Peabody, Winsway Join Forces - Analyst Blog

Coal producer

(

) joined forces with Winsway Coking Coal Holdings Ltd. to form a Mongolian joint venture. The collaboration, Peabody-Winsway Resources, was formed after Winsway acquired a 50% interest in the joint venture from Polo Resources. Winsway is the largest offtaker of Mongolian coking coal and supplier of imported high-quality coking coal in China.

Peabody-Winsway Resources has coal and uranium licenses in Mongolia, and is actively exploring the South Gobi region.

Peabody is the largest pure-play coal producer. Its Australian operations provide a direct exposure to Asian markets such as China and India, where substantial increases in coal demand are expected in the years ahead. Peabody’s growth story thus continues to ride on the strong China-India-Australia connection.

Peabody Energy anticipates worldwide electricity generation capacity to soar by more than 94 gigawatts in 2010, representing about 375 million tons of coal consumption per year. Moreover, the demand for steel is projected to rise 50% by 2020, with a similar increase in metallurgical coal needed as a basic feedstock.

As a result, Peabody estimates seaborne coal demand to expand by 300 to 400 million tons by 2015, with China and India representing almost half to two-thirds of this growth. However, the company believes that the supply sources could be strained to match demand growth. Management still believes that Peabody has the resources and capabilities to fill this demand-supply gap.

For 2010, the company anticipates EBITDA to be in the range of $1.6 billion - $1.9 billion and adjusted earnings per share in the $2.45 - $3.15 range.

Prime competitors of the company include

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),

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), and

(

). We currently maintain a Neutral recommendation on the stock.