North American Coal expects a pretty solid 2012

The North American Coal unit of NACCO Industries (NYSE: NC) is working on a permit for its Otter Creek lignite reserve in North Dakota in preparation for the expected construction of a new mine, with the permit expected to be issued in mid-2012.

NACCO, in its May 2 first-quarter earnings statement, said that North American Coal’s net income for the first quarter of 2012 was $9.2m on revenues of $24.3m compared with net income of $7.1m on revenues of $17.9m for the first quarter of 2011. North American Coal’s deliveries came to 7.4 million tons of coal in the first quarter, down slightly from 7.6 million tons in the year-ago quarter. The company runs surface lignite mines in North Dakota, Texas, Mississippi and Louisiana that supply coal to mostly minemouth power plants.

Revenues and net income increased in the first quarter of 2012 compared with the first quarter of 2011 primarily due to an increase in deliveries at the consolidated mining operations, mainly as a result of improvements at an unnamed customer’s power plant, and an increase in royalties and other income received from third parties. The increase in net income was partially offset by higher operating expenses at the Mississippi Lignite Mining Co. as increased production levels resulted in fewer costs being capitalized into inventory in 2012 compared with 2011. 

North American Coal expects improved operating performance at its coal mining operations in 2012. Tons delivered in 2012 are expected to be slightly higher than 2011 provided customers achieve currently planned power plant operating levels.

The company’s new unconsolidated mines, which are in the development stage and will not be in full production for several years, are expected to continue to generate modest income in 2012. North American Coal also has new project opportunities for which it expects to continue to incur additional expenses in 2012, including the Otter Creek project. Over the longer term, North American Coal expects to continue its efforts to develop new mining projects. The company is actively pursuing domestic opportunities for new coal mining projects, which include prospects for power generation, coal-to-liquids, coal gasification, coal drying and other clean coal technologies.

Overall, North American Coal expects full year 2012 net income to increase compared with 2011 net income mainly as a result of expected improvements in tons delivered at Mississippi Lignite Mining. However, higher selling, general and administrative expenses as a result of increased employee-related costs and development activities are expected to partially offset the improvements in net income. Cash flow before financing activities in 2012 is expected to be substantially higher than 2011, mainly as a result of the receipt in the first quarter of $20.2m for a dragline sold in the first quarter of 2012 to Mississippi Power, a unit of Southern Co. (NYSE: SO). A unit of North American Coal is the contract operator for a lignite mine to serve Mississippi Power’s in-construction Kemper County (also known as Plant Ratcliffe) power plant.

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.