CONSOL Energy Senses Strength in Future Coal Markets
By Harris, Linda
Reporting earnings of $75.1 million for the first quarter, CONSOL Energy’s J. Brett Harvey said the company’s future looks bright as the developed world increasingly looks to coal as its low-cost fuel of choice.
CONSOL’s first-quarter numbers reflect continued fallout from an unplanned outage at Virginia’s Buchanan mine in July. Roof falls in previously mined areas damaged ventilation controls inside the mine, forcing a general evacuation and idling production until March.
As a result, Harvey said the first-quarter 2008 numbers included a $50 million pre-tax recovery under CONSOL’s business interruption policy as well as costs related to the mine’s temporary idling. Also factoring into the earnings – which were down from $113.3 million posted for the same three-month period in 2007 – were market-to- market adjustments related to several freestanding coal sales options resulting in a loss that Harvey said will reverse later in the year as the coal is purchased under those options or as the options expire.
Net cash from operating activities for the first three months of 2008 was $146.1 million.
Harvey, meanwhile, said even green-thinking economies are moving toward coal, “which creates opportunities for CONSOL.” Given the environmental issues involved with opening new mines, permitting issues, availability and shipping coal to market, he said capitalized mines such as CONSOL’s “with long-term lives and production become more valuable in the marketplace.”
“The market in the first quarter changed dramatically and has legs,” Harvey told industry analysts this week during a conference call discussing the first quarter numbers. “The world is building coal-fired capacity all around us, driven by China, India, Indonesia … even Europe now is burning higher rates at existing plants and committing to building new plants.”
Chief Financial Officer Bill Lyons, meanwhile, said the company “is well positioned to take advantage of the great marketing opportunity open to us.”
Upgrades at CONSOL’s Shoemaker mine near Moundsville should be complete in early 2010, he said. The $200 million project, which involves replacing Shoemaker’s old rail hauling line with a new conveyor belt system, will reduce costs and improve productivity. It’s expected to bump Shoemaker’s high-sulfur coal production to roughly 6 million tons a year and position the mine to help fill contracts with nearby coal-fired power plants now being equipped with desulfurization technology.
The company also anticipates boosting capacity at Buchanan to 6 million tons a year by early 2011 through upgrades to its existing preparation plant and its water delivery and treatment system, construction of a new raw coal storage silo, installation of a new vertical coal transport belt to augment the existing skip hoist, and modifications to the existing underground haulage system. The preparation plant and silo projects already are under way.
Harvey said the Buchanan expansion “is a measured and prudent response to the international demand signals for low-volatile met coal,” noting the steel market it serves has historically been cyclical.
CONSOL also has begun the permitting process to add a third long- wall mining system at Bailey mine in Greene County, Pa. That work, expected to be complete in 2013, could increase annual production by as much as 5 million tons a year.
Copyright State Journal Corporation May 2, 2008
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