Peabody files for bankruptcy

Another major coal miner has collapsed, as Peabody files Chapter 11 bankruptcy in the US.

Peabody Energy has filed pleadings, known as ‘first day’ motions, with the US Bankruptcy Court.

“These motions are expected to enable the company to continue, among other things, paying employee wages and providing healthcare and other benefits without interruption,” the miner said in an official statement.

It follows other major American coal miners Arch Coal and Alpha Resources, which both filed Chapter 11 over the last six months due to the tumbling coal price.

Peabody announced late yesterday its choice to enter bankruptcy in an effort to “strengthen liquidity and reduce debt amid an unprecedented industry downturn”.

It intends to use the Chapter 11 process to “reduce its overall debt level, lower fixed charges, improve operating cash flow and position the company for long-term success, while continuing to operate under the protection of the court process”.

The miner blamed the weak coal market, stating “industry pressures in recent years including a dramatic drop in the price of metallurgical coal, weakness in the Chinese economy, overproduction of domestic shale gas and ongoing regulatory challenges” were drivers for the filing.

Australian assets are not included in the filing, and will continue to operate as normal

Peabody stated that the Wambo, Wilpinjong, Metropolitan, Burton, Coppabella, Middlemount, Millennium, Moorvale, and North Goonyella coal mines in Australia are not included in the filing, and will continue to operate as normal.

It stated that the Australian assets earned more than the prior year despite lower prices for coal.

The decision by Peabody is of little surprise to the market, which has predicted the miner’s likely bankruptcy since the start of the year.

Moody’s and BlackRock fund manager Evy Hambro – manager of some of the world’s largest mining funds – have predicted a year of bankruptcies and closures ahead for the resources industry, with Peabody heading the list of the next miner to collapse for some time.

Speaking on the decision to file, Peabody CEO Glen Kellow said,“This was a difficult decision, but it is the right path forward for Peabody.  We begin today to build a highly successful global leader for tomorrow.”

“Through today’s action, we will seek an in-court solution to Peabody’s substantial debt burden amid a historically challenged industry backdrop.  This process enables us to strengthen liquidity and reduce debt, build upon the significant operational achievements we’ve made in recent years and lay the foundation for long-term stability and success in the future.”

The miner has already obtained US$900 million in debtor-in-possession financing facilities, arranged by Citigroup as well as Peabody’s secured lenders and unsecured noteholders.

The facilities include a US$500 million term loan, a US$200 million bonding accommodation facility, and a cash collateralised US$100 million letter of credit facility, subject to court approvals.

On the back of the filing, the miner has also seen the sale of its New Mexico and Colorado assets falter, after the buyer was unable to complete the transaction.

Despite the bankruptcy declaration, Peabody remained positive on the market, explaining that “multiple third-party estimates project that both the U.S. and global coal demand will stabilise.  U.S. gas prices are projected to rebound from recent lows.  Globally, thermal coal is expected to continue to fuel hundreds of existing coal generating plants as well as scores more that are under construction”.

“Coal currently fuels approximately 40 per cent of global electricity and is expected to be an essential source of global electricity generation and steel making for many decades to come,” it said.

Regarding its own future, it believed that it remains “well positioned to serve coal demand that will continue in the United States and around the world,” Kellow said.

“We are a leading producer and reserve holder in our core regions of the Powder River Basin, Illinois Basin and Australia.  Peabody has a new management team, outstanding workforce, unmatched asset base and strong underlying operational performance that represent a key driver in the company’s future success.”





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