But the company has warned that logistics problems and the disruption to production at its Queensland mines caused by the floods will make it challenging to meet current quarter expectations.
“First-quarter results are expected to reflect continued impacts to sales and costs related to the record Australian rains, as well as scheduled longwall moves in the United States and Australia,” Peabody said in a statement.
The company’s full-year earnings before interest, tax, depreciation and amortisation for 2010 were $1.82 billion, a 41% increase year-on-year, while income from continuing operations rose 76% to $805.1 million.
Sales for the year of 245.9 million tons were driven by higher volumes and pricing from mining operations in both the US and Australia.
"Peabody delivered the second-best year in company history, with record safety performance, strong cost containment and margin expansion in every operating region," Peabody Energy chairman and chief executive officer Gregory H Boyce said.
"While heavy rains and other supply disruptions create near-term logistics challenges, they also result in significant market upside for Peabody's unpriced metallurgical and thermal export coal beyond the first quarter. At the same time, our platform is in expansion mode to serve the seaborne Pacific markets, which have the greatest sustainable growth opportunities and pricing leverage."
Peabody is targeting first quarter 2011 EBITDA in the range of $325-425 million and for the whole year, total sales of 245-265Mt, including 28-30Mt from Australia, 195-205Mt from the US and the remainder from trading and brokerage activities.
Consolidated trading and brokerage and resource management delivered a combined $101 million EBITDA for the year. Fourth-quarter trading and brokerage results were affected by lower year-on-year international brokerage earnings and weather-related declines in the seaborne freight market and export shipments.
Australian shipments grew 21% to 27Mt, including 9.8Mt of metallurgical coal and 11.1Mt of seaborne thermal coal. Australian revenues rose 50% on rising prices for both metallurgical and seaborne thermal coal. US revenues increased due to higher average realised prices in both the Midwestern and Western regions.
US mining operations delivered EBITDA of $1.14 billion and realised a 13% increase in gross margins per ton on a combination of higher average pricing and lower average costs.
Australian mining operations EBITDA more than doubled the previous year's results, totalling $953.8 million with an 82% increase in gross margins per ton, despite year-end weather-related disruptions. Fourth-quarter costs per ton were also higher than average due to weather-related production effects.
Australian coal exports increased 9% to a record 300Mt in 2010 and Australia remained the world's largest coal-exporting nation, even with December flooding. Peabody believes seaborne coal demand will increase 6-8% in 2011 and could exceed 1 billion tonnes for the first time ever, driven by new generation in Asia, rebounding economies in developed nations and continued increases in global steel production.
These tight supply-demand fundamentals have driven global coal prices upward, with the benchmark prompt thermal coal price in Newcastle rising 34% in 2010 and another 10% since the beginning of 2011. The spot price for high-quality hard coking coal has exceeded $350/t following settlements of $225/t for the first calendar quarter of 2011.
In Australia, Peabody has 7-8Mt of metallurgical coal available for sale in the last three quarters of 2011. All of 2012's expected metallurgical coal sales are open to pricing. In the seaborne thermal coal product, Peabody has 6-7Mt unpriced for 2011, and 12-13Mt available to price in 2012.
Peabody is advancing organic growth projects in Australia and the US. Capital expenditures for 2011 are estimated in the $900-950 million range, including $500-550 million earmarked for new mines, expansion and extension projects.
About 70% of the growth and expansion capital is targeted for Australia, with the remainder in the US.
In Australia, Peabody continues to target 35-40Mt per year of sales by 2014-15, including 12-15Mt of metallurgical coal capacity and 15-17Mt of thermal export capacity.
Among the company's Australian growth projects are: Metropolitan's new slope and prep plant upgrade which are under construction and equipment is expected to be ordered in 2011; equipment mobilisation and earthwork which has begun for the Burton mine extension; the Millennium mine expansion, which is expected to begin construction this year and produces semi-hard and pulverised coal injection-quality coal; the Wilpinjong mine thermal coal expansion, which is targeted for completion by year end; and permitting and advanced engineering design work for the high-quality hard coking coal Denham/Goonyella Corridor project and Wambo thermal coal expansion.
In the US, the company will complete its new Bear Run mine, begin construction on the Gateway mine expansion and advance its West Coast Powder River Basin exports initiative. Bear Run is projected to double production to about 6Mt per annum as it continues to expand to 8Mtpa.
Construction of the $175 million Gateway mine expansion is expected to begin in 2011. When complete in several years, the mine's annual capacity will be expanded by about 40% to 4.5Mt.
The company has a number of initiatives underway to expand its presence in the world's highest growth markets of China, Mongolia, India and Indonesia.
Peabody recently signed an agreement to source several million tons of coal over five years from an East Kalimantan, Indonesia mine, and with Yankuang Group has entered into agreements to pursue development of the Wucaiwan Energy Center in Xinjiang, China, which would feature a 20Mtpa surface coal mine, 4 billion-cubic-metre coal-to-natural gas facility and 2000 megawatt supercritical power plant.
China Huaneng Group, Calera Corp and Peabody have agreed to pursue development of an energy campus in the Xilinguole region of Inner Mongolia. The project would include a 12Mtpa surface mine operated by Peabody and a 1200MW supercritical power plant with partial carbon capture and conversion into green building materials.
Peabody believes the world is in the early stages of a long-term supercycle for coal as China, India and other emerging nations dramatically increase energy use, steel consumption grows globally, oil becomes increasingly scarce, and expensive alternatives lack the cost and scale to effectively compete.
"The long-term supercycle for coal is strengthening with each passing day," Boyce said.
"Nations such as China and India are growing 8-10 per cent per year off a much larger base. Hundreds of millions of people each year are moving to the cities, switching on technologies and extending coal's role as the fastest growing fuel."
Global coal markets strengthened sharply late in 2010, propelled by powerful ongoing Asian demand growth and weather-related generation recovery in the Atlantic markets, coupled with supply challenges across the major coal-exporting nations of the southern hemisphere.
Demand for US coal rose about 75Mt in 2010, led by a 5.5% increase in coal-fuelled generation and an 18Mt rise in exports.
US coal generation accounted for nearly two-thirds of the growth in total power output, outpacing natural gas and all other fuels.
The higher coal demand was related to new coal-fuelled generation, favourable weather and a partial reversal of 2009's coal-to-gas switching.
Indexed US coal prices continued to rise in 2010 in all regions, with increases ranging from 30% to 50%.
Peabody believes US coal demand will increase modestly in 2011, led by colder winter weather in the first quarter and stronger growth in gross domestic product the second half. The company anticipates more significant economic growth in 2012 and beyond, resulting from stronger consumer spending and industrial activity.
Additional near-term export opportunities are developing, with favourable current economics for Illinois and Colorado coal to Europe, and Powder River Basin coal to Asia and Europe.
In the US, Peabody has modest amounts of coal to price in 2011, with significant open positions in the later years to match expected higher pricing beginning in 2012.
Peabody has 35-40% of its coal available to price in 2012, and 75-85% in 2013. The PRB, Midwest and Colorado coal regions, where Peabody is the largest producer, are expected to both backfill central Appalachian supply and participate in increased export demand.
