North American Coal posts solid Q1 2013 results, plans new mines

NACCO Industries (NYSE: NC) said May 1 that its North American Coal unit had net income for the first quarter of 2013 of $9.6m on revenues of $51.1m compared with net income of $9.2m on revenues of $24.3m for the first quarter of 2012.

The first quarter 2013 financial results include $16.7m of revenues and a net loss of $1.1m from the newly-acquired Reed Minerals operations in Alabama.

North American Coal’s deliveries for the first quarter of 2013 came in at 8.1 million tons, against 7.4 million tons in the year-ago quarter.

Revenues increased in the first quarter of 2013 compared with the first quarter of 2012 primarily due to the Reed Minerals acquisition and an increase in tons delivered at Mississippi Lignite Mining as a result of fewer outage days at a customer’s power plant compared with the first quarter of 2012.

Net income in the first quarter of 2013 increased slightly compared with the first quarter of 2012.  The favorable effect of higher royalty income, increased deliveries at Mississippi Lignite Mining and the limerock dragline mining operations and lower income tax expense was mostly offset by an operating loss at Reed Minerals due to sales which were below expectations, partially as a result of inclement weather that led to operational mining delays, and higher operating expenses at Mississippi Lignite Mining as increased production levels resulted in fewer costs being capitalized into inventory in 2013 compared with 2012.

Mississippi Lignite Mining was formed in 1997 to supply lignite coal to the adjacent Red Hills power plant. The Federal Energy Regulatory Commission issued a Jan. 28 letter approval for a PurEnergy I LLC buy of the Red Hills plant. On Dec. 28, 2012, Choctaw Generation LP and PurEnergy I LLC submitted an application to FERC under the Federal Power Act requesting authorization for the sale by IPR-GDF SUEZ Generation North America (IPR-GSENA) of all of its interests in Choctaw Generation to PurEnergy. Choctaw Generation is the lessee of an approximately 440 MW (net) lignite-fired generation facility located in Ackerman, Miss., within the Tennessee Valley Authority balancing authority area (TVA BAA). Choctaw Generation sells the output of its facility to TVA under a 30-year purchase power and operating agreement.

North American Coal projects higher steam coal sales in 2013

Steam coal tons delivered in all of 2013 are expected to increase over 2012 at both the consolidated and unconsolidated mining operations provided customers achieve currently planned power plant operating levels. Increased deliveries at Mississippi Lignite Mining are expected to continue longer-term as a result of improved operation of the customer’s power plant, which is now under new ownership. In addition, 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 expected to be reached in late 2015 or in 2016.

Near-term metallurgical coal sales for Reed Minerals are expected to be below the company’s initial expectations. Full year 2013 demand for steel is expected to increase at a slower pace than 2012.

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 approximately 4.5 million tons of lignite annually for Mississippi Power‘s adjacent Kemper County coal gasification power plant currently being built in Mississippi. The mine project is on track for initial coal deliveries in mid-2014.
  • In February 2013, the mining permit needed to commence mining at the Caddo Creek Resources project in Texas was issued. Caddo Creek expects to begin making initial coal deliveries in 2014.
  • 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 latter half of 2014, and expects to mine about 3.0 million tons of coal annually when at full production.
  • Coyote Creek Mining is developing a lignite mine in Mercer County, N.D., from which it expects to deliver approximately 2.5 million tons of coal annually beginning in May 2016. 

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 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 from 2012 primarily due to the absence of pre-tax gains from asset sales of approximately $7m during 2012. Excluding the effect of the asset sales, operating results are expected to be comparable with 2012. 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 at Mississippi Lignite Mining and at the Reed Minerals operations. The capital expenditures associated with the Reed Minerals operations were designed as part of the Reed Minerals acquisition plan to reduce costs and increase capacity.

The company said it is actively pursuing domestic opportunities for new or expanded coal mining projects, which include prospects for power generation, coal-to-liquids, coal-to-chemicals, coal gasification, coal drying and other clean coal technologies. Also, the company views its acquisition of Reed Minerals as the first step in a metallurgical coal strategic initiative which includes coal exports.

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.