Peabody sees poor 2012, expects more losses ahead

Not only did Peabody Energy report US$1 billion in losses for the 4Q12 and a full-year 2012 loss of US$575.1 million, but the company also warned Tuesday it would continue to lose money in the first quarter of this year.

The world’s largest private sector coal company is targeting an adjusted diluted loss per share of $0.26 to $0.04 for the first quarter of this year.

The targets “reflect expectations of higher Australian costs related to the timing of additional overburden removal and startup costs associated with the transition to owner operator; lower realized metallurgical coal pricing; and lower U.S. sales and pricing.”

Peabody’s woes were compounded by a fourth-quarter loss of $1.01 billion or $3.78 per share (compared to a profit of $222.4 million or 82-cents per share for 4Q11) and a full-year 2012 loss of $585.7 million or $2.19 per share, compared with a profit of $957.7 million and $3.52 per share for full-year 2011.

The 2012 results included charges of $3.88 per share in after-tax asset impairment and mine closure costs, tax charges, and re-measurement expense on foreign tax accounts.

Peabody recorded pre-tax assessment impairment charges totaling $884 million related to Australian operations and other non-core assets.

The company also recorded $45 million in charges associated with the closure of the Willow Lake Mine in the United States.

“Asset values across several commodities have recently been impacted by significant price declines. Global metallurgical coal prices, for instance, have fallen below the highs set in 2011,” said Peabody CFO Michael C. Crews.

“These price declines factored into our impairment review and required Peabody to adjust the value of certain assets, which resulted in these non-cash charges.”

“Global coal markets remained challenged in 2012, with strong increases in seaborne thermal demand but a weak global pricing environment and significant declines in U.S. coal use,” said Peabody CEO Greg Boyce.

Turning to 2013, recent data suggests that China’s economic growth is again accelerating, and we have seen some rebound in global coal prices, while European and U.S. economies are likely to remain sluggish.”

During a conference call with analysts Tuesday, Boyce noted that the World Steel Association is forecasting a 3% growth in global steel production this year, resulting in growth in seaborne metallurgical demand.

“We expect seaborne thermal coal demand to grow in 2013 in excess of 40 million tons,” he forecasted.

“We are looking for approximately 75GW of new coal fuel generation to come online globally in 2013, which will require another 260 million tons annual at full capacity.”

“Led by a 40 million to 60 million ton increase in U.S. coal use, we expect U.S. met and thermal coal exports to fall from 2012 levels due to current pricing in the seaborne market. And based on producer announcements and early trends we are seeing so far this year, we [expect] the U.S. production to continue to decline in 2013,” Boyce added.

For full-year 2013, Peabody is targeting total U.S. sales of 180 million to 190 million tons, Australia sales and 33 million to 36 million tons, and the remainder from trading and brokerage activities.

Peabody advised that 2013 U.S. coal production is 90% to 95% priced, with 2014 production currently 50% to 60% priced at comparable 2013 production levels.


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