Peabody is seeking to reduce costs and negotiate with creditors to cut debt, its CEO Glenn Kellow said on a recent earnings call.
Under the terms of the acquisition, Louisville, Kentucky-based Bowie Resource will have to pay Peabody a $20 million fee if the deal can’t be done because of the buyer’s failure to obtain sufficient funding, Bloomberg reported, citing a company filing.
Peabody entered into a definitive agreement to sell its New Mexico and Colorado coal assets to Bowie Resource Partners for $US358 million in cash last November.
Bowie will also assume approximately $105 million in related liabilities, mostly related to reclamation bonds. The sale reduces the amount of Peabody's self-bonding in place for reclamation obligations by more than $300 million.
The transaction was entered into following a competitive bidding process and includes the El Segundo and Lee Ranch mines in New Mexico and the Twentymile Mine in Colorado, which have combined coal reserves of approximately 330 million tons, Kellow said.
“This transaction is consistent with our stated focus area of portfolio optimization. While our New Mexico and Colorado operations and workforce have been substantial contributors to our success over the years, we are reshaping our portfolio focus around our core regions including the Powder River Basin, Illinois Basin and Australia,” he said.
“At this time, we believe it is appropriate to monetize the value of these mines in a transaction that would bring forward multiple years of cash flows.”
Peabody's New Mexico and Colorado mines are projected to produce 11mt in 2016. Based on Peabody's current operating plans, pre-tax cash flows after capital expenditures for these mines are projected to be approximately $70 million in 2016.
Transaction closing was initially anticipated to occur before the end of the first quarter of 2016, subject to certain governmental and regulatory approvals, and other customary conditions.
Peabody expects to use transaction proceeds for general corporate purposes and deleveraging activities.
