Coal division helps Consol hit record revenue

THE coal arm of miner and gas producer Consol Energy was a shining beacon in the second quarter, helping drive the company’s revenues up 20% to a record $US1.28 billion.
Coal division helps Consol hit record revenue Coal division helps Consol hit record revenue Coal division helps Consol hit record revenue Coal division helps Consol hit record revenue Coal division helps Consol hit record revenue

Consol Energy new facility in Southpointe industrial complex, 30 minutes outside Pittsburgh

Donna Schmidt

For the period ended June 30, Consol’s coal division contributed a record $1 billion toward the total, compared with $841 million in the same period last year.

Down year-on-year was the company’s net earnings, which fell to $67 million from $113 million.

Charges associated with its acquisition of the Dominion Appalachian E&P natural gas assets were cited for the lower profit.

“As Consol aggressively drills its largely undeveloped Marcellus Shale acreage, the company fully expects to achieve superior earnings in line with its expected rising revenues,” the company said.

The producer reported that its operations ran well through the quarter, with development work running well ahead of the longwall.

Production in the quarter consisted of 1 million tons of low-vol, 700,000t of high-vol, and 13.2Mt of thermal, for a total 14.9Mt.

On the thermal end, coal production was made up of 11.6Mt in northern Appalachia, 1.3Mt in central Appalachia, and 300,000t in the Western Bituminous Region.

In terms of coal sold and shipped, Consol reported positive results there as well.

It loaded a quarterly record of 43 vessels from its Baltimore Terminal during the period, with about 1.8Mt headed for Asia, 1Mt to Europe and 500,000t to South America.

Met coal shipments made up 3Mt in total, with thermal making up the remainder.

On its low-vol met side, Consol reported that at the end of the quarter it was nearly sold out for 2010 – having contracted 4.8Mt.

“[The company] thinks it is prudent to continue an annual pricing strategy for most of its low-vol tons, which are now earning a premium over the quarterly BMA,” it said.

As for high-vol met coal, the producer said replacement coals for competitors' closed and idled mines are currently seeing market demand.

As such, it booked 300,000t of coal from its northern Appalachia operations destined for Asia in the second half of the year, and at about $76/t.

A slight oversupply of coal due to unseasonably warm weather in the eastern US was reversed as Consol’s inventories dropped by about 900,000t on northern App deliveries domestically and to Europe and Asia.

“The thermal market is now clearly undersupplied,” the company said.

“Many customers of Consol are currently at or below normal inventory levels.”

Company president Brett Harvey updated one of its highlight projects during the second quarter earnings conference – the continued permitting and development for its planned BMX (Bailey Mine Expansion) at the western Pennsylvania longwall mine.

“This mine would add the fifth longwall at Consol’s Bailey/Enlow Fork complex, which is currently the largest underground complex in the United States,” he said.

“A single development section is presently driving main entries and full production is expected to be 5 million tons per annum beginning in late 2013.

“Potential customers include Asian and Brazilian steel mills, European generators, and domestic generators now burning Central App coal.”

The company said the development costs associated with BMX would be lower than a greenfield mine project because it would utilize existing infrastructure preparation facilities.

Consol said it was also looking at its option for monetizing its non-operating reserves in Central Appalachia.

“[The company] owns three separate tracts in southern West Virginia and southwestern Virginia: Amonate, Elk Creek, and Itmann,” Consol said.

“These properties have the potential to produce over 5 million tons per annum of a mix of low-vol, medium-vol, and high-vol met coals within three years.

“At this production rate and a $150 per ton average price at the mines, over $350 million per year of EBITDA could be achieved.”

At this point, the producer is looking at potential joint ventures, an outright sale, or possibly sole development operating of these properties. It anticipates making a decision by the end of the year.

Looking ahead, Consol expects to invest $1.1 billion this year, including $500 million for its gas division, $500 million for its coal division, and $100 million for other non-gas activities.

For the year, it has contracted to sell 4.8Mt of low-vol met coal from its Buchanan operation at an average $146.72/short ton FOB mine, including 2.6Mt for the final six months of the year at an average $164.70.

For next year, it has priced 1.1Mt of low-vol product at $160/t.

It expects to sell as much as 3Mt high-vol met in 2010, and has already contracted 2.7Mt at an average $76.61/t. For 2011, the company has priced 600,000t of high-vol met at $77/t.

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