Banking on the fourth quarter

DESPITE third quarter difficulties major U.S. coal mining company, Consol Energy expects to end 2004 close to the targets set at the beginning of the year by having a strong finish in the fourth quarter.
Banking on the fourth quarter Banking on the fourth quarter Banking on the fourth quarter Banking on the fourth quarter Banking on the fourth quarter

A Consol Energy longwall

Staff Reporter

The company reported a loss of US$11.6 million for the quarter ended September 30, compared with a loss of $5.9 million in the same quarter a year earlier.

"Third quarter results largely reflect the mining problems we had during the first half of the quarter," said J. Brett Harvey, president and chief executive officer, "in particular, the problems created by the adverse geology at Mine 84."

One of the Bailey mine’s two longwall systems was idled in preparation to move to a new area of the reserve, also affecting results.

"The problems at Mine 84 and at several of our other mines resulted in much higher unit mining costs than we had anticipated," Harvey explained. "Despite higher average realized prices in the period-to-period comparison, our margins in the coal segment were squeezed."

Mining operations showed improvement in the last half of the quarter, including improved mining costs, which reduced the size of the previously anticipated loss.

Coal production increased 5.6%, thanks to the reactivation of the Loveridge Mine in March and the introduction of a second longwall mining unit at the McElroy Mine.

Strong demand for coal and tight supplies worldwide caused average realized prices for company-produced coal to improve $1.53 per ton, or 5.4%.Consol produced approximately 1.6 million tons of metallurgical grade coal during the quarter.

Costs for company-produced coal increased $3.10 per ton, or 11.3%.

"Our costs for the quarter just ended were impacted by the higher costs incurred as a result of the mining problems we had in the earlier part of the quarter," said Harvey, "and by the substantial increase in supply costs being experienced generally in the industry."

Harvey estimated these two factors combined to increase operating costs by more than 10%. Most of the mining problems experienced during the quarter, primarily roof falls, have been corrected he said. At Mine 84, the company has altered the mining plan, which is expected to reduce the impacts of an adverse geologic condition. The adverse geologic condition will impact mining plans at Mine 84 for the remainder of 2004 and all of 2005.

The substantial improvement in coal production forecast for the fourth quarter compared with the quarter just ended reflects an expected improvement in a number of operations with about 60% of the sequential growth in production expected to come from an improvement at Bailey, McElroy and Mine 84 operations.

Unit production costs for coal also are expected to improve compared with the quarter just ended because of the anticipated higher production levels.

"As a result, we expect that margins for coal should exceed reported results for the last seven quarters," he said.

The company expects the demand and pricing environment for both coal and gas to remain strong for the remainder of the year and continue into 2005.

"Coal inventories remain low, coal production is not expected to increase substantially, annual gas supplies have not yet increased meaningfully despite a record number of drilling rigs at work, some forecasters are predicting colder than normal temperatures for winter and the United States economy continues to improve."