Peabody Energy Corp. (BTU) has entered into a joint venture with the largest coal producer of Australia, Glencore Coal Pty limited (Glencore), to develop mines in Hunter Valley. The 50/50 joint venture will develop Peabody's Wambo Open-Cut Mine and Glencore's United Mine in New South Wales.
Both these coal mines are located adjacent to each other. The objective of the collaboration is to share their expertise and use the resources efficiently with an ultimate aim of increasing mining life. This will also reduce operational costs considerably. In 2013, Wambo Open-Cut produced 2.6 million tons of saleable coal.
This project is expected to commence from 2017, subject to regulatory permission. In this joint venture, Glencore will manage the combined mining operations utilizing Wambo Open-Cut Mine's existing infrastructure while Peabody will continue to operate coal washing and loading facilities.
Australia plays an important role in the global seaborne coal markets with its huge reserves and proximity to a coal hungry Asia. Operators from India and Japan are lately entering into joint ventures with Australian operators to develop mines and ensure their supply of coal.
Peabody’s Australian platform provides it with an added competitive advantage as against its solely North America based peers. The company has 10 mine sites in Australia, which are primarily open-cut mines and are less expensive to operate than underground mines. This lowers the overall cost of operations.
Given the rising regulatory pressure in the U.S. to reduce emissions and increasing competition in the global markets, this joint venture will allow Peabody to produce high quality coal at a cheaper cost.
Peabody aims to sell 245–255 million tons of coal in 2014 with Australian sales comprising 36–38 million tons of the total.
Peabody Energy currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the space include SunCoke Energy (SXC), Natural Resource Partners LP (NRP) and Hallador Energy Company (HNRG). SunCoke Energy sports a Zacks Rank #1 (Strong Buy) while Natural Resource Partners and Hallador Energy currently have a Zacks Rank #2 (Buy).
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