The proposed $358 million cash plus liabilities sale of three Western US coal mines by Peabody Energy to Bowie Resource Partners appears to be on "life support" due to financing issues, a source close to the situation said Tuesday.
Equity on top of the cash or a drop in the purchase price would be needed to complete the deal, the source said.
Financing has become a critical issue in the coal markets, which have become saddled with uncertainty due to coal-to-gas switching and government regulations, among other factors.
"Both sides have put their pens down," the source said. "It hasn't been publicly announced as being dead, but to say that it is on life support is an understatement."
Peabody declined to comment, with a representative referring Platts to its recent earnings release, which said it was looking to raise cash, reduce liabilities and focus on core assets in the Powder River and Illinois basins.
The company, which announced it had $902.6 million in liquidity in its quarterly earnings call earlier this month, has been trying to restructure debt totaling $6.3 billion.
Bowie also declined to comment on the deal, which was announced in the fourth quarter of 2015 and had been expected to close this quarter.
The company is attempting to refinance close to $700 million in debt, alongside seeking in excess of $300 million in private equity funding, the source said.
According to Bowie's website, its equity partner is Galena Private Equity Resource Fund, a metals and mining investment fund managed by Galena Asset Management, which has $2.5 billion in managed assets and is a wholly-owned subsidiary of Trafigura.
TWO MINES LIKELY TO REMAIN OPEN: ANALYST
If the deal falls through, Peabody would likely continue looking for a buyer, said Dale Hazelton, an Annapolis, Maryland-based senior research manager at Wood Mackenzie. Hazelton said it would be unlikely Peabody would close the mines, which have a positive operating margin.
"They're definitely cash positive operations in our analysis," Hazelton said of the two mines. "They just don't fit into Peabody's PRB and Illinois Basin-focused strategy."
The Foidel Creek, or Twentymile bituminous mine produced 4.1 million st in 2015, down from 6.7 million st in 2014, while the El Segundo mine produced 7.5 million st, down from 8.4 million st the prior year, according to US Mine Safety and Health Administration data. The third mine in the deal, Lee Ranch, was idled in 2013.
