Coal news and updates

Production will start later in May at Rhino Resource Partners' Pennyrile high-sulfur steam coal mine in western Kentucky amid company expectations of an increase in both coal demand and prices, a senior executive said Thursday.

 

"We expect coal prices to rebound and we believe Rhino will too," CEO Chris Walton told analysts after the company posted a first-quarter 2014 profit due mostly to a sale of gas and oil properties.

 

"Prices will rebound because natural gas inventories are very low and we believe gas prices will spike later this year," prompting electric utilities to continue switching back to coal from gas, he said.

 

Coal inventories are at "historically low levels," he added, "and utilities are acting as if [enough] coal will be available to replace [the] natural gas burn. When buyers come into the market we don't believe there will be sufficient coal available at current prices."

 

Rhino posted net income of $131.9 million in the first three months of 2014, easily reversing a net loss of $200,000 a year ago. But the gain was largely due to the $179 million it received from the $184 million sale of its Utica shale holdings, a deal that enabled Rhino to become largely "debt free."

 

The company's total Q1 revenues were $59.1 million, with coal generating $51.2 million, down from $74.5 million and $67.4 million, respectively, in the first quarter of 2013.

 

Overall coal production continued to decline to 820,000 st in the latest quarter, compared with 944,000 st in the year-ago period. Most of the decrease was in Northern Appalachia, where output dropped to 228,000 st from 347,000 st in Q1 2013, Rhino said.

 

Rhino has high hopes for Pennyrile and a turnaround in its coal fortunes. The continuous miner operation along the Green River in McLean County has booked multi-year sales of 800,000 st/year with an unidentified regional electric utility.

 

"We believe we can more than double this" production, leading to a cash contribution from Pennyrile, also known as Riveredge, of $20 million a year, Walton said. "We don't think expanding the mine is a stretch. We believe Pennyrile ultimately will be able to support a three-section mine," which would translate to a $30 million annual cash contribution.

 

Rhino has committed coal sales of 2.3 million st for the remaining three quarters of 2014, and locked up sales of nearly 1.8 million st in 2015.

 

Although no sales of Central Appalachian coal are committed so far in 2015, Rhino chairman David Zatezalo told Stifel Nicolaus analyst Paul Forward the company believes the fall in Central Appalachian prices has found a bottom. "We do expect price movements in the future," Zatezalo said. "I can't see prices going down much further" in Central Appalachia.

 

 

Source: Platts