SunCoke Energy (NYSE: SXC) said Oct. 24 that its coke-making operations fared well in the third quarter, but the company is continuing to cuts costs in its coal-mining division, which operates mostly in southwest Virginia, due to slack markets for that coal.
SunCoke reported third quarter 2012 net income attributable to shareholders of $31.6m, up from $18.2m in third quarter 2011.
“Our third quarter performance demonstrates the power of a consistent focus on operational excellence,” said Fritz Henderson, Chairman and CEO of SunCoke. “Our entire U.S. cokemaking fleet continued to deliver strong results, with our new Middletown facility fueling a significant portion of the increase. Adjusted EBITDA increased 62 percent to $72.4 million in the third quarter and U.S. Domestic Coke Adjusted EBITDA per ton at $61 exceeded our target.”
Henderson added: “Our coal mining segment finished the quarter up slightly as a result of higher year-over-year sales prices and volumes and the favorable impact of a contingent consideration adjustment. However, higher production costs and reject rates offset most of this benefit. In light of the continuing weak coal environment, we are taking more aggressive actions to reduce costs and improve productivity in our coal mining business to position ourselves for 2013.”
SunCoke is estimating that full year 2012 Adjusted EBITDA will be $255m to $270m and 2012 capital expenditures will total about $75m.
Total revenues rose 19% to $480.5m in third quarter 2012, largely driven by sales at the new Middletown facility, located at an AK Steel plant in Ohio, which contributed $76.7m to revenue. A climb in operating income and Adjusted EBITDA, which grew 76% and 62%, respectively, reflected the contribution of the Middletown facility, lower corporate costs and continued solid performance across all cokemaking facilities.
The Jewell Coke segment consists of cokemaking operations in Vansant, Va. Substantially all of the metallurgical coal used at Jewell is supplied from the company’s 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. This segment sold 183,000 tons of coke in the third quarter, down slightly from 191,000 tons in the year-ago quarter.
Other Domestic Coke consists of cokemaking facilities and heat recovery operations at the Indiana Harbor (in Indiana), Haverhill (Ohio), Granite City (Illinois) and Middletown plants. The Middletown facility commenced 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. This segment sold 933,000 tons of coke in the third quarter, up from 777,000 tons in the year-ago quarter. Excluding Middletown, segment Adjusted EBITDA benefited from solid performance across all facilities reflecting better coal-to-coke yield and operating expense recovery versus third quarter 2011, partly offset by lower energy sales.
The coal segment consists of met coal mining activities in Virginia and West Virginia. Beginning in first quarter 2012, intersegment coal revenues for sales to the Jewell Coke segment are reflective of the contract price Jewell Coke charges its customer. Coal production last quarter was 349,000 tons, up slightly from 340,000 tons in the third quarter of last year. The average coal sales price last quarter was $165.17/ton, up from $154.85/ton in the year-ago quarter. Coal Mining segment revenues benefited from higher average sale prices and higher internal sales volumes. The higher average sales price reflects a favorable shift in mix with mid-vol coal representing a larger proportion of coal sold in third quarter 2012.
An increase in Adjusted EBITDA for the coal segment reflects higher sales of mid-vol coal offset by increased production costs reflecting a change in mix of coal mined as mid-vol coal, which generally costs more to mine, represented a larger portion of third quarter 2012 production. Additionally, the current period benefited by about $1.3m due to a favorable fair value adjustment related to the Harold Keene Coal Co. contingent consideration arrangement.
For 2012, domestic coke production is expected to be in excess of 4.3 million tons, with coal production projected to be about 1.4 million tons.
SunCoke 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. Cokemaking facilities are located in Virginia, Indiana, Ohio, Illinois and Vitoria, Brazil, and the coal mining operations, which have more than 114 million tons of proven and probable reserves, are located in Virginia and West Virginia.