By Stuart Condie
November 7, 2022 - Coronado Global Resources Inc. and Peabody Energy Corp. mutually agreed to end talks over combining to create a new global coal giant.
Australia-listed Coronado CRN, -7.05%, which also has operations in the U.S., and Peabody BTU, 6.15% on Monday both said they had ended discussions over a combination that would have created a company worth about $6 billion.
Neither company gave a reason for the failure of the talks. Coronado announced the development in a filing to the Australian Securities Exchange. Peabody, the largest U.S. coal producer, confirmed in an emailed statement. Neither Peabody nor Coronado had disclosed terms of any potential merger.
The mooted tie-up had been seen as an indicator of how the coal-price surge that followed Russia’s invasion of Ukraine is transforming the sector’s fortunes. However, Newcastle coal futures, the main Asian benchmark, have declined about 15% since Coronado’s Oct. 12 filing to the Australian Securities Exchange confirming merger talks.
At around $350 a metric ton, Newcastle coal futures are still more than double their level at the beginning of the year, according to FactSet.
Peabody last week reported third-quarter net income of $375.1 million for the three months through September, compared with a $44.2 million loss a year earlier.
“Coal prices remain at levels that result in a favorable outlook for each of our operating segments,” Peabody President and Chief Executive Officer Jim Grech said on Nov. 3.
As recently as two years ago, Peabody was warning that it might enter bankruptcy protection for a second time, given weakness in coal markets after the Covid-19 pandemic led to a sharp drop in power demand as factories closed or reduced output. Thermal coal is used to generate electricity, but is considered among the dirtiest fossil fuels because it produces higher quantities of carbon dioxide when it is burned.
However, the war in Ukraine has stoked concerns about energy security and led European countries to try to wean themselves off Russian coal while also seeking alternative supplies of fuel including natural gas. Global coal prices have risen to record highs in response, with European coal buyers looking as far afield as Australia for supplies.
Elevated coal prices supported Coronado’s move last month to declare a $225-million third-quarter special dividend. It also said it would buy $200 million in senior secured notes, citing record year-to-date fiscal results and strong liquidity. On Monday, it said that it will continue to implement its capital-management plans.
Peabody, which has Elliott Management Corp. as its biggest shareholder, runs thermal-coal mines in Wyoming, Indiana and several other U.S. states. It also has mines in Australia that export metallurgical and thermal coal. Metallurgical coal is used to produce steel.
Shares in Coronado were down more than 8% after about two hours of trade on Monday, making them the worst-performing component of the benchmark S&P/ASX 200 index XJO, +0.60%. They are still up more than 80% so far this year.
It is the second time in 2022 that Coronado has held fruitless talks with a U.S. coal mining company. In May it disclosed discussions with Arch Resources Inc. ARCH, -0.84%, but it wasn’t able to reach an agreement.
Coronado owns the Buchanan mine in Virginia and the Logan mine in West Virginia, as well as the idled Greenbrier operation, which is also in West Virginia. The company also owns the Curragh mine in Australia’s Queensland state.