Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
Peabody Energy Corp. reported its biggest loss ever after writing down more than half the value of its North Antelope Rochelle mine in Wyoming.
The largest U.S. coal producer took a $1.42 billion impairment charge on the sprawling surface operation, leading to a second-quarter net loss of $1.54 billion, according to a statement Wednesday.
North Antelope is the biggest coal mine in the U.S., accounting for about 12% of U.S. production last year. It has about 19 years of reserves, but with utilities increasingly shifting away from coal, the company may now be recognizing that its supply will outlive demand, according to Andrew Cosgrove, mining analyst with Bloomberg Intelligence.
Coal once accounted for more than half of the electricity on the U.S. power grid but was surpassed by natural gas in 2016
He estimates the facility is worth between $750 million and $1 billion, after the writedown.
“They might have cut the mine life in half,” Cosgrove said in an interview. “There really is no respite in sight, and the bottom for coal demand continues to remain elusive.”
Peabody shares fell as much as 10%, and were down 4.6% to $3.01 at 12:02 p.m. in New York.
Coal once accounted for more than half of the electricity on the U.S. power grid but was surpassed by natural gas in 2016. And with wind and solar getting cheaper and growing pressure to rein in the emissions that drive climate change, renewables are on track to eclipse coal this year.
Peabody said the writedown was “driven by changes in multiple assumptions, including lower long-term natural gas prices, timing of coal plant retirements and continued growth from renewable generation,” according to the statement. “Coal’s share of the U.S. generation mix will continue to be lower than prior year levels.”
“It’s fair to say, especially with our U.S. thermal operations, that we have some headwinds,” Chief Executive Officer Glenn Kellow said on a conference call.
(By Will Wade)
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