Oxford Resource Partners LP (NYSE: OXF), a producer of high-sulfur coal in Ohio and western Kentucky, said May 3 that it is shifting equipment from its western Kentucky operations to Ohio to get the biggest bang for the buck out of that equipment.
Oxford said in its first-quarter earnings statement that it is “refocusing” on its “core” Northern Appalachian business, where it has long-term customer relationships and a fully contracted book of business through 2013. It is also consolidating its Illinois Basin operations in western Kentucky to meet market demand and reduce costs. The company said it is also strengthening its balance sheet through an estimated $20m in asset sales, including the $6.3m sale of oil and gas mineral rights completed in April, coupled with proceeds from the planned sale of excess equipment from its Illinois Basin/western Kentucky operations.
“We are taking rapid and decisive actions to improve operations,” said Oxford President and CEO Charles Ungurean. “We are focused on rightsizing our operations to match the currently challenging market conditions and to improve our profitability and liquidity. We are undertaking specific steps that include the ongoing restructuring of our Illinois Basin operations, which we expect will reduce Oxford’s overall cost profile and enhance the productivity of our Northern Appalachian operations. By redeploying idled Illinois Basin equipment to our Northern Appalachian operations and selling excess Illinois Basin equipment, among other actions, we will reduce our planned 2012 capital outlays by $10 million and strengthen our balance sheet.”
Oxford began and operated for many years as an Ohio coal miner. In September 2009, it added to its portfolio the western Kentucky operations, which were bought from Phoenix Coal, with that buy occuring not long before Oxford’s July 2010 IPO.
Oxford’s net loss for the first quarter of 2012 was $15.8m, compared to a net loss for the first quarter of 2011 of $1.8m. First quarter 2012 results were impacted by impairment and restructuring charges related to the Illinois Basin operations and nonrecurring costs of $8.8m. Excluding these items, net loss for the first quarter of 2012 would have been $7m.
Oxford produced 1.89 million tons of coal in the first quarter, down slightly from 1.95 million tons in the year-ago quarter. The average sales price per ton in the first quarter was $49.13, up from $45.44 in the year-ago quarter. The average sales price per ton last quarter net of transportation expenses was $42.95, up from $40.37 in the first quarter of 2011.
Northern Appalachian Operations – As the largest producer of surface mined coal in Ohio, Oxford retains its position as a leading low-cost producer of steam coal in Northern Appalachia, the company noted. Oxford’s sales book in this area is fully contracted through 2013, with a major customer being American Electric Power (NYSE: AEP) and its Conesville power plant. During the first quarter, Oxford amended a coal sales contract with a “significant Northern Appalachian customer” to compensate Oxford for tons not shipped to the customer through a corresponding increase in sales price, Oxford noted. In addition, Oxford recently executed a 50,000-ton spot order with the same customer for delivery to a different power plant unit, further demonstrating the strength of Oxford’s customer relationships. Oxford had previously reported an amended contract with AEP.
Illinois Basin Operations – Oxford has idled two western Kentucky mines and significantly reduced operations at another mine. Oxford is now closing the two idled mines, which is expected to occur by the end of the year. Oxford is transferring 22 major pieces of equipment from here to its Northern Appalachian operations. Oxford is selling excess Illinois Basin equipment and expects to generate $10m to $15m in proceeds during the remainder of 2012. Oxford didn’t offer an update on a recent effort by customer Big Rivers Electric to terminate an 800,000-tons per year contract for this Kentucky coal due to complaints about coal quality specs.