January 25, 2011 / 7:28 PM / 7 years ago

UPDATE 3-Coal miner Peabody sees benefit in Australia floods

* Adj Q4 EPS from continuing ops 85 cts vs St view 71 cts

* Sees upside from Australia floods

* Stock rises less than one percent (Adds CEO and analyst comments, updates share price)

By Steve James

NEW YORK, Jan 25 (Reuters) - Coal miner Peabody Energy Corp (BTU.N), whose fourth-quarter earnings almost doubled, said on Tuesday it expected to benefit from higher coal prices resulting from flooding in Australia, the world’s largest coal exporter.

“While heavy rains and other supply disruptions create near-term logistics challenges, they also result in significant market upside for Peabody’s unpriced metallurgical and thermal export coal beyond the first quarter,” Chief Executive Officer Gregory Boyce told Wall Street analysts on a conference call.

“Rising demand and strained supplies are translating into sharp price increases,” he said.

Peabody, which operates mines in the United States and Australia, said it had been affected by floods in northeastern Australia, which has reduced exports by about 20 percent. Last year, Peabody mined 27 million tons of coal in Australia, nearly 5 million tons more than in 2009. It declined to say how much production had been lost in the recent floods.

Boyce said surface mines had been affected, and rail and port performance had been reduced. Lower-than-expected fourth-quarter volume and repair and recovery expenses reduced earnings before interest, tax, depreciation and amortization (EBITDA) by about $85 million, or 22 cents per share.

Boyce noted that since October, the spot market price for steel-making metallurgical coal had risen over 50 percent and Newcastle, Australia thermal coal, used for power generation, had risen more than 35 percent.

“This bodes extremely well as we approach upcoming settlements for quarterly met and annual thermal contracts,” he said. “... All of Peabody’s met coal beyond this quarter is open to pricing, and half of our thermal export coal is available to price for 2011, with 85 percent open for 2012.”

Peabody said income from continuing operations in the fourth quarter was $215.7 million, or 85 cents per share, compared with $113.5 million, or 43 cents per share, a year earlier. Analysts, on average, were expecting 71 cents per share, according to Thomson Reuters I/B/E/S.

The company said it was targeting first-quarter EBITDA in the range of $325 million to $425 million and adjusted earnings, excluding items, of 45 cents per share to 65 cents per share. Analysts, on average, expect 92 cents per share.

Analyst Michael Dudas of Jefferies & Co said Peabody’s results were solid “in spite of the heavy rains and other supply disruptions in Australia, driven by strong metallurgical shipments, pricing from its Australian operations, better-than-expected overall cost controls and expanding U.S. margins.” He said he expected Peabody to benefit from the upside for unpriced coals for the last three quarters of 2011.

Peabody said global coal markets were in the early stages of a long-term supercycle as China, India and other emerging countries use more energy and steel.

“The long-term supercycle for coal is strengthening with each passing day,” said Boyce. “Economic growth in emerging Asia is expected to be the driver of large increases in thermal and metallurgical coal.”

Boyce said that through 2015 about 390 gigawatts of new coal-fueled generation was expected to be built globally, requiring 1.2 billion tonnes annually of coal. Global steel production was expected to rise more than 30 percent during that time, requiring about 300 million additional tonnes of metallurgical coal each year, he said.

Seaborne coal demand increased an estimated 13 percent in 2010, led by a 32 percent recovery in global metallurgical coal demand. Pacific thermal coal demand rose 15 percent in 2010, he said.

Peabody shares rose 20 cents to $59.49 in afternoon trade. (Reporting by Steve James, editing by Dave Zimmerman)

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