The North American Coal unit of NACCO Industries (NYSE: NC), which mostly produces lignite coal for captive power plants, had net income for the fourth quarter of 2012 of $8.3m and revenues of $50.9m compared with net income of $11.9m and revenues of $23.5m for the fourth quarter of 2011.
NACCO said in a March 6 earnings statement that the coal operation had fourth quarter 2012 income before taxes of $13.3m compared with $13.2m in the fourth quarter of 2011. On Aug. 31, 2012, North American Coal acquired Reed Minerals, a coal mining business in Alabama which produces steam and metallurgical coal, which sharply diversified the company’s presence in coal. Fourth quarter 2012 financial results include $21.6m of revenues and $1m of net income from the Reed Minerals operations.
North American Coal’s deliveries for the fourth quarter of 2012 compared with the fourth quarter of 2011, included 7 million tons of coal, down from 7.2 million tons.
In all of 2012, North American Coal reported net income of $32.8m and revenues of $132.4m compared with net income of $29.4m and revenues of $81.8m for 2011. it delivered 28.4 million tons of coal in 2012, up from 27.9 million tons in 2011.
In 2012, North American Coal generated negative cash flow before financing activities of $6.1m, which was comprised of net cash provided by operating activities of $50.2m less net cash used for investing activities of $56.3m, which included cash paid for the Reed Minerals acquisition of about $69.3m, cash paid for two draglines of $26.8m and proceeds received from two dragline sales totaling $31.2m and the collection of a long-term note related to the prior sale of a dragline of $14.4m.
North American Coal expects steady operating performance at its coal mining operations in 2013. Steam coal tons delivered in 2013 are expected to increase over 2012 at both the consolidated and unconsolidated mining operations provided customers achieve currently planned power plant operating levels. However, met coal sales for Reed Minerals are expected to be below the company’s initial expectations as demand for steel is down and customers are reducing inventories.
Demery Resources Co.‘s Five Forks Mine commenced delivering coal to its customer in 2012 and is expected to increase production in 2013, with full production levels expected to be reached in late 2015 or 2016. The Five Forks Mine is located approximately three miles north of Creston, La. Demery’s customer, Five Forks Mining LLC, will control all of the reserves within the Five Forks Mine. NACCO didn’t name the customer for this coal, but the website of ADA Carbon Solutions shows that the mine produces feedstock for its activated carbon production facility nearby. Activated carbon, coincidentally, is often used to control mercury emissions from coal-fired power plants.
Four surface jobs in various stages of development
Unconsolidated mines currently in development are expected to continue to generate modest income in 2013. The company’s four mines in development are also not expected to be at full production for several years.
- Liberty Fuels is eventually expected to produce about 4.5 million tons of lignite coal annually for Mississippi Power‘s new Ratcliffe (also known as Kemper County) coal gasification power plant currently being built in Mississippi. The project is on track for initial coal deliveries in mid-2014.
- In February 2013, the mining permit needed to commence the Marshall mining operations of Caddo Creek Resources in Texas was issued. Caddo Creek expects to mine approximately 650,000 tons of coal annually and initial deliveries are expected in early 2014. The NACCO website said this operation would produce lignite for a customer that currently purchases coal from the company’s The Sabine Mining Co. unit. That would be American Electric Power‘s (NYSE: AEP) Pirkey power plant.
- In January 2013, the mining permit needed to commence mining operations at the Camino Real Fuels project in Texas was issued. Camino Real Fuels expects initial deliveries in the third quarter of 2014, and expects to mine approximately 2.7 million tons of coal annually when at full production. The Eagle Pass Mine, to be operated by Camino Real, is located approximately six miles north of Eagle Pass, Texas. Dos Republicas Coal Partnership will control all of the reserves within the Eagle Pass Mine. This is a long-in-development strip mine along the Mexico border that is expected to ship into the Mexican steam coal market.
- In October 2012, North American Coal subsidiary Coyote Creek Mining lined up a new agreement with the co-owners of the Coyote power plant to develop a lignite mine in Mercer County, N.D. Coyote Creek Mining expects to deliver about 2.5 million tons of coal annually from the Coyote Creek mine, beginning in May 2016. Attached to NACCO’s March 6 annual Form 10-K report is a copy of the Coyote contract with four Coyote co-owners, including Otter Tail Power. It calls for lignite produced from the South Beulah reserves and has a base contract period of May 2016 through December 2040.
North American Coal also has new project opportunities for which it expects to continue to incur additional expenses in 2013. In particular, the company continues to move forward to obtain a permit for its Otter Creek lignite coal reserve in North Dakota in preparation for the anticipated construction of a new mine.
Overall, North American Coal expects net income in 2013 to decrease slightly from 2012 primarily due to the absence of pre-tax gains of approximately $7m from asset sales during 2012. Excluding the effect of the asset sales, operating results are expected to increase compared with 2012 mainly as a result of increased deliveries and lower operating expenses. Cash flow before financing activities for 2013 is expected to be higher than 2012, but not at the levels of 2011 due to an anticipated increase in capital expenditures to support the Reed Minerals operations.
Reed Minerals operating mines are located about 12 miles east and southeast of the city of Jasper in Walker County, Ala., and about 20 miles southeast of the city of Jasper in Jefferson County, Ala. The Reed Minerals operating mines produce about 900,000 tons per year which are sold to several customers in Alabama.
One side note from the Form 10-K was this statement: “Electrical power for a Reed Minerals dragline expected to be placed in service in 2013 is expected to be provided by Alabama Power Company.”
The U.S. Mine Safety and Health Administration database lists three mines, all surface jobs, under Reed Minerals:
- Jap Creek mine, Walker County, 292,111 tons of production in 2012 and 294,122 tons in 2011;
- Town Creek mine, Walker County, 309,314 tons of output in 2012 and 285,796 tons in 2011; and
- Slate Creek mine, Walker County, new operation with no production yet.