Kentucky-based Rhino Resource Partners LP (NYSE: RNO), battling a weak coal market, reported Nov. 1 that it had adjusted EBITDA of $21.3m and net income of $8.9m in the third quarter, compared to adjusted EBITDA of $21.3m and net income of $9.8m in the third quarter of 2011.
Total revenues for the third quarter were $93.6m, with coal sales generating $83.9m of the total.
Dave Zatezalo, President and CEO of Rhino’s general partner, stated: “Our positive third quarter results were delivered despite the continued weakness in both the met and steam coal markets. We have maintained our focus on safety and improved operating efficiency and I am pleased to announce that two of our operations in our Central Appalachia segment have received awards from the Kentucky Office of Mine Safety and Licensing as having the best safety records for surface and underground mines in their respective districts. In addition, one of our operations in eastern Kentucky received a reclamation award sponsored by the Kentucky Department for Natural Resources and the Kentucky Coal Association in recognition of the best reclamation in their respective region.”
The company has lowered its overall inventory by more than 155,000 tons from peak levels, reduced its long-term debt balance by approximately $7.8m during the third quarter. It also spent about $9m on expansion capital expenditures during the quarter, primarily with its oil and gas investment in the Utica production region, but in other areas as well.
The steam coal at the Hopedale operation in Ohio and the Castle Valley mine in Utah remains fully contracted through 2013 and 2014. “We are seeing some increase in met coal inquiries and continue to see some limited spot met sales,” Zatezalo said. “However, we only participate in these sales when prices are acceptable to us. In addition, we have continued to see reasonable activity from steam customers that had previously delayed shipments in Northern and Central Appalachia as well as in our Western Bituminous operation. We continue the process of contracting our 2013 met coal and while prices in the met coal markets are depressed, we have placed the majority of the 2013 tonnage that is needed for us to keep these mines open and work crews in place.”
Zatezalo said the company has begun production at the Eagle #3 deep mine in southern West Virginia under its Rhino Eastern joint venture with Patriot Coal and that Rhino Eastern has continued to show positive results due to ongoing efforts to improve safety, productivity and cost structure at this operation. Despite the Patriot Coal bankruptcy, which began July 9 and continues today, operations at the Rhino Eastern joint venture have been proceeding normally, he added.
Breaking down developments by operating region:
- Operations resumed on July 9 at the majority of Rhino’s Central Appalachia locations after a five-week furlough to reduce inventories.
- Rhino’s Tug River prep plant is operating on a limited basis and once market conditions improve and the plant operates at full capacity, management expects significant cost savings and increased production flexibility from this operation.
- The Remining 3 surface mine at the Tug River complex is developed and began limited production in the second quarter.
- Rhino is permitting a No. 7 seam reserve that will be accessed from the existing portal and infrastructure at Hopedale in Ohio to provide up to 1 million tons of annual production similar in quality to Hopedale’s current coal within the next 18 months, depending on market conditions.
- Rhino’s Clinton Stone operation has sold over 370,000 tons of limestone in 2012, which represents a 29% increase year over year.
- The Castle Valley deep mine in Utah continues to perform well, with over 300,000 tons sold during the third quarter.
Pennyrile (Illinois Basin)
- Rhino has made substantial progress in securing anchor customers that will underpin the development of the recently-acquired Pennyrile underground mining property in western Kentucky. The board of directors of Rhino’s general partner has approved phase one capital for the earth work development of Pennyrile. Rhino expects this operation will become a significant source of long term positive cash flow going forward.
- Rhino Eastern has demonstrated substantial organizational development, which is evident in the safety and operating results at this operation.
- Rhino Eastern’s new Eagle #3 mine began production during the third quarter of 2012. At full capacity, Eagle #3 is expected to produce at a rate of about 490,000 tons per year. Eagle #3 will replace and expand on Eagle #1 production, which will deplete in late in the first quarter of 2013.
- Rhino Eastern continues to plan for the opening of a Sewell-seam mine, along with a new prep plant, as market conditions allow.
Rhino outlines 2013 and 2014 sales commitments
As for sales commitments, in Northern Appalachia in 2013 the company has 1.64 million tons committed at an average of $59.32/ton, and 1.18 million tons committed at $60.74/ton in 2014. At Rhino Western, the 2013 commitment is 860,000 tons at $41.02/ton, and in 2014 it is 1 million tons at $42.38/ton. In Central Appalachia, the 2013 commitment is 873,600 tons at $83.99/ton, and in 2014 it is 172,000 tons at $76.19/ton.
Coal sales in the third quarter of this year were 1.3 million tons compared to 1.2 million for the third quarter of 2011. Coal revenues per ton this past quarter of $64.33 compared to $65.61 for the third quarter of 2011, a decrease of 2%. Cost of operations per ton in the third quarter of $53.19 compared to $55.22 for the third quarter of 2011, a decrease of 3.7%.
Total coal revenues increased approximately 2.3% primarily due to an increase in tons sold at Castle Valley. Coal revenues per ton decreased primarily due to a higher mix of lower priced coal from the Rhino Western operations. While cost of operations increased slightly year to year, cost of operations per ton decreased primarily due to a higher mix of lower cost tons from Rhino’s Castle Valley operation, the company noted.
In the first nine months of this year, coal sales of 3.5 million tons compared to 3.6 million tons for the first nine months of 2011. Coal revenues per ton of $64.70 compared to $68.42 for the first nine months of 2011, a decrease of 5.4%. Cost of operations per ton of $53.51 compared to $55.29 for the first nine months of 2011, a decrease of 3.2%.
Rhino produces and markets coal from surface and underground mines in eastern Kentucky, southern West Virginia, Ohio and Utah. In addition, with the June 2011 acquisition of The Elk Horn Coal Co. LLC, it also leases coal reserves in eastern Kentucky to third parties in exchange for royalty revenues. For the quarter ended Sept. 30, 2012, Rhino had four reportable business segments: Central Appalachia (includes results for Elk Horn), Northern Appalachia, Rhino Western and Eastern Met (comprised solely of the joint venture with Patriot Coal).
For the full year 2012, Rhino maintains its previously provided guidance. Guidance for production tons and sale tons includes 51% of expected activity from Rhino Eastern. The 2012 guidance is:
- Revenue – $320m-$340m
- Net Income – $33m-$43m
- Adjusted EBITDA – $80m-$90m
- Maintenance CapEx – $15m-$18m
- Production – 4.2 million to 4.5 million tons
- Sales – 4.3 million to 4.6 million tons