Coal slump sends mining giant Peabody Energy into bankruptcy

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Source:   —  April 13, 2016, at 4:22 PM

S. coal giant Peabody Energy Corp. filed for bankruptcy on Wednesday, the most powerful convulsion yet in an industry that'south enduring the worst slump in decades.

Coal slump sends mining giant Peabody Energy into bankruptcy

U. S. coal giant Peabody Energy Corp. filed for bankruptcy on Wednesday, the most powerful convulsion yet in an industry that'south enduring the worst slump in decades.

The company voluntarily filed petitions below Chapter eleven for the majority of its U. S. entities in the United States Bankruptcy Ct for the Eastern District of Missouri, according to a statement dated April thirteen. All of Peabody'south mines and offices are continuing to work in the ordinary course of business and are expected to continue doing so for the duration of the process, it said.

Founded in one thousand eight hundred eighty-third by 24-year-old Francis S. Peabody with $100, a wagon and two mules, the miner is presently the largest private-sector coal company in the world, with customers in twenty-fifth countries and about 8.000 employees, according to its website. It joins at minimum four other coal companies that have sought bankruptcy as the industry endures its worst downturn in decades – a result of tougher environmental policies, a flood of cheap natural gas and a global glut of metallurgical coal that'south dragged prices for steelmaking component to the lowest in more than ten years.

"The outlook for coal players remains bleak," said Sandra Chow, a Singapore-based credit analyst who tracks coal producers at CreditSights Inc. "Any recovery remains a long way from here."

The price of metallurgical coal has tumbled about seventy-five % since its two thousand eleven peak. That'south been particularly painful for Peabody, which spent $4 billion in two thousand-eleventh to acquire Australia'south MacArthur Coal Ltd. in an effort to widen its sales of the steelmaking component. Number Australian entities are included in the filings, and Australian operations are continuing as usual, according to the statement.

"The factors affecting the global coal industry in recent years have been unprecedented," Peabody said in the statement. "Still, multiple third-party estimates project that both the U. S. and global coal demand will stabilize. Coal currently fuels approximately forty % of global electricity and is expected to be an fundamental source of global electricity generation and steel making for many decades to come."

The United States will continue to utilize coal, which generated about twenty-eight % of the country'south electricity in December, according to the Energy Information Administration. Demand for coal used in power plants and for making steel should stay feeble through two thousand sixteen, but India and Southeast Asia will be shining spots, said Bloomberg Intelligence analyst Andrew Cosgrove.

"This isn't a death knell for coal. It'south the pains of a shrinking industry," Cosgrove said.

U. S. coal production peaked in two thousand-eighth, at 1.17 billion metric tons. In recent years, it'south plunged and may fall to 752.5 million in two thousand-sixteenth, the Energy Information Administration projected in its monthly Short-Term Energy Outlook released Tuesday.

As recently as October two thousand fourteen, Peabody executives were optimistic, saying the worst might be over and investors were encouraged that coal pricing may have hit a bottom. The uptick never came, and latest year, Peabody began cutting jobs and looking to sell assets. The planned sale of its NM and CO assets was terminated after the buyer was unable to complete the transaction, according to Wednesday's statement.

As portion of the bankruptcy process, Peabody has obtained $800 million in debtor-in-possession financing facilities, which were arranged by Citigroup and comprise participation of a no of the company'south secured lenders and unsecured noteholders, it said in the statement.

The filing leaves uncertainty around Peabody'south .47 billion in environmental liabilities. Below a federal law enacted in one thousand nine hundred seventy-seventh, mining companies should post surety bonds or other collateral that cover future mine cleanup costs unless their balance sheets are powerful sufficient to qualify for an exemption known as "self-bonding."

Before the bankruptcy filing, WildEarth Guardians and the Environmental Law & Policy Middle sought to obtain Peabody'south self-bonding revoked in states including Wyoming, NM and Illinois, saying that its finances were too destitute to justify the privilege.

Peabody, which boasts sustainable mining practices and "clean coal," says it's restored thousands of acres of mined lands over its long history. But in Nov it agreed with NY Attorney Common Eric Schneiderman to create more specific disclosures about the financial risk it faces from future climate-change policies after his office claimed Peabody hadn't disclosed concerns to investors and regulators that it'd discussed in private. Peabody neither admitted nor denied those findings.

"The company sees its land restoration as an fundamental portion of the mining process," it said in the April thirteen statement. "Peabody intends to continue to work with the relevant state governments and federal agencies to meet its reclamation obligations."

Peabody grew quickly after its humble beginnings. The 133-year-old company listed on the NY Stock Exchange in one thousand nine hundred forty-ninth and went through many corporate incarnations. It spun off operations in Appalachia and the IL Basin as Patriot Coal Corp. in two thousand-seventh. Patriot filed for bankruptcy in two thousand-twelfth and again in two thousand-fifteenth, joining rivals Arch Coal Inc., Alpha Natural Resources Inc. and James River Coal Co.

Fitch Ratings Ltd., in a Feb note, said Peabody faced "continued contest in domestic markets from cheap natural gas and bankrupt coal producers, expectation of a delayed recovery in the seaborne metallurgical coal market from very low levels, and prospects for further weakness in the Asia Pacific steam coal markets."

Trading of Peabody'south shares are expected to be suspended immediately, it said in the statement.

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