Peabody Energy Corp (BTU) 2008 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Peabody Energy quarterly earnings conference call. For the conference all the participant lines are in a listen only mode. However, there will be an opportunity for your questions and instructions will be given at that time. (OPERATOR INSTRUCTIONS) As a reminder today's call is being recorded. With that being said, I'll turn the conference now to Mr. Vic Svec, please go ahead, sir.

Well, thank you, John, and good morning, everyone. Thanks for taking part in the conference call for BTU. Today our Chairman and CEO, Greg Boyce, will provide an overview of Peabody's opportunities and our outlook. Our new Executive Vice President and Chief Financial Officer, Mike Crews, will review the very strong quarter. And President and Chief Commercial Officer, Rick Navarre, will discuss our position within the terrific markets and our major projects. I'll remind you that forward-looking statements should be considered along with the risk factors that we note at the end of our release, as well as the MD&A section of our file documents. And we also refer you to PeabodyEnergy.com for additional information. And I will now turn the call over to Greg.

Thanks, Vic, and good morning, everyone. We've got an outstanding quarter we'd like to review with you today. For starters, Peabody has just completed its best quarter based on a number of financial measures. We've also set one additional record, the safest first half in our 125 year history. I want to applaud the 7000 members of the Peabody team for this excellent performance. You'll hear more on our specific results in a few minutes. I'd like to focus on the global energy and coal markets and why they will continue to push our results higher in the months and years ahead. With recent oil and gas prices near record levels for even the long dated products, the world is turning to coal in growing amounts. That is why coal remains the fastest growing fuel in the world for each of the past five years. Within the global coal markets the dynamics we first told you about years ago are only growing stronger.

Global coal demand is growing in both the thermal and met front, even as some of the largest coal producing nations either can't export more or are limiting exports to fuel internal growth. Global steel demand continues to grow at 6% per year, requiring ever more met coal. And new coal fuel generation is being developed in scores of nations around the world. All this leading to a 7% compound growth rate in seaborne coal demand. On the supply side, major coal exporters are straining to keep up against this sustained demand growth. All aspects of the coal chain are under pressure and more nations than ever are seeing the valuable resource that their coal represents, forcing coal suppliers to keep greater amounts of coal at home. Combined ,these effects are driving continued record prices.

And we believe global supply and demand is even tighter than many think due to severe stockpile shortfalls around the world in places such as China, India, Indonesia, and South Africa. The global market fundamentals create significant opportunities for Peabody through four areas -- Peabody's unmatched global platform; our ability to reprice legacy contracts; our organic growth potential; and Peabody's strong cash flow profile. Let me briefly address each one of these elements. First, the global platform that we have built in the past five years has transformed the Company in size and scope. We are beginning to realize the benefits as noted by our substantial increase in financial targets earlier this year and the benefits will be even more pronounced in the years to come. Five years ago just 1% of our earnings came from outside the US and now this is more than half.

Our investments in the Midwest, Colorado, and of course, the Powder River Basin are also providing major and growing contributions. Second, the benefits to our earnings as we reprice former contracts in the new market environment will be considerable. These too are just starting to flow through our 2008 results. Our EBITDA margin in the second quarter was 29% and we expect it to continue to increase. Third, our current initiatives are aimed at capitalizing on our leading reserve base, reducing costs and expanding our ability to move coal to the markets. We have growth projects in every region in the US and Australia. We are investing in infrastructure to accomplish our goal of moving every possible ton to market and we are proceeding with initiatives to increase longer term growth through emerging regions and markets.

Finally, you could expect that Peabody's cash flows will be growing in coming years. This gives us flexibility to reinvest to serve high growth markets, further reduce debt or return the cash to you. We will continue to target our best return opportunities, while we focus on delivering on the commitments we've made. These commitments include plans for a very strong second half on even higher earnings than the first. We are now targeting full year EPS of $2.50 to $3.00 per share. On EBITDA $1.6 billion to $1.8 billion. We are reaffirming our prior production targets both in the US and, more importantly given the constraints, Australia. In summary we're seeing record coal prices, sustained growth in coal demand and an improving competitive advantage for coal over other fuels.

More importantly, Peabody has expanding margins from a growing platform and improved pricing. We have the ability to reprice the majority of our production over the next several years at levels significantly higher than current marks. Simply put, it is a great time to be the world's largest coal Company. I'll now turn the call over to Mike Crews. After we named Rick as President and Chief Commercial Officer in January, we conducted an extensive internal and external search to fill the CFO post. And I am very pleased to welcome Mike as our new Executive Vice President and CFO. Mike has ten years experience here with Peabody and nearly two decades of financial experience. He's a great addition to the team. He'll review the quarter in detail and tell you more about his priorities as the newest member of our senior team. Mike.

Thanks, Greg, and good morning, everyone. I'm happy to be here as Peabody's new CFO and I look forward to working with each of you. There's no better way to begin my tenure then by reporting a series of quarterly records. Let me begin with a review of the income statement. Second quarter revenues totaled $1.53 billion, 43% above last year on a combination of higher prices and volume throughout our global operations. In particular, Australia volumes increased 15% with realized prices significantly above prior year. In the US rising volumes reflect both growing export demand and increased western shipments into eastern markets. The combination of higher volumes and pricing also drove EBITDA from the mining operations to more than double last year's levels and with an additional $38 million from trading and brokerage, EBITDA for the second quarter was a record $447 million.

Second quarter operating profit rose 92% to $344 million driving a 138% increase in pretax income over last year. Income tax expense rose to $44 million for second quarter and $88 million year-to-date. This reflects higher expense associated with improved profitability and $33 million of adverse exchange rate impact. This higher expense was partially offset by a $45 million benefit from an increase in the value of our Australian tax assets related to higher expected future earnings after signing new contracts. For the full year, we remain on track for a tax rate close to 30%. Finally, income from continuing operations totaled $243 million and earnings per share was $0.89, both significantly above last year's levels. Now let me take you through the supplemental schedule.

For the quarter US revenues were driven by increased volumes as well as higher realized pricing in almost all operations. On the volume side, US sales tonnage increased and could have been larger. You will recall our second quarter estimates included the cut-in of the new load-out at North Antelope Rochelle. With reduced rail loadings caused by the midwestern flooding, we accelerated a planned second outage into the quarter. I'm please to note the installation is complete and the load-out is fully operational. The impact of these items as approximately $40 million in the quarter. Turning to costs, both US regions were impacted by ongoing increases in commodity prices including their effect on materials and supplies. We also had higher sales related taxes, which comprised 30% of the cost increase in the west. Finally, midwestern flooding impacted per ton cost as eastern production and western shipments were lower than expected.

Shifting now to Australia, as I mentioned earlier Peabody's volumes expanded 15% above last year and 12% year-to-date. This is well above the overall industry where volumes were up just 2% year-to-date. Looking at Australia's prices, we realized $95 per short ton versus the mid-to low $50s last quarter and last year. This reflects the higher levels we secured for new met and thermal exports that began April 1st. We expect further improvement in price realizations going forward as lower priced carryover volumes were largely shipped in the second quarter. Our costs in Australia also reflected higher commodity prices, currency movements and the remaining effect of first quarter flooding. All told the Australia margin exceeded $43 per ton for the quarter. That's a brief review of second quarter results and before I turn things over to Rick, let me close with my views as Peabody's new CFO.

I look forward to continuing the best practices established by the Company. In addition, I will work closely with the operations to manage the key business drivers to improve productivity and reduce controllable cost, pushing Peabody's margin even higher. I'll now turn the call over to our President and Chief Commercial Officer, Rick Navarre.

Thanks, Mike, and good morning, everyone. As Greg has noted earlier, the sharp sustained growth in both metallurgical and thermal coal demand is working out very well for Peabody. I would like to spend a few moments on how we are using our leading position to create value in these very strong markets. To begin with, the current market conditions are providing great opportunities for seaborne coal suppliers such as Peabody. And we have the greatest leverage of any of the US based companies, with over half of our EBITDA expected to come from our international sales platform. At our last call we were just settling met coal agreements for the contract year that begins in April. I'm pleased that the settlements came in at the expected $300 per metric ton, benchmark level for the highest quality coking coal. And thermal coal on the seaborne market settled at the referenced price of $125 per metric ton.

Since then, prices have continued to move up sharply in these markets. Thermal coal out of New Castle has risen as high as $200 per metric ton since the beginning of the year. Semi soft coking coal recently settled above many expectations around $240 a metric ton. And we're seeing met coal sells right now on the spot market that are fetching $300 plus per ton. This bodes extremely well for the next contracting season. As you'll recall when we went into '08 we had significant excel legacy contracts that we expected to roll off in '09, which will hopefully double our unpriced position in 2009 from what we had at the beginning of 2008. This has very favorable implications for Peabody. We have as much as 14 million tons of Australia coal that is unpriced for 2009 and up to 24 million tons available for resale in 2010, of which nearly half in both cases is metallurgical coal.

We have tremendous leverage to the good market conditions. In the US markets we're seeing export demand is creating great opportunities in the Illinois Basin, the Powder River Basin, and Colorado that we expect will carry through 2008 and beyond. We believe net exports will have grown more than four fold in just two years and exports may well exceed 100 million tons in 2009. We've also seen US stockpiles coming down very sharply, down 17% over prior year levels. And we believe all regions are below or near their targeted levels with plenty of summer burn left. As mentioned earlier, the midwestern flooding did have an impact on our operations and we think it took as much as 8 million tons of Powder River Basin coal out of the market. We're also seeing the fact that Powder River Basin production is up less than 2% this year, while the demand out of the PRB is up some 6% to 7%.

This strong demand profile is led by four factors -- Coal by wire in the midwest; new power plants; substitutions for eastern coal as it's being shipped out of the country; and then in addition director exports. The strong US demand provides major opportunities for Peabody. We have more than 90 million tons of coal that is unpriced for 2010 out of both the PRB and the Illinois Basin, just from our existing operations. We told you earlier in previous calls that the competition that was being created worldwide by European utilities seeking US coal would lead to significant moves in the US markets that would ultimately flow back to the Powder River Basin and that is just what has occurred. Published Powder River Basin prices for 2010 delivery have increased more than 80% since the beginning of the year and are now in excess of $20 per ton. In the Illinois Basin we've seen the same issue where prices have more than doubled during that same period of time.

And I'll remind you that Peabody has the largest Illinois Basin position with more than 30 million tons of sales. We believe that the strength in the global coal markets is very long-term in nature and expect this will result in very attractive coal prices for many years. Peabody's key initiatives and growth projects continue to position us with the ability to capitalize on the strong market conditions. For example, on the international front, we have just completed the Wambo prep plant expansion. We are continuing to ramp up our Millennium metallurgical coal mine. And our Wilpinjong mine is now operating at expanded levels and construction is underway and advancing at the new 30 million ton per year NCIG coal terminal in New Castle. This will position us as one of the fastest growing producers in Australia, where we have replicated our successful US model that allows Peabody to be opportunistic when meeting growing demand through our major reserve base.

In the US during the quarter we were pleased that we shipped our first ton of coal out of our new El Segundo mine in New Mexico and it's now ramping up to full production. We also finished a very important two year recapitalization of our flagship North Antelope Rochelle mine and we expect it to have one of the lowest cost structures in the nation. We also are in advanced planning regarding new mine developments in the Illinois Basin, which we expect to meet high demand that will be coming from this region. Peabody's leading reserve base and capital initiatives will provide stability, growth, and diversity that is unmatched in the coal industry. So in summary, we've discussed our record results and how we are capitalizing on the current global market strength, all of which is leading to an outstanding outlook for Peabody. At this time, we'd be pleased to answer any of your questions and open the call.

(OPERATOR INSTRUCTIONS) First with the line of Michael Dudas with Jefferies & Co, please go ahead.

Good morning, Greg, Rick, Vic, and welcome, Mike. My first question is regarding PRB. Rick, you outlined some of the demand drivers that you've seen through the first half of the year. Talk a little bit about maybe or assess your surprise that maybe the PRB is not meeting some of the production growth outlook and are we going to continue to see push back because of either rail or utility decisions on that. And if that is the case, do you think that the steep contango will continue into the future as we start to see spot prices maybe lift higher as inventories draw down on the rivers.

That's a great question, Mike. I think to start with, for everybody else on the call, the PRB forward market is in steep contango which really gives you the indication of what the strength of the market is in the out years as compared to looking at the spot market, if you will, for 2008, which is really not really relevant to what's happening in the market. The contango shows there is significant demand in the out years. As we talk to our customers what we're finding out is there was always the concern that there wasn't going to be enough switching or the switching had already occurred. We're continuing to see customers that have switched, burn a higher blended PRB coal, if they can. Or we are seeing new customers coming to the table and test burning, wanting to start that blend.

And usually once they start blending PRB coal at 10% or 15% level, they typically increase it because they find that it is easy to burn and that it's something that is economical. And right now, as you said, when you look at the cost structure and the net back scenario of PRB coal, it's still significantly cheaper than the alternative, which is Appalachian or Northern AP coal, which may not even be available to the customer. We think that the -- I think the railroads are going to perform stronger. We have had a, obviously, a large flood in the Midwest that really stalled some of the production issues out of the Powder River Basin. But I think all in all, as we look at our platform specifically, with the work that we've done, we feel very confident that we're going to be able to meet expanded production profile that we have already committed to for 2008 for our customers.

We're very, very bullish on PRB, have been for some time and we are very committed, even last conference call when we were telling folks that the prices were much higher than what they were seeing in the traded markets and that it was just a matter of time before the longer term markets caught up.

My follow-up, Rick, is regarding your prepared remarks in the press release about the Illinois Basin, your potential, I assume, mine development opportunities for you. Talk a little bit about timing, expense, maybe generally, you don't have to be too specific. And is this investment relative to the utilities who are looking to enter into long-term contracts, are they concerned about PRB or the Appalachian region? Which region is going to be impacted relative to the investment that you and maybe others might proceed with in the Illinois Basin.

As we look at the US market and look at the global, what's happening globally, I think we are seeing a huge pull out of central Appalachian and northern Appalachia for the exports. And we already knew that the central Appalachian market was going to be declining from a production standpoint. So you have got that factored into the situation as well. So now you have got customers looking for really where can I get additional coal if

can't get it from CAP or NAP, I've got to buy it from the Illinois Basin or I have got to buy it from the Powder River Basin. So the Powder River Basin we know what the growth profile has been for the PRB. For many years we've expected the return or the renaissance of the Illinois Basin once many of the utilities started to install scrubbers and we're seeing that happening. There'll be competition head on head between the PRB and the Illinois Basin.

The good news is we've seen both prices go up significantly in the last six to nine months. And as we talk to utilities, they are trying to secure supply from really those regions that I think that are reliable, Illinois Basin and the PRB. And that's the kind of conversations we're having with customers as they look around and they see Peabody sitting with a 4 billion ton reserve base, being a reliable producer, having a few prime properties that we may bring on board at the right price with the right long-term base load contract and that's the kind of discussions we're having with customers. Obviously, to your point on capital, Mike, capital costs have increased substantially to build a new coal mine, whether it be in the PRB or whether it be in the Illinois Basin. That's impacting costs, price, a lot of factors. But -- and I think that's why you don't see people coming to talk to Peabody and others, because we have the ability to put those type of coal mines in that have the size and scale and can make that

Thank you, Rick.

Our next question is from the line of Paul Forward with Stifel Nicolaus, please go ahead.

Good morning. Thanks. Just maybe to follow-up, Rick, you had mentioned that a quarter ago you had suggested that prices that you were looking at were higher than the traded markets. Is that the case now?

For the PRB?

Or just in general.

I guess, Paul, it's hard to generalize, frankly, because the markets have, particularly in the European markets, have pulled back a bit in the last couple of weeks. I'd say that the contractual markets are clearly stronger than the financial markets right now. And that's very evident because the financial markets have been under pressure and a lot of traders have exited positions. But it really hasn't changed much from a contracting stand point because we haven't seen anything change in the fundamentals. We have not see demand go down and we haven't seen supply change. So I'd say if you want to look at the international markets first, that clearly we believe the physical market is stronger than the paper market today. As we look at around the U.S., I'd say the same is true. Maybe not to the same magnitude, but we are very comfortable in being able to get prices that are above what we're seeing in the traded markets around our whole platform. If you recall last quarter we were talking about $14, $15 PRB coal and that was significantly below what the contractual market was at that point in time and particularly for the long-term.

Okay, great. Thanks for that color. And just wanted to look at also the Australian. Your Australian, I believe, pricing in the quarter was $95 a ton and you mentioned the carryover volumes that weighed that down and so we should see an improvement in the third and fourth quarter. When you look at that $95 figure in the second quarter, how much of that was that weighed down by carryover contracts that would have rolled off during the second quarter and maybe is there a run rate that would be more reflective of what the kind of current or let's say the second half '08 average pricing might look like out of Australia.

Sure. Let me back up and say obviously you're going to have a blend no matter how you look at Australia, because you are going to have some domestic thermal business at low prices and you're going to have the legacy. And you are still going to have a mix of legacy contracts that do not roll over, that are embedded into that $95 cost structure. You're not going to get to the average of current spot thermal, current met for a couple of years until you to start to get, see that big roll off of the other legacy contracts. But as it relates to carryover business specifically, Paul, that was about a $20 million number this quarter that we had to carry into this. And you probably still have got another 10 or 15 to roll into the rest of '08 that will carry through on some of those contracts.

We were fortunate enough to get out of some of carryover business. But some of it we couldn't. And we noted that in the end of the first quarter that we were going to have that impact. So you'll see pricing and revenues certainly ramp up, maybe on average another $20 a ton as we go into the next quarter out of Australia. And then as you look into 2009, you should see a significant uplift as we get out of the first quarter of '09 and then double the amount of thermal coal that we have available for sale compared to what we had in '08 and also roll off some legacy semi-soft PCI contracts as well.

Okay, great. Maybe lastly, is there -- do you see a possible third quarter impact of trading from the sulfur credit markets collapsing after the recent clean air interstate court ruling?

For probably a lot of utilities that were holding those positions the answer is probably yes. For Peabody the answer is really -- shouldn't be an issue at all.

Okay, great. Thank you.

Next question is from the line of Pearce Hammond with Simmons & Company. Please go ahead.

Yes, if you could give me an update on your hedges on diesel and then just a quick update on your total diesel usage.

Sure, this is Mike. We use approximately 130 million gallons across the platform a year. For the rest of 2008, we're hedged at about a 60% level. And then for 2009 at roughly half.

What price are you hedged at?

For 2008 it is at $92 on average and for 2009 it is at $98. So both clearly below current market levels.

Great. And then I'd like to get a thought on areas of future investment globally for Peabody and if Peabody if the management team could discuss specifically Mozambique. But just some areas of interest around the world that Peabody's contemplating additional investment.

Well, sure. This is Greg and I'll take a -- cover that question, Pearce. We've said all long that we want to do is we want to continue to expand in the high growth markets. And if you look at where those are going to be, if we kind of rank the global markets, obviously, we think that the met coal market is going to remain strong for a long period of time. Then the seaborne traded thermal coal markets will remain very strong. And then because of the strength of both of those markets, the pull into the Illinois Basin and the Powder River Basin for opportunities for volume growth we believe are going to be very high. As we look at -- those are probably really the four major areas for new mine development investments that we're looking at.

Obviously, we have got he School Creek project in the Powder River Basin. We are still going through the permitting process on and the engineering for. Rick talked a bit about our plans in the Illinois Basin for new mine developments there. And then from the international side, we've got a number of opportunities in Australia that now that we've got the platform up and running and performing well, we're looking at what the opportunities that we have to grow organically in Australia, similar to what we've done every other platform that we have. And we do have some opportunities that we're starting to put some good engineering efforts into. That takes us into the real greenfield, new area developments. Mongolia is one of those. Clearly our initiatives in China would be another one of those.

And then you mentioned Mozambique. In Mongolia and Mozambique, the real focus would be met coal developments. In China would be both thermal coal, and when I say thermal coal in China that includes coal for their chemical feed stock business as well as coal for power generation. Mozambique, in particular, we've had a number of times that we've spent over in Mozambique and we continue to look at the structure of the industry, what's happening in terms of the infrastructure development in Mozambique both in terms of rail and port developments. And then looking at the types of leaseholdings that are available in Mozambique and/or development partners.

Great, thank you very much.

Your next question is from the line of Jeremy Sussman with Natixis Bleichroeder. Please go ahead.

Good morning.

Good morning, Jeremy.

Good morning. Congratulations on a nice quarter here.

Thank you.

I guess first question, it looks like you guys signed about 30 million tons of coal through 2010 since last quarter. Can you kind of just give us a rough breakdown of where this came from and then maybe following up on one of Paul's questions just kind of a rough impact of how we should look at kind of the out years relative to where the, I guess, the traded markets are looking.

Sure, this is Rick, I'll take that question. We sold about 30 million tons for 2009 and '10 and about half of that was probably in the Powder River Basin. And one of the things is some of that was sold under new agreements, long-term arrangements. Some of those arrangements go out as far as 2013, so to kind of give you a sense for term that the customers are willing for term. And some 40% of that business was just standard reopener business that we already had the contract and had a reopener formula that we had to concluded that business in 2008. But as we look at it, as I said, term business, good business, certainly at the time we were selling that coal it was above the long-term forward contracts. We've seen the contracts begin to respond, the forward markets begin to respond and improve as you're seeing north of $20 plus now in the forward markets for 2010 and '11. Those prices are vary obtainable in this market. If you look at what we priced out of the tons for the PRB, they were about 45% above what we'll realize this year for PRB sales.

Okay, that's very helpful, thank you. I guess you mentioned about 5.9 million tons of exports in the US. And now regarding Illinois or exports from the Illinois Basin, because I would imagine that's where certainly a decent amount of that is coming from, are your still seeing higher prices overseas in the US? And how do you look at something like that when you are kind of going through your potential development plans out -- going forward in Illinois.

Well, the biggest piece of our export book of business was probably central Appalachia and the Illinois Basin and Colorado, as you said. That is probably the three primary products that get the most attention. And generally speaking we can sell those for a premium to what we would get to the US market right now . But at the same time there is significant transportation issues that have to be dealt with to be able to move that much coal. We did move, actually I think the number is even higher then that now. I think it is about almost 7 million tons in total. But as we do look forward at new developments in the Illinois Basin, part of the things that we look at are the location and the key content and the quality of the product. We can bring on US quality scrubber coal that is very much in demand for US power plants. At the same time we can tap into resources that can not only provide that market but can also provide a higher heat content and a little bit lower sulfur that is in high demand in the European market and also gets on the river very easily. That will command a premium. That's the type of projects that we're going to be looking

Great. Thank you very much.

And next we go to the line of Mark Liinamaa with Morgan Stanley.

Can you talk a little bit more about the improvements in the transportation infrastructure in Australia, whether we could expect to see any demurrage charge improvement or whether some of those can be shared with customers? And combined with the improvements in your platform over there, maybe is it too early to take a stab on what you think you might be able to produce next year?

Well, this is Greg. I think in terms of trying to provide any guidance for next year, it's too early to look at that. Suffice it to say let's look at the port and the rail infrastructure in Australia. We did have a good quarter this quarter in terms of our Australian platform. One of the things that we indicated in previous calls that we thought the keys to being successful in Australia this year was to make sure that our operations were running well enough to have coal stockpiled and available to ship when shipping capacity and rail capacity was available and may become available from the invariable issues that other producers have at times in Australia. Our team was able to do a great job in the second quarter of not only moving our volumes, but also to be able to pick up some excess capacity.

We'll get a little more advantage of that or some of that will carry over into the third quarter this year. And we continue to look for those opportunities as they arise. We are seeing in New Castle, pretty much more of the same in terms of both the rail and port situation there. The queue of ships is actually come up slightly here in the last little bit, maybe in the 40 to 45 vessel range. And ideally, we'd like to have that down to a 20 number. And so for the rest of this year out of New Castle, we are projecting a slight increase in our shipments, but not a major shift given the continued work on the rail and the port issues. Dalrymple Bay we are expecting to see some improvement through the back half of the year and, more importantly, next year when they complete yet another phase of their expansion projects. This year they might come in around the 50 million ton ship mark.

Next year, the early projections are that may rise to 63 million to 65 million tons of shipping and so we should get a commiserate increase in that shipping capacity next year out of Australia. On balance, we're seeing slow, minor improvements. But our team is also working very aggressively to try and capture any openings that come up from other issues at other producers.

Thanks. And just back to the Powder River Basin. There's been some trade press commentary that new source review requirements could be triggered depending on the amount of investment that had to be done to switch to Powder River Basin coal. How much truth is there to that? Is that affecting utility decisions at this point?

Mark, this is Rick, we haven't heard that that's an issue at all. It's such a minor amount of investment that's put in and actually apt the end of the day, it doesn't increase the -- generally, it's going to have a D rate associated with it of a small amount. So it's not going to increase their efficiency, which is usually where you get kind of caught up in the new source reviews. We haven't heard much.

So it's not an issue.

They're adding dust suppression equipment and things of that nature to bring in Powder River Basin coal. That's what they are bringing in to burn. Guys that are going from zero PRB to 10% or 15% are making minor investments in dust suppression equipment and other loading type of issues and that's really not improving plank capacity.

That's great. Thank you very much, guys.

Our next question is from David Gagliano with Credit Suisse. Please go ahead.

I wanted to just come back to Rick's comments earlier about the commitments made in the second quarter, specifically in the Powder River Basin. I think you mentioned that you committed at sort of a 45% above current year PRB realizations. So my question is we're backing into -- because I don't think that number is disclosed. But we are backing into sort of a $11 to $12 realized price this year, which suggests sort of a $16, $17 price on the stuff that was committed in the second quarter. Is that a reasonable estimate?

You're talking about the premium product, Dave, so you are right. The number is not disclosed and it's a much higher number than that because the premium PRB product is being - the $11 is weighted down by the rawhide and [cabio] products in term business. So you've got a higher realization out of the 8800 product, so we are talking about a 45% realization over that platform. And you'd have a similar number, I guess, over the rest of it if you want to look at it that way. It is not that you are selling PRB 8800 for $16, that's not a good conclusion. You're selling the whole platform for maybe on average of $16 for that small amount that was sold.

Okay. Good. That's helpful.

The premium number would be higher than that. And then you're seeing even continued improvement from that point. We have seen even stronger markets recently and as we look forward and look at the backlog of outstanding requests for business and what we're seeing with the net back pricing, we feel very confident that that number is going to continue to get stronger.

Okay, good. That's what I needed to hear. Just on the sort of strategic outlook, I thought it was very interesting. Obviously the international commentary is very helpful in the press release and also the commentary about where you are focusing. I was wondering, I haven't heard much about South America. We have heard things about potentially some significant incremental coal demand coming out of the South America. And I'm wondering if you could share your thoughts with regards to where you think that coal is going to be sourced and or/if you're interested in getting more involved in South America.

Well, it's Greg, when you talk about South America really in terms of major producing regions, or potential to be major producing regions, you're talking about Venezuela and Colombia. We're in Venezuela. Everybody is well aware of the turmoil that Venezuela has kind of been going through. We see it very unlikely that there's going to be major investment in new mine development in the near term in Venezuela. So they're going to be where they're at and maybe even struggle to maintain that level of production. When you look at Colombia, a lot of discussions and a lot of talk about how Colombia is going to increase production to an X level. But every time you turn around they're being delayed.

They still have labor issues. They have permitting issues. Suffice it to say our view is they will increase over time. Probably going to be a bit slower than what some people think. Most of that is good, very good quality thermal coal. Probably going to be almost exclusively dedicated for the European market now that South Africa continues to over time short that market. At the end of the day, if you look at where are the major sources of additional coal for the seaborne markets in the near term, it's Illinois Basin coal and it's PRB coal as you continue to have Colorado, Illinois, and eastern coals exported out of the US and the PRB back filling for all of those coals.

Okay. Fair enough. I appreciate the color. Thanks.

Next question is from the line of Shneur Gershuni with UBS. Please go ahead.

Good morning, guys.

Good morning.

Just a couple of quick questions. With respect to the Powder River Basin, I was wondering if you can sort of give us some comments with respect to that customer settlement and also the cost experiences you are experiencing there. Are you seeing the inflation that others have talked about?

This is Rick. The customer settlement actually was not in the Powder River Basin, but it related to a southwestern contract that we have. It's more of a cost plus arrangement that we have. Long standing agreement and we were able to recoup retiree healthcare and reclamation costs on a go forward basis, as well as historically on a long-term customer contract. So that's essentially what happened with that particular contract. And it was fortunate it happened in a quarter where we experienced $40 million of flooding and a few other negatives and a down quarter in resource management to help us buffer that a little bit. As it relates to the cost structure in the PRB, let me have Mike give you a little bit of color.

Sure, with respect to the western operations, approximately 30% of the increase relates to sales related costs, higher taxes and royalties. In addition, you see the per ton cost would be higher. We had the two outages at North Antelope Rochelle. The first was scheduled at the beginning of the quarter. And this was for the tie-in of the new load-out facility. With the midwestern flooding and the reduced loadings of rail availability that we had in the Basin, we elected to accelerate that second outage from the third quarter into the second quarter. And that was another 2.3 million tons in the quarter. And then the rest of the increase is primarily related to the higher fuel costs and other commodity costs.

I was wondering if my follow-up if we can turn to the Illinois Basin for a second here. A lot of good discussion on the call today. I guess what I wanted to ask with respect to the Illinois Basin is just are you seeing any requests for test burns? Is anybody having any issues with chlorine and so forth? And also you had commented about new source review I think to Mark's question, were you referring just with respect to there wouldn't be a new source review for utilities that choose to blend. Or are you saying that even if they were to swap out the entire boiler and switch completely to Powder River Basin that there wouldn't be a new source review under that scenario.

This is Greg. I think in terms of a new source review, we are really talking about the minor increases in blending and the material handling changes that utilities have to put in place to handle the slightly larger volume and the little bit dustier western coal. So they have dust suppression systems, spray systems, and the like. If you're talking about somebody going in and doing a major retrofit to their boiler to either increase capacity or to completely change out their boiler confirmations, then they will have to at least go through an analysis to see whether they do have to submit a new source review. That issue has been brewing for a number of years that first started out in terms of just major maintenance that utilities were doing and then whether the outcome of a major maintenance program, an overhaul program actually increased the output of the plant. When you're talking about a complete changeover and a major overhaul, it's case by case basis. But each utility and each plant would at least go through an internal determination as to whether they needed to submit a new source performance review.

And I'd just add one thing, we've had customers, and I can't even count the number of customers that have switched since 1990 100% to PRB coal from other sources and have not been challenged on new source reviews.

Nor had to do a major rebuild.

So I think this is some smoke coming from somewhere else that doesn't really have any impact on the real market here at the end of the day. This is looking for the Indian behind the tree.

You had a question on the Illinois Basin. Maybe you can just ask that one again.

The question with the Illinois Basin is are you seeing test burns and have there been any issues with chlorine at all or is everyone pretty happy with taking the Illinois Basin and substituting it with central AP .

We don't typically see test burns in Illinois Basin. That coal has been burned for a lot of years and the folks that we're talking to have burned Illinois Basin at times or are currently burning Illinois Basin coal. And when we bundle Illinois Basin coal for the export market, it's usually in some kind of a blend situation. So nobody is really asking for a quote any kind of test burn basis, they are just buying the coal.

And there is no question that there are certain fields in the Illinois Basin that have high chlorine. And we have seen some others that have tried to bring on some coal mines not really aware of that issue. And it's been -- had some burnability issues with the customer. The customers don't like to burn chlorine because it is not very good for the plants and for all the equipment. From our standpoint we've been burning Illinois Basin coal since 1880, so we pretty much understand the characteristics of it and understand which fields of ours have a little bit higher chlorine and which ones don't. And I can assure you that we're going to be bringing on the ones that have the lower chlorine.

Okay. So overall you're saying that some historically that have burned in the past are beginning to burn a little bit more now, clearly do you think that this will have an impact on pricing and kind of are you expecting prices to move up more than the double that you have already seen -- .

It's already moved up double. And I think that, as I say and we've said this time and time again, we think the markets are extremely interconnected. What happens on a global market looks back to what's happening in the US. Regardless of some of the -- you may see certain economic factors that are happening in the US that would lead you to one conclusion, but that's not really what is the driving the overall commodity market and the coal market. At the end of the day it is the global factor, so pas the prices around the world continue to increase and stay strong because of the shortage of supply and the high demand, you're going to see that ripple back into the Illinois Basin and you're going to see strong pricing be maintained in the Illinois Basin. And likewise cost structures have changed around the world as well.

Great, that pretty much answers my question. Thank you very much.

Thank you.

And next to the line of David Lipschitz with Merrill Lynch. Please go ahead.

Question for you, we -- two years ago it was a big topic and it seems to have waned, what's going on with coal liquids?

Well, coal liquids, it's called a gas. It's really a story of two different parts of the world. You have got the US as one part and you have got the rest of the world as the other. Let's look at what's happening outside of the US. Coal to liquids, coal to industrial feedstock gas. Coal to natural gas is really taking off. You've got a significant amount of new construction and plants coming online in China. You've got coal liquids plant now operational in Australia. You've got -- and on the drawing board a number of locations elsewhere. And then of course you've got continued expansions of the coal liquid platform in South Africa. So then you get back to the US and you say where do we stand in the US? It's a combination here of both the ever rising capital costs for these types of facilities still looking to find contractual commitments for off takes that go out longer than say a five year period of time.

You'd like to see something in the 10 plus years before you commit to capital. And then lastly, there's still the lack of a full regulatory program and permitting program for CO 2 capture and storage, which most of the folks, particularly ourselves who are looking at these types of facilities, are looking for those things to come into place at some point early on in the project life. But, having said all that, major expansions internationally, our view is the US will catch up as soon as we get beyond the uncertainties of the election, get into '09 and '10 and start to bring some certainty around the permitting and the legal environments around carbon storage.

Do you think we're before when the US is built? Five years? Ten years?

Hopefully coal to gas will be in the earlier part of that time frame. Major large scale coal liquids maybe a five year time frame.

One other quick question, on the Illinois Basin, when you say double does that mean with a 6 handle or double to a 7 handle?

We sold it definitely with a seven and frankly there's -- we've got sales that are higher than that. Particularly you start looking at some of the industrial customers and others. You can get a three digit number.

Thank you.

And next to the line of Justine Fisher with Goldman Sachs.

Good morning.

Good morning, Justine.

The first question I have is about the export market. You said that you guys had exported about 7 million total tons and would you say what percentage of that is PRB?

It's a small percentage. This is Rick. Out of the 7 million tons, I think we would say it's a bit shy of a million tons. Most of the PRB coal right now is going in as back fill for the exports that are moving out of the eastern part of the US. We're still looking at prospects to be able to expand that by looking at all the opportunities that are potentially there to go out of Vancouver or some other way on the west coast. Really, it needs to be more of a west coast move. We've moved it now to Europe, but until we can turn it to a west coast move it's probably just going to be used as back fill, which is fine at this point.

Just as a clarification, Justine. Not all of that 7 million tons has been shipped. That's what we have sold and some of that is for shipments the back half of this year and all the way through 2010.

Okay. And then are you seeing any additional long-term contract desire for exports out of either the Illinois Basin -- I guess now that PRB is export and the PRB are minimal, then are people like European customers, for example, approaching you for long-term contracts out of Illinois Basin?

Yes, we've signed contracts through 2011 for export business.

And so then going back to when you mentioned in the prepared remarks, I think, that US export total might go above 100 million tons. It seems that maybe some of that would come from the Illinois Basin. But the bulk would have to come from Appalachia if exports got that high.

I think that is fair. No questions about it, the bulk of it is going to come out of central Appalachia and northern Appalachia. Then you are going to have the Illinois Basin that's going to ship out of the gulf. That's where you are going to see the majority of the exports. But the coal still is going to be needed in the United States. So we still have to somewhere we have got to fill the void. And as we said, we think that's coming from Colorado, Illinois. And Colorado is also going to be an export product as well. And then the PRB.

And so I guess if Appalachia is going to be the market that continues to see this export pull, looking at where the patriot stock is now, would you guys get back into central Appalachia or are you sort of still out of that market and just only looking to really back fill?

Well, I think the issue with us is a couple of things. First of all, we still have with our trading platform and some of our volume, long-term volume commitments that we had for brokerage tons out of central AP. As Rick said earlier in the call, we are still shipping central AP coal as part of our export strategy. That's number one. So we haven't really left. Number two, we think there's much more opportunity now for us to, with the Illinois Basin and the Powder River Basin as a back fill and then with the Illinois Basin and the Colorado Basin as direct exports. So, when you look at these markets, they're all connected. It's getting to be very much a fungible commodity. It really doesn't matter whether you're directly a producer in central AP, you're going to get -- whatever flows out of this country in terms of exports is going to impact every single coal market in this country.

We'll move on to Jim Rollyson with Raymond James.

Following up on that logic, you said -- we talked about 100 million tons getting there maybe next year or so. Where do you think true export capacity is? And have you heard anybody talking about expanding that?

This is Rick. The port capacity -- obviously if you go to a lot of different places you'll see a name plate capacity, if you will, of all the port facilities in the United States. That number is somewhere between 165 and 175 depending upon who you talk to. We would tell you that the practical capacity in our view after assessing the facilities and owning 37% of DTA and using its facilities, it is probably about 125 million tons. This country has done that in the past. And that is why the US has become one of the major swing supplier in this tight market globally, because we have the only place in the world where we have unconstrained port capacity and capabilities to move the product.

That's why we continue to see this having a lot of legs for some period of time because as you look around the globe, and we can off line go down country by country out of the 12 or 13 major exporting countries, you will see every one of them is stuffed up with congestion with probably the exception of the United States. And the United States has the ability to move it because they have the ability to back fill it from somewhere else in the country. Otherwise if we didn't have the PRB or the Illinois to back fill, we would be doing what other countries are doing, restricting exports.

And actually the reason I asked this is obviously you talked a lot earlier about kind of the rest of the world and what's going on with supply and demand setting the price curve and so long as we have got that excess capacity it has obviously had a big impact here. Say we go out three or four or five year, whatever the number is and we get to that 125 million tons, what do you think happens with the relationship between US pricing and the rest of the world at that point?

I think it stays -- it'll just make the market even stronger and tighter if we get to that level of production. And if the world needs 125 million tons out of the United States to fulfill the demand, it's going to be tough. Because what is going to happen then is we're going to be short around the world, because that 125 million tons you will have to have some additional investment in port capacity. You will have to have additional investment to de-bottleneck and, frankly, we all know, and it is no secret that we know that the cap production is declining even in these market conditions with these prices, cap production continues to decline. At some point in time you're going to reach that bottleneck where you can't back fill enough of it.

I think the other outcome with those kind of volumes on an export basis. We're already seeing central AP and northern AP begin -- they have really kind of reached a parity pricing on a net back basis with what's happening in Europe. If we get up to those 100 million and then up to 125 million tons of export, that's -- that will be kind of where the PRB really gets the full parity pricing with the international coals. So it's going to be a significant -- we've already seen a significant movement in Powder River Basin. That will just take it all the way up, continue to push it up to that next parity level.

Very good. Thank you, guys.

Our next question is from Luther Lu with FBR Capital Markets.

Greg, could you give us some of your thoughts on the recent volatility in the international coal prices, particularly API number 2 went up significantly and then dropped significantly in the past couple weeks.

We've seen it. As you said we look at API 2 that got well over $200. New Castle at $200, then you seen their retreat in the last two weeks. I think it's a -- there's a lot of traded activity in those markets. They are not really that physical at the end of the day, so there is not a lot of physical contracting. As I talk to people on the physical side, we are still seeing strength But I think a lot of the retreats tied to a softening of oil and gas prices. And then traders having that mentality to move with the overall energy sector and so you've seeing a decline because oil prices are declining. Because if you look at API 2 it was essentially running at parity with EU gas.

Okay.

And so it was running close to gas levels. Gas has come down a little bit so you have seen the API 2 drop off a bit because of that. And I think that's what you're seeing there.

I see. Okay. And I want to go back to the Midwest expansion. Can your just -- I know Mike asked that question. Can you just give us a little bit more detail as far as the size of the project, timing of the project?

Well, Luther, we look at a lot of these projects and we have had a number of these on the drawing board for a long period of time. As we've said in the past, we never left the Illinois Basin, knowing that the market was going to return once scrubbers were installed and that was going to be a key growth market for us in the future. And as we look at it now, we think we're very well positioned. And we're talking to select number of customers that are looking for reliable supply on a long-term basis and it would be premature for me to really give you any more detail than that until we get into a secure base load agreements with some of these customers.

I guess the only thing I'd say is we're in late stage discussions in development, we are not in the early stages.

Our next question is from John Bridges with JPMorgan. Please go ahead.

Hi, Greg, everybody.

Hi, John.

Just wanted to follow-up. You made the point that the published prices for PRB is $28. Is that an indication as to what you're getting in 2010?

As I said earlier, we can attain those prices, John, for PRB pricing, sure.

As we have always said, John, we're not happy getting published prices. That's not why we have a marketing and sales department.

In the past you've made mention that you're getting better than the published or made comment like that but there is nothing this time around. The 45% over this year's number is that for the average of the contracts your signed in '09 and '10 or is that for '09?

That would be the average for the '09 uplift over '08 prices. And then you would see a similar number from '08 to' 10 of course, as well. If not, not even a little bit higher than that because it is going to be more of a contango pricing situation.

Right, right. School Creek, I thought you were ready to go ahead with that thing a year or two ago. What's still required to take that forward and if you can remind us of the capacity of that thing as well?

School Creek we are in the final stages of the permitting process for School Creek. Likely would get the final permits for that first part of next year. And what we have not done yet is we have not committed the major capital commitments for any of the mining equipment for School Creek. That's something that we continue to look at, the timing as to when we develop that. So that would be the next phase of the project. The latter part of this year we wind up assuming full control over the surface facilities there, which is the load-out on the rail loops. So we'll have that capacity in place. The School Creek nominally has a capacity right now with those surface facilities of 25 million to 30 million tons a year, depending on how we capitalize the mining equipment. We could start out at a slower rate anywhere from 10 million to 15 million tons and then build into those rates over time. So we're very encouraged with obviously where the market has moved in terms of the contango in the out years. And so more to follow on School Creek.

And we'll go to the line of Ann Kohler with Caris. Please go ahead.

Yes, hello. A question kind of following up on the last several that have been answered. You're certainly talking about a rather significant increase in export volumes over the next couple of years with infrastructure being put in place. And then certainly you have the natural decline that you'll have in central AP and then overall just general demand as the economy expands. Certainly looking at the dynamics, what do you think are -- you're looking here at School Creek, which would add significant volumes and certainly you're one of the few that are going to be able to meet that increased demand as we move into the next decade. Given the lead time on all of these projects whether they be School Creek or whether they be in the Illinois Basin and given the capital involved shouldn't there be some greater movement on the part of utilities seeing what is ahead of them to move forward and looking at securing longer term contracts so that they can go ahead with the development or that you could go ahead with the development of these kinds of reserves. And if that isn't happening, why is that not happening?

It's a great question and I think what you're seeing now is that the customers are waking up to that realization. It took them a while to understand that they just lost a significant amount of tonnage to the export market. Once that realization came about and they realized what the pricing was and they started seeing what was happening around the globe and how it was impacting what was happening in their backyard at their -- in middle America or wherever that might be and realizing it does impact them. They are coming to the table and saying we need to secure long-term business. They don't want to be left at the table not having that long-term business. They want to do it with somebody who's reliable. There's been a number of cases out there where there's been customers that have signed up with some other smaller producers for some long-term business out of some of these Basins and it hasn't happened or they've not stood behind the pricing or whatever the issue is. We're seeing more of that.

We're seeing the big customers coming to the table and suggesting that they want to be part of that, they want to partner with us to do that. And they understand capital costs have risen significantly, so for us to make that committment it does take a partnership with the customer. The capital costs have more than doubled and the lead times are huge. Any type of equipment, just to get a truck up in a surface mine is now 30 month lead time to get a brand new piece of equipment for a truck and you can't really do it with used equipment when everything else in the world is being used at full capacity. Your point is dead on. We're seeing customers coming to the table to talk about it because they need to.

And what is sort of a time line that we kind of -- I would assume that given the dynamics is the concern also maybe is the issue of global warming legislation having some impact on their decisions as well. But I would assume here that given the kind of scenario that you are talking about, these investments need to be taking place now if not last year to be able to meet the kind of demand numbers that you're talking about.

That is exactly right. I think from the legislation standpoint. Obviously everybody would love to see a regulatory frame work that is adopted that people can put some confidence in so they can work around that. It hasn't happened and I think people realize it will take longer than they have time to wait. But I think they know at the end of the day, that the cheapest form of electricity even with any type of regulation will still be coal. So the coal plants that are out there they expect to run those coal plants as hard as possible to create energy. Because I think, frankly, we haven't been building anything else. If anything, people are looking at coal as if we're going to have a shortage we are going to have to run the coal plants harder then they are being run right now.

The next question is from the line of [Lage Steinberg] with Lehman Brothers.

Most of my questions have been answered. Have a couple of follow-ups. Just with respect to your met coal contracts. Are there indications for '09 met coal year pricing? And are customers -- have you signed any contracts for that beyond March '09?

Beyond March of '09, no, the contracting season won't start in earnest until either probably early, the earliest the fall of this year or some time in the very beginning of '09? But I guess as an indicator, I think you can look to the spot market that, and there's vessels being traded at north or at least equal to the $300 per metric ton. So we haven't seen anything fall off. And just last week we saw the semisoft coking coals settle at a number that was probably $20 to $30 higher than expectation at about $240 a ton, which is a lower quality coking coal. Frankly, we haven't see any letup, if you look at global steel demand, it's still expected to be double digits going forward. I think that there's really all the indicators point to long-term strength in this market.

Okay. Customers are -- are they asking you for longer term contracts?

No, that's traditional just not the way the market behaves for met coal settlements. And they haven't really changed that and it has been -- this is the way they react. And they may ask to try to get term, but the pricing generally is always settled annually and it just hasn't changed. There's just really not much in the way of international seaborne metallurgical business. Now there's some domestic metallurgical business that happens in the US where you may get term business for two or three years out of the US steel companies.

The next question is from the line of Wayne Atwell with Pontis Capital Management, please go ahead.

We discussed this partially on the call. Could you pursue the idea a little bit more of companies restricting exports. I think China, South Africa, and Vietnam are restricting exports of coal. Are there any other countries and could you maybe expand on that a little bit more, please.

We could go country by country, but I think the data is all out there. Right now China clearly has been at the top of the list. They're export licenses are going to be down from where people thought they were going to be this year. Vietnam has been restricting their exports, particularly into the Chinese market. Indonesia is now telling all of their domestic producers that they've got to supply their internal needs first ahead of their ability to export. One of the reasons why we've seen Indonesia basically flat year-over-year in terms of growth. South Africa is severely short of coal.

ESCOM just came out with an estimate that they think that they've got over the next five years or more, I guess it was through 2017, they need another 100 million tons of coal developed and they are 40 million, 45 million tons short on their stockpiles where they'd like them to be today. And Russia now is a country that in a major way is starting to restrict not only metallurgical coal but thermal coal as they continue to build new generation so that they can free up gas for export on the gas. So that's kind of the summary of the major producing countries that have been traditional export countries over the last four or five years.

Thank you. And if you're going to be signing a contract for term for several years in the steam area and I realize there is a contango in the PRB, but if you're going to go something in Illinois Basin or other regions, would you have to do the contract at a lower price than you would book coal at today for '09. If you did have the three, four, five year contract, would there have to be a backwardation in the pricing pattern or could you do a flat or even rising pricing pattern for a term contract?

We not really want to get into contract specifics. Suffice it to say our view of the world is energy prices are going to continue to rise in real terms and our contracting basis would be recognition of our view of energy prices going forward.

And just one thing I would add, Wayne, is that on a -- this is Rick -- three to five years is certainly not anything that we would be getting, you wouldn't want to be giving discounts on three to five year contracts. The kind of business we are talking about, the base load business, is the traditional 10 to 20 year contracts that have escalation provisions, loss protection and those types of issues.

And we have time for one more question. That will be from the line of David Epstein with Advent. Please go ahead.

Your comments about inventories, you might have thrown out a figure of 17% below last year. Can you just help me with that a little bit. I thought I'd been seeing some other inventory number showing that were a good bit above last year, even on a days of demand basis.

We think right now, at least our best estimate is that we have gone from 52 days last year at the same time down to 43 days on an overall US basis. And if you look across each region, you will see that every single region essentially down from target levels. And with the PRB maybe being right at flat but coming down quickly -- but it has come down very quickly and will probably continue to come down a bit. So we think that the issue around stockpiles instead of being a story about what is it going to do because of the surplus of stockpiles, it's going to be more of an issue that stockpiles are getting shorter. And frankly, when you start to couple that with what we're seeing around the world and seeing how many stockpiles -- how many shortages we are seeing in other countries that are below 10 days of inventories, in some cases, we use a much bigger shortage than people have really factored in.

The US data that you are citing, is that from the EIA or is that your own view.

-- data which is a combination. We look at all the information and we try to come up with our best estimates and then we back test it every quarter to make sure, to see how close we are. As we know others come out and they change their data after they release it and we think we've got a pretty good source and we got a lot of guys that do a lot of analytics around this so we feel pretty comfortable that our data is as accurate as it can be, let's put it that way, without going out and inventorying every file.

And with that I'll turn it back to the presenters for any closing comments.

Well, thank you all very much for joining us this morning. As you can see it was a very strong quarter for Peabody. The secret has been the ability to move the tons, particularly out of Australia, as we indicated in earlier quarters, that was our focus. We remain focused on it. And the markets across the globe continue to be very strong going forward. We look forward to our next quarterly conference call in October. Thank you very much.

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