Peak conditions point to Peabody float of local assets

Market analysts are questioning whether Peabody Energy could be putting some more serious thought into a potential float or spin-off of its Australian assets that could see the United States-based coal miner reap billions of dollars.

Coal prices are booming and Peabody Energy is said to be in search of about $1 billion for capital to spend on extending the lives of its mines.

Adding to the attraction of an Australian listing is that listed coal miners trade at a much stronger earnings multiple than they do in the US.

It is a plan that has been mooted before but now the time may be right.

Much of whether Peabody explores this route will depend on the success of a mooted float by Coronado Coal this year.

Peabody was moving to sell Australian assets through advisory firm Lazard about two years ago at a time it was working to extract itself from Chapter 11 bankruptcy in the United States.

On the market at the time was its Metropolitan underground coking coal mine near Helensburgh in NSW and its Millennium coking coal mine 160km southwest of Mackay in Queensland.

Peabody built up a major portfolio of Australian assets after it purchased the once-listed Macarthur Coal for about $5bn.

Of all its assets, the one seen as the most attractive is its North Goonyella Mine, 160km west of Mackay, producing premium-quality, high-strength coking coal.

Peabody sought Chapter 11 bankruptcy in 2016 as it sought to restructure $US10bn in debt.

But the group is now thought to be in a very strong position following the dramatic coking coal price increase.

The rising coking coal price has enabled its rival Coronado — the world’s fifth-largest coking coal miner — to work towards a listing on the Australian Securities Exchange this month as a business worth between $3.8bn and $4.4bn. Some prospective investors favour the IPO prospect because it provides an opportunity to secure exposure to a pure-play coking coal miner, while others will need some convincing to pay a price for shares that values the Curragh Coal Mine in Queensland — a key asset in the portfolio — at a far higher price than what Coronado paid Wesfarmers for the asset about a year ago.

Perhaps the advisers on the ticket will be working hard to find a cornerstone investor to absorb much of the demand.

A lot of the price lift relates to what is said to be a far more experienced management team and the fact that Coronado has paid out Stanwell so that from after 2025, it will no longer have to offer the government-backed entity a share of its earnings.

Meanwhile, the thinking is that Glencore has shelved its plans to sell its Rolleston coal mine now that the debt terms for the Wiggins Island Coal Export Terminal have been renegotiated with its lenders.

The mine was up for sale through Morgan Stanley and Bank of America Merrill Lynch, and while it is not core to Glencore, the urgency of a sale is thought to have diminished, with WICET refinanced and coal prices now soaring.