CNX Coal Resources LP (NYSE: CNXC), which was recently spun off from CONSOL Energy (NYSE: CNX) and co-owns three longwall mines in Pennsylvania with CONSOL, on Oct. 26 said that it had net income in the third quarter of $14.7 million and coal sales of 1.1 million tons.
“CNXC delivered a very strong operational and financial third quarter despite the ongoing challenges in the coal markets,” said Jimmy Brock, Chief Executive Officer of CNX Coal Resources GP LLC (which is called the “General Partner” in this master limited partnership structure). “Our operations team did an excellent job during the quarter in controlling costs to offset some of the pricing pressure, while adhering to our core values of safety and compliance. At the Pennsylvania mining complex, the overall safety performance has improved year on year with the number of exceptions being reduced by 26% and severity of incidents reduced by 75%.”
Brock added: “Although the commodity price environment has deteriorated further since our initial public offering, we remain focused on generating significant distributable cash flow as demonstrated during the quarter. We believe that we have significant dropdown opportunities at the Pennsylvania mining complex due to the strong commitment from our sponsor. Our solid balance sheet and strong cash flow generating assets also provide us significant financial flexibility.
“Our marketing team has made substantial progress on the thermal coal marketing front during the quarter. CNXC has increased its contracted coal sales position for 2016 to 74% of the projected sales. For 2017 and 2018, the average contracted sales position has improved to an average of 43%. These commitments have secured CNXC as the anchor supplier to the largest, most efficient, and most environmentally compliant coal power plants in our core markets. Furthermore, we have secured multi-year commitments with key power plants in the upper Midwest and Southeast, which has historically been thought of as the domain of other coal basins. The solid contracting book helps us reduce volume volatility and attain economies of scale to run the mines more efficiently.”
The Pennsylvania operations being referred to are the Bailey, Enlow Fork and Harvey longwall mines, which work the high-sulfur Pittsburgh coal seam and feed coal through a common prep plant in southwest Pennsylvania.
For CNX Coal’s 20% undivided interest in the Pennsylvania mining complex, it sold 1.13 million tons of coal during the third quarter 2015, which exceeded guidance of 1.08 million-1.12 million tons. Total production declined to 1.16 million tons compared to 1.27 million tons produced in the same quarter of 2014 as the company aligned production to market conditions.
As previously announced, the mines are currently running on a four-day work week compared to a normal five-day work week. CNX Coal expects this schedule to continue through the remainder of 2015. Total unit costs for coal sold in the quarter were $40.38 per ton, compared to $47.32 per ton in the year-earlier quarter. The improved cost performance was driven by solid longwall performance, consistent shipment rates, reduced workforce and other cost reduction efforts.
Based on management’s current expectations, the company has updated guidance for 2015 and 2016. It expects an average cost of coal sold to be between $40-$43 per ton for 2015. The estimated coal sales for 2015 total 4.6 million to 4.7 million tons, rising to 5 million to 5.4 million tons in 2016. The estimated sales price range for committed tons in 2015 is $56.50-$58.50/ton, falling to $50-$55/ton in 2016.
The company noted that committed contracts with certain customers permit the customer to carry a portion of their contracted tons into the following year and/or to take natural gas instead of coal.
CNX Coal Resources is a growth-oriented master limited partnership recently formed by CONSOL Energy to manage and further develop all of CONSOL’s active thermal coal operations in Pennsylvania. Its initial assets include a 20% undivided interest in, and operational control over, CONSOL’s Pennsylvania mining complex, which consists of three underground mines and related infrastructure.