Peabody Energy (BTU) announced today that it has entered into a definitive agreement to sell its New Mexico and Colorado coal assets to Bowie Resource Partners, LLC for $358 million in cash, subject to customary working capital adjustments. Bowie will also assume approximately $105 million in related liabilities. The transaction was entered into following a competitive bidding process and includes the El Segundo and Lee Ranch mines in New Mexico and the Twentymile Mine in Colorado, which have combined coal reserves of approximately 330 million tons. [...]Observations: less than a dollar per ton of coal reserves. A 15% yield to 2016 projected pre-tax cash flow after operating expenditures (6.6x multiple).
Peabody's New Mexico and Colorado mines are projected to produce 11 million tons in 2016. Based on Peabody's current operating plans, pre-tax cash flows after capital expenditures for these mines are projected to be approximately $70 million in 2016.[...]
In addition, the sale reduces the amount of Peabody's self-bonding in place for reclamation obligations by more than $300 million.
Most recent quarter (10-Q) for all of Peabody Adjusted EBITDA was $129 million and capital expenditure projection for 2015 was $36 million per quarter, which would give a net "free cash flow" number of $93 million quarterly, or $372 million annualized.
If you were to capitalize that at 6.6x, you would reach a value of $2.46 billion. That's a problem because Peabody has a $1.17 billion term loan (first lien), and $978 million of secured (second lien) notes - and $6.3 billion in total debt!
No wonder the current yield on the sub debt is now close to 100%!