The company recorded net income of $US130 million on revenues of $US1.31 billion, up 22% year on year, while operating profit of $171.2 million was 112% higher.

EBITDA from US mining operations rose 21% to $260 million as margins continued to expand in both the Eastern and Western United States. The increased revenues helped offset higher operating costs during the installation of new longwall mining equipment at the Twentymile and Harris mines.

The planned idling of the Black Mesa Mine in Arizona and continuing rail transportation shortfalls in the Powder River Basin were other factors which put upward pressure on costs.

The company said margins were increasing at Australian operation North Goonyella, reflecting higher realised metallurgical coal pricing. Higher costs were reported, related to geological issues that delayed installation of new longwall equipment.

"Peabody is capturing higher prices on expanded volumes and delivering record financial results amid growing global coal demand and very tight supplies," Peabody chief Gregory H Boyce said.

"Our operations are positioned to deliver even stronger second half performance, we have reached multi-year agreements for significantly higher prices beginning in 2007, and we continue to expand our production capacity to meet sustained demand growth."

The company expects the global market fundamentals for coal to continue to strengthen, given that a number of its local customers are at record low stockpile levels; global coal prices continue to increase; and other energy sources such as natural gas are either relatively expensive or struggling to keep pace with demand.

Increased projections in the number of planned US coal-fueled generating plants will also continue to drive long-term coal demand. At the moment construction of 13 units is underway. These plants are capable of generating 7 gigawatts of power and will require more than 25 million tons of coal every year.

During the quarter, Peabody reached agreements for more than 30 million tons of coal supplies, including more than 20 million tons of premium PRB coal for deliveries through 2010, at prices 150% higher than 2005.

The company has several growth initiatives underway and expects to pump capital expenditure of up to $US525 million into these projects during the year.

Projects include increasing capacity of PRB mines to add up to 20 million tons of capacity; new longwall equipment for the Twentymile mine in Colorado and the Australian North Goonyella mine; and development of the new 6 million ton El Segundo mine and the Black Stallion mine in West Virginia, expected to come online in the second half of 2006.

Full-year EBITDA is expected to be between $1 billion to $1.15 billion with production targets of 230 to 240 million tons.