Jul 21, 2009
Executives
Vic Svec - Senior Vice President, Investor Relations and Corporate Communications Gregory H. Boyce - Chairman and Chief Executive Officer Michael C.
Crews - Executive Vice President and Chief Financial Officer Richard A. Navarre - President and Chief Commercial Officer
Analysts
Shneur Gershuni - UBS Securities LLC Michael Dudas - Jefferies & Company Curt Woodworth - Macquarie Group James Rollyson - Raymond James Paul Forward - Stifel, Nicolaus & Co. Kuni Chen - Bank of America Securities/Merrill Lynch Brian Gamble - Simmons Luther Lu - FBR Capital markets Mark Liinamaa - Morgan Stanley John Bridges - JP Morgan Brian Singer - Goldman Sachs & Co Mark Caruso - Millennium Partners David Lipschitz - CLSA Lawrence Jones - Barclays Capital Lasan Johong - RBC Capital Markets Justine Fisher - Goldman, Sachs & Co.
Sunil Gathader - Sentinel Investment
Operator
Ladies and Gentlemen, thank you for standing by and welcome to the Peabody Energy Quarterly Earnings Conference Call. For today's conference, only phone participants 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. Now, that being said, I'll turn the conference over to the Senior Vice President in Investor Relations and Corporate Communication, Mr.
Vic Svec. Please go ahead sir.
Vic Svec
Well, thank you, John and good morning everyone. Thanks for taking part in the conference call this morning for BTU.
Today, our Chairman and CEO, Greg Boyce will provide an overview of the economy, our markets and environmental activities. Executive Vice President and CFO, Mike Crews will review our second quarter and our President and Chief Commercial Officer, Rich Navarre will discuss Peabody's position in the current macro environment.
Forward-looking statements should be considered with the risk factors that we noted at the end of our release. As always, of course, the MD&A section of our filed documents.
We also refer you to peabodyenergy.com for additional information. And with that I'll turn the call over to Greg.
Gregory H. Boyce
Thanks Vic and good morning everyone. Mike will review our solid quarter amid the current economic turmoil and Rick will discuss Peabody's sales and trading initiatives given the varied market dynamics.
But I'd like to focus on our insights into the economy, the coal markets and provide some environmental updates. Now, the macro economy is clear, continue to be driven by emerging nations such as China, India and Indonesia.
It led during strong economic times and continue to outperform in recession, growing at a reduced but still impressive mid-single digit case. The recent data showing China car sales outpacing the U.S.
and a 7.9% China GDP market a quarter punctuates the point even further. This is in contrast with the U.S.
and Europe, which continue to experience recessionary effects, very cool weather and lower steel production. Globally, coal is the low cost large scale global fuel.
So it's no surprise that the largest or fastest growing global economies are powered by coal. Coal is once again the fastest growing fuel in the world in 2008 and the five successive years before that.
Long-term coal growth is projected to outpace the combined growth in natural gas, hydro, nuclear, wind and solar. So expanding in the regions that serve the world's fastest growing economies is central to our strategy.
Our international earnings eclipsed the 50% mark in 2008 and global growth will be the primary focus of our attention in investments going forward. Let's turn from the economy to energy.
Now we're seeing stabilization and signs of early recovery in coal markets in the Asia Pacific region, while neither is yet evident in the Atlantic or U.S. markets.
After the end of steel de-stocking in a number of Asian countries and the annual contracts settlements, met coal demand has begun to accelerate while thermal demand is holding its own. In the global met markets, we have seen a 35% reduction in global steel demand outside of China, which is still up over 2008 levels.
Fortunately, global fuel cuts have been matched by 45 to 50 million tons of decline in seaborne met output, most of which are in a higher cost regions of the U.S., Russia and Canada. And regarding seaborne thermal coal, the specific supplies are expected to remain larger and stable in the second half of 2009, while the Atlantic markets will be down, based on sharply lower U.S.
exports. Now, the real market appears stronger than the prompt spot industry suggest.
Lack of investment will cause a sharp rebound when economies recover. In longer term, global supply and demand will be dominated by Australia and Asia, more than 200 gigawatts of new global generation, that is under construction will come online over the next five years, representing 700 million tons of incremental annual coal demand.
Let's focus on China and India for a moment. China's GDP continues to surprise the world.
China is also importing coal at a record rate. May had been the highest month so far this year, until June numbers came in overnight.
China's net imports were up an amazing 15 million tons in June, 36 million tons now year-to-date, as China has set a 12 year low mark in exports last month. In India, rolling blackouts remained common place.
Coal stock piles were again at critically low levels and the imports are rising. Our view is that India will be the fastest growing coal importer over the next decade.
Now as we look to the Atlantic, we are not yet prepared to say that a rebound is taking hold. Steel plant output remains weak.
Electricity generation is soft and inventories are high. The strong export story of 2008 is unwinding this year due to lower European demand and the fact that the U.S.
is positioned high on the global cost curve. The U.S.
needs to work through reduced generation, industrial use and exports. So, demand for U.S.
coal is likely to be some 115 to 125 million tons lower this year. And, at the same time we are seeing coal stock piles 15 to 20 days above normal.
So that's a brief look at the international and U.S. dynamics.
Given the Asia-Pacific growth, it is important to know that Peabody continues to build our global coal platform. During the quarter, we finalize the joint venture commitment with Peabody-Polo Resources in Mongolia.
We agree to explore a joint development of a major open cut mine in Northwestern China with Lu'an, our local partners. We continue to evaluate acquisitions of companies, asset and joint ventures particularly in the Asia Pacific, during this opportunistic time.
And our global coal trading business continues to expand. In fact, in recognition of what we see is the strongest and fastest growing markets for coal, Peabody will be establishing a new Asia Pacific trading hub in South East Asia.
The office will further expand our presence in serving the fast growing importing nations while accessing coal supplies in Indonesia, Vietnam and other nations. You can look for a more detailed announcement later this quarter.
No one else has the leverage to the fast growing Asia Pacific markets. As we look out over a five year horizon, we only see growth from the two U.S.
markets where Peabody is strongest, the PRV and Illinois Basin. But even their growth will be lower than the high growth specific centers of China and India.
Peabody has the best balance sheet and we will accelerate our focus in growth in the Pacific markets. Now the third area, I would like to review is the recent activity in Green coal and carbon management initiatives.
This year we've seen a ramp up of activity around the world on carbon capture and storage and the consideration of carbon legislation in the U.S. and Australia.
I'll address the latter first. The U.S.
House eked out passage of what is commonly called Waxman-Markey bill after changing it considerably. It now faces a lightly uphill battle in the Senate.
We view the house bill as a potential cup, half full. On the plus side there is growing recognition of coals and pores in energy security and affordable electricity.
We also saw a major support for carbon capture and storage. Significant changes however will be required in the Senate to produce a passable bill.
We have also been encouraged by the acceleration of CCS projects. FutureGen has new momentum, GreenGen has started construction.
Gasification and retrofit projects are advancing in multiple countries, the U.S. and U.K.
are expanding their funding and many new companies are entering the CCS space. Peabody continues to participate in more than a dozen initiatives across the U.S.
and globe to accelerate CCS deployment. I believe the Peabody team is performing extremely well and we're executing an operational plan that addresses the tough times.
And we are looking past the next few quarters to ensure that we capitalize on opportunities to capture and drive far greater growth long term. Now for a review of our finances, I'll turn the call over the Mike.
Michael C. Crews
Well thank you Greg, good morning everyone. We have already turned in a stalled second quarter amid the current global recession.
Despite the soft demand, our EBITDA is on par with last quarter and our liquidity remains at very comfortable levels. Given the changes brought on by the current economy, I will generally discuss second quarter performance relative to the first quarter of this year rather than a year ago.
I'll begin with the income statement highlights. Revenues for the quarter totaled $1.3 billion or 8% below first quarter driven by lower pricing on the April 1 annual contracts in Australia.
Our trading in brokerage revenues were lower sequentially. However, year-to-date they were comparable with 2008 and in the U.S., our revenues exceeded both first quarter and last year due to higher prices.
Second quarter EBITDA was $324 million, in consistent with our first quarter. Contributions for mining operations rose 5% as Australian -- higher Australian output more than offset lower PRB volumes.
Tax expense reached $77 million, largely due to the re-measurement of tax liabilities denominated in Australian Dollars. The Australian Dollar rose 18% against the U.S.
Dollar during the quarter, adding $48 million of tax expense. The increase in tax expense were re-measuring these long dated tax liabilities as non-cash and obviously beyond our control but canceling the tax line significantly.
In wealth terms, every $0.01 change in the A Dollar resulted a $0.01 change in earnings per share going forward, due to the tax re-measurement. This quarter, the effect was $0.18.
Back in January, I said that our annual effective tax rates would be likely be around 20%. Assuming today the exchange rate, the non-cash currency during the re-measurement we've had so far this year, adds another 10% to our effective tax rate.
Now let's turn to the supplemental schedule beginning with the U.S. sales of 47 million tons.
Revenue per ton improved 4% from the first quarter on slightly lower volumes. Lesser volumes declined 5% in the first quarter, a slightly higher South West to Colorado deliveries were more than offset by reduced PRB volumes.
We lower production nearly 3 million tons in the PRB as we work our way towards our 10 million tons of planned cuts versus 2008. You will recall that we are targeting 2009 production at 185 to 190 million tons which would be 10 to 15 million tons below 2008 level.
We are on our way towards those levels, with annualized production of just over 190 million tons but we expect further cuts in the back half in the year. Our reductions were in line with the overall 7.5% decline in U.S.
generation that we anticipate for the year. Turning now to revenues, our lesser per ton reflects both the change of mix towards higher price contracts as well as improved contracted prices over first quarter.
On the cost side, Western per ton cost reflects sell off more PRB production levels as we adjust the lower customer demands and the change in sales mix. In the Mid-West, our improved revenue per ton reflects the roll off of lower priced contracts in event of the contract signed last year.
By holding the line on cost, we've expanded our Mid Western margins for the fifth consecutive quarter. In Australia, volumes rose to just over 5 million tons, versus first quarter's 4.5 million, and included 1 million tons of met coal.
Our mostly met volumes increased throughout the quarter as Asian customers returned to the market. And we secured to new sales to China.
We still expect full year met sales of 5.5 to 6.5 million tons. Our revenues of $62 per ton reflect a blend of legacy in domestic contracts as well as contracts that priced April 1.
Australia costs were $38 per ton, which is notably lower than the first quarter and our run rate. The main driver was the change of mix towards lower cost thermal coal as well as higher met coal inventories due to extended customer negotiations and related shipment delays.
As I mentioned, in this ramp up over the rest of the year, you will also see the impact on costs which we expect to average 55 to $60 per ton for the full year. Turning now to the balance sheet, cash continues to be solid at $446 million.
And our liquidity remains near $2 billion. The change from March relates to the timing of Australian tax payments and the higher met coal inventories.
We continue to exercise tight capital discipline, CapEx was $58 million for the second quarter and a $107 million year-to-date. Total capital for the year is expected to be 400 to $450 million, including sustaining capital of $1 dollar to a $1.50 per ton as well as about a $100 million for the new Bear Run Mine and $60 million to fund our Florida state investment.
With most Australian contracts now finalized, we are initiating full year targets. EBITDA is expected to be 1 billion to $1.2 billion with earnings per share with $1 to $1.40 including the re-measurement of tax.
I had note that our EPS range is in stable currency range for the remainder of the year. Our 2009 targets include the second half impacts of lower Australian contract pricing, partial deferral of Australian carry over guide beyond 2009, lower U.S.
production and lower anticipated trading activities industry wide. One final point regarding guidance, which as you know has been initiated later this year given at the late annual contracts settlements.
Because our book of businesses is heavily shaped by international commitments, going forward we intend to give our first annual guidance in the April timeframe, in line with international settlements With that overview of our financials, I will now turn the call over to Rich.
Richard A. Navarre
Thank you Mike and good morning everyone. I plan to provide more detail on the global and U.S.
markets and Peabody's position in those markets. Having recently visited the major specific demand and supply centers of China, Indonesia and India, I would reinforce Greg's earlier comments.
The difference between the Asia Pacific markets and the U.S and Atlantic markets are dramatic. Starting first with the global metallurgical markets.
The current Asian met coal landscape is changing quickly as we're beginning to see the effects of de-stocking and higher demand. In addition many customers had been holding off on sending ships until our contract negotiations were finished.
This probably explains the recent resurgence in shipping. Peabody's June met coal shipments for instance were more than double our April levels.
Strong shipping and sluggish rail performance also lead to longer ship use in Australia. This combination has driven tighter Asian met coal markets.
The spot price of met coal has moved above the benchmark settlements. And we believe the markets could tighten further as time passes.
Because of the protracted settlements that we discussed, we still have met coal, it's unpriced for 2009 and that sets us up quite nicely. Much of the surprising strength in this year's global met markets comes from the scarcity in hard coking coals, as well as the rise in China imports.
In China demand is real, China has just set a record for six months steel production. Its strong met coal demand means that Australian PCI products are now being pulled back into the met markets and out of the thermal supply and not competing with the thermal coals.
And as Greg mentioned, we've seen the Australian imports increase a 126% this year, quite a significant number. The last point on met coal is related to the settlements that we did occur after our first quarter conference call.
You'll recall that on the last call we were just beginning to settle the issues on pricing, volume and carry over terms. We concluded most of our business off the $129 benchmark for the high quality hard coking coals.
We also had 1.7 million tons of met contracts that had not been delivered in the prior contract year representing more than $200 million in EBITDA. During our April call, we indicated that we intended to retain this value from this high end business and the good news is that we do expect to recover most of this value, although some of this will be on deferred basis with about half of it coming through this calendar year and the remainder to be expected to be realized in 2010 through 2012.
In the seaborne thermal coal. We're also seeing improve in pricing.
We conclude the bulk of our annual contracts after the benchmarks in the $71 range. The spot market here is also ahead of the contracted pricing with very sharp contangos into the two to three year forward curves as much as 50% higher.
We're also strongly encouraged by the seaborne Pacific market, particularly India, the world's fastest growing coal importer. I've recently met with and spoke with high ranking Indian coal officials and executives who say the nation will need as much as 200 million tons of imports within the next five years on an annual basis.
Even if only half of this occurs, it is a tremendous demand increase for the seaborne markets. As Greg said, our new Asian trading hub will be part of our increased focus to serve this growing market.
I'll now turn to the U.S. market.
For the full year, Greg referenced the decline in U.S. demand of some 115 to 125 million tons.
This is represented roughly by 65 to 75 -- 65 to 70 million tons of lower generation, 25 from industrial and 25 to 30 from reduced exports. Well, this paints a cloudy near term picture.
Markets can change very quickly and I would emphasize several points. U.S.
coal production has begun to rationalize. In the past four weeks, the PRV is running at a pace some 60 million tons less than prior year.
In overall, U.S. shipments declined by 25 million tons in the second quarter, about a 100 million tons annualized, if it stays at that pace.
To be clear, it's our view that this is likely still not enough but we believe cost challenges will create an unsustainable production level in Appalachian, where at least, one-third of the production at the cost structure that's higher than current market prices. Appalachian has also been most affected by low natural gas prices and the significant decline in exports.
New coal plants that are coming on line will increase coal use by 70 million tons over the next few years and will most benefit the PRV in Illinois basin, regions where Greg mentioned we have the number one position. Yet still with U.S.
stock piles currently well above target levels, it is clear that a U.S. recovery will lag the Pacific markets.
That's why we strategically positioned 2010 as our business substantially priced in the United States and as a result we have very little unsold U.S. production referring to have our major leverage to the strengthening global markets.
With that I'll now turn back to Greg for concluding thoughts before we open the call for question.
Gregory H. Boyce
Thanks Rich. As a review of Peabody's second quarter, the state of the global and Peabody's near and long term actions to work through the current economic challenges and position us for even greater long term growth.
I want to thank Peabody employees worldwide for their efforts during the quarter. We believe we are uniquely positioned when the markets will rebound the fastest and have the highest growth rates and we've got the market insight and the balance sheet to capture these opportunities.
And with that, John we'd be happy to open up the call for questions.
Operator
(Operator Instructions). And we ask to please try and limit your self to one question and one follow-up.
First we'll go to the line of Shneur Gershuni with UBS. Please go ahead.
Shneur Gershuni - UBS Securities LLC
Hi good morning guys.
Gregory Boyce
Good morning, Shneur.
Shneur Gershuni - UBS Securities LLC
Just had a quick couple of quick questions actually. I was wondering if we can kind of start on the guidance assumptions for the back half of the year.
If I take sort of take out the first half of the year, it kind of seems like you're implying certainly on the low end that you expected the second half of the year to be more challenging than the first half of the year and I was just wondering if you can direct us as to what areas where you expect to see these challenges arising from?
Gregory Boyce
Sure, while I think as Mike indicated in his remarks, if you'd look at the back half versus the first half, obviously we see lower volumes in the U.S. as the full impact of our plant reductions come into effect in the second half of the year.
We'll see lower pricing for our Australian platform, the full impact of that for the second half of the year. We will be shipping more on met coal on the second half of the year but overall the pricing structure will come down and so those are really the two big impacts to the year.
We're also -- I think that our trading platform will be quieter in the back half of the year. There's been a numbers of counter parties that have left the market, the amount of trading activity has slowed, so as we look at the back half of the year, we think that area will be down as well.
Shneur Gershuni - UBS Securities LLC
Okay and I guess two more just tiding up questions on the quarter. I was wondering if you can try to give a breakdown of what shift with respect to met coal out of the Australian operation?
What was roll over tons? What was new contracted PCI, semi-soft and so forth?
Richard Navarre
Sure, this is Rich. That's a lot of detail to go through by quality.
We typically go and give it to you by quality but we did ship fleet, I mean we started to ship in significantly higher qualities in June and we still expect, I mean the ultimate number really is we're going to ship 6.5 million tons metallurgical coal for 2009 and.
Shneur Gershuni - UBS Securities LLC
Okay. I can follow with Christine if like afterwards and then just one last question on the Mid West.
We trying to start big picked up in volumes there and so forth, can we expect that run-rate through the back half of the year or do we expect that to come off though as well to as part of the volumes falling off in the U.S.?
Michael Crews
I think, overall we'll probably see some of the volumes in the Mid West come off from the second half as well.
Gregory Boyce
And there's also a little bit of anomaly because we have some purchase coal that's in this quarter that makes up the overall productions in number look little bit higher.
Shneur Gershuni - UBS Securities LLC
Perfect. Thank you very much.
Operator
Our next question is from Michael Dudas with Jefferies. Please go ahead.
Michael Dudas - Jefferies & Company
Gentlemen, good morning.
Gregory Boyce
Good morning, Michael.
Michael Dudas - Jefferies & Company
For either Greg or Rick, can you characterize since last year in the U.S. coal market, would you characterize what we are witnessing as more cyclical forces or do you are seeing some secular changes that will make the U.S.
coal industry when it emerges from this downturn different than may be you have thought 12 to 24 mints.
Gregory Boyce
Well I think underlying that question is the assumptions that you have to make about the economy and what's going to drive GDP growth forward. I would say that in terms of industrial demand for electricity as well as the industrial load directly for coal, I think the answer to that question is whether its cyclical or going to be a longer term change is still a bit unanswered quite frankly, we are very concerned the overall economic activity and if you will the lack of solid footing and recovery on the industrial load for electricity as well as the direct industrial call for coal.
But it is unclear as to whether that's a long term effect or cyclical and that remains to be seen.
Richard Navarre
Well on the supply front I think there is no question that you've seen and we're seeing a transformation is the supply front. You got the east rising in terms of mining complexity regulatory complexity and cost structure which in our view will shift by volumes continually to the Illinois basin and Apollo river basin which is why we see those two sectors of the US supply growing over the future, while the rest of the US platforms beginning a long term decline.
Michael Dudas - Jefferies & Company
Well, thank you Rick and to my follow up, Rick commenting on your trips throughout the past two three months internationally, can you may be comment -- you talked very directly about the demand picture of China, India, other merging nations. How about the supply, I guess two areas I'm thinking about, one Indonesia; how much can they impact or help and satisfy some of that Indian demand?
And secondly possibly South Africa and their appetite to sell more coal into the Pacific basin, how that could maybe impact flows going into the Atlantic?
Richard Navarre
Those are good questions Mike. When you look at the supply side clearly, there is a couple places where the supply has to come from this, the growth in Asia and Indonesia, has been the fastest growing thermal exporter in last five to six years.
And that growth has started to slow a bit over quality issues and also regulatory issues than Indonesia to keep more domestic coal at home to satisfy, they've got a large 10,000 mega watt crash program of building coal fire generation in the country. So but we still see Indonesia as a major player to be able to provide that coal into India.
So that's we think that's going to continue to happen. As we look at Australia, I clearly we think Australia is going to I mean when its all said and done Australia will be the dominant exporter, net and thermal coal at the end of the day.
South Africa is moving some coal into Indonesia into India certainly and it’s all about transportation, how much needs to be staying home in South Africa. I don't see South Africa personally growing as fast as the other two regions.
Michael Dudas - Jefferies & Company
Thank you gentlemen.
Richard Navarre
Thank you.
Operator
The next question is from the line of Curt Woodworth with Macquarie. Please go ahead.
Curt Woodworth - Macquarie Group
Hi good morning, thanks for all the detail.
Richard Navarre
Good morning Curt.
Curt Woodworth - Macquarie Group
You know Rick at the Macolsky (ph) Conference you commented that you expected to see some of the spot business being about in the mid side above the bench mark and we've seen a few tenders where that has happened. How much tonnage do you have right now that is unpriced, for that could be sold into the spot market, and do you think you will be able see some of those price realizations for you guys specifically?
Richard Navarre
We -- two parts of the answer, first we have realized some of those numbers that are higher than benchmark, not in significant quantities because the numbers have just started to move above that number. So the numbers are real.
Second I'd say, without giving away too much on what we have on committed, I tell you certainly there's opportunities of up to a million tonnes of production that we have as we said because of the contracted settlements. We haven't sold all the coal that we would have normally sold by now in the met business, so we do have opportunities.
Curt Woodworth - Macquarie Group
And in aggregate when you look at the 6.5 million tones of met you could sell this to, how much do you think could ship into China?
Richard Navarre
If we moved our -- it could be couple of million tonnes.
Curt Woodworth - Macquarie Group
And that would be out from part of the annual odds there right?
Richard Navarre
And we could move more to our trade house as well, and we have shipped a lot of coal into China from our trading shop (ph) as well.
Curt Woodworth - Macquarie Group
Okay.
Richard Navarre
And we have -- moving to China comes just from trading by buying coal from others.
Curt Woodworth - Macquarie Group
Okay.
Gregory Boyce
And that would be up from a very-very minimal amount last year.
Curt Woodworth - Macquarie Group
Right. Okay.
And one last question, on the cost performance in Australia you guided to 55 to 60 for the year, is that what imply the back half will be running at about $50 a ton. And if you look with the royalty rates are, they're going to be down a fair amount of -- I mean based on my numbers you're looking at COGS that's royalties are up, anywhere from 10 to $15 a ton.
Is that math right and what's driving some of the incremental cost pressures in Australia?
Michael Crews
Well, when you look at the first quarter we were a little over $62, though with 70 and $80 was related to the three long-long moves that we had.
Curt Woodworth - Macquarie Group
Yes.
Michael Crews
But the primary decline into the second quarter really has to do with mix. Our normal mix in the quarter on met coal is going to be about 35% of the total.
Curt Woodworth - Macquarie Group
Okay.
Michael Crews
It's only 18-19% in the first quarter. In addition with that the thermal component we had shipped some additional domestic thermal which is lower cost as well.
So it's that mix to a higher run rate on net coal in the third and fourth quarter that's going to drive that overall average cost per ton up.
Curt Woodworth - Macquarie Group
Right, but even working at that, I know... I understand that the sequential on the year-over-year basis in the back half of the year with kind of a similar met profile, it looks like your costs are going to be up a fair amount excluding royalties.
Is there anything behind that or is that maybe we can touch this offline? Because I think the FX rate is about similar.
Michael Crews
Yeah, you're right. The FX rate is similar.
We will see slightly lower royalties. We are projecting a little bit to emerge in the second half.
Curt Woodworth - Macquarie Group
Yeah. Okay all right great, well thanks very much guys.
Michael Crews
Thank you.
Operator
Our next questions from Jim Rollyson with Raymond James, please go ahead.
James Rollyson - Raymond James
Good morning everyone.
Gregory Boyce
Good morning Jim.
James Rollyson - Raymond James
Couple of maybe big picture questions. You guys are obviously kind of highlighting your favorability towards the Asia-Pacific market and you guys have made some moves there recently.
Can you may be Greg or Rick talk about, kind of the skills and time frame and maybe cost. Your developments in Polo resources and your recent North Western China thermal adventure, just kind of timing and size and that kind of stuff realized just a way down a little bit.
Gregory Boyce
Yeah, I think, to characterize both of those as emerging opportunities is probably the best approach. We are focused right now.
We've got a significant number of licensed areas that we hold with the Peabody Polo joint venture in Mongolia, and we're drilling on a number of those right now. Our focus for this year and next year is a fairly extensive drilling program as we try to identify which are the best reserve blocks to begin production on first.
So, I think we're probably several years away from having subsided production out of Mongolia. In the case of the China opportunity, there is already a small mine that has been started on that reserve block, it's a very larger reserve block in Western China, and we're working with our partner and looking at opportunities and timing as to how we might be able to increase the volumes there.
Part of that is dependent on the timing of the completion of rail-road expansion which has started and is taking place as we speak. But again, we're probably looking at 18 months to a three year window where we see us getting up to the kind of volumes that ultimately we would look at in terms of that, that operation.
James Rollyson - Raymond James
Fair enough, and this kind of a follow-up another big picture question; the article in the journal yesterday talking about the steel guys negotiations with the I don't know producers possibly trying to cut it back to a quarterly negotiation rather than annual deal. I guess, do you see that gaining any traction, do you see that spilling over possibly into the met market?
Gregory Boyce
Well yeah, I read that. It’s an interesting concept.
I mean we're all having so much fun on an annual basis, I can't imagine why we'd want to do it on a quarterly basis. And at this point in time there's been no indication and no discussions, no direction on the coal side to move that up to anything less than the annual negotiations.
The iron ore sector is significantly more concentrated. They've got a variability on their supply side, their lead times are a little bit different and cost structure is different in terms of bringing on new production.
So, whether all of that is feeding into kind of a joint view by the sellers and the buyers if they ought to look at a different pricing mechanism, that's a bit of a speculation here. But, suffices to say, to move from a protracted annual price negotiation on the coal side to a protracted quarterly price negotiation doesn't sound all that appetizing to us.
James Rollyson - Raymond James
Okay great, thanks guys.
Gregory Boyce
Thank you.
Operator
And next to the line of Paul Forward with Stifel, Nicolaus. Please go ahead.
Paul Forward - Stifel, Nicolaus & Co.
All right, yes. Thanks.
On the on this new pricing for the 20 million tons of planned production for 2010, I guess a couple of questions. One, were you able to commit at levels that could allow you to avoid some sort of margin deterioration from the roughly $4 -- $4 margin is not on the Western U.S.
this quarter? And then two why in this crummy market environment, can bid anything at all?
Gregory Boyce
Well Paul this is Greg, I mean clearly we've got a business to run and we have contracts that have reopen of provisions that we have to renegotiate for provisions under the terms and those of the contract, not on the contracts. The majority of that 20 million tons if you think about it, it was, we run out of stock market actively seeking spot sales of new business.
We were responding to contractual holders. So, that's why we did it.
So I don't think we were chasing the crummy market by any means and I think at the end of the day, I wouldn't look for the stock prices. So again when you use any tough indication where contractual numbers would be.
Michael Crews
Yeah Paul, I would say that we probably have seen, this past quarter I'd say this past half a year we're probably seeing one of the widest gaps and differential between contract pricing and spot rising we've seen for a long time. Partly, it's because of the size of the inventory and there are few folks out there that are trying to liquidate excess inventory that's disproportionately impacting the stock market versus what we're seeing in the contractual markets.
So, we've already said we had a sales strategy that layer in profitable business in all markets. We're going to maintain a billion ton forward book of sales.
We've got to be selling 250 million tons of coal every year. That's a pretty higher run rate on a quarterly basis for sales.
So and in good markets we accelerate and in slow markets we sell the minimum and as Rich eluded to what we priced in the second quarter and the little bit that we solved, we viewed it as the minimum we needed to do, to maintain the operations and to meet our contractual requirements.
Paul Forward - Stifel, Nicolaus & Co.
Okay. Thanks and you've got a lot of visibility down on 2010 pricing and commitments in the ordinary basin in the Western U.S.
Could you anticipate, if you look at contract re-pricings and so on that you would have a margin improvements or a loss of margin from full year '09 to full year 2010 in those two regions?
Michael Crews
Well, I think that, I think the short answer Paul, is we haven't finalized the volumes by the particular areas, for particular whether it's going to be PRV volumes versus Colorado versus South West versus particular parts of the Illinois basin, the high yield, the lower yield. So, it's a bit difficult to give you an average estimate for 2010 plus its bit early.
So, suffice it to say that within specific product lines and under our contractual commitments that we have we are very conmfortable with when our margins will do year-over-year but to try and say on average what that number of targets going to be without having the mix components competed yet of the we really couldn't do.
Paul Forward - Stifel, Nicolaus & Co.
Okay thank you.
Operator
Next question is from the line Kuni Chen with Bank of America Securities/ Merrill Lynch. Please go ahead.
Kuni Chen - Bank of America Securities/Merrill Lynch
Hi, good day everybody.
Gregory Boyce
Good morning Kuni.
Kuni Chen - Bank of America Securities/Merrill Lynch
Good morning, I guess just to go back on the strategic fronts. Can you just give us a sense as to whether as far as your international growth plans, you feel you maybe closer to any specific opportunities here or that still sort of long grade on the curdle?
Gregory Boyce
Well I think we'd be reluctant to give you any kind of review given all of those things that we have in the hopper, some of it is short term, some of it is longer term. I think the exciting thing is that when you look at the international market place, particularly the pacific and the Southeast Asia markets, the growth rates even under the today's view of the future are extremely high and there are real opportunities out there and so we're working pretty hard on trying to bring some of those across the finish line.
Kuni Chen - Bank of America Securities/Merrill Lynch
Okay. And I'd guess just to follow up on that, can you give us some parameters as far as whether or not potential transactions they have to do be accretive or what you see as a hurdle rates on bills and where you would feel comfortable taking the balance sheet leverage?
Gregory Boyce
Well, we've already said that we'd like to have long term our balance sheet leverage in that 40 to 50% range, but at times it's gone higher than that as we've made acquisitions. We were up in the upper 50's at one point in time after the Excel acquisition.
And the Excel acquisition, you can look at that and say okay it was flat to mildly to accretive, but then had to be hugely accretive when the markets moved. Our preference is clearly always for accretive acquisition, but as we look at all of the opportunities out there, we look at that over a multiple year period of time, not just for the initial year.
Kuni Chen - Bank of America Securities/Merrill Lynch
Okay?
Michael Crews
And that again is it relates to returns clearly, we have the country risk involved in anyplace we go do business and that will factor into the returns that are acceptable looking for higher returns and these business typically do have higher returns that will get in the U.S.
Kuni Chen - Bank of America Securities/Merrill Lynch
Right. Okay.
Thanks a lot.
Operator
And next we have Brian Gamble with Simmons, please go ahead.
Brian Gamble - Simmons
Yes, good morning guys.
Michael Crews
Good morning Brian.
Brian Gamble - Simmons
One of the starts back on that on coals of question of the 20 million tons that you signed. But you had to with real players of people do not positively not wanting to.
Sorry about your coal of these little prices but in light of what you have reached on and then thinking about the your discussion earlier on with regard to your overall Western U.S. cost trends being 125 and you siding step up on all production levels is the reason those are ticking upwards.
How should we be looking at that number as we go forward both to the back half of the year and then as we go into next year and its impact on what all raw margins are going to be in the U.S? Is that 450 numbers sustainable in the back half of the year, does that continue to tick upwards depending obviously on our production mix?
Michael Crews
But no I think if you -- if there is no mix change, then our efforts and our plans are to make sure that they were stable in terms of our cost structure. In fact we've got a significant number of programs in place right now which are trying to capture the real cost savings in and out in the marketplace to reduce our cost structure.
But there will be; as we see volumes in the back half of the year be reduced and that obviously being impacting the Powder River Basin which is the lowest cost structure region, we will see a mixed change. But after taking mixed change, our intent would be flat to declining cost.
Brian Gamble - Simmons
How much of the mixed change with the back half should we expect we expect?
Michael Crews
Well, I think we've got to put at the size of that when you look at where we are today and that's why we think that the number we are ruining at a run rate right now in Q 2 under PRV that seven million tons lower than what we were riding in the fourth quarter of 2008. So, we're down substantially when you look at it from the higher run rate at Q4 2008, not a very good comparison compared to Q2 of 2008, because we had shutdowns and other issues, rain floods and other things went on.
So, the mix is definitely changing and you're going to have more of the higher cost South Western captive business embedded into the number.
Brian Gamble - Simmons
Okay. Thanks.
And then when you say that 2010, you've got volumes between 10 and 20 million tons that are un-priced, what sort of production levels does that imply, because that's in that flat year-on-year? Is that the assumption you are making there?
Michael Crews
Well we haven't disclosed that at this point in time, what our 2010 production levels more weak, see what that comes at this. So well we're ready to those country may or not get priced.
Brian Gamble - Simmons
Okay. And then my last question, where was in regard to the 1.7 million tons that you are talking about the deferred range talked of EBITDA of 200 million, half under nine having entered 2010s to 2012.
Should we spread that evenly between those three years, or is the bulk of it in 2010 with trailing amount of it in the '11 or '12?
Gregory Boyce
I'd spread it you. I think first half, as I said in 2009 and I spread the rest pretty evenly to the rest of periods.
And I guess to say that, taking T & 12 spreading it evenly all the way through 2012, March 31 of 2012. So, essentially spreading it evenly over a 27 month period.
Brian Gamble - Simmons
Okay.
Gregory Boyce
If that makes sense for you.
Brian Gamble - Simmons
It does. Just there is one final question; when you look at the mix in Australia, obviously you are going to be stronger, going forward on the net side of the things.
You talk about how that impacted the costs. But can we expect realizations to go back to where they were in Q1 or possibly above that or because of the deferrals that have happened in -- the EBITDA shifting and whether you're shifting met's costumer A or customer B should we expect those numbers to moderate kind of between where you recognized Q2 versus what the Q1 number was?
Michael Crews
This is Mike. The realizations in Australia will be higher than the second quarter due to the construction of methods that you've mentioned but, they will be lower than the first quarter as our pricing comes down, we have partial deferrals that's carry over time.
Brian Gamble - Simmons
Thanks Michael. Helpful.
Thanks guys.
Michael Crews
You're welcome. Thanks.
Operator
And our next question from Luther Lu with FBR Capital markets. Please go ahead.
Luther Lu - FBR Capital markets
Yeah good morning guys.
Gregory Boyce
Good morning Luther.
Luther Lu - FBR Capital markets
First question, I want to reconcile the Australian realization price a little bit. Because in the press release you mentioned the sales average $62 per ton.
But given how strong the fees on prices are, that you implied the domestic price is really-really low. Can you give us some guidance on that.
Gregory Boyce
Yeah I think the answer to that is you are correct. The domestic pricing is a low pricing.
You have to remember that that domestic pricing reflects the way Australia leases coal reserves for domestic contracts. And that is they amortize the, what would normally in the US the upfront capital costs of the reserve purchase into the cost or the pricing of the coal into those power facilities.
So you are always going to see lower domestic delivered coal pricing in Australia versus what you would see on an export basis in the thermal market.
Luther Lu - FBR Capital markets
Okay. Sounds good.
The next question is, we saw New Castle, yesterday reduced the product for the producers. Is that going to impact Peabody the second half of shipment volume on the thermal side, and also the DBCT continued to have congestion issues, how would that impact the shipments and the volume in the second half?
Richard Navarre
This is Rick, Luther. I'll address both of those.
I think on the New Castle, they did reduce it a million tons yesterday and we due to other opportunity that we have we don't think that's going to impact us. And if we in a normal period we'd get a pro rata share of that, which would be 10 or 15% of that number.
But we don't think its really going to have an impact for us on this particular one million ton reduction. If they were to reduce it more down the road, obviously it would have an impact on us.
So, but this one we're in good shape. On DBCT, they just recently improved the throughput capacity to 85 million tones the DBCT, we're hoping that's going to help work down some of the congestion there.
In both ports you have a number of what we call, dead vessels that haven't they don't coal in them. So it’s exaggerating the amount of ships that are in the queue to some extent.
Based upon and its not of course they're not waiting for Peabody, they're waiting from other producers, so it’s not Peabody ship they're waiting on. But as we look at DBCT, we just hope that, towards the back half of the year, we guys as Mike said we've got a lot of inventory to move in the met coal area and we hope the congestion, cleans itself up.
The rails have been improving. So we've got our fingers crossed, is the best way to say, at the second half of the year because we can't confirm the control of the logistics there.
Luther Lu - FBR Capital markets
Okay and then just one more question on Australia. Any signs of the they'd restart -- reconsider the northern missing link to lessen the infrastructure burden and constraint?
Richard Navarre
Well I think it's recently been approved, as far as the rail side of things has been approved to move forward with that project. A lot still to happen, lot of capital still to be raised and a lot of agreements that have to be negotiated with the rails.
As you might understand in Australia, you have different entities that own the forts, that own the railroads, that own the cars, that -- above rail. So, a lot of parties to negotiate with still.
Luther Lu - FBR Capital markets
Okay.
Richard Navarre
We're -- that's hopefully will increase the capacity. So there are a lot of things in the works including NCIG down south, that hopefully will help our throughput.
But Australia is going to always be chasing throughput, because of the demand and the coal resources they have.
Operator
Our next question is from the line of Mark Liinamaa with Morgan Stanley, please go ahead.
Mark Liinamaa - Morgan Stanley
Hi guys. Can you comment at all on any tangible reasons to help us believe that the Chinese met and thermal coal import changes are sustainable?
Gregory Boyce
Well I think our view is you just have to look hard at the Chinese economy and what is driving that economy right now. There is stimulus packages that they have put in place where they are well down the way have actually spending the cash, was all focused around infrastructure, rail projects and alike; which is high steel consumption; so that is certainly has benefited in the near term the met coal imports.
China is short on any kind of quality of met coals at all. So any time that their steel industry continues to grow, which it has even in the face of this recession they will continue to be increased buyers of met coal.
On the thermal side, there all of the power generating facilities that they've built still require coal and in the current market environment they were very strong buyers of international coals. But, it's also reflection of the slower growth rates and their actual ability to deliver new mined coal in China versus their electricity rates.
And we think that's a struggle they may have for a period of time.
Mark Liinamaa - Morgan Stanley
And from domestically, other than the economic recovery in the back half is there any sign post you can point to where we might see an inflection point to inventories. I know that's not a real easy question to answer but it just seems to continue to rise?
Gregory Boyce
Yeah, well of course, the summer that never existed in the context of global cooling in the US and Europe certainly has exacerbated the inventory issues. I mean the burn rates are down to levels that nobody ever would have estimated.
We're projecting US generation -- coal field generation is going to be down to 7 -- 7.5% range or overall coal demand which embedded in that as a generation. So, I think unless we have a particular change to where we actually see an increase in underlying electricity using GDPD (ph) consumption, its going to have be a step change in as Rick indicated earlier, all of these -- lot of folks that are kind of hanging on in the high cost part of the cost curve are going to have to start to see some changes.
That would be the -- in my view the early inflection point before we will see a significant change in the demand side.
Operator
Your next question from the line John Bridges with JP Morgan. Please go ahead.
John Bridges - JP Morgan
Hi. Good morning Greg, everybody.
Gregory Boyce
Hi John.
John Bridges - JP Morgan
Different on Australian cost, I'm afraid it's a bit like the record, but we're just trying to still reconcile this big jump in a big difference in the cost and if I just play around with the numbers, I just can't get to that. Are there more offs involved in that?
Gregory Boyce
Well. John, it's Greg.
Basically as you look at our Australian platform, the average cost of our thermal coal is significantly lower than the average cost of our metrological coal operations in Australia. That's true for all producers.
And such an extent that in the first half of this year and particularly in the second quarter, our met volumes were so low and our thermal volumes were pretty steady. It was a mixed issue, now as we get into the back half of the year, we expect that our met coal it's going to be significantly higher than it was in the half of the year.
And so, as you had that into the mix at a higher cost, it's really what drives that difference. And what we've tried to provide is a number of that we think we're going to hit for the average for the entire year because of that additional met in the back half of the year.
Does that help a bit, John?
John Bridges - JP Morgan
Internal.
Michael Crews
Let me add one point to help maybe to kind of punctuate that. If you look on the balance sheet John, you will see that our inventory cost have risen period-over-period.
So, what has happened is we produced the met coal at a higher cost than the average cost that you're seeing on the schedule and since we didn't ship it, it's in stock file, its still below our sales price versus the stock file. So when it comes out of stock file, come out of cost, which will drive out the cost because it's a higher cost product.
John Bridges - JP Morgan
Okay. I think that's probably the missing link.
In the western region is it correct to assume that the reductions primarily PLV rather than Western a bit?
Michael Crews
Yes, yes.
John Bridges - JP Morgan
Okay,
Michael Crews
We've had a little bit higher than some of our mines in South West production.
John Bridges - JP Morgan
And then global question, on the met coal, we've began to see a little bit of the met coal that was idled in the end of last year coming back into the market. Any sense as to how quickly that can come back in more volume?
Gregory Boyce
I think its going to be slow. I mean its going to be idled property it takes a bit of time to bring those back on line.
We see the markets are strong right now and John and I was asked a question earlier how much could I ship into China? I can ship into China if I can turn on the mines that we throttled back faster but I can't because equipment is taking other places, shut down, it just takes time.
So this market starting to kick back in but in that's what prices are going to be strong because they can't respond to the demand side. It is side can't respond that quickly.
Michael Crews
I mean the good news for us John is we're looking at our Australian platform, if you remember when we completed all of those capital projects that we inherited as part of the Excel purchase, we have a platform in Australia that has the capacity on an annual run rate to begin to approach the 30 million ton range and so right now, we are kind of coasting that platform. So, we have the capacity to grow and to meet this market much quicker than anybody else because all we have to do is to just bring back some of the equipment that we moved to other places and/or have the contractors add some additional people and additional shifts.
Once you get beyond that and anybody that's got to add real capital for expansion that's going to take a lot longer period of time. So, I think in our view is we're going to get a good benefit from this change because we do have the ability to produce more tons without capital in Australia.
Operator
Our next question is from the line Brian Singer with Goldman Sachs & Co. Please go ahead.
Brian Singer - Goldman Sachs & Co
Thank you, good morning.
Gregory Boyce
Good morning Brian.
Brian Singer - Goldman Sachs & Co
Really following up at some of the earlier questions including the last one looking forward to some more clear on specifically what China's increased imports have done and can do for Peabody's volumes specially relative to your guidance? Can you talk about how much met you sent to China during the first half and whether the 1 million tons of flexibility that you mentioned earlier, is that within your guidance range or does that represent upside and then maybe lastly if that's coming from trading and why not be more optimistic on the trading potential?
Gregory Boyce
We shipped 3 million of new business into China in the first half of the year and that's continuing to accelerate and if we had more domestic product available as we said earlier we could probably ship for than that and of course we have some of that trading as well. I'm not sure if following on the million ton reflects.
Brian Singer - Goldman Sachs & Co
I guess to the extent that you can sell an extra million ton, would you then beat your guidance for overall and steady volumes are that within the range of the 20 to 23 million?
Gregory Boyce
We could sell an extra million tons and we could source it, it would be upside and move it through the infrastructure in Australia.
Brian Singer - Goldman Sachs & Co
Right and that I guess is my follow up which is you touch in the last question on the fact that it does take a while to get things operating. What is that lead time?
So, we have now seen China increase their net imports substantially for I guess a good 4 or 5 months this year and so are you in process to try and begin to move some of the equipment needed to raise volumes as needed or is there more that you still need to see? And how long will that take?
Gregory Boyce
Well, we were in the processes as we look at this and look at where we are going to be in 2010, as we said, we think we're going to move more coal in 2010 than we did in 2009 as a result of the up tick in volume. To put in context to think about is that they were a number of traditional customers, because of their de-stocking exercises and if you look at steel supplies come from, that actually didn't take as much volume this year as they took in the previous years.
So what's happened is, China has soaked up the difference. This is what really happens.
So, when those new customers, the traditional customers come back to market at the same levels, that's when we really going to have a significant amount of production to meet and the net effect of what China has purchases have done is not only support the met coal but has supported the thermal coals as well because they bought a fair bit of PCI coals which were absent their purchases would've stayed into the thermal side of the business. So, overall its just have to pull that volume out of the pacific market that as Rick said was reduced from the traditional customers to the extent our viewers they stay in the market and the tradition among customers begin to come back in for both the thermal and med, it'll put on more pressure on the markets.
Our strategy in Australia, part of our high stock piles down there in our higher inventories were related to more longer and more protracted negotiations than we anticipated but part of it also was our strategy to make sure that we always have coal on the ground available to put in the real cars and send to pour when other producers have production or shipping issues, which happens all the time in Australia. Now when you look at the vessel Q at both Dalrymple Bay and New South Wales, and a quarter of those vessels are what we call dead vessels.
Their destined for producers. They just don't have a call available.
So to the extent that we try to be opportunistic, just like we are and everyone else that we produce, we've added a little bit of extra inventory on the balance sheet now. We think a significant amount of that does come off in the back half of the year, but, we will run a little higher than normal, so that we can take advantage of these market opportunities when they arise.
Operator
Our next question from the line of Mark Caruso from Millennium Partners. Please go ahead.
Mark Caruso - Millennium Partners
Hi, good morning. Just a few clarifications from the questions asked earlier.
The first was, Rick, I wanted to make sure I heard you correctly on the carry over tons in the last quarter was 1.7 million tons and I thought you said earlier that, you guys really get in partial credit, but then want to Brian came to ask a question earlier sounded like we can get a 100 million this year and a 100 next year. So, I just want to make sure which of part is correct.
Michael Crews
I think what happened in the last call we talked about it. We had said that we're going to negotiate get all of our credit we have sometimes that risk for sure on the semi saw side of the ledger.
And but, as results up, we think we're going to get the majority of the value of that 200 plus million, we would get a 100 million in 2009 and we will get the remainder in cal 10 cal 11 in the first quarter of cal 12.
Michael Crews - Executive Vice President and Chief Financial Officer
Okay great. And then as far as the committed tones, it looks like you guys booked 20 million more than last quarter.
You sure changed the way that you guys reported last quarter, you gave the percentage committed. This quarter you gave the total tons number for next year.
Is it safe to assume that you've gone up pretty substantially above the 80% your price tag committed last quarter?
Gregory Boyce
It was 95% committed in 90% price probably at this point in time in the U.S. So, that's substantially priced at really the end of the day.
But, that's very little opted to price.
Mark Caruso - Millennium Partners
Okay.
Gregory Boyce
To say that once again if we go back to 20 over half of that was a purely just real for the business, that was all contractual nature.
Mark Caruso - Millennium Partners
Okay, great. And then, you send over that you think 6.5 this year.
Do you guys feel good about I know Gregory just mentioned, do you have the capacity to ramp back up to 30, the way the things are shaping up is it feasible to be 25 plus next year or is there just slow grind of ramping back up that will mess up timing there could be like a run rate?
Gregory Boyce
I think we would anticipate next year, we would be up in that 15% range in our Australian platform across the board.
Operator
Our next questions from line of David Lipschitz with CLSA.
David Lipschitz - CLSA
Hello everyone.
Gregory Boyce
Good morning.
David Lipschitz - CLSA
Good morning. Quest you on -- there is a question earlier about going to quarterly contracting.
What about this going to filling the spot but that way you wouldn't have flow so you just do it over the prices?
Gregory Boyce
Well, the biggest problem is particularly in the Pacific rim is the stock markets or the exchange trade is numbers that those volumes are very, very small and are really only on the margin for the total volumes that take place in the Pacific rim. So, until you whenever it get to a point where you have highly liquid and very large exchanges you really would want to price out with those.
It would be no different in, why we don't price half the exchanges in the U.S. particularly out in the west, because they not really reflect the underlying contractual market or the fundamentals of what's happening with supply and demand.
Maybe that's going to be a recipe that the steel guys think make sense in order to drive a longer term balance between supply and demand, but it doesn't on the surface seem like it is something that we would in interested in.
David Lipschitz - CLSA
Yean because just...sometimes the price goes higher from this 1.9 you lose out. If the price goes higher and then they drop the price lower, you lose out as well because they prefer a lot of the shipments.
It just seems plausible from that perspective?
Gregory Boyce
Well, I mean to the extent that you have to be able to plan capital investments in this business, I'm not sure we would want to be exposing 100% of our platform to the kind of volatility that we've have seen in these markets. We like to volatility on the trading side because we make a lot of money out of our volatility.
But we want a little bit of our book or a good portion of our book under contracts that we can plan for, the capital investments that it takes to maintain and grow the business.
David Lipschitz - CLSA
Okay thanks.
Operator
Our next question is from the line of Lawrence Jones of Barclays Capital. Please go ahead.
Lawrence Jones - Barclays Capital
Good morning. Regarding the 480 million term loan that matures in two years, can you update us on your plans in the coming months.
My thought is, given the improving bond markets, I thought may be you'd, I thought the assets in the bond markets potentially turn out this maturity and potentially pre-fund any acquisitions or investments such that you wouldn't have to draw on the revolver?
Richard Navarre
Well there's no question the bond market has gotten better and the bank market remains relatively weak. It doesn't mature until September 2011, we'll start looking at that over the next several months.
We may end up terming that out, but at this point I would like to have the bank market except for those in terms of pre-payment. But if I by terminal its reduced (ph).
And I still have pretty good head room under the credit facility as well, under the revolver.
Lawrence Jones - Barclays Capital
Okay. And as my follow up, can you provide us with the dollar amount of investment in joint ventures, on your second quarter cashless statement.
The reason I ask is that second quarter operating cash was 39 million, looked a little weak, and I thought perhaps it was affected by cash outlays for the full daily (ph) in the restatement investment?
Michael Crews
Yeah, the total investment was 10 million. The biggest thing that's impacting the cash flow is the working capital movement and that was largely driven by the inventories in Australia.
Operator
Our next question is from the line of Lasan Johong with RBC Capital Markets. Please go ahead
Lasan Johong - RBC Capital Markets
Thank you. In the 65 to 70 million ton reduction in generation and consumption of coal, how of that do you attribute to switching composite gas, and do you think its going to accelerate, stay the same or go down from your original projections of about 25 million tons.
Richard Navarre
Yeah, on the coal to gas switching, I think you know we started out the year, we were looking at about 10 to 15 million tons. And I think, in the last quarter we said we'd probably see ourselves at the higher end of that number.
And I guess if you today with what we've seen with the continued suppressed gas prices, we'd probably be a closer to a 20 million ton impact related to coal gas switching on those marginal coal plants mostly located in the East.
Lasan Johong - RBC Capital Markets
All right and did I so hear you correctly that tax rate is changing from 20% to 30%?
Richard Navarre
Yeah what we've said is, our normal run rate would be around 20% because of the tax remeasurement that we had that's going to add about 10% to our rate. Now that's a book rate, in terms of our cash tax so that it does not impact that incremental 10%.
Operator
Our next question is from the line of Justine Fisher with Goldman Sachs. Please, go ahead.
Justine Fisher - Goldman, Sachs & Co.
Good morning.
Michael Crews
Good morning.
Justine Fisher - Goldman, Sachs & Co.
I have a quick question on coal cargos going from Australia to China, we had heard I think that was a couple of weeks ago that there were some cargos that has been cancelled on the coal with already on board. I'm wondering if you guys have heard of anything like that, over the last I guess a month or two?
Richard Navarre
Justine, this is Rick. I saw the one that you're talking about, that was -- published in the trade publications.
And it was a steam cargo, that somebody didn't accept I guess and I think it was a one-off situation. We personally haven't had any issues with any of our cargos that we've shipped into China.
So, I think there were people that were looking forward to Chinese not to potentially honor some of the shipments as prices moved up in a lot of the import activity chains. But, to the contrary, they have been good to do business with and we haven't had any issues.
Justine Fisher - Goldman, Sachs & Co.
Okay, and then the next question also related China. I'm trying to reconcile the bullish commentary, I'm trying to with -- the guidance for June necessarily lower, because you guys haven't given guidance before, on the -- with the sort of subdued, I'd say numbers for Australia going forward.
And if the outlook is truly bullish for these, why are we not seeing more CapEx spent to develop production or to increase production back up again in Australia and what would it take us to actually see that?
Gregory Boyce
Well first of all as we indicated, we don't need to spend CapEx in Australia in order to increase production. And as I indicated earlier we're already planning on higher production rates.
The back half for this year and more importantly next year because of what we're seeing in China. What other producers need to do relative to their CapEx spent, some of those producers are having global issues relative to CapEx and they'll have to make their own decisions relative to met coal.
But, we are planning on increases to the back half of this year and what we believe will be a healthy increase next year.
Justine Fisher - Goldman, Sachs & Co.
Okay. And then, just the last question on the US markets, I know that last quarter you guys said that you had not been approached by any of your utility customers, to differ your shipments and you haven't been approached to make any deal to -- for them to pay you to keep tons in the ground, is that still the case because we've seen some other US producers announce deals over the second quarter, whereby utilities paid them not to ship coal?
Richard Navarre
Well, I think we had already -- made this one clear we said last time. I think last time we said we had very few approaches last time, that we had made some settlements for certain customers we did some buy outs and that did happen in the last quarter, not any significant tons by any means.
Have we had people approach us this quarter, sure. And we continue to work with those customers, if it makes sense and if there is -- do the options of either buying out deferring schedules, moving coal from different locations because we have a wider portfolio.
But just taking not shipping coal that's in the money we're not doing that. So, we're trying to push over our rights and move the product.
So, you see that announced because it maybe more material to them, the transactions and the mountain tons of the -- across our; a small compared to the overall portfolios, so as don't have reason to have public discussions around them. But, we're working through them with our customers as we always do.
Operator
And we have time for one last question and that'll be from the line of Sunil Gathader with Sentinel Investments. Please go ahead.
Sunil Gathader - Sentinel Investment
Thanks. On the tax remeasurement, how long this will continue?
Is it just for a short period of time or its going to continue to 2010 too?
Richard Navarre
Well this that's related to FX rates and as the FX rates move, it changes. It essentially it's a fixed balance related to deferred taxes, relatively fixed balance.
And as the foreign exchange rate changes compared to the dollar that you have to remeasure those tax liabilities. And, if it stays flat nothing happens, if it moves it might set a penny, it moves P&L one way or the other.
Sunil Gathader - Sentinel Investment
But would impact the cash flow segments?
Richard Navarre
No.
Sunil Gathader - Sentinel Investment
Okay. You talked about India going to be a major player in the next decade.
Are you have any discussions with Indian utilities? Do you ship coal late into next decade into that country or you primarily are saying that you would remain with China -- as major exporter to China?
Richard Navarre
No, I think it's clear that there is going to be significant opportunities to ship coal into India and we'll pursue opportunities to be able to be a participant there. As Greg mentioned, we're going to open a new Asian training hub and one of our destinations for coal will be India.
Operator
And I'll turn the conference over to Mr. Boyce for any closing comments.
Gregory Boyce
Thank you very much John and thank you everybody for your interest in Peabody and BTU. As you can see, we feel about how we are weathering the current economic climate, but feel very good about what we see particularly in the Pacific rim and the Asian markets on a medium to longer term basis.
And we look forward to keeping you all updated on our progress on our future calls.
Operator
Ladies and gentlemen, this conference is available for replay, it starts today at 12:30 PM Central, will last until August 21 at midnight. You may access the replay anytime by dialing 800-475-6701 or 320-365-3844, the access code 103353.
Those numbers again 800-475-6701 or 320-365-3844 and the access code 103353. That does conclude your conference for today.
Thank you for your participation. You may now disconnect.