Peabody Australia's accountants have warned there is "significant uncertainty" over the coal miner's ability to remain a going concern, raising questions over the long term viability of its haulage contracts with rail group Aurizon.
Peabody's Australian coal mining business has continued to operate following the Chapter 11 bankruptcy filing of its US parent, Peabody Energy, in   April. 
But in Peabody Australia's annual accounts, filed with the Australian Securities and Exchange Commission on   May 31, the company revealed consolidated net losses had deepened to $2.7 billion, including $1.8 billion of impairments, for the year ending in   December compared with a $1.27 billion loss a year earlier. Its liabilities now exceed its assets by $4 billion.
The coal group also warned that "weak market conditions" had continued since   December and that its liquidity would be affected by the Chapter 11 reorganisation because it was unable to draw on some borrowing facilities.
Alternative funding arrangements are being put in place, including a $US250 million revolving intercompany loan facility, but may not be enough to accommodate all cash outflows, including repayment of operating leases and bank guarantees, Peabody Australia said.
The group is trying to put in place "stays, waivers and other negotiated outcomes" with counter-parties so it has enough cash to meet its needs. "Some interim arrangements have been agreed and other commercial negotiations are ongoing," Peabody Australia said.
Peabody Australia's directors said in the report that they believed the company would be able to pay its debts on time. None of Peabody Australia's operations are included in the US bankruptcy filings.
But the group's auditors, EY, said the changes to Peabody Australia's funding arrangements meant that there was now "significant uncertainty whether the company and/or the consolidated entity will continue as a going concern".
Peabody Australia is also facing legal action from minority partners in its central Queensland Monto Coal joint venture, who are claiming up to $1.7 billion after alleging the management agreement in the joint venture was breached.
Analysts are closely watching Peabody Australia's financial performance amid concerns that it may be forced to renegotiate some of its coal haulage contracts with Aurizon.
Peabody accounts for about 10 per cent of Aurizon's coal haulage volumes, or about 20 million tonnes.
Credit Suisse analysts this week warned that if Peabody's Australian business became "distressed", an administrator or receiver may try to renegotiate the contracts (which include both thermal and metallurgical coal in NSW and Queensland) at a lower price.
"This is not a likely outcome, but a risk if there was a significant further deterioration in Peabody's financial position and the coal market," Credit Suisse analyst Paul Butler said in a report.
Peabody Energy's most recent US quarterly report reveals revenues and profits in both its Australian metallurgical and thermal businesses dropped in the three months ending in   March compared with a year earlier. 
Credit Suisse noted that if Peabody Energy's Chapter 11 process fails, creditors could lay claims at the Peabody Australia holding company, but would probably try to keep the group's mines operating and sell them as going concerns.
Aurizon said that it has been working closely with Peabody and focusing on "efficiencies in the supply chain".
"We have noted developments from Peabody in the United States," Aurizon said. "We will be continuing to engage with our Australian customer and at an operational level, it's business as usual."
Peabody Australia said in its annual accounts that it was focused on "cost reductions and productivity improvements across all operations". 
It has been selling interests in undeveloped metallurgical reserve tenements in Queensland's Bowen Basin, and has to date received $65 million. It will receive another $22 million when regulatory approvals for the tenements are granted.