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Peabody’s Australian operations hammered by weak pricing in 2014

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Australian operations

As we discussed in Part 3, Peabody Energy Corporation’s (BTU) Australian operations produce both thermal and met coal, which is used in steelmaking. Peabody operates three mines in New South Wales and seven mines in Queensland, Australia. The company also operates a coal-trading platform under the company Peabody Coal Trade.

Unlike US operations that cater primarily to domestic utilities, Peabody’s Australian operations are focused on the seaborne market. The company supplies met coal to steel producers in Japan, Europe, Taiwan, India (EPI), Korea, and South America, as well as thermal coal to utilities in Asia and Australia.

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Shipments on rise

Peabody Energy’s Australian operations sold 38.2 million tons of coal in fiscal 2014, up from 34.9 million tons in 4Q13. Met coal sales came in at 17.6 million tons in fiscal 2014, compared to 15.9 million tons in fiscal 2013. Thermal coal sales came in at 20.6 million tons in fiscal 2014, compared to 19.0 million tons in fiscal 2013.

Weak pricing pulls revenues down

Although shipments from Australia rose by 9.5%, revenues per ton dropped by 15.9%, to $69.99 in fiscal 2014 from $83.26 in fiscal 2013. This was primarily due to lower pricing for seaborne met and thermal coal. The benchmark price for met coal dropped to $118 in December 2014, a multiyear low. Similarly, Australian thermal coal prices are also in decline due to slowing demand from China and oversupply in the industry.

Peabody is in a better position than other US met coal producers (KOL), including Walter Energy (WLT), Arch Coal (ACI), and Alpha Natural Resources (ANR), due to location. BTU is part of the iShares Russell 3000 ETF (IWV).

Fall in revenues

Revenues from Australian operations came down to $2.7 billion in fiscal 2014 from $2.9 billion in fiscal 2013 due to a substantial fall in pricing. Overall revenues (including US, Australian, and brokerage operations) came in at $6.79 billion in fiscal 2014 compared to $7.01 billion in fiscal 2013.

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