Peabody Halts a Coal Operation - Analyst Blog

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Peabody Energy Corporation ( BTU ) has announced that it will permanently discontinue coal production at its Air Quality Mine in Vincennes, Indiana, due to weak market conditions.

To continue with its mine shut down process, Peabody plans to circulate Worker Adjustment and Retraining Notification ("WARN") letters to its 230 employees. This letter will include a plan of 60-day period for a job transition. Peabody will also create placement opportunities for the existing employees at other projects.

As a result of this action, Peabody expects to incur $75 million one-time non-cash after tax charges at the end of third-quarter 2012.

We view Peabody's planned production curtailment program as a good move with respect to present coal consumption trend. During second-quarter earnings, the company projected full-year 2012 total U.S. coal demand to decline by 100 to 120 million tons, due to lower coal-fueled electricity generation resulting from a sluggish economy and low natural gas prices.

In addition, this measure will enable Peabody to curtail its operating costs, which in turn will help the company to improve its financial performance.

Peabody's peer Consol Energy Inc. ( CNX ) pursued the same strategy and temporarily stalled operations at its Buchanan Mine in southwestern Virginia owing to soft coal market conditions.

In second-quarter 2012, Peabody's total sales volume was 57.4 million tons compared with 57.8 million tons in the year-ago quarter. During second-quarter 2012 earnings call, the company reported its full-year 2012 sales guidance of 230 - 250 million tons.

We believe that sluggish recovery of the U.S. economy and the lower gas prices are denting the demand for coal in the U.S. markets. These factors primarily induced Peabody to slash its 2012 capital expenditure budget by $200 million to $1.0 billion.  

Peabody Energy Corporation currently retains a short-term Zacks #5 Rank, which translates into a short-term Strong Sell rating.

St. Louis, Missouri-based Peabody Energy Corporation is the world's largest private sector coal mining company and a global leader in clean coal solutions. The company owns majority interests in 29 mines in the U.S. and Australia.


 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: BTU , CNX

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