Laserfiche WebLink
mines at a time of oversupply (and in the case of Wilkie Creek may result in the reopening of a <br />previously closed mine). The price and other market signals identified in this report and by <br />many coal industry leaders point toward the need to close mines.42 <br />The Bowie Resource Partners transaction represents a business proposition with an even more <br />troubling basis. The new investor with a new business model will seek to continue mining and <br />selling coal from the mines in New Mexico and Colorado. Blackstone is reported to be <br />financing the transaction which is supposed to buy out Trafigura/Galena's interest in Bowie <br />and finance the purchase of the Peabody mines. Blackstone runs private equity funds and is a <br />stockholder in Peabody.43 A private equity investment typically requires a rate of return, usually <br />20% pa. Whatever positive margins remain at the three mines will be used to support private <br />equity debt. Any balance sheet benefit obtained by Bowie Resource Partners from a <br />distressed sales price will be quickly absorbed by the demands of the new capital structure. <br />And yet, the current coal price environment is pushing prices lower making them <br />unsustainable going forward when viewed against current market trends. <br />Although the Wilkie Creek and Bowie Resources transactions provide short-term cash for <br />Peabody, they essentially will continue to exacerbate the negative effects of an oversupplied <br />market. The investments are high risk because the new business model in the Bowie Resource <br />Partners case is likely to default. <br />Third, Peabody's sale of its interest in the Prairie State plant now, when the financial problems <br />of the plant have not been solved, represents the abandonment of its corporate responsibility. <br />Peabody Energy Corporation developed the Prairie State coal plant, enlisting 200 <br />municipalities and power authorities in five states to finance and purchase electricity from the <br />plant. The plant moved forward in the 2007-2012 at a time when coal plant cancellations were <br />accelerating. Peabody enjoyed substantial benefit from the project as it sold a mine to Prairie <br />State consortium as well as its services in the development, construction and operation of the <br />Lively Grove mine mouth facility that serves the plant. Its decision to sell its share of the project <br />now for approximately 20% of its previous value raises serious questions for the other owners of <br />the facility. <br />'z Taylor Kuykendall, Coal industry struggling to right size as market shrinks calls for radical change, SNL, January 28, 2016 <br />03 Blackstone Alternative Investments is listed as holding 33.067 shares as of September 30, 2015, SNUCompanies and <br />Assets/Peabody Energy Corp./Profile/Institutional Holders/ This from a proprietary database, information available upon <br />request <br />Peabody's Strategies for Survival Ignore Market Realities and Risk Backfiring 10 <br />