SunCoke Energy (NYSE: SXC) said Dec. 11 that to mitigate the impact of significantly lower coal sale prices in its coal operations, it is accelerating the execution of an aggressive coal action plan intended to improve efficiencies and lower costs at its Jewell underground mining operations in Central Appalachia.
In addition, SunCoke said it plans to increase volumes sourced from its Revelation Energy surface mining venture and purchases of lower-priced third-party coal in 2013. Revelation is a contract mine operator. Total 2013 SunCoke coal sales are projected to be 1.7 million tons versus an estimated 1.5 million in 2012.
“2012 was a year of executing on our commitments and building the base for the future,” said Frederick “Fritz” Henderson, Chairman and CEO of SunCoke. “Our entire U.S. cokemaking fleet performed well, with our new Middletown operations making a substantial contribution. We made tangible progress in our growth strategy with the recently announced plan to form a cokemaking joint venture with VISA Steel in India, the filing of a permit application to potentially build another U.S. cokemaking facility and pursuit of a planned initial public offering of a Master Limited Partnership. We also generated significant free cash flow in 2012 and expect to close the year with nearly $240 million of cash.”
Henderson added: “Looking ahead to 2013, we expect to continue to drive operations excellence throughout our business. While we expect to maintain positive momentum in our cokemaking business, we nevertheless expect lower results in 2013, primarily due to a more than $40 per ton decrease in average sale prices in our coal mining segment. As a result, we estimate full year Adjusted EBITDA for 2013 will be between $205 million and $230 million, down roughly $40-$50 million from 2012.”
On the coke side of its business, the company expects sustained strong operations across its domestic fleet, with meaningful improvement at its Indiana Harbor facility in Indiana and the benefit of 12 months of full production at its new Middletown facility in Ohio. Partially offsetting these improvements, lower purchased coal costs per ton are expected to decrease the value of coal-to-coke yield benefits the coke operations realized in 2012. The company also expects to exceed 100% capacity utilization again in 2013, with projected coke production in excess of 4.3 million tons. SunCoke expects its domestic coke business will continue to achieve Adjusted EBITDA of $55 to $60 per ton in 2013.
Capital expenditures and investments are expected to increase from $70m in 2012 to approximately $200m in 2013. This projected increase is driven by about $75m for the refurbishment of the Indiana Harbor facility and environmental remediation projects at the Haverhill (Ohio) and Granite City (Illinois) facilities as well as an estimated $67m investment in the VISA SunCoke joint venture. Primarily as a result of the VISA SunCoke joint venture investment, the company anticipates a free cash flow deficit of approximately $65m for 2013. In addition, SunCoke expects both its 2013 effective tax rate and cash tax rate to be between 17% and 22%.
Members of SunCoke’s senior management team will host the company’s first Investor Day conference on Dec. 11. Presenters include: Henderson; Mike Thomson, President and COO; Dr. John Quanci, Vice President, Technology; Mike Hardesty, Senior Vice President, Sales and Commercial Operations; and Mark Newman, Senior Vice President and CFO.
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 Brazil. The coal mining operations, which have more than 114 million tons of proven and probable reserves, are mostly in Virginia, with some overlap into West Virginia.