Peabody Energy Bucks The Trend, Or Hopes To

Keith Williams profile picture
Keith Williams
8.21K Followers

Summary

  • Bankruptcy exit involves increased coal production for Peabody Energy.
  • Early analysis of post-COP21 coal outlook by Wood Mackenzie indicates a 40% decline in world thermal coal by 2035.
  • Part of bankruptcy exit by Arch Coal involves setting aside collateral for its self-bonding obligations. Pressure on Peabody Energy to do the same?

Those who remain convinced that coal is a commodity in a cyclical market that is poised to return, will be excited by what has happened to coal prices in the last 6 months. To say that a lot is happening in the coal industry both in the US and worldwide is probably an understatement.

We live in extraordinary times and a major driver for short term price recovery is undoubtedly the fact that China threw the brakes on too hard with a goal of reducing coal production by 250 million tons in 2016. By August it had cut production by 150 million tons and a shortage was evident, leading to an uptick in imports.

However it is important to understand that there is no change in China's plan to reduce dramatically its coal consumption to address massive pollution. To reinforce this China (along with the US) has ratified the COP21 climate agreement, which requires major reduction in greenhouse gas emissions.

Here I address recent actions by Peabody Energy (BTUUQ) as it moves towards exiting bankruptcy, and give an international context about the global coal industry. My conclusions are a different from those who see "business as usual" returning to the coal industry.

Peabody Energy expects to keep growing

I've written a lot about Peabody Energy in the recent past. When they filed for bankruptcy, I expected that working through this process would require acknowledgement of the new situation for the coal industry and the development of a business plan that aligned with the new reality.

The plan to exit bankruptcy shows no signs that Peabody yet acknowledges the current state and direction of the coal industry, both in the US and internationally.

In particular Peabody's business plans are predicated on a growing coal industry in the US (coal demand up 20-25

This article was written by

Keith Williams profile picture
8.21K Followers
Keith began his career as a research scientist (developmental biology, biochemistry, molecular biology) at the Australian National University, University of Oxford (UK), the Max Planck Institute for Biochemistry (Munich, Germany) and finally Macquarie University (Sydney) where he held a Chair in Biology and established the Centre for Analytical Biotechnology. Pioneering the area of proteomics (with Marc Wilkins in his group coining the term), Keith established the world’s first government-funded Major National Proteomics Facility (Australian Proteome Analysis Facility) which was involved with industrialising protein science. Keith left academe with his team to found Proteome Systems Ltd in 1999 to commercialise proteomics. The company had a strong focus on intellectual property, engineering/technology and bioinformatics. As CEO he led the company to ASX listing in 2004. Since 2005 Keith has been involved in new business development in biotech, e-health and other emerging technologies. Keith sees climate change and sustainable development as a major issue for humankind and also a major business disruptor/risk and opportunity. Keith holds a Bachelor Agr Science from the University of Melbourne and a PhD from the Australian National University. He is a Fellow of the Australian Academy of Technological Sciences & Engineering and received an AM (Member of the Order of Australia) for services to the Biotechnology Industry. He has received various industry awards including an Innovation Hero Medal from the Warren Centre for Advanced Engineering. With 300 scientific papers and many patents written, Keith has a clear view of innovation in the Biotechnology and Climate/Renewable Energy space. He is not a financial advisor but his perspective adds relevance to decision-making concerning feasibility and investment in technology innovation.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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