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Highlights

PRB shipments down 22% on weather and flooding

North Goonyella loss offset by Shoal Creek

Houston — Despite drops in coal shipments and revenues in the first quarter driven by multiple weather and market related disruptions compared to the year-ago quarter, Peabody Energy executives remain optimistic about future global demand and need for coal, particularly in the developing Southeast Asian countries.

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"In 2019, we expect retirements and gains by natural gas to continue to weigh on coal demand. CEO Glenn Kellow said. "On the other hand, strong seaborne pricing provides an outlet for US thermal exports."

"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," Kellow said.

Peabody's total coal sales were 40.5 million st in Q1, down 16.1% from Q1 2018, while revenues for the producer in the first quarter were $1.25 billion, down 14.4% from the year-ago quarter.

Kellow noted "the first quarter of 2019 was marked by a series of the unusual needs and ...traditional coal flows were disrupted by flooding here in the US in the Plains states, port restrictions in China, wet weather and train derailment in Australia and a cyclone in Mozambique."

US THERMAL SALES DROP DRIVEN BY WEATHER

Peabody's total thermal operations sold 33.2 million st in Q1, down 18.6% from Q1 2018.

Powder River Basin shipments were 25.3 million st, down 22% year over year given winter weather and flooding affecting rail performance.

On the call, CFO Amy Schwetz noted "across the entire southern PRB, March shipments mark the lowest levels in over 20 years given these rail outages and delays."

"The good news is that the PRB largely seems to recover from these issues and customer stockpiles are at their lowest levels since 2014," Schwetz added.

The producer's Midwestern US operations shipped 4.2 million st, down 10.6% from the year-ago quarter, while its Western US operations sold 3.7 million st, flat from Q1 2018.

INCREASED THERMAL AND MET EXPORTS

Peabody's seaborne thermal segment shipped 2.6 million mt, at an average realized price of $80.40/st, up 24% from the year-ago quarter and driven by stronger operating performance from the producer's Australian Wambo complex.

The producer noted in its filing about 71% of Q1 thermal shipments were of higher-quality Newcastle specification.

Additionally, Peabody is finalizing sales agreements on about 2 million mt of thermal seaborne based on the annual benchmark April-to-March Japanese reference price settlement at about $94.75/mt, and about 5.7 million mt of Australian export thermal shipments have been priced at an average $83/st for the last three quarters of 2019.

In China, total imports in Q1 were in line with the year-ago quarter with higher met imports offsetting weaker thermal demand.

According to Kellow, "our Australian mines are well-positioned to meet the growing seaborne thermal demand centers. Over 80% of global seaborne demands stems from the Asia-Pacific region, even with customs clearance delays in China during the quarter.'

IDLING NORTH GOONYELLA OFFSET BY SHOAL CREEK MET SHIPMENTS

Peabody's seaborne metallurgical business sold 2.3 million mt, down 23.3% from Q1 2018, at an average price of $142.33/mt

Meanwhile, the loss in revenue and volume from the currently idle North Goonyella was largely balanced by the Shoal Creek mine, which shipped about 668,000 st in Q1. Shoal Creek, Kellow noted, was the top earner in Q1.

The producer projects global steel demand growth of 2% in 2019, slightly less than 5% growth last year, driven by increasing Indian demand.

LOOKING AHEAD

In the second half of 2019 the producer expects increased shipments from the PRB, seaborne thermal and met volumes, along with reduced met mining costs.

Thermal sales projections for 2019 from the PRB are 105 million st-115 million st a an average price of $11.25/st, ILB of 17.5 million st-18.5 million st at an average price of $42/st and Western of 11 million st-12 million st.

Met sales are expected to be between 9.4 million mt-10.4 million mt and seaborne export thermal is expected to be 12 million mt-12.5 million at an average $83/mt.

Australian domestic thermal sales are projected between 7 million mt-8 million mt.

In 2020, Peabody noted about 2.1 million mt of seaborne export thermal has been priced.

-- Olivia Kalb, olivia.kalb@spglobal.com

-- Edited by Jeffrey McDonald, newsdesk@spglobal.com

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