Peabody Energy Reports Increase In Mining Operations

ST. LOUIS, MO - Peabody Energy reported an 18 percent increase over prior year levels. Income from continuing operations totaled $182.3 million,.

"Peabody delivered in-creased contributions from both Australian and U.S. mining operations," said Chairman and CEO Gregory H. Boyce. "Our operations contributed higher revenues and margins per ton in all regions, demonstrating the strength of our diverse platform in the face of challenging conditions. Looking forward, our U.S. coal position remains fully priced for 2012, Australian thermal coal demand remains strong, and recent data suggest that metallurgical coal markets have stabilized with upside potential in the second half."

First quarter revenues rose 17 percent to $2.04 billion, driven by a 27 percent increase in Australian revenues per ton and a 7 percent rise in U.S. revenues per ton. Sales volumes of 61.7 million tons were above prior year sales of 61.2 million tons.

Revenues in Australia climbed 48 percent on higher realized pricing for both metallurgical and thermal coal and an 18 percent increase in sales volumes. Australia shipments totaled 6.6 million tons, including 2.9 million tons of metallurgical coal and 2.6 million tons of seaborne thermal coal.

U.S. revenues rose 5 percent, driven by higher realized prices in both the Midwestern and Western regions. U.S. shipments were largely in line with 2011 as the company only shipped to meet contractual commitments.

Operating profit increased 11 percent to $350.2 million and operating cash flows rose 79 percent to $395.5 million.

Income from continuing operations totaled $182.3 million, compared with $194.6 million in the prior year, declining due to higher acquisition-related interest expense and depreciation, depletion and amortization. Adjusted income from continuing operations totaled $191.2 million.

"Near-term markets reflect the strength of Asia re-emerging as the leader of global economic growth and increased coal consumption. China's steel production rebounded in March, China's coal imports are running at a record pace, significant new global generation is coming on line, and we look for a 10 percent increase in seaborne coal demand in 2012," said Boyce.

"Lower U.S. coal-fueled generation related to mild weather and coal-to-gas switching has reduced U.S. coal demand. In March, industry shipment reductions accelerated after a number of industry production curtailments were announced. Additional reductions are likely. Peabody is negotiating with select customers regarding reduced 2012 shipments and is lowering planned U.S. production."

Peabody believes it is best positioned in the industry with sustained increases in Austra-lian coal production and the leading position in low-cost U.S. regions. Australian coal is expected to experience strong demand growth due to its quality and proximity to the growing Asian coal markets. In the United States, Peabody has the leading position in the two regions with the best demand growth potential and lowest cost structure - the Powder River and Illinois basins. These regions also stand to benefit from expanding U.S. export capacity in coming years, much of which is expected to come from the Gulf and West coasts.

Boyce said, "Global industry and economic data continues to support a coal supercycle, with sustained increases in coal demand from expanding international electricity generation and steel production, growing seaborne coal imports and constrained coal supplies. This is primarily driven by urbanization and industrialization in China, India and emerging Asia, which are likely to account for more than 90 percent of the increase in global coal demand over the next 25 years. At the same time, Australia is expected to supply much of the world's rise in seaborne coal."

Growing global electricity generation and rising steel production capacity utilization are driving record global coal im-ports, which are expected to increase 10 percent in 2012.

China's net coal imports through February totaled 58 million tonnes, an 81 percent increase over the prior year, to meet rising coastal demand for both metallurgical and thermal coal. China steel production accelerated throughout the first quarter and electricity generation is up 7 percent over the prior year. In 2012, China's domestic coal production is targeted to grow at half the rate of electricity generation, leading to strong import growth.

India's coal generation has increased 9 percent year to date, and coal imports are expected to set another new record in 2012 led by rising thermal coal demand. India also has eliminated its tariff on imported coal to encourage greater imports.

Japan is increasing thermal coal imports due to high seaborne natural gas prices and nuclear generation that has been reduced to just one active plant.

Global coal supply faces constraints around the world, including rising costs of supply and transportation challenges in China, ongoing production shortfalls in India, limited rail and port capacity in multiple countries, and cost, labor and weather-related challenges in a number of regions.

Peabody expects these global trends to continue for years, as China and India lead the global buildout of coal-fueled generation. Nearly 90 gigawatts of new coal-fueled generation are expected to come on line in 2012 representing more than 300 million tonnes of additional thermal coal demand. And over the next five years, Peabody expects new coal-fueled generation to grow by 385 gigawatts, which would require more than 1.3 billion tonnes of additional thermal coal. Peabody expects China's coal consumption to grow by more than 1 billion tonnes by 2015, to approximately 5 billion tonnes per year. In India, approximately 70 gigawatts of coal-fueled generation are expected to start up in the next five years, requiring nearly 250 million tonnes of additional coal, much of which is expected to be supplied through increased imports.

Global steel production is expected to increase as emerging nations continue to urbanize and industrialize. Peabody anticipates global metallurgical coal demand growth of approximately 50 million tonnes per year every year over the next five-plus years.

The company estimates that U.S. coal-fueled electricity de-mand could decrease in excess of 100 million tons in 2012.

Peabody continued to generate strong cash flows during the quarter, while investing in key projects to meet rising Australian volume targets for 2012 and beyond. The combination of cash flow generation and modest sustaining capital expenditures gives Peabody the ability to fund previously approved organic growth projects and reduce debt.

First quarter capital investments totaled $238.6 million, and the company has reduced its planned capital spending to $1.1 to $1.3 billion in 2012.