Peabody Energy has flagged that its fourth quarter 2020 results could fall short of meeting minimum debt requirements as it remains in talks with lenders.
The coal miner has struggled against a lack of demand for products and was forced to scale back production and workforce at several of its sites.
The Wambo underground mine in New South Wales suspended production for 59 days during the third quarter, with Peabody focussing on enhancing its competitive position to enable continued mining beyond 2021.
Peabody is also reviewing strategic alternatives for the commercial process at the North Goonyella site in Queensland’s Bowen Basin.
The coal miner now has until the end of the year to negotiate a standstill agreement with its lenders and 2022 noteholders to avert a violation on terms of its debt.
The company has reported a decline of 39 per cent in its revenue to $US671 million ($921 million) during the third quarter compared with the prior corresponding period in 2019 due to lower volumes of coal and weaker seaborne pricing.
Operation costs also fell by 39 per cent, reflecting actions taken by Peabody to save revenue as it toughs out this period.
During November, Peabody reached a standstill agreement with bond providers for the company’s $US1.6 billion ($2.2 billion) surety program, which will resolve around $US800 million ($1.1 million) in collateral requests.
Peabody executive vice president and chief financial officer Mark Spurbeck described the agreement as a “first of its kind solution”.
“We are grateful for the tremendous collaboration with our surety providers to reach a first of its kind solution that offers a greater line of sight into Peabody’s future collateral requirements,” Spurbeck said.
“The agreement lays the foundation for stability and provides the necessary support for our longstanding commitment to reclamation.
“We are now focussed on continuing to work with our 2022 noteholders and revolving credit lenders to effectuate a holistic transaction that provides for maturity extensions and covenant relief, while maintaining and sufficient operating liquidity and financial flexibility.”
Despite the struggles, Peabody is optimistic that seaborne volumes will improve during the fourth quarter, based on present estimates.
Peabody anticipates it will sell 1.8 million tonnes of seaborne thermal coal at an average realised price of $US42.62 per tonne and 635,000 tonnes of seaborne metallurgical sales at an average realised price of $US56 per tonne.
It also expects seaborne coal demand to improve throughout 2021 as economies continue to recover from the COVID-19 pandemic.