“Peabody continues to produce solid results again in 2006, posting the 12th consecutive quarter of double-digit EBITDA growth over the prior year, and we remain on track for another record year in 2007," Peabody chief Gregory Boyce said.

“The strength of our operating base to meet rising demand and manage costs, and the multi-year benefit of sales commitments signed earlier, should lead to continued strong earnings growth in 2007 and beyond. This growth will be further enhanced by our completion of the Excel acquisition in Australia."

This month, Peabody gained final approvals to acquire Excel Coal – tripling the miner’s coal production in Australia. Peabody currently produces about 9 million tons per year in Australia and Excel’s operations are expected to produce up to 15Mt in 2007 and up to 20Mt in 2008.

Back on home soil, the Twentymile operation in Colorado has been causing Peabody some headaches, but the company said the mine is now on track.

“Peabody's Twentymile Mine is now running above pre-installation levels as it ramps up to expanded production, and North Goonyella operated at its highest levels in more than two years during September," chief financial officer Richard Navarre said.

“By installing new longwall systems in Colorado and Australia, we have strengthened our operating base at two high-margin operations."

Also during the quarter, the US Environmental Appeals Board affirmed the air quality permit for the Prairie State Energy Campus in Southern Illinois. The Prairie State partners also signed an agreement with CMS Enterprises to jointly develop the project, serve as operating partner for the plant and jointly share an expected 30% interest with Peabody.

Prairie State also announced that it has signed a letter of intent with Bechtel to develop the engineering and procurement services for the power-related facilities.

Peabody also announced an agreement with Rentech to evaluate sites in the Midwest and Montana for coal-to-liquids projects that would turn coal into diesel and jet fuel. The plants could range in size from producing 10,000 to 30,000 barrels of fuel per day and use approximately 3-9Mt of coal annually.

Boyce was optimistic in his market outlook, anticipating a tighter supply-demand picture going forward as coal use increases due to a return to normal weather patterns.

“And the longer-term demand outlook is very bright, with a number of new US coal plants expected to begin operation over the next several years,” he added.

In response to near-term US coal market dynamics, and the challenge of railroads in meeting current demand, the company is deferring 2007 capital commitments and tempering its 2007 Powder River Basin production growth plans.

Overall, the US coal supply-demand balance is expected to tighten. Continued economic growth, constrained nuclear generation and normal weather patterns are expected to lead to higher coal-based generation, even as a number of high-cost Eastern US mines have curtailed production, the company said.

The company said it believed its Excel transaction was well timed.

“Global coal demand remains strong, with higher-than-expected coal use this summer in Europe and continued high economic growth in China. Global steel demand remains up more than 10 percent through August.

“Outside of the United States, more than 150,000MW of coal-based generating capacity is expected to come online between 2006 and 2010, representing more than 500Mt of annual coal use,” the company said.

Also, a number of coal-to-liquids facilities in China have scheduled start-ups beginning in 2007.

Peabody maintained its 2006 targets for record financial results including EBITDA of $1.05-$1.15 billion on production of about 230Mt. Targets exclude the benefit of the new Australian operations as well as one-time acquisition-related charges.