Peabody Energy Facing Securities Suit After Announcing Three-Year Coal Mine Reopening Delay

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Peabody Energy Corporation materially misled stockholders with regard to the safety practices and production output at its most profitable coal mine, which, unbeknownst to the trading public, was at a heightened risk of shutdown, a proposed class action alleges.

According to the 34-page complaint, Peabody’s “inadequate” safety measures came to light when a September 28, 2018 fire at the mine forced the company to suspend operations indefinitely, an event that caused stock prices to fall more than 13 percent.

The time period highlighted in the lawsuit began on April 3, 2017, when St. Louis-based Peabody, the world’s largest coal mining company, with 23 mines throughout the U.S. and Australia, emerged from bankruptcy protection and boasted “record production output,” “record safety” achievements and an “ongoing commitment to ensuring safe, productive operations.”

What the defendants—Peabody and its two top officers—failed to disclose to investors, according to the case, was that the company had failed to implement proper safety measures at its North Goonyella mine in Australia to prevent the risk of a spontaneous combustion event, and that Peabody failed to follow its own safety procedures, putting the mine at an increased risk of shutdown.

Peabody used at North Goonyella, the company’s “most profitable single operation,” a method called longwall mining, which often causes an underground build-up of methane and other flammable gases that can combust when high concentrations come into contact with a heat source, the lawsuit says. It is therefore crucial for mines that use longwall mining to have in place certain safety measures to mitigate risks that could prove catastrophic, including, among others, ventilation systems, methane drainage methods, gas monitoring controls and airtight seals, the suit explains.

On September 19, 2018, The Australian Financial Review reported that work at the North Goonyella mine had been suspended due to elevated levels of methane and carbon monoxide, the case continues. Over the next few days, Peabody consistently downplayed the significance of the issue, indicating, for instances, that there were only “modest elevated temperatures” and low-level oxidation of some coal and that appropriate measures were taken to address any issues, according to the complaint.

On September 28, however, Peabody issued a press release reporting that a fire had erupted in the mine and that, as a result, the company was not expecting “any production from North Goonyella in the fourth quarter of 2018,” the suit says.

Upon this news, stock prices dropped 13.5 percent from the previous day’s close, the case states.

After the fire, Peabody led investors to believe that its low-cost plan to restart operations at North Goonyella was “reasonable and had a high likelihood of regulatory approval,” despite possessing awareness that the plan posed unreasonable safety and environmental risks that would likely not be approved by Queensland Mines Inspectorate (QMI), the Australian body responsible for ensuring acceptable health and safety standards, the lawsuit says.

Per the complaint, the defendants failed to disclose to investors that QMI would most likely recommend a safer, cost-prohibitive approach that would cause “major delays” in reopening and the resuming of coal production.

According to the suit, the truth was revealed to investors in the following series of disclosures issued between February and October 2019 in which the company’s initial assurances that coal production may be able to start as soon as the second half of 2019 were contradicted:

• February 9: Peabody announced that production was now targeted to begin in early 2020, which caused stock prices to drop 10.6 percent;
• May 1: Peabody told investors that a directive from QMI could lead to further delays and necessitate reevaluation of Peabody’s reentry plan, which caused stock prices to drop 5.6 percent;
• July 31: The company revealed QMI’s requirements had slowed progress on Peabody’s initial plan, that its 2020 production guidance was suspended, and that it was reevaluating its entire reentry approach, which caused stock prices to drop 4.8 percent;
• August 9: QMI released a one-page report of its preliminary investigative findings indicating Peabody had deficient safety systems in place at North Goonyella and was not fully cooperating with the investigation, causing stock prices to fall two percent; and
• October 29: Peabody disclosed that the strict requirements QMI placed on restarting operations at the mine forced the company to “dramatically adjust” the reentry plan, ultimately leading to a delay of at least three years before meaningful coal could be produced, the news of which caused stock prices to plummet 22 percent.

The lawsuit argues that stockholders who purchased or otherwise acquired Peabody common stock between April 3, 2017 and October 28, 2019 paid artificially inflated prices for shares and lost money when the truth regarding the defendants’ misleading statements was revealed. 

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