With collapsing demand for coal, Peabody looks at restructuring and joining its peers in bankruptcy

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Peabody’s core business is selling coal to electricity companies and acquiring mining operations and it does business around the world, also supplying steelmakers, but many utilities are switching their supply of raw materials to natural gas because of cheaper prices and tightening environmental regulations.  At the same time economic uncertainty, especially in China, one of Peabody’s big markets, is further depressing demand for coal.

Peabody is now considering bankruptcy.  Collapsing demand has already led to three other major US coal producers, Alpha Natural Resources, Arch Coal and Patriot Coal, filing for bankruptcy protection in the last year.

If Peabody Energy filed for so-called Chapter 11 bankruptcy protection next month it will be able to continue operating while it attempts to restructure its $6.3bn debts.

The company has filed a series of quarterly losses in the past two years as it was confronted by nosediving energy prices across the coal, oil and natural gas sectors and reported a $2bn net loss in 2015 as revenue fell 17% to $5.6bn.

US coal production fell to its lowest level in 30 years last year and electricity generation from coal in the US fell 13%, according to the US Energy Information Association.

In recent times, Peabody has come under growing criticism for attacking the science of climate change and promoting coal as a key tool to relieve poverty. Last year the company agreed to change the way it reports the risks posed to investors by climate change following an eight-year investigation by the New York attorney general.

Attorney general Eric Schneiderman accused Peabody of violating state laws prohibiting false and misleading conduct in relation to its public statements on the financial risks associated with climate change and potential regulatory responses.

Schneiderman said the company had circulated internal projections of the likely effect of regulations on its business while publicly arguing it was unable to predict the impacts of future policy on its revenues.

“As a publicly traded company whose core business generates massive amounts of carbon emissions, Peabody Energy has a responsibility to be honest with its investors and the public about the risks posed by climate change, now and in the future,” Schneiderman said. “I believe that full and fair disclosures by Peabody and other fossil fuel companies will lead investors to think long and hard about the damage these companies are doing to our planet.”

Peabody agreed to amend its disclosures but admitted no wrongdoing.

The company said it would now provide a more comprehensive analysis of the International Energy Agency’s (IEA) world energy outlook scenarios, and include details on how future laws or regulations governing the coal industry could impact its business model.

And the UK Advertising Standards Authority asked the company to withdraw adverts labelling its product as “clean coal”.

Peabody reportedly employs 7,600 people and owns mines or stakes in mining operations across the mid and western US and in Australia, including the world’s largest mine in Wyoming.  It merged with a rival and moved headquarters to St Louis in the 1950s and expanded into mining operations in the western US and Australian during the 1960s, and later Appalachia.  Peabody Energy boomed during the Middle East oil embargo of the 1970s and became the largest privately-owned coal company in the world.  From 1990 to 1996 it was owned by the UK’s Hanson, before being de-merged and sold to America’s Texas Utilities.

the three companies rely on federal coal for more than two-thirds of their production. Two of the companies, Cloud Peak Energy and Arch Coal, get more than 80 percent from federally leased land. At the same time, the companies have tried to block federal policies that threaten this business model.

“These companies are attacking climate change policies, clean air rules, clean water rules and decry a so called ‘war on coal,'” said Joe Smyth, Greenpeace spokesperson and author of the report.  “At the same time they depend to a huge extent on federal coal.”

Government watchdogs said the report shines a light on longstanding policies favorable to coal companies. The federal government has provided the coal industry with more than $70 billion in tax breaks and subsidiessince 1950, according to a 2009 report by Taxpayers for Common Sense. Foryears, companies have been granted access to the country’s immense public-land coal resource at prices well below market value.

“We have these vast amounts of coal that taxpayers own and that we are losing significant revenue on by undervaluing it in the form of royalty giveaways, bad leasing deals and an uncompetitive process,” said Autumn Hanna, senior program director for Taxpayers for Common Sense.

The Obama administration announced a moratorium on new coal leasing on federal lands on January 15, as part of an overhaul of its leasing program to better reflect environmental and climate costs. Federal coal leases produce as much greenhouse gases a year as 161 million cars, according toa recent study commissioned by the Center for American Progress and The Wilderness Society. The leases in the Powder River Basin of Wyoming and Montana alone account for 10 percent of U.S. emissions.

“I think most Americans would be surprised to know that coal companies can make a winning bid for about a dollar a ton to mine taxpayer-owned coal,” Interior Secretary Sally Jewell said prior to that announcement.

The moratorium doesn’t affect existing leases, which the Department of the Interior said are enough to sustain current levels of production from federal land for the next 20 years. In addition, companies that file for bankruptcy would not be forced to stop production or cancel their leases. They could restructure their debt and continue to operate.

The Greenpeace report also highlighted climate-related damages caused by the coal industry.

“Combined, the 522 million metric tons of carbon dioxide from these top three U.S. coal mining companies’ 2014 federal coal production would amount to $18.8 billion in damages to society,” the report said. The damages are based on the federal government’s social cost of carbon figures that include increasing health costs and other impacts from climate change.

“It makes sense for the Obama administration to completely overhaul the federal coal program to bring it in line with what the administration is trying to do on climate change,” Smyth said.