Peabody Energy Shuts Down One More

Peabody Energy’s (BTU - Analyst Report) decision to permanently shut down its Willow Lake Mine near Harrisburg, Illinois, is going to directly impact 400 employees working in that mine. The mine is being operated by Big Ridge Inc, a subsidiary of Peabody Energy.

The Willow Lake Mine has failed to meet acceptable standards for safety, compliance and operating performance. This makes operation in the mine unsafe and risky. Despite selling 2.1 million tons of coal from this mine in 2011, the management at Peabody had to take the difficult decision of closing the mine.

With another holiday season round the corner, the news is a hard reality for the 400-odd employees of the idled mine. They have already been provided with Worker Adjustment and Retraining Notification (WARN) letters. However, when we recall the tragedy that befell Massey Energy's underground mine at Upper Big Branch, the move by Peabody seems justified. Another operator CONSOL Energy (CNX - Analyst Report) decided to idle its Miller Creek surface mine in Naugatuck in West Virginia. CONSOL has already issued WARN letters to its employees citing environmental reasons.

The decision to shut down the Willow Lake Mine is not going to impact the ongoing earnings of Peabody Energy. The company will take a one-time charge between $40 million and $60 million or 10 cents and 15 cents per share after tax in the fourth quarter. The one-time charge will go mainly to write off assets, increase asset retirement obligations and accrue severance.

In September 2012, Peabody Energy decided to permanently close its Air Quality Mine in Vincennes, Indiana. The tepid demand for coal was making the operation of this mine uneconomic, leading to its shutdown.

Peabody is working aggressively towards lowering its operational costs and implementing different cost-cut measures to make annual cost savings of $100 million. The worldwide demand for coal continues to remain choppy and other large coal operators are also lowering production volumes by temporarily idling mines.

St. Louis, Missouri based Peabody Energy Corporation is a private sector coal mining company. The company has interests in 28 coal operations located in the United States and Australia, and has joint venture interests in a Venezuelan mine. Peabody Energy retains a short-term Zacks #3 Rank (Hold rating).