Coal Age

APR 2016

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work to do for 2018." St. Louis-based Arch owns a 49% stake in Knight Hawk. S CH Services to Add New Storage Area at Four Rivers SCH Services LLC is expanding the on-site coal storage capabili- ty at its year-old Four Rivers Terminal on the Ohio River near Paducah, Kentucky. "It should be done in the very, very near future," Gary Quinn, vice president of sales for the Madisonville, Kentucky-based company, said on March 28. "It should be done in the first few days of April." The new storage area will be able to accommodate about 300,000 tons of thermal coal. Once the added stockpile area is available, the company expects to increase its handling of coal, particularly from the western U.S. Coal is transloaded from rail to barge at the $30 million terminal that went into commercial operation last spring at mile marker 943 on the river. Currently, the terminal receives thermal coal by rail from the high-sulfur Illinois Basin and low-sulfur Powder River Basin. The Paducah location is just west of the western Kentucky coalfield and across the river from southern Illinois. The terminal has a throughput capacity of more than 10 mil- lion tons annually. SCH did not release throughput totals for 2015. It features a double, 150-car rail loop coupled with a mate- rial handling system able to transload 4,000 tons an hour. In addition to Four Rivers, SCH operates the Calvert City Terminal on the Tennessee River in far western Kentucky. Its annual throughput is 12 million tons per year. Hallador Expects Production to Remain On Track Hallador Energy Co. said in March it anticipates its Sunrise Coal subsidiary will sell 6 million tons to 6.5 million tons of Illinois Basin (ILB) steam coal in 2016, down slightly from sales of 7.4 million tons in 2015. This year's sales total still could increase, however. The company, in the process of relocating from Denver, Colorado, to Terre Haute, Indiana, has transitioned almost all of its 2016 production to its two Oaktown underground mines in Knox County, Indiana. The newer, low-cost Oaktown high-sul- fur operations, Nos. 1 and 2, were acquired by Sunrise from Vectren Corp. in late 2014. Brent Bilsland, Hallador's president and CEO, told analysts during a March conference call to discuss fourth quarter 2015 and full-year earnings that Sunrise's once-flagship Carlisle underground mine in Sullivan County, Indiana, has been cut back to around 5,000 tons a month while the mine awaits a pos- sible revival in 2017. As recently as two years ago, Carlisle was producing at an annual runrate of approximately 3 million tons. "We already have 5.6 million tons under contract," Bilsland said. "In some cases, customers have the ability to increase con- tracted tonnage. In addition, we are experiencing some cus- tomers coming out for RFPs [requests for proposals] now, so we expect customers to buy more coal." Sunrise expects to fetch an average price of $43.88/ton in 2016, with Oaktown's costs estimated at $28 to $30 per ton. That compares to the company's average realized price of $45.59/short ton on 2015 sales and average costs of $31.95/ton. Oaktown's cash costs for the fourth quarter of 2015 were $28.98/ton. Sunrise's sales declined steadily during 2015, from 2.1 mil- lion tons in the first quarter to 1.4 million tons in the October- December period. Bilsland said Hallador has requested modifications of its loan covenants because of potentially reduced sales and "we are on track to receive increased liquidity." Hallador had bank debt of $250 million at the end of 2015 and is targeting a decrease to $220 million or $225 million by the end of 2016. In response to a question from Mark Levin of BB&T; Capital Markets, Bilsland said his company expects sales in 2017 to "look very similar to 2016." That is because mild weather has created "a glut of BTUs" and it is going to take some time for stockpiled electric utility to work its way through the system. "We see that process taking the better part of 2016 and part of 2017 before we return to something more normal," Bilsland said. "We think 2018 looks much better than 2016 and 2017." The oversupply in the past couple of years caused some utili- ties to defer coal shipments into 2016 or even 2017. Overall, Bilsland said, "I think we're in pretty good shape. I think the cus- tomer has done a lot of work trying to get their positions straight- ened out in 2016. A lot of these tons did get put into 2017. I don't see deferrals being as great in 2016 as they were in 2015." In response to another question, Bilsland said that while Hallador/Sunrise are always on the prowl for potential cost- effective acquisitions, "do not look for us to be going outside the ILB. Our expertise is in the ILB, so if we were buying something, that's where we would be looking." In general, he summarized, "we think there's a lot of pressure on the industry and higher-cost producers are in for a rough time." Sunrise continues to develop its new Bulldog underground steam coal mine near Allerton in Vermilion County, Illinois, after the Illinois Department of Natural Resources in February approved the company's application for a one-year extension to submit plans to the agency. Bulldog would produce about 3 million tons of high-sulfur coal annually, potentially starting sometime in 2018. Hallador posted net income of $500,000 in the fourth quarter and $20.8 million for all of 2015. Starting April 1, Larry Martin became the company's chief financial officer, succeeding Andy Bishop who retired after 26 years. OSHA Issues Final Rule on Respirable Crystalline Silica The Occupational Safety and Health Administration (OSHA) has released a prepublication copy of its final rule, Occupational Exposure to Respirable Crystalline Silica. The rule will be published in the March 24 Federal Register and will be effective in 90 days. The final rule establishes a permissible exposure limit (PEL) for respirable crystalline silica of 50 micrograms as an eight- hour time-weighted average that was opposed by industry as unnecessary, not feasible, and not supported by scientific evi- dence. The rule also includes provisions for exposure assess- ment, respiratory protection, medical surveillance, hazard communication and recordkeeping. The final rule is issued as two separate standards, one for general industry and maritime and one for construction. The Mine Safety and Health Administration (MSHA) has indicat- ed it will revise the PEL for mining following issuance of OSHA's final rule, and silica remains on MSHA's semiannual regulatory agenda. n e w s c o n t i n u e d 20 www.coalage.com April 2016

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