Published: March 18, 2016 |

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The world’s largest privately owned producer of coal and owner of a northwest Colorado mine said Wednesday it may have to file for Chapter 11 bankruptcy reorganization if alternative strategies to improve its finances fail, in what would be yet another setback for the industry.

Peabody Energy made the announcement as it is trying to sell the Twentymile Mine in Routt County to Bowie Resource Partners, LLC, as part of an effort to stave off a bankruptcy filing. But Bowie is continuing to seek financing for the deal, which has been projected to close by the end of March, and Bowie just weeks ago announced the idling of its Bowie No. 2 Mine near Paonia due to what it called “continued market deterioration.”

Peabody’s Twentymile Mine, also known as the Foidel Creek Mine, was the second-most-productive coal mine in Colorado last year. The biggest producer was the North Fork Valley’s West Elk Mine, owned by Arch Coal, another leading U.S. coal company. It filed for Chapter 11 bankruptcy in January, one of several coal companies to have filed for bankruptcy over the past year.

The coal industry has been rocked in recent years by factors such as increased competition from natural gas in power generation and heightened regulations targeting pollution from coal combustion.

Peabody lost $2 billion last year, and says it expects losses to continue. It has $6.3 billion in total debt. It said in a regulatory filing Wednesday that it was exercising a 30-day grace period on interest payments totaling $71.1 million that had been due Tuesday on two loans, and said it will be in default on the loans if it fails to make the payments when that period ends.

“As a result of these factors, as well as the continued uncertainty around global coal fundamentals, the stagnated economic growth of certain major coal-importing nations, and the potential for significant additional regulatory requirements imposed on coal producers, among other matters, there exists substantial doubt whether we will be able to continue as a going concern,” the company said.

It said it is continuing to pursue measures short of bankruptcy to improve its financial position, from new financing to the sale of assets, in particular the sale to Bowie of Twentymile, along with the El Segundo and Lee Ranch mines and related assets in New Mexico.

Bowie agreed in November to pay $358 million for the Colorado and New Mexico properties. However, Peabody says Bowie is continuing to pursue financing for the deal, and some media reports indicate that has proven challenging given current market conditions. Bowie couldn’t be reached for comment Wednesday.

Doyle Trading Consultants, an energy research and analytics firm headquartered in Grand Junction, issued analysis Wednesday saying that the stock market was widely expecting Peabody’s announcement that it would skip the interest payments, and that there were a number of warning signs, including the fact that the sale involving Bowie hasn’t closed. Despite Peabody’s statement that it is exploring alternatives, “we believe a Chapter 11 restructuring is the likely course of action, particularly amid pressure from senior creditors,” DTC said.

A Chapter 11 restructuring wouldn’t necessarily mean any changes in operations at mines, at least in the short term. When Arch Coal announced its bankruptcy filing, it said the action in itself wouldn’t result in any mine closures and should strengthen the company’s position, although it left open the possibility that measures might be required if the market keeps weakening.

Peabody said Wednesday, “The effects of our financial activities are unrelated to our operations and jobs, which are unaffected by today’s disclosures and continue in business-as-usual fashion.”

It also noted that it has about $900 million in cash and cash equivalents on hand.

“We clearly had the liquidity to pay the interest, but have chosen the grace period to consider our options,” it said, adding that it plans to use the time to have conversations with its lenders about alternatives.

Audrey Danner is executive director of the Craig/Moffat Economic Development Partnership. She said many of Twentymile’s employees live in Moffat County.

“They’re very much a good economic partner within the community,” she said of the mine.

She said she has known it’s been “in the wind” that Peabody may file for bankruptcy. She said she remains optimistic of a resolution that will keep the mine operating, such as through a sale or bankruptcy reorganization, avoiding the economic impact that would result from a permanent or temporary closure.

Twentymile employs nearly 290 miners.

ISource: (March 16, 2016) The Daily Sentinel

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