Rhino Resource Partners LP (NYSE: RNO), like other U.S. coal producers, is emphasizing that it survived a lousy 2012 coal market and that things are looking up heading into 2013.
On Feb. 28, for the fourth quarter, the Kentucky-based company reported net income of $9.4m, compared to net income of $12.7m in the fourth quarter of 2011. Total revenues for the quarter were $86.5m, with coal sales generating $78.9m of the total.
Dave Zatezalo, President and CEO of Rhino’s general partner, stated: “We have continued to deliver positive financial results despite the ongoing weakness in both the met and steam coal markets. Our focus on safety and improved operating efficiency during 2012 has resulted in one of the best years for safety performance in our history.”
He added: “Our announcement of the initial multi-year coal sales contract for our Pennyrile property in western Kentucky provides us the opportunity to begin construction of the mine, with initial earthwork development scheduled to begin in the next few weeks and production targeted to commence in mid-2014. With Pennyrile located directly on the navigable Green River in western Kentucky, this property provides unique low cost access to a large customer base, including export markets, and we anticipate this project will generate long term, stable and predictable cash flows similar to our Hopedale and Castle Valley operations once it is at full production.”
Steam coal at Hopedale in Ohio and Castle Valley in Utah remains fully contracted through 2013 and 2014. In addition, Rhino steam coal customers that had previously delayed shipments earlier in the year took all of their 2012 contracted shipments by the end of the year.
Zatezalo said the company has completed contract negotiations with metallurgical coal customers for 2013 shipments at acceptable price levels, which will keep its Central Appalachia met mines open and work crews in place. “We continue to see an increase in inquires for our met coal, which have led to some limited spot met sales, giving us greater confidence that the met market has bottomed and is improving,” he added. “However, we only participate in these sales when prices are acceptable to us.”
Zatezalo said: “Our ongoing efforts at the Rhino Eastern joint venture to improve safety, productivity and cost structure at this operation have continued to show positive results. Due to weak market conditions, we have reduced production to align it with projected sales until market conditions improve.” Its joint venture partner at Rhino Eastern in southern West Virginia is Patriot Coal, which has been in Chapter 11 bankruptcy protection since July 2012.
At the Pennyrile deep mine project, the company has signed a multi-year initial sales contract with a regional utility customer for 800,000 tons per year and continues discussions with additional customers, which leads Rhino to believe there is a high level of interest for this quality coal. This is a large contiguous reserve with 32.5 million tons of fully permitted proven and probable reserves under lease, with opportunity to add an additional 15 million tons.
In other regions:
- Rhino’s Hopedale operation continues to perform well with contracted sales and predictable cash flows as customers who had previously delayed shipments have caught up on their contracted tonnage for 2012.
- Rhino’s Sands Hill operation in Ohio has reduced its production schedule to align 2013 production with committed sales while it seeks additional customer contracts.
- The Castle Valley mine continues to perform well, with over 1 million tons sold during 2012, which is more than twice the tons sold in 2011.
- Rhino has seen spot sales activity increase for coal from its Castle Valley mine, which provides additional cash flow opportunities for this operation.
- Rhino’s new Tug River prep plant is operational and being utilized on a reduced basis.
- Rhino is preparing highwall operations at its Remining 3 surface mine in West Virginia in order to efficiently produce met coal from this operation.
- Recent customer inquiries and spot met sales support Rhino’s view that utilization will increase at both the Tug River prep plant and highwall miner.
- The Remining 3 and Grapevine surface mines at the Tug River complex produce quality metallurgical coal that can take advantage of spot and term sales as the met coal market improves.
- Rhino Eastern’s new Eagle #3 deep 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 late this quarter.
- Production has been curtailed due to limited contracted sales commitments.
In 2013, in Northern Appalachia and the Illinois Basin, Rhino’s sales commitments are nearly 1.7 million tons at an average of $59.59/ton, with 1.3 million tons committed in 2014 at $59.18/ton. In 2013 at Rhino Western, there are 864,200 tons committed at $41.05/ton, and 1 million tons committed in 2014 at $42.38/ton. In Central Appalachia, the 2013 commitment is 919,160 tons at $83.50/ton, and in 2014 it is 132,000 tons at $75.50/ton.
For 2013, the company is projecting coal production and sales in the 3.7 million to 4.3 million ton range, which includes 51% of the Rhino Eastern joint venture.
Rhino’s results for the fourth quarter of 2012 included:
- Adjusted EBITDA of $21.9m and net income of $9.4m compared to Adjusted EBITDA of $24.6m and net income of $12.7m in the fourth quarter of 2011.
- Coal sales were 1.2 million tons compared to 1.3 million for the fourth quarter of 2011.
- Coal revenues per ton of $66.74 compared to $68.62 for the fourth quarter of 2011, a decrease of 2.7%.
- Cost of operations per ton of $51.14 compared to $53.44 for the fourth quarter of 2011, a decrease of 4.3%.
Results for the full year 2012 included:
- Adjusted EBITDA of $90.5m and net income of $40.2m compared to Adjusted EBITDA of $82.0m and net income of $38.1m for the year ended 2011.
- Coal sales of 4.7 million tons compared to 4.9 million tons for the year ended 2011.
- Coal revenues per ton of $65.22 compared to $68.47 for the year ended 2011, a decrease of 4.8%.
- Cost of operations per ton of $52.91 compared to $54.79 for the year ended 2011, a decrease of 3.4%.