peabody still eyes acquisitions

Peabody Energy eyes more acquisitions after bidding for Macarthur Coal

Rapid growth in China and India continues to underpin rising global demand for coal. Source: The Courier-Mail

PEABOBY Energy's second-quarter profit rose 38 per cent as higher coal prices and increased sales in Australia outweighed the drag from disruptions due to flooding in the US.

The largest US coal producer by output recently has been named in a set of deals that would expand its access to booming markets in the Asia-Pacific.

Earlier this month, the company made a joint bid with ArcelorMittal to acquire Australian coal miner Macarthur Coal for $US5.05 billion.

Peabody is in negotiations with the Mongolian government to develop the Tavan Tolgoi coal mine, one of the world's largest untapped coal deposits.

And last week Peabody said it had entered into an initial agreement with the government of Xinjiang Uighur Autonomous Region in northwestern China to develop a large open-pit coal mine.

Peabody executives left the door open to further acquisitions, with chief executive Gregory Boyce highlighting the company's preference for assets that can easily access global export markets.

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Macarthur digs in over Peabody The Australian, 6 days ago
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Floods to cost Peabody $285m The Australian, 26 Jan 2011

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"We have a high preference for those areas and those products that can access seaborne markets," Mr Boyce said on a conference call to discuss the company's second-quarter results.

The company's recently announced developments in China are both "in close proximity to the fastest (growing) and largest coal markets in the world," he added.

Rapid growth in China and India continues to underpin rising global demand for coal for steelmaking and electricity generation.

Peabody raised its full-year earnings projection to $US4.20 to $US4.60 a share. Its April guidance called for $US3.50 to $US4.50. For the third quarter, the company predicted earnings of $US1.05 to $US1.25 cents a share, below analysts' estimated $US1.40 a share.

For the second quarter, Peabody posted a profit of $US284.8 million, or $US1.05 a share, up from $US206.2m, or US76 cents a share, a year ago. The most recent quarter includes $US24.5m in litigation charges.

Excluding remeasurement expenses, earnings from continuing operations rose to $US1.11 from US69c. The company in April forecast earnings between US85c and $US1.10, below analyst estimates at the time.

"With another solid quarter, and a sizable guidance raise, we'd expect Peabody to be fairly strong," Brean Murray, Carret & Co analyst Jeremy Sussman said in a note.

"We remain buyers of Peabody."

Revenue rose 21 per cent to $US2.01bn, matching analyst estimates.

Operating margin widened to 22.8 per cent from 19.5 per cent, and operating profit per ton jumped 45 per cent. Revenue per ton in the US increased 3 per cent as revenue per ton in Australia increased 38 per cent.

Flooding and rail transportation constraints limited sales in the US Midwest and Wyoming's Powder River Basin. The company said it also faced increased operating costs in its Australian business because of a stronger Australian dollar and lingering logistical difficulties after widespread flooding earlier this year.

Peabody's also received a boost from strong results in its trading and resources management operations, which posted revenue of $US114m, up 40 per cent from 2010 levels.