Peabody, Optimistic About Coal’s Future Stability, Seeks Bankruptcy Protection

Financially bruised Peabody Energy Corp.—the world’s largest privately owned coal mining firm—is seeking bankruptcy protection.

The St. Louis–headquartered company filed for voluntary Chapter 11 protection in a desperate attempt to strengthen liquidity and reduce debt amid what it says has been an “unprecedented industry downturn.” It filed petitions for most of its U.S. entities in the U.S. Bankruptcy Court for the Eastern District of Missouri.

“Through this process, the company intends to reduce its overall debt level, lower fixed charges, improve operating cash flow and position the company for long-term success, while continuing to operate under the protection of the court process,” it said in an April 13 statement.

The measure isn’t expected to affect operations at the company that, according to the Energy Information Administration, produced about 19% of U.S. coal production in 2014.

“All of the company’s mines and offices are continuing to operate in the ordinary course of business and are expected to continue doing so for the duration of the process. No Australian entities are included in the filings, and Australian operations are continuing as usual,” it said.

The company is the latest of a string of coal mining firms that have filed for bankruptcy since last year (SNL Energy reported that more than 50 coal companies have sought protection since 2012). Competitors that have preceded Peabody into Chapter 11 reorganization include Alpha Natural Resources, Patriot Coal Corp., Walter Energy, and Arch Coal. For an in-depth analysis on what these and other developments mean for the future of coal, see “The Shifting Fates of Coal Markets, Coal Mining, and Coal Power” in POWER‘s October 2015 issue.

The world’s coal industry has faced “unprecedented” factors, Peabody said. Pressures in recent years include “a dramatic drop in the price of metallurgical coal, weakness in the Chinese economy, overproduction of domestic shale gas and ongoing regulatory challenges,” it explained.

Yet, the company said it remained optimistic that both the U.S. and global coal demand will stabilize. “U.S. gas prices are projected to rebound from recent lows. Globally, thermal coal is expected to continue to fuel hundreds of existing coal generating plants as well as scores more that are under construction. Coal currently fuels approximately 40 percent of global electricity and is expected to be an essential source of global electricity generation and steel making for many decades to come,” it said.

Peabody cited good numbers as evidence that the coal industry is still buoyant. Last year, it said, the company’s U.S. operations were cash-flow positive, and its Australia platform earned more than in 2014, even though prices for coal dipped to their lowest levels in nearly a decade.

But as some experts point out, the company’s optimism may be misplaced. Entities like the International Energy Agency project that coal prices may never recover owing to a number of factors. These include a massive coal power oversupply in China, major cost reductions in the industry (by gaining scale and increasing production), currency depreciation among exporting countries, low oil prices, and the dramatic decrease in the cost of solar and wind generation and other climate policies.

“A company like Peabody with safe, efficient operations will be well positioned to serve coal demand that will continue in the United States and around the world,” said Peabody President and CEO Glenn Kellow. “We are a leading producer and reserve holder in our core regions of the Powder River Basin, Illinois Basin and Australia. Peabody has a new management team, outstanding workforce, unmatched asset base and strong underlying operational performance that represent a key driver in the company’s future success.”

 

Sonal Patel, associate editor (@POWERmagazine, @sonalcpatel)