Australian operations boost Peabody

INCREASED demand for Australian coal by China helped Peabody Energy beat forecasts for its second quarter 2010 operating profit, which rose 51% year-on-year to $US324 million.
Australian operations boost Peabody Australian operations boost Peabody Australian operations boost Peabody Australian operations boost Peabody Australian operations boost Peabody

Peabody chief Gregory Boyce

Lou Caruana

Second quarter 2010 sales volumes of 59.7 million tons were slightly ahead of prior-year levels, and included a 28% increase in Australian shipments. Revenues rose 24% to $1.66 billion, led by a $288.4 million increase in Australian revenues.

Income from continuing operations increased $124.7 million to $214.7 million.

"Peabody delivered yet another quarter of outstanding results, with expanded margins and cash flows driven by both our Australia and US mining operations," Peabody chairman and chief executive officer Gregory H. Boyce said.

"Our global platform is expected to continue to capitalize on rising volumes and prices, and the continuation of our strong operating performance. We expect second half results to be stronger than the first."

Quarterly earnings before tax, depreciation and amortization increased to $440.4 million, led by $149.2 million in higher contributions from mining operations. In the United States, EBITDA was $278.7 million compared with $225.4 million in the prior year. Improvements related to higher average realized prices in the Midwest and lower costs in the West that drove a 24% margin per ton expansion.

Australian EBITDA reached $223.6 million on higher volumes and a nearly 50% increase in realized prices. Second quarter realized metallurgical coal prices increased 22% above the prior year, and realized export thermal coal prices rose 28%.

Australian margins grew 42% to $34.69/t. Trading and brokerage delivered $14.3 million of EBITDA compared with $35.5 million in the prior year, due to reduced market activity and the timing of transactions.

Compared with the first six months of 2009, year-to-date 2010 EBITDA rose 22%, operating profit increased 30%, and income from continuing operations rose 52%. Cash flow from operations totalled $456.4 million year-to-date, led by second quarter cash flow of $292.4 million.

International markets continued to strengthen in the second quarter, led by rising imports in China, India and the recovering developed economies in Asia. As a result, Australian thermal coal prices are running more than 40% ahead of the prior year and are above the prices at the beginning of both the first and second quarters. Benchmark metallurgical coal prices for the third quarter have settled more than 12% above second quarter agreements.

Australia exports continued at a strong pace in the second quarter, with record shipments reached at the key Dalrymple Bay port in Queensland. Australian coal exports are running 15 % above record 2009 levels.

Overall, thermal coal imports in the Pacific are expected to rise 10-12% in 2010, reaching the 500Mt mark for the first time. Atlantic thermal coal imports are expected to decline nearly 20% as both European and US coal imports contract. Global metallurgical coal imports are expected to rise nearly 30%, to approximately 260Mt.

The company is securing third quarter metallurgical coal pricing consistent with industry settlements. Unpriced metallurgical coal for the fourth quarter is approximately 2.5Mt, while the company has 9-10Mt available to price during 2011. Peabody has approximately 1Mt of Australian thermal export volumes unpriced for the fourth quarter. The company has 9-10Mt of Australian thermal export coal available for pricing during 2011.

In the United States, Peabody has approximately 10-15% of its planned 2011 production available to price, nearly one-third of which is committed. The company has 50-55% of its planned 2012 production available to price.

Australia volumes remain on track for 27-29Mt in 2010, an increase of 21-30% from 22.3Mt in 2009. Higher volumes reflect increasing production levels as well as the second quarter commencement of shipments through the new NCIG terminal, in which Peabody controls 18%. The new terminal provides the company with 5-6Mt of additional throughput capacity annually.

Peabody continues to advance its development of metallurgical and thermal coal projects with the goal of raising its Australian production platform to 35-40Mtpa by 2014.

Construction has begun on the Metropolitan Mine expansion in New South Wales to add 1Mtpa of primarily low-cost, hard coking coal capacity by 2014. The mine accesses the seaborne markets via the unconstrained Port Kembla.

Peabody is extending the life of the 2-3Mt Burton metallurgical coal mine in Queensland. The project is substantially permitted and final mine planning is under way. Production is expected to commence in 2012.

Permitting is under way to expand the Millennium Mine in Queensland to 3-3.5Mt. Production of metallurgical coal from the expansion is anticipated in late 2011 with full production 2013-14.

Licensing and engineering are progressing for a 2-3Mt thermal coal expansion at the low-cost Wilpinjong Mine by 2012-13 and mine plan and environmental impact analyses are under way for the planned expansion of the Wambo complex in New South Wales and the new high quality hard coking coal Denham mine in Queensland.

Peabody's growing platform in Australia is supported by investments in logistical resources and increasing port access. In addition to Peabody's ownership participation in the new NCIG terminal, Peabody is also a member of the Queensland Coal Industry Rail Group, which is advancing a proposal to privatize the Queensland coal track network.

The company continues to advance its activities to expand its presence in Asia. During the second quarter, Winsway Coking Coal Holdings replaced Polo Resources as Peabody's joint venture partner in Mongolia. Winsway is the leading importer of Mongolian coal into China.

The new arrangement provides synergies to accelerate development of the joint venture's Mongolian assets, which include substantial coal resources and licenses.

In the United States, the company began shipping coal from its new Bear Run Mine in Indiana in May. Sales are expected to average 3-3.5Mt in 2010, ramping up to 8Mt by 2012.

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