Once king of the stockpile, Peabody struggles to avoid another bankruptcy

Once king of the stockpile, Peabody struggles to avoid another bankruptcy
 
By Greg Johnson
Gillette News Record
Via Wyoming News Exchange
 
GILLETTE – Already uncertain about the overall future for Powder River Basin coal, Peabody Energy Corp. workers also are concerned for their own futures after putting in decades of hard, body-breaking labor.
Although he’s worked for Peabody’s Campbell County mines for about 20 years, Brandon said that he used to believe as several generations of PRB coal workers did that a lifetime spent working hard for a company would pay off in retirement.
After learning that Peabody has eliminated health care benefits for retirees older than 65, he said anyone now would be “insane to work for these people.”
Now instead of feeling secure his medical needs will be taken care of as he grows older, Brandon said he and his older coworkers feel betrayed after decades of promises their benefits would always be there for them.
“I’ve lost it all, and now I’m too old to go somewhere else and start over,” said Brandon, who asked not to be identified because he still works for the company. “I banked on Peabody and I never thought they’d go broke.
“Just with Peabody in retirement, I’ve also lost close to $300,000 with their stock (tanking). It has been a disaster. I banked on them the whole time.”
At the end of the year, Peabody is slashing some of its health and life insurance benefits. Retirees older than 65 have been notified their health benefits will disappear and all retirees will have their life insurance terminated.
The move is expected to save the company nearly $175 million and ensures Peabody retirees younger than 65 who aren’t yet eligible for Medicare can keep their health care, the company reported.
For those who already are close to or older than 65, the damage of decades of coal mining remains while they figure out how to pay hundreds of dollars a month more for their supplemental insurance on a fixed retirement income.
Around the company, those retirement benefits have come to be referred to as “the bucket of money,” said Stan Hunter, a 68-year-old who worked for Peabody for 25 years.
He said that’s been one of the main selling points longtime workers like he and his brothers had heard since they started decades ago.
Hunter worked until he was 66 and said that when he finally retired, he “got a taste of some of the money,” but it was short-lived. Two months into retirement, Peabody started putting restrictions on that “bucket of money.” Now it’s disappearing.
On paper, Hunter said he has $275,000 in his bucket, money that’s been capped to a maximum use of $8,000 a year. At that rate, it was going to last the rest of his life.
“The sad thing about this is, in my opinion, it’s almost wire fraud,” he said. “I have an account, there’s an account number and it shows I have this money in the account.”
And while he admits that the company has always maintained the “bucket of money” was an unfunded program, workers were repeatedly told by management that it would always be there and to not worry.
“I realized that it was an unfunded program. We were told that from the beginning,” Hunter said. “We were also told and encouraged, ‘Go ahead and retire, you have this money.’ That’s happening right now.
“Over 25 years, I was promised a lot of things. I had perfect attendance for 25 years, I worked hard for that company and really thought they’d come through for us.”
While frustrated, angry and a little hurt, Hunter said he’s not bitter and doesn’t regret choosing mining coal as his life’s profession.
“They gave me a good living, I will tell you that,” he said. “My two brothers and I, we all have degrees and we all came back because we grew up here.
“I am a Wyoming person first and a coal miner second. I live here, I love this state and I’ve grown up here. I’m not a bitter person. I worked a long time for a good wage and I was given good benefits. But there’s also a certain amount of them ... just taking and taking and cutting down on things.”
Like his brother, Joe Hunter, 70, spent 23 years at Peabody’s Caballo mine, and said that he’s proud of the hard work he put in.
He retired in 2016 and also said Peabody had promised a “bucket of money” for retirement.
Like most retirees, Joe said there’s nothing “supplemental” about the extra insurance retirees need to carry to cover what Medicare doesn’t. For folks on a fixed income with no pensions (that was eliminated in Peabody’s 2016 bankruptcy), that means having to pay anywhere from $200 to nearly $1,000 a month out-of-pocket.
“The reality is, the people that are making the money for them are the first to get hurt,” he said. “We’re the people making all the money for Peabody and Arch (Natural Resources) and the guys at the top of the pile, they don’t get hurt.
“A lot of the guys I’ve worked with and are retired, these were benefits they were supposed to have for the rest of their lives.”
Joe said that he’ll be OK, but he worries for others who may not be in a financial position to absorb that much of a cost.
Like his brother, Joe also said his anger now doesn’t take away from doing a job he loved for a long time.
“I wanted to play with the big Tonka toys in the big sandbox,” he said. “It was a job I loved. I didn’t turn out to be a very good office guy. I loved being a coal miner.
“But don’t count on anything they’re feeding you now. Always have a Plan B and a backup.”
As the nation’s largest private coal producer, Peabody Energy is considered the biggest dog in the thermal coal kennel, followed by Arch. Together, they employ more than 60% of the Powder River Basin coal workforce and last year produced 182.4 million tons of coal, or about 68% of the basin’s overall 266.8 million tons.
Once thought of as the untouchable pillars of the industry, both are succumbing to an overall downfall of thermal coal in the United States. Coming off a year of record decline, production is down about 25% so far in 2020 and the denial of a joint venture between the companies has seemed to accelerate their potential exit from the PRB.
Peabody and Arch had proposed to combine their Western coal mines under an umbrella that would have been 66% owned by Peabody. With the Federal Trade Commission’s denial and a federal judge upholding that this past summer, Arch has moved quickly and openly to get out of mining PRB coal. It has announced its willingness to sell its Black Thunder and Coal Creek mines and will ramp down production by at least 50% over the next two years.
For Peabody, it’s part of a financial crisis that goes far beyond eliminating retiree health benefits.
In its recent third-quarter financial filings with the federal Securities and Exchange Commission, Peabody says it may be heading toward a second bankruptcy in five years.
Earlier this year, the company wrote down the value of its flagship North Antelope Rochelle mine near Wright by $1.42 billion. Even more concerning for the company and industry is that Peabody is no longer considered a good investment.
Closing at $15.76 a share Oct. 21, 2019, Peabody’s stock has plummeted. It reached a low of 83 cents Nov. 10, a drop of nearly 95%. While the company’s stock has since risen to $1.40 as of this week, it’s still down more than 90% in a little over a year. Going back to the $46.86 its stock closed at June 4, 2018, Peabody has since lost 97% of its stock value.
While faring better than Peabody, Arch also has seen its stock take a hit. The $36.41 it closed at this week is almost 58% lower than the $86 a share it was at Oct. 23, 2019.
That Peabody’s stock has dropped so much shows “there’s a market realization that Peabody is on the edge, potentially,” said Rob Godby, an energy economist with the University of Wyoming. “I’m not willing to say they’re at the edge, but they’re a couple feet from the cliff and a good push could put them over.”
While the decline of thermal coal has been happening for years, it’s accelerated and has been impacted by the COVID-19 pandemic to the point that “the transition away from coal has happened faster than anybody would’ve expected,” Godby said.
Since emerging from bankruptcy three and a half years ago, Peabody has been aggressive in paying large dividends to stockholders. Now, the company likely wishes it had that cash.
“In retrospect, paying those dividends was probably a bad idea,” Godby said. “But I understand it, they were trying to attract investors.”
Devaluing the North Antelope Rochelle mine also has been difficult for the company to sell to potential investors and current stockholders, he said.
“They basically took equity out of the shareholders’ pockets,” he said. “That’s like taking a second mortgage on the equity in your house.”
While some industry analysts have speculated Peabody is close to another bankruptcy, Godby said he’s not convinced it’s that imminent.
“It could happen. The bondholders (for mine reclamation) are going to ask for greater collateral or changes to their terms,” he said. “Peabody is in a juggling situation. They face a market that’s shrinking much more quickly than they expected and there’s little they can do to affect the market.
“But I don’t think the game is over. It’s gotten a lot worse, but what the share price is showing is where the value is. You can’t afford to have your creditors have less value. You can’t stiff your surety companies because they’re necessary to keep the company running. The only thing that’s left is the shareholders, and that’s why you see the stock tanking.”
While 2020 has been a particularly bad year for Peabody Energy and coal overall, there could be some good short-term happenings in the next year or two, Godby said.
That’s because its largest competitor, Arch Resources, is scaling back on production and operations in preparation for leaving the Powder River Basin. That opens an opportunity for Peabody to try and pick up any slack that may come from that.
“In the short run, there are factors that could work in their favor,” Godby said. “I don’t think it’s game over like when it was clear with Cloud Peak Energy a couple of years ago. That’s in part because we’re still a few years away from their bond principal payment.”
Arch and Peabody are the last publicly traded companies left operating the PRB, something Godby doesn’t expect to last much longer.
“In five years, I don’t expect a publicly traded company to be in the basin,” he said. “Less than that, actually. It’s not over yet, but even if they weather this storm, the question is what happens to North Antelope? We already see what happens in bankruptcies.”
More often than not, that’s been mines changing hands, many times through bankruptcy sales. Whether it’s Peabody or someone else, there’s still life in the mines, Godby said.
“What Wyoming should be worried about is what’s going to happen to these Powder River Basin mines,” he said. “If any company could pull this out, it’s probably Peabody, but at the end of the day, they’re in a pretty poor position.”
When it came to mining coal, catching on at Peabody was the No. 1 goal, Brandon said.
“Back when I first went to work for them, they were the company to work for,” he said. “They were the best. They were the premiere coal mining company to work for. But since 2010, they’ve made every bad mistake. You never could have believed they would hire CEOs and a board of directors that would put you in a position to hurt you so bad.”
He also said that it’s almost impossible for retirees like him and the Hunter brothers to see Peabody’s cuts objectively. It almost feels like being betrayed by a family member in some way.
“There are people out there who have given their souls to that place,” he said. “It’s hard for a supervisor to stand up in front of 50 people and give them a positive attitude to go to work.”å