In Commodity News 08/05/2015
Despite record-setting production levels and strong sales, Illinois Basin coal producer Foresight Energy saw first-quarter revenues drop 1.6% as prices slid $2-$3 from the beginning of the year, the company said in an earnings call.
The St. Louis-based company believes the rest of the year will be “challenging” for coal producers with high coal inventories, low natural gas prices and weak pricing.
“We don’t believe the industry can sustain this level of pricing, but we are optimistic that we are going to see some improvements over time,” said Foresight President and CEO Michael Beyer who will step down May 31. “We expect additional production cuts through the balance of the year that will take down some of the overhang and prices will improve from where they are today,” he added.
Foresight produced a record 6.6 million st of coal in Q1, up 30.6% from 5.1 million st in the same quarter a year ago. Sales volumes totaled 5.1 million st, up 8.4% from 4.7 million st sold in the prior-year quarter.
Its coal revenues in the quarter fell to $238.9 million from $242.7 million in Q1 2014.
Beyer attributed the production increase to the company’s new Viking longwall at its Sugar Camp mine, along with efficient operations that have made Foresight’s Williamson, Hillsboro and Sugar Camp mines the three most productive underground mines in the US, according to figures that the US Mine Safety and Health Administration collected.
The company posted sales of $46.84/st, down 9.2% from $51.58/st in Q1 2014. Costs also rose 9.8% to $21.68/st from $19.75/st largely from higher labor-related, supply and repair costs at Williamson, the company said.
The company also reported transportation issues, including high water on the Ohio River and CSX rail performance, resulting in 1 million st of coal not shipping during the quarter and a reduction of $48.9 million in sales.
Despite these obstacles, Foresight projects that continued strong coal production and sales volumes will counter weak coal market conditions, said Robert Moore, the company’s president and CEO-elect, who will replace Beyer as Foresight’s top executive May 31. Moore had served as chief financial and chief operating officer of St. Clairsville, Ohio-based Murray Energy, which acquired a significant stake in Foresight in a deal that closed April 16.
“As we look at our portfolio of assets, we have the capability of shifting some of our assets from Murray to Foresight to take advantage of that low-cost structure,” Moore said. “But Murray also has a low-cost structure. That’s what is unique about this — we have two of the most low-cost structures in operations today.”
Moore called an annual growth rate of 10% or greater “attainable,” and said he expected the combined volumes of the two companies to remain flat. “We may see some shifting production of some of our assets to the Foresight assets,” he added.
Moore said Northern Appalachian coal supply was “relatively in balance,” while the Illinois Basin had between 5 million-8 million st of overhang. Moore said the company was “better positioned than any company” to take advantage of market conditions because of its pipeline of Murray assets could be combined with the Foresight assets wherever an advantage could be gained. Murray “controls a large number of longwall mines, oil and gas reserves and river assets,” he said. “These are nice assets that we plan on strategically dropping into this business.”
