Peabody Energy Corp. (BTU) announced its plans to expand the company’s Gateway Mine in Southern Illinois. The proposed expansion has been approved by the company’s Board of Directors. The 40% expansion plan is estimated to cost approximately $175 million.
 
The expansion which is to be carried out in the north direction of the existing site will increase the operational life of the mine by 16 years with an annual capacity escalating to 4.5 million tons of coal in the years ahead. In 2009, Gateway’s annual capacity amounted to 3.2 million tons.
 
The expansion is in compliance with the company’s plans to grow organically to better serve the rapidly growing economies and coal markets across the world. Gateway will be primarily serving the demands of the fast-growing markets of the United States.
 
Gateway started operations in 2005 and is located in Randolph County near Coulterville, Ill. It currently has additional reserves of approximately 280 million tons and infuses around $64 million of economic benefits annually into the Southern Illinois economy.
 
Peabody Energy is the world’s largest private-sector coal company. It fuels roughly 10% of US power and 2% of electricity worldwide. The company has proved and probable reserve of 9.2 billion tons of coal and owns the majority interests in over 30 mines in the United States and Australia.
 
Excluding the Gateway Mine, Peabody’s current projects involve the expansion of six Australian mines, ramping of operations at the Bear Run Mine in Indiana, and production increase at the El Segundo Mine in New Mexico.
 
In the second quarter 2010, Peabody’s total sales volumes were 59.7 million tons, slightly ahead of the prior year levels, primarily due to improved shipments in Australia. By region, sales volumes were 39.8 million tons (up 3% year over year) from Western U.S. mining operations, 6.4 million tons (up 28%) from Australian operations and 7.3 million tons (down 12%) from Midwestern U.S. mining operations.
 
For 2010, Peabody is targeting total sales of 240 – 260 million tons, including trading and brokerage volumes. Australian sales are expected to be 27 – 29 million tons, while U.S. volumes would be around 185 –195 million tons.
 
We currently maintain a Neutral recommendation on the stock.


 
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