Hallador cuts back Carlisle mine in Indiana; focus now on Oaktown coal mines

For the third quarter of 2015, Hallador Energy‘s Sunrise Coal LLC subsidiary sold 1,791,000 tons at an average price of $45.41/ton, against 1,500,000 tons sold at an average price of $43.18/ton in the year-ago quarter.

In August 2014, Hallador bought Vectren Fuels Inc. (VFI) from Vectren Corp. (NYSE: VVC). VFI, headquartered in Evansville, Indiana, owned three underground coal mines in southwestern Indiana, including the Oaktown 1 and Oaktown 2 mines in Oaktown and the Prosperity Mine located in Petersburg. The Prosperity Mine was idled in August 2014. The two underground mines located near Oaktown are seven miles south of Sunrise Coal’s Carlisle underground mine. Oaktown 2 is contiguous to the Carlisle mine and the undeveloped War Eagle reserve.

Hallador noted in its Nov. 6 Form 10-Q statement for the third quarter that Oaktown 1, Oaktown 2, Carlisle and War Eagle are now one large underground mining complex representing 160 million tons of controlled reserves, with three portals, two wash plants and two rail facilities, located on the CSX Transportation railroad. It anticipates total capacity for the three mines to be roughly 11.3 million tons annually. Additionally, the capacity of its Ace in the Hole surface mine is 0.5 million tons annually. Thus, total capacity is 11.8 million tons annually.

For 2015, over 80% of coal sales are to customers with large scrubbed coal-fired power plants in Indiana. The closest customer’s plant is 13 miles away and the farthest Indiana customer is 200 miles away. The company has access to primary customers directly through either the CSX railroad, the Indiana Rail Road (which is majority owned by the CSX) and via truck.

Sunrise sells coal to the following customers: Duke Energy (NYSE: DUK); Hoosier Energy, an electric cooperative; Indianapolis Power & Light (IPL), a wholly-owned subsidiary of AES Corp. (NYSE:AES), Northern Indiana Public Service Co. (NIPSCO), a wholly-owned subsidiary of NiSource Inc. (NYSE: NI) and Vectren. It also delivers coal to two Florida utilities. 

2015 brought mild weather and a glut of low priced natural gas, Hallador said. Most of its customers were surprised by these conditions and purchased too much coal for 2015. In an effort to assist customers to balance their current needs and to secure long-term fuel supply, Sunrise agreed to modify several contracts. To implement these modifications, production at the Oaktown complex has been increased and production at the Carlisle mine was decreased.

For the next couple of years, Hallador expects Oaktown to represent more than 90% of its production. Consequently, a large number of employees were transferred from Carlisle to Oaktown. Also, in late July, a reduction in force was made of 175 employees.

In the third quarter, the company made progress in lowering cash costs going forward. Oaktown’s cash costs for the third quarter were $28.13/ton. Over the course of the fourth quarter 2015 and first quarter of 2016 the mining plan will lead to higher recovery coal. Thus, the company is still targeting $27/ton cash costs in 2016.

For the first nine months of 2015, the company sold 6,015,000 tons at an average price of $45.51/ton. For the first nine months of 2014, it sold 3,123,000 tons at an average price of $42.88/ton. The higher average price for the first nine months of 2015 is due to the mix of various contracts. The company expects prices for the last quarter of 2015 to average $45.29.

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.