America's Biggest Coal Miner Joins the Sector's Comeback

(Bloomberg) -- Peabody Energy Corp., America's largest coal miner, is back.

After almost a year in bankruptcy, the St. Louis-based giant began trading again on the New York Stock Exchange on Tuesday. Its return to Wall Street comes as the entire U.S. coal sector is staging a comeback amid growing interest from investors. 

Hours after ringing the opening bell at the exchange, Peabody Chief Executive Officer Glenn Kellow laid out a strategy that focuses on shareholder returns over boosting output. A more favorable regulatory framework under the administration of President Donald Trump will help stabilize the industry and discourage power generators from closing coal-fired plants in favor of natural gas units, he said.

“We're much more interested in growing shareholder returns and shareholder value than we are necessarily on growing tons or volume, ” Kellow said in an interview at Bloomberg headquarters in New York. “What Peabody offers is the only global pure-play coal company available on the New York Stock Exchange.”

Shares opened at $32 and were trading at $27.99 as of 1:42 p.m. in New York. The company, which at its height was valued at almost $24 billion, has a market capitalization of $2.1 billion, according to data compiled by Bloomberg.

Peabody's relisting comes just months after rival Arch Coal Inc. emerged from bankruptcy. Miner Ramaco Resources Inc. held the industry's first initial public offering in two years. And Warrior Met Coal LLC is planning its own. They're all riding a rally in coal prices, which skyrocketed last year after China decided to cut its output. U.S. natural gas futures have meanwhile climbed, making coal a more attractive alternative for power generators, as Trump begins rolling back regulations on the industry in a bid to bring mining jobs back.

The industry's recovering from a market collapse that, just a year ago, sent coal prices plunging to their lowest level in over a decade. The downturn forced shut hundreds of U.S. mines, leaving thousands out of work. Peabody, which produces more tons of coal than any other U.S. miner, is returning with about a quarter of its old debt levels and plans to focus on the thermal coal used by power plants -- a fuel it can extract from mines in Wyoming and Australia that analysts including Clarksons Platou have ranked among the world's lowest-cost operations.

Peabody has mining assets in Wyoming's Powder River Basin and the Illinois Basin, areas Kellow described as the “most competitive regions in the U.S.” Output from those basins will help the company further reduce debt and may eventually help it pay a dividend.

“Going forward in 2018, I would expect to be able to get into that dividend type activity and be able to return cash to shareholders,” Kellow said.

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Kellow credited Trump's initiatives, including an executive order repealing one of Barack Obama's signature environmental measures, with affirming coal's place in the nation's energy mix. Eventually, policies out of Washington may delay or defer the expected closing of 50 gigawatts of coal-fired power plant capacity, Kellow said.

“A lot of the regulatory efforts that we've seen to date have focused on both job protection and laying the foundation for future growth in jobs,” Kellow said. “I mentioned the 50 gigawatts coming out of the system. The foundation is there to potentially delay or defer or turn that around. That would be the driver of jobs.”

Metallurgical coal rallied by the most in four years after damage from Tropical Cyclone Debbie hit shipments from Australia, the world's largest producer of the steelmaking component. Spot prices rose 0.6 percent to $176.80 a metric ton Tuesday, after soaring 15 percent a day earlier, according to The Steel Index. Monday's jump was the biggest daily gain in data going back to May 2013. Thermal coal gained 6.2 percent to $88.05 a ton on Monday.

Peabody may chart a conservative path forward, focusing on keeping debt levels low and staying profitable, Jeremy Sussman, an analyst at Clarksons, said in a note. That means avoiding decisions like a 2011 one to spend $4 billion to acquire Australia's MacArthur Coal Ltd., an ill-timed, debt-fueled bet that metallurgical coal prices would stay high. Prices promptly crashed, ultimately driving Peabody into bankruptcy.

‘Glory Days'

“The Bruce Springsteen classic Glory Days, ode to ‘boring stories of glory days,' is appropriate for how investors should view Peabody,” Sussman said in a March 30 note. “Peabody has traditionally been thought of as the bellwether of the coal space, the largest and most diversified non-Chinese coal player, built to withstand almost all market conditions.”

See Also: Trump's Order Won't Resurrect Jobs of Miners Key to His Campaign

U.S. coal production plunged by almost 40 percent under President Barack Obama as the industry faced competition from cheap gas and pressure from tighter regulations on pollution from power plants. Trump has already begun lifting regulations on the coal sector, including a ban on leasing on federal land. He promised during his campaign to bring back mining jobs, a prediction even coal companies have hedged.

"It's not going to bring back jobs right away," Robert Murray, the CEO of miner Murray Energy Corp., said of Trump's initiatives in an interview last month.

--With assistance from Perry Williams

To contact the reporter on this story: Tim Loh in New York at tloh16@bloomberg.net.

To contact the editors responsible for this story: Lynn Doan at ldoan6@bloomberg.net, Jim Efstathiou Jr., Stephen Cunningham