Peabody Energy Takes Hit from Lower Coal Prices in Third-Quarter 2013, but Expects Global Growth in Coal Demand

Researched by Industrial Info Resources (Sugar Land, Texas)--Peabody Energy Corporation (NYSE:BTU) (St. Louis, Missouri), the world's largest private-sector coal company, saw a sharp improvement in the global coal markets in the third quarter of 2013. Still, the company's overall results declined from the same period last year as weaker coal prices offset companywide cost reductions and significantly stronger volumes in Australia. Peabody reported a net loss of $26.1 million, compared with net income of $42.9 million in third-quarter 2012.

Total revenues stood at $1.8 billion, a 12.69% decrease from the same period last year. Stronger U.S. coal fleet utilization and increased gas-to-coal switching has boosted domestic coal demand by 35 million tons to date in 2013; stronger generation and lower production have reduced inventory levels significantly. However, lower coal prices in the U.S. and Australia resulted in weaker revenues for Peabody, despite volumes that were stronger in Australia and the same in the U.S. when compared with last year's volumes. The company's Australian mining segment was negatively affected by lower prices to the tune of $185 million, although costs per ton improved 8% when compared with third-quarter 2012. Higher depreciation, depletion and amortization expenses also played a role.

Capital expenditures were reported to be $62 million for the quarter, a drop of about 80% from third-quarter 2012 as Peabody continues to reduce project spending.

Industrial Info is tracking more than $1.15 billion in projects involving Peabody, including $175 million in planned additions at the Gateway Underground Thermal Coal Mine & Preparation Plant in Coulterville, Illinois. The project, which is being carried out with subsidiary Peabody Midwest Mining LLC, involves upgrading and modifying the preparation plant and expanding the mine by adding a mine slope and extending the beltline. The additions will assist in accessing 280 million tons of additional reserves to increase capacity by 1.3 million tons per year (40%) to 4.5 million tons per year. These additional reserves are expected to help the mine, which is approaching exhaustion, operate for another 16 years.

"Within the global coal markets, metallurgical coal prices have rebounded 15% to 20% off third-quarter lows, on increasing steel demand and continued production cuts, while the addition of new coal-fueled generation is driving a 50 million-ton increase in seaborne imports this year," said Gregory Boyce, the chairman and chief executive officer of Peabody, in a conference call. "In recent months, we've seen improving macroeconomic conditions that support continued coal demand growth, including rising gross domestic product from both developed economies and China."

Peabody expects full-year capital expenditures to be between $350 million and $400 million.

Company executives expect higher natural gas prices will prove beneficial to the coal industry by the end of 2013, as natural gas generation has declined 14% so far this year; they expect coal demand to rebound 45 million to 55 million tons over last year's levels. Coal stocks are expected to see a 30 million-ton drawdown for 2013, as stockpiles have depleted at a faster-than-expected rate due to strong generation levels and lower production. In particular, growing demand is expected to benefit the Southern Powder River and Illinois basins, with an estimated growth of 135 million tons by 2017.

Globally, Peabody expects coal demand to increase 1.2 billion tons through 2017.

"Longer term, Asian economies are expected to account for the majority of the coal demand growth, as urbanization and industrialization drive increased consumption," Boyce later added.

For more information, visit Industrial Info's North American Metals and Minerals Project Database.

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Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and nine international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.