Peabody profit up on price spikes

INCREASED coal spikes related in part to flooding in Australia helped Peabody Energy pocket a profit and a healthy rise in revenues in the first quarter, all while the industry’s “global supercycle” continues.
Peabody profit up on price spikes Peabody profit up on price spikes Peabody profit up on price spikes Peabody profit up on price spikes Peabody profit up on price spikes

Peabody chief Gregory Boyce

Donna Schmidt

For the period ended March 31, the producer reported revenues of $US1.74 billion, a 15% rise year-on-year, driven by higher Australian prices and an increase in US coal volumes. Income from continuing operations rose 31% to $179.6 million.

Consolidated sales in the quarter totaled 61.2 million tons, versus 58.3Mt a year ago. The continued ramp-up of the company’s newest large mine, Bear Run, and higher demand both helped shipment numbers increase 9% to 51.4Mt.

Peabody chairman and chief executive officer Gregory Boyce said the company was continuing to advance multiple growth initiatives serving an area of high growth, the Asian markets.

“During the quarter, we made significant progress on a number of Australian mine expansions, entered into Chinese development agreements, expanded Indonesian supply sources, and announced a major throughput agreement for a proposed western US export facility," he said.

"This quarter we saw continued evidence of coal's global supercycle; global demand is rising and supply remains constrained. We believe coal fundamentals will remain strong for decades, even as other energy forms are proven too expensive or too limited to provide reliable low-cost energy at significant scale."

Looking at its ongoing projects across the globe, Peabody said it remained on track to expand its capacity platform in Australia to 35-40Mt by 2014-15, reaching 12-15Mt of metallurgical capacity and 15-17Mt of export thermal capacity.

The company anticipates the first of the six projects will be completed in 2011 at the low-cost Wilpinjong mine, which will ultimately deliver an additional 2-3Mt of thermal coal into the seaborne market. It also is continuing expansion projects at the Metropolitan, Millennium and Burton metallurgical coal mines and the Wambo surface and underground thermal complex.

In Asia, the producer has been shortlisted as a preferred bidder by the government of Mongolia to potentially develop one of the largest untapped met coal reserves in the world. In addition, Peabody has added almost 6Mt to its trading and brokerage supply platform with the signing of two coal supply agreements that will expand its access to growing Indonesian markets.

In the US, the company recently inked a significant throughput and development agreement that will send up to 24Mtpa of Powder River Basin coal through a large planned export facility on the west coast. The project is currently in the permitting phase.

Additionally, Peabody acquired about 28,000 acres of PRB coal leases this month to review development of underground coal gasification projects in a $6.5 million deal.

The company’s full-year capital expenditures will be focused on growth and expansion projects, and will total $900-950 million.

Looking ahead, Peabody said it would continue to benefit from an increase in Australian volumes and higher met and thermal coal prices. Offsetting these advantages will be ongoing residual effects related to record Australian rains, a scheduled longwall move at one of its Australian operations, and reduced production numbers from its Twentymile mine in Colorado.

“In the last week, the company encountered difficult geology at Twentymile, and Peabody is working with the US Mine Safety and Health Administration on a new operating plan to manage through the conditions and resume production,” the company explained.

“The range of options could lead to significantly reduced longwall production from the mine in the quarter.”

In the meantime, the producer held fast to its total 2011 sales target of 245-265Mt, including 28-30Mt from Australia, 195-205Mt from the US and the remainder from its trading and brokerage activities.