Peabody Energy Corporation — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021; unaudited. Unless noted, amounts are U.S. dollars in millions. Peabody operates coal mines in the U.S. and Australia across seaborne thermal, seaborne metallurgical, Powder River Basin and other U.S. thermal segments.
Financial results and liquidity
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Revenue | $723.4 | $626.7 | $1,374.7 | $1,472.9 |
| Operating loss | $(4.2) | $(1,510.9) | $(45.0) | $(1,604.4) |
| Net loss attributable to common stockholders | $(28.6) | $(1,544.2) | $(108.7) | $(1,673.9) |
| Diluted loss per share | $(0.28) | $(15.78) | $(1.09) | $(17.16) |
| Adjusted EBITDA (non-GAAP) | $122.1 | $23.4 | $183.2 | $60.2 |
Revenue rose 15% in Q2, mainly on higher sales volumes and seaborne thermal pricing, but fell 7% in the first half, reflecting lower realized prices and volumes. The large year-over-year reduction in net loss primarily reflects the $1,418.1 million North Antelope Rochelle Mine impairment recorded in 2020; it should not be read as a comparable improvement in underlying GAAP earnings. Adjusted EBITDA increased by $98.7 million in Q2 and $123.0 million in the first half. These are non-GAAP measures.
- Segment trends: Q2 Adjusted EBITDA improved in all reporting segments versus 2020. Seaborne Thermal contributed $71.4 million; Powder River Basin $45.5 million; Other U.S. Thermal $44.3 million; Seaborne Metallurgical remained loss-making at $(26.4) million. For the first half, Seaborne Metallurgical Adjusted EBITDA was $(48.8) million, while Seaborne Thermal contributed $99.9 million.
- Cash flow: First-half operating cash flow was $(22.8) million and investing cash flow was $(82.6) million, resulting in negative Free Cash Flow of $(105.4) million (non-GAAP). Cash, cash equivalents and restricted cash fell $147.3 million to $561.9 million.
- Liquidity: June 30 cash and cash equivalents were $548.3 million, plus $13.6 million restricted cash. Available liquidity was $564.1 million, down from $728.7 million at December 31, 2020; facility and receivables-program availability was limited.
- Debt: Total funded indebtedness was $1,469.9 million at par; balance-sheet debt carrying value was $1,418.1 million, including $94.0 million current and $1,324.1 million long-term. The company reported compliance with debt covenants, including the $125 million minimum-liquidity requirement under its letter-of-credit facility.
- Other balance-sheet items: Total assets were $4,453.4 million and stockholders’ equity was $951.8 million at June 30, 2021. Asset retirement obligations were $741.8 million.
Material changes and financing
- January refinancing transactions extended a significant portion of near-term maturities to December 2024 and provided covenant relief. They included new 8.5% Peabody Notes, 10.0% Co-Issuer Notes and 10.0% Co-Issuer Term Loans; the former revolving facility was replaced by a $324 million letter-of-credit facility. The new debt carries higher borrowing costs.
- During Q2, Peabody sold approximately 8.1 million shares through an at-the-market offering for $65.1 million net proceeds and issued 4.5 million shares to exchange for $30.9 million principal of 2022 Notes. Additional 2.7 million ATM shares generated $21.5 million net proceeds after quarter-end.
- Q2 open-market debt purchases retired $53.2 million principal for $39.2 million and generated an $11.9 million gain, net of related debt costs and discount. Further agreed retirements of $49.5 million principal were scheduled to settle after quarter-end.
- Net interest expense increased; management expected approximately $190 million of 2021 interest expense, including about $40 million noncash.
Outlook, commentary and risks
- Management targeted approximately $200 million of 2021 capital expenditures, including about $100 million for ongoing extension projects, primarily in Seaborne Thermal Mining. The filing does not provide earnings or production guidance for the full year.
- Peabody expected to recognize approximately $3.6 billion of revenue after June 30 under customer contracts with fixed or reasonably estimable volumes and prices; approximately 46% was expected within 12 months. This excludes contracts with variable prices that cannot be reasonably estimated, and actual revenue may vary.
- Management described stronger coal demand and prices in several markets, including elevated seaborne thermal prices and improved U.S. coal generation. It also cited pandemic uncertainty, market-specific disruptions and the risk that coal prices and demand could change.
- Shoal Creek remained idled while the company pursued productivity and cost improvements; its preparation-plant upgrade was expected to finish in mid-Q3. Metropolitan Mine restarted longwall production late in Q2, with a planned ramp-up in Q3. Labor negotiations or agreement matters were ongoing at both mines.
- After quarter-end, Peabody sold its closed Millennium and Wilkie Creek mines. It anticipated cumulative Q3 gains of $40–$50 million, with minimal cash consideration; the financial impacts were still being assessed.
- Approximately $1.2 billion of assets were identified as particularly sensitive to coal pricing, costs, demand, customer concentration and economic viability. Management recorded no impairment as of June 30, 2021. The prior-year North Antelope Rochelle impairment underscores this valuation risk.
- Surety and liquidity constraints remain important: the company had $1,555.0 million of surety bonds and $435.4 million of letters of credit outstanding. Surety arrangements require additional collateral postings and prohibit dividends and share repurchases during the standstill period, absent agreement. Dividends and repurchases were suspended.
- Other key exposures include environmental and climate-related regulation, coal demand and customer-contract changes, mining and reclamation costs, labor relations, foreign exchange and commodity prices. A securities class action alleges misstatements regarding North Goonyella safety and restart plans; the company disputes the allegations and intends to defend itself. Related derivative actions were stayed pending the class-action motion-to-dismiss proceedings.
Most important facts for investors to verify
- Whether operating cash flow and liquidity stabilize, particularly given negative first-half Free Cash Flow and limited unused financing availability.
- Actual debt balances, subsequent debt retirements, ATM share issuance and resulting dilution; confirm the status and terms of the announced mandatory repurchase offer.
- Whether the higher-cost refinancing structure and expected 2021 interest expense are manageable alongside collateral and minimum-liquidity requirements.
- Coal pricing, volumes, segment performance and the planned Q3 production ramp at Metropolitan; monitor Shoal Creek labor and operational developments.
- Whether sensitive assets require impairment and whether the closed-mine sales produce the anticipated gains and reclamation-liability reductions.
- Developments in the securities and derivative litigation, regulatory matters, surety requirements and other reclamation or contingent liabilities.