Executive Summary / Key Takeaways

• Strategic Transformation Underway: Peabody Energy is executing a dual-pronged strategy, pivoting towards a higher-margin metallurgical coal focus, exemplified by the Centurion Mine's accelerated longwall start-up, while simultaneously capitalizing on a robust U.S. thermal coal resurgence driven by increasing electricity demand and supportive policy.
• Strong U.S. Thermal Tailwinds: The "One Big Beautiful Bill" and executive orders are creating a favorable environment for U.S. coal, with federal royalty rate reductions for Powder River Basin (PRB) coal expected to yield $15 million to $20 million in net benefits in the second half of 2025, enhancing competitiveness and driving increased volumes.
• Operational Excellence and Cost Control: Despite market volatility and a Q2 2025 net loss of $(27.6) million, Peabody demonstrated exceptional cost management, with three of four segments beating targets, leading to improved full-year cost guidance for Seaborne Thermal and Metallurgical segments and a reduction in total capital expenditures to $420 million.
• Centurion Mine: A Future Margin Driver: The Centurion Mine's longwall production is now targeted for February 2026, ahead of schedule, positioning it as a low-cost, high-realization asset expected to generate the highest margins in Peabody's system, with approximately $100 million in remaining capital spend for its Southern District development.
• Anglo American Acquisition Terminated: Peabody terminated the planned acquisition of Anglo American's metallurgical coal assets on August 19, 2025, citing a Material Adverse Change (MAC) at the Moranbah North Mine, removing significant uncertainty and allowing the company to re-evaluate its capital allocation strategy.

A Century of Resilience: Peabody's Strategic Evolution in a Dynamic Energy Landscape

Peabody Energy Corporation, founded in 1883, has long been a foundational player in the global coal industry, demonstrating remarkable resilience through economic cycles. Operating 17 active coal mining operations across the United States and Australia, Peabody's core business involves the mining, preparation, and sale of both thermal coal, primarily to electric utilities, and metallurgical coal, essential for steel manufacturing. The company's strategic narrative is currently defined by a significant pivot towards high-margin metallurgical coal production, alongside a renewed focus on its robust U.S. thermal platform, which is experiencing an unexpected resurgence.

The company's history is marked by adaptive management, from early financial structuring like the 2017 receivables purchase agreement and the 2022 issuance of convertible notes, to strategic diversification into renewable energy through the R3 joint venture in 2022. This long-standing adaptability underpins its current strategy to maximize value from its diversified global portfolio.

Differentiated Technology and Operational Edge

Peabody's competitive advantage is deeply rooted in its operational scale, extensive reserve base, and continuous investment in advanced mining technologies. A prime example of this is the Centurion Mine in Queensland, Australia, an underground longwall metallurgical coal mine. This project is a cornerstone of Peabody's metallurgical pivot, leveraging modern longwall mining techniques for efficient, high-volume extraction. The company has consistently accelerated its longwall start-up targets, now aiming for February 2026, ahead of previous schedules. This accelerated timeline reflects strong execution across the operations team, with longwall shield installation planned for November 2025 and a target workforce of approximately 400 employees by early 2026.

The tangible benefits of Centurion's technology and operational design are significant. It is projected to have a low-cost structure and achieve among the highest realizations in the steelmaking coal universe, positioning it to garner the highest margins in the Peabody system over time. For investors, this translates directly into enhanced profitability and a stronger competitive moat in the premium hard coking coal market. The company has self-financed $540 million to date for Centurion's development, demonstrating its commitment and confidence in the project's long-term value.

Beyond traditional mining, Peabody is also exploring future technological differentiators. The company is advancing a second phase of its rare earth element evaluation program in the Powder River Basin (PRB). Initial studies with the University of Wyoming suggest that roof and floor strata adjacent to current mining seams at its North Antelope Rochelle (NARM) and Rawhide complexes could contain elevated levels of rare earth elements. These initial indications show concentrations that are "the same or better" than others reporting in the PRB. The strategic benefit here is the accessibility of these elements, as they are already being uncovered during the coal mining process, minimizing the need for new excavation. More sampling and laboratory analysis are planned for the third quarter of 2025, with the "so what" for investors being the potential for a low-cost, high-value byproduct stream that could further diversify revenue and enhance asset utilization without significant additional capital expenditure.

Competitive Landscape and Market Positioning

Peabody operates in a highly competitive global coal market, facing direct competition from major players like Arch Coal , CONSOL Energy , Alpha Metallurgical Resources , and BHP Group . Each competitor brings distinct strengths, shaping Peabody's strategic responses.

In the U.S. thermal coal market, Peabody, as the largest U.S. coal supplier, competes directly with CONSOL Energy (CEIX). While CEIX is known for its cost leadership and efficiency in domestic thermal coal, Peabody's extensive coal reserves and long-term customer relationships, as evidenced by the 50 million-ton, seven-year contract with Associated Electric Cooperative for PRB coal, provide a robust competitive advantage. Peabody's PRB operations have the "best reserve position" and "lowest cost reserve position" in the basin, allowing it to respond to increased demand with flexibility in tonnage while maintaining pricing discipline. This strategic positioning helps Peabody maintain strong operating margins in its U.S. thermal segments, even against CEIX's potentially superior cost structure.

In the seaborne metallurgical coal market, Peabody competes with Arch Coal (ARCH), Alpha Metallurgical Resources (AMR), and the diversified giant BHP Group . The Centurion Mine, with its projected low-cost structure and high realizations, is designed to give Peabody a significant edge in the premium hard coking coal segment. While AMR specializes in high-quality metallurgical coal with strong market responsiveness, Peabody's broader scale and planned logistics advantages in the Pacific Rim (even without the Anglo acquisition) position it to capture market share as global steel production shifts to Asia. Peabody's focus on enhancing coke quality and extending mine lives (averages of more than 20 years for its met assets) aims to drive increasing price spreads between premium hard coking coals and lesser grades, a thesis underpinning its metallurgical strategy.

Peabody's global distribution channels foster recurring revenue through long-term contracts, aiding its competition against larger, more diversified players like BHP (BHP) by exploiting gaps in their coal-specific focus. However, Peabody faces vulnerabilities from regulatory and environmental pressures and supply chain dependencies, which can impact costs and market access. Indirect competition from renewable energy companies and infrastructure providers (like MYR Group (MYRG), which builds electrical infrastructure for data centers) also presents a long-term challenge, as these alternatives could erode coal demand in utility sectors. Peabody's strategic response includes exploring renewable energy projects on reclaimed mine lands through its R3 joint venture, demonstrating an adaptive approach to evolving energy trends.

Financial Performance and Operational Momentum

Peabody's recent financial performance reflects a company navigating cyclical market conditions while executing a transformative strategy. For the six months ended June 30, 2025, Peabody reported a net loss attributable to common stockholders of $6.8 million, a significant decline from $239.0 million in the prior year. This was primarily driven by lower seaborne coal pricing and the absence of the prior year's Shoal Creek insurance recovery. Adjusted EBITDA for the same period decreased by 50% to $237.3 million from $470.2 million in H1 2024.

Despite these top-line pressures, operational discipline shone through. In Q2 2025, Peabody recorded a net loss of $(27.6) million, but generated Adjusted EBITDA of $93 million. Critically, three of its four segments delivered costs below company targets. The U.S. thermal platform, a beacon of stability, generated $57 million in Adjusted EBITDA in Q2 2025, with PRB sales volumes exceeding expectations despite heavy rainfall. The PRB segment improved margins by over $1 per ton year-over-year, generating $43 million in Adjusted EBITDA in Q2 2025.

The Seaborne Thermal segment recorded $33.5 million in Adjusted EBITDA and 17% margins in Q2 2025, even with a 400,000-ton loss due to port congestion, still beating cost guidance. The Seaborne Metallurgical segment reported an Adjusted EBITDA loss of $9.2 million in Q2 2025, reflecting a 23% drop in average realized prices year-over-year, though costs remained well below targets.

Liquidity remains robust, with cash and cash equivalents of $585.9 million and total available liquidity of $958.9 million as of June 30, 2025. The company's reclamation obligations are fully funded, backed by $847.1 million in restricted cash and collateral. Peabody remains committed to shareholder returns, having paid $18.3 million in dividends during the first half of 2025 and repurchased 23.8 million shares for $530.8 million under its $1 billion program, with $469.6 million remaining.

Outlook and Strategic Initiatives

Peabody is raising its full-year 2025 guidance, reflecting strong first-half performance and favorable legislative developments. Seaborne Thermal volumes are now anticipated to be 200,000 tons higher, with costs improving by $3 per ton to $45-$48 per ton. Seaborne Metallurgical cost targets are better by $7.50 per ton, now $115-$120 per ton. The PRB segment is increasing volumes by 5 million tons for the full year, with costs lowered by $0.63 per ton to $11.5-$12 per ton. Total capital expenditures for 2025 are reduced by $30 million to $420 million.

A major catalyst for the U.S. thermal business is the "One Big Beautiful Bill," signed July 4, 2025. This legislation reduces federal royalty rates on coal production from 12.5% to 7%, expected to generate $15 million to $20 million in net benefits for the PRB in H2 2025, significantly improving its competitiveness. Additionally, the bill provides a 2.5% production tax credit for eligible domestic coal used in steelmaking, benefiting the Shoal Creek metallurgical mine by an estimated $5 million annually starting January 1, 2026.

The Centurion Mine's accelerated longwall start-up in February 2026 is a key operational highlight. The mine is expected to produce approximately 0.5 million tons of development coal in 2025, ramping up to 3.5 million tons of longwall production in 2026. The remaining capital for Centurion's Southern District development is approximately $100 million in the second half of 2025.

In the U.S. thermal market, Peabody anticipates continued strong demand. U.S. coal-fueled generation was up 15% in the first half of 2025, taking market share from higher natural gas prices. Customer stockpiles are at their lowest levels since 2022, signaling tightening supply/demand fundamentals. The Twentymile Mine is expected to return to historical production rates in Q4 2025 as it moves to a new panel with better geology.

The Anglo American acquisition, which aimed to transform Peabody into a leading seaborne met coal player, was terminated on August 19, 2025, due to a Material Adverse Change (MAC) at the Moranbah North Mine. This decision, while altering the immediate growth trajectory, removes significant uncertainty and allows Peabody to re-evaluate its capital allocation.

Risks and Challenges

Despite the positive outlook, Peabody faces several risks. The termination of the Anglo American acquisition introduces uncertainty regarding future metallurgical coal growth, though it also removes the financial and operational risks associated with the troubled Moranbah North Mine. Market pricing volatility, particularly in seaborne metallurgical coal, remains a concern, as evidenced by the segment's Q2 2025 loss. While management sees "green shoots" and anticipates an upturn driven by Indian demand and Chinese policy adjustments, the timing and magnitude of a sustained recovery are uncertain.

Regulatory risks persist, both in the U.S. and Australia. While the "One Big Beautiful Bill" is favorable, ongoing EPA actions, climate superfund laws, and NEPA changes could still impact U.S. operations. In Australia, evolving industrial relations laws, native title, and cultural heritage legislation, along with the Aboriginal and Torres Strait Islander Heritage Protection Act, could lead to increased costs or operational delays. Operational challenges, such as geological issues at Twentymile and the accelerated closure of Wambo underground, highlight the inherent complexities of mining. Furthermore, foreign currency risk (AUD/USD exchange rate) and diesel fuel price risk can impact operating costs, although hedging strategies are in place.

Conclusion

Peabody Energy stands at a pivotal juncture, demonstrating a robust core business and strategic agility amidst a dynamic global energy landscape. The company's commitment to operational excellence and cost control has enabled it to weather recent market softness, evidenced by strong financial discipline and improved guidance for 2025. The accelerated development of the Centurion Mine, leveraging advanced longwall technology, underscores Peabody's determined pivot towards high-margin metallurgical coal, which is poised to become a significant earnings driver.

Concurrently, the U.S. thermal coal business is experiencing a powerful resurgence, driven by increasing electricity demand and supportive legislative actions that enhance the competitiveness and long-term viability of Peabody's domestic operations. While the termination of the Anglo American (NGLOY) acquisition removes a planned transformative growth avenue, it also eliminates a source of significant uncertainty, allowing Peabody to focus on its organic growth initiatives and disciplined capital allocation. With a strong balance sheet, a clear strategy to enhance shareholder value through both organic growth and capital returns, and a proactive approach to leveraging its technological and resource advantages, Peabody Energy is well-positioned to capitalize on evolving market dynamics and deliver sustainable value for investors in the years ahead.