“This is an outstanding opportunity to diversify our coal production while leveraging strong demand in metallurgical and steam coal markets," said Walter Industries chairman and chief executive Gregory E. Hyland.

"The joint venture provides an immediate source of incremental coal production and strong potential for future mining opportunities," Hyland said.

The mine has about 4.3 million tonnes of reserves, which can be sold as high volatility, hard coking coal or high-BTU, low-sulfur steam coal. The joint venture is 51% owned by United Land, with R&S Coal owning the remaining 49%.

Under the terms of the agreement, Kodiak has the rights to mine approximately the current underground reserves, with an opportunity to mine additional coal if economically feasible.

Production is expected to begin in the first quarter next year at 700,000 tonnes per year and the Company is expecting approximately 350,000t of incremental coal production from its share of this joint venture next year.

Walter Industries expects the investment to generate net income of $US5-6 million per year from next year. While the initial coal reserves were being mined, exploration of the additional underground coal deposits contiguous to this mine would be diligently explored, Walter said.

The company has released its results for the quarter ended September this year. Net income for the quarter totaled $US20.2 million, compared with $US19.1 million in the same quarter last year.

Results for the quarter reflected higher operating income from the Company's Natural Resources and Industrial Products segments, thanks to higher metallurgical coal and ductile iron pipe pricing, respectively.

The company incurred $US12.6 million of pre-tax idle mine costs associated with the water ingress problem at subsidiary Jim Walter Resources' Mine No. 5.

The company said its Natural Resources segment generated revenue of $US100 million, up 5%. Operating income jumped 24% to $US29 million, driven by higher metallurgical coal prices.

Jim Walter Resources sold 1.08Mt coal at an average price of $US79.25/t, compared with 1.58Mt at $53.27/t the previous year. The company realized metallurgical coal pricing of nearly $100/t in this year's third quarter.

Production costs in Mine Nos. 4 and 7 rose to $US5.17/t, due to higher supplies and energy expenses of approximately $US2.50/t and lower production at Mine No. 7.

This tonnage drop was expected and was due to lower yields as a result of mining in a thinner coal seam within the current panel. Compared with the same period last year, mines No. 4 and 7 together produced 5% more tonnage than in the same period last year.

The natural gas operation sold 1.7 billion cubic feet of gas at an average price of $US8.03 per thousand cubic feet, versus gas sales of 1.9Bcf at $5.80 per thousand cubic feet in the prior-year quarter. The decrease in gas production volume is primarily attributable to Mine No. 4 coal production occurring in a heavily degassed area of the mine and the idling of Mine No. 5 in the third quarter.