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July 2016 www.coalage.com 9 news continued Rhino's Castle Valley underground mine in Emery County, Utah, also enjoyed a good first quarter, as coal revenue per ton increased to $38.09 compared to $36.90 in the year-ago period. Higher contracted prices accounted for the higher rev- enue. Sales volumes increased to 252,000 in the quarter, from 229,000 tons in the prior year. Rhino said Castle Valley's sales remain fully contracted through 2016. But it was a different story for the company's mines in Central Appalachia (CAPP) and Northern Appalachia (NAPP). Sales fell by more than half in CAPP to 100,000 tons from 237,000 tons a year earlier, and coal revenue per ton dipped to $56 from $64.22 in the first quarter of 2015. Rhino's CAPP operations were idled in the fourth quarter of 2015 to reduce excess inventory stockpiles, which caused an increase in cost of operations per ton in the fourth quarter compared to the current quarter, the company said. Rhino re- sumed mining operations at a majority of its CAPP operations in early 2016 to fulfill customer contracts for this year. Meanwhile, in NAPP, Rhino experienced delays from cus- tomers accepting shipments from its Hopedale underground mine in Harrison County, Ohio, "that adversely affected our NAPP results in the quarter," Funk said. Rhino sold 122,000 tons in NAPP in the first quarter, down from 251,000 in the previous year. The company said sales at its Sands Hill surface operations in Jackson County, Ohio, are fully contracted through 2016. Royal Energy Resources of Charleston, South Carolina, became Rhino's new owner earli- er this year. NRP Sues Foresight Energy Over Royalties For the second time, Natural Resource Partners (NRP) has filed a lawsuit against Illinois' largest high-sulfur steam coal pro- ducer, Foresight Energy, this time over the alleged incorrect payment of royalties involving NRP coal lease agreements. NRP, a Houston, Texas-based company whose business model is based largely on leasing mineral reserves to producers, also sued Foresight on November 24, 2015, for alleged breach of contract involving the latter's idled Deer Run longwall mine near Hillsboro in Montgomery County, Illinois. In a May regulatory filing, NRP disclosed it sued Foresight on April 1 in Macoupin County, Illinois, Circuit Court because Foresight's Macoupin Energy LLC subsidiary "failed to comply with the terms of its coal mining, rail loadout and rail loop leases by incorrectly recouping previously paid minimum roy- alties." Macoupin Energy operates the Shay No. 1 continuous miner operation in Macoupin County. The mine south of Carl- inville previously was known as Monterey No. 1 and owned by Exxon Coal USA. It was sold to Macoupin Energy in 2009. According to the suit, Foresight's failure to properly cal- culate its recoupable balance and to make payments in ac- cordance with the lease agreements in the third and fourth quarters of 2015 and the first quarter of 2016 resulted in a $4.7 million negative cash impact to NRP. While NRP said it intends to pursue the legal claim, it added that "a valuation allowance for the receivable amount has been recorded given the early stage of this ongoing litigation. It is possible that the partner- ship's current estimate of the valuation allowance related to this matter could change, perhaps materially, in the future." Various companies controlled by Chris Cline, including Foresight, lease coal reserves from NRP, and NRP also leases coal transportation assets to them for a fee. Cline, individually and through another affiliate, Adena Minerals LLC, owned a 31% interest in NRP's general partner, as well as approximate- ly 500,000 of NRP's common units as of March 16. In the pending November suit, NRP claimed Foresight breached their contract through a "wrongful declaration of force majeure" at Deer Run, which has produced coal for only a few weeks since March 26, 2015, when elevated levels of car- bon monoxide were detected hundreds of feet below ground. After receiving approval from the federal Mine Safety and Health Administration, Foresight temporarily sealed the mine earlier this year in an attempt to shut off oxygen to a combus- tion event apparently occurring in the mine. NRP said revenue from Foresight totaled $10.1 million, or 9.8%, of its total revenue in the first quarter of 2016. The Fore- sight revenue is spread out over a number of different mining operations and leases. NRP reported net income of $23 mil- lion, or $1.88/unit, in the January-March period, up from net income of $17.1 million, or $1.40/unit, a year earlier. Hallador CEO Expects Gas Prices to Rise While he may not have a crystal ball, Hallador Energy President and CEO Brent Bilsland sees a rising U.S. steam coal market when he gazes a year or two into the future, and the Illinois Basin coal producer believes it is well-positioned to take advantage of any improvements. The reason for his optimism? Natural gas prices have been the bane of the coal industry for the past couple of years as they hovered in the $2/MMBtu range. Bilsland said gas prices are destined to increase because, es- sentially, gas producers are not making any money with the cur- rent cheap prices. "We don't think there are any gas producers in the country that make money below $2.50/MMBtu," he said. "Even the lowest-cost producers need at least $2.75/MMBtu for a return on investment." If Bilsland is correct, gas prices should start an upward climb during the next year or so. "I think at $3/MMBtu gas, Indiana coal is in pretty good shape," said Bilsland. "At $2.50 [gas] starts to steal market share" from coal. Hallador's Sunrise Coal subsidiary operates exclusively in southern Indiana. Almost all of Sunrise's committed 2016 produc- tion, about 6 million tons, is expected to come from its two Oak- town underground mines in Knox County and its small Ace in the Hole surface mine in neighboring Clay County. Ace's lower-sulfur coal is blended with Oaktown's higher-sulfur product to meet the requirements of certain electric utility customers, particularly in Florida. Late last year, Sunrise significantly curtailed production at its once-flagship Carlisle underground mine in Sullivan County and the workforce was cut back to a skeleton crew. Carlisle, which once turned out more than 3 million tons of high-sulfur coal annually, is expected to produce a mere 5,000 tons or so a month this year. But Hallador envisions a recovery for Carlisle as electric utility coal stockpiles are burned down and demand picks up for steam coal. A forecast hot summer across much of the U.S. would come in handy in that regard. The mine's production is expected to increase in 2018-2019,