Foundation marks solid performance

STAND out performances by Foundation Coal’s northern Appalachia mines helped the company’s earnings grow by more than 400% in the December quarter.
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Courtesy Foundation Coal Holdings

Donna Schmidt

For the period ended December 31, Foundation reported record net income of $US42.1 million, well above 2007’s fourth-quarter result of $9.9 million.

Coal sales revenues were $450.7 million, a 27% rise over last year, due in part to a 29% increase in average per-ton sales realisations.

The jewel in the producer’s crown was its Northern Appalachia complexes, especially its dual-longwall Emerald mine which posted full operation over the quarter.

Reporting the strongest per-ton average realisations were the company’s operations in central and northern Appalachia, which jumped year-over-year by 59% and 9%, respectively.

Foundation officials noted, however, that diesel fuel costs, labor expenses, maintenance and other factors led to an 18% jump in coal sales costs, which came in at $324.7 million.

The company’s enthusiasm over its strong performance in the fourth quarter was tempered by January 30 announcement that it would idle the central Appalachian Laurel Creek mining complex.

“The decision … was based on its high cost structure, unfavorable market environment, and difficult mining conditions,” Foundation chairman James Roberts said.

“This action will reduce our cost structure in Central Appalachia, enhance Foundation’s Adjusted EBITDA in 2009 and beyond, and reduce our 2009 capital expenditure requirements.”

However, Roberts added, Foundation has confidence in the coming fiscal year, despite anticipated obstacles.

“While first quarter 2009 results will be constrained – due to limited Northern Appalachian production, because of planned longwall moves at both Cumberland and Emerald, and the current temporary production interruption at the Emerald Mine related to gas levels in a sealed area of the mine – Foundation Coal is positioned to deliver record financial performance for the year 2009.”

As the global markets continue to waver, Foundation said the company is prepared for the current environment with its low-cost operations, limited exposure to near-term permitting issues in the central Appalachian region, and its high hedging at favourable prices.

“Ninety-seven per cent of our planned 2009 coal shipments [are] committed and priced, of which ninety-four per cent was committed and priced prior to the end of the third quarter of 2008, before the recent decline in coal prices,” the company noted.

Looking forward, Foundation said it is working to control costs and keep capital expenditures in check “to the extent possible” this year. It anticipates 2009 capital expenditure to range between $190 and $240 million.

Also in the new year, total coal shipments are expected to be 73-76 million tons, with 54-56Mt of that originating from its western properties.

Production in 2010 and 2011 is anticipated to be 72-75Mt. Of those amounts, 97% of Foundation’s tonnage is committed and priced for this year (including 100% of its western coal), 59% for 2010 and 29% for 2011.

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