Rhino reports lower net income, coal production in Q3 2013

Kentucky-based coal producer Rhino Resource Partners LP (NYSE: RNO) on Oct. 31 reported net income of $2.9m in the third quarter, against net income of $8.9m in the third quarter of 2012.

Total revenues for the quarter were $71.1m, with coal sales generating $59.6m of the total. Rhino produced 946,000 tons of coal in the third quarter, against nearly 1.3 million tons in the year-ago quarter. Its coal production for the first nine months of this year was 2.8 million tons, down from 3.5 million tons in the year-ago period.

Chris Walton, President and CEO of Rhino’s general partner, stated: “Our results showed a substantial improvement over the 2013 second quarter due to lower operating costs and improved realizations company-wide, and in particular in Central Appalachia. In addition, we benefitted from reduced losses at Rhino Eastern due to improved costs and the transition to the Eagle #3 mine and our Utica Shale oil and gas investment contributed about $1.6 million of revenue in the quarter. The development of the Pennyrile mine continues to progress on schedule. We were pleased to place 1.265 million of our common units during the quarter, as we used the proceeds from the offering to reduce our debt, which provides further liquidity to develop Pennyrile and our Utica Shale oil and gas investment.”

Pennyrile is a new, high-sulfur coal mine being developed in western Kentucky and it is Rhino’s first foray into that producing region. In addition to an initial 800,000-ton/yr contract, Rhino said it is in discussions regarding test burns which should lead to additional sales.

At the coal operations, the per ton costs remain relatively flat year-to-year and decreased quarter-to-quarter despite lower production levels.

“We are fully sold out in 2014 at our Hopedale and Castle Valley operations,” Walton added. “We are seeing some spot activity in Central Appalachia in both met coal and steam coal, and we are in discussions now to place our 2014 met coal tonnage. Our growth capital outlays continue to be in the Utica Shale and on the Pennyrile development.”

Walton said: “At Rhino Eastern we continue to make good progress developing the Eagle #3 mine and we expect mining at the Eagle #1 mine to be completed by the end of 2013, which should help to reduce costs at Rhino Eastern going forward. Our portion of the losses at Rhino Eastern joint venture were significantly lower than in the second quarter of 2013, and we expect further improvements as we transition to the Eagle #3 mine.”

Rhino Eastern is a met coal joint venture in southern West Virginia with bankrupt Patriot Coal, with Patriot close to emerging from the Chapter 11 protection it’s been in since July 2012. Rhino has said the Patriot bankruptcy hasn’t affected the joint venture.

Coal Operations Update

Pennyrile – The slope construction is progressing well and the air shaft construction continues to advance according to plan. Production remains on target to begin in mid-2014. Pennyrile’s Riveredge mine is expected to be a significant cash flow provider once production is ramped up in late 2014. The initial five year sales contract with a regional utility customer for 800,000 tons per year provides a solid base for this operation while discussions continue with additional customers. Large contiguous fully permitted, proven reserve of 32.5 million tons located on the navigable Green River in western Kentucky, with unique low cost access to large customer base, including export markets.

Northern Appalachia (Ohio) – For the third quarter, year over year coal revenues per ton increased $4.92 to $60.14 while cost of operations costs per ton rose by $4.21 to $43.88. Sales volume was 296,000 tons, versus 483,000 tons in the prior year and 314,000 tons in the prior quarter. The year over year decline was primarily due to contract expirations at Sands Hill. Hopedale remains sold out through 2014. Sands Hill reduced its production to align with committed sales and we continue to pursue additional sales opportunities. Limestone sales were relatively flat during the quarter.

Rhino Western (Utah and idle mine in Colorado) – Coal revenues per ton in the quarter increased to $40.17 versus $35.15 in the prior year and $40.24 in the prior quarter. Cost of operations was $31.83 versus $22.4 in the prior year and $32.85 in the prior quarter. Sales volume was 241,000 tons versus 302,000 tons in the prior year and 235,000 tons in the prior quarter. While taking advantage of inquiries for spot sales of coal from Castle Valley, Rhino said it is essentially sold out in 2014.

Central Appalachia (eastern Kentucky and southern West Virginia) – Coal revenues per ton were $82.05 versus $89.78 in the prior year and $80.42 in the prior quarter. Metallurgical coal revenues per ton were $82.21 versus $113.23 in the prior year and $88.87 in the prior quarter. Steam revenues were $81.96 per ton versus $81.02 in the prior year and $75.72 in the prior quarter. The quarter over quarter improvement was primarily due to the sale of less low quality steam coal.  

Cost of operations per ton in the quarter was $64.53 versus $75.21 in the prior year and $70.56 in the prior quarter. The quarter over quarter improvement was primarily due to better mining conditions at both underground and surface mines. Sales volume was 391,000 tons in the quarter versus 519,000 in the prior year and 363,000 tons in the prior quarter. Rhino has maintained its inventories at low levels and continues to focus on unit costs. Rhino continues to make limited spot met sales and steam sales at both the Tug River and Rob Fork complexes while working on placing its 2014 met coal tonnage.

Eastern Met (southern West Virginia) – Coal revenues per ton were $110.11 versus $175.72 in the prior year and $106.71 in the prior quarter. Cost of operations per ton was $115.18 versus $119.26 in the prior year and $146.92 in the prior quarter. Sales volumes were 62,000 tons versus 93,000 tons in the prior year and 72,000 tons in the prior quarter. The Eagle #3 mine began production in the third quarter of 2012. While Eagle #3 is expected to have a capacity of 490,000 tons per year, activity is substantially below that level due to limited contracted sales and low spot prices.

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.