Peabody to reduce North Goonyella port and rail costs

PEABODY Energy has succeeded in renegotiating rail and port costs for its troubled North Goonyella mine in Queensland, which has been out of action since a fire there in 2018.
Peabody to reduce North Goonyella port and rail costs Peabody to reduce North Goonyella port and rail costs Peabody to reduce North Goonyella port and rail costs Peabody to reduce North Goonyella port and rail costs Peabody to reduce North Goonyella port and rail costs

Peabody Energy's North Goonyella mine in Queensland.

The company, which said it was responding to the COVID-19 crisis with rigorous protocols, controls, and prevention measures, was still in talks with possible buyers of North Goonyella as it struggled to maintain productivity in its export metallurgical business segment.

 "Peabody has commenced the previously announced commercial process to maximize value and accelerate cash flows at North Goonyella, which offers 82 million [short] tons of proven and probable hard coking coal reserves and a fully operational preparation plant," it said.

"In April, Peabody successfully entered into commercial agreements to reduce rail and port commitments for the asset beginning mid-year 2020, while maintaining sufficient rail and port capacity for when the mine resumes operation. 

"As a result, holding costs have been reduced by approximately 85% to US$5 million per quarter, beginning in the third quarter of 2020. The company continues to closely monitor market conditions and the status of the commercial process to determine any incremental spending related to ventilation and re-entry of Zone B."

Commercial outcomes could include a strategic financial partner, joint venture structure or complete sale of North Goonyella.

Peabody Energy CEO Glenn Kellow said the company had taken aggressive actions to improve its cost structure, and was expediting a detailed mine-by-mine analysis to structurally improve its operating portfolio with accountability for performance targets extending from individual sites to the board level.

"Our Peabody people will drive our success, and I continue to be impressed and grateful for their ability to quickly adapt to change and confront challenges head on," he said.

Given uncertainties with respect to COVID-19, including the duration, severity, scope, and necessary government actions to limit the spread, Peabody has decided to suspend full-year 2020 guidance.

Peabody's seaborne metallurgical segment sold 2 million short tons in the March quarter at an average realised price of US$95.65 per short ton, drawing down inventory by approximately 800,000t.

Elevated costs per short ton of $111.82 reflect the impacts of an extended longwall move at Metropolitan, mine sequencing at Moorvale and the beginning of the upgrade project for the main line conveyor system at Shoal Creek. 

Peabody's seaborne thermal segment exported 2.6Mt at an average realised price of $61.84 per short ton, with the remaining 2Mt delivered under a long-term domestic contract. 

First quarter shipments were in line with the prior year.

Seaborne thermal segment costs per ton of $32.03 improved 9% compared to the prior year, even with the impacts of wet weather in the first quarter of 2020.

"Peabody's continued solid cost performance from its seaborne thermal segment underpins the competitiveness of this platform in nearly any pricing environment," the company said.

Looking ahead for the seaborne metallurgical segment, the company recently resumed mining at Metropolitan following a longwall move in the first quarter. 

The Coppabella mine in Queensland is mining through a lower-ratio pit, which is anticipated to mitigate increased costs associated with a major dragline repair slated for the second quarter.

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