(NYSE: BTU) Peabody Energy bankruptcy – a turning point on coal?
So, the world’s largest privately owned coal producer, Peabody Energy (NYSE: BTU) has filed for U.S. bankruptcy protection. The U.S. mining company reported a net loss of $2 billion for last year and has net debt of about $6 billion. It pointed a finger of blame at the sharp fall in coal prices, but it is not as if its predicament was sudden.
Peabody made the filing under Chapter 11, which allows it to restructure its debt while continuing to operate. Glenn Kellow, its CEO, described the decision as a difficult one, but “the right path forward for Peabody. “We will seek an in-court solution to Peabody’s substantial debt burden amid a historically challenged industry backdrop,” he said.
But others have a different take on its decision. “It’s good for the markets that the company has finally filed for bankruptcy because it lets investors get a more transparent look at what’s going on,” said Tom Sanzillo, Director of Finance at the Institute for Energy Economics and Financial Analysis (IEEFA). He has 30 years of experience in public and private finance, including as a first deputy comptroller of New York State, where he held oversight over a $156 billion pension fund and $200 billion in municipal bond programs. ?
“Peabody’s last three 10K filings included large asset impairments taken against the value of mining reserves in Australia, where they did not file for bankruptcy. The company asserts that its portfolio of land and mines are worth $10.5 billion. According to its filings, Peabody’s U.S. domestic coal reserves have retained value despite the onslaught of bad economic news that has shrunk the U.S. domestic coal market by more than 30 percent over in the past decade” he wrote in the IEEFA newsletter, on first hearing the news.
Peabody’s history suggests the need for much wider regulatory reform, he suggests. Without a thoroughgoing review of how coal companies post their reserves and how the SEC interprets company guidance, “flagrant overstatements of reserves and of coal valuations will plague the nation’s economy and confound the next cycle of investment in coal. If disclosures are supposed to be accurate, objective information that allows investors to make reasoned judgments about potential market performance, the coal industry can do better” said Mr. Sanzillo.
He calls the company’s pledge to make good on $1.4 billion in reclamation expenses “worthless”.
“One question that comes to mind on this point: Is it worthless only as of today or have past representations been as dubious as we have thought for years now? A few weeks back Peabody responded to the Illinois Attorney General that the company was complying with all self-bonding requirements. Peabody released no documents to support its assertions. What other regulators have been stonewalled or worse?” writes Mr. Sanzillo.
Peabody has said coal will remain an “essential” part of the energy mix and declared that the company is “here to stay”. But environmental campaign groups argue the pressure on them is not going to go away.
The world’s biggest sovereign wealth fund - Norway’s $860 billion oil fund - has just announced it will no longer put money into 52 companies for being too reliant on coal. This is one of the biggest ever fossil fuel-related divestments by a single investor.
Its decision means that it is no longer able to invest in many U.S. companies, including Consol Energy Inc (NYSE:CNX) AES Corp VA (NYSE:AES) Dynegy Inc (OTCMKTS:DYNIQ) Xcel Energy Inc (NYSE:XEL) FirstEnergy Corp (NYSE: FE) and others, including Peabody Energy (OTCMKTS: BTUUQ).
Companies all over the world are affected – including Drax Group plc (LON:DRX ) in the U.K as well as a number of Chinese companies.
Dina Medland is an independent writer, editor and commentator with a strong focus on issues around corporate governance, ethics, the workings of the boardroom and sustainable business. She is on the team of contributors to @ForbesEurope and is an ex-Financial Times staff member who has been a regular contributor in recent years. Further details about her background and a portfolio of work – including her commercially sponsored blog ‘Board Talk’ are available on her website http://www.dinamedland.com