PEABODY ENERGY CORP 10-Q

Item 3. Quantitative and Qualitative Disclosures About Market Risk. Coal Pricing Risk The Company predominantly manages its commodity price risk for its non-trading, long-term coal contract portfolio through the use of long-term coal supply agreements (those with terms longer than one year) to the extent possible, rather than through the use of derivative instruments. As of March 31, 2024, the Company had approximately 100 million tons of U.S. thermal coal priced and committed for 2024. This includes approximately 85 million tons of PRB coal and 15 million tons of other U.S. thermal coal. The Company has the flexibility to increase volumes should demand warrant. Peabody is estimating full year 2024 thermal coal sales volumes from its Seaborne Thermal segment of 15 million to 16 million tons comprised of thermal export volume of 9 million to 11 million tons and domestic volume of 5.8 million tons. Peabody is estimating full year 2024 metallurgical coal sales from its Seaborne Metallurgical segment of 7.5 million to 8.5 million tons. Sales commitments in the metallurgical coal market are typically not long-term in nature, and the Company is therefore subject to fluctuations in market pricing. The Company’s sensitivity to market pricing in thermal coal markets is dependent on the duration of contracts. As of March 31, 2024, the Company had no coal derivative contracts related to its forecasted sales. Historically, such financial contracts have included futures and forwards. Foreign Currency Risk The Company utilizes options and collars to hedge currency risk associated with anticipated Australian dollar operating expenditures. The accounting for these derivatives is discussed in Note 6. “Derivatives and Fair Value Measurements” to the accompanying unaudited condensed consolidated financial statements. As of March 31, 2024, the Company held average rate options with an aggregate notional amount of $516.0 million Australian dollars to hedge currency risk associated with anticipated Australian dollar operating expenditures over the nine-month period ending December 31, 2024. As of March 31, 2024, the Company also held purchased collars with an aggregate notional amount of $431.0 million Australian dollars related to anticipated Australian dollar operating expenditures during the nine-month period ending December 31, 2024. Assuming the Company had no foreign currency hedging instruments in place, its exposure in operating costs and expenses due to a $0.10 change in the Australian dollar/U.S. dollar exchange rate is approximately $190 to $200 million for the next twelve months. Based upon the Australian dollar/U.S. dollar exchange rate at March 31, 2024, the currency option contracts outstanding at that date would limit the Company’s exposure to approximately $146 million with respect to a $0.10 increase in the exchange rate, while the Company would benefit by approximately $167 million with respect to a $0.10 decrease in the exchange rate for the next twelve months. Although Peabody believes its Australian dollar monetary asset position acts as a hedge to lessen the impact on its results from operations, the Company may continue to use options and collars to hedge its cash flow exposure to currency risk associated with anticipated Australian dollar operating expenditures. Diesel Fuel Price Risk The Company expects to consume 90 to 100 million gallons of diesel fuel during the next twelve months. A $10 per barrel change in the price of crude oil (the primary component of a refined diesel fuel product) would increase or decrease its annual diesel fuel costs by approximately $22 million based on its expected usage. As of March 31, 2024, the Company did not have any diesel fuel derivative instruments in place. The Company partially manages the price risk of diesel fuel through the use of cost pass-through contacts with certain customers. Interest Rate Risk Peabody’s objectives in managing exposure to interest rate changes are to limit the impact of interest rate changes on earnings and cash flows and to lower overall borrowing costs. Peabody is primarily exposed to interest rate risk as a result of its interest-earning cash balances and its long-term debt. 43 Table of Contents Peabody’s interest-earning cash and restricted cash balances are primarily held in deposit accounts and investments with maturities of three months or less. Therefore, these balances are subject to interest rate fluctuations and could produce less income if interest rates fall. Based upon its interest-earning cash and restricted cash balances at March 31, 2024, a one percentage point decrease in interest rates would result in a decrease of approximately $15 million to interest income. As of March 31, 2024, Peabody had approximately $320 million of fixed-rate borrowings, no variable-rate borrowings outstanding and no interest rate swaps in place. A one percentage point increase in interest rates would result in a decrease of approximately $62 million in the estimated fair value of these borrowings.