"This was solid performance from our ongoing operations in a quarter that, historically, has been weak for us," said Consol chief J. Brett Harvey.

"Expanded coal and gas production coupled with higher prices for both coal and gas greatly improved third-quarter performance compared with last year."

The company’s July spin-off of 18.5% of its gas business, listed as CNX Gas Corporation, was described as a successful strategic financial initiative that helped record quarterly performance.

"Coal and gas markets during the quarter continued to improve," Harvey said, "reflecting a relatively warm summer and domestic economic growth, both of which drove the strong increase in demand for electricity."

The company estimates that contract prices for the company's Pittsburgh seam coals have increased for all but the highest-sulphur coal during the quarter just ended.

"The continued improvement in contract pricing is reflected to some extent in the improvement in average realised prices for the September 2005 quarter," Harvey said, "but it is reflected even more so in the improvement in pricing we are able to secure for coal being sold in the next several years."

Costs during the quarter were 21% higher.

Consol’s coal business improved thanks to higher prices, sales and production volumes. Sales increased 12% to 1.8 million tonnes, while the average price for coal increased 20% or $US5.97 per tonne.

Coal production increased 11% or 1.6Mt with McElroy and Bailey mines showing strong improvement. The VP 8, Shoemaker, and Buchanan mines had production declines during the period.

Total coal production costs increased 3% or $US0.80/t, reflecting, in part, adverse mining conditions at several mines, higher contract mining fees and higher production taxes.

Operating margins improved 74% while financial margins (average realised price less total costs) were $US4.34/t in the September 2005 quarter compared with a loss of $US0.83/t a year earlier.

The company predicted strong demand for high-BTU bituminous coal continuing in the United States, “based on expressions of interest for multi-year contracts at today's market prices by electric power generators”.

Supply will remain tight in a market characterised by continued growth in demand for electricity, low inventory levels at power plants and mine sites, little capacity expansion and logistical challenges in moving coal from western to eastern US.

"We expect to execute a steady, disciplined growth strategy for coal in the next three years, matching our increases in production capacity with market demand," Harvey said. Capacity increases would come from efficiency projects as well as from smaller additions to capacity.

The recently announced expansion plan for the Enlow Fork Mine in Pennsylvania was also part of the company's growth strategy, but was subject to securing contracts at the right prices.

"Our focus is clear – we are prepared to meet market demands for tons provided that the market signals a willingness to provide us with fair rates of return for the investments that we make," Harvey said.

Cost-control is receiving major focus, with Harvey saying he believed costs are significantly better than most eastern producers. Planned efficiency projects are expected to lower total company unit costs by $US0.50/t.

The company said it planned to close the Shoemaker Mine which produces the highest sulphur coal, making its cost structure uneconomic. In addition, the mine does not have a full belt haulage system moving coal from the face to the preparation plant.

Roadway development will be completed on the 1B and 2B longwall panels at Shoemaker and then further development at that mine would be suspended. Continuous mining unit costs are much higher than longwall mining costs.

The mine would run through the spring of 2007, thereby meeting its contractual obligations, and after the 1B and 2B longwall panels had been mined, Shoemaker would be shut down.

Harvey also welcomed developments aimed at finding alternative uses to the direct combustion of coal such as gasifying or liquefying.

"CONSOL Energy is in a great position to benefit from this new interest in BTU conversion," Harvey said. "We have numerous large reserve areas within our 4.5 billion ton reserve base that could provide the feedstock to large liquefaction or gasification.”