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Peabody Gets a $534 Million Margin Call on Coal, and Goldman Steps In With a 10% Loan

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(Bloomberg) — Locking in a price to sell coal at $84 a metric ton must have seemed like a good bet a year ago for Peabody Energy Corp.

Back then, many factories and offices were still shuttered, demand for electricity was weak and while vaccines were starting to be distributed, it was unclear when the world economy would mount a fuller recovery. Lining up hedge contracts for Peabody’s Wambo mine would ensure the Australia site would be profitable at a time when global leaders seemed committed to shifting away from the dirtiest fossil fuel.

The world is, of course, significantly different today. Russia’s war in Ukraine has further fueled a rally in coal driven by a squeeze on global energy supplies. The Australian benchmark coal price is up more than 400% in the past 12 months, hitting $425 on Wednesday. And instead of reaping rewards from those hedges, Peabody got slammed with a $534 million margin call.

The sum is more than half the cash the U.S. coal giant had at the end of December, and it prompted the company to arrange a $150 million credit line with Goldman Sachs Group Inc. That deal is now raising eyebrows for both its eye-popping 10% interest rate and for the fact that the bank announced in 2019 that it would phase out financing for coal.

“It’s a lot of cash that has to go out the door now,” said Andrew Blumenfeld, data analytics director for McCloskey. “That’s why they had to do the deal with Goldman.” He said the 10% rate is unusually high, and compared it to “a payday loan” that’s needed to cover immediate expenses.

Peabody shares plunged 17% after announcing the margin call, taking a chunk out of the gains they had made in recent months as the coal market boomed. The shares, which remain at their highest level since 2019, rose 6.3% at 9:36 a.m. Thursday.

It could be just the beginning of the blow for Peabody, the biggest U.S. coal miner. Margin calls could increase if the coal market moves higher. Prices could reach $500 a ton this year, said Steve Hulton, senior vice president for coal markets at Rystad Energy in Sydney. The Goldman deal will give the company some breathing room, he added.

“That’s what they’re actually worried about,” he said, referring to the possibility of more margin calls.

Peabody didn’t respond to calls and emails seeking comment. Goldman responded with its policy statement regarding financing coal, but didn’t provide further comment.

Peabody’s margin call is one of the flashiest examples of how the volatility sweeping commodity markets will slam companies that are holding wrong-way bets. Prices for oil, metals and grains have surged since Russia’s invasion of Ukraine, which threatens to disrupt supplies at a time when many raw materials were already in production deficits. Chinese nickel company Tsingshan Holding Group Co. faces billions of dollars in potential losses on short positions in the metal, while commodities trading houses are being forced to seek additional financing as the historic price surges stretch credit limits.

Coal’s Rally

Coal prices started climbing in the middle of last year as the global economic recovery led to surging electricity consumption and unexpectedly revealed a global shortage of fuel for power plants. The Australian benchmark price almost tripled from the first quarter of 2021 to the third.

The war in Ukraine has further spooked market fears over scarcity. Russia supplied almost 18% of global coal exports in 2020 and was the top supplier to Europe. Nations around the world are now seeking to line up other supplies, but that’s going to be tough. Few miners have been investing in new capacity to deliver a commodity that has a grim future in a world committed to fighting climate change, and they have limited ability to ramp up output. There was already a global shortage six months ago when countries were clamoring for fuel for power plants, and if Russia’s tons are taken off the market, that will only get worse.

“This is more black swans than I’ve ever encountered,” said Blumenfeld of McCloskey. “I’ve never seen this kind of market.”

In the long run, higher prices will be good for coal companies — even Peabody.

The company has hedged 1.9 million tons from the Wambo mine, and has derivative contracts for a total of 2.3 million tons. Most of the deals were signed in the first half of 2021. Its seaborne thermal unit, comprising Wambo and another Australia mine, exported 8.7 million tons last year, and most of the output that’s not covered through the hedges is unpriced. That means the company can eventually take advantage of a market that’s never been higher.

‘Pure-Play Dinosaur’

The margin call is “short-term pain,” said Rystad’s Hulton. But the company will likely see significant revenue gains later on that will help it cover the expense of the financing from Goldman, he said.

The $150 million credit line matures in 2025, and Peabody said the cash would “support the company’s potential near-term liquidity requirements.”

For Goldman, providing financing to the biggest U.S. coal miner may seem to contradict its 2019 pledge. A close look at the details of its policy, though, shows that the bank said it would decline deals for “directly financing” new coal mines, leaving the door open for other arrangements. The bank has said it would phase out financing for thermal coal mining companies that don’t have a diversification strategy “within a reasonable timeframe.”

Peabody has been mining coal since it was founded in 1883, making it a “pure-play dinosaur,” said Justin Guay, director of global climate strategy for Sunrise Project. While the company announced this month a joint venture to develop solar farms, he said the venture isn’t significant enough to shift the nature of Peabody’s business, and shouldn’t be seen as a diversification strategy.

Goldman has “written themselves a weak policy, and now they’re driving a coal truck through those loopholes,” Guay said. “They just can’t help themselves.”

(Adds shares in the sixth paragraph.)

More stories like this are available on bloomberg.com

©2022 Bloomberg L.P.

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Teladoc Tumbled 38% After Big First-Quarter Loss. Is It Just a Pandemic Play?

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After pandemic drop, Canada’s detention of immigrants rises again By Reuters

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© Reuters. FILE PHOTO: Two closed Canadian border checkpoints are seen after it was announced that the border would close to “non-essential traffic” to combat the spread of novel coronavirus disease (COVID-19) at the U.S.-Canada border crossing at the Thousand Isla

By Anna Mehler Paperny

TORONTO (Reuters) – Canada is locking up more people in immigration detention without charge after the numbers fell during the pandemic, government data obtained by Reuters shows.

Authorities cite an overall rise in foreign travelers amid easing restrictions but lawyers say their detained clients came to Canada years ago.

Canada held 206 people in immigration detention as of March 1, 2022 – a 28% increase compared with March 1 of the previous year. Immigration detainees have not been charged with crimes in Canada and 68% of detainees as of March 1 were locked up because Canada Border Services Agency (CBSA) fears they are “unlikely to appear” at an immigration hearing, according to the data.

The rise puts Canada at odds with Amnesty International and other human rights groups that have urged Ottawa to end its use of indefinite immigration detention, noting CBSA has used factors such as a person’s mental illness as reason to detain them.

A CBSA spokesperson told Reuters that “when the number of entries (to Canada) goes up, an increase in detention is to be expected.” CBSA has said in the past it uses detention as a last resort.

A lawyer told Reuters her detained clients have been in Canada for years.

In the United Kingdom, too, immigration detention levels rose last year after dropping earlier in the pandemic, according to government statistics. Unlike Canada, the United States and Australia, European Union member states have limits on immigration detention and those limits cannot exceed six months.

The rise in detentions puts people at risk of contracting COVID-19 in harsh congregate settings, refugee lawyers say.

Julia Sande, Human Rights Law and Policy Campaigner with Amnesty, called the increase in detentions “disappointing but not surprising,” although she was reluctant to draw conclusions from limited data.

The number of immigration detainees in Canada dropped early in the pandemic, from a daily average of 301 in the fourth quarter (January through March) of 2019-20 to 126 in the first quarter (April through June) of 2020-21.

FEW NO-SHOWS AS DETENTIONS DROPPED

Detaining fewer people did not result in a significant increase in no-shows at immigration hearings – the most common reason for detention, according to Immigration and Refugee Board data.

The average number of no-shows as a percentage of admissibility hearings was about 5.5% in 2021, according to that data, compared to about 5.9% in 2019.

No-shows rose as high as 16% in October 2020, but a spokesperson for the Immigration and Refugee Board said this was due to people not receiving notifications when their hearings resumed after a pause in the pandemic.

Refugee lawyer Andrew Brouwer said the decline in detention earlier in the pandemic shows Canada does not need to lock up as many non-citizens.

“We didn’t see a bunch of no-shows. We didn’t see the sky fall … It for sure shows that the system can operate without throwing people in jail,” Brouwer said.

He added that detainees face harsh pandemic conditions in provincial jails – including extended lockdowns, sometimes with three people in a cell for 23 hours a day.

Refugee lawyer Swathi Sekhar said CBSA officials and the Immigration and Refugee Board members reviewing detentions took the risk of COVID-19 into account when deciding whether someone should be detained earlier in the pandemic but are doing so less now.

“Their position is that COVID is not a factor that should weigh in favor of release,” she said.

“We also see very, very perverse findings … [decision-makers] outright saying that individuals are going to be safer in jail.”

The Immigration and Refugee Board did not immediately respond to a Reuters request for comment.

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Nasdaq futures rise as market attempts comeback from April sell-off, Meta shares soar

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Stock futures rose in overnight trading as the market shook off the April sell-off and investors reacted positively to earnings from Meta Platforms.

Futures on the Dow Jones Industrial Average added 70 points or 0.2%. S&P 500 futures gained 0.7% and Nasdaq 100 futures jumped 1.2%.

The moves came as shares of Meta surged more than 18% after hours following a beat on earnings but a miss on revenue, a sign that investors may see signs of relief in the beaten-up tech sector. Shares were down 48% on the year heading into the results.

Meanwhile, shares of Qualcomm gained 5.6% in extended trading on the back of strong earnings while PayPal rose 5% despite issuing weak guidance for the second quarter.

“I think a lot of people want to believe that earnings are going to pull us out of this, but earnings are not what got us into this,” SoFi’s Liz Young told CNBC’s “Closing Bell: Overtime” on Wednesday. “… But the reality is there are so many macro headwinds still in front of us in the next 60 days that the market is just hard to impress.”

The after-hour activity followed a volatile regular trading session that saw the Nasdaq Composite stoop to its lowest level in 2022, as stocks looked to bounce back from a tech-led April sell-off. The index is down more than 12% since the start of April.

In Wednesday’s regular trading, the tech-heavy Nasdaq ended at 12,488.93, after rising to 1.7% at session highs. The Dow Jones Industrial Average rose 61.75 points, or 0.2%, to 33,301.93 propped up by gains from Visa and Microsoft, while the S&P 500 added 0.2% to 4,183.96.

Investors await big tech earnings on Thursday from Apple, Amazon and Twitter, along with results from Robinhood. Jobless claims are also due out Thursday.

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