Xinergy loses money in Q2, slashes 2012 met coal sales forecast

Xinergy Ltd. (TSX: XRG), a Central Appalachian coal producer, on Aug. 13 reported a second quarter net loss of $14.5m as compared to a net loss of $2.8m in the same quarter last year.

The increased net loss was a result of significantly lower production and sales during the second quarter of 2012.

In the second quarter of 2012, the company reported coal revenues of $23.1m on 363,495 tons sold ($63.37 per ton) compared to $40.6m on 510,381 tons sold ($79.62 per ton) for the same quarter a year ago. Total cash costs were $21.6m or $79.22 per ton produced compared to $30m or $58.39 per ton a year ago.

Matt Goldfarb, Xinergy Interim CEO, said: “We continue to manage through near-term cyclical and secular challenges in the domestic coal industry, with the thermal coal market beginning to show signs of a recovery while the fundamentals of the metallurgical coal market have begun to reflect increasing concern surrounding growth rates in Asia and economic uncertainty in Europe. The Company remains constructive on the long-term market position of our high quality metallurgical and low-cost CAPP thermal assets, and has accordingly prioritized a measured approach to our operating portfolio and balance sheet stability as we await signs of a more pronounced recovery. Xinergy has taken decisive steps to align our operations for today’s market environment, having idled our Raven Crest and True Energy operations as we continue our efforts to efficiently manage inventory. While we have attempted to relocate certain employees from idled operations to our South Fork mid-vol met operations, we regretfully had no other option than to further reduce workforce as we continued to curtail production to match a lower demand environment.”

He added: “On a positive note, we are pleased to announce that we have entered into definitive documentation to acquire for $4 million cash a mid-vol met property adjacent to our South Fork operation which we anticipate would, if consummated, significantly increase our mid-vol metallurgical production capacity in West Virginia upon project completion. In early August, we received requisite permits to begin mining operations at Blue Knob, which is our second surface mine at our South Fork complex, and further anticipate receipt of all requisite permits to commence construction of our preparation plant and rail load-out facility at South Fork during the third quarter.”

South Fork is an operation located in Greenbrier County, W.Va., an area known for its high-quality met coals but also for difficult, thin-seam mining conditions. West Virginia Department of Environmental Protection records show that a permit was issued Aug. 2 to South Fork Coal Co. LLC for the 852-acre Blue Knob No. 1 surface mine, located near Richwood. The mine would work the Sewell, Sewell A and Sewell B coal seams.

Xinergy sharply cuts 2012 met coal sales guidance

Xinergy’s revised thermal coal sale guidance for 2012 calls for:

  • 0.7-0.8 million in sales from the Straight Creek operation in eastern Kentucky, up slightly on the low end from prior guidance of 0.6-0.8 million tons; and
  • sales of 0.2-0.3 million tons at Raven Crest in southern West Virginia, the same as before.

The revised 2013 sales guidance for thermal coal is 0.7-0.9 million tons from Straight Creek and 0.3-0.4 million tons from Raven Crest.

The revised 2012 met coal sales guidance is:

  • 80,000-100,000 tons from South Fork, down sharply from prior guidance of 360,000-480,000 tons; and
  • 40,000-50,000 tons from True Energy in Virginia, down from the prior 200,000-250,000 tons.

The revised 2013 met coal sales projections are:

  • 300,000-400,000 tons from South Fork, down from the previous 800,000-1 million tons; and
  • no sales from True Energy, against a prior projection of 250,000-300,000 tons.

Xinergy spent about $24m on capital expenditures for the six months ended June 30. The company estimates an additional $12m to $14m in capital expenditures will be incurred during the remainder of 2012, for a total of $36m to $38m for the full year 2012.

Of the remaining capital expenditures, $11m to $12m will be for the continued development and expansion of the South Fork property including the construction of a coal preparation plant and rail loading facility, the acquisition of additional reserves and a payment due the previous owners upon receipt of the Blue Knob permit. The remaining capital expenditures of $1m to $2m will be for maintenance capital that will be incurred at other properties.

As of June 30, the company had available liquidity of $53.5m. During July, the company secured a $20m financing commitment from Marret Asset Management that contemplates issuance of $20m in principal amount of first lien senior secured notes, which would bear interest at a rate of 9.875% per annum, have a three-year term and be issued at an original issue discount of 98% of face amount.

Company idled various operations as coal markets slumped

Raven Crest Mining LLC controls a 12,000-acre surface mining operation in Boone County, W.Va. Raven Crest operated one surface mine and one highwall miner until July at which time these two mining operations were idled due to weak market conditions. Xinergy continues to operate a CSX-served unit train loading facility on this property, allowing it to continue inventory reductions.

In March 2011, Xinergy entered into leases with Penn Virginia Operating Co. LLC for an additional 13,000-acre tract known as Brier Creek, which is adjacent to and north of the Raven Crest properties in Kanawha and Boone counties. These leases include surface and underground thermal coal reserves and also include permits for a coal preparation plant and refuse area adjacent to the Raven Crest unit train loading facility. Xinergy began site preparation work and construction on a new prep plant, upgrades to an existing unit train loadout and development of two underground mines in the third quarter of 2011. In the first quarter of this year, due to unfavorable market conditions, it halted construction of the prep plant and idled production from the Brier Creek underground mine that had commenced in the fourth quarter of 2011.

In January 2011, Xinergy acquired 14,000 acres of coal mineral leases in Greenbrier County through South Fork Coal. The acquisition included permits that were recently transferred to the company by the West Virginia DEP for the Lost Flats surface mine. The company received all necessary final approvals and permits in the fourth quarter of 2011 for Lost Flats and began development work in December 2011. The Lost Flats mine is in the Sewell coal bed and began limited production in April. Xinergy also leased about 21,000 additional acres adjacent to this property in January.

The Kentucky properties include the Straight Creek thermal coal operations in Bell, Clay, Harlan and Leslie counties. Straight Creek consists of about 48,000 acres and currently has one company-operated surface mine and one contractor-operated underground mine. Xinergy also operates a prep plant and a CSX-served unit train loading facility at Straight Creek. It purchased this property in March 2008 and commenced mining in April 2008. In December 2011, Xinergy acquired a property adjacent to Straight Creek referred to as Red Bird. The Red Bird assets consist of coal properties in Bell, Clay and Leslie counties, including permits and reserves.

In July 2011, through wholly-owned subsidiary Xinergy of Virginia LLC, the company acquired 100% of the membership interest of True Energy LLC, a high-vol metallurgical surface mining operation in southwestern Virginia. It currently operates one surface mine on this property, however, it began the process of temporarily idling this mine in August due to poor market conditions. The company received an additional permit in April that will allow it to increase production if and when market conditions warrant.

Headquartered in Knoxville, Tenn., Xinergy Ltd., through its wholly owned subsidiary Xinergy Corp. and its subsidiaries, is engaged in coal mining in eastern Kentucky, West Virginia and Virginia. Xinergy sells high quality thermal and metallurgical coal to electric utilities, steelmakers and industrial companies.

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.