Vectren Corp. (NYSE: VVC) said May 1 that it had some issues in the first quarter with its Vectren Fuels operation, which runs Indiana deep mines that supply coal to Vectren’s own power plants and to third parties.
“We are pleased with our overall 2013 first quarter results, which were in line with our expectations and comparable to the results achieved in 2012,” said Carl Chapman, Vectren chairman, president and CEO. “Our utility group continues to deliver solid results quarter after quarter and our infrastructure services business continues to exceed our expectations, which helped offset disappointing performance from our coal mining operations overall. While our Oaktown mine number one is operating at very competitive costs, our Prosperity mine continued to be challenged with difficult mining in the quarter. However, we are taking actions that should improve Prosperity’s mining conditions for the balance of 2013 and beyond.”
The Coal Mining segment’s first quarter results were a loss of $6m, compared to a loss of $0.3m in the same period of 2012. While coal sales and related revenues were up slightly from the prior year, results in 2013 were lower due to increased production costs associated with a thin coal seam and other unfavorable mining conditions at Prosperity.
Results during the first quarter also reflect reduced pricing for customers associated with coal contracts that had price reopener clauses during 2012 and the overall softness in the coal market. The impact of the low cost of natural gas and mild weather in the prior year resulted in customers’ coal-fired plants not operating at capacity and a resulting increase in their coal inventory, which led to decreased coal purchases from Vectren Fuels thus far in 2013.
Vectren Fuels’ expected production is now about 6.2 million tons in 2013. Coal sales in 2013 are estimated at 6.3 million tons. The company’s second deep mine at its Oaktown mining complex began production in April 2013. Vectren Fuels continues to implement changes in its mining plan to reduce its on-going mining costs at Prosperity, including moving its continuous mining equipment in April to areas of the mine with thicker coal seams and the utilization of low profile equipment.
However, given the reduced demand for coal generally, and its impact on price, the company continues to expect a greater loss from Coal Mining operations in 2013 compared to 2012. Longer term, the company continues to believe that reduced coal volumes available from Central Appalachia due to increased regulation and the large number of SO2 scrubbers to be installed throughout the United States, including the Midwest, coupled with moderate increases in natural gas prices from the very low levels experienced in 2012, should drive stronger demand for Illinois Basin coal.
The company retains independent third party contract mining companies controlled by members of the Blankenberger family to operate its coal mines. Five Star Mining LLC is the contract mining company at the Prosperity underground mine and Black Panther Mining LLC is the contract mining company at the two Oaktown underground mines.
U.S. Mine Safety and Health Administration data shows that Prosperity produced 388,625 tons in the first quarter of this year, against 2.1 million tons in all of 2012, including 465,528 tons in the fourth quarter of last year. Production in 2011 came in at nearly 2.5 million tons.