NACCO Industries (NYSE: NC) reported Aug. 7 that its North American Coal unit had net income for the second quarter of 2013 of $9m on revenues of $43.6m compared with net income of $7.1m on revenues of $19.2m for the second quarter of 2012.
The unit delivered 6.3 million tons of coal in the second quarter, against 6.4 million tons in the year-ago quarter.
Revenues increased in the second quarter of 2013 compared with the second quarter of 2012 primarily due to the Reed Minerals acquisition in Alabama, which occurred on Aug. 31, 2012. Reed Minerals contributed $20.5m to revenues during the second quarter of 2013.
Fewer deliveries at Mississippi Lignite Mining as a result of an extended shutdown at the customer’s power plant partially offset the increase in revenue.
Net income improvement was primarily the result of higher royalty and other income, partially offset by the absence of a $2.3m pre-tax gain on sale of land recognized in the second quarter of 2012 and a net loss of $0.9m at Reed Minerals. The results at Reed Minerals, which unlike North American’s lignite operations produces bituminous coal, were below expectations due to lower sales resulting from lower demand for metallurgical coal and higher mining costs attributable to unexpected major equipment repairs and operational productivity which, while improving, has not yet reached expected levels.
For the six months ended June 30, North American Coal reported net income of $18.5m on revenues of $94.7m compared with net income of $16.3m on revenues of $43.5m for the first six months of 2012. The 2013 financial results include $37.2m of revenues from the Reed Minerals operations.
Steam coal tons delivered in the last half of 2013 are expected to increase over the same period in 2012 at the unconsolidated mining operations provided customers achieve currently planned power plant operating levels for the remainder of 2013. 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 levels expected to be reached in late 2015 or in 2016. Liberty Fuels commenced production in 2013 and is expected to reach full production levels of about 4.5 million tons of lignite coal annually for Mississippi Power’s new Kemper County coal gasification plant in late 2014.
At the consolidated mining operations, deliveries at Mississippi Lignite Mining are expected to be slightly lower in the second half of 2013 than in the latter half of 2012. Deliveries at Mississippi Lignite Mining are expected to increase longer-term as a result of recently implemented and anticipated operational improvements at the customer’s power plant.
Metallurgical coal sales for Reed Minerals in the second half of 2013 are expected to be slightly higher than the first half of 2013 but below the company’s initial expectations as a result of volume expectations for the metallurgical coal market.
New mines are in development at North American Coal
Unconsolidated mines currently in development are expected to continue to generate modest income in the remainder of 2013. The three mines in development are not expected to be at full production for several years.
In the first quarter of 2013, mining permits needed to commence mining operations in Texas were issued for Caddo Creek Resources Co.‘s project and the Camino Real Fuels project. Caddo Creek expects to begin making initial coal deliveries in 2014. 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 Co. 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 is working on 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 the second half of 2013 to decline from the same period in 2012 primarily due to the absence of pre-tax gains from asset sales of approximately $4.5m recognized during the last half of 2012.
Over the longer term, North American Coal’s goal is to increase earnings of unconsolidated mines by approximately 50% over the next five years through the development and ongoing maturation of its new mines and normal escalation of contractual compensation at its existing mines. At the consolidated mines, North American Coal has a goal of at least doubling the contribution from consolidated mining operations as Mississippi Lignite Mining benefits from recently implemented and anticipated operational improvements at its customer’s power plant and as the company executes its long-term plan at the Reed Minerals operations.