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Peabody stock sinks to one-year low on disappointing Q4

12th February 2016

By: Henry Lazenby

Creamer Media Deputy Editor: North America

  

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TORONTO (miningweekly.com) – US coal producer Peabody Energy has reported a net loss of $518-million, or $28.43 a share, for the three months ended December 31, as slowing global economic growth drove a wide range of commodity prices lower in 2015, resulting in the largest broad commodity market decline since 1991.

"Against a brutal industry backdrop, the Peabody team delivered a strong operating performance, as we improved safety, achieved over $620-million in lower costs, further reduced capital, streamlined the organisation and advanced multiple work streams to address our portfolio and financial objectives," said Peabody president and CEO Glenn Kellow

"It is clear that more must be done and we are taking further steps to confront a prolonged industry downturn by targeting additional cost reductions, advancing noncore asset sales and pursuing aggressive actions to preserve liquidity and delever our balance sheet," he added.

Seaborne coal prices continued to fall in 2015 as a reduction in Chinese imports more than offset supply cutbacks, and US coal demand was impacted on by lower natural gas prices.

Peabody said metallurgical coal price settlements declined throughout the year, while first-quarter 2016 settlements for premium hard coking coal fell 9% to $81/t. The benchmark for low-volatility pulverised thermal coal eased from $71/t to $69/t, showing relative strength to the premium coking coal product. 

Seaborne metallurgical coal demand declined by about 15-million tonnes in 2015, resulting in accelerated production cutbacks mainly in the US and Canada.

In seaborne thermal coal markets, demand declined 8% on a nearly 75-million-tonne reduction in Chinese imports, lower European demand and a decline in international liquefied natural gas prices. The overall decline in seaborne thermal demand primarily impacted US and Indonesian exports, which were down 41% and 23% respectively.

Peabody expected 2016 US utility coal consumption to decline by about 40-million to 60-million tons, based on expected plant retirements and lower natural gas prices. The decline in demand, combined with an expected significant reduction in utility stockpiles and lower exports, was projected to result in a 150-million-ton to 170-million-ton decline in 2016 US coal shipments.

As a result, Peabody was lowering its 2016 US sales targets by 13% to between 18-million tons and 28-million tons below 2015 levels, and was now fully priced for the year.

For the three months ended December 31, Peabody reported an adjusted net loss of $9.27 a share, missing analyst expectations of a loss of $8.88 a share. Revenue in the period fell 22% year-on-year to $1.31-billion, as the tonnage sold fell 10% to 57.9-million tons of coal on a consolidated basis.

For the full year, Australian costs per ton improved by 24% to a record low for the business segment; while US costs per ton improved 5% despite lower volumes. Capital spending declined 35% to $127-million

In the fourth quarter, Peabody entered into a definitive agreement to sell its New Mexico and Colorado assets for $358-million in cash. Peabody said the transaction would bring forward multiple years of cash flows, relieving the company of about $105-million of liabilities. The sale recently received Hart-Scott-Rodino regulatory approval; the buyer was currently arranging for financing and closing was expected within the first quarter, the company advised.

In Australia, Peabody was lowering 2016 metallurgical coal production levels to reflect operational changes made in 2015, which was expected to result in lower pulverised thermal coal sales. The company also planned to place the Burton mine on care and maintenance by the end of the year.

The company’s total 2016 sales guidance stood at between 195-million tons and 210-million tons of coal, with costs per ton ranging between $14.70/t to $15/t for its US operations, and between $45/t and $48/t for its Australian operations.

The company said that one of its priorities this year was to reduce debt, which, at December 31, stood at about $6.3-billion.

Peabody’s NYSE-listed stock on Thursday fell by as much as 36% to $2.15 - its lowest level in a year.

Edited by Samantha Herbst
Creamer Media Deputy Editor

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