Coal producer Rhino will need to work to retain its NYSE listing

Rhino Resource Partners LP, a coal producer with mines in several states, said on Oct. 13 that it was notified on Oct. 7 by the New York Stock Exchange (NYSE) that the Partnership does not presently satisfy the NYSE’s continued listing standard requiring the average closing price of the Partnership’s common units to be at least $1.00 per common unit over any period of 30 consecutive trading days.

As of Oct. 5, the average closing price of the Partnership’s common units over the preceding 30 trading-day period was $0.99 per unit. Rhino will notify the NYSE within 10 business days of receipt of the notification that the Partnership intends to cure the deficiency. The Partnership has a period of six months from the date of the notification to regain compliance with the minimum unit price criteria. Rhino said it is considering all available options to regain compliance during this six-month period.

Under the NYSE rules, the Partnership’s common units will continue to be listed and traded on the NYSE during this six-month period, subject to the Partnership’s compliance with other continued listing requirements. The current noncompliance with the NYSE listing standard does not affect the Partnership’s ongoing business operations or its Securities and Exchange Commission reporting requirements, and does not cause an event of default under the Partnership’s credit facility.

Rhino on July 20 announced that it has suspended the cash distribution for its common units and that no distribution will be paid for common or subordinated units for the quarter ended June 30. Joe Funk, President and Chief Executive Officer of Rhino’s general partner, stated at the time: “The suspension of the distribution is a decision made by the Board of Directors to conserve the liquidity and cash flow of the Partnership. We are taking every step possible to secure the long term value of Rhino. The Board of Directors will evaluate the possible reinstatement of the common unit distribution in future periods if coal market conditions improve.”

Rhino is a diversified energy limited partnership that is focused on coal and energy related assets and activities, including energy infrastructure investments. Rhino produces metallurgical and steam coal in a variety of basins throughout the United States and it leases coal through its Elk Horn Coal landholding subsidiary in eastern Kentucky.  

The Rhino announcements are yet another sign of the problems facing the U.S. coal industry due to weak coal markets that have gone on for over three years now, and a steady stream of shutdowns of coal-fired power plants due to new EPA regulations. In recent months, Arch Coal (NYSE: ACI) has declared a reverse stock split to reduce the number of its shares so its low per-share price doesn’t disqualify it from a NYSE listing. Alpha Natural Resources and Walter Energy have filed for Chapter 11 bankruptcy protection. Another major coal producer, Patriot Coal, is being broken up and sold in Chapter 11, as was another producer before that, James River Coal. Incidentally, Rhino in recent months dissolved a metallurgical coal joint venture with Patriot in southern West Virginia.

Rhino sustained a loss in the second quarter of this year

Rhino on July 30 reported a net loss of $8.1 million and Adjusted EBITDA of $4.1 million for the second quarter of this year, compared to a net loss of $6.9 million and Adjusted EBITDA of $3.0 million in the second quarter of 2014. Total revenues for the quarter were $56.8 million, with coal sales generating $48.5 million of the total, compared to total revenues of $55.9 million and coal revenues of $46.9 million in the second quarter of 2014.

Rhino said it expected limited capital expenditures for the remainder of this year and the investments to develop the new Pennyrile deep mine in western Kentcuky are nearly complete.

During the second quarter, persistent low natural gas prices continued to adversely affect the coal markets. At the Hopedale mine in Ohio, poor rail service constrained shipments from this operation. In addition, productivity at the new Pennyrile mine remained below expectations, which resulted in higher costs than anticipated and depressed operating results from this location. The Castle Valley operation in Utah continued to perform well during the second quarter, although lower contracted coal pricing affected the results from this operation when compared to the prior year.

The company in total sold 979,000 tons of coal in the second quarter of this year, against 793,000 tons in the year-ago quarter.

The Pennyrile mine began initial shipments towards the end of the second quarter on the new long-term sales contract recently executed with a second local utility customer. Rhino also continued to make shipments during the quarter to fulfill a base 800,000 ton per year contract at Pennyrile. The second mining section at Pennyrile received permission for its deep cut mining plan, which the company said it expects will increase productivity and reduce cost going forward. Pennyrile gives Rhino additional diversification and the company expects it to be a significant generator of stable cash flow as it ramps up to its full potential run rate of 2 million tons per year.

The Castle Valley operation is sold out through 2016 while the Hopedale and Sands Hill operations in Ohio 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 2 million tons per year.

With the weakness in the Central Appalachia coal markets, Rhino made the decision to limit production and idle certain operations there. It continues to focus on reducing carrying costs in Central Appalachia while exploring divestiture opportunities for certain assets in this region.

The second quarter results by operation were:

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. The Pennyrile operations produced approximately 234,000 tons during the second quarter while coal sales were approximately 225,000 tons. 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 second quarter, year-over-year coal revenues per ton decreased $2.60 to $56.77 while cost of operations costs per ton decreased by $9.78 to $46.26. Rhino’s cost of operations per ton improved year-over-year as mining conditions improved at Hopedale. Sales volume was 253,000 tons, versus 252,000 tons in the prior year and 251,000 tons in the prior quarter. At Hopedale, poor 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 revenues per ton in the quarter decreased to $37.59 versus $42.43 in the prior year and $36.90 in the prior quarter. Coal revenues per ton decreased due to lower contracted prices for coal from Rhino’s Castle Valley mine. Sales volume was 268,000 tons versus 236,000 tons in the prior year and 229,000 tons in the prior quarter. Cost of operations per ton was $34.16 versus $37.05 in the prior year and $33.70 in the prior quarter. Castle Valley had higher maintenance and other expenses in the prior year, which led to the year-to-year decrease in cost of operations per ton. Castle Valley’s sales remain fully contracted through 2016.

Central Appalachia

Coal revenues per ton in the quarter was $58.65 versus $71.94 in the prior year and $64.22 in the prior quarter. Metallurgical coal revenue per ton in the quarter was $81.83 versus $79.12 in the prior year and $77.39 in the prior quarter. Steam coal revenue in the quarter was $52.57 per ton versus $70.56 in the prior year and $57.72 in the prior quarter. Sales volume was 233,000 tons in the quarter versus 305,000 in the prior year and 237,000 tons in the prior quarter. Cost of operations per ton in the quarter was $54.95 versus $67.09 in the prior year and $54.23 in the prior quarter.

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.