The world’s largest private-sector coal company Peabody Energy expects global coal to be in a supercycle. The indicators of this are discussed next month in International Mining’s annual review of the global coal mining sector. With 2009 sales of over 220 Mt, Peabody fuels 10% of US power and 2% of worldwide electricity.
Last week, Peabody Energy executives observed that the company is in a strong position to create significant growth and shareholder value against the backdrop of very favourable long-term supply and demand fundamentals for the global coal industry. The outlook came at the company’s 2010 Analyst and Investor Forum in New York, where senior executives reviewed the company’s long-term projects and prospects.”I believe we are in the early stages of a long-term supercycle for coal. And Peabody, with its unmatched asset base, market positions and growth projects, is uniquely positioned to capitalise on this sustained trend,” said Peabody Energy Chairman and CEO Gregory H. Boyce. “Peabody is poised for significant valuation growth from rising earnings and multiples.”
Boyce observed that coal has been the world’s fastest-growing fuel this past decade, with demand growing at nearly twice the rate of natural gas and hydro power and more than four times faster than global oil consumption. “It’s stunning that any mature commodity could expand nearly 50% in a decade and speaks to the strong appetite for the products we fuel, as well as coal’s abundance and stable cost,” he said. Coal demand is also expected to grow faster than other fuels in coming decades.
Asia-Pacific nations are leading a historic global build-out in coal-fueled electricity generation. More than 94 GW of new generation are expected to come on line in 2010, representing 375 Mt/y of coal consumption. If growth continues at the current pace, generators would add another 1,000 Mt of new coal demand every three years.
This comes at a time when the world faces the dual challenge of providing power to the 3.6 billion people who lack adequate access to electricity, while accommodating another 2 billion expected from population growth over the next 20 years.
Global growth in steel production compounds coal demand growth. Demand for steel is projected to rise 50% by 2020, with a similar increase of metallurgical coal needed as a basic feedstock.
Peabody estimates that seaborne coal demand will expand by some 300 to 400 Mt by 2015, with China and India representing half to two-thirds of this growth. The company believes that supply sources will be strained to match demand growth.
Against this market backdrop, Boyce emphasised the strength of Peabody’s unique platform and growth projects. The company has leading positions in the fastest growing regions in the US and Australia, and emerging opportunities in Asia. “High-growth regions offer greater opportunities to increase volumes, pricing and margins,” said Boyce. “Companies such as Peabody, who have leading positions in these regions, warrant a significant premium to peers in more mature markets.”
Peabody’s Australia platform is poised to supply increasing demand for coal throughout the Pacific Rim. The company is advancing projects that could double its metallurgical and thermal export coal platform by 2014, targeting 32 to 36 Mt of production, assuming a favourable investment climate in Australia.
In the Asia-Pacific region, Peabody is developing a pipeline of projects and partnerships to expand its presence:
- In China, the world’s largest coal consuming nation, Peabody is advancing a number of growth projects from those in the nascent stage to active construction, including joint ventures with potential partners including utilities, steel companies and coal companies
- In India, the world’s fastest-growing coal importer, Peabody was recently selected by Coal India as one of a few companies to serve as a key partner for long-term supplies and other strategic ventures
- In Indonesia, the world’s largest thermal coal exporting nation, Peabody is exploring partnerships with local suppliers, who are increasingly seeking new avenues to move coal to market
- In Mongolia, Peabody’s joint venture is driving exploration of dozens of resource licenses to develop coal properties, while continuing efforts to be a part of the development of the Tavan Tolgoi reserves.
Peabody President and Chief Commercial Officer Rick Navarre introduced a multi-pronged approach to build an Asian platform with a long-term goal of reaching over 90 Mt/y. Peabody is targeting: increased exports from its Australian operations; expanded coal trading; participation in coal conversion and clean coal projects; active production through joint ventures; and development of a Mongolian export base.
“We expect global seaborne markets could be some 100 million tons short of coal by 2015 as emerging economies, led by China and India, achieve growth rates that are two to three times that of developed nations,” said Navarre. “Peabody has the resources and capabilities to fill this gap in the fastest-growing markets of Asia by capitalizing on our advantages: open-cut mining expertise; a strong safety and operating track record; and deep engineering, project management and trading capabilities. Through our ‘Asia 100’ Vision, we look forward to turning prospects to projects to results as the decade progresses.”
In the US, Peabody announced that it has now begun operations at the new Bear Run mine in Indiana. Bear Run is targeting 7.3 Mt of annual production by 2012, and the company notes that the mine’s potential capacity could reach 10.9 Mt/y with additional investment. The company also noted that its new El Segundo mine in New Mexico is the most productive mine outside of the Powder River Basin. And in the Western US, Peabody’s flagship mine – North Antelope Rochelle – is on track to ship 90 Mt or more in 2010.