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Sunday, January 24, 2021

Peabody Energy Corporation (OTCMKTS:BTUUQ) Stomps Out the Embers

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Peabody Energy Corporation (OTCMKTS:BTUUQ) is one of the world’s biggest producers of coal, and the largest in the US. The company has been benefiting from something of a revival in the coal market, but common shares of the ‘Q’ stock have been suffering. We outlined the reasons for this in numerous previous articles, but the OTC trading community seems stuck on the idea that an equity committee is going to be announced here, which will save the common stock and create a massive squeeze higher in BTUUQ shares.

The company is making every effort to eradicate such hope, even going so far as to put out a special announcement a few days ago stomping out any remaining flames. We suggest the reader takes their comments to heart.

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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In the course of management’s efforts to truly drown out hope in the common share market, several pointed quotes take center stage:

“Attempts by parties to appoint an equity committee have generated media reports based on inaccuracies and speculation raised by those parties.”

“Reflecting that business plan, the company filed a plan of reorganization in December that represented broad consensus among stakeholders, and that consensus has grown in recent weeks.  The plan of reorganization provides for only partial recoveries for unsecured claims, which by law means that shareholders will not receive a recovery.”

“Peabody has been consistent and transparent for many months in communicating that, as with most Chapter 11 processes, current equity holders are unlikely to receive any value and their shares are likely to be cancelled.  Certain parties sought equity committee formation in late 2016, and the U.S. Trustee declined the request.  The matter will now properly be heard by the U.S. bankruptcy court.”

There it is, in stark black and white. Frankly, we were a little surprised by the turn this took late last year simply because the coal market made such a dramatic surge. The company has asset valuations to consider in the bankruptcy process. And that includes reserves in the ground. Those reserves have to be revalued much higher with the price of coal on the market. That revaluation, one might hypothesize, could effectively elevate the company’s financial capacity in the eyes of current creditors, creating some more options.

But, alas, ‘twas not meant to be for BTUUQ. The US Trustee made that call, and the matter was defeated. We would not suggest running too far with the dream that the judge at the bankruptcy court will be a market guy and point to Appalachian coal futures on the CME. Markets will likely continue to be deemed “variable” and “volatile” and “unpredictable”. And assets will probably remain recorded according to a very long-term moving average that smooths away the recent gains as a rounding error. As more color becomes clear on the name, we will review the situation and update our take if any of this changes. For continuing coverage on shares of $BTUUQ stock, as well as our other hot stock picks, sign up for our free newsletter today and get our next hot stock pick!

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