Peabody's international growth, domestic changes and strong performance were great for production; however, debt from international operations offset any revenue gains for the Missouri-based producer, causing its earnings to sink 77% in its third quarter.
Costs and interest from last year's Australian acquisition played a part in the company's earnings of $US32.3 million, a significant reduction over $142 million in the corresponding period last year.
Revenue, however, was up 18% period over period, to $1.49 billion from $1.27 billion, and slightly exceeded analyst expectations; for the year to date it sits at $4.18 million or a 7% jump.
Peabody's interest costs more than doubled, again related to international efforts, to $57.4 million over 2006's third-quarter result of $24.5 million.
"During the quarter, Peabody made significant progress in reshaping the earnings base by increasing production capacity in Australia, concluding cost and productivity initiatives in the Powder River Basin, expanding global coal trading operations and spinning off Patriot Coal Corporation," said officials in its earnings report.
Company chairman Gregory Boyce said that the big picture for the producer going forward is very positive due to its planning efforts.
"Peabody has outstanding leverage to rising international markets, we have captured higher prices for Powder River Basin and Midwestern coal, expanded global coal trading operations, and stabilised operating costs," Boyce said.
"The strategies we put in place will create meaningful additional value from our reshaped asset base, leading marketing practices and global expansion."
Peabody operations had a solid performance this quarter, with production running at higher levels in all regions and US margins per ton expanding 24% from the prior year, according to chief financial officer Richard Navarre.
"Our new and expanded operations in Australia are benefiting from strong market fundamentals and higher price realisations, putting us on pace to deliver growing contributions in 2008 and beyond," Navarre said.
Boyce added that coal's stronghold is increasing, and production across the world is "straining" to keep up.
"Near term, record seaborne coal demand is benefiting Peabody's Australian and Venezuelan coal sales and enabling exports from our Illinois Basin operations," he said.
"This combines with growing US coal demand and reduced supply to also favourably impact US Powder River Basin and Colorado markets.
"Longer term, the world is experiencing a major build-out of new generating plants and steel mills that will drive coal growth even higher."
Patriot
Historical results for Peabody spin-off Patriot Coal are included in the producing giant's third-quarter results, as Peabody just completed Patriot’s transition to an independent company October 31. Patriot will be listed as a discontinued operation on its year-end report.
"The successful spin-off of Patriot completes a key business strategy that had been evaluated, engineered and executed for more than a year, with multiple benefits for Peabody," Boyce said of the move announced earlier this year.
"With this one act, Peabody has improved our operating and geologic risk; enhanced our management and capital focus on large, long-lived surface mines; reduced our legacy liabilities; and further honed our asset base toward the highest-growth, highest-margin markets in the United States and around the world."
Peabody progress
Peabody provided updates on some of its projects both in the US and Australia, including a ramp-up of new mines in the latter that has resulted in a 24% increase in Australian sales, triple the result of last year.
Its North Wambo mine has also recently commenced production, and is in the early phases with Newcastle Coal Infrastructure Group to develop a dedicated port facility that would allow almost an additional 5Mt of throughput annually over existing infrastructure. The green light to proceed with that project is expected in the first half of next year.
It is also now producing in the Powder River Basin with a new in-pit conveyor system, equipment redeployment and other associated upgrades - a project it said will lower energy costs and improve its throughput. At North Antelope Rochelle, Peabody continues work on a new coal blending and load-out complex.
In New Mexico, preliminary site development plans for the El Segundo Mine were just completed, and just last month it began erecting new coal handling structures.
"El Segundo remains on track to begin production in the second half of 2008 to serve long-term contracts with southwestern US power generators," officials noted.
Finally, plans are still ongoing for two generation projects, the Prairie State Energy Campus and a Kentucky coal-to-gas facility still in its infancy. Prairie State has had its financial closing and Bechtel Power has been instructed to commence construction.
The other project, which Peabody is working on with ConocoPhillips, is in the feasibility study phase. The two recently decided to pursue the venture, which includes a mine-mouth gasification project using ConocoPhillips' E-GAS technology.
