in the quarter, resulting in a net gain from early debt extinguishment of $16 million. We also retired an additional $30 million after September 30. That brings debt retired this year to approximately $250 million, more than 16% of debt outstanding at January 1st. In the quarter, we raised net cash proceeds of $112 million by issuing 9 million shares of common stock under the At the Market Equity program. Subsequent to September 30, we raised an additional $39 million and issued 2.8 million shares.
Outstanding shares are now approximately 126 million, and we have about 5 million shares remaining available under the currently approved ATM program. At September 30, we had $587 million of cash and cash equivalents, net of $240 million of cash margin posted related to the economic coal hedges previously discussed. When these tons are sold, we will realize either the currently higher spot price or cash margin will reverse as prices decline toward the hedged price. Turning now to the segment results. The Seaborne Thermal segment generated EBITDA of $104 million and benefited from a $23 increase in average realized prices compared to the prior year. Costs per ton were higher than prior year due to lower production at Wilpinjong and the transition to the Wambo joint venture.
In addition to unfavorable exchange rates, higher fuel and royalty costs. Wilpinjong shipped 3.5 million tons in the quarter, including 1.6 million export tons at an average cost of $26 per ton. Wilpinjong realized average sales price of $42, resulting in EBITDA margins of approximately 40%. Wilpinjong recorded $56 million of adjusted EBITDA and had $145 million of cash at September 30. The Seaborne Met segment generated EBITDA of $57 million, with an average realized price of $120 per ton and costs of $82, resulting in 32% margins. Third quarter Met shipments were approximately 400,000 tons higher than last year due to higher production at Metropolitan and the CM JV.
Total costs for the Seaborne Met segment were lower by more than $15 per ton compared to prior years due to elevated costs at Shoal Creek in 2020, and this despite higher royalties, unfavorable exchange rates, and higher fuel prices in the current quarter. The continued improvement in costs and recent rise in international coal prices demonstrate the value of our Seaborne Met segment to the company's diversified portfolio of mines. In the U.S., our mines delivered $82 million of EBITDA, despite challenges with labor availability and COVID-related absenteeism impacting production at several operations. Our PRB mines shipped 22.7 million tons in the quarter at a 15% margin. The other U.S. thermal mines shipped a combined 4.5 million tons and generated 24% EBITDA margins.
Both the PRB and other thermal segment costs increased due to higher levels of planned equipment maintenance and higher fuel prices. In the PRB, higher overburden removal and weather events also impacted costs and production for the quarter. Looking ahead to the remainder of the year, we anticipate higher seaborne thermal volumes, including the 3 million export tons to 4 million export tons, of which approximately 50% are unpriced. Costs are expected to be lower than the third quarter as the Wambo Open Cut is at full production and Wilpinjong development is complete. Wilpinjong volumes are expected to be approximately 4 million tons, with 2 million export tons to finish the year with its strongest quarter. The Seaborne Met segment is expected to ship 1 million export tons to1.5 million tons in the fourth quarter, with 75% of those tons unpriced.
We anticipate production at Shoal Creek to recommence in the second half of the fourth quarter, with ramp-up continuing through the first quarter of next year. We are planning for PRB and other U.S. thermal volumes to be flat with third quarter levels and costs for both segments to be slightly higher in the fourth quarter due to mix. Fourth quarter cash flows are expected to increase substantially over third quarter levels as we continue to see favorable pricing in each of our segments and the cash margin related to coal hedges begin to reverse. Lastly, we will continue to be disciplined, taking advantage of strong markets, controlling costs, and further reducing debt. I'd now like to turn the call over for questions. Operator?
Thank you. Ladies and gentlemen, at this time, we will now begin the Q&A session. If you have a question, please press the star followed by the number one on your push-button phone. Your questions will be answered in the order they are received. If you are using a speakerphone, you will need to lift the handset before pressing the numbers. If you find your question has been answered, you may remove yourself from the queue by pressing star two. One moment please for the first question. We'll go ahead and take our first question from David Gagliano with BMO Capital Markets.
Hi. Excuse me. Thanks for taking my questions. I think maybe I'll just reach out to the 2022 world for a minute. In thermal, you've given us some information, but I was wondering if you could give us more detail on the, you know, the contracts that are committed in the Powder River Basin and the prices for those, you know, the average prices, the volumes that's committed, and how much is, you know, what's the average price for 2022 in the PRB? First question.
Hey, David. Good morning. Jim Grech here. I'd like to take this opportunity, since you're asking about 2022, is really just to talk about the whole portfolio addressing the PRB, but also our seaborne. First off, you'd asked about prices. Since we're still in negotiations for 2022 in many of our market segments, we aren't gonna comment on any specific prices associated with forward sales. We'll do so when we report our Q4 results. I will, in general, give you some ideas in the directions we're going. Starting with our domestic U.S., you asked about the PRB.
You know, we're trending towards the higher end of our forecast for this year as shown in our earnings release, and we expect that to be the base for our tons for next year, with upside in the 8,800 BTU area. We're still looking for volumes. We're still working on that upside volumes.
For next year, we have limited tons left for sale at that 90 million ton level. As I said in my remarks, we are selling them with multi-year deals. Now in regards to pricing for next year, for the tons that we do have sold, we have been layering in prices and sales through the whole year. We're not, you know, not selling at all at the current price decks that are out there. That is the case. Again, we do have unsold tons for next year at that 90 million ton level, and we are looking to improve upon those volumes, and we'll be able to comment on that more on the next call.
The other U.S. thermal that we have, we are going to take the base that we have from the projections and the earnings release and add about 2 million more tons of production on that. That coal is already sold, mostly for 2022 and 2023. In the U.S., again, we have some exposure to the market. We've been layering some of the sales in, and we do have some upside in our other U.S. thermal, and we're working on upside in our PRB ton. On the international, the seaborne gives us significant more market price exposure. Two classifications of coal that we have there are seaborne met and seaborne thermal.
On the seaborne met, all of our tons are unpriced at the moment, so we have completely open to the market next year on our seaborne met, and that's over 7 million tons of coal. On the seaborne thermal, about two-thirds of our tons are unpriced for next year, so are open to the market exposure for pricing next year. David, I think I tried to cover all of the segments there, maybe get all your questions all at once. Do you have anything else you'd like me to comment on?
Yeah. Okay. Thank you for that. Well, just a quick follow-up. Could you, for the PRB at least tell us, you know, you said, you know, shooting for 90 total. Instead of asking about the price directly, can you tell us, you know, how much you have left specifically to price? And then, you know, roughly when timing-wise you layered in the majority of the contracts that are already locked in?
On the layering in of the tons, that's been done since, I'll say mid-year to till now. I don't know the breakdown of mid-year till later in the year. We've been layering it in since mid-year till now. I think you know, probably we did a little bit more in the August-September timeframe, but I don't have that breakdown, David. As far as what's available to sell at that 90 million ton level, it's less than 10% of the tons that we have available to sell for next year still.
Okay. That's helpful. Thanks. Then just switching gears real quick, Shoal Creek, can you just talk about a little more detail on the ramp up, you know, incremental CapEx, expected cash costs, and volumes for full year 2022, please?
Okay. So, you know, we've signed that contract with the union, and that contract is going to go through the end of 2024, December 31st, 2024. It's a plus three-year contract. You know, the mine has been sitting for over a year. The startup, we're in the startup now. We started with safety training, you know, calling employees back to work and, you know, inspecting the equipment, inspecting the belts and all of that work started. We expect the longwall to start producing some coal sometime here in November.
That coal will be used, then we'll get that to the surface, and then we'll start commissioning our prep plant because there was extensive work done at the prep plant, which will result in improved yields for us. To get through all of that, getting it started up will be, you know, through the end of this year, and we expect to start hitting our stride towards the end of this year and in the first part of next year on the production levels. As far as capital for next year, it's just gonna be normal sustaining capital. Right now, we don't have any information to release on expected tonnages or costs for Shoal Creek for next year.
Okay. That's helpful. Thanks. Just real quick, I'm assuming that's all going to the export market. Can you remind us the quality of that coal?
Yeah, David, Mark, it is all going to the export market. I would say, given where the markets are today, looking forward to 2022, I'd be thinking that as kind of a High Vol A product for 2022. Historically, we've looked at it as a premium hard coking coal product and probably going out 2023 and beyond, I think of it that way.
Okay. That's helpful. Thank you.
Ladies and gentlemen, if there are any additional questions, please press the star followed by the one at this time. As a reminder, if you're using speaker equipment, you'll need to lift the handset before making your selection. We'll go ahead and take our next question from Lucas Pipes with B. Riley Securities. Please go ahead.
Thank you very much, and good morning, everyone. I have a quick follow-up question there on the domestic contract book. Jim, for 2023, how much of the PRB is open?
Lucas, I don't have that number with me. I know we've been selling for 2023 and 2024. When I mentioned multi-year contracts, we're going out 2023, 2024, maybe even a little bit into 2025, but we'll have to follow up with you on that. I'm not sure of the percentage that we have open.
Got it. I heard correctly that on other thermal, which I assume would be both Colorado and Midwest, that you're mostly sold out for 2023.
For 2022 and 2023, even though we've increased production by about 2 million tons a year in that segment or we're going to, it's pretty much sold out for the next two years. Yes.
Got it.
That would be our Midwest assets and Twentym ile.
Got it. Okay. No, that's helpful. I appreciate that. Then, maybe switching over to seaborne thermal. I believe you have about two-thirds open there, and historically, you've sold a lot of tonnage on the Japanese fiscal year. Kind of when would you be selling the remaining two-thirds of that business? I would appreciate your thoughts. Thank you.
Well, there's some percentage of it that are, you know, probably two-thirds of it I said was unpriced, of that. But some of that is sold, but, you know, it's related to index pricing, and then the rest of it is, you know, committed to market pricing. As far as the timing of that, you know, we'll lock that in the end of this year and in the first quarter of next year for the unsold amounts.
Got it. That's really helpful. Thank you. Maybe just a last one on the shorter term outlook. You provided really helpful kind of comments regarding Q4. Obviously pricing has been terrific in recent months, and I assume much of that would really flow through in full force in Q4. I wondered, is it possible to provide additional comments around adjusted EBITDA, free cash flow in Q4? You said substantially better, but I wondered in these unique times of high prices, if you could maybe help investors.
Lucas, Mark here. I'll try to take a crack at it. I think your question is really looking at fourth quarter, maybe starting with seaborne thermal. You know, we probably have 3 million tons to4 million tons of export. We have about 1.7 million of those tons priced at an average of $92. The rest will remain floating and open for pricing. From a seaborne met perspective, looking for about 1.3 million tons, as we haven't changed our guidance. We have a little over 300,000 tons priced at about $161, and 1 million tons then unpriced for the remainder of the year. Just for reference, Q3 was 1.5 million tons at $118.
Got it. The quality between PCI, hard coking coal. Would you be able to provide some color on that in terms of the quality breakdown of the unpriced met coal?
No, I don't exactly have that in front of me, Lucas. I think again, if you think about the one on the seaborne thermal side first, I think that you got to look at two things. One, Wilpinjong is really a high ash thermal, and it's sold at a 5%-20% discount to API 5. Wambo is truly a benchmark Newcastle product. And for the majority of the Wambo is unsold.
Got it. Okay. Well, I appreciate your color comments, and best of luck.
All right. We can go ahead.
Thanks, Lucas.
Take our next question from Nathan Martin with The Benchmark Company.
Hey, good morning, everybody, and congrats on the quarter, and thanks for taking my questions. I guess I'll start on the cost side. I think kind of the pricing side's been been discussed. Maybe, you know, you guys had a pretty material quarter-over-quarter decline in net costs in Q3. I think you said some of that was really due to high Shoal Creek costs a year ago. I guess the question is that number kind of repeatable here in the fourth quarter and beyond? Or do you expect your Shoal Creek ramp to kind of put some pressure on that number, given your full year guidance of $93 excludes Shoal Creek? Thanks.
Yeah. Nate, definitely saw great cost from the met segment in the third quarter. I think really two reasons for that. First, the ramp-up of Metropolitan to full production rates at the longwall really quarter-over-quarter improved that, as well as significantly higher production at Moorvale. You know, Moorvale is it tends to be lumpy. We were certainly on the low end and a higher production drove those costs lower. We haven't changed our overall full-year guidance on costs. It really was as planned and expected. These costs in the third quarter were particularly low for those two reasons.
Mark, regarding Shoal Creek, I mean, do you think that would tend to maybe pressure those costs a little bit in the fourth quarter?
Yeah. No question. As we begin to ramp up at Shoal Creek, there will be some higher costs that will be blended into that met segment. Would expect that to also put pressure on the fourth quarter results.
Got it. Thank you. Maybe if we just look ahead to 2022, any early thoughts on how costs for the different segments might trend there? You know, especially given some of the inflationary pressures we're seeing in the marketplace.
Yeah, two things. One, we're not providing cost guidance for 2022 today. We'll do that on our next call. Certainly inflationary pressures are being felt across the industry. We look at it on a couple of main factors. You know, labor is tight as well. Labor is probably 25% of our global costs. We use about 80 million gallons of fuel as well, so some higher fuel costs. Certainly steel. There's an impact to steel as well from some of the underground mines as well as the components and the equipment.
You know, as we're seeing these inflationary costs, it is really a part of the economy that is being felt very broadly. Fortunately, the higher margins that we're expecting to see here is more than offsetting those higher costs.
Got it. Makes sense. Maybe Mark, could you kind of remind us what percentage maybe of your costs are sales sensitive related for some of the different segments with prices, you know, seemingly.
Yeah. Broad brush stroke, I'd say from the seaborne side, about 10% of revenue is really royalty related and cost production. You know, in the PRB, with the federal royalties there, we're probably about 25%-30% on that number.
Perfect. Very helpful. Then maybe just finishing with a bigger picture question. Maybe Jim, can I get your thoughts around, you know, some of the headlines we're seeing in China regarding power shortages and maybe more recently, the talk of proposed thermal price caps and maybe how you see that playing out or affecting Peabody's business in that marketplace? Thanks.
Nate, good morning, first off. I have a few comments on that. You know, historically, Peabody has not sold much of our coal in China. In 2020, only about 2% of our product went to China. Obviously what China does with their coal and their policies affects the world markets. You know, our view is there's a policy, there's a lot of speculative trading that goes on in the markets, but we always go back to the fundamentals of supply and demand. You know, talk about price caps and so on. You know, the fundamentals are that demand is strong and we expect it to stay strong through, you know, through the winter at least and into next year.
The supply is constrained and any quick responses from supply is gonna be muted for a number of factors. If you take the speculative trading out of it, that you know adds a lot of fluctuations in the prices and announcements about price caps, you know, we still think the fundamentals are very strong for prices because demand is gonna be stronger than supply as we've seen right now, and we expect that to continue through next year.
Got it. Thanks. Thanks for those comments, Jim, and I appreciate the time and information. Best of luck to you guys in the fourth quarter.
Thank you, Nate.
We'll go ahead and take our next question again from David Gagliano with BMO Capital Markets.
Hi. Sorry to hop on again. I just have a few follow-ups here. I just want to clarify one thing. On the fourth quarter, the export thermal implied volumes that are on price, I think it's 1.3 million tonsto 2.3 million tons. How much did you say was Wambo versus Wilpinjong?
Yeah, we didn't answer. I don't have that number in front of me. Let us get back to you with that, David.
No, I have it. On Wambo, we have 0.3 of 300,000 tons, and at Wilpinjong, we have 1.2 million tons.
Okay.
I'm sorry.
Right. Okay, that makes more sense. Okay. I thought, yeah, I misunderstood. Okay, thanks. Then just on the other thermal business, yeah, it's visibility is pretty low in some of these regions in the U.S., and some of this could be going into the export market and, you know, Twentymile Mine, that kind of thing. I'm just kind of curious, can you give us a little more color on the pricing, given that it's sold out for the next couple of years, even at the higher volumes? Understanding proprietary issues, maybe you can just give us like a blended average price or something for the other thermal business. Some information if possible, how much of that other thermal is actually destined potentially for the, you know, the export market, if any?
Okay. I'll talk about the markets and, Mark, if you want to comment on the pricing after I talk about the markets. You know, first off, our other thermal, we have the El Segundo mine in there. We have the Twentymile Mine and then our Midwestern mines. There's quite a mix of markets and contracts that cover all of that. Again, it's you know, David, saying there's one price index or one thing that you can look at is tough because of the mix that we have in there. There was a small amount of Twentymile that went to export this year, earlier in the year when the market was softer here in the U.S.
You know, that was just. I'll call it a one-off. We don't expect to, you know, that to continue. All of that coal that we talk about is going to be domestic, you know, for U.S. consumption. We're not really gonna be exporting that. The forward sales that we have at the mines, again, Twentymile, the five-year extension we had is certainly going to take up almost all of the coal at that mine. That's domestic. Then in the Midwestern mines, you know, we've signed a contract for a large amount of that through 2025. Again, through 2023, it's all sold domestically to utilities in the Midwest. There'll be no export tons at any of those mines.
Again, the pricing, it's a little complex because of the mix of the mines that we have in that category. Again, I'm not sure that there's really a specific indices that we can point you to that says, "Hey, follow that for the pricing.
Right, exactly. That was really the point of the question on my side. That given the broad mix there and things like that, can you just give us, you know, just tell us the weighted average price that you've locked in with. Because I don't think it would give away any proprietary information, you know, within that bucket.
David, as we said, on our next earnings call, we'll give some color on forward pricing and costs and tonnages. We're not giving out any of that information right now because even though things are mostly sold, we still have negotiations ongoing. Until we close those out here, we're not gonna comment on the pricing for next year.
Okay. Just my last question on back to Shoal Creek for a minute for 2022. I understand the you know, the limitations on cost information at this stage. Obviously, there's quite a bit of capital that went into the mine. I'm assuming quite a bit of capital went into the mine last year or so. A lot of changes. You know, in terms of the cost structure, can you frame it perhaps within the context of you know, the rest of the you know, the seaborne met segment? You know, are costs at Shoal Creek likely to be on average higher in line or lower than the rest of the seaborne met complex?
David, it's Mark. Couple of thoughts. One, I mean, Shoal Creek has historically been on the higher end of that cost, so I expect it to be higher than the other met costs. I mean, when you look at this, I would just, you know, when you compare it to prior results that we had, prior to the temporary shutdown, we'd expect it to be higher temporarily as well. Remember, we're in probably less favorable geology, as we ramp this back up where we ended, so yields will be lower. We did invest capital, as you mentioned, in the plant to improve that. We'll certainly be looking at some higher costs as we start this back up.
Just duration of those higher costs, is that through 2022, or are we just talking about, you know, Q4 to Q1 and then fading to kind of a normal number after that?
I would say you'd expect it to be higher for 2022, reverting back to more normal run rates after that.
Okay. All right. Thanks.
All right. We'll go ahead and take our next question again from Lucas Pipes with B. Riley Securities.
Thank you. Thank you very much for taking my follow-up. Jim and team, I wanted to get your thoughts on the M&A environment out there. Are we more or less likely here to see maybe some consolidation in the space? This has been a really elusive subject over the last few years, but would appreciate your thoughts on that. Thank you very much.
Yeah. Well, you know, it's been elusive and one of the issues has been the availability of capital to, you know, to do anything, whether it's capital improvements or M&A. But Lucas, I would just think, along with Peabody and other coal companies, you know, I would just think as an industry in general, since everybody's liquidity is better and stock prices are improving, versus where it was a year or two ago, all of those things lend, you know, are tools that could be used to have more M&A than has been in the past. My belief is, as is many others, that consolidation does need to occur, in the markets. Just, you know, there's still even with these strong prices, there's still too many different players out there.
The cost structures, you know, the consolidation would do well on the cost side for particularly for the U.S. market. I think consolidation still needs to occur. Again, I'll say the industry in general is a lot healthier to do it with stronger stock prices and more liquidity. You know, the availability of capital is still a challenge for anybody in the coal segment.
When you think about your portfolio, are there areas where you'd say this is maybe less of a strategic priority than other areas that is more of a strategic priority? If you were to, you know, share with investors your thoughts as to how the portfolio could be optimized, would very much appreciate that.
Well, just, you know, a view on strategy, you know, for the company, I think the first thing that our company is focused on, and Mark said it and I've said it, is we have to pay down debt. That's the number one focus that we have is pay down debt. Once we pay down debt and become more resilient for these market cycles, which we think the volatility is gonna be more severe and more frequent than we've seen historically, because the supply side can't react as quick as it has historically. Our by far and away, our first strategy that I'd like to tell any investor shareholders is pay down debt. After that, we would be looking at organic growth off of our own assets.
We've talked about that both in Australia and the U.S. The tons that we're looking at for increasing next year, you know, are very low-cost tons. It's minimal capital investment. It's, you know, using equipment that we've had, sitting or refurbishing it, you know, and hiring the people, to run the equipment. The next part of that would be the organic growth off of what we have and maybe looking at picking up some reserves selectively to do that. The next part of that, I would say, Lucas, would be growing with our customers. I put that into a few buckets.
One of them is picking our customers in the industry. The industry is seeing the value of having longer-term relationships, longer-term contracts, because there are fewer players, even though there's more consolidation that needs to occur. We need to be capitalized, and we need to attract and retain employees at our mines, because these longer-term contracts will let us do that. When you start growing with the customers, there are other opportunities out there to look at different ways to do things with power generation, with renewables. We are a large surface property holder. All of those types of things I would say are growth for us and growing with our customers. Then fourth on that list, I'd get us down to M&A.
You know, what we would look at for M&A. You know, we do favor a weighting towards the seaborne markets. We think that, you know, that's where the growth is and the sustained demand both on the thermal and met. But in the U.S., we are also dedicated to the U.S. thermal markets. Even though it's in secular decline, we still think there are gonna be demand for the producers that are left as reliable producers. Again, in the U.S. markets, we're very comfortable with the assets we have and think they're well placed for, you know, what we see the future is of the coal needs in the United States.
Jim, I very much appreciate that. Again, best of luck. Thank you.
Thank you, Lucas.
Jim, it appears there are no further questions at this time.
Well, thank you all for joining us today. I'd especially like to thank our employees for remaining focused on safety and for continuing to execute on our various productivity and cost improvement initiatives. I'd also like to thank our customers, investors, insurance providers, and vendors for your continued support. Operator, that concludes our call.
This concludes the Peabody Q3 2021 earnings presentation. Thank you all for participating.