The coal industry is struggling, but a spokesman for St. Louis-based Peabody Energy says neither coal nor the company is going away.
Heavy debt loads are weighing on companies like Peabody that made acquisitions when coal prices peaked, prompting a lengthy slump. Peabody, the nation’s largest coal company, warned earlier this month that it may have to file for bankruptcy.
But Vic Svec, Peabody’s spokesman and vice president of investor relations, told the St. Louis Post-Dispatch that the company intends to stay in St. Louis “for a long time to come.”
Peabody was founded in Chicago in 1883 but relocated to downtown St. Louis in 1957. The company had 600 employees at the downtown location at the beginning of this decade; it now has 375 people at its headquarters, which controls mines from Wyoming to Australia.
“We have taken steps in recent years to create what we feel is a sustainable organization,” Svec said. “We have a core team in St. Louis that we view as vital.”
Peabody’s problem is a crushing debt load, much of it taken on in 2011 to finance the $5.2 billion purchase of Australia-based Macarthur Coal Ltd. Peabody has been trying to renegotiate debt with some lenders, and other creditors are pressuring it to file for bankruptcy.
“They’ve been doing a decent job of cutting costs,” James Gellert, CEO of Rapid Ratings International, which evaluates companies’ health and default risks, said of Peabody. “The problem is you can only go so far in cutting costs. Your ability to cut costs reaches a point where you either sell the business or restructure.”
Svec said the company has a “debt challenge,” but not an “operating challenge.”
Morningstar analyst Kris Inton agreed: “If you remove the debt issue, there’s not this question of going concern.”
Suburban St. Louis-based Arch Coal and other coal mining companies also struggled to sustain high leverage as prices and demand fell. But mining firms with little debt aren’t considered a bankruptcy risk, Inton said.
Svec sees plenty of room for long-term growth. Year-to-date coal production is 30 percent below the same time last year. At that pace, annual production would fall to levels anticipated under federal carbon emissions regulations that haven’t even taken effect yet.
“Even the EPA’s Clean Power Plan scenarios project larger coal demand in the U.S. by 2030 than the annualized pace we’re on for this year,” Svec said. “It’s a matter of working off the slack.”