Peabody Energy Held Talks to Buy Drummond to Expand Global Footprint
The deal would be valued at between $4 billion and $4.5 billion and see the U.S. miner acquire 80% of its Colombian peer
U.S. mining company Peabody Energy Corp . BTU +1.68% has held discussions to buy Colombian peer Drummond International LLC, people familiar with the matter said, a deal that would cement a swift comeback from bankruptcy for America’s largest coal producer.
It is unclear how advanced the talks are or if the two sides will reach an agreement.
The potential deal would see Peabody acquire 80% of Drummond International, Colombia’s top coal exporter, leaving the remaining 20% in the hands of Japanese trading house Itochu Corp. , the people familiar with the matter said. The deal could be valued at between $4 billion and $4.5 billion, according to one of the people. Itochu paid $1.5 billion for the 20% stake in Drummond in 2011.
Peabody was pushed into bankruptcy in 2016 by large debts and lower coal prices, and emerged from the process last year. Its revival comes as the price of thermal coal, which is used to generate power, hits its highest levels in several years. The coal industry has also been backed by President Donald Trump, who has replaced Obama-era climate policies with new rules to help coal-burning power plants.
Shares of Peabody rose 3% by midmorning trade in New York.
A spokesman for Peabody declined to comment on whether there is a deal.
But “I would note that our focus is on the current platform, the incident at North Goonyella in Australia, and completing and integrating the Shoal Creek Mine acquisition in Alabama,” he said in an email.
In September, Peabody bought Drummond Co.’s Shoal Creek metallurgical coal mine, located in central Alabama, for $400 million. Last week, the St. Louis-based company said it didn’t expect any production from its North Goonyella mine in Australia in the fourth quarter after a fire at the site. It is unclear whether the fire will impact discussions on the potential deal.
Peabody has a market cap of $4.33 billion, similar to the expected size of the deal under discussion, meaning that buying Drummond would significantly expand the U.S. company’s market value and international footprint.
Drummond, which is owned by a privately held Alabama-based company, didn’t respond to phone calls and an emailed request for comment.
Colombia is the top source of U.S. coal imports, according to the Energy Information Administration. Drummond was Colombia’s top producer and exporter of thermal coal in 2017, the company’s website said.
Cleaner energy sources like renewable energy and gas have made inroads into the Western power markets once dominated by coal. A decade ago, coal fueled almost 50% of U.S. electricity but that share has fallen to less than one-third.
But while the cost of gas and renewable energy has fallen, emerging markets in Asia are still hungry for large, cheap sources of energy, lifting prices to near their highest level in years.
The price of thermal coal delivered to Europe is up around 6% year-to-date at about $102.36 a metric ton.
Swiss mining and trading giant Glencore said its coal division was a big driver in the resources giant’s record first half earnings this year, generating more than a quarter of its $8.3 billion in earnings before interest, taxes, depreciation and amortization.
Peabody noted in its own first half results that while U.S. domestic coal demand for power generation has weakened, exports have continued to benefit from strong seaborne pricing.
Corrections & Amplifications
The deal would be valued at between $4 billion and $4.5 billion and see the U.S. miner acquire 80% of its Colombian peer. An earlier version of this article incorrectly stated that Peabody’s peer was Columbian in the subhead of the story. (Oct. 3, 2018)