St. Louis-based Peabody Energy Corporation (BTU) has signed an agreement with Indonesia’s PT Cahaya Energi Mandiri (CEM) to source 2 million tons of coal to improve exports. Indonesia is the world’s largest supplier of seaborne thermal coal.
Peabody said that the coal secured from PT CEM’s East Kalimantan mine over two years will be exported to Asian countries. Peabody will conduct the Asian exports through its international trading hub in Singapore, COALTRADE. The company said that its relationship with PT CEM can be expanded over time.
Peabody said this is the third agreement it has reached recently to source Indonesian coal, including a deal inked in December with PT Supra Bara Energi in Indonesia. These deals together total 5.5 million tons of Indonesian coal.
Peabody notes that its leading coal trading and brokerage platform continues to expand to serve high-growth Asia-Pacific markets. The company said it will continue to increase its coal sourcing in Indonesia going forward.
In 2011, seaborne coal demand is projected to exceed 1 billion tons, with the Asia Pacific region comprising the vast majority of demand growth. Peabody serves customers in more than 25 countries on six continents and has trading and business offices in Indonesia, Singapore, China, Australia, the United Kingdom and the United States.
In January, Peabody Energy reported fourth-quarter 2010 earnings of 85 cents per share, beating the Zacks Consensus Estimate of 70 cents. For the full year Peabody’s adjusted earnings were $3.05 per share, recording a 4.8% positive earnings surprise compared to the Zacks estimate of $2.91. The increase was driven by higher global prices and demand for coal, which offset the production disruptions emanating from the devastating rains and floods in Australia.
We note that Peabody continues to advance multiple organic growth projects in Australia and the United States. Given the company’s robust pipeline of growth projects as well as an improving global economy, we expect the company’s earnings to be strong in 2011. The current Zacks Consensus earnings estimate for 2011 is $4.82 per share.
Peabody Energy is involved in the exploration, mining and production of coal for its global consumers. Peabody fuels 10% of U.S. power and 2% of the world’s electricity. The company primarily competes with Arch Coal Inc. (ACI) and CONSOL Energy Inc. (CNX).
Peabody Energy currently retains a Zacks #3 Rank (short-term Hold rating). We maintain our long-term Neutral rating on the stock.
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