Wyoming’s largest coal mines are likely to make more cuts to production in 2019, financial reports show.
Peabody Energy, which operates the North Antelope Rochelle, Rawhide and Caballo mines in Wyoming, is dropping its midrange production expectations by about 10 million short tons, according to the firms’ most recent earnings report. Arch Coal, the owner of Black Thunder and Coal Creek in Wyoming, is reporting mid-range guidance of about 5 million short tons less than last year, according to financial reports. Arch also cut production at Black Thunder outside Wright last year by 10 million tons.
The firms are responding to a tougher market for coal, one that’s narrowed year by year as coal plants that buy the Powder River Basin coal have shuttered. They are also reacting to declining margins – the amount of money they are making for every ton of coal excavated from the Wyoming soil.
Peabody’s per ton margin for its Powder River Basin mines went from $2.97 in 2017 to $2.37 last year and a projected $1.70 for 2019, based on midpoint guidance. Arch’s fell as well, from $1.96 in 2017 to $1.10 projected for this year.
It’s likely that the Arch Coal cuts are coming out of Coal Creek, a lower heat mine south of Gillette, while production the higher quality Black Thunder mine will likely remain about the same, based on the company’s financial reports and recent earnings call.
For Peabody, it’s unclear which one of the firm’s Powder River mines will lose tons.
In general, the quality of the mines in the Powder depends on where they lie along Highway 59. North of Gillette, mines like Peabody’s Rawhide are lower price but lower cost. South of Gillette you still have lower value coal, in the 8,400 range, but a little higher cost at mines like Coal Creek.
In the southern Powder River Basin are the mammoth mines of Black Thunder and North Antelope Rochelle and Cloud Peak’s Antelope. These are higher quality coal producers – in the 8800 range – but they are more costly as well.
Peabody in particular has invested in efficiencies and automation to try and cut into that cost.
Wyoming coal producers have an outsized impact on the state’s finances, as coal is one of the most significant revenue contributors in the state, above oil and gas if those fossil fuels are considered separately. The downturn in the industry has hit Wyoming hard, but it’s also a concern locally.
Cloud Peak, the third-largest producer in the basin, is facing headwinds that are likely to send it into bankruptcy, experts noted. It cut retiree health benefits recently to reduce costs, has laid off some staff and has hired outside advisers to craft a path forward, such as a sale or bankruptcy.
Cloud Peak’s margins have fallen dramatically in recent years, from $2.30 per short ton in 2017 to just 92 cents last year.
Meanwhile, Blackjewel, the firm that acquired the Eagle Butte and Belle Ayr mines from Contura Energy in 2017, failed to make its most recent tax payment to Campbell County. The county reported that the company had approached officials ahead of their delinquencies seeking a payment plan. Currently the mine’s permits are held by the mines’ former owner, Contura. The company was delayed by more than a year in providing proof of bonding for reclamation. Now the transfer of permits has been protested by environmental group given the company’s environmental history in other states and the value it’s reported for ranch property held as collateral.
Publicly traded companies basic numbers on margins, income before capital, cost of production per ton and price per ton provide a snapshot of how firms are doing and how much cash flow they have to hold them in the near term.
One thing the numbers say about the PRB’s big operators today is that the money they are really making isn’t in Wyoming.
Peabody’s cash from the PRB, based on its mid-range guidance, could be down by $100 million, while its metallurgical assets in Australia provide the real earnings. Likewise, Arch’s metallurgical coal mines in Appalachia are its strongest assets, while the EBITDA from its Powder River Basin mines would be down by about $45 million, based on midpoint guidance.
In short, Wyoming’s big players are likely going to cut the tons that come out of the ground.