Peabody eyes further coking coal production cuts in Australia

JOHANNESBURG (miningweekly.com) –  Coal company Peabody Energy, which is under Chapter 11 bankruptcy protection, has flagged further reductions in its metallurgical coal production in Australia in the five-year period to 2021, as part of the group’s strategy to build a “smaller, but more profitable” platform in the country.

Peabody has already completed the sale of undeveloped tenements in Australia as part of an ongoing asset optimisation programme and it intends to place the two-million-ton-a-year Burton mine, in Queensland’s Bowen basin, on care and maintenance later this year.

According to the group’s business rescue plan, which creditors approved on Wednesday, Peabody is planning further reductions in its metallurgical profile in the later years of the plan, which covers the period from 2017 to 2021. The group said that its metallurgical coal production volumes would total only seven-million tons by 2021, compared with 15-million tons in 2016.

Peabody said it planned to divest, sell or suspend nonstrategic assets in Australia and that it would also restructure or mitigate take-or-pay agreements to improve its cash flow.

Regarding US fundamentals, Peabody’s business plan assumes US coal demand for electricity generation grows a total of 20-million to 25-million tons between 2016 and 2021, with impacts from announced and expected plant retirements offset by increased capacity utilisation at remaining plants. 

Within Asia Pacific, metallurgical coal demand is expected to increase by 50-million to 55-million tonnes between 2016 and 2021, driven by China and India. Seaborne thermal demand is expected to rise by 50-million to 60-million tonnes as 375 GW of new generation capacity is added, primarily in the Asia-Pacific region.

Over the five-year business plan period, the company contemplates total sales volumes rising from 168-million tons in 2016 to a range of 194-million to 197-million tons a year between 2018 and 2021. Revenues are expected to be largely stable between $4.4-billion and $4.6-billion.

Peabody president and CEO Glenn Kellow noted in a statement on Wednesday that Peabody had opportunities to not only survive, but to thrive, despite operating in an industry with unprecedented challenges of late.

"We are pleased to advance a realistic plan that recognises both the challenges and opportunities related to the company and industry," said Kellow. "As Peabody focuses on emerging stronger from the Chapter 11 process, we look to capitalise on our strengths, build upon our positive operating performance, reduce our overall debt and fixed charges, and pursue additional improvements for long-term success. Peabody has a strong asset base and skilled workforce intent on creating maximum value in an essential industry."

Peabody went into Chapter 11 bankruptcy in the US earlier this year owing to heavy debt commitments and low prices.