Coal Age

MAY 2017

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6 www.coalage.com May 2017 news continued The good news for Armstrong is that in 2016 its average cost of coal sales fell to $34.85/ton from $36.31/ton in 2015. But the bad news is that its average selling price dipped to $42.62/ton in 2016 on sales of 6 million tons from $46.32/ton in 2015 on sales of 7.8 million tons. Wilson said Armstrong currently has 5.3 million tons com- mitted and priced in 2017, with another 700,000 tons uncommit- ted but available. The company's total capital expenditures are expected to range from $9 million to $13 million this year. According to Jeffrey Winnick, Armstrong vice president and CFO, the company's shipments of 1.6 million tons in the fourth quarter of 2016 were down 14% compared to a year ago as a result of lower customer demand. Quarterly revenue was $68 million, an 18% decrease from $82 million a year earlier, driven by lower volume and lower pricing. For all of 2016, Armstrong's revenue was $254 million, down from $361 million in 2015. But there is hope for Armstrong if it can successfully restructure. J. Hord Armstrong, the company's executive chairman and namesake, said the coal market "continues to show positive movement on both the international and domestic fronts" and stockpiles are decreasing as natural gas prices rise. "We believe recovery will occur in 2017 into 2018, with gas prices holding around the $3 [mmBtu] level in the spring shoulder season with $4 gas possible by the end of the year," he added. "We have noticed improvement in the market for Illinois Basin coal." Looking to 2018 and beyond, coal buyers for electric utilities still are hesitant to purchase large amounts of term coal, while leaving open positions, he said. "We do anticipate higher demand for 2018 and 2019," he added. For that reason, Armstrong is keeping a modest amount of uncommitted tonnage in 2017 "to capitalize on opportunities that may arise later this year," he continued. "We're ready to take advantage of coming RFPs (requests for proposals) by utilities." At present, Armstrong has four active mines — two surface and two underground, in western Kentucky. Its surface mines are Lewis Creek and Equality in Ohio County. It also operates the Kronos underground mine in Ohio County and Survant un- derground mine in neighboring Muhlenberg County. In the first quarter of 2017, the four mines produced a little more than 1.5 million tons, with Kronos leading the way with 681,121 tons, ac- cording to the federal Mine Safety and Health Administration. Armstrong prematurely closed its Lewis Creek underground mine in Ohio County two years ago because of persistently poor geological conditions. More Coal-fired Plants in the Midwest Survive Uncertainty Several major coal-burning power plants in the Midwest that faced an uncertain future will remain in operation as a result of a state regulatory decision and a business transaction be- tween two energy companies in April. In Indiana, Indianapolis Power & Light Co.'s (IP&L;) 1,700-megawatt (MW ) Petersburg generating station in Pike County was saved from potential clo- sure in 2018 when the Indiana Utility Regulatory Commission (IURC) approved the utility's application to spend $76 million on pollution controls. Prevost said Anglo's sale showed that the "big four" producers, which also included South32, Glencore and Exxaro, indicated that the companies believed they had little chance of being awarded future Eskom contracts. This was already filtering into the market. A sharp decline in new production was causing an artificial rise in inland prices, by up to 30%. Last year, Glencore sold its Optimum coal mine in a controver- sial deal at a rock bottom price after Eskom refused to renegotiate the price it paid for the commodity. Much of the problem also lies in Eskom's shifting priorities. The utility is likely to commission a nuclear fleet build — as early as June this year, reports said — which will reduce the need for long- term coal projects. Eskom must also complete line connections to around 37 renewable projects, from which it will be obligated to buy electricity. These factors point to gloomy prospects for coal producers. Also, the chances of developing the vast Waterberg coalfields in the north of the country are likely dead for now. Waterberg has long been viewed as a replacement for the depleting Mpumalanga region fields with up a 500-billion-mt resource. The region has escaped development up to now because of complex geology, a lack of rail infrastructure and poor water resources that will make exploitation costly. "In short, the Waterberg is a very big coal deposit, requiring large resources to mine it profitably," Prevost added. "The scar- city of water makes it impossible to open new mines there at this moment." Fact-finding Committee to Probe Coal Mine Incident in Northern Iran The Fars News Agency in Tehran reported that Iranian Industry Min- ister Mohammad Reza Nematzadeh declared that a special team will probe into a deadly coal mine explosion in the northern part of the country. "A fact-finding committee has been set up to look into the incident caused by a deadly blast in Zemestanyurt coal mine in the northern city of Azadshahr in Golestan province," Nematzadeh said. The committee consists of two university professors, three to four veteran miners, and two former mine directors. A committee attended by Nematzadeh and Labor Minister Ali Rabiei has also been formed in Tehran to investigate the issue as well. At least 43 miners were killed and 73 others were also injured in the accident. Photos from the scene show a drift mine and local re- porters said rescuers advanced halfway down the 2-km-long main entry and brought six miners to the surface, the rest perished. Iran mines a small amount of coal (less than 2 million tons). Most of it is coking coal, which is consumed domestically for steel production. Indian Brings Coal Export Plans Back to the Table Barely months after pushing it to the backburner, India has put plans for exporting coal back on the table to cope with the problem of too much supply. With rising pithead stocks of Coal India Ltd. (CIL) and slowdown in off-take by thermal power plants, the coun- try's Ministry of Coal was once again readying to scout for overseas buyers of Indian coal. "The government is now looking for new consumers for the sur- plus coal," said Ministry for Power, Coal and Mines Piyush Goyal. "We are open to the idea of exporting coal. However, to export, we Continued from p. 5... Continued on p. 8...

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