Peabody Energy Corp (BTU) 2019 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to Peabody's Fourth Quarter Earnings Conference Call. (Operator Instructions) As a reminder, today's call is being recorded.

And now I would like to turn the conference over to Vic Svec, Head of Investor Relations and Communications. Please go ahead, sir.

Okay. Thanks, Jack -- Jake, and good morning, everyone. Thanks very much for joining in BTU's earnings call for the fourth quarter and the full year.

And so with us today, we have President and CEO, Glenn Kellow; as well as Interim CFO, Mark Spurbeck. I also believe most of you, if not all of you, know Director of Investor Relations, Julie Gates. We do welcome Mark to this key interim position as CFO. You'll find that he has extensive experience in accounting and finance along with the mining industry. You'll also be seeing him on the road at upcoming conferences and road shows. As is customary during our formal remarks, we'll reference a supplemental presentation, and that's available on our website at peabodyenergy.com.

Now on Slide 2 of that deck, you'll find our statement on forward-looking information. We do encourage you to consider the risk factors that we reference here, along with our public filings with the SEC. I would also note that we use both GAAP and non-GAAP measures. We do refer you to our reconciliation of those measures in the presentation as well as our earnings release.

And with that, I'll now turn the call over to Glenn.

Thanks, Vic, and good morning, everyone. Peabody delivered strong fourth quarter operating performance driven by lower costs across multiple segments and concluded a number of negotiations that were both complex and significant.

During the full year, Peabody advanced initiatives against a difficult backdrop, but ultimately saw a deterioration in both debt and equity prices. Financially, we completed the year with a strong cash and liquidity position. Within the portfolio, we progressed the regulatory process for the proposed PRB/Colorado joint venture with Arch to unlock substantial synergies for the benefit of multiple stakeholders.

Our seaborne thermal business again finished with attractive margins with a record year of rail shipments at Wilpinjong and good performance at our Wambo Open-Cut Mine. It's also very pleasing to note that both mines obtained regulatory approval to advance their extension activities, no easy layup with a challenging environmental opposition.

In seaborne met, the team drove significant reductions in holding costs at the North Goonyella Mine. We are now proceeding with a commercial process aimed at maximizing value and accelerating cash flows in parallel with continued engagement with PMI and our approach to access and develop the southern panels. We saw an improved performance from many of our operations in the fourth quarter, and although several mines are in transition, encouraging progress is being made on the ground.

At the organizational level, we enhanced our structure and operating model to increase efficiencies and lower costs. Finally, on the ESG front, we received prestigious recognition with honors in safety, environmental excellence, leadership, employment and diversity. The company was also named Best for Small to Mid-cap Companies in the entire metals and mining sector for ESG metrics as well as governance in the 2019 Institutional Investor rankings.

I'll come back to you in a few minutes on the 2020 outlook in more detail, but here is a quick summary for this year. We are targeting improved met coal volumes and costs, lower SG&A, decreased capital expenditures and sharply reduced North Goonyella holding costs in 2020. Those benefits will be needed to partly offset the current lower pricing we are experiencing across all markets, lower U.S. thermal volumes and some $200 million in decreased contributions from the closing of the Kayenta and Millennium mines. Overall, I believe that 2020 challenges will be met with meaningful action.

Also, as announced just this morning, Peabody and Elliott, our largest shareholder, have reached agreement that includes the addition of 7 new members to the Peabody board. From Elliott, Dave Miller as an equity partner and Samantha Algaze as a portfolio manager, both of whom we've worked with for a number of years. Darren Yeates is a tenured coal industry executive. We've also agreed to add a fourth director with extensive mining operations experience to be jointly selected.

Peabody and Elliott had a constructive relationship during the 4 plus years of involvement in Peabody's capital structure. We are aligned in our objective to create shareholder value, and we look forward to this ongoing relationship.

With that overview, I'll now ask Mark to cover the financial highlights.

Good morning, everyone. I'm pleased to be here today. By way of background, I have about 15 years of mining industry experience and have been with Peabody in the last 2 years. I would like to thank Amy for the smooth transition, and I look forward to meeting many of you in the future.

Let's get right to business, starting on Slide 4. Fourth quarter revenues totaled $1.12 billion, down 20% from the prior year on lower seaborne metallurgical volumes and reduced pricing. DD&A in the fourth quarter totaled $122 million versus $176 million in the prior year due to the closure of the Kayenta Mine as well as lower contract amortization expense and volumes. Other income statement items of notice include a $48 million gain associated with the formation of the United Wambo Open-Cut joint venture, $250 million in noncash impairment charges largely related to changes in life of mine assumptions in New Mexico given lower production volumes from announced plant retirements, as well as the unallocated reserves in the Midwest and Colorado; a $58 million write-off at North Goonyella primarily related to prior panel development, which we foreshadow at Q3; and the $67 million mark-to-market loss on post-retirement health care liabilities, given changes in discount rates.

Adjusted EBITDA for the fourth quarter totaled $205 million compared to $274 million in the prior year. That was primarily due to lower seaborne pricing and volumes. Adjusted EBITDA decreased $89 million in favorable customer settlements, as well as $23 million in severance charges. Adjusted EBITDA also includes about $12 million in transaction costs. Those are related to the proposed joint venture with Arch. You'll see, we accelerated a number of activities late in the year. These items resulted in a loss from continuing operations of income taxes of $290 million and a diluted loss per share of $3.12.

Touching briefly on full year results. Revenue declined 17% from the prior year. 2019 loss from continuing operations, net of income taxes, totaled $188 million, along with adjusted EBITDA of $837 million. Digging into the operating performance. Fourth quarter results were bolstered by solid cost improvements across 4 of our 5 operating segments. In fact, seaborne met and seaborne thermal as well as the Midwestern segment reduced per ton cost by 10% versus the prior year.

Within the seaborne thermal segment, fourth quarter export volumes were the highest of the year. We had 3.3 million tons shipped at an average realized price of $64.83 per short ton. Export thermal volumes of 11.5 million tons came in at the low end of our range, with domestic customer remaining strong at 8 million tons delivered last year. Adjusted EBITDA margins for seaborne thermal totaled 33%, supported by strong cost performance from the Wambo Underground. In addition, the Wilpinjong Mine had record railings in 2019.

Moving to the met segment. We saw significant production improvements from both Coppabella and Moorvale. That resulted in the highest quarterly production volumes for the year. The segment also made great strides in cost performance. Fourth quarter costs, excluding North Goonyella, declined 15% compared to September year-to-date cost per ton. Since we last reported, we have successfully reduced North Goonyella holding costs by about half compared to previous quarters. For the fourth quarter, spending totaled $17 million, following a reduction of the workforce in late October. We are continuing to take steps to further reduce our quarterly run rate.

And finally, our U.S. thermal segment performed well during the quarter, generating adjusted EBITDA of $194 million compared to $144 million in the prior year. Solid PRB cost performance led to the segment earning margins of 23% in the quarter. In the Midwest, you'll recall that we are centering our portfolio around our core mines and have previously announced the closure of Cottage Grove and Wildcat Hills, while winding down Somerville. This has resulted in improved costs as we benefit from higher productivity and a more favorable mix from the remaining operations. Peabody also concludes negotiations with owners of the power plant previously served by the Kayenta Mine, which resulted in $69 million in income. The company also achieved a favorable settlement with the PRB customer, providing $20 million in incremental income, $15 million that would have been attributed to 2016 through 2018.

On Slide 5, we ended the year with cash and cash equivalents of $732 million and strong liquidity of $1.28 billion. Peabody remains committed to its long-standing financial approach, and I would emphasize maintaining financial strength. As part of this commitment, we reduced debt by nearly $50 million in the fourth quarter. In fact, we have reduced total liabilities by some $1.2 billion since mid-2017. Net leverage stands at just 0.7x 2019 adjusted EBITDA with gross leverage at 1.6x. CapEx totaled $285 million in 2019. That's nearly 30% lower than our guidance that we set out with at the beginning of the year and is a testament to our ability to adapt to changing conditions.

With that, Glenn will discuss our outlook and targets for 2020.

Thanks, Mark. Turning now to Slide 6. We've outlined several key activities underway in each of our operating areas.

Within seaborne thermal, we expect shared production from the United Wambo JV to begin in late 2020. The JV is intended to optimize mine planning and improve strip ratios, enhance quality and offers the opportunity to extend the life of the surface mine multiple decades. As we work to transition the mine to the JV structure, we would expect some temporary elevation of costs and slightly lower production in 2020 as the Glencore operations ramp up and cutover progresses. Also in New South Wales, I mentioned earlier the Wilpinjong Extension Project, which extends the life of one of the premier thermal coal mines in Australia and offers attractive returns. Both projects are important components of our seaborne thermal strategy and are expected to total a combined $100 million in CapEx for 2020.

In seaborne met, we are taking steps to improve our operating performance and reduce unit costs. At our Coppabella and Moorvale mines, we are working through higher ratios, and our focus is on moving overburden in the most cost-effective manner. We've already demonstrated the improvement [for the possible] of these mines in the fourth quarter.

Our Metropolitan Mine is working to mitigate shorter narrow panels in current mining zones through a third quarter targeted completion of a project to significantly reduce the active mine footprint to streamline people and product logistics.

At North Goonyella, we've took -- taken substantial actions to lower costs. Holding costs are now [tied] to about $24 million for the year, and we're in discussions around an additional $16 million per annum of take-or-pay commitments.

We're also now commencing a commercial process to maximize value, accelerate cash flows and reduce costs. This process comes in response to substantial expressions of interest from potential strategic partners as well as other producers. Commercial outcomes range from a strategic financial partner or joint venture structure to a complete sale of the asset. The commercial process is running in tandem with our current development plans for the 6 North panel. At this point, we are continuing discussions with the Queensland Mines Inspectorate for the ventilation and reentry of Zone B. As we pledged last quarter, no incremental project capital will be committed until Zone B is explored. And of course, as with any major project, they will need to be approved by our Board. We will determine the appropriate level, if any, and timing of capital expenditures as we reach these points.

Moving to U.S. thermal. We are anticipating a decision from the FTC in the first quarter regarding the formation of the proposed highly synergistic PRB/Colorado JV with Arch. Since June, both companies have deployed broad cross-functional teams that have worked diligently to gather and analyze data, plot the requests and address FTC questions. Through this extensive process, [including] Peabody alone have produced more than 3.1 million pages of documents, composed 6 white papers, extended 4 presentations to the FTC staff and participated in 5 investigational hearings. The data set that was created and delivered to the FTC totaled more terabytes than the entire library of Congress.

We also are currently engaged with Arch in permitted integration planning for the proposed JV. This process has been a tremendous endeavor by both companies and one that we continue to believe offers extraordinary synergies and the potential to create substantial value for multiple stakeholders.

Moving from the operations and portfolio, let's discuss our key financial elements on Slide 7. Our strong cash balances and liquidity levels allow for substantial optionality as we evaluate our financial execution. As part of our commitment to the second pillar of our financial approach, maintain financial strength, we are now focusing on debt reduction activities. In just the last quarter of 2019, we reduced debt by about $50 million and the ultimate pace and quantum of debt reduction will be contingent on not only on the industry, but company-specific factors as well. Our mantra as we enter into 2020 is deliver within our means, given changes in industry conditions and our operating portfolio. In response, the company has sharply reduced capital expenditures, modified the portfolio and is continuing improvement activities.

In addition, our Board has made the decision to suspend dividends. And as you would expect, we do not intend to repurchase stock under current conditions. We believe these steps are essential to enabling long-term value creation for the benefit of all stakeholders, including our shareholders.

Turning to Slide 8. I'd like to discuss a few guidance elements for the year as well as our expectations for the first quarter. Against the backdrop of current macro industry conditions, we are targeting lower 2020 SG&A relative to 2018 and 2019. SG&A is expected to be approximately $135 million and reflects improvements in annualized cost savings, a portion of which is included in our segment guidance. I'll remind you that $50 million is on an annualized number, about half of which we've achieved already. The other half will be implemented through the course of this year.

Capital expenditures for 2020 are projected to be approximately $250 million, 12% lower than 2019 actual expenditures and substantially below original 2019 guidance targets. 2020 CapEx includes $100 million related to the seaborne thermal life extension projects I mentioned earlier.

Within our operating segments, we're expecting increased seaborne met coal volumes and reduced met costs. Met volumes are projected to be approximately 8.3 million tons and will be weighted to the second half of 2020. Our 2020 U.S. contract position gives us strength where we have approximately 96 million tons of PRB coal, fully priced. We have the flexibility to produce more, should demand warrant. As is typical, we enter any -- to any given year 90-plus percent priced and are pleased to be in a position to replicate that again this year.

In addition, following the announced closure of the Kayenta Mine and other mines in the Midwest in 2019, Peabody will consolidate the former Midwestern and Western segments into other U.S. thermal for purposes of segment reporting in 2020 and beyond.

Committed volumes of 20 million tons in 2020 reflect the combined effects of these closures and the strength of our contract book. Overall, U.S. thermal costs are expected to be impacted by the federal coal excise tax, which will disappointingly revert to higher historical rates and is expected to have an approximately $30 million impact on costs relative to 2019. As we look at the full year, we would expect our earnings profile to be also weighted to the second half of the year.

I'd now like to discuss several items specific to the first quarter. Overall, we expect lower first quarter results relative to the $205 million of adjusted EBITDA in the fourth quarter of 2019. The [delta's rate] to $89 million in nonrecurring settlement income realized in the fourth quarter, approximately $20 million to $30 million in pricing impacts as well as higher seaborne met costs. We are expecting first quarter met costs to be significantly above our full year guidance of $95 per ton due to an extended longwall move at the Metropolitan Mine, preparation for work on the conveyor system at Shoal Creek, as well as impacts of mine sequencing at the Moorvale Mine.

In regard to Shoal Creek, the outage is a part of an upgrade to the mine's mainline conveyor system. The main North project has been value engineered, includes 13,000 feet of new belt structure, belt and chute work to handle increased load capacities, improved overall system reliability and better match our belt lines to our future production capabilities and motion capacity. In conjunction, we will have an extended several week outage in the first half of the year. While the project requires some downtime and the minimum capital will be deployed for the new infrastructure, which we will -- we expect to have a 12- to 15-year life.

Before we move to questions, I'd like to reiterate that our expected first quarter results, not indicative of our run rate capabilities, we believe the operational improvements will continue to take off throughout the year.

That's a brief summary of an active year in a fast-changing environment. For further discussion, I'd now like to turn the call over for questions. Operator?

(Operator Instructions) We will begin with Michael Dudas with Vertical Research.

Welcome, Mark. First question on North Goonyella. Maybe you can elaborate a little bit more on decisions that you're making in this dual track and maybe a bit more sense on -- given all the regulatory issues and discussions and getting back in the mine, how quickly is this going to evolve over the next few quarters or into 2021?

Thanks, Michael. And job one, as we indicated last quarter, was to reduce the holding cost of North Goonyella. And you've seen us significantly reduce that, not only in the fourth quarter, but the run rate in which we're now -- that we're now down to of about $2 million a month. The dual-track approach, I think, comes about by the fact that we still continue to be in discussions with QMI around reventilation and ultimate reentry of those -- of Zone B and at that point, determining to advance the project for development of the southern panels.

Over the last 3 months, we've had quite a number of inquiries and active interest in participating and looking at North Goonyella, and we thought it was best to capture that and work through a structured process around that activity. It could range from taking on board a partner, a strategic partner, entering into a joint venture. And I'll remind you that North Goonyella is the only 100% operated mine or owned mine within the Peabody Australia portfolio through to a potential outright sale of the asset. I would expect to be able to provide further updates through the course of 2020.

Fair enough. And my follow-up would be regarding on the PRB. That's an impressive amount of terabyte you've provided to the U.S. government. And so -- and it's encouraging that you maybe anticipate a first quarter decision. Assuming a positive decision, how -- and it seems like you've done a lot of -- how quickly do you guys anticipate you can kind of hit the ground running and start to see or explore -- to show and generate some of the opportunities that you guys have been talking about since -- when you announced the beginning of the JV?

Yes. And I would say that in addition to that, I think the work that we've conducted reinforces the confidence that we have in the synergies that exist between the combination of -- the unique combination of assets that we have within the region. I mentioned some of the integration planning and thinking that we were undertaking between Peabody and Arch. And I think some of that is focused on the ability to accelerate the closure type activities that we would indicate. So I think we're certainly first focused on continuing to respond to the FTC. But then, we would, in the event of a positive decision on that, be able to move into preparing for close quite quickly.

We'll now move to our next question, and that will come from David Gagliano with BMO Capital Markets.

Obviously, a lot covered in the press releases today. I'm going to try and hit a couple of the key ones. Just in the terms of the CapEx for 2020, $250 million. If I remember correctly, sustaining CapEx was about $200 million. And then obviously, you flagged the seaborne extension project, it's about $100 million. I think originally, there was a series of projects, including those seaborne mine life extension projects that were going to bring 2020 CapEx close to $400 million, I think. So can you just provide more detail on what's changed in terms of the spending expectations for 2020?

Yes, sure, David. Thanks. It's Mark. Well, yes, we're looking at the sustaining CapEx of $150 million. And that's about $1 a ton, that's maybe a little bit low -- at the lower end of where we've been historically, but it's kind of a testament to the company's ability to adapt to changing conditions. And then as far as the extension, the extension capital, the growth capital of $100 million, that's really looking at the seaborne thermal platform in Australia, $60 million for the open-cut joint venture and then that $40 million for the WEP project.

And I'd also mention, overall, we do have a smaller portfolio with less mines, with the closure of some of the mines. So you can see that number kind of continue down as the company continues through to manage that CapEx number in leaner times.

Okay. And then just switching gears, I have kind of a three-part question here. The PRB, first of all, very impressive cash cost especially considering volumes. So part 1 is what are the main drivers behind that? And what's behind kind of the roughly 6% increase in 2020, cash cost versus the 4Q results? That's the first part.

And then on the other part, the North Goonyella cost for the year. I just didn't hear the comment. Can you clarify what you expect the North Goonyella shutdown cost to be for the year?

And then the last part of this three-part question, Elliott. Obviously, they've been here for a while. You commented briefly on the prepared remarks, we've got 2 Elliott representatives on the Board now, including the Head of U.S. Restructuring. Can you just comment a little more detail on your view on how those new Board members will alter the strategic direction of Peabody?

So I might take 3 of those questions, but get Mark. Mark -- specifically on the PRB, we mentioned the federal excise tax increases, which we'd expect about $0.25 a ton, but that probably -- that covers the majority of that -- the activity. On North Goonyella, I indicated a $2 million run rate for holding costs. In addition to that -- $2 million a month run rate for holding costs. In addition to that, we've got $16 million of take-or-pay for the year. We are in active discussions around that number, as I've indicated. Last quarter, we'd be looking to seek to mitigate the take-or-pay costs around that. They're not within the $95 a ton, of course, for the 2020 metrics.

Elliott and the Elliott additions to the Board, we've been working with that team really since the introduction of Elliott in our capital structure over 4 years ago. So quite familiar with the team, have a close relationship with them and we think they're going to be great additions to the Peabody Board.

And now we'll take a question from Mark Levin with Benchmark.

Great. So 2 questions. The first, maybe can you help bridging EBITDA to free cash flow in 2020. When I'm thinking about just sort of below the line items, obviously, you've laid out CapEx, you've laid out cash interest expense, you've laid out ARO spending. Is there anything else that's not captured in those items that we need to be mindful of when we're trying to get to a true free cash flow number in 2020?

Yes, Mark, thanks for the question. Yes, depending on your price and where you're at, you get your EBITDA number. But the cash numbers that come off of the EBITDA, we have cash interest of about $110 million, CapEx of $250 million, reclamation spend probably about $65 million, and then our retiree health care will be about $45 million.

And Mark, we always talk in terms of taxes really being quite an advantage for us in the sense that this year again is probably a push from a cash standpoint and...

Yes, that's right. I mean there's really no cash tax expense. We really have [normally] offset from AMT credit refunds. So it's a net-zero for 2020.

And we always remind investors of our substantial assets from an NOL position, both in the U.S. and Australia.

Got it. Helpful. And then going back to David's question a second ago, and I think your comment around maintenance CapEx being roughly, I think you mentioned $1 a ton. Is that sustainable into 2021? And then when you think about finishing -- I mean, Wambo and Wilpinjong, is there any additional capital that will be spending in 2021? Was that $100 million just all in 2020 and that we're just down to, in 2021, maintenance CapEx levels?

We'd expect -- maybe I might get Mark to chip in on this, having just gone through extensive budgeting process. So the Wilpinjong Extension Project, we largely think it will be done in 2020, but there will be a little bit of spillover into 2021. The Wambo JV though will continue to go through into 2021. So that's really -- as they ramp up that project, there will be new equipment associated with that joint venture. So we'd still continue to see the Wambo extension activities incur costs in 2021. The sustaining capital levels, ones in which our operators have extensively reviewed, obviously, we've given updated guidance because we've just gone through that budgeting process. And we've got no reason to feel as though it will be different for 2021 at this point, but that's something that we work through during -- you'd expect us to work through during the course of 2020. Put on this, Mark?

No, that was great. We'll continue to reassess and we'll look at projects depending on market conditions. But you hit all the highlights.

And now we'll take a question from Chris Terry with Deutsche Bank.

Yes, my main question, just to start with, is around met coal mix. I noticed on Slide 11, 75% of the hard coking coal index, I think it was 80% to 90% was the last update from 2019. Do you expect that -- is that a result of just changes in the mines? And can you get that back to that 80% to 90% range over time without North Goonyella?

Chris, it's a fair question. So actually, the 80% to 90% would have just been our realizations for coking coal from a hard coking coal perspective, whereas that 75% takes into account PCI sales as well. So on a blended basis across our entire portfolio, we would expect to realize 75% of that hard coking coal price, whereas our realizations on the hard coking coal benchmark for hard coking coal sales would still be similar to that 85% to 90%. So as we look at the overall mix, about 60% of our 2020 met sales are PCI and about 40% are hard coking coal, which should get you to -- for all of those sales, 75% of the hard coking coal benchmark price.

Okay. Yes, that makes -- so previously, you guided the realization separately for PCI and met coal, and now you've pushed it together. Is that correct?

That's exactly right. Yes, just trying to simplify things.

And in general, it's probably worth noting that we have tried, for the benefit of all investors and analysts, to simplify our guidance approach this year. Hopefully, you like that new format. Give us some feedback as time goes by in the interest of making things as straightforward as possible.

Okay. Okay. That makes sense. And then just to finish off on one of the earlier questions, just on the cash flow bridge. I think the only thing that wasn't mentioned was working capital. I just wondered if you could comment on that for 2020.

Yes. I'm not expecting a significant movement in working capital. There was some inventory build over at CMJV that will help sales here in 2020. But otherwise, nothing significant.

And the other piece or element is probably around asset sales from time to time. We have been active around land management or tenement management. So that may be something to add to the mix or think about in the mix.

And Matthew Fields with Bank of America Merrill Lynch has the next question.

Mark, I just have 3 questions. Your pricing guidance on seaborne thermal is $65 per short ton, which is kind of like right in line with where Newcastle is right now. Is that just sort of assuming -- are we assuming sort of that's priced in kind of regardless of sort of the fluctuations in Newcastle price over the year?

Yes, Matt. I think the $65, that's what our contract price is right now, down a little bit from the last time you saw that number, and that's really because we've added some contracted sales on the API 5 higher ash, lower-quality product.

And also, that's a short ton basis. So on a met basis that converts to, call it, $73 or so, which is actually even on a Newcastle basis, a bit above where we find the crowd.

Okay. All right. And then 2 more questions. Which bonds did you repurchase in the quarter and at what average price?

Yes. Consistent with our commitment to reduce the debt leverage -- debt levels, we're able to go out and we reduced that by $50 million, [$49] million of that was repurchase of bonds. We captured a bit of a discount on that. Right now, we're favoring the '22 that are nearest maturity. I think we bought them back at about $97.

So I'm sorry, you spent $41 million repurchasing 2022s?

That's correct.

Okay. And then lastly for me. I appreciate the update on the FTC decision expected in first quarter '20. And I guess we're getting sort of close to the time where you're going to have a plan about how to address the covenants in the bonds to affect that JV transaction. Is there any update on thinking about how you plan to approach bondholders to get that consent or a refi?

Matt, you're right. We're focused 100% on getting an FTC clearance, and hope -- very hopeful for a positive position here in the quarter. If it clears, we have multiple options to accommodate the joint venture, including what you mentioned, potential consents but also refinancing, debt reduction and some other actions. As you'd expect, it's not our practice to comment on specifics ahead of a commercial solution.

Now we're moving to the next question, and that will come from Lucas Pipes with B. Riley FBR.

Two quick ones. For your Australian cost guidance, both on met and then on the thermal side, what's the Australian dollar assumption embedded in that?

We have it at $68.

Very, very helpful. And then just to circle back on North Goonyella. When would you expect the ventilation of Zone B to take place at this point?

Well, as we said, it's -- it wouldn't advance or wouldn't occur until we've -- until we have an appropriate level of engagement and certainty around reventilation and reentry from a Queensland Mines Inspectorate perspective. Those discussions are still ongoing. At that point, if we were to commence the reventilation and reentry process that in itself would probably be about a 3-month activity, perhaps a little bit longer. And we've indicated last time some costs of around $12 million for that area.

Now we'll move to our next question, and that will come from Karl Blunden with Goldman Sachs.

Just a question. As the business is getting focused on, looks like a smaller group of assets over time, could you comment on your minimum liquidity levels, the target that you'd like to have? It's interesting, you do have a lot of liquidity going in. So interested how much of that excess cash you could use to further reduce debt like you did this last quarter.

Yes. The company's historically had an $800 million liquidity target number out there, and we've operated for some time above that level. We continue to reassess. But as noted before, we have multiple commercial processes underway, including that joint venture, as well as the North Goonyella project, both of which can significantly impact the company's cash flows in the future. So as we get in the year and we get some resolution on those items, we'll look to fine-tune that in the future.

Got you. But is it fair to assume that could be materially lower than the $800 million that you've historically had?

I'm sorry, repeat the question?

Is it fair to assume it could be materially lower than the $800 million target that you've historically had?

No. I wouldn't make that assumption.

Okay, got you. And then with regard to addressing covenants or refinancing bonds. In the time frame that, that needs to happen, you need to get the regulatory approval and then look to address covenants. Are there possible cash inflows from any of the sale process that you've initiated or JV process? Or is that something that comes further down the line, and we should kind of look at what you currently have from a liquidity standpoint for addressing the covenants?

Yes. Certainly, [just on] clearance, we have to fill it out for the joint venture and get that done underneath the bond indenture. We can do that before we can close the transaction. We look to do that timely as we can.

Yes. I think if you're looking at possible asset sales, we do have that as a periodic part of the business. And so yes, so we have surface land holdings, we have reserves. So those types of things occur on a relatively frequent basis, but they're also pretty lumpy and tough to predict exact time frames around that. But your point is well taken as well that we've got a large cash position and, of course, a much larger liquidity position on the balance sheet.

And looks like we'll take a follow-up question from Mark Levin with Benchmark.

I think the first question was answered. I wanted to get to what the right liquidity number was. And I also wanted to just see if you changed your kind of views about debt and sort of what you think the appropriate leverage metrics and capital structure should look like going forward.

Yes, Mark, we recognize our debt levels would be lower, and we're committed to reducing that debt. And in fact, you saw that progress in the fourth quarter. As Glenn mentioned, the development quantum and pace of the debt reduction is contingent on both industry and company-specific factors.

Okay. Got it. And then next question, AMT tax rate. I don't know if you guys referred to it or mentioned it earlier in the call, I didn't hear. If you did, I apologize. Is there -- what's left on the tax refund? Is there anything coming in on that end or expected to?

Yes. From an AMT credit perspective, we collected $46 million in 2019. So there's still about $46 million left to be collected. We'll collect half of that here in 2020.

Okay. So 20 -- $23 million model, about $23 million in 2020?

Yes, that's right.

And now we'll move to a follow-up from Chris Terry with Deutsche Bank.

Just a couple of follow-ups from my side. One, just on North Goonyella with the dual-track approach. Do you think a potential buyer or JV partner will want to see more work on the ventilation done before they'd be interested? Or can you just give a little bit of color on the potential timing on that? And then just secondly on the overall market conditions. If you could just comment on what you're seeing in the early parts of the year in China, and whether there's been any impact around ports, et cetera, as a result of the coronavirus.

Yes. Thanks, Chris. So just tackling the first one. I'm not -- I think what -- the feedback we've got from multiple sources around North Goonyella is essentially the quality of the hard coking coal being that it's a recognized benchmark-type quality. The second is the infrastructure that we have. As we talked about, we have multiple reserves as the GM South scene, there also is the lowest scene that we've talked about. So really, the way we look at it, all of that is of significant value from our perspective.

With respect to the second question, to date, obviously, there's a great deal of uncertainty around the impact, but we've not seen any direct impact at this stage in terms of our shipments or our loadings. But as things play out in terms of potential for court restrictions, really at both ends of the logistics chain, how that could impact on the flow of shipping, that's a little bit too early to predict. I should point out that we do have an office in China. Our folks are working from home at this point so that they don't -- they're not required to go into the office along the transportation system. So that's been our approach today.

China, recall, is probably not the first market for us. We've talked about in the past that we've been timing the traditional relationship markets. Japan, Korea, Taiwan, but nonetheless, we recognize that China does have an important impact on global trade, and in particular, around coal movements.

Yes. Just from a statistic standpoint, that's just 4% of our revenues from a company perspective. So as Glenn notes, important market, a small -- much smaller percentage for us than for some other.

And ladies and gentlemen, that's all the time we have for questions. I'll turn the call back over to Mr. Glenn Kellow for closing remarks.

Thank you to all of today's participants. Look, as we've outlined, we expect it to be an active 2020. At our operations, we are focused on the basics of dig and deliver. At the financial level, we are insistent on living within our means during leaner times. And within the portfolio, we have assumed the low-cost reshaping of our business to best position us for success. Our employees are the foundation of each of these initiatives, and I would like to express my gratitude for your many contributions to our business. I'd also like to thank our investors for your continued interest and support in the years ahead.

Operator, that concludes today's call.

Once again, that does conclude your Peabody Fourth Quarter 2019 Earnings Conference Call. You may now disconnect.