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Coal giant Peabody Energy on verge of bankruptcy

Amidst the ongoing collapse in global commodity prices, St. Louis-based Peabody Energy warned last week it “may need to voluntarily seek protection under Chapter 11 of the US Bankruptcy Code.” The energy giant is the world’s largest privately owned coal company with a more than 130-year corporate history.

A Peabody bankruptcy would be only the latest in a string of high-profile coal company failures—among the wreckage of dozens of smaller operations—in the US, including Arch Coal (January 2016), Alpha Natural Resources (August 2015), Walter Energy (July 2015), Patriot Coal (May 2015 and July 2012) and James River Coal (April 2014). Bankruptcies at beleaguered coal producers Foresight Energy and Cloud Peak Energy are also expected soon.

In each case, the bankruptcy courts are being employed to attack the wages, pensions, health care and working conditions of miners—gains realized through decades of struggles—and shift the entire burden of the crisis enveloping the global coal industry onto their backs. Peabody will use any forthcoming restructuring to do the same to its approximately 7,600 employees in the US.

The United Mine Workers of America (UMWA) has issued no public statements on the threatened bankruptcy and further jobs massacre. For decades, the UMWA has had the closest corporatist relations with the giant coal company. It has not called a strike against Peabody since a walkout by 7,000 miners in 1993, which the UMWA betrayed paving the way for the company to slash the jobs, wages and benefits for thousands of active and retired miners.

"Paradise" is a song written by John Prine. The song is about the devastating impact of strip mining for coal, whereby the top of the mountain is blasted off with dynamite to reach the coal seam below. The song is also about what happened to the area around the Green River in Kentucky because of the strip mining. The song references the Peabody Coal Company, and a now-defunct town called Paradise in Muhlenberg County, Kentucky. Peabody brought a court motion in 2015 to have Prine's lyrics removed from a federal complaint. They lost.

- prh.ed

In 2007, Peabody spun off its unionized operations to a new corporate entity, Patriot Coal, in order to divest itself from its higher-costing operations in the Appalachian Basin while offloading substantial liabilities associated with pensions, health care and environmental obligations to the new company. Loaded up with debt, Patriot would declare the first of two bankruptcies in 2012.

In January, the UMWA reached a court agreement with Peabody that allowed the company to escape its final $70 million payment owed to a health fund covering 12,000 Patriot Coal miners, including many who worked for Peabody.

On March 15, Peabody announced it would utilize a 30-day grace period in relation to a $71.1 million interest payments owed on its debt in order “to have conversations with our lenders about our alternatives, while maintaining options around our interest payments.” By the time trading opened the next morning, the company’s shares had lost around half their value and were trading at about $2.00 per share. It represented a dramatic decline from highs of $123.45 a share in the first quarter of 2015 and $299.00 as recent as the first quarter of 2014.

In its 2015 annual report to the US Securities Exchange Commission (SEC) released March 16, Peabody claimed it was $6.3 billion in debt and had maxed out one of its lines of credit in February. The company lost nearly $2 billion last year on top of a $787 million loss in 2014, losses it said it expects to continue.

A Peabody bankruptcy would signify not only a deepening of the crisis of the US coal industry and American capitalism, but of global capitalism as well. The company controls some 6.3 billion tons of thermal and metallurgical coal reserves in the US and Australia, selling nearly 230 million tons last year. The company operates internationally through offices in the US, Australia, United Kingdom, Germany, China and India.

According to the US Energy Information Administration (EIA), US coal production in 2015 reached its lowest level since 1986. Bound up with this was a 21 percent drop in exports as compared to 2014. China, which imported some 8.3 million tons of US coal in 2013, took fewer than 0.5 million tons in 2015 as its economy slowed to its lowest rate in 25 years.

Amid these declines is a staggering collapse of the US coal industry’s market value. According to analysts at the Rhodium Group, “The four largest US miners by output, Peabody Energy, Arch Coal, Cloud Peak Energy and Alpha Natural Resources, which account for nearly half of US production were worth a combined $34 billion at their peak in 2011. Today they are worth $150 million.”

In fact, Peabody’s troubles highlight this trend because it no longer operates any mines in Appalachia, since spinning these operations off to Patriot Coal in 2007. At its US operations, Peabody mines thermal coal in Illinois, Indiana, Wyoming, Colorado, New Mexico and Arizona primarily for domestic electricity production. At its massive North Antelope Rochelle surface mine in the Powder River Basin, the company produced approximately 110 million tons of coal in 2015—more than the entire state of West Virginia.

In 2011, Peabody bet on the continued rise of China and its strong demand for metallurgical coal used in steelmaking by acquiring Macarthur Coal Limited. However, metallurgical coal prices have plummeted since then with the slowdown of the Chinese economy.

Coal miners in China are also facing the brutal consequences of the global economic crisis. According to the China National Coal Association, China has about 10,760 mines, about 5,600 of which will closed over the next three to five years in an effort to cut surplus production by as much as 500 million tons. In 2016 alone, the government aims to cut production by 60 million tons by closing more than 1,000 coal mines. Announcements by the Chinese government last month that it intends to eliminate 1.3 million jobs in the coal industry and another 500,000 steelworker jobs have led to angry protests and demonstrations by thousands of workers.

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