Dylan Brown, E&E reporter
Peabody Energy Corp., the world’s largest private-sector coal producer, filed for bankruptcy today, ending months of speculation about the company’s future.
The St. Louis-based company filed for federal Chapter 11 protection in the U.S. Bankruptcy Court for the Eastern District of Missouri.
It’s only the latest of dozens of large and small coal producers to fall victim to years of weak market conditions and competition from fuels like natural gas.
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Peabody said the move was designed to preserve liquidity and restructure $10.1 billion in debts “amid an unprecedented industry downturn.”
Despite widespread cost-cutting, Peabody reported a $2 billion loss in 2015 as its peers Alpha Natural Resources Inc. and Arch Coal Inc. entered bankruptcy (Greenwire, Feb. 11).
“This was a difficult decision, but it is the right path forward for Peabody,” CEO Glenn Kellow said in a statement. “We begin today to build a highly successful global leader for tomorrow.”
The New York Stock Exchange immediately suspended trading of the company’s stock. Meanwhile, Peabody has secured $800 million in financing from its creditors, including a $500 million term loan, $200 million bonding accommodation and $100 million letter of credit with cash collateral.
Peabody executives say bankruptcy should not have any effect on business as usual at the company’s 26 mines. The bankruptcy filing only includes Peabody’s U.S. entities and not its Australian holdings.
A sizable portion of the company’s debt stems from Peabody’s 2011 expansion into Australia. The $5.2 billion purchase of Macarthur Coal Ltd. was supposed to have provided a critical link to Asia and its booming steel manufacturing sector.
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The big bet, however, proved disastrous. The economic slowdown in China resulted in a supply glut for metallurgical coal that undercut prices worldwide.
In its 2015 annual report, Peabody warned investors that its solvency likely hinged on finalizing a $358 million sale of its El Segundo and Lee Ranch mines in New Mexico and the Twentymile Mine in Colorado.
But buyer Bowie Resource Partners LLC struggled to secure financing to cover more than $300 million in mine cleanup liabilities (Greenwire, March 16). Today, Peabody announced that the sale had been terminated, as Bowie “was unable to complete the transaction.”
Beyond competition from natural gas and the global economy, fears have been mounting within coal mining companies about increasingly tougher climate regulations in light of last year’s Paris Agreement.
‘Wake-up call’
Environmentalists today hailed the toppling of coal’s biggest company as evidence of the success of their sustained campaign against the fuel.
“Peabody Energy’s bankruptcy should serve as a wake-up call to anyone promising that coal’s glory days will return,” said Mary Anne Hitt, director of Sierra Club’s Beyond Coal Campaign.
“As Peabody grapples with the reality that the world is turning away from coal, it’s essential that it doesn’t turn away from its obligations to workers, communities and the environment.”
Environmentalists plan to closely scrutinize Peabody’s bankruptcy proceedings, arguing that coal companies have used the process to shirk their obligations to workers and to clean up mines.
Coal critics have lambasted previous deals between states and bankrupt coal companies to meet federal mine reclamation obligations. Self-bonding — companies’ using a healthy balance sheet to meet requirements — has been a focal point (Greenwire, March 1). Peabody holds a third of all self-bonds nationwide, nearly $1.4 billion.
“Unfortunately, Peabody has a history of spinning off its responsibilities into smaller companies that seem built to fail, while taxpayers are left holding the bag,” Hitt said, referencing the twice-bankrupt Patriot Coal Corp.
“We need to make sure the former energy giant is held accountable for every promise it’s made and that its decline leaves its commitments in the best shape possible.”
The Sierra Club implored Congress to step in to help coal communities cope with the demise of their traditional industry. A slew of legislation designed to rejuvenate hard-hit regions like Appalachia and secure miner pensions has been introduced from both sides of the aisle, albeit with different end goals for coal production (E&E Daily, April 12).
Hitt said: “As we transition to the clean energy economy, it’s essential that we don’t forget the immense contributions that coal communities have made to America and that we secure every family’s livelihood as we transition to new economic opportunities.”
Environmentalists have also widely criticized Peabody for what they see as the company’s downplaying of climate change. Bill McKibben, co-founder of the group 350.org, issued a statement of condemnation.
“Perhaps if they had spent more time and money diversifying their business rather than on lobbying against climate action and sowing the seeds of doubt about the science, they might not have joined the long (and ever growing) list of bankrupt global coal companies,” he said.
The administration has placed a moratorium on all federal coal leasing to ensure, among other things, that climate change factors into leasing decisions (Greenwire, March 25).
Aides for Washington Sen. Maria Cantwell, who has championed reform efforts and a self-bonding ban as top Democrat on the Senate Energy and Natural Resources Committee, said the bankruptcy filing showed the necessity of their efforts (E&E Daily, March 11).
“This wasn’t unforeseen, and exactly why Sen. Cantwell is leading the charge in the Senate to ensure taxpayers are protected and getting their fair share from federal coal leases,” her office said in a statement.
Stabilization hopes
Despite the gloomy outlook for coal, Peabody said it intends to continue working with state and federal regulators to meet its mine reclamation obligations.
It also expects to keep mining coal after bankruptcy, citing “multiple third-party estimates” predicting a global stabilization in demand for the fuel.
Peabody reported $11 billion in assets, including dominant reserves in key areas like the Powder River Basin, the Illinois Basin and Australia.
“Globally, thermal coal is expected to continue to fuel hundreds of existing coal generating plants as well as scores more that are under construction,” the company said. “Coal currently fuels approximately 40 percent of global electricity and is expected to be an essential source of global electricity generation and steel making for many decades to come.”
While suffering heavy losses, Peabody touted an increase in Australian earnings from the previous year and administrative expenses and capital investments reaching their lowest point in almost a decade.
“A company like Peabody with safe, efficient operations will be well positioned to serve coal demand that will continue in the United States and around the world,” Kellow said.
— Originally published by Greenwire. Contact E&E for permission to republish.