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Peabody revenues fall

World Coal,

Peabody Energy has reported full year revenues of US$6.79 billion for 2014, leading to Adjusted EBITDA of US$814 million. Revenues have declined from US$7.01 billion last year, primarily due to sharply lower realised pricing in Australia, according to the company.

Adjusted EBITDA was further impacted by fourth quarter charges of US$26 million, related to an organisational restructuring programme and pension settlements.

Sales volumes of coal were consistent with previous years, according to Peabody. This side of operations was helped by higher US and Australian shipments, which offset a reduction in trading and brokerage volumes.

Despite the falls in revenues, the eternally optimistic Gregory H Boyce – Chairman and CEO of Peabody – painted a positive view of operating results.

"Peabody continues to drive improvements in safety, costs and productivity as we respond to challenging market conditions with additional cost reduction programs, capital efficiency initiatives and non-core asset sales," said Boyce. "While we expect coal fundamentals to improve over time, we are implementing further steps in our comprehensive plan to improve competitiveness and maintain adequate liquidity." 

The company also announced an improved safety record, while it also earned the Energy Company of the Year and CEO of the Year at 2014 Platts Global Energy Awards.

Peabody has faced criticism in some quarters for its ‘Advanced Energy for Life Campaign’, which is the brainchild of PR firm Burson-Marsteller, which previously helped Big Tobacco companies claim cigarettes could in fact be good for people’s health, despite scientific evidence to the contrary. In 2014, the UK Advertising Regulatory Agency denied Peabody the right to run a series of adverts claiming coal could ever be seen as a “clean” source of energy.

The company has also been embroiled in an ongoing dispute with mining unions in the US, due to the bankruptcy in 2013 of Patriot Coal.

Patriot was first created in 2007 in a spin off from Peabody Energy. Though Patriot was initially successful, the company was been badly affected by the downturn of coal prices since 2010.

The United Mine Workers of America (UMWA) sued Peabody, accusing the company of creating Patriot as a means to dispose unprofitable assets, thereby setting it up to fail. The UMWA said Peabody gave Patriot 16% of its assets and 40% of its retiree liability.

Patriot has more than three times as many retirees as miners and 90% of its retirees have never worked for Patriot.

Patriot has suggested that the spin-off in which it was created removed US$ 600 million in healthcare and environmental liabilities from Peabody’s accounts. Meanwhile, the union suggested that, while Peabody remains profitable, it should remain liable for providing healthcare to workers.

Despite these controversies, and despite scientific research showing that the majority of coal and fossil fuels must remain in the ground, unused, if we are to avoid global warming and the potentially catastrophic effects of climate change, Peabody continues to push on with business as usual.

US Mining revenues of US$4.02 billion were in line with the 2013 revenues, as an increase in Western shipments offset a decline in average realised pricing, primarily related to contract reopeners in the Midwest. Peabody increased Southern Powder River Basin (PRB) volumes to the highest annual level since 2011, while the company’s flagship North Antelope Rochelle Mine achieved record production levels, even as rail issues constrained industry shipments.

Australian revenues of US$2.67 billion reflected a 16% decline in revenues per tonne, partly offset by a 9% rise in shipments. Australian volumes increased to a record 38.2 million t, including 17.6 million t of metallurgical coal at US$93.61/t and 13.0 million t of export thermal coal at US$68.02/t, with the remainder delivered under domestic thermal contracts. 

Peabody's 2014 tax provision totaled US$201.2 million, compared with a US$448.3 million tax benefit in 2013. The change includes a US$284.0 million valuation allowance recorded in 2014 against US income tax assets, along with a US$112.8 million prior-year tax benefit related to impairments and a US$78.3 million lower year-over-year benefit related to the repeal of the Mineral Resources Rent Tax in Australia.  

"2014 was a turbulent year for the coal markets as slowing near-term demand growth and strong seaborne supplies resulted in continued coal price declines," said Peabody Energy President and CEO-Elect, Glenn Kellow. "We would anticipate seeing catalysts for market improvement including stable seaborne metallurgical supply, the addition of new global coal-fueled generation and coal import growth in India and Southeast Asia. In the US, we expect Southern PRB consumption to rise in 2015, despite lower expected natural gas prices, as rail performance improves and utility coal conservation measures are eliminated."

Peabody is watching global markets, with a keen eye on China – perhaps the most important cog in the global coal industry. Despite Chinese coal imports declining by 35 million t this year, and despite Chinese policies aimed at reducing coal consumption and moving towards cleaner energy alternatives, Peabody said it expects “Chinese import growth to resume over time as domestic production is rationalised and new infrastructure projects are advanced”.

Based on current global economic growth forecasts, Peabody expects annual global coal demand to rise 500 million t by 2017. Over this same period, approximately 225 GW of new coal-fuelled generation are expected to be built, supporting an estimated 8 – 10% increase in seaborne thermal coal demand. The World Steel Association projects global steel use will rise 2% in 2015. Peabody expects seaborne metallurgical coal demand to rise 10 – 15% over the next three years, led by ongoing urbanisation and industrialisation in Asia.

Peabody expects coal's share of US electricity demand to be approximately 40% in 2017, and utility coal usage is projected to increase 10 – 30 million t over 2014 levels. Over that time, Southern PRBand Illinois Basin demand is anticipated to rise 50 – 70 million t, due to a recovery in natural gas prices, increasing coal plant utilisation and basin switching that more than offset expected unit retirements.

Edited from various sources by Sam Dodson

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