How they do it at Peabody Energy

Dec 07, 2010
<p>IR magazine talks to Viv Svec, the man responsible for Peabody&rsquo;s IR and corporate communications</p>

Peabody Energy’s NYSE ticker symbol is BTU, evoking the British Thermal Unit that hearkens back to a rustier, sootier era. The company persuaded the NYSE it was appropriate back in 2001, when it first listed, on the grounds that it was the number one firm in coal.

For many of us, however, coal - the black stuff that fed Thomas the Tank Engine - is positively Victorian, its production about as cutting edge as a buggy whip factory. Vic Svec, Peabody’s senior vice president for IR and corporate communications, is aware of the perception problem.

‘A hundred years ago we did things differently, but people understood us,’ he reflects. ‘They would see our delivery trucks taking the coal right into their basements.  Now, because it’s much more business to business, they don’t see it, so the average person thinks we use less coal than 40 years ago.’

They’re wrong, as it happens. Since 1979 coal use in the US has more than tripled for electricity generation – despite the fact that emissions have dropped dramatically during the same period. ‘Our market cap is currently around $13 bn,’ Svec adds proudly. ‘So we are a good sized company, and outsized in relative terms: first in sales, first in production and with 90 quadrillion BTU in reserves.’

Since Peabody went public investors have enjoyed a 700 percent rise in the share value, which has clearly helped them appreciate coal’s importance. ‘The last 10 years have been transformative for investors,’ confirms Svec. ‘We used to spend a lot of time on basic education for those who wanted to know whether coal was still used, what it was used for, and so on.

‘Since then, however, coal has become the fastest growing fuel in the world - by a factor of two or three. As the world’s largest coal company we have, therefore, worked hard to make sure investors are aware of the product, as well as the company, and that they understand coal is the growth fuel for decades to come. We are just now at the very early stage of coal’s super-cycle, with enormous running room, and wise investors capitalize on misconceptions in the market.’ Svec suggests they can take advantage of what he calls ‘informatrage’ - a blend of arbitrage and information; others might simply call it an information, or good IR, premium

Coal goes global
In 2003 the current CEO Greg Boyce joined Peabody from Rio Tinto, bringing with him a global view that transformed the company from a domestic coal company with about 1 one percent of earnings coming from outside the US to its current level of more than 50 percent. Indeed, Peabody is now one of the world’s largest coal trading companies.

Boyce reacted to and reinforced the trend for coal to go global. In the last 20 years, international coal trading has doubled to around a billion tons in 2010. Before this, most large consumer countries were sitting on large reserves and so had no need to enter the global markets. Today, however, even the US is a net importer, along with more obvious examples like China, India and other Asian countries such as Japan, South Korea and Taiwan. Meanwhile, Indonesia has joined South Africa and Australia as a major producer.

Peabody has turned all this to its advantage and Svec claims that ‘no one has better visibility in coal trading than Peabody. With offices and activities now in every major market we can quickly see the mismatches and opportunities.’ To be sure, trading has proved very profitable for the company, accounting for some $200 mn in EBITDA. It has also been very useful for M&A purposes. ‘It’s allowed us to get to know the players in the individual markets and provide scouting opportunities, helping us to identify some very good acquisition targets,’ Svec notes.

The transformation from domestic to global player has of course attracted investor attention. US demand may still be growing but India, China and the emerging Asian markets, whose economies weathered the recent crisis unscathed, offer exponential coal-fired growth. More than that, Peabody has become interesting to a new group of analysts and investors since coking coal for steel is now a major commodity. In all, a total of 28 mining as well as energy analysts worldwide now cover Peabody.  

‘I sometimes describe us as the only pure-play coal company,’ says Svec. With Peabody listed solely on the NYSE, he is intent on expanding the firm’s shareholder base to match the company’s global presence, and he says the company might yet consider local listings if this were advisable strategically in relation to an acquisition or a joint venture.

IR spread and reach
The switch to being an international play has undoubtedly been successful, but it’s taken a lot of effort on the IR front. In the old days, roadshows were held exclusively in the US. Today, while the US is still host to the majority of investor meetings, Peabody spends ‘much more time with investors in Europe and Canada, with Singapore coming up on the agenda as well,’ reports Svec.  ‘We also take groups of analysts and investors to our Australian operations with increasing frequency.’

China is also important, but more for the future. ‘China is not such a huge market for us at the moment, but it does represent huge potential,’ Svec explains. ‘As someone once said, Anything China makes will go down in price, anything it uses will go up. For us China has changed from being one of our competitors to one of our customers and that’s been picked up by our investors and some of the media, who call us a China derivative play.’ India is potentially important, too, and Svec notes that the country is building its new steel and power generation capacity on the coast, so it will have the flexibility to import.

For a company like Peabody, and an industry like coal, IR has to go way beyond shareholder communications, and even beyond geopolitics to eco-politics, and indeed to just plain politics. This is one reason, and a clear justification in Svec’s mind, for combining the corporate communications and IR portfolios, as he does. A NIRI member and award-winning IRO, he spent 10 years in corporate communications with Anheuser-Busch before moving to Peabody, so he well understands the interplay between the two disciplines. ‘It strikes me you either come from a financial background and need to learn the messaging, or you come from a corporate communications background and need to learn the financial side,’ he muses.

Svec wears both hats to deal with investors and environmentalists on issues ranging from emissions control to energy poverty. Citing medieval English kings’ attempts to control coal burning in London, he admits there are issues, but counters: ‘The question is not, Will the world keep using coal? It’s obviously going to use it more and more. The question is, How will it use it?

His own answer is that it will use it increasingly cleanly and with an improving emissions profile. He cites Peabody’s own record: ‘We’re a global leader in clean coal solutions and the only non-Chinese partner in the Tianjin GreenGen development.’ He also offers the example of what can be done in the post-mining phase, pointing to the company’s award-winning landscape restoration projects.

But no one would claim it’s all sweetness and light in the coal business. Representing coal on the market may have its upside, but Svec concedes there are also downsides  – such as mining accidents. ‘The coal industry is only as strong as our weakest link,’ he admits. ‘But we emphasize our record, and 2009 was our safest year. It’s safer working in a Peabody mine than in any other heavy industry out there.

‘If I had to summarize us, I’d say we’re the world’s biggest coal company and a global leader in clean coal solutions. It is that pairing that earns us the respect of the investment community as well as of other stakeholder groups.’

He might have added to that the respect engendered by an IRO’s dream: a company with a continually rising stock price.

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