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Peabody Reports April-June Quarter Results

Coal News - Published on Thu, 06 Aug 2020

Image Source: Peabody Coronavirus COVID19
Peabody announced its second quarter 2020 operating results, including revenues of USD 626.7 million; loss from continuing operations net of income taxes of USD 1.55 billion; net loss attributable to common stockholders of USD 1.54 billion and Adjusted EBITDA of USD 23.4 million. President and Chief Executive Officer Glenn Kellow said "Over the past quarter, we have remained committed to the health and safety of our employees and communities in which we operate, while also taking further action to improve our cost structure. Our US thermal operations have done a tremendous job of adapting to significantly lower demand, while our seaborne operations have remained pressured by the economic impacts of the COVID-19 pandemic. Continued uncertainty in global markets requires us to further improve our operating performance and ensure we have a scalable structure that can respond to market conditions in the months ahead."

Second quarter 2020 revenues of USD 626.7 million reflect the impact of substantially lower shipments and weak pricing. Seaborne revenues declined USD 257.5 million on 48 percent lower metallurgical volumes and depressed metallurgical and thermal coal prices, largely driven by the ongoing COVID-19 pandemic. US thermal revenues declined USD 234.4 million due to the closure of Kayenta in the third quarter of 2019 as well as continued weakness in natural gas prices impacting coal demand.

The seaborne thermal segment exported 2.5 million tons in the second quarter at an average realized price of USD 49.87 per short ton. The remaining 2.1 million tons were delivered under a long-term domestic supply contract. Year-to-date export thermal sales have totaled 5.1 million short tons. Seaborne thermal segment costs per ton of USD 29.19 improved 5 percent compared to the prior year and 9 percent compared to the prior quarter. Second quarter costs reflect planned increases associated with the United/Wambo joint venture transition and a longwall move at Wambo Underground. These increases were offset by lower foreign exchange rates and fuel costs as well as favorable royalties and product mix.

Seaborne metallurgical shipments were significantly impacted by both demand and production constraints. Compared to the prior year, second quarter 2020 shipments of 1.1 million tons declined 48 percent, primarily at Shoal Creek and the Coppabella and Moorvale mines. Significantly lower volumes across the segment, the ongoing main line conveyor system upgrade project at Shoal Creek, pit sequencing at Moorvale, a planned dragline outage at Coppabella and the unfavorable impact of accounting for the lower net realizable value of inventory at some mines contributed to seaborne metallurgical costs rising to USD 120.72 per ton.
While PRB shipments declined 28 percent compared to the prior year, costs per ton improved 5 percent to USD 9.26 per ton as the segment continues to respond to weak industry conditions. As expected, costs per ton improved from the first quarter by USD 1.02 per ton, driven primarily by realizing the benefit of set room regained in the prior quarter, reducing repair and maintenance expense, increasing productivity, and optimizing blending of in-pit inventory. The segment earned 19 percent Adjusted EBITDA margins, or USD 2.19 per ton, in the quarter.

During the second quarter, the other U.S. thermal segment shipped 3.8 million tons and delivered 22 percent Adjusted EBITDA margins. Compared to the prior year, total segment Adjusted EBITDA declined in part due to Kayenta's prior year contribution of USD 35 million.

The company is continuing to advance its program to reposition the cost structure of the corporate functions and mines to counter the impacts of reduced demand and low pricing. These initiatives include temporarily idling production at some mines; adjusting shift schedules to match demand; reducing the number of units in operation; offloading take-or-pay commitments; and eliminating additional positions, among other items. Major activities include the following

Since April, the company reduced an additional 450 positions, including contractors, across several mines, bringing total reductions across the operations and corporate and support functions to approximately 1,020 positions. Over the past 18 months, Peabody has reduced its workforce by approximately 24 percent.

At Metropolitan, Peabody reduced approximately 34 percent of its workforce, including contractors, and scaled back production in response to weak seaborne demand.

The company restructured the Coppabella and Moorvale mines to operate as a single mining complex, which is anticipated to result in increased efficiencies and lower costs. In addition, the mine reduced three excavators/truck and shovel units in response to challenging PCI demand.

In addition, Peabody furloughed approximately 280 positions, including contractors, at its Wambo Underground Mine beginning in mid-June (at the conclusion of its recent longwall move) for 59 days. The company also furloughed employees during at an extended longwall move at Twentymile and shortened work schedules at several other U.S. thermal coal mines.

Peabody reduced holding costs at North Goonyella to approximately $5 million per quarter, beginning in the third quarter of 2020.

While work is still underway, since initiation of the program, 10 out of 17 currently owned and operated mines have demonstrated improvements in cost per ton when comparing second quarter 2020 results to full-year 2019 results, despite significant volume declines.

In addition, the company continues to weigh its strategic development alternatives while the North Goonyella commercial process is advancing. The pending PRB/Colorado joint venture with Arch also continues to progress through the court system, with an expected ruling by the end of the third quarter of 2020.

Outlook - Given continued uncertainties with respect to COVID-19, including the duration, severity, scope, and necessary government actions to limit the spread, Peabody is continuing its suspension of full-year 2020 guidance targets. Based on current customer nominations, Peabody has the following sales priced for delivery in 2020

87 million tons of PRB coal priced at an average price of USD 11.36 per ton, implying 46 million tons to be delivered in the second half of 2020.

18 million tons of other U.S. thermal coal priced at an average price of USD 36 per ton, implying 9 million tons to be delivered in the second half of 2020.

7.2 million tons of seaborne thermal coal priced at an average price of USD 58 per short ton, implying 2.1 million of already priced tons to be delivered in the second half of 2020.

Ultimately, deliveries will be dependent on general economic conditions, weather, natural gas prices and other factors. Peabody continues to closely monitor volumes and is aggressively protecting its contractual rights.

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Posted By : Yogender Pancholi on Thu, 06 Aug 2020
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