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Peabody announces five-year business plan

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World Coal,

Bankrupt US coal company, Peabody Energy, has received approval of its business plan by the company’s debtor-in-possession (DIP) financing lenders. The business plan forms the basis for the reorganisation plant that Peabody expects to submit before the end of the year.

Underpinning the business plan is an assumption that US and seaborne thermal coal demand, as well as metallurgical coal demand, will grow between 2016 and 2021, allowing Peabody’s coal sales to rise from 168 million short t in 2016 to 184 – 197 million short t in 2021.

US thermal coal demand is assumed to grow 20 – 25 million short t between 2016 and 2012, as increasing capacity utilisation at remaining coal-fired power plant offsets expected plant retirements. Seaborne thermal coal demand is expected to rise by 50 – 60 million metric t on the back of new generation capacity in the Asia-Pacific region, while metallurgical coal demand is expected to increase by 50 – 55 million metric t driven by China and India.

Despite the assumed growth in demand and sales, Peabody’s coal sales in 2021 will still remain under the 228.8 million short t recorded in 2015. The last time Peabody reported coal sales below 200 million short t was 2003, when the company sold 182.2 million short t of coal.

Over the five years to 2012, the company anticipates revenues to remain largely stable between US$4.4 billion and US$4.6 billion. EBITDAR is expected to grow, however, by 60 – 65% from 2016 levels. “Financial performance is highly sensitive to changes in assumptions as described in the plan,” the company admitted.

In terms of what the company may look like, in the US the company will focus on its assets in the Powder River Basin and Illinois Basin, which “continue to create value in the face of reduced coal demand”. Its mines in the southwest and Colorado is will run for cash.

In Australia, the company said it anticipated “a smaller but more profitable platform focused on high-quality produces and/or top tier assets to capitalise on higher growth in Asia.” This will results in a fall in metallurgical coal production in Australia over the five years to 2021. The company also affirmed its intention to place the Burton mine into care and maintenance later this year.

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