Peabody said it would slash US output by a further 5 million tons on top of previous reductions and would also trim its Australian coal production targets.

The company’s income from continuing operations for the quarter totalled $US140.5 million, while revenues were up 15% over the same period last year.

Revenues jumped to $1.46 billion thanks to improved pricing across the board.

The producer’s sales volumes were just below levels for the March 2008 quarter, coming in at 59.6Mt, with this figure taking into account planned production cuts, deferred customer shipments in Australia and Powder River Basin output drops caused by inclement weather.

It was higher-value contracts that helped Peabody’s US average realised price per ton to rise 16% year-on-year, and a 50% improvement per ton for Australian prices.

Peabody said those realised prices could have been higher but customer deferrals had taken their toll.

"We had great results despite customer deferrals and multiple longwall moves,” Peabody chairman Gregory Boyce said.

“Peabody is weathering current market challenges with a strong balance sheet and cash flows, heavily contracted position and tight capital discipline. We are also aggressively evaluating investments to capitalise on unique market opportunities."

The company reiterated its earlier commitment to keep a tight hold on capital expenditures, which paid off in the financial bottom line for the quarter. It had “significant” balance sheet strength and liquidity totalling more than $2 billion, Peabody executive vice-president and CFO Michael Crews said.

However, Peabody president Richard Navarre noted the company was proceeding with caution through continued production cuts.

"For the near term, Peabody is trimming production to adjust to lower demand and right-size inventories. These actions are needed to assist customers and avoid a prolonged market dislocation beyond 2009," he said.

"The company is evaluating additional opportunities to provide long-term customer contracts, such as the recent Bear Run agreements in the Midwestern United States."

The company said producers across the nation had made significant production slashes – an estimated 60Mt has been sliced so far this year – and it had not been immune to that.

“Peabody has already realised 2 million tons of its previously announced 10 million tons of planned 2009 Powder River Basin production cuts, with its PRB production down 2 million tons from the prior year and 4 million tons since the fourth quarter.

“The company is assessing commercial alternatives with its customers to address their reduced demand and high stockpiles, resulting in the company reducing planned 2009 production levels another 5Mt from prior targets.”

Peabody’s 2009 production is sold out, while it is 90% committed and 80% priced for next year.

The producer said it was reaching Australian coal contract settlements for the new fiscal year at a benchmark price of $US128 per tonne ($116/ton) for its top-shelf hard coking coal and $80-90/tonne for semi-hard and PCI.

“Full terms with all customers are not yet clarified, including expected volumes for the new fiscal year, as well as carryover pricing for shipments not yet fulfilled from the prior fiscal year,” the company said.

“Thermal coal contracts are expected to be settled at approximately $70 per tonne [and] both metallurgical and thermal coal contracts are settling at the second-highest levels in recent years.”

Peabody said it would also cut back its Australian coal production targets.

Currently, about 5 million tons of Australian thermal product remains unpriced for 2009, 3-3.5Mt of metallurgical production will be repriced for this year and 6-7Mt is still available for next year.

Looking ahead at some of its portfolio projects, the company noted it continued on an active schedule, highlighted by the recently announced development of the 8Mt per annum Bear Run operation.

The complex, set to be the largest surface mine in the eastern US, already boasts contracts totalling almost $6 billion in long-term revenues.

“Peabody is using the Bear Run model to evaluate other opportunities using the company's vast reserve base to lock in major baseload contracts,” the company said.

Additionally, its Prairie State Energy Campus coal-fired plant is under construction with a potential start date in 2011 or 2012. Peabody owns 5% of the 1600-megawatt mine-mouth facility and, over the course of 2009, will invest $60 million in the project.

“Peabody is [also] advancing its China/Mongolian initiatives with the recent renegotiated option to enter into a 50/50 joint venture with Polo Resources Limited for a 2009 cash investment of $10 million,” the company said.

“The coal interests to be contributed by Polo to the joint venture could include up to 1 billion tons of potential resources.”