You may not love coal but you definitely love coal stocks.
Year to date, most coal-mining companies, including Peabody Energy (NYSE:BTU), Arch Resources (NYSE:ARCH), Alpha Metallurgical Resources (NYSE:AMR), etc., have shot through the roof in terms of their stock prices.
Not only are coal-related companies seeing their share prices booming, but also companies that are involved in mining copper, silver, titanium, and etc.
Therefore, a commodity boom is coming back and is coming at a much stronger cycle than the previous one.
Is that so? We will find out.
In this article, we are going to look at Peabody Energy’s margins and profitability as well as the FY2021 projected outlook.
Specifically, we will dive into Peabody’s coal revenue per ton, coal mining costs per ton, and EBITDA margin per ton on a yearly and quarterly basis.
For your information, Peabody Energy is the biggest coal mining company in the U.S. by revenue and by market cap.
The company owns not only some of the largest coal mines in North America but also in other parts of the world, including Australia.
Let’s get down to work!
Peabody’s U.S. Thermal Coal Revenue Per Ton
Let’s first look at Peabody’s U.S. thermal coal revenue per ton as shown in the chart above.
On a per ton basis, Peabody managed to achieve $16.10 USD for total U.S. thermal coal in fiscal 2020, a decline of nearly 14% from FY2019.
The company did not provide a guided revenue per ton for FY2021 for total U.S. thermal coal.
However, Peabody did provide the outlook for revenue per ton for FY2021 for other U.S. thermal and PRB thermal coal.
The company expects the U.S. thermal and PRB coal revenues per ton to be flat in fiscal 2021 at $39.50 USD and $11.00 USD, respectively.
In short, we can see that Peabody earned the highest coal revenue per ton in the U.S. in fiscal 2018 and 2019 for all coal segments.
Coal revenues per ton dipped to their lowest in fiscal 2020 and Peabody projected that FY2021 revenues per ton to be more or less in line with that of FY2020.
In short, Peabody’s projected revenue per ton for FY2021 for total U.S. thermal coal will probably not be a significant improvement compared to FY2020.
Peabody’s Seaborner Coal Revenue Per Ton
Seaborne coal is coal mined outside of the U.S.
That said, Peabody’s seaborne coal revenues per ton for both thermal and metallurgical coals were the lowest in fiscal 2020 at only $37.46 USD and $86.33 USD per ton, respectively.
Peabody expects that seaborne metallurgical coal revenue per ton to be slightly higher in FY2021 at $88.00 USD per ton but still significantly lower compared to prices reported prior to FY2020.
While Peabody did not provide any price guidance for FY2021 for seaborne thermal coal, the company did expect that seaborne thermal coal volume will significantly increase in FY2021, driven primarily by the ramp in production at the Wilpinjong coal mine and the Wambo JV.
In short, Peabody’s seaborne coal revenues per ton have declined since FY2018 and were the worst in FY2020 for both thermal and met coal.
However, Peabody projected that seaborne coal revenues per ton to be slightly better in FY2021 compared to FY2020.
Peabody’s U.S. Thermal Coal Production Costs Per Ton
In terms of production costs per ton, Peabody expects both its U.S. thermal and PRB thermal production costs to slightly increase in FY2021 to $30.50 USD and $9.35 USD, respectively.
According to the chart above, Peabody’s U.S. thermal production costs were the lowest in FY2020, due primarily to lower volume in the same year.
Going forward, Peabody expects that its U.S. thermal production costs to rise steadily, in line with the national rising wages and commodity prices.
Peabody’s Seaborne Coal Production Costs Per Ton
For seaborne coal production costs per ton, Peabody expects that seaborne thermal costs to be $33.75 USD per ton in FY2021, a rise of 17% year-on-year.
The rising costs per ton for seaborne thermal is driven mainly by higher export shipments such as higher realized pricing and preparation, as well as transportation and royalties costs.
On the other hand, costs per ton for seaborne metallurgical coal are estimated to be around $93.00 USD for FY2021, a decline of 15% on a year-on-year basis.
The cost per ton improvement for seaborne met coal comes mainly from the Coppabella and Moorvale mines which are operated under an unincorporated joint venture.
Peabody’s U.S. Thermal Coal EBITDA Margin Per Ton
The EBITDA margin indicates the profitability of Peabody’s coal revenue per ton excluding certain items adjusted by the company.
From the chart above, we can see that Peabody’s total U.S. thermal EBITDA margin per ton declined slightly to 21.4% in fiscal 2020 from 22.9% EBITDA margin reported in fiscal 2019.
The projected FY2021 EBITDA margin per ton for both U.S. thermal and PRB thermal will further deteriorate to 22.8% and 15%, respectively.
The PRB thermal EBITDA margin per ton is projected to be much worse in FY2021 compared to FY2020.
In short, both U.S. thermal and PRB thermal EBITDA margins per ton are estimated to be worse off in FY2021, suggesting that Peabody’s U.S. thermal profits will decline going into fiscal 2021.
Peabody’s Seaborne Coal EBITDA Margin Per Ton
Peabody did not provide a guided outlook for seaborne thermal EBITDA margin per ton for FY2021.
However, Peabody expects that seaborne thermal volume to be significantly higher in FY2021 compared to the prior year.
On the flipped side, seaborne metallurgical coal EBITDA margin per ton has become negative at -27% in FY2020 but Peabody projected that the negative EBITDA margin per ton will narrow to only -5.7% in FY2021.
At a negative EBITDA margin per ton for FY2021, Peabody will incur significant losses for seaborne metallurgical coal mining operations.
Peabody’s U.S. Thermal Coal EBITDA Margin Per Ton (TTM)
The yearly data may not clearly display the trend of the margin per ton or profitability of Peabody’s coal mining operations.
Therefore, the TTM plot above is created to better display the trend of the margin per ton.
As seen from the chart, Peabody made the most profits from U.S. thermal mining as this segment has the highest EBITDA margin per ton at more than 25% in the last 3 years.
As of 2Q 2021, the U.S. thermal EBITDA margin is seen rising to 26%, a new high since 4Q 2020.
On the other hand, Peabody’s PRB thermal has an EBITDA margin per ton that hovers around 20% in the last couple of quarters, much lower than that of U.S. thermal coal.
While the U.S. thermal coal EBITDA margin is much higher than that of PRB thermal coal, its total volume made up less than 20% of the total U.S. thermal coal sales while PRB thermal coal volume made up the rest at more than 80%.
Therefore, the rising EBITDA margin in FY2021 for U.S. thermal coal may not make much difference should the EBITDA margin for PRB thermal coal decline in FY2021.
Peabody’s Seaborne Coal EBITDA Margin Per Ton (TTM)
Similarly, the TTM chart above clearly displays Peabody’s seaborne coal mining EBITDA margin per ton.
For seaborne thermal, the downtrend has reversed when it bottomed out at 20% in 1Q 2021 and reached as much as 25% in fiscal Q2 2021.
On the other hand, Peabody’s seaborne metallurgical EBITDA margin per ton has been negative in the last couple of quarters, suggesting that the company has been incurring losses.
The seaborne EBITDA margin dived to as low as -31% in 1Q 2021 before recovering to -27% in 2Q 2021.
Peabody’s seaborne metallurgical coal EBITDA margin will further narrow going into the end of FY2021 given that the projected margin will further improve.
In short, Peabody makes money only from seaborne thermal coal mining operations while incurring losses in its seaborne metallurgical mining operations.
Peabody’s other U.S. thermal coal mining operations are more profitable compared to PRB thermal given the higher EBITDA margin per ton for other U.S. thermal coal.
However, PRB thermal has a much higher volume at more than 80% compared to less than 20% for other U.S. thermal coal.
Similarly, Peabody’s seaborne thermal mining operations are far more profitable than seaborne metallurgical coal mining operations given the far higher EBITDA margin per ton for seaborne thermal coal.
While Peabody has projected a lower outlook for FY2021 EBITDA margin for U.S. and PRB thermal mining operations, the TTM results show otherwise.
As of 2Q 2021, PRB thermal coal EBITDA margin per ton reached a whopping 20% on a TTM basis, much higher than the projected EBITDA margin per ton of 15% given by the company for FY2021.
On the other hand, Peabody has projected a better FY2021 outlook for seaborne thermal and metallurgical coal mining operations.
Particularly, seaborne metallurgical coal EBITDA margin per ton will further narrow to -6% by the end of FY2021.
The better FY2021 outlook is in line with the results of the TTM plot.
As of 2Q 2021, the TTM plots show that both seaborne thermal and metallurgical coal EBITDA margins were rising.
References and Credits
1. Financial figures discussed in this article were obtained and referenced from Peabody Energy’s financial statements which can be obtained from the following links:
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The content in this article is for informational purposes only and is neither a recommendation nor a piece of financial advice to purchase a stock.
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