Bankruptcy for Peabody Coal

SUBHEAD: Peabody Energy, America's largest coal producer files for bankruptcy - 8,300 jobs in jeopardy.

By Daniel Gleeson on 14 April 2016 for Mining Journal -

Image above: A wallof Peabody coal. From original article.

The company, the US’s biggest coal miner and one of the largest in the globe at the peak of the thermal coal market, has tried to put a brave face on its filing, saying its actions would set the company up for the future, but history shows it is hard to come back from here.

Despite having around US$900 million of available liquidity as of March 11, trying to divest non-core assets, cutting staff, and reporting cash flow positive results from all of its US assets last year, the company’s mountain of debt has become too much for the St Louis-based firm to bear.

Only last month, an independent auditors report concluded Peabody’s “current financial path … may not be sustainable over the course of the year”. This came after the company exercised a 30-day grace period on interest payments totalling $71 million.

Straddled with more than $6 billion of debt as of the end of 2015, most of this related to an ill-fated foray into the metallurgical coal market in the form of a $5.1 billion buyout of Australia’s Macarthur Coal in 2011, the company has now sown up $800 million of debtor-in-possession financing to keep all of its operations going.

Peabody, which is one of the leading producers in the renowned Powder River Basin of Illinois (US), is by no means alone in going to the wall.

Many of its US counterparts risked it all during the boom, taking out what turned out to be debilitating debt deals to expand coal market presence on the assumption rising Chinese demand for energy would be never ending.

In January, Arch Coal filed for bankruptcy protection with more than $4.5 billion of debt to its name, while Walter Energy, Alpha Natural Resources and Patriot Coal also followed suit in 2014, the first two after spending a combined plus-$9 billion on acquisitions.

These producers accounted for more than 40% of coal production in the US in 2014.

All of this has been happening at a time of weakened demand for coal in the US and abroad. Natural gas has displaced a significant chunk of demand for US coal, while overseas buying has stagnated in the past few years as global economic growth has stuttered.

As a result, coal prices have continued to fall. In October, the benchmark export price for 6,000 kcal/kg coal dropped to $54.88 per tonne, according to price reporting agency Argus, the lowest level since 2007 and 70% below its 2009 peak. Prices have since failed to pick up much from there.

Against this backdrop, Peabody has been trying hard to lower its cost base in line with weakened demand, however, a botched attempt to sell its New Mexico and Colorado assets to Bowie Resource Partners for $358 million, announced in November, has acted as the proverbial straw to break the camel’s back.

While Peabody’s rhetoric in its four page press release was all geared towards the coal markets stabilising from here onwards, the company now has to find another buyer for the New Mexico and Colorado assets – and the associated liabilities – and shift its Australian coal mines, which it took a $1.28 billion write down on in its 2015 financial results, into cash flow positive territory.

Peabody’s CEO Glenn Kellow said the actions are aimed at improving liquidity, reducing debt and setting the company up for long-term success, but even with the financial headroom Chapter 11 will afford it, the company still faces a steep uphill task.


No comments :

Post a Comment