Group 1 - Peabody Energy is a leading coal producer with 17 mining assets located in the US and Australia, focusing on thermal coal for electricity production and metallurgical coal for steel production [1] - Coal prices have cooled since the boom experienced in 2021/22, indicating a shift in market dynamics [1]

Group 1 - Peabody Energy is a leading coal producer with 17 mining assets in the US and Australia, supplying both thermal coal for electricity production and metallurgical coal for steel production [1] - Coal prices have cooled since the boom in 2021/22, indicating a shift in market dynamics [1]

Summary of Key Points from the Conference Call Industry Overview - **Industry**: China's Coal Segment - **Current Status**: The coal segment is in structural decline due to the energy transition, with thermal coal facing slight oversupply while coking coal is broadly balanced for the year [1][4] Core Insights - **Thermal Coal**: - Demand is expected to decline by approximately 1% YoY to around 4.17 billion tons (bnt) in 2025, driven by a 2.5% drop in power-sector coal consumption and a 6% decrease in construction-related consumption [3][19] - Total thermal coal supply is projected to increase by about 1% YoY to 4.3 billion tons in 2025, despite a 12% YoY drop in imports [3][18] - The average price of thermal coal has corrected by 22% YoY, with domestic prices hitting lows of RMB 677 per ton [18] - **Coking Coal**: - Supply is expected to remain flat at approximately 592 million tons (mnt) in 2025, with demand also flat at 591 mnt, supported by stable pig iron production [4][22] - The market is expected to face rising supply pressure in the coming years, despite current balance [4] Policy Context - **Regulatory Environment**: The current industry backdrop is different from the 2015 supply-side reform, with fewer loss-makers and greater consolidation. The share of output from large, advanced mines has increased, making broad cuts unlikely [2][16] - **Safety and Environmental Checks**: Supply discipline is more likely to come from tighter safety and environmental checks rather than blanket quotas [2][16] Stock Implications - **Investment Ratings**: - Shenhuo Coal & Power initiated at Overweight (OW) due to strong aluminum contributions [6][26] - Shenhua (H) remains OW, while Yankuang H is moved to Equal Weight (EW) and Yancoal Australia to Underweight (UW) [6][10] - China Coal (A) is rated UW, reflecting a weaker outlook [6][10] Risks and Opportunities - **Key Risks**: Implementation of anti-involution measures could lead to deeper production cuts, driving prices up for both thermal and coking coal [5][28] - **Other Risks**: Stricter inspections could lead to material supply reductions, while stronger-than-expected thermal power demand could increase coal demand [31] Additional Insights - **Market Preferences**: Coal is ranked lower among commodities, with preferences for copper, aluminum, and steel over coal [24] - **Dividend Yields**: Coal producers typically offer high dividend payouts, around 5%, which may attract yield-focused investors despite the structural downturn [27] Conclusion - The coal industry in China is navigating a complex landscape marked by declining demand, regulatory scrutiny, and shifting market dynamics. While coking coal remains relatively balanced, thermal coal faces significant challenges. Investment strategies should consider the potential for regulatory impacts and the overall commodity landscape.

Core Viewpoint - Peabody has terminated its purchase agreements with Anglo American Plc due to a material adverse change related to Anglo's steelmaking coal assets, following an ignition event at Anglo's Moranbah North Mine, which has no clear timeline for resuming production [1][2]. Group 1: Termination of Agreements - Peabody's decision to terminate the transaction comes nearly five months after an ignition event at Anglo's Moranbah North Mine, with no definitive timeline for resuming sustainable longwall production [1]. - The two companies did not reach a revised agreement to address the material adverse change that would compensate Peabody for the impacts on the acquisition [2]. - Peabody has also terminated the agreement for the related sale of the Dawson Mine to PT Bukit Makmur Mandiri Utama [3]. Group 2: Financial Implications - Anglo estimates holding costs at Moranbah North to be $45 million per month, with the mine previously targeted to produce 5.3 million tons of saleable production in 2025 [2]. - There is currently no timetable for the resumption of longwall production at forecasted volumes and costs [2]. Group 3: Strategic Positioning - Peabody's portfolio is well positioned with growing exposure to seaborne metallurgical coal, highlighted by the new 25-year premium hard coking coal Centurion Mine [4]. - The company intends to execute a four-pronged strategy for value creation, focusing on managing safe, productive, and environmentally responsible operations [5]. - Peabody aims to return 65-100% of available free cash flow to shareholders primarily through share buybacks, while maintaining a resilient balance sheet and exercising strong capital discipline [5].

Financial Data and Key Metrics Changes - In Q2 2025, the company generated $46 million of free cash flow and $203 million over the last twelve months, despite key commodities trading at or near operators' cost of production [6][7] - The net income for Q2 2025 was $34 million, with the mineral rights segment contributing $40 million in net income, a decrease of $13 million compared to the prior year [13] Business Line Data and Key Metrics Changes - The mineral rights segment's operating and free cash flow each decreased by $11 million year-over-year due to weaker coal markets [13] - The soda ash segment generated $3 million in net income, down $1 million from the previous year, with operating and free cash flow each decreasing by $3 million due to lower sales prices [14] Market Data and Key Metrics Changes - The metallurgical coal market remains under pressure with soft demand for steel and high coal inventories, leading to operators selling coal at or near production costs [7][8] - The soda ash market is significantly oversupplied, with prices below production costs for most producers, and expected to remain low until demand rebounds or supply rationalizes [10][11] Company Strategy and Development Direction - The company aims to pay off substantially all debt by mid-next year and increase unitholder distributions starting next August [7][12] - Future cash priorities post-deleveraging will focus on unitholder distributions, unit repurchases, and opportunistic investments [21] Management's Comments on Operating Environment and Future Outlook - Management noted that many operators are in better financial shape than in previous downturns, which bodes well for the industry [8][9] - The current market for key commodities is as negative as ever, but the company continues to generate robust free cash flow [11] Other Important Information - The company has not made significant progress on COVID carbon neutral initiatives, with the market for most C and I activities remaining stagnant [11] Q&A Session Summary Question: Are there opportunities to acquire additional royalty or soda ash assets post-debt repayment? - Management indicated that while the mineral rights market is fragmented and not very active, there are always possibilities for one-off transactions [19][20] Question: What are the priorities for cash after achieving a debt-free status? - Management stated that priorities will be unitholder distributions, unit repurchases at discounts, and opportunistic investments in assets at bargain prices [21] Question: Is there potential for other mineral opportunities across the company's land? - Management acknowledged the possibility of future opportunities but did not specify any current targets [22]

Summary of Key Points from the Conference Call Industry Overview - **Industry**: China Coal Sector - **Focus**: Coking Coal and Thermal Coal Core Insights 1. **Overproduction Issues**: - 22% of sampled coking coal mines are experiencing overproduction, impacting 26% of their volume [2][3] - 14% of sampled thermal coal mines have overproduction issues, affecting 3% of total capacity [4][7] 2. **Market Dynamics**: - The met coal price is expected to become attractive for imports when it reaches approximately Rmb1300/ton [2][3] - Thermal coal prices are projected to rebound to Rmb670/ton during the summer but may soften to Rmb610/ton by year-end [4] 3. **Government Policies**: - The National Energy Administration (NEA) and local governments are expected to implement moderate execution of overcapacity policies to balance production stability and local economic interests [3] - The tone from the Xinjiang NDRC appears more lenient compared to Henan and Ordos, indicating varying regional approaches to overproduction management [3] 4. **Production and Cost Analysis**: - The all-in cost for most Chinese met coal is between Rmb600-1,000/ton, leading to losses earlier in the year but returning to profitability recently [3] - Current daily output of met coal is approximately 1.9 million tons, which is 5% higher than the year's low but still 10% below the peak of 2.1-2.2 million tons expected in 2024 [3] 5. **Future Projections**: - The thermal coal production target for Shanxi is set at 1.3 billion tons for 2025, with 662 million tons produced in the first half of 2025 [4] - The expert anticipates a smaller volume impact from overproduction in the current cycle, at most 50% of what was seen in the previous cycles [4] Stock Implications - **Company Exposure**: - Among coal companies, Yankuang has the highest exposure to coking coal and coal spot sales, with 75% of its sales being spot sales, making it the most sensitive to coal price fluctuations [5] Additional Considerations - **Risks**: - Key risks include economic conditions, government policies affecting coal prices, and the balance of supply and demand in the coal sector [8] - Potential for higher-than-expected growth in fixed asset investment (FAI) in the coal sector and looser government policies could impact market dynamics [8] Conclusion - The coal sector in China is facing significant challenges with overproduction, but there are opportunities for price recovery and strategic adjustments in response to government policies. Investors should closely monitor these developments, particularly in relation to specific companies like Yankuang, which are more exposed to market fluctuations.

Financial Data and Key Metrics Changes - The company reported a GAAP net loss attributable to common stockholders of $27.6 million or $0.23 per diluted share, while generating adjusted EBITDA of $93 million [21][22] - Operating cash flow was $23 million, with cash at the end of the quarter amounting to $586 million and nearly $1 billion in liquidity [22][28] Business Line Data and Key Metrics Changes - The Seaborne Thermal segment recorded adjusted EBITDA of $33.5 million with 17% margins, despite a loss of 400,000 tons due to port congestion [22] - The Seaborne Metallurgical segment reported an adjusted EBITDA loss of $9.2 million, with 23% lower average realized prices year over year [23] - The US thermal mines generated $57 million of adjusted EBITDA, demonstrating stable free cash flows and low capital requirements [23] Market Data and Key Metrics Changes - In the US, coal fuel generation increased by 15% compared to 2024, driven by high natural gas prices and growing electricity demand [12] - Customer stockpiles decreased by 15 million tons, an 11% reduction from the previous year, indicating tightening supply and demand fundamentals [13] - Seaborne thermal coal markets are supported by hot summer weather in Asia, leading to reduced stockpiles and stronger bids [15] Company Strategy and Development Direction - The company is accelerating longwall operations at its Centurion mine, targeting startup in February 2026, reflecting strong execution across operations [5][6] - Recent US legislation is expected to provide significant benefits, including a reduction in federal royalty rates from 12.5% to 7%, anticipated to generate $15 million to $20 million in net benefits [8][9] - The company aims to manage the cyclicality of the market to capture outsized free cash flow when prices improve [20] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the recovery of the US coal market, citing strong demand and supportive legislation [7][11] - The company noted that while the seaborne price environment remains challenging, it is well-positioned to navigate these conditions [20] - Management highlighted the importance of controlling costs and maintaining a strong balance sheet during cyclical downturns [20] Other Important Information - The company is in discussions regarding the acquisition of assets from Anglo American, with ongoing disagreements over the material adverse change (MAC) status of the Moranbah North mine [29][48] - The company is advancing its rare earth element evaluation program in the Powder River Basin, with initial studies indicating potential elevated levels of rare earth elements [81] Q&A Session Summary Question: Can you provide more details on the MAC situation with Anglo? - Management expressed confidence in their MAC position, citing significant monthly carrying costs and uncertainty regarding the mine's restart [35][36] Question: What is the status of discussions with Anglo? - Management confirmed ongoing respectful discussions but noted a fundamental disagreement over the impact of the MAC [47][48] Question: What should investors expect on August 19 regarding the MAC? - Management stated that the 90-day period to cure the MAC will conclude on that date, at which point they have the right to terminate the agreement [56] Question: Can you clarify the impact of the new royalty rate on costs? - The new royalty rate is included in the guidance, with expected benefits to costs in the second half of the year [68] Question: What is the expected benefit from the production tax credit for Shoal Creek? - The production tax credit is expected to provide savings of over $5 million annually, starting in 2026 [75] Question: How much cash is unrestricted and available to the company? - The company confirmed that the total cash of $586 million is unrestricted and fully available [89]

Core Viewpoint - Peabody Energy (NYSE: BTU) is identified as the largest thermal coal producer in the US and is considered undervalued, presenting a potential investment opportunity despite the general aversion to coal stocks [1] Company Summary - Peabody Energy is the largest producer of thermal coal in the United States, which typically leads to skepticism among investors due to the industry's reputation [1] - The stock is described as genuinely mispriced, indicating that it may be undervalued compared to its true worth [1]

Summary of Key Points from the Conference Call Industry Overview - **Industry**: China Coal Sector - **Key Focus**: Upcoming inspections of coal mines in eight provinces to ensure compliance with production capacities [2][3] Core Insights and Arguments 1. **Inspection Requirements**: The National Energy Administration (NEA) will inspect coal mines for compliance with approved production capacities, particularly focusing on any monthly output exceeding 10% of the approved capacity from January to June 2025 [2] 2. **Overcapacity Concerns**: The overcapacity issue is less significant at the provincial level, with only Xinjiang exceeding 10% and Shaanxi over 2% in 2024. In 2025, only Xinjiang showed minor excess capacity in June [3] 3. **Market Impact**: The expected volume impact from inspections is modest compared to previous cycles, with a significant reduction in overproduction incentives due to current coal prices ranging from Rmb600-700 per ton [3] 4. **Coal Price Trends**: Historical data indicates that both coking and thermal coal prices rallied significantly in the second half of 2023 due to mine accidents and safety inspections, with expectations of sustained price increases amid uncertainties [4] 5. **Price Projections**: Assuming a volume cut of 5-10 million tons per month, a price increase of Rmb30-50 per ton (5-8%) for thermal coal is anticipated [4] Company-Specific Insights 1. **Yankuang Energy**: This company is particularly sensitive to coal price changes, with 75% of its sales being spot sales, making it the most exposed among its peers [5] 2. **Comparative Exposure**: Other companies like Shaanxi Coal and Shenhua have lower exposure to spot sales (40% and 20% respectively), indicating a varied sensitivity to price fluctuations [5] Additional Considerations 1. **Regulatory Risks**: Key risks to the coal sector include economic conditions and government policies that could affect coal prices and supply-demand balance, such as higher-than-expected growth in fixed asset investment (FAI) in the coal sector and looser policies on coal consumption [12] 2. **Valuation Methodology**: Different valuation methodologies are applied for companies within the sector, with targeted yield approaches for Shenhua and Shaanxi Coal, and a price-to-book value-return on equity approach for Yankuang [13] Conclusion - The coal sector in China is facing regulatory scrutiny with upcoming inspections aimed at controlling production capacities. While overcapacity issues appear manageable, coal prices are expected to remain volatile, influenced by market dynamics and regulatory actions. Companies like Yankuang Energy are particularly sensitive to these price changes, highlighting the need for investors to consider individual company exposures when making investment decisions.

Investment Rating - The industry investment rating is cautious [7]. Core Insights - Thermal coal prices remained unchanged with QHD 5500 at Rmb660/t, CCI 5500 at Rmb615/t, and BSPI at Rmb663/t as of June 27 [7][10]. - Coking coal prices saw a slight increase, with Liulin No. 4 mine-mouth price up 0.9% WoW to Rmb565/t [2][10]. - Inventory destocking continued, with QHD inventory decreasing 2.2% WoW to 5.65 million tons [2][7]. - Elevated rainfall in June, exceeding 1,000mm, may support hydro power generation recovery, potentially reducing thermal coal demand [3][7]. Summary by Sections Price Trends - QHD 5500 kcal/kg thermal coal price remained flat at Rmb660/t, while CCI 5500 kcal/kg was at Rmb619, showing a 0.7% increase WoW [7]. - Seaborne prices for NEWC thermal coal were flat at US$107/t, down 16.4% YTD [7]. - Coking coal prices remained stable for FOR at Rmb1,130/t and QLD at US$179/t [2][7]. Inventory Levels - QHD inventory decreased by 2.2% WoW to 5.65 million tons, marking a 14% decrease YTD [2][7]. - Bohai Rim ports inventory also saw a decline of 2.1% WoW to 28.2 million tons [2]. Weather Impact - China's average precipitation in June reached over 1,000mm, which could positively impact hydro power generation and negatively affect thermal coal demand [3][7]. Company Ratings - China Shenhua Energy has an Overweight rating, while Yankuang Energy Group Co Ltd has an Underweight rating [58].