Mining and Heavy Industries

Macarthur buy potential trigger for Peabody’s impending collapse

Coal. Photo: Shutterstock.

The world’s largest private coal miner, Peabody Energy, is on the edge of bankruptcy, and at least one US analyst has blamed its $4.9 billion Macarthur Coal buyout in 2011 as a major factor.

Peabody, which employs more than 7000 workers, filed its 2015 annual report earlier this month. The report included an opinion from the company’s independent auditors concluding that its current financial path may not be sustainable over the course of the year.

It also announced it would delay $93 million in interest payments this month, for an approved 30-day grace period.

“We plan to use this time to have conversations with our lenders about our alternatives, while maintaining options around our interest payments,” the company said on March 16.

Peabody has struggled through the slump in global commodity prices, and other economic uncertainties.

Ted O’Brien, chief executive of US energy research firm Doyle Trading Consultants, reportedly told the AFR that Peabody’s famous $4.9 billion acquisition of Australia’s Macarthur Coal during the peak of the mining boom was a primary factor in the company’s struggling state.

“Peabody did a very highly leveraged acquisition of Macarthur assets in Australia, funded with debt at the peak of coking coal pricing.”

The Macarthur acquisition was completed at the end of 2011, when Australian coking coal was still selling for more than US$120 a tonne. At the end of last month, coking coal was quoted at just US$54.54 a tonne.

“Given the market today, their capital structure is unimaginable,” O’Brien was quoted as saying.

Peabody’s Macarthur acquisition was part of an extraordinary series of M&As that took place during the coal boom.

US miners who invested in Australian operations have been under extra pressure in recent years, as natural gas production in North America hits their domestic coal market, too.

Peabody’s share price plummeted to almost US$2 a share following the announcement – down significantly from nearly US$10 a share at the end of 2015, and an all-time high of US$299 a share in the first quarter of 2014.

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