Cloud Peak Energy (NYSE: CLD), one of the largest U.S. coal producers, on Sept. 2 updated its 2014 shipment and Adjusted EBITDA guidance ranges and provided its current medium term outlook.
The company updated its guidance for 2014 coal shipments for its three owned and operated mines in the Powder River Basin to between 83 million and 86 million tons, compared to its July 29 guidance of 85 million to 89 million tons. Cloud Peak also updated its guidance for 2014 Adjusted EBITDA to $170m-$200m. On July 29 the company had issued 2014 Adjusted EBITDA guidance of $180m to $210m.
Colin Marshall, Cloud Peak;s President and CEO, said: “As we previously stated, our earlier guidance ranges were dependent upon an improvement in rail performance through the end of the year. While we believe the rail performance issues are being addressed, the reality is that the improvements have not taken place at a sufficiently robust pace to allow us to maintain our previous guidance. In addition, in late August our Cordero Rojo Mine was impacted by a significant rain storm causing flooding and damage to some equipment, which will slow shipments and cause us to incur some additional costs. Accordingly, we are updating our Adjusted EBITDA and shipment guidance ranges to reflect these impacts.”
Looking ahead to 2015 and 2016, Cloud Peak anticipates annual shipments to be between 78 million and 84 million tons from its three owned and operated mines, as the previously announced reductions take place in 8,400 Btu/lb production from the the Cordero Rojo Mine in Wyoming.
For 2015, as of Aug. 22, the company had committed to sell 65 million tons from its three owned and operated mines, or approximately 80% of its anticipated total 2015 shipments. Of this committed 2015 production, 51 million tons are under fixed-price contracts with a weighted-average price of $13.12 per ton.
For 2015, the company has about 30 million tons still to be priced between now and the end of 2015. Of these, approximately 14 million tons are under various index price mechanisms, which can result in a slight premium to market prices.
Cloud Peak says recent low coal prices can’t be sustained
“We continue to believe that current domestic and international prices are unsustainably low as they are not providing economic returns to a large number of major producers,” the company said. “Over the last few years, domestic and international prices have been volatile and have moved significantly in short time periods. We estimate that a near-term $1 per ton improvement in domestic pricing for 2015 deliveries would add approximately $21 million to 2015 Adjusted EBITDA based on our current open and indexed positions. Any increase in international prices from current low levels would result in a significant improvement to our Logistics and Related Activities segment results next year. We estimate that a $10 per tonne improvement in benchmark Newcastle prices would add approximately $34 million of Adjusted EBITDA in 2015.
“Taking these pricing and volume factors into account, our preliminary estimates are that Adjusted EBITDA for 2015 could be approximately $120 million if coal prices were to remain at recent depressed levels through the end of next year. A $1 per ton improvement in domestic prices and a $10 per tonne improvement in Newcastle prices could result in Adjusted EBITDA for 2015 of approximately $180 million depending on the timing of improved prices and actual shipments.”
In 2015, Cloud Peak expects $30m-$50m in capital expenditures to sustain the existing equipment fleet and a further $20m on the repair and relocation of a dragline from the Cordero Rojo Mine to the Antelope Mine, also located in Wyoming. The fifth and final installment of $69m on the West Antelope II federal coal lease tract will be paid in 2015, with no further federal coal lease payments anticipated in 2016.
For 2016, the company has approximately 48 million tons still to be priced, which it believes will offer significant opportunity for pricing at higher and more sustainable levels than current depressed pricing, giving the potential of significant upside to 2016 revenue, Adjusted EBITDA, and cash flow, relative to 2015.
In August, Cloud Peak completed two opportunistic transactions to increase its ability to benefit from growth in Asian exports, and also to eliminate a $103m legacy liability.
- First, it paid $37m to expand its access to the growing Asian markets by securing additional port capacity at the fully utilized Westshore Terminal in British Columbia, Canada. The payment secured increased committed capacity of 6.3 to 7.1 million tons (compared to current long term committed capacity of 2.75 million tons), and extended the term of its throughput deal with Westshore through 2024. As a result, the company expects to increase its 2015 Asian exports to 6.0 to 6.5 million tons, compared to the 4.0 to 4.5 million tons currently forecasted for 2014.
- Second, it paid $45m to former parent Rio Tinto to terminate the Tax Receivable Agreement (TRA) that was established at the time of Cloud Peak’s 2009 Initial Public Offering. This payment settled all future liabilities that would have been owed under the TRA.
Cloud Peak owns and operates three surface coal mines in the PRB, the lowest cost major coal producing region in the nation. The Antelope and Cordero Rojo mines are located in Wyoming and the Spring Creek Mine is in Montana. In 2013, Cloud Peak shipped 86 million tons from its three mines to customers located throughout the U.S. and around the world.