J. Brett Harvey, president and chief executive officer said coal segment performance suffered from lower sales and production volumes and higher costs in the quarter-to-quarter comparison, offset in part by higher prices realized for company-produced coal.
"Though the coal markets seemed to gain a little momentum toward the end of the quarter, the decline in Consol Energy sales is primarily attributable to last year's closing of Dilworth, Meigs #2, Windsor and Humphrey mines."
Harvey noted that spot coal market activity has minimal effect on Consol Energy sales because most of the 2003 production is under contract already.
"However, we see coal buyers returning to the market in the second half of this year faced with lower inventory levels at many plants," he said. "We are hopeful that the pricing environment in the second half of this year will be strong, which should benefit our negotiations for 2004 sales."
Harvey also noted that the company had reduced its short-term debt by 25% since the beginning of the year. "The sale of our Canadian assets allowed us to reduce our commercial paper borrowings meaningfully," he said.
Two of Consol’s longwall mines experienced fires during the quarter. In January, Mine 84, in Pennsylvania, experienced a fire along several hundred feet of the conveyor belt entry serving the longwall section of the mine. The fire was extinguished approximately two weeks later. Repairs took several weeks to complete and are estimated to have cost approximately US$6.5 million, net of expected insurance recovery. Lost coal production is estimated to be approximately 650,000 tons.
Then, in February, the Loveridge Mine experienced a fire near the bottom of the slope entry used to carry coal from the mine to the surface. The fire will delay a plan to develop a new underground area for mining later this year. The cost of extinguishing the fire is estimated to be US$7.7 million, net of expected insurance recovery.
Our coal segment was dealt a blow from the fires at Mine 84 and at Loveridge," Harvey said. "However, I think the segment is moving in the right direction." Harvey said that he expects coal buyers to increase demand for coal beginning in the second half of this year after drawing down their inventories for the last 12 months.
In addition, he said that CONSOL Energy has several mine expansion projects either underway or planned that are expected to increase production by approximately 25% over the next three years.
"Eastern coal production capacity is forecast to decline over the next several years as financially weaker producers and adverse geology in Central Appalachia combine to reduce the number of operating mines. We expect to fill some of that void by expanding several of our large, northern Appalachian mines."
Consol also released production figures for the month of March. Coal production totalled 5.3 million tons, down 24% on March 2002. This is attributed to the Meigs #2, Windsor, Dilworth and Humphrey mines depleting their economically recoverable coal reserves in late 2002.
McElroy production declined because of an extended longwall move and the effects of an isolated rock intrusion encountered in the preceding longwall panel, resulting in lower than expected yield. Jones Fork contract mines were impaired because of adverse mining conditions. Rend Lake Mine was idle during the March 2003 month. Cardinal River and Line Creek mines in Canada were sold prior to the beginning of the March 2003 period.
