In Peabody’s deal with Bowie Resources to sell El Segundo, Lee Ranch and the Twentymile, Bowie will also assume $105 million of liabilities and it also reduces Peabody’s reclamation exposure by $300 million.

“This deal could allow Peabody shareholders to benefit from any event that makes US coal miners profitable again,” JP Morgan said.

“However if coal prices only stabilize in early 2017 – to a cashflow neutral situation – Peabody’s elevated debt may still remain too large a burden. However, we feel the market should like this transaction since it adds duration to the Peabody shares.”

Peabody also pointed out that the transaction helps focus the company on its three core areas in the Powder River Basin, Illinois Basin and Australia, JP Morgan said.

With Peabody’s prospective mine EBITDA of approximately $90 million in 2016, JP Morgan estimates the mines are worth between $450 million and $540 million using a 5-6x EV/EBITDA multiple range.

“The $358 million price tag along with the $105 million reduction in liabilities puts the deal at the lower end of our valuation range but the $300 million lower AROs [reclamation expenses] should help and there’s also a question mark over the sustainability of production at the Twentymile mine,” JP Morgan said.

“With JP Morgan’s Arjun Chandar expecting $437 million of interest payments in 2016, the cash from the sale will be helpful for maintaining liquidity and buying time. By late 2016 or early 2017 we expect reduced shale drilling will remove the downdraft on gas and coal prices.”