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Peabody Energy announces 2011 results

Oilfield Technology,

Peabody Energy has reported an 18% rise in revenues in 2011 to US$ 7.97 billion, while operating profits also rose 18% to US$ 1.59 billion. Full year sales volumes increased 3% percent to 250.6 million t.

Australia shipments totalled 25.3 million t, including 9.3 million t of metallurgical coal and 10.1 million t of seaborne thermal coal, on par with 25.3 million t sold in 2010. Increased volume from the expanded Wilpinjong and Millennium mines, as well as two months of volume from Macarthur, was offset by the impact Q1 flooding and geological issues at the North Goonyella Mine in Q3 and Q4 quarter. Australia revenue rose 28% due to strong pricing for both metallurgical and seaborne thermal coal.

US shipments increased 5%, driven by the North Antelope Rochelle mine, which shipped a record 109.0 million t. US revenues increased due to higher average realised prices in both the Midwestern and Western regions. EBITDA totalled US$ 2.13 billion, increasing from US $1.84 billion in 2010, with increased contributions from all segments.

Trading and Brokerage and Resource Management both showed significant increases, delivering a combined US$ 264.2 million of EBITDA compared with US $101.0 million in 2010. Trading and Brokerage benefited from increased high-margin export volumes, while Resource Management capitalized on several land and reserve transactions related to the company's portfolio optimization program.

Safety and environmental highlights

Peabody also delivered its safest year yet with a global incidence rate of 1.93/200,000 hours worked, improving nearly 30% from the previous year's performance. Two operations completed the year with zero incidents, and Peabody earned seven safety awards in the US and Australia. The company also earned six honours for environmental excellence in the United States, Australia and Mongolia.

Global market outlook

Peabody expects higher metallurgical and thermal coal consumption to raise global seaborne demand 100 to 120 million t in 2012, led by anticipated increases in China, India, Japan and Germany. Australia is expected to supply half of the growth in global coal exports. However, US markets have been marked by poor economic activity, low electricity generation and an oversupply of natural gas with US coal generation declining an estimated 5% in 2011. In 2012, the company expects domestic US coal consumption to continue to be impacted by muted economic growth and additional coal-to-gas switching; 2012 US volume should match 2011 levels, with production fully committed.

Macarthur update

In the Q4, Peabody completed the major acquisition of Macarthur Coal and finalised Macarthur's delisting from the Australian Stock Exchange: "Peabody acquired Macarthur Coal to significantly expand our Australian metallurgical coal production base and add a large portfolio of development projects," said Greg Boyce, Peabody’s CEO. "We are aggressively advancing these initiatives and at first look, the resource base is better, the team more highly motivated, and the project opportunities more robust than anticipated."

Peabody is targeting 2012 volumes of 4 to 5 million t from the Coppabella and Moorvale mines, based on attributable ownership at 73%. The Middlemount joint venture will be accounted for using the equity method, and therefore will not be included in reported volumes, revenues or costs.

The company is also implementing a comprehensive near-term plan to improve the cost structure, productivity, and sustainability of the acquired operations, raising performance to Peabody standards and industry best practices. Key components of the 2012 plan include:

  1. A major upgrade to the Coppabella mine to improve the mine plan and correct a significant overburden removal deficiency.
  2. Increased dragline and equipment utilization and productivity at the Coppabella and Moorvale mines.
  3. Major repairs to production equipment that had been deferred.

Improved coal marketing activities to strengthen the committed position and realise commercial synergies across all operations.

Peabody has approved the acceleration of development for the new Codrilla mine, which is now expected to produce first coal in late 2013 and grow volumes to approximately 3.5 million t (2.6 million t attributable) by 2014. Middlemount has completed a large new rail spur and is ramping up operations. Shipments are expected to reach 4.4 million t (2.2 million t attributable) and volumes will be sent through Abbot Point via the just-completed "Northern Missing Link" connecting the Goonyella and Newlands rail systems.

Project updates

Peabody continues to advance multiple projects in Australia and the US. Capital expenditure for 2012, including Macarthur, is targeted in the US$ 1.2 – 1.4 billion range, with approximately two-thirds targeted for new mines, expansion and extension projects.

Among the company's Australian projects:

Progress at the Burton mine extension continues and is expected to add incremental volumes of hard coking coal this year with completion of a 1 million tpa expansion expected by late 2012.

Construction of the new Metropolitan mine drift and upgrades to existing operations are under way to increase production of hard coking coal by 1 million tpa by late 2013. In addition to the expansion, the mine is undertaking a modernization program to improve productivity and the cost structure.

Peabody also has begun converting the Wilpinjong and Millennium mines in Australia from contract mining to owner operations. Total expenditure of US$ 400 to – 425 million is expected in equipment investments over the next two years to significantly improve the cost structure at these mines.

In the US, development will begin this year on the Gateway North mine, which will replace the current Gateway mine. The new mine is expected to produce approximately 4.5 million tpa after completion in 2014. In the West, the company has secured agreements to begin development of an extension to the current Twentymile mine.

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