Pennsylvania-based Corsa Coal Corp. (TSXV: CSO) said May 3 that while the first fiscal quarter (December 2011-February 2012) was a “challenging” time in the coal business, its metallurgical coal mining operations, centered in Somerset County, Pa., weathered the quarter pretty well.
Corsa could be expected to do better than steam coal producers, since the steam coal market in the U.S. has been the hardest hit due to factors like slumping power demand and coal-to-cheap-gas switching by power generators. Met coal markets, while running into some turbulence lately due to trimbacks in demand and pricing, have done relatively well of late.
Highlights for the first quarter for Corsa included: met coal sales of 65,000 tons at an average realized price of $158 per ton; purchase of the Keyser Property with an indicated resource of about 11 million in place tons; and completion of a C$22m equity private placement.
Don Charter, Corsa President and CEO, stated: “It has been a challenging six months in the coal industry. While the industry slowdown has affected us like everyone else, we were able to ship approximately 65,000 tons of met coal in the first quarter at an average realized price of $158 a ton and have continued to ship coal in the second quarter with expectations of doing the same or higher volumes in the second quarter. In markets such as this, coal quality is important and with our low vol met coal we are well positioned with a strong product. Sales activity appears to be increasing and we are encouraged by current indicators. We continue with property acquisitions aimed at the aggressive expansion of our resource base as evidenced by our recent purchase of the Keyser property as well as optioning a further 6,500 acres for drilling.”
Corsa produced 82,000 raw tons of met coal during the three months ended Feb. 29, with 40,000 tons from surface mines and 42,000 from its underground mine. The cash mining costs of met coal produced (not including royalties) were $60 per raw ton. The costs were impacted by mining conditions at the Casselman deep mine in Maryland. The company purchased 55,000 raw tons and 7,000 clean tons of met coal during the three months ended Feb. 29.
The new Corsa prep plant in Somerset County processed 115,000 raw tons of met coal and produced 58,000 clean tons during the three months ended Feb. 29. The cash processing costs of $22 per clean ton were impacted by lower production levels resulting from lower than expected sales, double handling of raw coal while the raw coal storage area is being expanded, third party refuse handling pending the start-up of the company’s refuse site and lower recovery levels as a result of high dilution experienced from the Casselman mine due to poor mining conditions and the flotation column performance.
The company sold 21,000 raw tons of thermal coal at an average realized price of $41 per ton during the three months ended Feb. 29. Corsa produced 28,000 raw tons of thermal coal from its surface mines in the three months ended Feb. 29. The cash mining costs of thermal coal produced (not including royalties) were $56 per raw ton. The thermal coal mined is ancillary to the mining of met coal.
Corsa trims back some sales expectations
“As a result of global economic conditions and demand for steel, the coal industry has experienced a slowdown which began in the fall of 2011 and has continued into the spring of 2012,” the company said about market conditions. “A number of producers have announced reductions in planned metallurgical coal production for 2012 as a result of this slowdown and in many cases guidance has been reduced or suspended. The company had expected to ship approximately 90,000 tons of metallurgical coal in the three months ended February 29, 2012, however with the slowdown sales were only 65,000 tons. The company, as a result, reduced its surface mine production and third party coal purchases to meet these lower sales levels.”
Corsa added: “The company continued to ship coal in the second fiscal quarter and based on sales to date, purchase orders and scheduled trains, the company expects to ship 65,000 to 70,000 clean tons of metallurgical coal in the quarter. At this time the company is not in a position to provide production, sales and cost guidance until sales levels can be more accurately forecast. For the remainder of the fiscal year, the company will continue to adjust its production and third party purchases to match actual demand and sales orders.”
In January, the Cramer surface mine ceased operations as scheduled as the coal reserves were depleted. In April, the Quarry surface mine was placed on temporary shutdown pending commercial analysis of costs and coal prices. The company expects to add production from the Hastings and Ankeny surface mines in fiscal 2012 if markets dictate. A portion of the anticipated production of the Hastings mine has been permitted but the Ankeny production and the balance of the Hastings production will depend on obtaining permits.
The company did not significantly reduce production at the Casselman deep mine as it continues the mine expansion. The company’s initial plans were to add a second continuous mining unit in the second quarter of fiscal 2012 and a third unit in the fourth fiscal quarter. Casselman continues to experience poor mining conditions due primarily to the seam thinness currently being experienced together with floor and roof conditions. Drill holes indicate that the seam height is expected to increase in two to three months of operations at current levels. Corsa continues to review its expansion plan of adding a second unit, and by end of the year a third unit, based on coal markets.
The new prep plant is operating below designed capacity. The company expects its average recovery in the plant in fiscal 2012 to be below its long-term targets due to the out of seam dilution from the low seam coal area in the initial phase of the Casselman mine and continued lower than expected recovery from fines in the flotation column.
Corsa looks to roll-over unshipped tons under expired contract
The company had a one-year, 500,000-ton sales contract for met coal which expired March 31. With the market slowdown, Corsa has sold less than the expected tonnage under this arrangement to date.
The company is in discussions with the customer with respect to the purchase of the “roll over” tons in the 12 month contract period ending March 31, 2013. While the company has sold, and continues to sell, met coal to other customers on a spot basis in 2012, the company has not entered into any longer term contracts. Sales are expected to be less than the company’s capacity to produce as a result of weak demand.
Also, Corsa said that Charles Pitcher has been appointed a director of the company. Pitcher is currently acting as interim President and COO of the company’s Wilson Creek Energy LLC unit. Pitcher has four decades of experience in civil and mining operations, engineering, management and project development.