Commodity crisis claims Peabody Energy

THE global commodity crisis has brought down the world’s largest private coal producer, Peabody Energy, which has filed for bankruptcy protection in the wake of weak demand.

The company blames an “unprecedented industry downturn” for its decision to file for Chapter 11 bankruptcy protection, fuelled by a dramatic drop in prices for metallurgical coal, weakness in the Chinese economy, an excess of shale gas that makes coal less competitive, and regulatory efforts to reduce emissions from coal.

“This was a difficult decision, but it is the right path forward for Peabody”, says the company CEO Glenn Kellow. “This process enables us to strengthen liquidity and reduce debt, build upon the significant operational achievements we’ve made in recent years, and lay the foundation for long-term stability and success in the future.”

Citing government figures, producers accounting for 45% of US coal output have filed for bankruptcy during the current downturn, Reuters reports.

The filing does not include the company’s business in Australia, where its debt troubles can be traced to the period following its US$5bn leveraged buyout of Macarthur in 2011. Peabody bought the firm to feed metallurgical coal to the ravenous steel mills in Asia but as demand has fallen, Peabody was forced to make a US$700m writedown of these assets last year.

In a statement announcing the filing, Peabody added that its efforts to sell US assets in New Mexico and Colorado had fallen through after the buyer was “unable to complete the transaction”.

Citigroup has provided US$800m in finance that Peabody Energy says will enable worldwide operations to continue as normal.