SunCoke companies report mixed results for Q3 2015

SunCoke Energy Partners LP (NYSE: SXCP) on Oct. 12 reported third quarter 2015 net income attributable to SXCP of $19.5 million as compared to $20.2 million in the same prior year period.

The latest quarter’s results reflect the Granite City cokemaking facility dropdown and Convent Marine Terminal transactions, offset by higher financing costs and the impact of the idling of a customer’s facility, Haverhill Chemicals LLC in Ohio, with SXCP has a steam supply agreement.

 “The acquisition of the Convent Marine Terminal had an immediate positive impact on results, adding $5.4 million to the quarter’s Adjusted EBITDA,” said Fritz Henderson, Chairman, President and Chief Executive Officer of SunCoke Energy Partners. “We are excited about Convent’s expected contribution to our existing Coal Logistics business and are increasing 2015 Adjusted EBITDA attributable to SunCoke Energy Partners guidance to $185 million to $190 million as a result of this and the Granite City dropdown transaction.”

Henderson continued, “The strength and stability of our cash flows, underpinned by solid operating results and the security of our long-term take-or-pay contracts, has supported our ability to increase cash distributions per unit for ten consecutive quarters. Looking ahead, we expect the Convent and Granite City transactions will drive incremental cash flow, which we intend to deploy on accretive opportunities to drive unitholder value.”

Revenues were $210.2 million in third quarter 2015, a decline of $6.6 million from the same prior year period primarily due to the pass-through of lower coal costs in the Domestic Coke segment, partially offset by revenue generated by the newly-acquired Convent Marine Terminal.

Operating income and Adjusted EBITDA decreased $5.1 million and $0.7 million, respectively. The impact on Adjusted EBITDA of a customer’s decision to idle its Haverhill Chemicals facility, located to SXCP’s Haverhill coking facility, was mostly offset by the acquisition of Convent Marine Terminal. Operating income also reflects higher depreciation and amortization, primarily related to Convent Marine Terminal.

Domestic Coke segment consists of the company’s 98% interest in the Haverhill (Ohio), Middletown (Ohio) and Granite City (Illinois) cokemaking facilities. These operations sold a total of 615,000 tons of coke (a baked form of coal) in the third quarter, against 616,000 tons in the year-ago quarter.

The Coal Logistics consists of the coal handling and blending services operated by SXCP at Convent Marine Terminal located on the Mississippi river in Louisiana, Lake Terminal in East Chicago, Ind., and Kanawha River Terminals LLC (KRT), which has terminals along the Ohio, Big Sandy and Kanawha rivers in West Virginia and Kentucky. This segment handled 5.149 million tons in the third quarter, against 4.772 million tons in the year-ago quarter.

SunCoke Energy Partners is a publicly traded master limited partnership that manufactures high-quality coke used in the blast furnace production of steel and provides export and domestic coal handling services to the coke, coal, steel and power industries. The coal handling terminals have the collective capacity to blend and transload more than 45 million tons of coal each year and are strategically located to reach Gulf Coast, East Coast, Great Lakes and international ports. SXCP’s General Partner is a wholly owned subsidiary of SunCoke Energy Inc. (NYSE: SXC), which has more than 50 years of cokemaking experience serving the integrated steel industry.

SunCoke Energy Inc. has issues with Indiana Harbor operation; declares loss

SunCoke Energy Inc. on Oct. 12 reported a third quarter 2015 loss attributable to shareholders of $23.5 million, or $0.36 per share, due primarily to performance challenges at the Indiana Harbor cokemaking facility and a $19.4 million impairment to its equity method investment in VISA SunCoke, a joint venture in India.

“While the acquisition of the Convent Marine Terminal added $5.4 million to the quarter’s results, operating performance at Indiana Harbor was the primary driver of the decline in consolidated Adjusted EBITDA.” said Fritz Henderson, Chairman, President and CEO of SunCoke Energy Inc.

“In view of the persistent operating challenges and costs at Indiana Harbor, we had to take additional actions to address this plant’s performance,” Henderson said. “During third quarter, we conducted a robust review of the facility and strengthened our refurbishment efforts by implementing a holistic plan, including rebuilding certain ovens to address interior oven conditions. We are in early stages of this effort but are encouraged by preliminary results.”

Given the quarter’s results and the outlook for the remainder of the year, the company is revising its full year 2015 Consolidated Adjusted EBITDA guidance to $180 million to $190 million. This reflects an expected Adjusted EBITDA benefit of approximately $20 million from the acquisition of the Convent Marine Terminal, offset by lower expectations for Indiana Harbor, which it now expects will not contribute to 2015 Adjusted EBITDA.

Revenues declined $40.1 million to $336.9 million in third quarter 2015 compared with the same prior year period, reflecting the pass-through of lower coal costs in the Domestic Coke segment as well as lower sales volumes.

Operating income was $23.1 million in the current period compared to $25.9 million in the prior year period, which included a $16.4 million impairment charge related to the Central Appalachia coal mining operations. Adjusted EBITDA declined $14.0 million to $50.2 million. These decreases are primarily the result of operating challenges at Indiana Harbor, partially offset by the results of the newly acquired Convent Marine Terminal.

Net loss attributable to SXC was $23.5 million, or $0.36 per share, in third quarter 2015, including a $19.4 million, or $0.30 per share, impairment of the equity method investment in Visa SunCoke. Prior year net loss attributable to SXC was $3.6 million, or $0.05 per share, which included a $10.0 million, net of tax, or $0.14 per share, impairment charge on the for-sale coal mining business.

Domestic Coke consists of cokemaking facilities and heat recovery operations at the Jewell (Virginia), Indiana Harbor (Indiana), Haverhill, Granite City and Middletown plants. This segment sold 1.043 million tons of coke in the third quarter, down from 1.074 million tons in the year-ago quarter.

Segment revenues were affected by the pass-through of lower coal prices as well as a decrease in volume of 31,000 tons.

Adjusted EBITDA was $55.9 million, reflecting underperformance at Indiana Harbor, which decreased Adjusted EBITDA by $11.4 million, as well as the $2.9 million impact of a customer’s decision to idle the Haverhill Chemicals facility.

Coal Logistics consists of the coal handling and blending services operated by SXCP at Convent Marine Terminal located on the Mississippi River in Louisiana, Lake Terminal in East Chicago, Ind., and Kanawha River Terminals, which has terminals along the Ohio, Big Sandy and Kanawha rivers in West Virginia and Kentucky.

India Coke consists of a 49% interest in the VISA SunCoke joint venture, which owns a 440,000 ton cokemaking facility and associated steam generation unit in Odisha, India. Its Adjusted EBITDA remained relatively flat at a loss of $0.8 million in third quarter 2015. Import competition from China continues to depress coke pricing in India, resulting in weak margins. The company recorded a $19.4 million impairment charge, bringing its investment in VISA SunCoke to zero, as a result of a decline in projected market factors, including coal prices and the expected continuation of low priced Chinese coke imports.

Coal Mining consists of metallurgical coal mining activities conducted in Virginia and West Virginia, currently mined by contractors. A majority of the metallurgical coal produced by the coal mining business is sold to its own Jewell Coke facility for conversion into coke. Adjusted EBITDA was a loss of $4.9 million, down $2.0 million due to a $12 per ton decline in sales price driven by depressed market conditions.

Revised guidance, including the expected benefit of the Convent Marine Terminal acquisition, are as follows:

  • Domestic coke production is expected to be between 4.1 million and 4.2 million tons
  • Domestic coke Adjusted EBITDA per ton is expected to be in the range of $50 per ton and $55 per ton
  • Consolidated Adjusted EBITDA is expected to be between $180 million to $190 million
  • Adjusted EBITDA attributable to SXC is expected to be between $102 million and $110 million
  • Capital expenditures are projected to be $75 million to $80 million
  • Cash generated by operations is estimated to be between $125 million and $145 million
  • Cash taxes are projected to be approximately $8 million to $9 million

SunCoke Energy Inc. supplies high-quality coke to the integrated steel industry under long-term, take-or-pay contracts that pass through commodity and certain operating costs to customers. It is the sponsor of SunCoke Energy Partners, holding a 2% general partner interest, 54% limited partnership interest and all of the incentive distribution rights. Its cokemaking facilities are located in Illinois, Indiana, Ohio, Virginia, Brazil and India.

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.