The Strategist

The largest in the world coal miner goes bankrupt

04/13/2016 - 16:08

The world's largest private coal mining company Peabody Energy has declared itself bankrupt. The company said the decision to seek protection from creditors was made under pressure of unprecedented downturn in the global coal industry, a sharp decline in prices for metallurgical coal, the weakness of the Chinese economy. Currently, Peabody Energy’s total debt is $ 10.1 billion.

Roland Klose via flickr
Roland Klose via flickr
Today, the US mining company with 133 years of history Peabody Energy announced in a statement that it has applied for protection from creditors in bankruptcy proceedings in accordance with Chapter 11 of the US Bankruptcy Code. President and CEO of the world's largest private coal producer Glenn Kellaway said the decision to declare bankruptcy was difficult. He, however, noted that "this is the right way forward for Peabody». According to him, the company intends "to reduce its debts, lower costs, improve the company's position to succeed in the future." The debts of the company, as stated in the documents submitted to the Missouri Eastern Bankruptcy Court, is $ 10.1 billion.

The reasons behind the decision are "unprecedented factors" in the global coal industry, including a sharp drop in prices for metallurgical coal, the weakness of the Chinese economy, the surplus in the US shale gas, undermining the competitiveness of coal. Above that, there is a number of other circumstances. Due to the falling prices for coal, the company now cannot pay out loans received in 2011 to finance a $ 5.1 billion-transaction for acquisition of Australian coal miner MacArthur Coal. Back in 2011, the metallurgical coal prices had reached their peak, and the future looked bright. Since then, the price of this coal has fallen by 75% due to lower demand in China. Just last autumn, Peabody Energy was trying to cope with the situation by reducing staff and selling certain assets. However, a few weeks ago the company warned that it may have to declare bankruptcy. Peabody Energy’s bankruptcy is not the first in the coal mining industry in recent years; yet it is the largest one. Earlier, the current economic circumstances forced coal manufacturers such as Arch Coal, Alpha Natural Resources, Patriot Coal, and Walter Energy to a similar step. The experts do not predict significant improvements in the near future. As analyst at CreditSights Sandra Chow noted in an interview with Bloomberg, "the prospects for coal players remain bleak." "Wait for recovery would be long", - she said. 

In bankruptcy proceedings, all production units and offices of Peabody Energy will continue to work normally. At the same time, the bankruptcy will not affect the company’s Australian assets. Citigroup is going to support the company, providing it with funding of $ 800 million, including a loan of $ 500 million. According to Peabody Energy’s statement, the funds, along with the company’s own means, should give the enterprise an opportunity to work through the entire process and deliver products and services to customers in the normal mode.