North Goonyella Update
*excerpt from Peabody's Oct. 30, 2018 Earnings press release
Mine personnel are continuing with concrete sealing of the completed longwall panel, and the company is transitioning to the assessment/planning phase of managing the previously reported incident at North Goonyella. This next phase involves mapping of the heated area and monitoring of temperatures, gas levels, seismic activity, surface air quality and camera imaging. These actions come before advanced planning for re-ventilation, mine re-entry and potential restart of operations.
Continuing analysis is based on a network of 25 planned, remote gas monitoring points throughout the mine. The GAG Unit that was initially used in the inertization of the underground environment has been deactivated and on stand-by mode for nearly two weeks. With no ventilation or water management at present, the underground air quality is inert and there are indications of standing water in portions of the mine, with pumping being planned from the surface.
Financial Elements: Consistent with actions taken and conditions known to date, Peabody has recorded a $49.3 million charge for estimated equipment loss, including 78 shields and ancillary equipment sealed in the completed 9 North panel area. The majority of this charge is expected to have a cash impact related to leased equipment.
The current book value of North Goonyella following the charge is $284 million, including unmined panels in the north and south portions of the current seam, lower-seam reserves and surface facilities. The mine also contains $61 million in leased equipment not within the sealed and mined-out 9 North panel.
In the fourth quarter, Peabody estimates $20 to $25 million in containment, monitoring and planning costs, along with approximately $15 to $20 million in costs to keep the mine in idle status pending any future re-entry. The company intends to take all steps to work safely, progress the plan and look to mitigate costs while pursuing options for a resumption of activities at the appropriate time. Mitigation actions under consideration include pursuing means to access a small quantity of metallurgical coal remaining in the stockpile, subletting excess rail and port capacity for a limited time, and analyzing reprocessing of coal waste for potential sales into the thermal market.
Regarding insurance coverage, the company has notified its carriers of a potential claim under the company's insurance policies that hold a relevant coverage limit of $125 million above a deductible of $50 million.
North Goonyella coal typically sells at or near the benchmark for high-quality hard coking coal and, prior to the incident, costs for full-year 2018 had been projected at approximately $110 per short ton. Peabody has declared force majeure with customers for shipments covering upcoming months.
Future Scenarios: As Peabody enters the next phase, the North Goonyella team will continue to work from the surface and obtain greater knowledge of underground conditions in the mine. The assessment and planning phase comes before re-ventilation, re-entry and any potential restart of operations. All phases involve review and collaboration with the Queensland Mines Inspectorate.
Multiple scenarios are being evaluated should mining be able to resume. If the next panel (10 North, which is already developed) is accessible, production would be targeted for the second half of 2019, whereas southern panels (GM South) access would likely extend to 2020 given that development was in early stages. The company is exploring all reasonable mine-planning steps given the long-lived nature of reserves and compelling margins of the mine during times of strong industry conditions.
This press release contains forward-looking statements within the meaning of the securities laws. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words or variation of words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," "projects," "forecasts," "targets," "would," "will," "should," "goal," "could" or "may" or other similar expressions. Forward-looking statements provide management's current expectations or predictions of future conditions, events or results. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future are forward-looking statements. They may include estimates of revenues, income, earnings per share, cost savings, capital expenditures, dividends, share repurchases, liquidity, capital structure, market share, industry volume, or other financial items, descriptions of management's plans or objectives for future operations, or descriptions of assumptions underlying any of the above. All forward-looking statements speak only as of the date they are made and reflect the company's good faith beliefs, assumptions and expectations, but they are not guarantees of future performance or events. Furthermore, the company disclaims any obligation to publicly update or revise any forward-looking statement, except as required by law. By their nature, forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Factors that might cause such differences include, but are not limited to, a variety of economic, competitive and regulatory factors, many of which are beyond the company's control, that are described in our Annual Report on Form 10-K for the fiscal year ended Dec. 31, 2017, as well as additional factors we may describe from time to time in other filings with the SEC. You may get such filings for free at our website at www.peabodyenergy.com. You should understand that it is not possible to predict or identify all such factors and, consequently, you should not consider any such list to be a complete set of all potential risks or uncertainties.