Shares in coal giant Peabody Energy (BTU) collapsed nearly 2% today as it scrapped its planned $3.8 billion acquisition of Anglo American’s (NGLOY) Australian coking coal assets.
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Fire Alert
Peabody had agreed to buy the mines based in Queensland’s Bowen Basin but changed its mind after an underground fire halted operations at the Moranbah North mine in March. The fire was reportedly caused by high gas levels at the site.
However, in its statement today Peabody said that the exact cause of the event remains unknown, with no definitive timeline to resuming production at the site.
Peabody had invoked a clause allowing it to walk away from the deal – which had been due to close in April – or renegotiate if a major adverse event, like the fire, took place between the signing of the deal and completion.
“The two companies did not reach a revised agreement to cure the MAC (material adverse change) that compensated Peabody for the material and long-term impacts of the MAC on the most significant mine in the planned acquisition,” said Peabody President and Chief Executive Officer Jim Grech.
Arbitration Fight
Anglo, which is selling or spinning off assets following rival BHP’s (BHP) failed takeover attempt last year, said that it would “shortly initiate an arbitration to seek damages for wrongful termination,” disputing that the fire and mine closure constituted a material adverse change, due to the lack of damage to the mine or equipment and progress made towards restarting it.
“We are therefore very disappointed that Peabody has decided not to complete the transaction,” said Anglo’s CEO Duncan Wanblad.
However, he added that given strong interest for the assets during the bidding process, he is confident an alternative buyer can be found through a new sales process.
As seen above, Peabody stock is down 18% in the year-to-date hit by weaker global coal prices, the global economy and uncertainty over President Trump’s tariff strategy. The long-term picture for coal producers is also murky given the push to cleaner energy supplies.
Is BTU a Good Stock to Buy Now?
On TipRanks, BTU has a Moderate Buy consensus based on 3 Buy and 2 Hold ratings. Its highest price target is $23. BTU stock’s consensus price target is $18.66, implying a 9.83% upside.
