February 7, 2019 Read More →

Peabody plans more cutbacks in U.S. coal production

S&P Global Market Intelligence ($):

In the face of recent operational setbacks and troubling global economic indicators, Peabody Energy Corp. told investors it is focusing on “value over volume” with sharp reductions in U.S. thermal coal production but increased attention to its metallurgical coal operations in the U.S. and Australia, as well as the country’s thermal mines.

Peabody, the largest coal company based in the U.S., is cutting back on coal production from several of its U.S. thermal coal mines, including its flagship Powder River Basin mine, as it focuses on a new metallurgical coal acquisition in Alabama. The company reiterated that it continues to favor share buybacks over expanding volumes, although it is deploying significant capital, particularly for certain Australia mines and its U.S. metallurgical coal operation.

Peabody announced in its Feb. 6 earnings release that it is reducing the target volume for 2019 coal production from its North Antelope Rochelle mine by 10 million tons compared to 2018 levels. The mine is the largest in the U.S. and produces thermal coal for the shrinking domestic coal-fired electricity generation market. The mine produced 98.3 million tons of coal in 2018 from the Powder River Basin and accounted for about 13.1% of all U.S. coal production in 2017.

“At current market levels, we’re not generating margins we find acceptable for our investors,” Peabody President and CEO Glenn Kellow said of some of the higher cost coal coming out of North Antelope.

“Peabody Energy generated significant free cash flow on strong pricing in the seaborne markets and deployed nearly $1 billion to share repurchases in 2018,” said Benjamin Nelson, senior credit officer and lead coal analyst at Moody’s Investors Service. “While strong export markets and fewer retirements of coal-fired power plants should help Peabody generate meaningful free cash flow again in 2019, we expect the company will continue to divert much of it to shareholders, rather than expand capacity amid long-term secular decline in the demand for thermal coal in the United States and competitive issues in the Powder River Basin.”

The company also said it is “easing production across several complexes” in the Midwest due to unsatisfactory margins on coal sales, while its Western segment volumes are expected to decline year over year due to the announced closure of the Navajo Generating Station. The company’s base case assumes the associated Kayenta mine serving the power plant will cease production and sales in the third quarter.

More ($): Peabody emphasis on ‘value over volume’ leads to cuts at US thermal coal mines

 

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