At Peabody’s analyst and investor forum in New York, chairman and chief executive Gregory Boyce told the audience Peabody was also working to wrap up several late-stage projects and, at the same time, re-evaluating timing for some emerging projects in Australia.

The American coal giant signalled its intention to install LTCC technology at North Goonyella “to further expand capacity beginning in 2014”

Using conventional longwall mining, the North Goonyella mine extracts 4.2m of its target seam.

LTCC is designed for seams of more than 4.5m.

The technology was pioneered in China and used at Yancoal’s Austar mine in the Hunter Valley.

Peabody avoided a lengthy industrial relations dispute at North Goonyella with the approval of an enterprise agreement in April.

Elsewhere in Queensland, the Millennium mine expansion is being completed and first coal is being mined at the Burton extension.

Boyce said the company was also pursuing expansion opportunities in New South Wales.

“The Metropolitan mine modernisation is on schedule but the completion of the expansion is now targeted for 2014 to 2015 to enable higher volumes than earlier projected,” he said.

“The company is planning on undertaking additional evaluation before commencing development on the Wambo open cut expansion and Codrilla mine, with start-up timing to be determined.”

In light of the timeframe adjustments, Australian coal production is projected to be 45-50Mt by 2015-17, up from 25Mt last year.

Integration on track

In addition to its operational efforts, Boyce also said the integration of Peabody Energy Australia PCI (formerly Macarthur Coal) into its global platform was progressing well.

It is making operational improvements and synergy targets are on track for it to be the world’s largest seaborne supplier of low-volatile pulverised coal injection coal.

“PCI's coal deposits are stronger than we had expected in both quality and quantity and this delivers support for the life of existing operations as well as a strong development pipeline for new mines,” Boyce said.

Capital budget

Continued weakness in coal demand is at the centre of Peabody’s decision to slice $US200 million from its 2012 capital budget.

However, officials for the changing international producer said it was well positioned to navigate the market and its challenges.

The company was also in a good place to seize opportunities and create shareholder value both near and long-term, Boyce said.

“We have multiple opportunities in coming years across all key levers of value creation: production growth, price upside, cost containment and valuation expansion,” he said.

“There are bright spots amid recent market headwinds, including the recent increase in quarterly seaborne metallurgical coal prices, accelerating China coal imports and signs of stabilising US coal supply-demand fundamentals.

“Longer term, rising electricity generation and steel production required to fuel growing economies of the Asia-Pacific region will continue to drive sustained increases in global coal demand.”

A strong cash flow as well as very high gross margins had given Peabody the ability to invest in growth projects while also strengthening its balance sheet, Boyce said.

However, recognising macro concerns, it opted to further reduce its capital expenditure and extend the timing of some of Peabody’s mine projects.

The company repurchased more than $240 million in bonds during the second quarter, as well as $100 million in Peabody shares.

Officials are eyeing a 2012 capex range of $1-1.2 billion, $200 million less than its early year target.

Meanwhile, imports to China are rising and with the country’s increased focus on seaborne markets, Peabody estimates they will reach a record 285Mt this year.

“We expect global metallurgical coal use to increase 25 per cent by 2016, translating to an additional 250 million tonnes of demand growth, with the bulk of increases led by China and India,” Boyce said.

In the US, where many operators continued to be battered by a deflated market stemming from low natural gas prices, he said the outlook for coal had strengthened.

However, the producer held on to its projection that US coal demand would decline 100Mt to 120Mt in 2012.

“Recently, US gas prices have begun to rebound and futures prices are well above spot levels,” Boyce said.

“Coal supply-demand fundamentals appear to be coming back into balance, with May coal shipments down 145 million tonnes on an annualised pace and coal inventories beginning their seasonal drawdown.”

The Powder River Basin and Illinois Basin regions, he said, would be leaders in the rebound of coal-fuelled generation.

While waiting for that turn, Peabody will continue to evaluate domestic production levels this year.

“We are very well positioned in the United States, with 2012 production fully priced and nearly 70 per cent of 2013 volumes priced based on current production levels,” Boyce said.

He noted that Peabody was still advancing numerous export growth initiatives to meet increasing global demand.

“US thermal exports could grow to between 150 million tonnes and 170 million tonnes within five years and Peabody is developing a sustainable large-volume export business from the west, Gulf and east coasts to capture emerging opportunities,” he said.

Peabody exported 6.6Mt from the US in 2011 and is targeting 10Mt this year.