Operating costs hit ICG

ADVERSE mining conditions forcing the closure of one mine and rising operating costs across its other mines forced International Coal Group to report a $US2.4 million loss for the September quarter.
Operating costs hit ICG Operating costs hit ICG Operating costs hit ICG Operating costs hit ICG Operating costs hit ICG

ICG's Supreme Energy Plant in Knott County, Kentucky.

Angie Tomlinson

During the third quarter ICG cut back production of 3.2 million annual tons from high-cost operations in the Appalachian region which were idled.

“The third quarter was very challenging as unexpected adverse mining conditions forced us to idle the Sycamore 2 Mine,” ICG chief Ben Hatfield said.

“During the same period, we experienced a significant increase in operating costs at three other business units. Given the relative softening of spot coal prices over recent months, we moved decisively to shut in high cost coal production and strengthen our operating profile.”

Revenue for the quarter was $224.3 million, and $659.8 million for the nine months ended September 30. Loss for the first nine months was $9.2 million.

Production totalled 4.3Mt during the quarter.

Among news of ICG’s development projects, ICG Knott County’s Raven Complex is expected to ship its first train of coal on Friday, October 27, 2006 as the coal preparation plant and rail load-out facilities are now fully operational. The Raven Mine is expected to produce approximately 1.2Mtpa at full production, primarily for the Southeastern utility market.

Extension of the mine shafts and slope at the Sentinel Clarion Mine is progressing on schedule for initial coal production in December this year. The Barbour County, West Virginia mine is expected to produce 0.8-1Mtpa at full production.

Construction at ICG Beckley’s new underground mine in Raleigh County, West Virginia, is also making significant progress. Slope excavation is approximately 60% complete and in-seam mine development is now underway at the intake shaft.

Commercial production is expected to begin in August of 2007. At full production, Beckley is expected to produce 1.3Mt of low volatile metallurgical coal annually.

Construction of the Tygart No. 1 Mine Complex in Taylor County, West Virginia, is expected to begin in the first quarter of 2007 with coal production projected for mid-2008. At full production, Tygart No. 1 is expected to produce approximately 3.8Mtpa of high quality steam and metallurgical quality coal.

During the quarter ICG submitted a $5 million bid to purchase selected assets of Buffalo Coal Company, a Northern Appalachia coal producer that sought bankruptcy in May 2006. The assets include coal reserves and mining permits that are located in close proximity to the Vindex operations, as well as a preparation plant, and the rail load-out near Mount Storm recently leased by Vindex.

ICG said it expected coal production in 2006 of 17Mt, with projected sales of about 20Mt. For 2007, the company expects coal production of 17-19Mt.

The company has also updated its guidance for capital expenditures to reflect both savings associated with the reallocation of idled equipment and delayed development of mine projects that have less certain economic return in the current market environment.

It is now expected that capital expenditures in 2006 will fall $14 million to $200 million.

“As several major coal suppliers have now announced production cutbacks, we expect coal prices to rebound to more acceptable levels by late winter, assuming normal weather in the Eastern United States and reduced customer inventory levels,” Hatfield said.

“Our new 2006 projects, specifically Flint Ridge No. 2 Mine, Raven, and Sentinel Clarion, as well as our signature future projects, Beckley and Tygart No. 1, are expected to provide both long-term production growth and significant improvement in profit margins.”