Beat ?: YES (reported $0.86 cents/share vs estimates of $0.54/share...115% earnings per share growth over 2Q07's 40 cents)
Profits --> Up 115% to $233 million (from $108 million)
Sales --> Up 43% to $1.53 Billion (from $1.07 Billion)
2Q08 Total Coal Production Sales Vol --> 59.8 million tons (vs. 57 million tons during 2Q07)
2Q08 Export Coal Production Sales Vol --> 7 million tons (12% of total production)...The Wyoming Powder River Basin (PRB) contributed to 14% of exports or about 1 million tons
Other Highlights + Guidance:
* BTU now generates more than 50% of its Profits from outside of the U.S. compared to just 1% five years ago
* BTU's Australian Metallurgical Coal contracts (for deliveries through March 2009): priced at $300 a metric ton, or about TRIPLE year-ago pricing* BTU's Seaborne Thermal Coal contracts were being priced at $125 per metric ton, more than double a year earlier
* Total 2008 U.S. Coal Exports are expected to increase by 50% this year to at least 75 million tons, according to the U.S. Energy Department (EIA), as European utilities purchase supplies normally used by generators in the Northeast
* Australia produces 60% of the world's Seaborne coal used in STEEL-making
* BTUs Australian production volumes increased 15% year over year...BTU averaged prices of $95 a ton for all Australian coal (thermal + met) production, compared to $55/ton during 2Q07
* BTU's 2Q08 Australian coal production margin exceeded $43 per ton
* BTU has much as 14 million tons of Australian coal that's unpriced for 2009 and up to 24 million tons available for resale in 2010, of which nearly half in both cases is metallurgical coal (the highest margin type of coal).
* China's Seaborne Thermal Coal Demand Opportunity: China has 'idled' more than 60 coal plants because coal inventories have shrunk to less than 3 Days Supply...China has also trimmed its coal exports by more than 8% this year and announced plans to lower or eliminate its coal import tariffs
* India's Seaborne Thermal Coal Demand Opportunity: India will need 78,000 megawatts of new coal-fueled generation by 2012, meaning an additional 265 million tons of coal use in that country.
Conference Call Quotes:
* BTU's CEO Gregory Boyce on WW Coal Supply + Demand Fundamentals: "With the recent oil and gas prices near record levels for even the long-dated products, the world is returning to coal in growing amounts. That is why coal remains the fastest growing fuel in the world for each of the past five years. Within the global coal markets, the dynamics we first told you about years ago are only growing stronger. Global coal demand is growing in BOTH the THERMAL and METALLURGICAL front. Some of the largest coal producing nations either can't export more or are limiting exports to fuel internal growth. Global steel demand continues to grow at 6% per year, requiring ever more mettalurgical coal. A new coal fuel generation is being developed in scores of nations around the world; all of this leading to a 7% compound growth rate in seaborne coal demand. On the SUPPLY SIDE, major coal exporters are straining to keep up against the sustained demand growth. All aspects of the coal chain are under pressure and more nations than ever are seeing the valuable resource that their coal represents, forcing coal suppliers to keep greater amounts of coal at home. Combined, these effects are driving continued record prices and we believe global supply and demand is even tighter than many think, due to severe stockpile shortfalls around the world in places such as China, India, Indonesia, and South Africa...What happens in the global market... looks back to what's happening in the U.S. So, REGARDLESS of some certain economic factors that are happening in the U.S. that would lead us to come to one conclusion but that's NOT really what's driving the overall commodity market and the coal market. At the end of the day it's a GLOBAL factor, so as the prices around the world continue to increase and stay strong because of the shortage of supply and the high demand..."
* BTU CEO on the BTU's Opportunities + Future: "The global market fundamentals create significant opportunities for Peabody through four areas; Peabody's unmatched Global Platform, our ability to Reprice Legacy Contracts, our Organic Growth Potential and Peabody's strong Cash Flow profile...Five years ago, just 1% of our earnings came from outside the U.S. And now this is more than half...the benefits to our earnings as we reprice former contracts in the new market environment will be considerable. These two are just starting to flow through our 2008 results. Our EBITDA margin in the second quarter was 29% and we expect it to continue to increase...These commitments include plans for a very strong second half and even higher earnings than the first...In summary, we are seeing record coal prices, sustained growth in coal demand and an improving competitive advantage for coal over other fuels. More importantly, Peabody has expanding margins from a growing platform and improved pricing. We have the ability to REPRICE the MAJORITY of our production over the next several years at levels SIGNIFICANTLY higher than current marks. Simply put, it is a great time to be the world's largest coal company."
* BTU President Richard Navarre on Domestic U.S. Coal Production: "In the U.S. markets, we are seeing export demand is creating great opportunities in the Illinois Basin, the Powder River Basin and Colorado that we expect will carry through 2008 and beyond. We believe net exports will have grown more than four-fold in just two years. And (total U.S. coal) exports may well exceed a 100 million tons in 2009. We have also seen U.S. stockpiles coming down very sharply, down 17% over prior-year levels. And we believe all regions are below or near their targeted level, with plenty of summer burn left...We have more than 90 million tons of coal that's unpriced for 2010 out of both PRB and the Illinois Basin just from our existing operations. We told you earlier in previous calls that the competition that was being created worldwide by European utilities seeking U.S. coal would lead to significant moves in the U.S. markets that would ultimately flow back to the Powder River Basin. And that is just what has occurred. Published Powder River Basin prices for 2010 delivery have increased more than 80%, since the beginning of the year and are now in excess of $20 per ton. In the Illinois Basin, we've seen the same issue where prices have more than doubled during that same period of time. And I'll remind you that Peabody has the largest Illinois Basin position with more than 30 million tons in sales. We believe that the strength in the global coal market is very long term in nature, and expect this will result in very attractive coal prices for many years."
* BTU CEO on International Growth Opportunities: "And then from the international side, we've got a number of opportunities in Australia that now that we've got the platform up and running and performing well, we're looking at what the opportunities that we have to grow organically in Australia similar to what we've done everywhere, every other platform that we have. And we do have some opportunities that we're starting to put some good engineering average into. That takes this into the real greenfield, new area developments. Mongolia is one of those. Clearly our initiatives in China will be another one of those and then you mentioned Mozambique. In Mongolia and Mozambique, the real focus will be mettalurgical coal developments and China would be both thermal coal and when I say thermal coal in China that includes coal for their chemical feedstock business as well as coal for power generation. Mozambique in particular, we've had a number of times that we've spent over in Mozambique and we continue to look at the structure of the industry what's happening in terms of the infrastructure development in Mozambique, both in terms of rail and port developments and then looking at the types of lease holdings that are available in Mozambique and/or development partners.
* BTU CEO on Supplying Growing South America Coal Demand: "When you are talking about South America really in terms of major producing regions or a potential to be major producing regions, you're are talking about Venezuela and Colombia. You know, we're in Venezuela. I mean everybody is well aware of the turmoil that Venezuela has kind of been going through. We see it as very unlikely that there's going to be major investment in new mine developments in the near term in Venezuela. So they're going to be where they're at and maybe struggle to maintain that level of production.When you look at Colombia, lot of discussions and a lot of talk about how Colombia is going to increase production to a next level. But every time you turn around, they are being delayed. They still have labor issues. They have permitting issues. Suffice to say is our view is they will increase over time. Probably going to be bit slower than what some people think, and most of that is very good quality thermal coal probably going to be almost exclusively dedicated for the European market, now that South Africa continues to over time short that market. So at the end of the day if you look at WHERE are major sources of additional coal for the seaborne markets, in the near term, it's Illinois Basin coal and it's PRB coal as you continue to have Colorado, Illinois and Eastern coals exported out of the U.S. and the Powder River Basin back drilling for all of those coals.
* BTU CEO on Coal-to-Gas Technology: "Well coal-to-liquids, coal-to-gas, it's really a story of two different parts of the world. You got the U.S. as one part and you got the rest of the world as the other. Let's look at what's happening Outside of the U.S. Coal-to-liquids, coal to industrial feedstock gas, coal to natural gas is really taking off. You've got a significant amount of new construction and plants coming online in China. You've got coal-to-liquids plant now operational in Australia. You've got... and on the drawing board a number of locations elsewhere. And then of course, you've got continued expansions of the coal-to-liquids platform in South Africa. So, then you get at the U.S. and just say where do we stand in the U.S? It's a combination here of both the ever-rising capital costs for these types of facilities still looking to find contractual commitments for off takes that go out longer than say a five-year period of time. You'd like to see something in the ten-plus years before you commit the capital. And then lastly, there is still the lack of a full regulatory program and permitting U.S. program for CO2 capture and storage, which most of the folks, particularly ourselves are looking at these types of facilities, are looking for those things to come into place at some point early on in the project life. But having said all of that, major expansions internationally, our view is the U.S. will catch up as soon as we get beyond the uncertainties of the election get into '09 and '10 and start to bring some certainty around the permitting and the legal environments around carbon storage.
* BTU Ceo on the U.S.'s Competitive Advantage - Coal Export CAPACITY: "The port capacity, obviously if you go to, lot of places you will see a name playing capacity, if you will of all of port facilities in United States. That number is somewhere between 165 and 175 depending upon who you talk to. We would tell you that the practical capacity in our view, after assessing the facilities and owning 37% of DTA and using facility, it is probably about a 125 million ton. This country has done that in the past. So and that's why U.S. has become one of the major swing supplier in this tight markets globally. Because we have the ONLY place in the world, where we have unconstrained port capacity and capabilities to move the product. So that's why we continue to see this having a lot of legs for some period of time, because as you look around the globe, (production) can go offline and down country by country out of the 12 to 13 major exporting countries, you will see everyone of them stuffed up with congestion, with probably the exception in United States. And the United States has the ability to move it, because they have the ability to BACKFILL it from somewhere else in the country. Otherwise, if we didn't have the PRB or the Illinois Basin to backfill, we will be doing what the other countries are doing, restricting exports.
* BTU CEO on International Producers Restricting Coal Exports: "I mean right now, China clearly has been at the top of the list. Their export license is going to be down from where people thought they were going to be this year. Vietnam has been restricting their exports particularly into the Chinese markets. Indonesia is now telling all of their domestic producers that they have got to supply their internal needs first, ahead of their ability to export, one of reasons why we have seen Indonesia basically flat year-over-year in terms of growth. South Africa is severely short of coal. I mean that's just came out with an estimate that they think they have got over the next five years or more. I guess it was 2017 where they need another 100 million tons of coal developed and they are 40-45 million tons short on their stockpiles, so where they are liken to be today. And Russia now is a country that in a major way is starting to restrict not only metallurgical coal but thermal coal, as they continue to build new generation, so that they can free up gas for exports on the gas. So that's kind of some of the major producing countries that have been traditional export countries over the last four, five years."
Full Disclosure: I own shares of BTU.
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