Even Biggest Mine in Cheapest U.S. Coal Region Is Sufferingby
Peabody scales down staff at Power River Basin operation
`Even the low-cost guys aren't completely unscathed' in slide
It’s the country’s biggest coal mine, producing one of every eight tons in the U.S. last year.
The coal is dug from seams as high as six-story buildings, buried beneath the rolling Wyoming plains of yellow grass and sagebrush.
Now, Peabody Energy Corp. is cutting 235 jobs, or 15 percent of its staff, at its North Antelope Rochelle Mine -- evidence that coal’s collapse has spread beyond Appalachia’s hills to the biggest open pit in America’s cheapest coal-producing region, the Powder River Basin.
“It’s an incredibly efficient, low-cost mine, and the fact that job cuts are occurring there shows even the low-cost guys aren’t completely unscathed,” said Jeremy Sussman, an analyst at Clarksons Platou Securities Inc., in a phone interview. “This is a trend that’s going to continue."
Peabody’s cuts come at a fraught time for the company, which is on the verge of bankruptcy under its $6.3 billion of debt. The St. Louis-based company has until April 14 to make an overdue interest payment. It’s struggled to complete the sale of three Colorado and New Mexico mines to Bowie Resource Partners, which it has said it probably needs in order to comply with loan covenants.
On Thursday, Peabody and Bowie pushed back from March 31 the date when they can terminate that deal. Peabody can now cancel the sale after April 7, while Bowie won’t be able to do so until after April 15, Peabody said in a filing. They intend to use the time to investigate other payment structures, “which may include cash and non-cash consideration,” the filing said.
The coal industry is being ravaged by shrinking demand as power plants burn less of the fuel because of cheap natural gas and tougher environmental policies. Wyoming had produced 66.5 million tons through March 26, down 30 percent from a year ago, according to the U.S. Energy Information Administration.
“Utilities are burning as much natural gas as they can and will likely spend the entire year whittling down their bulging coal inventories,” Mark Levin, an analyst at BB&T Capital Markets, said in a note Tuesday.
Peabody’s rivals including Alpha Natural Resources Inc. and Arch Coal Inc. have already filed for bankruptcy. They also operate in the Powder River Basin. Arch’s Black Thunder mine, just up the road from North Antelope, produced 99 million tons in 2015, making it the country’s second-biggest, according to data compiled by the Mine Safety and Health Administration. North Antelope produced 109 million tons.
“We are taking these actions to match production with customer demand,” Kemal Williamson, Peabody’s president for the Americas, said in a statement. “We regret the impact of these actions on our employees, their families, and the surrounding communities in the Campbell and Converse county areas.”
Peabody shares fell 2 cents, or 0.8 percent, to $2.42 at 2:14 p.m. in New York trading. They’re down 97 percent in the past year. The company’s $1.3 billion of 6.25 percent notes that mature in 2021 fell 0.1 cent on the dollar to trade at 7.375 cents at 10:56 a.m., according to TRACE, the bond-price reporting system of the Financial Regulatory Authority.
In fall 2014, the Powder River Basin looked relatively safe at a time when Appalachian miners were slashing output and jobs. The big open pits were faring better because it’s so cheap to produce the coal there, even if much of it gets shipped across the country to power plants in the Midwest and Southeast.
On a bright, sunny day that autumn at North Antelope, Scott Durgin, Peabody’s vice president of Powder River Basin operations, recalled how the mine’s annual output had grown by nearly a factor of 10 since he started working there in the 1990s.
Standing deep in the open pit, a couple hundred feet beneath the normal surface, Durgin watched as an electric shovel repeatedly clawed 400 tons out of a 60-foot wall of coal.
“This is one of the biggest seams you’ll ever see,’’ he said. “I’ve been asked, ‘When is the end of the mine?’ I don’t know. The economics will tell us.’’