SunCoke Energy declares loss in Q1 2016; coal mining operations sold

SunCoke Energy Inc. (NYSE: SXC) on April 27 reported a first quarter 2016 loss attributable to shareholders of $4.1 million, essentially flat versus the prior year period.

First quarter results reflect the contribution from SunCoke Energy Partners LP‘s (SXCP) Convent Marine Terminal acquisition, better performance at the Indiana Harbor facility and a gain related to SXCP’s bond repurchases, which were offset by a $10.7 million asset impairment on the coal mining business and higher net income attributable to non-controlling interest.

“Once again, the strength of our take-or-pay contracts continued to support our operating performance, and we are pleased with this quarter’s results and all that we were able to accomplish,” said Fritz Henderson, Chairman, President and Chief Executive Officer of SunCoke Energy Inc. “In addition to solid overall operating results, I am particularly pleased with our cost management efforts at Indiana Harbor, the significant progress we made to de-lever the balance sheet at SXCP and the successful divestiture of our coal mining business.”

The company reaffirmed its full year outlook for 2016 Consolidated Adjusted EBITDA of $210 million to $235 million.

Revenues declined $12.9 million to $311.1 million in first quarter 2016 compared with the same prior year period, reflecting the pass-through of lower coal costs in the Domestic Coke segment. The decrease in revenue was partially offset by an increase in sales volume of 50 thousand tons in the Domestic Coke segment, as well as additional revenue from Convent Marine Terminal (CMT) of $7.7 million, which was acquired in August 2015.

The first quarter 2016 operating income of $9.5 million was unfavorably impacted by a $10.7 million non-cash impairment charge associated with the disposition of the Coal Mining business, which occurred in April 2016, while the first quarter of 2015 was favorably impacted by a $4.0 million non-cash postretirement benefit plan curtailment gain.

Coal Mining consists of metallurgical coal mining activities conducted in Virginia and West Virginia, which were mined by contractors through the first quarter 2016 and primarily sold to SunCoke’s Jewell Coke facility in Virginia. During 2016, the company divested its coal mining business to Revelation Energy LLC in two transactions that included substantially all of its remaining coal mining assets, mineral leases, real estate and a substantial portion of its mining reclamation costs. Under the terms of the transactions, Revelation Energy received $1.8 million and $10.3 million from the company during the first and second quarters of 2016, respectively.

Adjusted EBITDA was a loss of $4.1 million in the current year period compared to a loss of $3.1 million in the prior year period. The $1.0 million decline was primarily due to $3.7 million in lower coal sales price driven by continued depressed market conditions, partially offset by $2.7 million of coal transportation costs which were shifted from Coal Mining to the Jewell Coke facility as a result of the exit from the coal mining business.

2016 OUTLOOK

The 2016 guidance is as follows:

  • Domestic coke production is expected to be between 4.0 million and 4.1 million tons
  • Consolidated Adjusted EBITDA is expected to be between $210 million and $235 million
  • Adjusted EBITDA attributable to SXC is expected to be between $105 million and $124 million, reflecting the impact of public ownership in SXCP
  • Capital expenditures are projected to be approximately $45 million
  • Cash generated by operations is estimated to be between $150 million and $170 million
  • Cash taxes are projected to be between $4 million and $9 million

SunCoke Energy Inc. supplies high-quality coke (a baked form of coal) 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 LP (NYSE: SXCP), a publicly traded master limited partnership. Its cokemaking facilities are located in Illinois, Indiana, Ohio, Virginia, Brazil and India.

MLP affiliate makes money in the latest quarter

SunCoke Energy Partners LP on April 27 separately reported first quarter 2016 net income attributable to SXCP of $39.8 million as compared to $12.6 million in the same prior year period. The quarter’s results are primarily driven by the benefit of the Convent Marine Terminal acquisition and a gain on the extinguishment of debt.

“Our cokemaking and coal logistics assets posted another strong performance in the first quarter, and continue to perform in line with expectations,” said Fritz Henderson, Chairman, President and Chief Executive Officer of SunCoke Energy Partners LP. “As we demonstrated this quarter, we will continue to remain flexible and responsive to the evolving industry landscape while working to optimize asset performance.”

Henderson added, “We are also pleased with our continued progress towards strengthening SXCP’s balance sheet as we deploy the steady cash flows generated from our take-or-pay contracts towards repurchasing debt, and expect to continue meaningfully de-levering throughout the balance of the year.”

The company reaffirmed its full year outlook for 2016 Adjusted EBITDA attributable to SunCoke Energy Partners of $207 million to $217 million. SXCP also reaffirmed its 2016 distributable cash flow guidance of $158 million to $172 million, which includes the assumed benefit of a full year of sponsor support.

Revenues were $194.5 million in first quarter 2016, a decline of $8.8 million from the same prior year period. The decline was primarily due to the pass-through of lower coal costs in the Domestic Coke segment, partially offset by $7.7 million of revenue generated by the Convent Marine Terminal, which was acquired in August 2015.

Operating income decreased $0.5 million while Adjusted EBITDA increased $9.1 million, respectively. First quarter 2016 results were positively impacted by contributions from CMT, which increased Adjusted EBITDA by $13.0 million. This increase was partially offset by lower steam revenue as a result of the reorganization of Haverhill Chemicals LLC, to whom the company previously supplied steam out of coking facilities in Ohio.

Net income attributable to SXCP was $39.8 million, an increase of $27.2 million from the same prior year period, primarily driven by $20.4 million of gains on extinguishment of debt recognized during the first quarter 2016, as well as the items discussed above.

The Domestic Coke segment consists of a 98% interest in the Haverhill, Middletown and Granite City cokemaking facilities, located in Franklin Furnace and Middletown, Ohio; and Granite City, Illinois, respectively.

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. In the cokemaking business, it utilizes an innovative heat-recovery technology that captures excess heat for steam or electrical power generation and has long-term, take-or-pay coke contracts that pass through commodity and certain operating costs. Its 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., which has more than 50 years of cokemaking experience serving the integrated steel industry.

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.