Western Kentucky coal producer Armstrong Energy reported March 26 that it sold 9.4 million tons of coal in 2014 (average sales price of $46.91/ton), up from 9.3 million tons in 2013 ($44.82/ton).
Coal sales revenue for all of 2014 increased by $26.6 million, or 6.4%, to $441.8 million, as compared to 2013. This increase is primarily attributable to a favorable price variance of approximately $19.7 million due to a favorable customer mix and higher year-over-year contract prices. Armstrong also experienced a favorable volume variance of approximately $6.9 million due to increased spot sales of 0.2 million in 2014.
Cost of coal sales increased 7.9% to $362.3 million in all of 2014, from $335.7 million in 2013. On a per ton basis, the cost of coal sales increased during 2014, compared to 2013, from $36.23 per ton to $38.46 per ton. This increase is due to lower productivity at the Parkway and Kronos underground mines driven by poor geological conditions and production inefficiencies encountered at the Lewis Creek underground mine, partially offset by favorable mining conditions at the Midway and Equality Boot surface mines in the current year.
Adjusted EBITDA for all of 2014 was $61.8 million, or $6.56 per ton, as compared to $58.2 million, or $6.28 per ton, for all of 2013. The increase resulted primarily from higher gross margin as a result of favorable price and volume variances in the current year, as well as reduced overall G&A expenses, as compared to 2013.
The Lewis Creek underground mine, which produces coal from the West Kentucky #9 seam, has experienced significant operating inefficiencies since July 2013 due to the geological conditions of the portion of the reserve being mined. As a result, a final decision was made during the third quarter of 2014 not to continue advancing under the current mine plan, but rather to retreat and mine only in the eastern portion of the reserve. Upon completion of mining the remaining section, which based on current estimates is expected to occur in the first quarter of 2015, the existing portal to the Lewis Creek deep mine will be abandoned and all of the equipment will be relocated to other mining operations.
Armstrong is developing an additional underground mine at its Parkway mine complex, the Survant underground mine, which will produce coal from the West Kentucky #8 seam. Development is expected to be completed during the first half of 2015. There are 59.7 million tons of proven and probable reserves at the Survant deep mine as of the end of 2014. Coal mined here will be processed at the Parkway Preparation Plant prior to shipment to the ultimate customer.
Armstrong’s anticipated coal sales for 2015 are between 8.4 million and 8.7 million tons. Forecasted production for 2015 is lower than actual production during 2014 due to the closure of the Lewis Creek deep mine in early 2015 and lower production at the surface operations. The company said it anticipates lower sales due to lower utility demand, lower natural gas prices and utilities retiring coal-burning units due to new regulations. As of March 1, Armstrong had 8.4 million tons priced and committed for 2015 at an average price of $48.07/ton.
Capital expenditures, including assets financed, for 2014 were approximately $32 million. Capital expenditures in 2015 are currently expected to be in a range of $40-$45 million related primarily to the development of new underground mines to replace mines that are depleting over the next several years.
Armstrong is a diversified producer of low-chlorine, high-sulfur thermal coal from the Illinois Basin, with both surface and underground mines. Armstrong controls approximately 563 million tons of proven and probable coal reserves in western Kentucky and currently operates seven mines. Armstrong also owns and operates three coal processing plants and river dock coal handling and rail loadout facilities which support its mining operations.