Judge Blocks Joint Venture Bid By Two Biggest U.S. Coal Mining Companies

Peabody Energy and Arch Resources will not appeal a decision to block its proposed joint venture in … [+] the Powder River Ba...

Peabody Energy and Arch Resources cannot carry through with their plan to form a joint venture in a vast coal mining region in Wyoming and Colorado, a judge for the U.S. District Court for the Eastern District of Missouri ruled today.

The two companies had argued that combining their operations in the Powder River Basin, the source of about 40% of the coal mined in the U.S., would allow them to achieve the economies of scale necessary to stay competitive in an energy market where abundant natural gas has pushed prices lower and lower. Both Peabody and Arch, as well as scores of other coal mining companies around the country, have already gone bankrupt once and they have hinted they could go bankrupt again unless courts permit the industry to consolidate.

“We are deeply disappointed with the court’s decision as the intense all-fuels competition is clearly apparent to us,” said Peabody Energy’s C.E.O., Glenn Kellow. “Our focus now is on continuing to be the low-cost [Powder River Basin] coal provider to best compete against natural gas and subsidized renewables.” 

The Federal Trade Commission intervened in February to try to stop the proposed joint venture, after voting 4-to-1 to seek a preliminary injunction. The FTC, which is charged with ensuring U.S. markets are competitive, argued that any Peabody-Arch joint venture in the Powder River Basin would control enough of the basin’s coal production — 60% — that it would be able to raise the prices of the coal it sells to utilities and power plants without fear of losing market share. Such price increases would ultimately force utility companies to sell power to households and businesses at higher prices, the FTC had said.

Shares of Peabody Energy ended the day down 21% from the prior market close on the New York Stock Exchange (NYSE). Shares of Arch Resources fell around 7% on the NYSE.

Peabody and Arch Resources will not appeal the decision, Arch said in a statement.

Arch said it will continue with a recent pivot away from producing thermal coal, which is burned by power plants to make electricity and accounts for most Powder River Basin production, to focus instead on metallurgical coal, which is used in the production of steel. The market metallurgical coal is far smaller than the one for thermal coal, but it is seen as longer-lived because the steel-making process is hard to decarbonize.

Arch said it would explore the possibility of divesting from its thermal coal operations. It also said it would focus on “streamlining our entire organizational structure to reflect our long-term strategic direction.”

A rising tide of natural gas unleashed by the “fracking” revolution over the last decade in states like Texas and North Dakota, combined with the growing cost-competitiveness of wind and solar power, has pushed much of the coal industry out of contention with rival power producers. Between 2009 and 2019, coal’s share of the nation’s electricity generation fell from nearly 50% to just above 20%. Over roughly that same period Peabody Energy’s market value collapsed from more than $15 billion to less than $300 million, less than 1/50th of its earlier value.

The pain for the coal industry has intensified during the economic crisis triggered by the COVID-19 pandemic. Often nowadays the most expensive and therefore “marginal” energy source on modern power grids, coal-fired power generation was among the first generation sources to be cut as power demand began plummeting in March and April amid lockdowns and stay-at-home restrictions. In August, Peabody Energy wrote $1.42 billion off the value of its North Antelope Rochelle Mine in Wyoming, the world’s largest coal mine.

The decision to block the joint venture deals a blow to Wyoming, which had rooted heavily for the joint venture to be allowed. The state depends heavily on oil and coal, but revenues from neither industry have been strong enough to replenish state coffers and to stave off job loss. Towns in and around the Powder River Basin depend heavily on Peabody and Arch for good jobs and revenue. “I fear these towns are going to be left behind with few options,” Camille Erickson, a reporter for the Casper Star-Tribune, had earlier told Forbes.com.

Wyoming’s governor has been outspoken in his support of the joint venture. And in an amicus brief supporting the joint venture, the state of Wyoming had argued that the joint venture was necessary to avoid the economic disruption that would occur otherwise: “The industry must contract and consolidate to survive. That can be done in a thoughtful way that minimizes harm or it can happen haphazardly through bankruptcies and sudden mine closures.”

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Newsrust: Judge Blocks Joint Venture Bid By Two Biggest U.S. Coal Mining Companies
Judge Blocks Joint Venture Bid By Two Biggest U.S. Coal Mining Companies
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