FTC set to finish review of Peabody-Arch venture in 2020

GILLETTE — The Federal Trade Commission is expected to finish its review of a joint venture between Peabody Energy Corp. and Arch Coal Inc. to merge their Powder River Basin and Colorado coal mining operations in the first half of 2020.

The anticipated timeline was revealed Tuesday morning during Peabody’s 2019 third quarter earnings call in which CEO Glenn Kellow said it marks a significant threshold in the process.

“I think what we’ve entered into is an agreement on a timeline for completion of the review,” he said. “The indications today is everything we see continues to support what we believe to be an all-fuels market.

“As we looked at the synergies (that would be created by a joint venture), this is really a unique transaction. Everything we’ve done to date has reaffirmed those synergies and we feel good about that.”

By merging the companies’ five PRB mines and two Colorado mines under a single umbrella, the joint venture is expected to unlock about $820 million in synergies for Arch and Peabody with an expected savings of about $120 million a year for the first 10 years.

Kellow called the joint venture “the centerpiece” of Peabody’s future U.S. coal operations.

Loss for Q3

While having a timeline on the FTC to complete its review is a significant step, Peabody reported that the third quarter of this year overall was rough with a $74 million net loss on revenues of $1.1 billion. In the third quarter of 2018, the company posted a net profit of $83.9 million on revenues of $1.4 billion.

For the year, Peabody is still in the black by about $102 million, which is considerably less than the $412 million it was up through three quarters of 2018.

A weak performance from metallurgic coal was the main driver of the loss, said Amy Schwetz, Peabody’s CFO. It also included a loss of about $21 million due to a highwall failure at one of the company’s mines and more than $8 million spent in the quarter on legal expenses related to the joint venture.

A pleasant change this past quarter was a relatively strong financial performance from Peabody’s Powder River Basin mines, which managed significant cost-per-ton reductions despite a weakening market for the basin’s thermal coal.

Per ton costs in the PRB were $8.69 in the third quarter, which was a multi-year low, Schwetz said. It was a 4% improvement from 2018 and a drop of 12% from the first half of 2019.

“We’ve made significant strides to streamline our operations,” Kellow said.

Overall production from Peabody’s three Powder River Basin mines — Caballo, Rawhide and North Antelope Rochelle — was 30.2 million tons, down from the 31.7 million tons sold in 2018. For the year, the operations are down about 11% at 80.5 million tons produced so far compared to 90.3 million through three quarters of 2018.

Looking forward, the company expects the Powder River Basin to produce about the same in the fourth quarter to finish at about 110 million tons.