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THESIS: I appreciate reader comments that coal is dirty energy masking as America‘s answer to supporting Arab despots. however, the simple fact of energy need and the existing infrastructure mean coal will be in use 50 years from now and solar power will still be talked about as an alternative.
Which companies has the AMP Selected – read the book .
Here is an update on Peabody
- Initial forecast calls for 12 million tons to 13 million tons in Australian thermal coal shipments and 14 million to 15 million tons of Australian metallurgical coal sales.
- Expected U.S. thermal coal production already sold under contracts, limiting exposure to price weakness after unseasonably mild winter.
- Has placed Wilkie Creek Mine in southeast Queensland on sales block to reduce debt incurred from acquisition of Macarthur Coal.
- Management warns that 2012 will be a year of transition for Peabody Energy, as operational mines acquired from Macarthur Coal will require significant investment to upgrade equipment and remove waste rock.
- Management’s guidance calls for first-quarter earnings per share of $0.50 to $0.75, well below analysts’ consensus estimate prior to the call.
Peabody Energy Corp still managed to report record full-year results, including revenue of $7.97 billion (up 18 percent) and earnings before interest, taxes, depreciation and amortization (EBITDA) of $2.13 billion (up 15.7 percent).
Management Forecast On The Economy
The firm’s U.S. operations (55 percent of 2011 revenue), which are located primarily in the low-cost Powder River Basin and the Illinois Basin, enjoyed a 5 percent uptick in coal shipments during the year, largely because of a record 109 million tons of low-sulfur coal output from the North Antelope Rochelle Mine in Wyoming.
During a conference call to discuss fourth-quarter earnings, Peabody Energy CEO Gregory Boyce indicated that the company expects the “two-speed global economy” to continue in 2012, with emerging markets such as China, India and Brazil leading the way and the developed world posting subpar growth.
In the fiscal year ending March 31, 2012, the gap between domestic supply and demand should reach 142 million metric tons and will only continue to expand. In 2011 India’s imports of thermal coal surged 35 percent from year-ago levels, to about 85 million tons.
With its extensive production platform in Australia, Peabody Energy is well-positioned to supply utilities in India and China with thermal coal. By 2015, the company expects to expand its annual thermal-coal production in Australia to between 15 and 17 million tons.
CAVEAT: Depressed natural gas prices and efforts to reduce carbon dioxide emissions continue to prompt some utilities to switch to gas from coal. Rick Navarre, Peabody Energy’s chief commercial officer, told analysts that the company expects fuel replacement among U.S. power companies to eliminate between 35 and 40 million tons of coal demand in 2012, largely from mines in Central Appalachia.
After spinning off its assets in Central Appalachia, Northern Appalachia and less desirable parts of the Illinois Basin in 2007, Peabody Energy has little exposure to rising production and regulatory costs in these mature mines.
The company operates primarily in Wyoming’s Powder River Basin, which contains thick seams of low-sulfur coal that are relatively easy and inexpensive to mine, and the Illinois Basin, another low-cost region that produces coal with higher sulfur content. With many plants scheduled to have advanced scrubbers installed over the next few years, the addressable market for Illinois Basin coal is growing rapidly.
In addition to its low cost base, management’s prescient decision to sell the firm’s planned 2012 production under contracts will insulate earnings from the recent deterioration in prices. The firm has 45 percent to 55 percent of its planned 2013 production priced under contracts
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