Peabody Energy slashes value of world’s largest coal mine by $1.4 billion

August 14, 2020

Peabody Energy has written $1.4 billion off the value of the North Antelope Rochelle Mine in Wyoming’s Powder River Basin. The mine is the world’s largest coal mine. 

The massive openpit mine accounts for 12 percent of U.S. coal production for power plants across the country. But cheaper gas prices coupled with falling costs for renewable power and state-level mandates for clean energy have accelerated the decline of coal-fired electricity. The Financial Times reported that In the first six months of 2020, Peabody’s production in the Powder River Basin was down 18 percent on the year.
In the past decade more than 100 US coal-fired plants were repurposed to burn gas, according to the Energy Information Administration. U.S. coal generating capacity at the end of 2019 was down more than a quarter from its peak in 2011.

Coal’s decline was exacerbated by lockdowns tied to the COVID-19 pandemic which has led to a reduction in electricity demand of 4 percent, with coal losing share to gas and wind, Peabody said.

“The longer the pandemic plays out, the more early retirements [of coal-fired plants] and permanent demand destruction from coal we’ll see,” said Benjamin Nelson, a coal industry analyst at Moody’s.

St Louis-based Peabody decided to take an impairment to the value of the North Antelope Rochelle mine because lower natural gas prices were forecast to make that fuel more competitive and because of the pace of coal plant retirements and growth in renewable generation, said Mark Spurbeck, Peabody’s chief financial officer.

The mine was to anchor a joint venture with miner Arch Resources that was blocked by a U.S. antitrust regulator this year, a move now in litigation.

Spurbeck described the mine as a “fabulous asset”, but added: “We do expect coal’s long-term share of the U.S. generation mix to remain below prior-year levels.”

Peabody reported revenue of $626.7 million in the second quarter, down by 45 percent from the same quarter a year ago, and racked up a net loss of $1.5 billion, including the writedown, compared with $40 million in net profit a year before. The company reported $4.9 billion in total assets at June 30, down from $6.5 billion at the start of the year. It has also cut 1,000 jobs in recent months, the company said.

Mines in the Powder River Basin extract resources owned by the U.S. federal government. Peabody had sought a break on royalties paid to the government — relief that has been granted to oil and gas companies — but its application was returned as incomplete, according to two mining industry executives.

The Wyoming state legislature is discussing ways to make federal coronavirus relief money available to larger employers such as Peabody. Peabody’s writedown was “a clear signal that Powder River Basin coal production isn’t coming back,” said Shannon Anderson, staff attorney at the Powder River Basin Resource Council, a land conservation group. “It’s time for Wyoming leaders to think about what comes next for our communities, coal miners, and our revenue streams.”
 

Related article search: