Peabody coal mine sale on cards as it cuts costs

Peabody’s Wilpinjong coal mine produces a high quality, low cost coal of the type most suited to sell to the Chinese market.

A sale of Peabody Energy’s Australian coal assets could be looming, with the US-based miner saying it continues to take “aggressive actions” to reduce its costs.

It is understood Peabody has made an exchange offer to its large syndicate of US lenders, where one loan is essentially swapped for another.

The company’s future rests on that deal proceeding, according to sources. If it does not, some fear that the coalminer could return to Chapter 11 bankruptcy, which it entered in recent years.

Last time Peabody was partly saved by an uplift in the coal price, but experts say the aggressive restructuring that needed to be undertaken never eventuated.

Peabody’s Australian portfolio was saved from collapse in the last Chapter 11 event, but might not be so lucky this time.

Many believe the most saleable asset in the portfolio is its Wilpinjong thermal coal mine, 40km northeast of Mudgee. It produces a high-quality, low-cost coal of the type most suited to sell to the Chinese market.

In boomtime conditions, Peabody’s Australian assets would have been worth several billion dollars. However, now the question is what buyers would line up for the assets at all, given that institutional funding for the acquisition of coalmines is virtually non-existent.

The coal price is languishing as investors and financiers shy away from lending for assets exposed to the commodity due to environmental concerns.

Peabody has already slashed its operating costs by 39 per cent across the company.

Peabody, advised by Lazard, has been in talks with its lenders, which have been taking advice from Houlihan Lokey and Freshfields Bruckhaus Deringer, to extend the debt deadlines for its revolving credit lenders and noteholders, which are due to be repaid in 2022.

The St Louis-based company, which is listed in New York, is focused on ensuring that its debt covenants are not breached and that it has enough liquidity to operate.

The company has been moving to sell its North Goonyella coalmine through Credit Suisse and it said a review of strategic alternatives was continuing.

Elliott Global Management owns about 30 per cent of Peabody and has been eyeing other opportunities in Australia.