PEABODY ENERGY CORP (BTU) stock intrinsic value fair value estimate & owner earnings analysis

Peabody Energy is one of the world's largest coal producers, mining both thermal coal (for power generation, from its Powder River Basin and Illinois Basin operations in the U.S. and seaborne thermal mines in Australia) and metallurgical coal (for steelmaking, from Australian mines including Coppabella, Moorvale, Metropolitan, Middlemount, and the newly built Centurion Mine in Queensland). We valued the business on the cash it actually generates for shareholders, after subtracting real recurring costs — including one specific to mining: the cash spent each year reclaiming and restoring land at closed and closing mine sites. That spending has run $38–72 million a year over the last eight years, and we treat it the same way we treat spending needed to sustain existing mines, since it's a legally required, recurring cost of doing this business. We looked at results from 2018 through 2025, a period that captures a full swing of the coal price cycle: a normal pre-pandemic stretch, the 2020 COVID-19 collapse (which triggered a $1.5 billion non-cash writedown), the 2021 recovery, the 2022–2023 price spike tied to the Russia-Ukraine war's disruption of European energy markets, and the more recent normalization. Over that period our estimate of per-share owner earnings ranged from roughly -$2 (2020) to over $8 (2018 and 2022), with a typical year around $2.50. The most recent two years look weak, but a large part of that is Peabody spending heavily to build the Centurion Mine, a new underground longwall coal mine that will produce premium coking coal for steelmaking. Construction resumed there in mid-2024, and the mine actually began full longwall production in February 2026. We judged that a meaningful share of 2024–2025 spending in Peabody's metallurgical coal business was this one-time construction cost rather than ordinary sustaining spending. This is a judgment call, since Peabody doesn't separately break out Centurion's construction spending, and we've said so plainly. Our base case expects owner earnings to recover over the next two to three years as the mine ramps up and construction spending tapers off, before gradually declining over the following decade as Peabody's existing U.S. and Australian mines deplete their reserves and thermal coal continues its long-run decline. We do not assume coal mining continues indefinitely at today's scale: because reserves and mining permits eventually run out, and thermal demand is shrinking in most of Peabody's markets, we valued the years beyond our ten-year forecast as a gradually shrinking stream of cash flow rather than one that grows or holds steady forever. Our bear case assumes Centurion's ramp-up is slower or bumpier than planned, coal prices stay soft for an extended stretch, and the older parts of the business decline faster than expected. In that world, owner earnings hover near breakeven for several years, and the shares are worth relatively little. Our bull case assumes Centurion ramps smoothly and on schedule, coking coal prices stay firm as few new mines are being built globally, and the older mines keep performing well for longer than the base case assumes. Given how wide the gap is between our worst-case and typical-case outcomes here, the margin-of-safety price sits well below our estimate of fair value, and the base case depends on Centurion actually running near full production for several consecutive quarters.