Patriot Coal, nearing an apparent end to its Chapter 11 bankruptcy case, sold 4.7 million tons of coal in the third quarter of this year, down from 6 million tons in the year-ago quarter.
The St. Louis-based company also reported in its Nov. 8 quarterly Form 10-Q filing that it sold 16 million tons in the first nine months of 2013, down from 19 million tons in the first nine months of last year.
Revenues in the Appalachia segment in West Virginia were lower in the three and nine months ended Sept. 30, 2013, compared to the prior year, due to lower sales prices and volumes. Average sales prices in the Appalachia segment for the three and nine months ended Sept. 30, 2013 decreased 12% and 16%, respectively, compared to the same periods in 2012, primarily reflecting reduced pricing under metallurgical coal supply contracts. The Appalachian average price in the third quarter came in at $72.57/ton, down from $82.11/ton in the year-ago quarter.
Total sales volumes in Appalachia decreased for the three and nine months ended Sept. 30, 2013 compared to the same periods in 2012, primarily due to lower demand. In response to the weaker markets, Patriot closed its Big Mountain mining complex in southern West Virginia in the first quarter of 2012, reduced production at certain metallurgical and thermal coal operations, and decreased brokerage coal volume. The Federal No. 2 mining complex in northern West Virginia had a major longwall move and related downtime in the third quarter of 2013, also contributing to lower production and sales volumes for the quarter.
Revenues in the Illinois Basin (western Kentucky) segment were lower for the three and nine months ended Sept. 30, 2013, compared to the same period in 2012, primarily due to lower sales volumes. The Bluegrass mining complex was closed in the fourth quarter of 2012 in response to the weaker markets and the complex’s lower profit margins. In addition, total sales volumes were lower at the Highland mining complex, due to a decrease in production driven by adverse operational conditions during the first three quarters of 2013. The average Illinois Basin sales price in the third quarter was $48.56/ton, down only slightly from $49.76/ton in the year-ago quarter.
During the first half of 2012, certain customers requested to cancel or delay shipment of coal contracted for 2012 and 2013 deliveries. In certain situations, Patriot said it agreed to release the customer from their commitment in exchange for a cash settlement. In the three and nine months ended Sept. 30, 2012, Patriot recognized revenue of $2.2m and $22.7m, respectively, related to these cash settlements. During the first half of 2012, it also received $8.3m related to the settlement of a customer contract dispute concerning coal deliveries in prior years.
Patriot ships coal to electricity generators, industrial users, steel mills and independent coke producers, as well as brokers that ultimately sell the coal to these same types of customers. In the first nine months of 2013, it sold 16 million tons of coal, of which 70% was sold to domestic and global electricity generators and 30% was sold to domestic and global steel and coke producers. In the first nine months of 2012, it sold 19 million tons of coal, of which 75% was sold to domestic and global electricity generators and 25% was sold to domestic and global steel and coke producers. Export sales were 49% and 45% of total volume in the first nine months of 2013 and 2012, respectively. Coal is shipped via various company-owned and third-party loading facilities, multiple rail and river transportation routes and ocean-going vessels.
Patriot’s mining operations and coal reserves are:
- Appalachia – As of Sept. 30, 2013, Patriot had eight active mining complexes in Boone, Lincoln, Logan, Kanawha, and Raleigh counties in southern West Virginia. In northern West Virginia, it had one mining complex (Federal No. 2) located in Monongalia County. In Appalachia, it sold 13 million tons of coal in the nine months ended Sept. 30, 2013. As of Dec. 31, 2012, it controlled about 1.2 billion tons of proven and probable coal reserves in Appalachia, of which 492 million tons were assigned to current operations. In the third quarter of 2013, it announced plans to idle the Logan County complex in southern West Virginia.
- Illinois Basin – As of Sept. 30, 2013, it had two active mining complexes located in Union and Henderson counties in western Kentucky. It sold 2.9 million tons of coal in the nine months ended Sept. 30, 2013. As of Dec. 31, 2012, Patriot controlled 658 million tons of proven and probable coal reserves in the Illinois Basin, of which 119 million tons were assigned to current operations.
Patriot is projecting a strong sales rebound next year
Patriot has been projecting something of a rebound in coal sales through 2018, though that growth would pretty much be right away, with expected sales of 22.1 million tons in 2013, growing to 24.2 million tons in 2014, then coming in at only 24.3 million tons in 2018.
Those figures were in a series of 2013-2018 financial and operational projections that Patriot offered in a plan of reorganization and disclosure statement filed Oct. 9 at the U.S. Bankruptcy Court for the Eastern District of Missouri. Patriot sought Chapter 11 protection in July 2012 as the coal market tumbled and its legacy costs remained high.
The coal sales projections for the 2013-2018 period, broken down by metallurgical and thermal coal, are:
- 2013 – 6.7 million tons met, 15.4 million tons thermal, total 22.1 million tons;
- 2014 – 7.8 million tons met, 16.4 million tons thermal, 24.2 million tons total;
- 2015 – 8.5 million tons met, 16.4 million tons thermal, 24.9 million tons total;
- 2016 – 9.2 million tons met, 17 million tons thermal, 26.1 million tons total;
- 2017 – 9.9 million tons met, 16 million tons thermal, 25.9 million tons total; and
- 2018 – 10.1 million tons met, 14.2 million tons thermal, 24.3 million tons total.