Peabody Energy (NYSE: BTU), the nation’s largest coal producer, on Jan. 30 reported full-year 2013 revenues of $7.01bn, leading to Adjusted EBITDA of $1.05 bn.
In 2013, the St. Louis-based company achieved $340m of cost savings, reduced capital investments by 67% and generated $722m of operating cash flow. It had a net loss of $512.6m in 2013, down from a net loss of $575.1m in 2012.
“Peabody delivered on our 2013 objectives, with notable operating performance, structural cost improvements, disciplined capital spending and solid cash flow,” said Peabody Energy Chairman and Chief Executive Officer Gregory Boyce. “Our leading presence in the high-growth Pacific Rim region and the lowest-cost U.S. basins uniquely positions the company to manage near-term markets and have significant earnings leverage to volume and price as markets continue to improve.”
2013 revenues of $7.01bn were impacted by lower realized pricing in Australia and the United States. Sales volumes increased 1% to 251.7 million tons as higher Australian and Trading and Brokerage shipments offset a reduction in U.S. volumes. U.S. Mining revenues of $4.01bn were impacted by a 4% decline in both volumes and realized pricing.
2013 Adjusted EBITDA totaled $1.05bn compared with $1.84bn in 2012, primarily due to the impact of nearly $800m from lower pricing that was partly offset by $340m in cost improvements. 2013 U.S. Mining Adjusted EBITDA declined 11% to $1.12bn, driven by a decline in volumes and revenues per ton that was partly offset by a 3% improvement in operating costs per ton.
2013 results were impacted by pre-tax asset impairment charges of $528.3m related to several operating and non-operating properties in the U.S. and Australia as well as a $30.6m charge related to the company’s settlement with Patriot Coal and the United Mine Workers of America. Patriot Coal, which was spun off from Peabody several years ago, emerged from bankruptcy in 2013.
“Peabody has generated positive cash flows and repaid more than $600 million of debt over the last two years, and we continue to focus on those factors within our control to improve our financial position,” said Peabody Energy Executive Vice President and Chief Financial Officer Michael Crews. “We have $2.1 billion of liquidity and our recent refinancing extends the maturity of our credit facility to 2018 while providing significant headroom under our financial covenants.”
Peabody sees strength in global coal markets
“We look for continued record coal use in 2014 as developing nations increase coal imports and developed nations capitalize on coal’s cost and reliability advantage over natural gas and renewables,” said Boyce. “Seaborne thermal and metallurgical coal demand reached a record 1.25 billion tonnes in 2013, and coal demand growth is expected to exceed supply increases, leading to improved fundamentals as the year proceeds.”
Within global markets, seaborne coal supply outpaced coal demand in 2013, resulting in reduced metallurgical and thermal coal benchmark pricing. Key market highlights include:
- China coal imports accelerated to a monthly record of 35 million tonnes in December and reached a new high of 320 million tonnes in 2013. Steel production increased 7.5% over 2012 levels, leading to metallurgical coal demand estimated at 750 million tonnes. This drove net met coal imports up 42% to 74 million tonnes in 2013, as China became the largest importer of met coal. China’s thermal coal generation increased 7% in 2013, fueling thermal import demand of 246 million tonnes. China’s domestic coal supply rose 1% in 2013 as increasing domestic mining costs, safety concerns and mine closures supported additional coal imports;
- India’s coal generation rose 8% in 2013, which led to a 23% increase in thermal coal imports. Import growth is expected to continue as domestic production struggles to meet growing demand, new coal-fueled generation is built along the coast, and metallurgical coal imports continue to rise on higher steel requirements;
- Japan’s coal consumption increased 10% through December as new coal-fueled generation propelled additional coal demand. Met coal imports rose to an estimated 62 million tonnes in 2013 as economic expansion drove increased steel consumption;
- Germany’s coal use reached the highest level since 1990 as nuclear, natural gas and renewables generation declined;
- The increase in seaborne metallurgical coal supplies was greater than expected and resulted in price declines in 2013. The increase was largely driven by Australia met export growth of 25 million tonnes as mines expanded production to lower unit costs and cover take-or-pay infrastructure commitments;
- Seaborne thermal demand rose 40 million tonnes in 2013. Thermal prices declined due to increased supply primarily fromIndonesia and Australia; and
- The first quarter met coal benchmark for high-quality low-vol hard coking coal settled at $143 per tonne with benchmark low-vol PCI at $116 per tonne.
Global economic expansion is projected to accelerate in 2014, and seasonal demand in China is expected to improve in the second quarter, leading to a tightening in the seaborne coal markets. The World Steel Association forecasts a 3% increase in global steel use in 2014, which is expected to drive met coal import demand to more than 300 million tonnes. Met coal export growth from Australia is expected to slow in 2014, and the current environment will further pressure U.S. exports, resulting in improved market balance. Seaborne thermal coal demand is projected to rise 30 to 40 million tonnes in 2014 as growth in Asia is partially offset by declines in the Atlantic basin. Thermal coal supply growth is expected to be significantly slower than the last few years as new project development declines.
By 2016, Peabody expects global coal demand to rise 700 million tonnes. Seaborne met coal is expected to grow 10% to 15% over the next three years, led by urbanization and industrialization in China and India. Peabody said it estimates that approximately 250 GW of new coal-fueled generation will be built over the next three years, requiring an additional 750 million tonnes of thermal coal once expected capacity utilization is reached. China’s coal use is expected to continue to increase as the growth in coal-fired plants and coal conversion facilities more than offset lower direct use of coal in homes and businesses.
Stagnant U.S. coal market is showing some signs of life
“U.S. coal demand is rising and now accounts for over 40 percent of electricity generation as utilities switch back to coal due to higher natural gas prices,” said Boyce. “Last year, coal inventories declined at the fastest pace in 13 years and are now approaching normal levels in our key markets. Southern Powder River Basin coal inventories have improved 34 percent since late 2012 to 52 days of consumption, leading to stronger market fundamentals than we have seen in several years. And Peabody is currently executing Southern Powder River Basin contracts at prices well above 2013 levels.”
- Overall U.S. coal production declined 30 million tons in 2013 and has fallen below 1 billion tons for the first time since 1993. Production is expected to modestly rise in 2014 to meet expanding consumption;
- Utility demand increased more than 40 million tons as 2013 natural gas prices rose 32%, resulting in an 11% decline in natural gas generation. 2014 coal consumption is projected to increase 20 million to 30 million tons on increasing generation demand from a stronger U.S. economy and continued higher natural gas prices;
- Stockpiles declined 35 million tons in 2013, the largest inventory withdraw since 2000. Southern Powder River Basin prices are now nearly 40% above 2013 lows as reduced stockpiles lead to additional utility purchases; and
- Southern Powder River and Illinois Basin demand is anticipated to expand a combined 100 million tons by 2016, as increased generator utilization rates and basin switching more than offset the impact of plant retirements.
Peabody remains focused on aggressively reducing costs and capital spending while increasing productivity across the global platform. 2014 capital targets of $275m to $325m are below 2013 levels and are primarily allocated to sustaining capital items. Major new project timing will continue to be evaluated in 2014, with spending dependent on market conditions.
Operational projects in the U.S. are focused on:
- Advancing slope development at the low-cost Gateway North Mine in the Illinois Basin to provide replacement capacity as the current operations transition into a new reserve area; and
- Realizing the full productivity and cost benefits of the recent dragline move at the El Segundo strip mine in New Mexico.
For the full-year 2014, Peabody is targeting:
- Total sales of 245 million to 265 million tons, including U.S. sales of 185 million to 195 million tons, Australian sales of 35 million to 37 million tons, and the remainder from Trading and Brokerage activities;
- U.S. costs per ton 1% to 3% below 2013 levels as cost containment efforts offset higher overburden ratios, and U.S. revenues per ton 5% to 8% below 2013 levels. The decline is predominately due to contract re-openers, primarily in the Midwest;
- Trading and Brokerage results that are likely to remain constrained until volatility increases and market conditions improve.
Peabody Energy is the world’s largest private-sector coal company and a global leader in sustainable mining and clean coal solutions. The company serves metallurgical and thermal coal customers in more than 25 countries on six continents.