Peabody nosedives, bankruptcy risk increases

  • 17/03/2016
Traders work at the post where Peabody Energy is traded on the floor of the New York Stock Exchange (Reuters)
Traders work at the post where Peabody Energy is traded on the floor of the New York Stock Exchange (Reuters)

By Jessica DiNapoli

The US' largest coal producer, Peabody Energy Corp, which also has operations in Australia, has warned it may have to seek bankruptcy protection.

In a regulatory filing in the US, Peabody cited poor economies in countries that import coal and other factors battering the coal industry.

Its shares fell 46 percent to US$2.16.

Falling demand for coal, tougher environmental controls and cheaper natural gas have pushed several big coal miners into bankruptcy in the past year.

Peabody, which flagged the possibility of bankruptcy under the "risk factors" section of a filing with the US Securities and Exchange Commission, said it had decided to skip US$71.1 million in interest payments, kicking off a 30-day grace period.

The company said there was "substantial doubt" about its ability to continue as a going concern.

It cited stagnating economic growth in major coal importers and the potential for additional regulatory requirements imposed on producers.

Coal prices, which hit historic highs above US$200 per tonne in 2008, now trade at around US$40 a tonne. Goldman Sachs Group has said coal would never gain enough traction to lift it out of its slump.

The US Energy Information Administration on Wednesday forecast that 2016 will be the first year that natural gas fired generation exceeds coal generation on an annual basis.

About a third of US electricity comes from natural gas, versus 32 percent from coal and 19 percent from nuclear. As recently as 2000, coal accounted for about half.

Peabody, which employed 7,600 people on December 31, said it was also looking into other sources of capital to support its needs for cash and keep it in compliance with creditors.

Bond exchanges, cost cuts and waivers to its credit agreements are some of its options, the company said.

Peabody owns interest in 26 mines in the US and Australia, with about three-quarters of its output going to US electricity generators, according to its filing. It has trading and business offices in Australia, China, and India, among others.

China, where coal imports have slowed to support domestic producers, represented 7.1 percent of total Peabody sales in 2015.

On March 11, Peabody reported US$900 million of cash and cash equivalents. It had reported US$261.3 million in cash and cash equivalents at December 31, and then, in February, borrowed the maximum amount available under its revolving credit line, about US$945 million.

The company said in a statement its auditors had concluded its current financial path may not be sustainable and "may result in an acceleration of our debt obligations".

Peabody had total debt of US$6.3 billion at the end of 2015.

Its lenders are pushing it to restructure its debt through bankruptcy.

Peabody's efforts to raise funds through asset sales hit a roadblock in February. A deal to raise US$358 million in cash by selling coal mines in New Mexico and Colorado was temporarily shelved after the buyer failed to secure financing.

Peabody's shares have crashed from their record high of more than US$1300 in 2008 to US$2.36 on Wednesday morning.

Its market capitalisation was US$74 million Wednesday, down from over US$20 billion in 2008, according to Thomson Reuters data.

Fellow coal miner Foresight Energy LP on Tuesday said it may file for Chapter 11 bankruptcy if it does not reach an out-of-court restructuring agreement with its lenders.

Patriot Coal Corp, which was spun off from Peabody in 2007, filed for bankruptcy protection in May 2015, just 18 months after emerging from its previous Chapter 11.

Other coal miners that have filed for protection include Walter Energy and Alpha Natural Resources Inc.

Reuters

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