Peabody Coal Is On Fire With New Deals
Gregory Boyce, chief executive of coal giant Peabody Energy, is feeling his oats. Today (July 14), Peabody announced a deal with the Xinjiang Uyghur Autonomous Region of China to develop a 50 million ton per year surface mine — a giant project that would rank as one of the biggest coal mines in the world. And earlier this week Boyce launched a new $5 billion takeover bid for Australian miner MacArthur, teaming with steel giant ArcelorMittal. It’s his second charge after MacArthur, having been rebuffed in a bid last year. Early indications are that this venture (60% Peabody, 40% Arcelor) will be successful.
The MacArthur overture comes just a week after Peabody was tentatively tapped by the Mongolian government as one of the companies to develop its Tavan Tolgoi coal deposit. This is a big deal because Tavan Tolgoi, located in the Gobi Desert, is the world’s biggest untapped reserve of coking coal — ultrahard coal vital for smelting iron ore into steel. Coking coal sells for $300 a ton, that’s 20 times more than the priced fetched by Peabody’s core reserves in Wyoming’s Powder River Basin. The Mongolian hoard is estimatd at 6.5 billion tons.Peabody is America’s biggest coal miner, with proven expertise in buildling and operating monstrous open mines. It will have 24% of the project, with China Shenhua Energy at 40% and a Russian-Mongolian ventures at 36%.
Yet winning the rights to Tavan Tolgoi involved far more than just showing up. Peabody beat out global giants like Vale, Xstrata, and new partner ArcelorMittal, as well as Korean and Japanese interests. How? After all, Peabody’s St. Louis roots are far from Mongolia, with an equity market cap of just $16 billion is but a pipsqueak compared with Vale ($177 billion) and Arcelor ($52 billion) and Xstrata ($64 billion).
As detailed in my Forbes Magazine profile of Peabody from May, Boyce has over the past decade methodically focused Peabody (already the biggest U.S. miner) on the Asian market. For good reason; in spite of greenhouse gas worries, coal use in China and India has soared in the past decade, with China now using half the world’s supply. With mines in Australia, big projects in the works in China, and now the Mongolia contract, Boyce is positioning Peabody to meet the needs.
Boyce opened Peabody’s office in Ulan Bator in 2007, and began developing a small reserve block there with a Chinese partner. To start the process of developing Mongolian managers, he hired Mongolian engineers to come work in Wyoming and sent promising students to study mining and engineering at the University of Arizona. Under Boyce’s leadership, Peabody shares have tripled in value since 2004. And considering the potential of MacArthur, Tavan Tolgoi and its Chinese projects, another decade of heady growth is all but assured.
Coal isn’t going anywhere. It is the world’s low-cost fuel, providing half the electricity in the U.S. China’s coal consumption has doubled in a decade to 3.6 billion tons a year, or half the world supply, with Credit Suisse forecasting a continued surge to 4.4 billion tons a year by 2015. India’s demand is up 50% since 2005 and growing so fast that it’s facing shortages. Japan’s Fukushima nuclear disaster bodes ill for the much-needed global nuclear renaissance (or even the replacement of aging nuke plants). With that in mind, Peabody (NYSE:BTU) should be in any pragmatic investor’s long-term portfolio — think of it as a one-stock coal ETF — and a potential takeover candidate for one of the world’s mining giants.
The MacArthur overture comes just a week after Peabody was tentatively tapped by the Mongolian government as one of the companies to develop its Tavan Tolgoi coal deposit. This is a big deal because Tavan Tolgoi, located in the Gobi Desert, is the world’s biggest untapped reserve of coking coal — ultrahard coal vital for smelting iron ore into steel. Coking coal sells for $300 a ton, that’s 20 times more than the priced fetched by Peabody’s core reserves in Wyoming’s Powder River Basin. The Mongolian hoard is estimatd at 6.5 billion tons.Peabody is America’s biggest coal miner, with proven expertise in buildling and operating monstrous open mines. It will have 24% of the project, with China Shenhua Energy at 40% and a Russian-Mongolian ventures at 36%.
Yet winning the rights to Tavan Tolgoi involved far more than just showing up. Peabody beat out global giants like Vale, Xstrata, and new partner ArcelorMittal, as well as Korean and Japanese interests. How? After all, Peabody’s St. Louis roots are far from Mongolia, with an equity market cap of just $16 billion is but a pipsqueak compared with Vale ($177 billion) and Arcelor ($52 billion) and Xstrata ($64 billion).
As detailed in my Forbes Magazine profile of Peabody from May, Boyce has over the past decade methodically focused Peabody (already the biggest U.S. miner) on the Asian market. For good reason; in spite of greenhouse gas worries, coal use in China and India has soared in the past decade, with China now using half the world’s supply. With mines in Australia, big projects in the works in China, and now the Mongolia contract, Boyce is positioning Peabody to meet the needs.
Boyce opened Peabody’s office in Ulan Bator in 2007, and began developing a small reserve block there with a Chinese partner. To start the process of developing Mongolian managers, he hired Mongolian engineers to come work in Wyoming and sent promising students to study mining and engineering at the University of Arizona. Under Boyce’s leadership, Peabody shares have tripled in value since 2004. And considering the potential of MacArthur, Tavan Tolgoi and its Chinese projects, another decade of heady growth is all but assured.
Coal isn’t going anywhere. It is the world’s low-cost fuel, providing half the electricity in the U.S. China’s coal consumption has doubled in a decade to 3.6 billion tons a year, or half the world supply, with Credit Suisse forecasting a continued surge to 4.4 billion tons a year by 2015. India’s demand is up 50% since 2005 and growing so fast that it’s facing shortages. Japan’s Fukushima nuclear disaster bodes ill for the much-needed global nuclear renaissance (or even the replacement of aging nuke plants). With that in mind, Peabody (NYSE:BTU) should be in any pragmatic investor’s long-term portfolio — think of it as a one-stock coal ETF — and a potential takeover candidate for one of the world’s mining giants.
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