Peabody plans for Australia
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Wednesday 17 August 2016
Peabody has reaffirmed its plans to shut down the Burton coal mine by Christmas and has told its investors the suspension of other mining activities is likely, as moves to slash output of coking coal by half over the next five years.
The company made the predictions in a new business plan released to its investors as part of a process to try and get out of financial administration (Chapter 11 protection) in the US.
Peabody has been pushed to the edge of bankruptcy by the collapse in coal prices which came hot on the heels of their massive expansion into the Australian coal sector during the boom years of the last decade.
For its Australian business, Peabody's plan is to shift its focus to thermal coal where it believes it can extract profits of between 14 and 23 percent over the next five years, compared to losses of 3 percent through to a maximum annual profit of 11 percent in coking coal.
The major shift away from steelmaking coal will require a major “review and optimisation” of all it's Queensland mines which are significantly geared toward thermal, coking and PCI coal mining.
Peabody has released its operational plan based on a broadly consensus view that thermal prices will reach around US$65 per tonne over the next five years while coking coal prices will rebound to around US$123 a tonne over the same time frame.
“Within Asia/Pacific, metallurgical coal demand is expected to increase by 50 to 55 million tonnes between 2016 and 2021, driven by China and India,” Peabody Energy President and Chief Executive Officer Glenn Kellow said
“Seaborne thermal demand is expected to rise by 50 to 60 million tonnes as some 375 gigawatts of new generation capacity is added, primarily in the Asia-Pacific region.
“In Australia, the company anticipates a smaller but more profitable platform focused on high-quality products and top-tier assets to capitalise on higher growth in Asia.
“As described in the business plan, plans are dependent on factors including industry conditions and the success of Project Excellence improvement initiatives.”
According to Peabody, since 2012 in Australia, their capital investment has fallen by 90 percent and cost per tonne by 47 percent. This includes slashing their workforce by 35 percent.
Globally they have cut 45 percent of head office jobs.
Whether the major shake-up occurs depends on whether its financiers accept their business plans as part of the Chapter 11 process.
If they are accepted the plans will form the basis for a Plan of Reorganization, which will outline Peabody’s successful emergence from Chapter 11.