Peabody is generating strong returns on the back of continued strength in seaborne metallurgical and thermal coal fundamentals – with the global miner’s Australian assets doing much of the heavy lifting.
PEABODY continues to lean heavily on the outstanding performance of its nine Australian thermal and metallurgical mines to drive the global miner’s revival, as the US coal sector remains challenged.
Overall revenues for the second quarter increased 4 per cent over the prior year to $US1.31 billion; driven by a 20 percent bump in Peabody’s Australian metallurgical and thermal sales volumes, which more than offset lower US volumes.
The rise of natural gas and wind generation in the US are challenging domestic thermal coal consumption, while power plant retirements also weigh on demand.
But seaborne thermal demand remains “vigorous”, according to Peabody, with Newcastle spot pricing reaching highs of approximately $US116 per tonne in the second quarter.
Chinese thermal coal imports jumped 20 per cent, or 19 million tonnes, through June compared to the prior year on sturdy industrial activity and an 8 per cent increase in thermal power generation, driven by favourable weather conditions.
Peabody stated that its Australian exports rebounded from the prior year effects of Cyclone Debbie, increasing by an estimated 7 million tonnes through May compared to the prior year.
Second quarter 2018 seaborne hard metallurgical coal spot pricing also remained strong, fetching an average price of $190/t.
And while the Aurizon rail and labour issues in QLD remained in the media spotlight, Peabody said it “has yet to be impacted by delays in rail services and continues to closely monitor the situation”.
Australia: Driving Growth
Peabody’s Australian operations continued to produce significant results, with total Adjusted EBITDA of $US266.1 million for the quarter – a $US88.3 million increase over the prior year, boosted by 45 per cent growth in metallurgical volumes and further strengthening in seaborne thermal pricing.
“Australian thermal led the company in adjusted EBITDA margins of 40 per cent, as higher volumes and elevated pricing mitigated the effects of higher costs associated with temporarily increased overburden ratios at the Wilpinjong Mine,” the company stated in its Q2 report.
“The Australian metallurgical coal segment continued to lead the company in revenues of $417.5 million, an increase of 45 percent compared to the prior year, largely due to sustained demand for quality metallurgical coal and healthy seaborne pricing levels.”
After an extended longwall move at the Metropolitan mine in the second quarter of 2017, costs per tonne declined by $US19.70/t to $89.37/t in Q2 2018, compared with the prior corresponding quarter.
“As expected, second quarter costs improved relative to the first quarter of 2018 and are expected to be within the company’s annual guidance range for the year,” the company stated.
“The Australian metallurgical segment once again led the company in adjusted EBITDA contributions of $US158.5 million, as adjusted EBITDA margins increased to 38 per cent.”
Extensions & Upgrades
In 2017, Peabody was granted consent for the expansion of its Wilpinjong operations until 2033.
In June this year, a NSW court ratified this favourable decision regarding Peabody’s large Wilpinjong mine extension plans, clearing the last hurdle to allow it to move forward.
Then in July, Peabody confirmed the extension of its North Goonyella metallurgical coal mine, near Moranbah in Central QLD.
With an estimated 71mt resource across the mine, the North Goonyella South project will extend mine life at least until 2026.
To support the extension, Peabody President – Australia George J. Schuller Jr said the company was investing in a new longwall system, featuring a 300m face conveyor and advanced longwall technology including automated steering and the requirement for less maintenance.
“Not only does that improve safety for our operators, it enables faster haulage speeds of our high quality reserves,” Mr Schuller said.
The mine extension will also secure employment for more than 230 employees.
“We are extremely pleased to be able to continue to provide employment for people in regional and remote locations.
“Any opportunity we have to support the local community through jobs and investment is a win for us, and we certainly feel we will be able to do this at our North Goonyella coal mine for many years to come.”
Relative to the second quarter, Peabody expects the longwall move at North Goonyella to impact third quarter metallurgical segment adjusted EBITDA margins by about $US15/t.
The North Goonyella longwall move has commenced and is expected to be completed in the current quarter.
North Goonyella metallurgical coal mine.