Indiana producer Sunrise Coal LLC sold 3,006,000 tons in 2012 at an average price of $43.70/ton, against sales in 2011 of 3,307,000 tons at an average price of $41.73/ton.
The warm winter and low natural gas prices were the primary reasons why the tons sold decreased, said Sunrise Coal parent Hallador Energy in a March 1 SEC filing. Contracted tons for 2013 are 3.2 million tons at an average price of $40.49.
Operating costs and expenses averaged $26.53/ton in 2012 compared to $23.31 in 2011 at Sunrise Coal’s only current mine, the Carlisle deep job. “The increase was due primarily to poor mining conditions that we experienced during several months of the year,” said Hallador. “At times we also operated the mine on reduced hours due to lower customer demand, which has a negative effect on productivity which translates to higher costs. As the mine expands our costs will increase as we have more area to maintain. The mine’s mains covered 11.4 miles at December 31, 2012 compared to 9.6 miles at December 31, 2011.”
The Carlisle underground mine is located in western Indiana, about thirty miles south of Terre Haute. Coal shipments began Feb. 5, 2007. Over 90% of coal sales are to customers with large scrubbed coal-fired plants in Indiana. The closest customer plant is 13 miles away and the farthest Indiana customer is 100 miles away.
Company looks for more sales in the southeast U.S.
The company’s primary customers in Indiana are Duke Energy (NYSE: DUK), Hoosier Energy and Indianapolis Power & Light, a wholly-owned subsidiary of AES Corp. (NYSE:AES). During 2011 it sold 300,000 tons of coal to JEA in Jacksonville, Fla. The addition of JEA is noteworthy as this was the first time it sold coal to a customer that far away. It has no more contracts with JEA. During 2012 the company sold 185,000 tons to an Orlando utility through an arrangement with an affiliate of JP Morgan. The company said it believes these Florida sales are an indication of the trend of Illinois Basin coal replacing Central Appalachia coal that has traditionally supplied the southeast markets. It sells about one million tons per year to each of the three major customers.
Coal reserves as of the end of 2012 assigned to the Carlisle mine were 43.5 million tons (34.2 million proven and 9.3 million probable). Primarily through the execution of new leases, reserve additions of 1.18 million tons replaced about 40% of 2012 production of about 3 million tons. The company reduced reserves by 700,000 tons due to revised mining plans. The coal is accessed with a slope to a depth of 340 feet. The coal is mined in the Indiana No. 5 seam and the seam thickness in the project area is 4 to 7 feet.
Carlisle has guaranteed a 6 lb/mmBtu SO2 product, however, with the addition of the in-development Ace-in-the-Hole strip mine, the company can blend lower sulfur coal with the Carlisle coal and guarantee a mid-sulfur product which should command a higher price. Few mines in the Illinois Basin have the ability to offer their customers various ranges of SO2.
The Carlisle mine has a double 100 rail car loop facility and a four-hour certified batch loadout connected to the CSX railroad. The Indiana Rail Road (INRD) also has limited running rights on the CSX to the mine. Dual rail access offers a freight advantage to more customers. “Long term, the CSX anticipates our coal being shipped to southeast markets via their railroad,” said Hallador. “We sell our coal FOB the mine and substantially all of our coal is transported by rail. However, on occasion we have shipped to three power plants via truck.”
Ace-in-the-Hole about to go into production
In November 2012 the company purchased for $6m permitted fee coal reserves, coal leases and surface properties near Clay City in Clay County, Ind. The Ace-in-the-Hole mine is 42 road miles northeast of the Carlisle mine. The company controls 3.1 million tons of proven coal reserves of which it owns 1.2 million tons in fee.
It will mine at Ace-in-the-Hole two primary seams of low-sulfur coal which make up 2.9 million of the 3.1 million tons controlled. Both of the primary seams are low sulfur (2 lbs/mmBtu of SO2). Mine development began in late December 2012 and the first coal shipment is expected in March 2013.
The company plans to truck low-sulfur coal from Ace to the Carlisle mine to blend with Carlisle’s high-sulfur coal. Many utilities in the southeastern U.S. have scrubbers with lower sulfur limits (4 lbs/mmBtu of SO2) which cannot accept the higher sulfur contents of the Carlisle coal. The company currently has a contract at Carlisle which will require it to blend coal from Ace to meet sulfur specs. It also expects to ship low-sulfur coal from Ace directly to unscrubbed power plants. The maximum production capacity at Ace is projected at 500,000 tons annually. Ace currently has 20% of its capacity contracted for 2013 and 2014.
Hallador has also leased roughly 19,300 acres in Vermillion County, Ill., near the village of Allerton, for the planned Bulldog deep mine. It currently controls 35.6 million tons of coal reserves (19.5 million proven and 16.1 million probable). More exploration drilling in 2013 should prove up more reserves. The company filed the formal permit application with the state of Illinois and the appropriate federal regulators in June 2012. The company currently expects to receive an approved mining permit in the first quarter of 2014. Full-scale mine development will not commence until the company has a sales commitment for this coal.
The company has also leased roughly 11,000 acres in Lawrence County, Ill., near the village of Russellville, for the prospective Russellville mine. Based on reserve estimates it currently controls 29.4 million tons of coal reserves (15.5 million proven and 13.9 million probable). The company anticipates filing the formal permit applications during the second quarter of 2014. This reserve is located about twenty miles southwest of the Carlisle mine. Initial testing indicates that this reserve’s minability and coal quality is very similar to the Carlisle reserve.