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Saturday, January 23, 2021

Peabody Energy Corporation (OTCMKTS:BTUUQ) Navigating an Uncertain Future

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Peabody Energy Corporation (OTCMKTS:BTUUQ) is one of those living victims of the evolution of industry that reminds us structural changes are sometimes more important than cyclical or financial analysis. This is a coal miner in a world that has stopped classifying coal as part of the future. As such, the Company is in Chapter 11 restructuring and likely working toward a wipe-out of all extant equity upon confirmation of a proposed plan of reorganization by the Bankruptcy Court.

Even still, traders have been drawn to the action in the stock, which has ripped higher 18% over the past month on a pop in volume as natural gas prices powered above the $3.00/bcf level for the first time on a closing basis since May, 2015.

Peabody Energy Corporation (OTCMKTS:BTUUQ) trumpets itself as a company that engages in the mining of coal. The company operates through Powder River Basin Mining, Midwestern U.S. Mining, Western U.S. Mining, Australian Metallurgical Mining, Australian Thermal Mining, Trading and Brokerage, and Corporate and Other segments.

Peabody Energy is involved in mining, preparation, and sale of thermal coal primarily to electric utilities; and metallurgical coal that include hard coking coal, semi-hard coking coal, semi-soft coal, and pulverized coal injection for industrial customers. The company supplies coal primarily to electricity generators, industrial facilities, and steel manufacturers.

As of December 31, 2015, BTUUQ owned interests in 26 active coal mining operations located in the United States and Australia. It also engages in direct and brokered trading of coal and freight-related contracts, as well as provides transportation-related services, which involves financial derivative contracts and physical contracts. In addition, the company operates a mine-mouth coal-fueled generating plant; manages its coal reserve and real estate holdings; and supports the development of Btu Conversion and clean coal technologies.

As of December 31, 2015, the company had 6.3 billion tons of proven and probable coal reserves.

On April 13, 2016, Peabody Energy Corporation along with its affiliates filed a voluntary petition for reorganization under Chapter 11 in the U.S. Bankruptcy Court for the Eastern District of Missouri. Peabody Energy Corporation was founded in 1883 and is headquartered in St. Louis, Missouri.

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Traders holding onto equity in what was BTU into the crash in the space should take the time to carefully read the notice in the Company’s latest 8K from September 20:

“It is likely that Peabody Energy equity securities will be cancelled and extinguished upon confirmation of a proposed plan of reorganization by the Bankruptcy Court, and that the holders thereof would not be entitled to receive, and would not receive or retain, any property or interest in property on account of such equity interests. In the event of cancellation of Peabody Energy equity or other securities, amounts invested by the holders of such securities would not be recoverable and such securities would have no value. Trading prices for Peabody Energy’s equity or other securities may bear little or no relationship during the pendency of the Chapter 11 Cases to the actual recovery, if any, by the holders thereof at the conclusion of the Chapter 11 Cases. Accordingly, Peabody Energy urges caution with respect to existing and future investments in its equity or other securities.”

The most likely outcome here is that all the equity will be wiped out. If there is a vehicle that emerges from the restructuring, it will be an equity cap table made of converted defaulted-on creditors. That would relieve the debt-servicing pressure and allow some sort of longer-term planning to capitalize on what inherent value may exist in the Company’s asset base.

At this time, carrying a capital value in the market of $28.6M, BTUUQ is working through a restructuring process that is highly unpredictable and not entirely under the control of the Company or its equity holders, but largely contingent on the outlooks held by its largest creditors where the future of coal is concerned. Could the market get caught by surprise and some value re-emerge in the legacy equity? Both commodity markets and legislative factors are highly unpredictable. It’s a long shot, but we will keep an eye on the situation and let you know if we spot any black swans swimming around the stock. For continuing coverage on BTUUQ and our other hot stock picks, sign up for our free newsletter today and get our next hot stock pick!

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