Corsa Coal, a major producer of metallurgical coal in Northern Appalachia and a producer of various coals in Central Appalachia, reported results for the third quarter of this year on Nov. 11.
Net and comprehensive (loss) income for the company changed by $10,723,000 from a net loss of $18,769,000 in the first nine months of 2014 to a net loss of $8,046,000 in the first nine months of 2015.
Corsa currently produces coal from seven mines, operates three preparation plants, and has approximately 475 employees. Corsa is listed on the TSX Venture Exchange (TSX-V) under the symbol “CSO”. The coal operations are conducted through the Northern Appalachia Division (NAPP) and the Central Appalachia Division (CAPP).
NAPP is based in Somerset, Pennsylvania, and is primarily focused on metallurgical coal production in the states of Pennsylvania and Maryland. Corsa markets and sells its NAPP coal to customers in North America, Europe, South America, and Asia. CAPP is based in Knoxville, Tennessee, and is focused on thermal and industrial coal production in the Central Appalachia coal region and sales in the southeastern region of the United States.
Despite a very challenging coal pricing environment, Corsa said it achieved positive adjusted EBITDA at its Northern Appalachia and Central Appalachia Divisions, as well as on a consolidated basis for the three and nine months ended Sept. 30, 2015. NAPP productivity improvements and cost containment efforts have been successful with the cash production cost per ton sold for metallurgical coal decreasing 11.2% from third quarter 2014.
The Casselman deep mine in Maryland successfully completed a challenging geologic transition under the Casselman River. The Quecreek deep mine in Pennsylvania was restarted in May 2015 as a result of securing a long-term thermal coal sales contract that allowed Corsa to economically mine the metallurgical and thermal coal reserve base.
NAPP continues to aggressively manage its cost structure. The mines idled during the first quarter 2015, as well as other inactive deep mining operations, were sealed, except the Horning Mine, in an effort to significantly reduce idle mine costs. NAPP incurred idle mine costs of $2,358,000 during the first nine months of 2015, which is expected to dramatically decline over the balance of the year as a result of these mines being sealed.
Additionally, Corsa successfully consolidated its coal processing plants in the second quarter 2015, resulting in significant operating cost savings. Efforts are being undertaken to reduce general and administrative expenses and water treatment expenses at NAPP, and to manage reclamation efforts more efficiently.
CAPP improved upon its first half 2015 performance by generating adjusted EBITDA of approximately $2,190,000 during the third quarter of 2015, driven by excellent cost performance. CAPP also has substantially completed the face up for the Cooper Ridge Deep Mine. This mine commenced production in October 2015 and will strategically reposition CAPP into the specialty coal and industrial coal markets which typically generate premium pricing.
In February 2015, Corsa restructured its senior management team by appointing Peter Merritts to the role of President-NAPP, and in June 2015, Kevin Harrigan was appointed to the role of Chief Financial Officer and Corporate Secretary.
In October 2015, Corsa raised $7.25 million from its three significant institutional investors by way of private placement to fund working capital and for general corporate purposes.
Company hopes for U.S. turnaround as other coal producers go bankrupt
Said the company: “Current metallurgical coal prices remain at depressed levels where a substantial amount of global production is uneconomic. This situation arose as a result of global producers committing to multi-billion dollar projects in a significantly higher price environment. Large scale mines often take three or more years from final investment decision to first production. New supply came online over 2013 and 2014, a period where demand growth softened. This supply growth is expected to mitigate in 2015 as the pipeline of growth projects is exhausted and prices are insufficient to incentivize new production. Corsa expects that over time, the fundamentals of the metallurgical coal market will rebalance as supply growth ends and production cutbacks are implemented.
“Weak Chinese demand for imported metallurgical coal, in combination with a strong U.S. dollar and low dry bulk freight rates, have continued to put downward pressure on seaborne metallurgical coal pricing. The fourth quarter 2015 coking coal benchmark pricing decreased to $89.00 per metric ton, representing a decrease of approximately 4% from the third quarter of calendar 2015 and a year-over-year decrease of approximately 25%. The fourth quarter price is the first time the benchmark settlement was below $90 per metric ton since 2004, on a nominal basis, and represents a point on the cost curve where analysts estimate over half of the global seaborne production is unprofitable.
“As metallurgical coal production is rationalized in places like China, Western Canada, Australia and the United States, Corsa expects the seaborne metallurgical coal fundamentals to normalize. Domestically, severe financial distress has caused high profile bankruptcies in 2015 and may lead to additional supply cuts in the near future. This situation has also created an environment where producers are deferring capital expenditures, not reinvesting in reserves or permitting efforts, and are highly vulnerable to supply disruptions. For these reasons, Corsa believes that the domestic market is poised to rebound faster than the international seaborne market. Corsa’s geographic proximity to over 50% of domestic coke production capacity and short rail distance and multiple options to access the Baltimore export terminals solidify Corsa’s ability to take advantage of any recoveries in coal pricing.
“Metallurgical coal sales in 2015 are expected to be in the range of 725,000 to 775,000 tons. Approximately 97% of these sales are currently committed at the midpoint of the range. Actual sales will depend on customer demand and market conditions. Vessel nominations for export sales are determined by customers and concluded on a month-by-month basis.”
Corsa wasn’t naming other coal producers with financial problems, but recent U.S. coal producer bankruptcies include Alpha Natural Resources, Patriot Coal and Walter Energy.
“Current Southeastern U.S. utility market thermal coal spot pricing declined 25% over the course of 2014,” said the company. “As a result, much of the Central Appalachia coal production is uneconomic. Corsa expects utility coal demand for Central Appalachia production to decrease in 2015. Conversely, industrial thermal demand grew 4% year over year for 2015 and Corsa expects industrial demand to grow in 2016.
“The CAPP mineral reserve base exclusively consists of high BTU and high carbon content coal. These unique qualities, combined with advantaged logistics, set CAPP apart from other producers and create a niche in the utility and industrial marketplace. As a result, despite thermal supply outpacing demand in 2015, CAPP has been successful in maintaining a high level of contracted sales for the future.
“CAPP will continue to target the industrial market segment as it transitions from a utility supplier to an industrial supplier during 2015. The planned opening of the Cooper Ridge mine will position CAPP to service the industrial specialty coal markets. These specialty markets are well suited for CAPP’s coal qualities and relatively protected from natural gas prices and historically reflect higher pricing than the thermal markets.
“The CAPP coal sales for 2015 are expected to be in the range of 750,000 to 800,000 tons. Approximately 96% of these sales are currently committed at the midpoint of the range. Actual sales will depend on customer demand and market conditions. CAPP also has sales contracts in place for 350,000 tons in 2016.”
Corsa is maintaining guidance for the year ended Dec. 31, 2015, including:
- Total sales of 1,645,000 to 1,785,000 tons.
- NAPP Division sales of 895,000 to 985,000 tons, including metallurgical coal sales guidance of 725,000 to 775,000 tons and thermal coal sales guidance of 170,000 to 210,000 tons.
- CAPP Division sales of 750,000 to 800,000 tons of thermal coal.
- NAPP Division cash production cost per ton sold for metallurgical coal of $67 to $72.
- NAPP Division cash production cost per ton sold for thermal coal of $30 to $35.
- CAPP Division cash production cost per ton sold for thermal coal of $57 to $62.
In August 2014, Corsa completed the purchase of all of the outstanding shares of Pennsylvania’s PBS Coals Ltd. from a wholly-owned subsidiary of steelmaker OAO Severstal. The primary purpose of the acquisition was to continue Corsa’s growth strategy focusing on low-volatile metallurgical coal and to secure additional infrastructure, operating capacity and reserves of low-volatile met coal.
The PBS operations are located adjacent to Corsa’s existing NAPP operations. Based in Somerset County, Pennsylvania, PBS commenced production in 1963 and was acquired by OAO Severstal in 2008. Its operations at Aug. 19, 2014 included thirteen developed mines (three of which were active) and two preparation plants with access to both the CSX Transportation and Norfolk Southern rail lines.
Corsa is combining the PBS operations into the NAPP operations to take advantage of a newly created, centrally located management team and infrastructure that will result in significant cost savings for the combined entity. Given the varying chemical characteristics of the coal assets of the NAPP Division, Corsa will also be able to take advantage of coal blending opportunities to further differentiate and tailor its low-vol met coal product to customer’s specifications. Additional integration efforts are taking place to reduce operating costs, increase utilization of existing infrastructure, upgrade equipment, and adjust mine planning to the larger portfolio of mines.
In addition to the mines currently in production, NAPP has a significant pipeline of projects which it anticipates developing pending the recovery of metallurgical coal prices. NAPP currently operates the Casselman Mine, an underground mine utilizing the room and pillar mining method; the Quecreek Mine, an underground mine utilizing the room and pillar mining method; the Ash Mine, a surface mine utilizing contour and highwall mining methods and the Rhoads Mine, a surface mine utilizing contour mining methods. The Casselman Mine is located in Garrett County, Maryland, and all of the other mines are located in Somerset County, Pennsylvania.
In January 2015, both the Kimberly Run Mine, an underground mine, and the Barbara B Project, an underground development project, both located in Somerset County were idled. The Kimberly Run Mine was nearing the exhaustion of its economic reserve life and was NAPP’s highest cost per ton underground operation in 2014. The Barbara B Project was being developed for future commercial production. Certain personnel and equipment from these mines were transferred to the Casselman and Quecreek mines, which are NAPP’s lowest cost per ton underground operations. The Kimberly Run Mine has been permanently closed and was sealed in June. On Sept. 12, 2015 all NAPP mining operations were temporarily idled to manage inventory levels. The idle period lasted three weeks with production resuming on Oct. 5.
NAPP currently operates two preparation plants and has one prep plant that is temporarily idled. The raw metallurgical coal produced from the mines is trucked to the preparation plants where it is processed or “washed” using conventional coal processing techniques and stored for shipping. All plants have load out facilities adjacent to a rail line. Coal is usually shipped by rail; however, it can also be shipped by truck. All of the prep plants are located in Somerset County. The Cambria Plant has an operating capacity of 325 tons of raw coal per hour, storage capacity for 120,000 tons of clean coal and 180,000 tons of raw coal and load out facilities adjacent to a CSX rail line. The Shade Creek Plant has an operating capacity of 450 tons of raw coal per hour, storage capacity for 120,000 tons of clean coal and 125,000 tons of raw coal and load out facilities adjacent to a NS line. The Rockwood Plant has an operating capacity of 325 tons of raw coal per hour and load out facilities adjacent to a CSX rail line. The Rockwood Plant was temporarily idled on May 1, 2015.
NAPP has several significant projects which are in various stages of permitting and development:
- Barbara B Project, Underground, Permitted
- Horning D Project, Underground, Permitted
- A Seam Project, Underground, Permitted
- Acosta Deep Project, Underground, Permitted
- Keyser Project, Underground, Not-permitted
- Acosta 4 Project, Surface, Permitted
- Rhoads Project, Surface, Permitted
CAPP produces and sells high British Thermal Unit (BTU), low and mid sulfur thermal coal used in power, industrial and specialty applications from its mines in the Central Appalachia coal region of the United States. The coal mined is sold to domestic electric utilities and industrial customers and transported by rail and truck. In addition to the mines currently in production, CAPP also has a significant pipeline of thermal, specialty and industrial coal development projects which it anticipates developing. CAPP has operations in Tennessee.
CAPP currently operates the Double Mountain Deep Mine, an underground mine utilizing the room and pillar mining method, the Clear Fork Mine, a surface mine utilizing contour and high wall mining methods, and the Straight Creek Mine, a surface mine utilizing contour and auger mining methods. All mines are located in Clairborne County, Tennessee.
CAPP currently operates one preparation plant. The thermal coal produced from the underground mine is trucked to the prep plant where it is processed or “washed” using conventional coal processing techniques and stored for shipping. The plant is located in Claiborne County. The plant has an operating capacity of 350 tons of raw coal per hour and load out facilities adjacent to a NS rail line with dual NS and CSX load out capability. Coal is usually shipped by rail; however, it can also be shipped by truck. All CAPP operating mines are within seven miles of the preparation plant.
CAPP has several significant projects which are in various stages of permitting and development:
- Cumberland Gap Deep Project, Underground, Not-permitted
- Rich Gap Mason Deep Project, Underground, Not-permitted
- Cooper Ridge Surface Project, Surface/Highwall, Not-permitted
- Cooper Ridge Deep Project, Underground, Permitted