Oxford reports 2012 loss, continued pullback in western Kentucky

Oxford Resource Partners LP (NYSE: OXF), a major producer of high-sulfur coal out of strip mines in Ohio, said April 1 that in 2012 it continued to focus on Ohio operations and reduce its production in western Kentucky.

In a tough quarter for all U.S. coal producers, Oxford had adjusted EBITDA of $8m for the fourth quarter of 2012 compared to $12.5m for the fourth quarter of 2011. While cash coal sales revenue per ton increased 8% to $50.05 for the fourth quarter of 2012 compared to the fourth quarter of 2011, this was offset by lower sales volume from the western Kentucky operations. 

Lower production from western Kentucky and increased purchased coal volume and price drove a 10% fourth quarter increase in cash cost of coal sales per ton year-over-year. As a result, cash margin decreased to $6.14 per ton for the fourth quarter of 2012 from $6.60 per ton for the comparable period of 2011. The lower sales volume, coupled with the reduced margin, contributed to the decline in adjusted EBITDA.

Net loss for the fourth quarter of 2012 was $5.9m compared to a net loss of $4.3m for the fourth quarter of 2011. Net loss for the fourth quarter of 2012 included $1.8m of impairment and restructuring expenses and a $3.9m gain on disposal of assets. Net loss for the fourth quarter of 2011 included a $0.1m loss on disposal of assets. Excluding such items, adjusted net loss would have been $7.9m for the fourth quarter of 2012 compared to $4.2m for the fourth quarter of 2011. The increase in adjusted net loss for the fourth quarter of 2012 over the comparable period for 2011 was primarily due to the lower sales volume from the western Kentucky operations and increased costs related to purchased coal.

“We continue to focus on our core Northern Appalachian operations where we have a very strong committed sales position for 2013 and where we have achieved productivity improvements. While coal market conditions continue to be challenging, the year is off to a solid start with first quarter performance expected to show improvement over the fourth quarter,” said Oxford President and CEO Charles Ungurean. “We also have the ability to increase production with little incremental cost when market demand strengthens. In the meantime, based on current market conditions, we expect to idle production and conclude restructuring activities at our Illinois Basin operations by year end, while pursuing additional measures to improve our liquidity, including refinancing of our credit facility, further cost cuts and non-core asset sales.”

Adjusted EBITDA was $47.9m for all of 2012 compared to $58.8m for 2011. While cash coal sales revenue per ton increased 7% to $49.57 for 2012 compared to 2011, this was offset by lower sales volume from the partnership’s Illinois Basin (western Kentucky) operations. Lower production from the Illinois Basin operations, together with increased purchase coal volume and price and higher equipment lease expense, drove a 9% yearly increase in cash cost of coal sales per ton year-over-year. As a result, cash margin decreased slightly to $7.06 per ton for 2012 from $7.10 per ton for 2011. The lower sales volume, coupled with the reduced margin, contributed to the decline in adjusted EBITDA.

Net loss for Oxford jumped in 2012

Net loss for 2012 was $26.1m compared to a net loss for 2011 of $8.3m. The net loss for 2012 included $15.7m of impairment and restructuring expenses and an $8m gain on disposal of assets. Net loss for 2011 included a $1.4m loss on disposal of assets. Excluding such items, adjusted net loss would have been $18.4m for 2012 compared to $7m for 2011. The increase in adjusted net loss for 2012 over 2011 was primarily due to the aforementioned lower sales volume from the Illinois Basin operations and increased costs related to purchased coal and higher equipment lease expense.

Oxford’s projected sales volume is 98% committed and priced for 2013, underscoring the strength of its long-term customer relationships and its strategic importance in its core region. For 2014, projected sales volume is 79% committed (with 47% of the projected sales volume priced and 32% of the projected sales volume unpriced). A major customer for Oxford’s Ohio operations is the Conesville power plant managed by American Electric Power (NYSE: AEP).

Continued rationalization of the Illinois Basin operations has allowed for the transfer of excess equipment to the Ohio mines, which has reduced capital expenditure spending. Based on current market conditions, Oxford expects to idle production at its Illinois Basin operations and conclude its restructuring activities by the end of 2013.

Oxford sold 1.7 million tons of coal in the fourth quarter of 2012, down from 2 million tons in the year-ago quarter. It sold 7.4 million tons in all of 2012, down from 8.5 million tons in 2011.

Oxford in 2013 expects to produce 5.8 million tons to 6.3 million tons and sell between 6.4 million tons and 6.9 million tons of thermal coal. The average selling price is projected to be $50.50 per ton to $52.50 per ton, with an anticipated average cost of $42.85 per ton to $44.85 per ton. Adjusted EBITDA is expected to be in the range of $45m to $50m.

During the fourth quarter of 2012, Oxford sold certain assets, including mined out land and excess equipment, which enhanced liquidity by $4.3m. In addition, due to continued weakness in the coal markets, it elected to suspend cash distributions on both its common and subordinated units for the fourth quarter of 2012 and going forward to further preserve liquidity. Subsequent to year-end in February 2013, Oxford said it received a settlement payment of $2.1m from a purchase coal supplier to settle a contract dispute, further enhancing liquidity. Oxford continues to pursue additional liquidity enhancing opportunities, including sale of the remaining excess Illinois Basin equipment and refinancing of its credit facility.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.