Peabody's coal bankruptcy and the new clean industrial era

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Have we reached an energy tipping point?

Peabody Energy has filed for Chapter 11 U.S. bankruptcy protection, dealing a further blow to a global coal industry already reeling from low prices and tightening environmental regulations.

The company said it had secured $800 million in debtor-in-possession financing from secured and unsecured creditors and stressed all its mines and offices will continue to operate throughout the bankruptcy process.

"Peabody believes that it has sufficient liquidity to operate its business worldwide post-petition and to continue the flow of goods and services to its customers in the ordinary course," it said in a statement, adding that no Australian entities are included in the filings, and as such its Australian operations would continue as usual.

Chief executive Glenn Kellow said the move would help enable the company's recovery.

"This was a difficult decision, but it is the right path forward for Peabody," he said. "This process enables us to strengthen liquidity and reduce debt, build upon the significant operational achievements we've made in recent years and lay the foundation for long-term stability and success in the future."

The company blamed the "unprecedented" crisis afflicting the coal industry on a number of factors.

"Industry pressures in recent years include a dramatic drop in the price of metallurgical coal, weakness in the Chinese economy, overproduction of domestic shale gas and ongoing regulatory challenges," it said.

However, it predicted gas prices would increase in the future and argued the coal industry would recover.

"Globally, thermal coal is expected to continue to fuel hundreds of existing coal generating plants as well as scores more that are under construction," the company said. "Coal currently fuels approximately 40 percent of global electricity and is expected to be an essential source of global electricity generation and steel making for many decades to come."

But some analysts and green groups remain skeptical about the company's ability to bounce back from the debt crisis that dates from its $5 billion leveraged acquisition of Australian mining giant Macarthur in 2011.

The price of metallurgical coal has fallen 75 percent since the deal, and Peabody was forced to take a $700 million writedown on its Australian metallurgical coal assets last year.

"Peabody Energy, to the detriment of its investors and employees, is bankrupt today because its leadership has been unable to adjust to new energy markets in which coal is being displaced by new energy sources," said Tom Sanzillo, director of finance at the Institute for Energy Economics and Financial Analysis (IEEFA). "That said, the coal industry is not dead, but it faces a time now in which it must innovate in ways that it has not done before. That means smaller markets and fewer mines."

His comments were echoed by CreditSights Inc's Sandra Chow, who told Bloomberg "the outlook for coal players remains bleak — any recovery remains a long way from here."

Green campaigners hailed the bankruptcy as a significant turning point in the transition to a low carbon economy.

"This is a company that willfully and deliberately sought to delay, dismantle or destruct climate action," said Bill McKibben, co-founder of 350.org, in a statement. "Perhaps if they had spent more time and money diversifying their business rather than on lobbying against climate action and sowing the seeds of doubt about the science, they might not have joined the long (and ever growing) list of bankrupt global coal companies."

Peabody Energy follows rival U.S. coal giant Arch Coal in filing for bankruptcy this year, and according to Reuters, producers covering around 45 percent of U.S. coal output have filed for bankruptcy in recent years.

Alison Doig, principal climate change adviser at Christian Aid, said the global energy market was undergoing a historic change.

"We are starting to see the dawn of a new clean industrial era, in which coal power belongs in the past," she said. "It is time to make a big shift towards a renewable world which delivers sustainable energy for all, providing power for the world's poorest without increasing the risks of climate change."

A host of recent studies have suggested much of the pipeline of new coal plants the coal mining industry is depending on may never be built as environmental concerns in key markets such as China and India escalate and competition from gas and increasingly cost-competitive renewables intensifies.

Recent figures suggested emissions from Chinese coal plants may have peaked last year, while the government in the past few months has announced a series of measures to curtail coal development.

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