Vectren Corp. (NYSE: VVC) is working to develop its coal mining operations in Indiana, including a recent startup of the second Oaktown deep mine, while it works in other areas, including an exit from natural gas marketing.
“We continue to be pleased with the performance of our utility operations as it outperformed 2012 for both the quarter and year-to-date,” said Carl Chapman, Vectren’s chairman, president and CEO, in a July 31 earnings statement. “For our nonutility group, Infrastructure Services’ results also exceeded last year’s performance for the first half of the year as the demand for infrastructure replacement continues. During the quarter, we completed the exit of the natural gas marketing business through ProLiance‘s disposition of the assets of ProLiance Energy. We think this move is important as we continue to focus on providing the most value to investors. Finally, though we are disappointed with the financial results of our coal mining operation, we are hopeful that results will improve through the ramp up of the Oaktown operations and continued focus on cost reductions at Prosperity.”
During the 2013 second quarter, earnings from Nonutility operations were $3.2m, excluding the ProLiance results, compared to $10.9m in 2012. For the six months ended June 30, the Nonutility Group earned $2.4m, excluding the ProLiance results, compared to $12m in 2012. Results in the second quarter of 2013 primarily reflect decreased results from Coal Mining. Year to date results reflect increased Infrastructure Services earnings of $3.4m and lower Coal Mining results of minus $11.9m, compared to the prior year. Coal Mining’s decreased results are primarily due to the continued softness in the overall coal market and continued difficult mining conditions at the Prosperity deep mine that have negatively impacted the cost per ton at that mine.
Coal Mining, through its contract miners, mines and then sells coal to the company’s utility operations and to third parties through its wholly owned subsidiary Vectren Fuels.
Results from Coal Mining, inclusive of holding company costs, were a loss of $3.7m in the second quarter of 2013, compared to earnings of $2.5m for the same period in the prior year. Year to date in 2013, Coal Mining had a loss of $9.7m, compared to earnings of $2.2m in the prior year.
While coal sales and related revenues were higher than the prior year due to additional volumes sold, results in 2013 were lower due to continued higher production costs associated with a thin coal seam and other unfavorable mining conditions at the Prosperity mine. Results during the quarter and year to date periods also reflect reduced pricing for customers associated with contracts that had price reopener clauses during 2012 and the overall softness in the coal market.
Vectren Fuels’ expected production is about 6.3 million tons in 2013. Coal sales in 2013 are estimated at 6.5 million tons. The company’s second deep mine at its Oaktown mining complex began production during the second quarter of 2013. Oaktown 1 is producing at costs that are very competitive and Oaktown 2 production costs are expected to be similar once the production ramp up is complete. To date, mining conditions and production costs at the Oaktown mining complex are in line with expectations. Vectren Fuels is implementing changes in the mining plan to reduce its on-going mining costs at Prosperity, including the utilization of low profile equipment.
U.S. Mine Safety and Health Administration data shows that Oaktown 1 and 2 are both listed under contractor Black Panther Mining LLC, controlled by the Blankenberger family. Oaktown 1 produced 1.7 million tons in the first half of this year and 2.8 million tons in all of 2012, while Oaktown 2 produced 242,894 tons in the first half of this year after a production start in the first quarter. Prosperity, listed under another Blankenberger company, Five Star Mining Inc., produced 829,628 tons in the first half of this year and 2.1 million tons in all of 2012, according to MSHA data.
Vectren is an energy holding company headquartered in Evansville, Ind. Vectren’s energy delivery subsidiaries provide gas and/or electricity to more than 1 million customers in adjoining service territories that cover nearly two-thirds of Indiana and west central Ohio. Vectren’s nonutility subsidiaries and affiliates currently offer energy-related products and services to customers throughout the U.S. These include infrastructure services, energy services and coal mining.