Peabody sinks after taking $301 million charge on coal hedge

Revenue jumped 58% from a year earlier to $1.04 billion, driven by “unprecedented upward volatility” in pricing, the biggest U.S. coal miner said in a statement Thursday. However, that also triggered a $534 million margin call because Peabody had locked in prices last year at much lower levels.

Australian benchmark coal prices reached a record high of $440 a metric ton in March after Russia’s invasion of Ukraine upended global energy markets. However, the contracts to deliver coal at $84 ton were a drag during the quarter, and prompted the company to arrange last month a $150 million credit line with Goldman Sachs Group Inc. at a 10% interest rate. Still, the company expects to benefit in the long run from the resurgent market.

“We’re going to be profitable this year, even with those hedges,” Chief Financial Officer Mark Spurbeck said during a conference call.

Peabody’s thermal coal operations in Australia shipped 1.8 million tons during the quarter at an average price of $118.85 a ton. The company’s net loss widened to $119.5 million compared with $80.1 million a year earlier for the worst quarterly result since late 2020.

The shares slumped as much as 22%, the biggest intraday decline since March 7, though they’re still up more than fourfold from a year ago. The stock was down 9.1% to $24.09 as of 12:11 p.m. in New York. Peabody and other coal producers have surged as utilities around the world clamor for more of the dirtiest fossil fuel.

Peabody had $481.7 million in collateral posted to support coal hedges as of March 31, according to the statement. It had gross proceeds of $225 million under the credit line, which were repaid in full by selling 10.1 million shares.

“Strong global market dynamics persist for our products, driving prices to unprecedented levels globally,” Chief Executive Officer Jim Grech said in the statement. “With projected increased sales, we remain poised to deliver a strong 2022.”