Shares of Peabody (BTU -0.48%) popped 11% on Monday after the coal miner called off its merger talks with Coronado Global Resources.
The two companies agreed to end their plans to form a global coal empire by combining their assets in the U.S. and Australia. No reason was given for the decision.
Leading U.S. coal producer Peabody and Australia-based Coronado had been in talks since at least Oct. 12, according to a regulatory filing. Peabody has mining operations in multiple U.S. states and Australia. Coronado, meanwhile, operates mines in Queensland, Australia, as well as Virginia, West Virginia, and Pennsylvania.
A merger was expected to allow the combined company to cut costs and boost operational efficiencies. Additionally, it would've been in a stronger position to profit from higher coal prices brought about in part by Russia's war with Ukraine, which is driving many governments to seek energy supply deals with other producers.
Still, today's gains suggest investors believe Peabody will be better off on its own. No merger means no fears of overpaying for the acquisition or concerns regarding integration challenges. Instead, Peabody is free to focus on its own operations, which have been particularly strong as of late.
The coal giant's net income rose to $375 million, or $2.33 per share, in the third quarter, compared to a loss of $44.2 million, or $0.38 per share, in the year-ago period. Better still, Peabody's bountiful free-cash-flow production -- including $461 million in Q3 alone -- is allowing it to invest in new projects while also paying down debt.