From all corners of the globe, the outlook for mining, and related industries is looking bleak. Nothing typifies this than the recent filing for bankruptcy by the largest coal producer in the United States, Peabody Energy Corporation. With holdings in six states, including the large Powder River Basin in Wyoming, Peabody Energy is the largest private sector energy company in the U.S. Peabody Energy’s mining sales in tons of coal equaled 228 million tons for 2015 for an overall revenue, before adjustments, of $5.61 billion and a post adjustment of $436 million.
A combination of factors has come together to put Peabody Energy into the predicament of having to file for Chapter Eleven protection. In 2011, Peabody acquired Macarthur Coal which had overestimated the Australian coal reserves and exposed the company to the peculiarities of the Australian energy market. Further contributing factors included a failure to anticipate a drop in Chinese coal consumption and a continued decline in overall coal prices due to a variety of economic situations. Revenue from sales of coal has steadily dropped over the last four years, leading to a continual decline in overall revenue for the company. When this is coupled with the continued rising costs of retirees, increasing regulatory pressures and ancillary costs associated with a failed subsidiary, Peabody Energy was left with little alternative but to file for protection.
Peabody Energy Corporation has secured debtor in possession financing of $800 million to continue operations during the proceedings. Provided by Citicorp, Peabody has not announced any changes to ongoing mining operations but has not ruled out any further asset sales as a course of action under the guise of the bankruptcy court. At present, no Australian operations will be affected. Along with the debtor in possession financing, existing liquidity and cash positive operations will allow the company to navigate bankruptcy without too many disruptions. Economic forecasts indicate a forthcoming stabilization in coal prices and should such a situation arise, Peabody Energy will be in a leaner position to take advantage of said stabilization.