The coal mining company reported net income of US$26.2 million for the quarter, up from the prior year's US$10.6 million, driven by the combination of higher production volumes for coal and gas and rising coal and gas prices. While EBITDA was US$95 million for the June quarter, the company expects this to drop to between US$82 million to US$87 million in the September quarter.
J. Brett Harvey, president and chief executive officer said revenues from the sale of company-produced coal improved 17.5% while sales of company-produced gas improved 33.2%. For the quarter total coal sales increased 1.3 million tons, or 8%, while higher coal production was a result of the reactivation of the Loveridge Mine in March 2004 and higher production from the Bailey Mine. Lower production from Enlow Fork, Mine 84 and Buchanan Mine offset production increases.
The expansion of the McElroy longwall and the expansion of the Bailey Preparation Plant are expected to have an impact on coal production volumes in the fourth quarter and are projected to add about 7 million tons of capacity for 2005.
Work is underway to get mine infrastructure in shape to hit the higher volume targets Consol has for the latter part of the year and for 2005. Additional continuous miner shifts have been added at a number of mines to ensure development stays ahead of longwall retreat.
"We expect to achieve our targets for 2004," Harvey said. "In doing so, we are setting the stage for a very strong year in 2005. Energy demand should remain strong and we expect to have increased capacity in place to benefit from the higher demand and from the higher prices for coal and gas that we will have locked in or can expect to receive in the spot markets."
Earlier in the week, on a conference call with analysts Harvey noted US power utilities were expressing interest in longer-term contracts running three to four years, as opposed to the typical current one year coal supply contracts.
He said Consol is in talks with utilities about contractual arrangements that will help finance the construction of new mines. For this to work utilities would probably have to sign up for contracts running at least 10 to 15 years and commit to purchasing up to 60% of the coal from a new project.
It is unlikely utilities would enter fixed-price deals for such a long period and the proposed deals would probably be subject to renegotiation every two to three years based on prevailing spot prices.