Thursday, June 20, 2019

Coal giants Peabody and Arch plan to merge their operations in the Powder River Basin and Colorado

Institute for Energy Economics and Financial Analysis chart; its analysis is here.
The two top-producing coal companies in the country, Peabody Energy and Arch Coal announced Wednesday that they will combine their mining operations in the Powder River Basin and Colorado. The deal covers some of the country's highest-producing mines, which serve most states in the nation.

Both companies "specifically noted natural gas and renewables as reasons for needing to make coal more competitive," Brandon Foster and Nick Reynolds report for the Casper Star-Tribune in Wyoming. "Peabody will own 66.5 percent of the joint venture, and Arch will own 33.5%. Peabody will manage all activities, including the marketing of coal, according to the announcement."

If federal regulators greenlight the move, the companies expect to save about $820 million, mostly by reducing overhead. Peabody spokesperson Charlene Murdock told the Star-Tribune the anticipated savings won't come from layoffs, and that she expects "only possibly minor changes in the salaried staffing levels." Reporters spoke to Peabody President and CEO Glenn Kellow and Arch CEO John Eaves on separate conference calls; neither CEO "said how the move will affect employment numbers. The mines employed about 3,300 workers in 2018," Foster and Reynolds report.

The consolidation "is a sign of an overcapacity in the Powder River Basin. Where in traditional sectors businesses would simply close up shop, coal mines are costly to shut down, an unattractive fate for any publicly traded company with shareholder obligations to consider," Foster and Reynolds report. "Traditionally, coal companies could choose to be more aggressive, fighting to cut into the market share occupied by their competition, in order to boost their earnings. However, under the current conditions of the market and a structural decline for coal in general, such a battle would only drive down costs and further destabilize companies’ already slim profit lines. As a result, companies are then forced to realign themselves in ways that either allow them to remain profitable or minimize their losses as much as possible. Under those conditions, coal industry insiders have seen the eventual consolidation between producers in the Powder River Basin as a foregone conclusion."

The announcement comes only a month after the nation's third-largest coal company, Cloud Peak Energy, which operated in the Powder River Basin, filed for Chapter 11 bankruptcy.

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