Anglo American, just agreed to sell its Australian steelmaking coal business to Dhilmar for up to $3.875 billion, consisting of $2.3 billion upfront and the rest tied to price-linked earnouts. The buyer is paying for 306 million tons of marketable reserves and 14 million tons of current annual production. That works out to a private-market valuation of about $12.66 per ton of reserves and a massive $276.79 per ton of annual production capacity. Now, look over at Peabody Energy, the market still treats them like a legacy, domestic thermal coal story, completely missing the massive portfolio transformation that is happening in their seaborne metallurgical segment. In February of this year, Peabody successfully got the longwall up and running ahead of schedule at their flagship Centurion mine in Queensland's Bowen Basin. Centurion is an absolute beast of an asset with premium coking coal and a 25-plus year mine life that is on track to produce 3.5 million tons this year before ramping to its full 4.7 million ton capacity by 2028. Because of this, Peabody's total met coal guidance for 2026 is sitting at a healthy 10.8 million ton midpoint.
When you do the simple back-of-the-napkin math and apply that fresh Anglo transaction multiple of $276.79 per ton to Peabody’s 10.8 million tons of expected met coal production, you get an implied standalone value of $2.99 billion for just their metallurgical business alone. Once Centurion fully hits its capacity over the next couple of years, that standalone value easily scales past $3.3 billion. Peabody’s market capitalization right now is sitting around $3.02 billion. This means that by buying $BTU at today's prices, you are essentially paying for just their steelmaking coal business, and you are getting their entire global thermal coal empire for free and just to be clear, their thermal business is far from worthless, the thermal segment moved 122 million tons last year and generated $455 million in adjusted EBITDA. Investors today are getting high-margin seaborne thermal exports heading straight into premium Asian energy markets alongside stable, locked-in domestic US utility contracts completely for free.
Usually, when a value disconnect appears this egregious, there is some kind of catch, like a bloated balance sheet full of toxic debt or a management team with a history of destroying capital, but Peabody has a pristine balance sheet with zero net debt and well over $900 million in total liquidity and management has a strict, shareholder-friendly capital allocation policy that forces them to return anywhere from 65% to 100% of available free cash flow straight back to investors through aggressive stock buybacks and dividends. The market appears to be dramatically undervaluing the thermal segment or the premium steelmaking segment, or both. Whether management continues to concentrate shareholder value via aggressively shrinking the float through share repurchases or eventually decides to force the market's hand with an outright corporate spin-off of the seaborne business, Peabody appears to be a possible value setup with 80-100% upside from the current market price to a fair value estimate of $5.5-$6.0b.
Positions disclosure: 528 Shares of $BTU @ $23.90
