Reduction in Highvale demand reduces Sherritt coal output

Canada’s Sherritt International (TSX: S) said Oct. 31 that for its Prairie Operations, which are largely captive to nearby power plants, projected full-year 2012 coal production of 31 million tonnnes is 6% (2 million tonnes) lower than previous guidance, reflecting lower production at the Highvale mine due to reduced customer demand.

Third-quarter 2012 production volumes at the Prairie Operations, at 7.3 million tonnes, were 5% (0.4 million tonnes) lower than third-quarter 2011 mainly due to unscheduled dragline and shovel maintenance at the contract Highvale mine and a planned dragline maintenance at the Bienfait mine. The Highvale strip mine supplies coal to the Sundance and Keephills power plants under a contract with TransAlta (TSX:TA and NYSE:TAC).

Sherritt’s Prairie Operations operates seven minemouth mines in Alberta and Saskatchewan. These mining operations supply electricity generators with coal under secure long-term contracts. Production in 2011 from these minemouth operations was approximately 32.7 million tonnes.

Third-quarter production volumes of 0.9 million tonnes at the Mountain Operations, which largely serve the export steam coal market, were approximately 10% (0.1 million tonnes) lower than the prior-year quarter, mainly due to a planned reduction at the Obed Mountain mine in order to achieve an optimal thermal export sales mix in a declining price environment. The reduction at Obed Mountain was partially offset by higher production at the Coal Valley mine, made possible by additional loading equipment and mining activity in the Yellowhead Tower area, both of which occurred in second-quarter 2012.

For the first nine months of 2012, Prairie Operations production was about even with the same period in 2011, at 22.9 million tonnes in each period. Mountain Operations output in the first nine months of this year came in at 2.7 million tonnes, down from 3.1 million tonnes in the same nine-month period of 2011. 

Realized pricing (excluding royalties, char and activated carbon) for third-quarter 2012 at Prairie Operations, at C$17.47/tonne, was 8% (C$1.27/tonne) higher than third-quarter 2011, mainly due to higher cost recoveries at both the Highvale mine and the Genesee mine, as well as the unit impact of fixed revenue over lower sales volumes at the Paintearth, Sheerness and Poplar River mines.

Realized pricing at the Mountain Operations of C$100.32/tonne for third-quarter 2012 was 2% (C$2.07/tonne) lower than the prior-year period, primarily due to weaker international export coal prices.

Third-quarter unit operating costs at Prairie Operations were 6% (C$0.90/tonne) higher relative to the prior-year period, due to the impact of the fixed cost component of unit costs being distributed over lower sales volumes.

Unit operating costs at Mountain Operations for third-quarter 2012 were relatively unchanged compared to the prior quarter despite the small reduction in production volumes.

The environmental rehabilitation obligation (ERO) in the coal segment was reviewed during third-quarter 2012 in response to new reclamation bonding requirements under the Mine Financial Security Program in Alberta. As a result of the review, the ERO obligation was revised upward by C$12.2m, reflecting updated cost and productivity assumptions for reclamation activities on the existing footprint of disturbed land in the Mountain Operations.

Spending on capital at Prairie Operations for third-quarter 2012, at C$23.6m, was 12% (C$2.6m) higher than third-quarter 2011, primarily due to the timing of equipment arrivals at the sites.

Spending on capital at Mountain Operations, at C$4.7m, was 15% (C$0.8m) lower for third-quarter 2012 compared to the prior-year period, reflecting the timing of equipment arrivals at the Coal Valley mine, with the majority of 2012 deliveries occurring in the second quarter.

At the Mountain Operations, full-year 2012 production remains unchanged from previous guidance. Capital spending for 2012 is 5% (C$3m) lower than prior guidance, reflecting management’s efforts to reduce or defer capital to maximize cash flows.

Sherritt is a world leader in the mining and refining of nickel from lateritic ores with projects and operations in Canada, Cuba, Indonesia and Madagascar. It is the largest coal producer in Canada and is the largest independent energy producer in Cuba, with extensive oil and power operations across the island.

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.