Coal news and updates

Peabody to cut 250 corporate and regional jobs, including 50 in downtown St. Louis

Peabody Energy will cut 250 corporate and regional employees in an effort to trim costs during a coal industry downturn that shows no signs of letting up.

At its downtown St. Louis headquarters, where the company employs 425 people, 50 jobs will be eliminated, a company spokesman said Monday.

The staff reductions over the next few months are expected to save $40 million to $45 million per year. CEO Glenn Kellow said the layoffs are necessary “to remain cost competitive.”

"While we regret the impact that these actions have on employees, their families and communities, today's announcement represents another necessary step to drive the company lower on the cost curve," Kellow said in a statement.

The majority of the reductions will take place before the end of the month. In addition, Peabody will close offices in Evansville, Ind., and Gillette, Wyo. Last week, Peabody said it would cut production at an Australian metallurgical coal mine by about half, reducing the workforce of 500 people by about 40 percent.

“Every little bit helps,” said Kris Inton, an analyst at Morningstar who follows the coal industry. But, he said, Peabody still needs higher coal prices.

“As long as they keep doing what they can to shore up the free cash flow now, they should be able to wait for some better prices,” he said.

Peabody’s corporate layoffs come as the coal industry struggles to cut costs in the face of low prices for thermal coal burned in power plants and metallurgical coal used to make steel. Cheap natural, lower-cost renewable energy and environmental regulation are crimping the fuel’s market share in the U.S. A glut of thermal coal is keeping downward pressure on prices across the world.

Peabody’s Australian operations are more dependent on metallurgical coal exports to growing economies such as China and India. However, demand in those countries has slowed over the last four years, and metallurgical coal prices are at a third of what they were at the beginning of the decade.

Some market watchers expect several major coal companies won’t make it through the downturn and will be forced to restructure. Patriot Coal, which moved to West Virginia from Creve Coeur earlier this year, last month filed for bankruptcy for the second time in three years. In May, Murray Energy, which acquired a controlling interest in St. Louis-based Foresight Energy earlier this year, told 1,400 miners in West Virginia they could be laid off.

Peabody’s shares have dropped 81 percent over the last year and have traded between $3 and $4 since mid-May. Peabody also has a large debt load from purchases it made when coal assets were valued much higher. As of March 31, it had $6.4 billion in debt. It recorded a $787 million loss last year on revenue of $6.8 billion.

Peabody is the largest public company, by revenue, headquartered in downtown St. Louis. In 2011, it signed a 15-year lease on its Market Street headquarters at Peabody Plaza after the city of St. Louis offered tax breaks to keep the company here.

Peabody ultimately turned down $10 million in tax breaks, but accepted a city offer of $2.5 million to help offset new equipment property taxes and new employees hired until 2021.

Inton said they are in a better position than some coal producers, such as highly-indebted Arch Coal, based in Creve Coeur. Whether Peabody makes it through depends on whether the current market is the bottom of a commodity cycle, or a fundamental change in energy markets.

“If you think this is a trough in the cycle, then yeah they should be fine," Inton said. "If you think this is a sign of a bigger change, then you do have to revisit what you think they’re worth.”

source: http://www.stltoday.com