Peabody Energy Corporation (NYSE:BTU) To Have Advantage Of Australian Assets

Boston, MA 11/05/2013 (wallstreetpr) – Peabody Energy Corporation’s (NYSE:BTU) quarterly results, declared some time back shows what is ailing American coal companies. The industry has been facing reduced demand in both metallurgical as well as thermal coal segments. Natural gas prices have been at a global low and weak demand from China for metallurgical coal is hurting better price realizations. Peabody fared better than most of its competitors as it was able to ship more coal from its Australian assets. Prices were down by almost 7% year-on-year though the company managed to have earnings of $0.05 per share. The company’s assets in the Powder River Basin, one of the cheapest coal regions in the U.S. also could not sustain the low prices and volumes of the U.S. market.

Peabody has several advantages on its side as compared to its rivals:

  1. It is one of the largest miners in The Powder River Basin area and hence can sustain lower process.
  2. The company has assets in Australia. These can meet any demand for metallurgical coal from China.
  3. With the industry having to deal with overstocking, several mines have closed down. Patriot Coal has already closed down and is looking at bankruptcy financing. Once stocks reach manageable levels because of such closures, prices are expected to improve.
  4. Peabody was able to realize gross margins of $16.36 in the Midwest U.S., $4.52 in the Western U.S. and $4.52 in Australia.
  5. Cost – cutting measures have been bearing fruits.

Location will play a big role in survival. Peabody is among the few companies in the industry well-placed to take advantage of this situation. Investors and analysts also understand the scenario and have been standing behind the company. The 52 week high of the company is at $29.84 with 52 week low at $20.10. The shares jumped by 3.79% on Monday to close at $20.81. Some profit booking may be expected in the coming days.


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