SunCoke Energy (NYSE: SXC), a major producer of both metallurgical coal and coke, said July 26 that it is weathering a weak market pretty well, with second quarter 2012 net income attributable to shareholders of $22.7m, up slightly from $22.5m in second quarter 2011.
“Our U.S. cokemaking business delivered another strong quarter,” said Fritz Henderson, Chairman and CEO of SunCoke Energy. “The successful startup of our Middletown, Ohio facility, sustained improvement at Indiana Harbor and the continued strong performance of our other U.S. cokemaking facilities were key drivers of the nearly $28 million increase in Adjusted EBITDA we achieved in the second quarter. While our coal business remains challenging, we made progress improving our mining productivity and lowering costs versus first quarter 2012. We believe we will successfully navigate the difficult current coal environment and expect to manage our coal business to be cash neutral in 2012.”
Henderson continued: “For full year 2012, we continue to expect to deliver between $250 million and $280 million in Adjusted EBITDA. We’ve updated our 2012 outlook for capital expenditures and free cash flow. We now expect 2012 capital expenditures to be about $85 million and free cash flow to be in excess of $100 million.”
The Middletown coke plant is located at, and feeds coke into, the AK Steel plant next door. Indiana Harbor is a longstanding coke plant in Indiana.
In the second quarter of 2012, total revenues rose 22% to $460.9m versus second quarter 2011, primarily driven by sales at the Middletown facility and the pass-through of higher coal costs at the Jewell Coke segment in southwest Virginia. The Middletown facility contributed $72m to the increase in revenues in the second quarter.
Increases in operating income and Adjusted EBITDA, which grew 99% and 74%, respectively, versus second quarter 2011 reflect the contribution of the Middletown facility, improvement at the Indiana Harbor facility and continued strong performance in the company’s Other Domestic Coke and Jewell Coke segments. This was partly offset by the Coal Mining segment due to weak results in high-vol and thermal coal operations.
The Jewell Coke segment consists of cokemaking operations in Vansant, Va. Substantially all of the metallurgical coal used at Jewell is supplied from SunCoke’s nearby coal mining operations. Beginning in first quarter 2012, the intersegment coal costs charged to the Jewell Coke segment are reflective of the contract price Jewell Coke charges its customer. Prior year periods were adjusted to reflect this change.
Other Domestic Coke consists of cokemaking facilities and heat recovery operations at the Indiana Harbor, Haverhill (Ohio), Granite City (Illinois) and Middletown plants. The Middletown facility began operations in October 2011. On Sept. 30, 2011, SunCoke increased its ownership interest in the partnership that owns the Indiana Harbor cokemaking facility from 66% to 85% by acquiring the interest held by one of the unaffiliated third-party partners.
Coal production up in the second quarter, due in part to Revelation Energy
Coal Mining consists of metallurgical coal mining activities conducted in Virginia and West Virginia. A substantial portion of the metallurgical coal produced by the coal mining operations is sold to the Jewell Coke segment for conversion into metallurgical coke. Total coal output in the second quarter was 401,000 tons, up from 340,000 tons in the year-ago quarter. The average coal sales price in the second quarter, excluding transportation costs, was $166.73/ton, up from $161.79 in the year-ago quarter.
Coal Mining segment revenues (excluding sales to affiliates) benefited from higher sale prices for mid-vol coal and increased volumes from a mining venture with Revelation Energy LLC, partly offset by lower volumes and prices of high-vol and thermal coal sales.
Revelation Energy, which specializes in Central Appalachia surface mining, is managed by coal executive Jeff Hoops and SunCoke has contracted with him to produce extra coal off of SunCoke properties. An example operation from the U.S. Mine Safety and Health Administration database is the S-5 Jones Fork strip mine in Buchanan County, Va. The MSHA registration for that mine was transferred in November 2011 from SunCoke’s Jewell Smokeless Coal unit to Revelation Energy. The mine was first listed with MSHA in 2004 and produced coal only in the 2004-2005 period before a restart by Revelation earlier this year, with production of 94,874 tons in the first half of this year.
SunCoke’s adjusted EBITDA decreased in second quarter 2012 due to higher coal cash production costs and lower sales of high-vol and thermal coal, partly offset by higher sales of mid-vol coal. Coal cash production costs per ton increased over the prior year due to a change in the mix of coal produced. Specifically, high-vol and thermal coals, which are generally mined at a lower cost per ton than mid-vol coal, represented a smaller portion of sales and production in second quarter 2012 than in the same prior year period.
In 2012, domestic coke production is expected to be in excess of 4.3 million tons, while coal production is projected to be approximately 1.6 million tons.
SunCoke Energy is the largest independent producer of metallurgical coke in the Americas. Its advanced, heat recovery cokemaking process produces high-quality coke for use in steelmaking, captures waste heat for derivative energy resale and meets or exceeds environmental standards. Its cokemaking facilities are located in Virginia, Indiana, Ohio, Illinois and Vitoria, Brazil, and its coal mining operations, which have more than 114 million tons of proven and probable reserves, are located in Virginia and West Virginia.