Peabody, Insurers Reach ‘First of its Kind’ Reclamation Deal

Peabody Energy Headquarters in St. Louis, Missouri (Courtesy of Thomas Hawk, Creative Commons)
Peabody Energy Headquarters in St. Louis, Missouri (Courtesy of Thomas Hawk, Creative Commons)

By James Marshall, Climatewire, E&E News

Peabody Energy Corp. announced an agreement with insurers that guarantee mine reclamation today after a bond provider asked for collateral due to the coal company’s “deteriorating” financial condition.

Argonaut Insurance Co. had demanded in a lawsuit last month $203 million from Peabody as collateral for the surety bonds it has issued the company.

The suit called into question insurance companies’ willingness to continue providing reclamation bonds amid the ongoing shift away from coal as a fuel for electricity (Greenwire, Nov. 3, reprinted in County 17).

Peabody operates the largest U.S. coal mine – North Antelope Rochelle in Wyoming – and completed a bankruptcy reorganization in 2017.

The “standstill agreement” it reached with surety providers will resolve $800 million in collateral requests made in the last three months, Peabody’s third-quarter earnings report says. The company values its surety program at $1.6 billion.

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Peabody Chief Financial Officer Mark Spurbeck said the deal provides support for the company’s “long-standing commitment to reclamation.”

“We are grateful for the tremendous collaboration with our surety providers to reach a first-of-its-kind solution that offers a greater line of sight into Peabody’s future collateral requirements,” he said in a statement.

Peabody will post $75 million of collateral initially, provide $200 million in liens on mining equipment and post $25 million of additional collateral each year through 2025 as part of the deal.

Spurbeck noted in a conference call today that the surety standstill is contingent on completing a deal with credit lenders by the end of next January. However, Peabody expects its fourth-quarter performance may not warrant an agreement.

The company also announced its third-quarter revenues fell 39% compared with the same period last year, to $671 million, as the coronavirus pandemic has further reduced coal demand. Peabody’s liquidity dropped to $860 million, down from $926 million three months ago.

Peabody CEO Glenn Kellow said natural gas prices have begun to increase, giving coal operators hope of competing in the power sector next year.

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Boosting liquidity has been a priority for coal companies across the board. Banks have begun to cut off their access to capital, and surety providers are increasingly demanding collateral for reclamation bonds.

Mitesh Thakkar, chief financial officer for Pennsylvania-based Consol Energy Inc., emphasized the importance of having cash on hand to ensure reclamation on that company’s earnings call last week.

“I think the key to providing comfort for our surety providers is to make sure that we are doing necessary work that needs to be done and making sure they understand that we have access to liquidity,” Thakkar said.

 

Reprinted from Climatewire with the permission of E&E News. Copyright 2020. E&E News provides essential news for energy and environment professionals at www.eenews.net.