Laserfiche WebLink
Executive Summary <br />Peabody Energy Corporation's recovery strategy is unlikely to produce a turnaround in its dire <br />financial condition. The company has not come to grips with the dramatic and harsh <br />consequences of a worldwide collapse in coal price and demand. The company's efforts to <br />manage its risks through distressed sales, debt reduction, accounting treatments and <br />maintaining the status quo on self -bonding obligations are undermining its already weak <br />financial fundamentals. <br />Peabody's 2015 annual financial performance report shows a fourth consecutive year of <br />losses. Revenues have declined from a peak of $8.1 billion in 2012 to $5.6 billion in 2015. <br />Revenue weaknesses are driven primarily by a significant decline in coal prices in the U.S. and <br />a more severe drop in thermal and metallurgical coal prices on the global market. Peabody's <br />export markets out of the U.S. are weak and expected to decline through 2017. Coal mining <br />and shipments out of Australia (where Peabody has substantial reserves) are similarly <br />hampered with both China and India reporting a significant and sustained reduction in <br />demand for coal imports. <br />Looking ahead, price recovery for coal in the U.S. will be modest at best as low natural gas <br />prices persist and as investment in renewable energy continues to sap market share from the <br />coal sector. While analysts see modest prices increases, the U.S. Energy Information <br />Administration (EIA) projects that coal prices will decline slightly through 2017. Prices in the <br />global thermal coal market are expected to decline for the next seven years from today's low <br />level of $50 per ton.' <br />Peabody has announced three separate initiatives it says will support a return to solvency: <br />First, raising cash and shedding liabilities by selling non-core assets at distressed prices; second, <br />a debt -exchange plan to lower Peabody's annual interest burden and its unsustainable debt <br />load; third, controlling costs by maintaining eligibility for self -bonding. <br />We see significant risks to this strategy because it fails to confront the fundamental decimation <br />of coal prices and the follow-on effects on company profits and future investments. Peabody's <br />actions will produce some short-term cash benefits, but will do little to improve the current <br />imbalance between supply/demand and revenue/expenses. Further, the company's sale of <br />its coal assets will exacerbate the already oversupplied coal market, while the fire -sale <br />disposal of the Prairie State Energy Campus in southern Illinois will harden damage to <br />Peabody's reputation. <br />Some key metrics noted in this report: <br />• Peabody Energy has reported annual operational losses for 2015 of $768 million ($2.0 billion <br />minus $1.27 billion in one-time impairment). Revenues are down year to year from $6.79 <br />billion to $5.6 billion. Long-term debt levels rose during the year and at $6.3 billion are <br />unsustainable. Stockholder equity value has plummeted. <br />http:l/quotes esignal.comlesignalprod/quote action?symbol=NCFQ-ICE <br />Peabodys Strategies for Survival Ignore Market Realities and Risk Backfiring t <br />