Rhino sees strength and weakness in current coal market

Kentucky-based coal producer Rhino Resource Partners LP (NYSE: RNO) said in a June 5 operational update that the Deane operation was able to ship some extra coal to an existing customer while other operations have been idled.

Rhino, like other U.S. coal producers, has had to cut back operations lately due to a very weak steam coal market and a somewhat weak metallurgical coal market. The update was broken down by region.

Northern Appalachia

  • Rhino’s Hopedale operations in Harrison County, Ohio, are performing according to plan, with geological conditions generally improving. U.S. Mine Safety and Health Administration data shows the Hopedale deep mine produced 283,880 tons in the first quarter of this year and 1.3 million tons in all of 2011.
  • Mining activities at the Sands Hill surface mines in Ohio are performing well as Rhino maintains a focus on efficiency and cost control. MSHA data shows the Sands Hill Strip as active and the Sands Hill Strip #2 as “temporarily idled,” with last production in 2005. Obviously, MSHA has a loose definition of “temporarily.” The active Sands Hill Strip turned out 216,768 tons in the first quarter of this year and 890,438 tons in all of 2011, according to MSHA data.
  • Rhino produced about 308,000 tons of steam coal from its Northern Appalachia operations during the first two months of Q2 2012.

Central Appalachia

  • Coal shipments at Rhino’s Deane operations in eastern Kentucky have begun to increase as a major customer that had been delaying deliveries has requested additional shipments. MSHA has three operations listed under Rhino’s Deane Mining LLC unit: the active Mill Creek prep plant; the nonproducing Love Branch deep mine; and the active Access Energy deep mine.
  • Rhino’s operations at its Bevins Branch mine in Pike County, Ky., continue to operate as planned as Rhino fulfills contracted steam coal orders from this location. MSHA data shows the Bevins Branch #1 strip mine produced 108,648 tons in the first quarter of this year and 448,907 tons in all of 2011.
  • Rhino produced about 82,000 tons of met coal and 128,000 tons of steam coal from its Central Appalachia operations during the first two months (April-May) of the second quarter of 2012. Due to high productivity, production has outpaced sales despite reduced hours and shifts at its Central Appalachia operations.
  • Rhino had about 181,000 tons of met coal inventory and 130,000 tons of steam coal inventory in Central Appalachia as of May 31. Normal coal inventory levels for this region should be around 70,000 tons of met coal and 40,000 tons of steam coal. Rhino said it has taken steps to return inventories to these levels by the end of 2012.
  • Rhino has temporarily idled mining operations at its Rob Fork and Tug River complexes in eastern Kentucky and southern West Virginia to reduce inventory levels, primarily of met coal. This involves the temporary layoff of a number of its direct mining personnel. Rhino anticipates the temporary idling to last about five weeks. During this production curtailment period, customer shipments will continue at a normal pace based on current shipping schedules, allowing Rhino to monetize excess inventory and reduce bank borrowings. 
  • Based upon current contracted prices, Rhino expects to monetize about $18m by year-end 2012 by reducing excess Central Appalachia inventory.
  • Rhino anticipates the reduction in Central Appalachia production will have minimal impact on its 2012 projected net income and Adjusted EBITDA.

Rhino Western

  • The Castle Valley deep mine in Utah will ramp up to full production as the force majeure notice that began at the end of 2011 from one of its major customers has been lifted. Castle Valley produced about 148,000 tons of steam coal during the first two months of Q2 2012. The mine is known officially in the MSHA database as Castle Valley #4. It produced 239,092 tons in the first quarter of this year and 571,956 tons in all of 2011, after a restart in the first quarter of 2011 following a long shutdown under a prior owner.

Eastern Met

  • Rhino Eastern LLC, a joint venture in southern West Virginia with Patriot Coal (NYSE: PCX), has begun operations at its new Eagle #3 mine in Wyoming County. Coal sales of Eagle-seam met coal continue to be relatively strong. At full capacity, Eagle #3 is expected to produce at a rate of about 490,000 tons per year.
  • Rhino Eastern produced about 64,000 tons of met coal during the first two months of Q2 2012. MSHA data shows Rhino Eastern’s Eagle #1 and Eagle #2 deep mines as active, while the long-shut (last production in 2005) Sewell No. 1 deep mine is counted as “nonproducing.”
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.