Coal Miner Peabody Energy in Deal Talks With Australian Rival Coronado

As recently as two years ago, Peabody was warning that it might enter bankruptcy protection for a second time, given weakness in coal markets after the Covid-19 pandemic led to a sharp drop in power demand as factories closed or reduced output. Thermal coal is used to generate electricity, but is considered among the dirtiest fossil fuels because it produces higher quantities of carbon dioxide when it is burned.

However, the war in Ukraine has stoked concerns about energy security and led countries in Europe to try to wean themselves off Russian coal while also seeking alternative supplies of fuel including natural gas. Global coal prices have risen to record highs in response, with European coal buyers looking as far afield as Australia for supplies.

Elevated coal prices resulted in Peabody reporting its highest quarterly pretax earnings in more than a decade in the three months through June and have helped to lift its market value to around $3.8 billion.

“For the first time as a public company, cash exceeds our debt balance,” Chief Executive

Jim Grech

said in July.

Shares in Coronado rose by 8% to give it a market value of around $2.19 billion after it confirmed the Peabody talks. It didn’t disclose possible deal terms. In May, Coronado said it had held talks with another American coal miner,

Arch Resources Inc.,

but it wasn’t able to reach an agreement.

“The company considers business opportunities from time to time and we do not intend to comment,” a Peabody spokeswoman said.

Peabody, which has Elliott Management Corp. as its biggest shareholder, runs thermal-coal mines in Wyoming, Indiana and several other U.S. states. It also has mines in Australia that export metallurgical and thermal coal. Metallurgical coal is used to produce steel.

Peabody declared bankruptcy in 2016 as tumbling prices crushed the American coal industry, sparking similar filings by rivals and widespread layoffs. It exited chapter 11 a year later with a restructuring plan that cut billions of dollars in debt from its balance sheet.

Still, the miner continued to face challenges amid a downturn in global coal markets and two years ago, Peabody again warned of a possible default and had to scramble to reach a deal with creditors.

A tie-up with Coronado would boost Peabody’s production of metallurgical coal. Metallurgical coal accounted for almost four in every five tons of coal that Coronado sold in the first half of this year.

Coronado owns the Buchanan mine in Virginia and the Logan mine in West Virginia, as well as the idled Greenbrier operation, which is also in West Virginia. In central Appalachia, thermal-coal prices have topped $200 a short ton for the first time on record. The company also owns the Curragh mine in Australia’s Queensland state.

Coronado has similarly recorded a recovery in earnings. In August, the company said it swung to a first-half net profit of $561.9 million from a year-earlier loss of $96.1 million.

The miner said it has taken advantage of trade restrictions on Russian coal to sell its products into Europe—instead of China—for a higher return.

Higher coal prices masked weaker production and higher operating costs. Coronado said it was paid an average $292.80 a metric ton for its metallurgical coal, versus $99.80 a ton a year earlier.

Write to Rhiannon Hoyle at [email protected]

As recently as two years ago, Peabody was warning that it might enter bankruptcy protection for a second time, given weakness in coal markets after the Covid-19 pandemic led to a sharp drop in power demand as factories closed or reduced output. Thermal coal is used to generate electricity, but is considered among the dirtiest fossil fuels because it produces higher quantities of carbon dioxide when it is burned.

However, the war in Ukraine has stoked concerns about energy security and led countries in Europe to try to wean themselves off Russian coal while also seeking alternative supplies of fuel including natural gas. Global coal prices have risen to record highs in response, with European coal buyers looking as far afield as Australia for supplies.

Elevated coal prices resulted in Peabody reporting its highest quarterly pretax earnings in more than a decade in the three months through June and have helped to lift its market value to around $3.8 billion.

“For the first time as a public company, cash exceeds our debt balance,” Chief Executive

Jim Grech

said in July.

Shares in Coronado rose by 8% to give it a market value of around $2.19 billion after it confirmed the Peabody talks. It didn’t disclose possible deal terms. In May, Coronado said it had held talks with another American coal miner,

Arch Resources Inc.,

but it wasn’t able to reach an agreement.

“The company considers business opportunities from time to time and we do not intend to comment,” a Peabody spokeswoman said.

Peabody, which has Elliott Management Corp. as its biggest shareholder, runs thermal-coal mines in Wyoming, Indiana and several other U.S. states. It also has mines in Australia that export metallurgical and thermal coal. Metallurgical coal is used to produce steel.

Peabody declared bankruptcy in 2016 as tumbling prices crushed the American coal industry, sparking similar filings by rivals and widespread layoffs. It exited chapter 11 a year later with a restructuring plan that cut billions of dollars in debt from its balance sheet.

Still, the miner continued to face challenges amid a downturn in global coal markets and two years ago, Peabody again warned of a possible default and had to scramble to reach a deal with creditors.

A tie-up with Coronado would boost Peabody’s production of metallurgical coal. Metallurgical coal accounted for almost four in every five tons of coal that Coronado sold in the first half of this year.

Coronado owns the Buchanan mine in Virginia and the Logan mine in West Virginia, as well as the idled Greenbrier operation, which is also in West Virginia. In central Appalachia, thermal-coal prices have topped $200 a short ton for the first time on record. The company also owns the Curragh mine in Australia’s Queensland state.

Coronado has similarly recorded a recovery in earnings. In August, the company said it swung to a first-half net profit of $561.9 million from a year-earlier loss of $96.1 million.

The miner said it has taken advantage of trade restrictions on Russian coal to sell its products into Europe—instead of China—for a higher return.

Higher coal prices masked weaker production and higher operating costs. Coronado said it was paid an average $292.80 a metric ton for its metallurgical coal, versus $99.80 a ton a year earlier.

Write to Rhiannon Hoyle at [email protected]