Bucking the trend, Lipari sells more coal at higher prices in Q2 2013

Lipari Energy (TSX: LIP), which produces coal in southeastern Kentucky, said Aug. 12 that its second quarter 2013 tons sold increased by 12.6% and production increased by 21.9% over second quarter 2012 to 280,603 tons and 245,791 respectively.

Second quarter revenues increased by 22.9%, as a result of the increase in tonnage sold and the increase in average sales price per ton. Lipari generated earnings before interest, taxes, depreciation, depletion and amortization (EBITDA) of $4.7m during the second quarter of 2013. Adjusted EBITDA, after accounting for a change in the fair value of warrants, lease expenses and other adjustments, was $5.6m during the second quarter of 2013.

“I am concerned about the current outlook for the Central Appalachia coal market, but we continue our efforts to prepare the Company to make it through this continued downturn. While it is hard to predict prices going into 2014, we can be aggressive and survive going forward. We continue to adjust our operations to adapt to coal demand,” said John Liperote, CEO of Lipari.

During the second quarter of 2013, Lipari’s operations sold 280,603 tons of high quality thermal coal, a 12.6% increase over the prior year’s quarter of 249,194 tons. The average realized sales price per ton of coal sold was $77.00 per ton, a 9.2% increase over the prior year’s average realized price of $70.53 per ton.

Lipari said it has sales commitments in place for 100% of its planned 2013 production and approximately 47% of its planned 2014 production at prices averaging about $77 per ton in 2013 and $79 per ton in 2014. The company currently plans to keep production at levels to meet contracted tonnages during 2013.

Lipari mines, processes and sells thermal coal from mines located in southeastern Kentucky. The company leases coal mineral rights to approximately 13,700 acres of land. Lipari began its mining operations when it purchased all the issued and outstanding common stock of B&W Resources in 2008.

As of June 30, 2013, Lipari’s mining complexes included three surface mines and one highwall mine. In addition, Lipari has one prep plant and one unit train loading facility served by the CSX Transportation railroad. As of May 2010, Lipari controlled approximately 14.8 million tons of recoverable coal reserves.

Lipari said it plans to capitalize on any increase in the pricing environment by pursuing additional long-term contracts and selling coal on the spot market if improved prices become available. The company expects its annual production for 2013 to continue at 2012 levels of approximately 1.1 million tons. In response to the decline in market prices Lipari has determined it will constrain production to match contracted sales for 2013.

For the six months ended June 30, 2013, its coal sales revenues of approximately $43.7m were derived from the sale of 576,979 tons of coal, at an average price of nearly $76 per ton, to five primary customers, all of which were utilities. The three largest utility customers represented approximately 78% of total revenue.

For the six months ended June 30, 2012, coal sales revenues of about $33.2m were derived from the sale of 466,171 tons of coal, at an average price of approximately $71 per ton, to five primary customers, all of which were utilities. The two largest utility customers represented approximately 60% of total revenue.

U.S. Energy Information Administration data shows that the B&W Resources customers earlier this year included the Crystal River, Marshall and Cliffside power plants of Duke Energy (NYSE: DUK), the Cope power plant of South Carolina Electric & Gas and the Cooper power plant of East Kentucky Power Cooperative.

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.