Tennessee-based Xinergy Ltd. (TSX:XRG), a Central Appalachian coal producer, said March 8 that it achieved record revenues, adjusted EBITDA and increased production volumes in 2011, but will be sharply cutting back thermal coal production this year to meet currently soft coal markets.
The company’s thermal coal sales guidance for 2012 is now 0.8 million-1.1 million tons, down from a prior forecast of 2.5 million-3 million tons.
The company reported fiscal 2011 coal sales revenue of $166.3m, and adjusted EBITDA of $30.6m. These are increases of 53% and 13%, respectively, year over year. EBITDA is adjusted for an $11m non-recurring gain on the sale of the company’s Elk Horn Coal landholding company investment.
Coal sale revenues increased in 2011 principally due to incremental production from the addition of the Raven Crest operations in southern West Virginia, which commenced in April 2010. Also adding to revenues was the True Energy acquisition in July 2011 as well as increases in sales from the Straight Creek property in eastern Kentucky. Full year 2011 coal production was 2 million tons, up 53% year over year from 1.3 million tons produced in 2010.
In 2011, the company reported a net loss of $14.1m, compared to $2.1m for 2010. The increase in the net loss for 2011 was primarily a result of an increase in finance and related costs associated with the issuance of the $200m senior secured notes that were issued in May 2011.
In the fourth quarter of 2011 the company reported coal revenues of $33.9m and adjusted EBITDA of $6.7m. Coal revenues were $38.1m in the year-ago quarter, and adjusted EBITDA was $12.2m. Coal production increased to 532,000 tons for the fourth quarter as compared to 525,000 tons in the previous quarter and 419,000 tons in same quarter of 2010.
For 2012, Xinergy has a total of 900,000 tons in committed thermal sales, at an average sales price of $70/ton. This cash flow will be supplemented by sales from metallurgical mining operations and reductions in inventory levels as well as negotiated contract settlements that were concluded in March.
Thermal coal production increases nixed
Jon Nix, Xinergy Chairman and CEO, said: “The company achieved record revenues, adjusted EBITDA and increased production volumes in 2011. This past year Xinergy made important acquisitions to grow its portfolio of assets with the goal of ensuring sustainable growth in the future, adding high quality mid- and high-volatility metallurgical surface mines to the production profile.”
Nix added: “The True Energy [in Virginia] and South Fork [in Greenbrier County, W.Va.] metallurgical acquisitions provide a high margin area of growth for Xinergy in the near term and position the company well in the current challenging environment for thermal coal prices. In addition, we continue to focus on margin expansion and cost efficiency across all mines. Gross margins on a per ton basis stand at $22.20, moderately lower from the year prior at $26.90, yet we remain a highly competitive producer on a cash cost basis. In 2011 we achieved cash costs of $59.01 per ton, affirming our position as one of the lowest cost producers in Central Appalachia. With our temporary mine closures now in place and our metallurgical coal assets coming on line in 2012 we expect to see further margin improvement in 2012.”
Nix said the company has redeployed capital and equipment to the higher margin True Energy and South Fork metallurgical mines and adjusted sales volumes to account for the softer thermal coal market.
Subsequent to year-end 2011 results, the company negotiated an early termination of a thermal coal supply agreement resulting in a cash payment of $9.9m, and a partial buyout of a second thermal coal agreement resulting in a cash payment of $9m and the return of $12m in restricted cash. These contract adjustments provide an improved liquidity position for 2012 and preserve valuable permitted coal reserves, Nix said.
Xinergy idles some Straight Creek operations
“Market conditions have changed rapidly over the last few months and as a result, in February 2012, we idled two surface mines and one highwall miner job at our Straight Creek operations in Kentucky,” the company said. “This decision, which affected many employees, was not made lightly. A wide mixture of market conditions, including very low prices for natural gas, increased inventory levels at several utility customers, very mild winter weather and general weak demand for thermal coal all led to our conclusions. This changing market environment required us to focus on adjusting our thermal production levels in order to better match committed sales going forward while continuing to maintain our ability to be a low cost producer.”
For 2012, Xinergy expects to produce at levels necessary to service sales commitments at its thermal coal mining operations while taking efforts to substantially reduce existing coal inventories at these operations as well. The thermal coal sales guidance for 2012 is now 0.8 million-1.1 million tons, down sharply from a prior forecast of 2.5 million-3 million tons.
- For 2012, Xinergy has slashed its sales guidance for the Straight Creek thermal coal operation from a prior 1.5 million-1.8 million tons, to a current 0.6 million-0.8 million tons.
- For the Raven Crest thermal coal operation in southern West Virginia, the new guidance for 2012 sales is 0.2 million-0.3 million tons, down from a prior level of 0.6 million-0.7 million tons.
- For the Brier Creek operation near Raven Crest, no sales are now forecast for 2012, against a prior expectation of 0.4 million-0.5 million tons.
In 2012, Xinergy expects to produce and sell 560,000-730,000 tons from its metallurgical mining operations.
- At South Fork, 2012 sales are now projected at 360,000-480,000 tons, against a prior guidance level of 300,000-750,000 tons.
- True Energy’s 2012 revised guidance is for sales of 200,000-250,000 tons, against 200,000-250,000 tons in the prior guidance.