Lipari Energy cuts back coal output in soft utility market

Canada-listed Lipari Energy (TSX:LIP), which has coal mining operations in eastern Kentucky, said March 30 that its fourth quarter 2011 tons sold decreased by 1.4%, while at the same time tons produced increased by 15.6% over fourth quarter 2010 from 270,272 tons to 312,544.

Fourth quarter revenues decreased by 13.2% as a result of a decrease in sales price per ton. Lipari generated earnings before interest, taxes, depreciation, depletion and amortization (EBITDA) of $2.7m during the fourth quarter of 2011. Adjusted EBITDA, after accounting for a change in the fair value of warrants, lease expenses and other adjustments, was $3.2m during the fourth quarter of 2011.

“We are pleased with the addition of our Barger Branch Project, with our first production in March 2012,” said John Liperote, CEO of Lipari. “We expect this to be a major contributor to our production model as both highwall mining and surface production will occur during the year. Due to the current outlook in the coal market, we have decided to decrease our planned production to only produce committed tonnage for the year. We are continuing our efforts to be one of the lowest cost producers in Central Appalachia as our cash cost per ton decreased by 6.3% from 2010 to $41.86.”

The average sales price per ton in the fourth quarter was $67.75, down from $76.94 in the year-ago quarter. Fourth quarter coal sales came in at 282,990 tons, down from 287,118 tons in the year-ago quarter. The economic slowdown, milder weather, and lower natural gas prices decreased the demand for energy and the realized sales price for the quarter, the company noted, which is a refrain that has come from other U.S. coal producers lately as they weather a market downturn.

For all of 2011, the company produced 1.2 million tons, up from 880,618 tons in 2010. It sold 1.2 million tons last year, up from 1 million tons in 2010. The average sales price last year was $70.44 per ton, down from $78.08 in 2010.

Lipari has sales commitments in place for 100% of its planned 2012 production and approximately 75% of its planned 2013 production at prices averaging about $72 per ton for 2012 and $78 per ton for 2013.

Lipari’s corporate office is located in London, Ky. The company leases the coal mineral rights to approximately 13,700 acres of land and began its mining operations when it purchased all the issued and outstanding common stock of B&W Resources in September 2008. As of the end of 2011, the company’s mining complexes included four surface mines and one highwall mine. In addition, it has one preparation plant and one unit train loading facility served by the CSX Transportation railroad.

The company described the Barger Branch Project referred to by Liperote in a March 30 financial report. “The company began development of this mining operation located in Clay County, Kentucky during the first quarter of 2012, utilizing contour and highwall mining methods. Barger has estimated recoverable reserves of approximately 750,000 tons based on internal engineering studies. This project was not included in the May 31, 2010 reserve study. The company leases a Bucyrus Superior Highwall Miner to operate on this property and other highwall properties controlled by Lipari. This project will be composed of approximately 488 permitted acres, with mining to be conducted in the Hazard 4 Seam with an average seam height of approximately 40 inches. Typical coal quality from this mine is expected to be 12,800 BTU per pound with sulphur content of approximately 0.8%.”

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.