Rhino Resource Partners reports net loss, higher coal sales in Q1 2015

Rhino Resource Partners LP (NYSE: RNO) said April 30 that it had a net loss of $3.9 million and Adjusted EBITDA of $6.2 million in the first quarter of this year, compared to net income of $125.5 million and Adjusted EBITDA of $138.2 million in the first quarter of 2014.

Results for the quarter ended March 31, 2014 benefited by a gain of approximately $121.7 million from the sale of Utica Shale properties.Total revenues for the first quarter of this year were $56.2 million, with coal sales generating $45.6 million of the total, compared to total revenues of $59.9 million and coal revenues of $51.2 million in the first quarter of 2014.

Joe Funk, President and Chief Executive Officer of Rhino’s general partner, stated: “Our board reduced the current quarter’s distribution from the previous level to further preserve the liquidity of the Partnership as the prolonged weakness in the coal markets continues to adversely impact cash flow. The recent amendment to our revolving credit facility ensures we have the liquidity and flexibility to operate and manage the Partnership through these difficult market conditions. The proactive steps we have taken will help us navigate the Partnership for long-term success as we focus on our liquidity and cash flow.

“We continue to adjust our production and cost structure to align with current market conditions. We believe our continuing attention to cost and productivity improvements at our ongoing core operations will enhance the liquidity of Rhino while retaining the flexibility to continue exploring non-coal investments, which we believe will enhance the long-term value of the Partnership.

“Our priorities for 2015 continue to focus on preserving liquidity, continue controlling cost, only pursue capital spending with strong justification, and maintain our excellent safety record, all while responding quickly to changing and challenging market conditions. Our balance sheet remains strong with relatively low debt levels and low legacy liabilities.

“We have kept debt levels relatively low with approximately $55 million drawn on the bank line of credit at the end of the quarter, which is relatively flat compared to the balance at year-end. We currently have no significant planned growth capital expenditures and the investments to develop Pennyrile are nearing completion. We anticipate cash flow to grow at Pennyrile, and expect costs to continue to improve at Hopedale.

“During the quarter, we continued to encounter difficult market conditions that have affected nearly all coal companies. Conditions remained weak in all served markets, with excess supply and low natural gas prices weighing heavily on coal. At Hopedale, poor rail service continued to constrain shipments from this operation while costs remained higher than historical levels due to intermittent adverse geological conditions encountered in the advancement to the new 7-seam reserve. In addition, productivity was lower and costs were higher than anticipated at our new Pennyrile mine due to coal processing issues and geological conditions that we are working through as the mine continues its ramp up.  Our Castle Valley operation continued to perform well during the quarter, although lower contracted coal pricing affected the results from this operation when compared to the prior year.

“Our Pennyrile mine [in western Kentucky] continued to ramp up production during the first quarter and shipments were made to fulfill our base 800,000 ton per year contract. We have finalized a long-term sales contract with another local utility customer for 120,000 tons in 2015, 400,000 tons in 2016 and 550,000 tons in 2017. We have added a second mining section at Pennyrile to increase production capacity to fulfill the long-term sales contracts. We received permission for a deep cut mining plan on the initial mining section at Pennyrile, which has increased operating efficiency and has helped to lower costs. We expect to receive a similar deep cut mining plan for the second section at Pennyrile, which will further improve our cost structure at this operation. Pennyrile gives us additional diversification and we expect it to be a significant generator of stable cash flow as it ramps up to its full potential run rate of two million tons per year.

“Our Castle Valley operation [in Utah] is sold out through 2016 while our Hopedale and Sands Hill operations in Northern Appalachia are sold out for the remainder of 2015. At Pennyrile, additional test burns may lead to additional sales contracts, which could bring this mine to its potential full run rate of two million tons per year. Market conditions in Central Appalachia have remained challenging with continued depressed met and steam coal prices weighing on producers.  In Central Appalachia, we have remained focused on safe operations while keeping costs as low as possible with reduced levels of production and sales.”

Funk added: “The dissolution of the Rhino Eastern joint venture in January 2015 improved our cash flow and operating results in the first quarter by approximately $1 million when compared to the prior year. We anticipate the divestiture of the Rhino Eastern joint venture will improve the Partnership’s cash flow by approximately $6 million for the full year 2015.” Rhino Eastern was a metallurgical coal joint venture with Patriot Coal in southern West Virginia, where Rhino basically did the mining and Patriot did the coal processing.”

Coal sales in the first quarter were 0.9 million tons, which was an improvement of 3.1% compared to the first quarter of 2014, primarily due to sales from the new Pennyrile operation. Coal revenues per ton were $52.18, compared to $60.53 for the first quarter of 2014, a decrease of 13.8%. 

Coal Operations Update

  • Pennyrile – Rhino has completed a long-term sales contract with a local utility customer for 120,000 tons in 2015, 400,000 tons in 2016 and 550,000 tons in 2017. Along with the existing long-term contract for 800,000 tons per year, this additional long-term contract extends the committed sales to 1.2 million tons in 2016 and 1.35 million tons in 2017. A second mining section has been added to the Riveredge mine at Pennyrile to increase production capacity to fulfill the current long-term contracts. Rhino is pursuing additional long-term sales agreements for this operation to reach its potential of 2.0 million tons per year. Rhino’s Pennyrile operations produced approximately 161,000 tons during the first quarter while coal sales were approximately 156,000 tons. While mining conditions improved in the first quarter, the Pennyrile operation continued to experience higher than anticipated mining and coal processing costs. The recently approved deep cut mining plan for the first section and anticipated approval of a similar plan for the second section are expected to result in higher productivity and lower mining costs in the future. Pennyrile’s sales remain fully contracted through 2015 and as production is further ramped up, Rhino expects the mine to be sold out through 2016.    
  • Northern Appalachia – For the first quarter, year over year coal revenues per ton decreased $2.25 to $58.60 while cost of operations costs per ton decreased by $3.13 to $51.87. Our cost of operations per ton improved year over year as mining conditions improved at Hopedale. We continue to encounter intermittent adverse geological conditions as we advance into the 7-seam at Hopedale, which has resulted in higher per ton expense versus historical levels.  Sales volume was 251,000 tons, versus 262,000 tons in the prior year and 257,000 tons in the prior quarter. At Hopedale, railroad service continued to impact production and sales during the quarter. Sales at Rhino’s Hopedale and Sands Hill operations in Northern Appalachia are fully contracted through 2015.
  • Rhino Western – Coal revenue per ton in the quarter decreased to $36.90 versus $41.34 in the prior year and $40.51 in the prior quarter.  Revenue per ton decreased due to lower contracted prices for coal from Rhino’s Castle Valley mine. Sales volume was 229,000 tons versus 231,000 tons in the prior year and 301,000 tons in the prior quarter. Cost of operations per ton was $33.70 versus $33.43 in the prior year and $34.74 in the prior quarter. Castle Valley had higher maintenance expenses in the prior quarter, which led to the sequential decrease in cost of operations per ton. Castle Valley’s sales remain fully contracted through 2016.
  • Central Appalachia – Coal revenue per ton was $64.22 versus $72.89 in the prior year and $69.16 in the prior quarter. Metallurgical coal revenue per ton was $77.39 versus $81.17 in the prior year and $75.59 in the prior quarter. Steam coal revenue was $57.72 per ton versus $70.21 in the prior year and$65.32 in the prior quarter. Sales volume was 237,000 tons in the quarter versus 353,000 in the prior year and 274,000 tons in the prior quarter. Cost of operations per ton in the quarter was $54.23 versus $59.70 in the prior year and $65.10 in the prior quarter.  Rhino continues to evaluate its Central Appalachia operations to reduce costs at idle facilities and better utilize the Partnership’s Central Appalachia properties.
  • Eastern Met – Rhino dissolved the Rhino Eastern joint venture with Patriot Coal in January 2015. Rhino anticipates the divestiture of the Rhino Eastern joint venture will improve the Partnership’s cash flow by approximately $6 million in 2015.

The table below displays Rhino’s committed coal sales for the periods indicated.









 

Q2 to Q4 2015

Year 2016

 

Avg Price

Tons

Avg Price

Tons

Northern Appalachia/Illinois Basin

 $ 53.94

 1,691,237

 $ 48.70

 1,611,200

Rhino Western

 $ 37.55

 774,756

 $ 37.56

 1,000,000

Central Appalachia

 $ 67.82

 211,013

 $ — 

 —

Total

 $ 50.29

 2,677,006

 $ 44.43

 2,611,200

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.