Peabody Energy to take 'aggressive, decisive' action in face of COVID-19 impacts

Peabody Energy is looking to preserve cash amid the uncertainty created by the COVID-19 pandemic and is considering layoffs, divestitures and other measures to protect its business, the company said Wednesday.

"It has been a challenging start to 2020 and among the most complex global backdrops in my more than three decades in the global resource industry," Peabody President and CEO Glenn Kellow said on the company's earnings call. "In just the first quarter, Australia was still facing the impacts of persistent and tragic bushfires, immediately followed by some of the heaviest rainfall to hit New South Wales since the 1990s. In the US, we saw natural gas prices hit 21-year lows, and now we and the rest of the world are managing through the devastating and complex COVID-19 pandemic. "

Kellow said Peabody is actively pursuing structural improvements across the entire enterprise. In April, the company eliminated approximately 250 positions from its Powder River Basin coal mines after trimming 215 jobs from its global mining portfolio in the first quarter.

The company reported a first-quarter net loss of $129.7 million compared with a profit of $124.2 million in the year-ago quarter.

Last year, the company identified $50 million in cost savings related to its selling, general and administration expenses. In the first quarter, it found an additional $20 million of cost savings, about $10 million of which came out of SG&A, Kellow said. The cumulative effect has been a one-third reduction of the company's corporate and support headcount.

"We believe it's not enough to simply live within our means; we must take aggressive, decisive action and create our own catalyst for change," Kellow said.

PRESERVING LIQUIDITY

To preserve liquidity, Peabody paused dividends and share repurchases, stopped voluntary debt reduction activities and drew down $300 million from its revolving credit facility. Kellow said the company is also evaluating its portfolio for potential divestiture candidates.

An internal project team overseen by the company's board of directors is doing an expedited mine-by-mine analysis of Peabody's portfolio.

"Let me be clear: mines that cannot demonstrate a path to cash generation at lower pricing levels will be suspended," Kellow said. "We've proved our willingness to do so with the suspension or closure of several mines in the Midwest in 2019."

Mark Spurbeck, Peabody's interim CFO, said the company is closely monitoring volumes and "aggressively protecting our contractual rights" amid the ongoing industry weakness.

"Given rapidly changing market conditions, we have had several customers notify us of changes in nominations," Spurbeck said. "We've also had customers book new business. Ultimately, deliveries will be dependent on weather, natural gas prices and other factors."

The company is also closely waiting for more clarity pertaining to its proposed joint venture with Arch Coal. The Federal Trade Commission is opposing the companies' plans to run their western US coal mines jointly. Arch and Peabody plan to contest FTC's opposition in court in June and expect a decision shortly after.

"Overall, it's a time of significant change for the global economy, our business and our employees globally," Kellow said.

THERMAL RESERVES

Peabody sold 23.5 million st of Powder River Basin coal in Q1 compared with 25.3 million st in the year-ago quarter. Other US thermal sales totaled 4.9 million st compared with 7.9 million st last year.

The company reported Q1 revenues per st in its PRB sector of $11.36/st compared with $11.35/st in the year-ago quarter. PRB costs per st totaled $10.28/st in Q1 compared with $9.91/st last year.

Other US thermal coal revenues were $39.25/st in Q1 compared with $42.21/st last year, while costs were $31.39/st compared with $32.65/st a year ago.

Peabody added it has more than 3 million st of export thermal coal priced for the remainder of the year at an average price of $64/st; 88 million st of PRB coal for 2020 delivery priced at an average of $11.46/st; and 19 million st of other US thermal coal priced at an average of $36/st.