Sherritt International (TSX: S), Canada’s largest producer of thermal coal for mostly captive power plants, reported Oct. 30 that production volumes for third-quarter 2013 in the Prairie Operations owned mines were 6% (0.3 million tonnes) lower than the prior-year period primarily due to weaker customer demand.
That lower demand was at the Sheerness mine, which supplies the Sheerness power plant of TransAlta and ATCO, and due to an extended outage at the Boundary Dam power station of SaskPower, which takes coal from Sherritt’s Boundary Dam mine. Production from the owned Prairie mines was 4.8 million tonnes in the third quarter, against 5.1 million tonnes in the year-ago quarter.
Total production (owned mines plus a contract mine) was 34% (2.5 million tonnes) lower than in third-quarter 2012, due to the exclusion of production volumes from the Highvale mine with the termination of the contract mining business in January 2013. The loss of the Highvale deal zeroed out contract production for the third quarter and the first nine months of this year.
The Highvale mine is owned and now also operated by TransAlta, with about 12 million tonnes of coal mined at Highvale each year and delivered to TransAlta’s Sundance and Keephills power plants in Alberta.
The Mountain Operations, which produce thermal coal for the export market, had production volumes in third-quarter 2013 that were 22% (0.2 million tonnes) lower than the prior-year period, reflecting the impact of an optimized production plan, which was implemented in response to sustained weak international coal prices. Production was 0.7 million tonnes in the third quarter, down from 0.9 million tons in the year-ago period.
Sales volumes for third-quarter 2013 in Prairie Operations owned mines were 6% (0.3 million tonnes) lower compared to the prior-year period, reflecting the production trends. Total sales volumes (owned mines + contract mine) were 39% (3.0 million tonnes) lower than in third-quarter 2012, due to the exclusion of sales volumes from the Highvale mine with the termination of the contract mining business in January 2013. Mountain Operations sales volumes in third-quarter 2013 were substantially unchanged from third-quarter 2012 as a drawdown in inventory offset lower production volumes.
Average realized pricing (excluding royalties, char and activated carbon) for third-quarter 2013 at Prairie Operations was 5% (C$0.93 per tonne) higher than the prior-year quarter, reflecting both the impact of an increase in general contract price escalators as well as revised pricing, due to a contract extension at the Paintearth mine. The price average was C$18.40/tonne this time, against C$17.47/tonne in the third quarter of 2012.
Realized pricing at Mountain Operations was 14% (C$14.03 per tonne) lower than third-quarter 2012, as a result of weaker international thermal coal reference pricing. The latest price average was C$86.29/tonne, down from C$100.32/tonne in the year-ago quarter.
Unit operating costs at Prairie Operations were 5% (C$0.79 per tonne) lower in third-quarter 2013 primarily due to exiting the contract mining business in January 2013. Excluding the impact of the contract mining business, unit operating costs were marginally higher due to mining conditions at the Paintearth and Sheerness mines and dragline maintenance at the Boundary Dam mine.
Unit operating costs at Mountain Operations were 5% (C$4.62 per tonne) lower than in third-quarter 2012, as a result of cost reduction initiatives and an optimized mine plan which have resulted in a focus on lower cost mining areas, a reduction in the use of contractors, as well as higher equipment availability and productivity.
Spending on capital at the Prairie Operations for third-quarter 2013 was 78% (C$18.5m) lower than second-quarter 2013, due to cost reduction initiatives and expenditure deferrals in support of a long-standing capital discipline of maintaining spending within a business’ cash flow generation. Spending on capital at Mountain Operations was 21% C$1m) higher than second-quarter 2013, reflecting the timing of equipment arrivals at the Coal Valley mine.