James River Coal loses $25.8m in Q2, sees some signs of market turnaround

James River Coal (NASDAQ: JRCC), a major coal producer in Central Appalachia and a presence in the Indiana coal business, said Aug 9 that it had net loss of $25.8m for the second quarter of 2012 and a net loss of $41.4m for the six months ended June 30.

These 2012 results are compared to net income of $0.8m for the second quarter of 2011 and net loss of $6.8m for the six months ended June 30. Like other coal producers, James River Coal has been hammered lately by one of the worst coal markets in years, particularly on the domestic steam coal side of the market.

Peter Socha, James River Chairman and CEO, commented: “We are both pleased and cautious this quarter. In the operations area, we are very pleased to report that we have received five significant permits for our surface mining operations. Our operations team has put a tremendous amount of time and effort into obtaining these permits. They showed flexibility and creativity in working with state and federal regulatory authorities in finding solutions that would meet the needs of all parties. Our operations team has also continued to demonstrate their ability to quickly adapt to changing market conditions. Both the met and the thermal coal markets are in a state of transition. The met market has softened recently due to global macroeconomic concerns and a slight oversupply situation. We are cautious about the met market in the short term, but continue to be very enthusiastic about the demand for these coals going forward. The construction of global infrastructure is continuing. The thermal market is just beginning to show signs of recovery. We believe that this is due to production cutbacks throughout the industry as well as improved demand for both coal and natural gas due to warmer than normal temperatures. Our sales and marketing team has done a great job of shipping coal under existing contracts and finding pockets of opportunity in difficult markets. We continue to be pleased with our balanced approach to operating assets, customer markets, and financial stability.”

On the plus side, the company noted in its earnings presentation that Central Appalachia prices have risen about 25% in the last six weeks, while steam coal stockpiles are starting to fall due to coal production cutbacks and a hot summer that it cranking up power generator coal burn. James River said that utilities are generally waiting until this fall to solicit for 2013 coal needs. Also, the prices for competing natural gas are starting to rise from historic lows of earlier this year.

James River produced 2.5 million tons of coal in the second quarter, against 2.6 million tons in the year-ago quarter. It bought 434,000 tons for resale in the second quarter, down from 566,000 tons in the year-ago quarter.

Its coal sales revenue last quarter came in at $89.22/ton, down from $100.64/ton in the year-ago quarter. The cost of coal sold was $77.08/ton last quarter, down from $80.99/ton in the second quarter of 2011.

James River scores five permits from state and federal regulators

C.K. Lane, the company’s Senior Vice President and COO, said about the newly-issued permits: “James River Coal is continuing to use innovative approaches to permit design, along with working cooperatively with the Environmental Protection Agency (EPA), the Corps of Engineers (COE) and state agencies to adapt to the realities of today’s permitting environment. As a result we are pleased to announce that we have received 5 surface mining permits that will allow us to extend existing operations for several years.”

  • The Freelandville Section 404 Clean Water Act permit allows the mining of approximately 4.2 million tons of surface coal currently under lease at Triad Mining‘s Freelandville mine in Indiana. There are additional leases that could be acquired to add on additional tonnage.  
  • The Rough Creek Surface Mining Control and Reclamation Act permit will allow Triad to surface mine Indiana No. 5 reserves at the Log Creek Complex that were originally slated to be mined by underground methods. In addition to the increased extraction of the Indiana No. 5 coal, additional reserves in the Indiana No. 6 and Indiana No. 5B will also be available. Total reserves associated with this permit are about 5.8 million tons.
  • The Stacy Branch Section 404 permit in eastern Kentucky has been received by James River Coal Service. This is one of the few hollow fill permits issued in Central Appalachia in the last five years. This will open up approximately 3.4 million tons of high quality coal. 
  • The Kentucky Department for Natural Resources permit for the Wolfpen mine has been received by James River Coal Service. This will extend the life of the company’s lowest cost surface operation, Frasure Branch. The Wolfpen permit gives access to 2.9 million tons of high-quality, low-sulfur coal.
  • The Canebrake permit for Hampden Coal has been approved by the EPA and is awaiting minor revisions by the West Virginia Department of Environmental Protection to accommodate a change in mine plans that is better suited for today’s market. This permit opens up about 1.9 million tons of low-cost metallurgical coal.

In its second quarter earnings presentation, the company also listed some other ongoing mine development work.

  • The company developed an in-seam slope in the Bledsoe Coal Abner Branch mine that is expected to improve cost and quality.
  • The company’s Bell County Coal Garmeada mine has been converted to a super-section operation.
  • James River continued to upgrade the equipment fleet at the Hampden Coal met coal mines in southern West Virginia.
  • The company has begun development of a 3.3 million-ton underground replacement mine at Blue Diamond Coal in eastern Kentucky.
  • Development has begun at Triad Mining in Indiana on the 600,000-ton Hurricane Creek surface mine to replace the Augusta surface mine.

James River lays out coal sales position for 2012-2014 period

As of Aug. 8, the company had 9.4 million tons of 2012 Central Appalachia coal sales committed and priced at an average of $96.56/ton. On May 2, the company had 8.6 million tons of Central Appalachia coal committed at $94.83/ton. Priced tons in CAPP in 2012 do not include approximately 300,000 tons of met coal that have been sold but not yet priced.

As of Aug. 8, James River had 2.8 million tons of Indiana coal committed at $44.16/ton, unchanged from the figures put out on May 2.

As of Aug. 8, Central Appalachia (CAPP) coal sales deals for 2013 cover 1.3 million tons of coal at $79.32/ton, against 1.3 million tons at $80.45/ton back on May 2. As of Aug. 8, the Indiana sales for 2013 stood at 2.1 million tons at $45.35.ton, unchanged from the May 2 update. Priced tons in CAPP in 2013 do not include about 900,000 tons of met coal that have been sold but not yet priced.

As of Aug. 8, the 2014 commitments were 300,000 tons in Central Appalachia at $75.75/ton, unchanged from May 2. And the Indiana tonnage commitment on Aug. 8 was 700,000 tons at $49/ton, again unchanged from May 2.

The prices for Indiana coal in all three years, 2012-2014, are minimum base price amounts adjusted for projected fuel escalators.

James River also said it is reaffirming 2012 guidance with the exception of capital expenditure guidance which was withdrawn on May 3. The company is in the process of assessing its capital needs for the remainder of the year.

James River sells metallurgical, bituminous steam and industrial-grade coal to electric utility companies and industrial customers both domestically and internationally. The company’s operations are managed through eight operating subsidiaries located throughout eastern Kentucky, southern West Virginia and southern Indiana.

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.