Coal miners Peabody Energy and Arch Resources have terminated their proposed thermal asset joint venture (JV), after the US District Court’s ruling to block the transaction.
In separate statements, the companies said on Tuesday that they were disappointed and disagreed with the verdict, arguing that the asset tie-ups would have served the best interest of stakeholders.
Through the transaction, announced in June 2019, Peabody and Arch had planned to combine their mining operations in the Southern Powder River Basin (SPRB), located in north-eastern Wyoming.
The companies are two major competitors, having produced more than 60% of all SPRB coal mined in 2018.
The Federal Trade Commission in February filed an administrative complaint against the proposed JV between the two largest coal-mining companies in the US, on concerns that the transaction would eliminate competition.
Peabody president and CEO Glenn Kellow said on Wednesday that the group would continue to focus on being a low-cost SPRB coal provider to best compete against natural gas and subsidised renewable energy.
Arch, for its part, would continue its strategic pivot towards steel and metallurgical markets, said Arch CEO Paul Lang, announcing that the miner was intensifying its pursuit of strategic alternatives for its thermal assets, including potential divesture.
The thermal assets continue to generate free cash. Since the fourth quarter of 2016, Arch’s thermal segments have generated nearly $600-million more in cash than they have expended in capital.
The group was evaluating opportunities to shrink the operational footprint of its thermal coal mines, reduce their asset retirement obligations and establish self-funding mechanisms to address long-term liabilities.
Regarding its transition to a pure-play producer of coking coal, which is vital in primary steel production, Lang said Arch produced some of the world's highest quality metallurgical products for the global marketplace.
“We are making excellent progress towards the 2021 startup of our world-class Leer South metallurgical mine. We are moving forward with a clarity of purpose and distinct strategic priorities, and are strongly positioned for growth and success as a leading producer of metallurgical products for the steelmaking industry."
Weighing in on the announcement, Moody’s senior VP credit officer and lead coal analyst Benjamin Nelson said that the court ruling was credit negative for both companies.
“We expect the Powder River Basin coal production region will remain under significant pressure in 2021 and at least a few coal mines in the region could close in the early 2020s,” he stated.
Peabody’s share price plunged nearly 22% on the NYSE on Wednesday to $2.44 a share.