Corsa Coal (TSXV: CSO), a dominant coal producer in central Pennsylvania after an August buy of PBS Coals, said Dec. 1 that it had metallurgical coal sales of 263,000 tons and thermal coal sales of 247,000 tons in the third quarter of 2014.
George Dethlefsen, Chief Executive Officer, commented: “The third quarter was a strategically significant time for Corsa, with the acquisition of metallurgical coal producer PBS Coals in August by our Northern Appalachian Division (“NAPP Division”) and the subsequent integration efforts. We continue to be focused on lowering operating costs, while also positioning Corsa for future growth. The addition of a second mining unit at the Casselman Mine of the NAPP Division led to operating cost improvements and increased production levels in the quarter. We are also pleased with the continued low cost performance of our Central Appalachian Division (“CAPP Division”). For the remainder of 2014, our focus will be on our productivity improvement initiatives, signing sales contracts for 2015 business, and the continuation of our growth program.”
Corsa’s coal sales guidance for 2014 is approximately 1,612,000 to 1,662,000 tons. This consists of met coal sales guidance of approximately 701,000 to 721,000 tons and thermal coal sales guidance of 911,000 to 941,000 tons. The coal sales guidance for 2014 in Corsa’s Management’s Discussion and Analysis for the three months and six months ended June 30 was 1,700,000 tons, which consisted of met coal sales guidance of approximately 830,000 tons and thermal coal sales guidance of about 870,000 tons. The met coal sales guidance changed due to a reduction in expected export orders and the thermal coal sales guidance changed due to a revised customer delivery schedule.
The NAPP Division’s metallurgical reserve base consists entirely of premium rank low volatile coal with favorable pressure characteristics. These unique qualities give Corsa’s metallurgical coal product a secure place in the domestic and seaborne trade, the company said.
During 2013, Corsa was able to demonstrate the value of its metallurgical coal to domestic and international steel producers. As a result of the positive quality and reliability of its metallurgical coal, Corsa has been awarded supply agreements for 2014 and beyond. In Nine Months 2014, met coal sales were 401,000 tons. The met coal sales guidance for the fourth quarter of 2014 is 300,000 to 320,000 tons, from the newly formed combination of Wilson Creek Energy and PBS, of which 100% is contracted and 75% is priced. Corsa also has sales contracts for 150,000 tons in 2015 and 38,000 tons in 2016. Corsa expects to enter into sales contracts for the majority of its 2015 domestic sales volumes in the fourth quarter of 2014, consistent with industry practice.
Through the acquisition of PBS, Corsa has gained access to a significant new customer base of both domestic and international steel producers which has diversified its sales mix. Corsa has historically made sales of metallurgical coal to some of the PBS customers but a significant portion of the sales contracts acquired are new customers. Corsa is currently working with these new customers to ensure a seamless transition for the delivery of the contracted sales of PBS and will continue to provide a reliable supply of metallurgical coal in the future.
Current met coal prices are at level where a significant amount of global production is uneconomic. Prices in the domestic met coal markets for 2014 have fallen from 2013 levels by approximately 10% and prices for export shipments in 2014 have declined around 21% from 2013 levels. As a result, a significant portion of the global seaborne coal production is being produced at a loss, a situation that many view as unsustainable. Producers have responded to these conditions and have increasingly shown supply discipline, announcing production cuts of approximately 20 million metric tonnes of production so far this year. “We believe the impacts of these cuts will take effect in 2015,” Corsa noted.
Settlements on 2015 domestic met coal sales are starting to take place. Export pricing has been very competitive due to oversupply, particularly from Australian mines, and a weaker Australian dollar. Corsa said it is well positioned to take advantage of logistics to the domestic market with its close proximity to coke producers on the river systems easily accessed by truck or rail through Pittsburgh. Corsa’s low-vol product is highly sought after for its low pressure quality. Access to seaborne trade via a short rail distance to the Baltimore export terminals solidifies Corsa’s ability to participate when seaborne pricing is attractive.
Thermal and Industrial Coal
Corsa’s CAPP Division production is sold into the Utility and Industrial markets for the production of electricity. The CAPP Division reserve base exclusively consists of high BTU and high carbon content coal. These unique qualities set CAPP Division apart from other producers and create a niche in the Utility and Industrial marketplace.
During 2013 and in Nine Months of 2014, Corsa has been successful is demonstrating to the utility consumers the value, consistency and quality of CAPP Division thermal production. Corsa will continue to increase its sales focus on the Industrial market during the remaining three months of 2014 and into calendar year 2015.
Total sales of thermal coal in the Nine Months 2014 amounted to 691,000 tons. While the thermal coal market continues to outpace demand 2014, Corsa has been successful in maintaining a high level of contracted sales for the future. In 2015, Corsa’s CAPP Division production is 72% contracted. The thermal coal sales guidance for fourth quarter of 2014 is approximately 220,000 to 250,000 tons, of which 100% is contracted and approximately 100% is contracted and priced at an average of $67. Corsa also has sales contracts in place for 650,000 tons in 2015, 500,000 tons in 2016, and subject to mutual agreement, and 500,000 tons in 2017.
Current Southeastern US utility market Thermal coal pricing has declined 5% over the course of 2014. As a result, much of the Central Appalachia coal production is uneconomic. Corsa expects Utility coal demand for Central Appalachia production to decrease in 2015. Conversely, Industrial Thermal demand grew 4% year over year for 2014. Corsa expects Industrial demand to grow 1% in 2015.