Peabody bankruptcy a cautionary tale for Australian investors


market-forces-logoThe long-expected bankruptcy announcement by Peabody on the 13th of April, should serve a cautionary tale to Australian investors still holding fossil fuel stocks, according to financial activist group Market Forces.

“Australian investors who held Peabody stocks since 2011 would have been severely burned by the decline of the company,” said Market Forces Executive Director Julien Vincent.

“This is even more the case for superannuation funds, which have lost billions of dollars of their members’ retirement savings on fossil fuel stocks in recent years.

“Peabody’s bankruptcy is hugely symbolic, as it was the giant among coal giants. But its demise is also indicative of the state of the fossil fuel sector, especially coal.

“Super funds have the choice to take a systemic approach to the structural decline of coal and rule it out of their portfolios altogether. Or they can continue to lose members’ money on the few remaining listed coal companies simply because they’re in an index.

“In the meantime, every Australian with a superannuation account should be asking their fund how much of their money has been lost on Peabody and other coal majors.”

According to Market Forces research, Whitehaven Coal (0.03%) is the last remaining pure play coal producer left in the ASX300. By virtue of being in that index, almost all super funds will still hold it to some extent. However, Whitehaven stocks have declined over 90% since April 2011, following a similar trajectory to Peabody.

Internationally, there are 8 pure play coal companies left in the MSCI All Countries World (ex Aust) Index, representing about 0.05% of that index. These are China Shenhua Energy, Cameco Corp, Coal India, China Coal Energy, Yanzhou Coal Mininig, Exxaro Resources, Adaro Energy and Banpu.

Australia’s superannuation industry has lost billions of dollars on investments in coal, oil and gas shares in the last two years. A recent study from Market Forces found that fifteen major retail, industry and public sector fund options have lost an estimated $5.6 billion – or up to $3024 per member – on fossil fuel company investments since the start of 2014.

“After ANZ wrote down $100 million on bad loans in the mining sector last month, we expect more to come,” said Vincent. “While it’s unclear whether Australian banks currently hold Peabody corporate debt, they may retain drawdown facilities and be guarantors for the financial assurance provided to state governments for mine rehabilitation.”

“For super funds, this is yet another wake up call to act prudently on behalf of their members and take action by immediately divesting from fossil fuel stocks.