Coal Age

APR 2017

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Page 11 of 51

10 April 2017 news continued Outlook Improves for Rhino Resources Rhino Resource Partners provided an upbeat assessment in March of its anticipated performance in 2017, saying all of its Central Appalachian steam and metallurgical coal mining com- plexes are operating and are fully sold out for production capacity this year. The Lexington, Kentucky-based company reported an in- crease in steam coal production and sales in 2016 at its Penny- rile underground mine on the navigable Green River in McLean County, Kentucky. Pennyrile produced and sold 1.27 million and 1.23 million tons of coal in 2016, respectively, up 51.2% and 48.9%, respectively, from 2015. The mine is targeted for similar output in 2017 to serve its primary customers, Louisville Gas & Electric Co. and Big Rivers Electric Corp. Rhino and Armstrong Energy, a western Kentucky steam coal producer and subsidiary of St. Louis-based Armstrong Energy Inc., have entered into an equity exchange with Yorktown Partners, which owns majority interest in Armstrong, and Roy- al Energy Resources, a South Carolina private equity firm that controls Rhino. The equity transactions further reduced Rhino's debt and po- sitioned the company "as a financially strong competitor in the worldwide coal markets," Rick Boone, Rhino's president and CEO, said in a filing with the federal Securities and Exchange Commis- sion. "We have been able to reduce our debt by approximately $34 million during the current year as our focus on cash generation and strategic transactions with supportive partners has resulted in a strong balance sheet for Rhino." Rhino said a resurgence in coal prices, particularly for met coal, toward the end of 2016 gave the company the opportunity to execute favorable sales contracts for 2017 that provide Rhino with substantial upside potential if it can continue to control costs. In addition to Central Appalachia, Rhino also has sold out Pennyrile for 2017 and has made baseload sales at its Castle Val- ley operation in Utah's western bituminous region as well as its Hopedale mining operation in Ohio for next year. Rhino contin- ues to explore met coal sales from its Central Appalachian opera- tions that could provide the company with an incremental upside to its projected 2017 financial results. All of Rhino's Central Appalachian mining complexes are ex- pected to continue in operation through the remainder of 2017. Rhino may add additional production capacity in Central Appa- lachia for this year if it can obtain coal sales at prices that justify the capital expansion dollars required to boost production. Rhino noted that productivity improvements at Pennyrile, its flagship operation, in 2016 lowered operating costs and improved the coal recovery rates at the mine compared to 2015. Pennyrile produced positive cash flow for Rhino in 2016 as the mine in- creased production to meet its contracted positions. Pennyrile is fully contracted in 2017 for 1.3 million tons, and Rhino is confi- dent the mine will remain cash-flow positive this year. In Northern Appalachia, Hopedale has continued to fulfill its contracted sales orders as customers have accepted their ship- ments, Rhino said. In the fourth quarter of 2016, Rhino agreed to a sales contract for Hopedale that provides for a baseload sales level for the operation through the remainder of 2017, although no details were disclosed. cording to the Warsaw Voice, but remains committed and hopes to strike terms with investors and creditors. "These are diffi cult matters, the integration of PGG and KHW is complicated," said Polish Energy Minister Krzysztof Tchorzewski. "The restructuring is underway, the staff and economic situation is dynamic." The Pol- ish government is working on a merger of the state-owned mining fi rms PGG, fresh out of a 2016 restructuring, with KHW, the latest problem child in the stable. India to Offer Complete Pricing Freedom to Private Coal Miners India's Ministry of Coal has decided to offer pricing freedom and revenue sharing contracts as sweeteners to woo private investors into commercial coal mining in the country. Having thrown open the coal sector to private investors for commercial mining for the fi rst time since 1973 when coal industry was nationalized, India would offer total reserves of around 30 million metric tons (mt) in the fi rst tranche to be allocated to such private miners through the reverse auction route. A ministry note on the launch of private, commercial mining currently put out for circulation among all stakeholders said that all successful bidders at the reverse auction would have full free- dom to price their production and no restrictions on merchant sale of coal in the open market. At present, private coal mining was permitted only for captive consumption and even excess produc- tion was not permitted for merchant sale. A private investor would have to sign up for a revenue sharing contract after a successful reverse auction. The contract for reve- nue sharing proposes that the government' share of revenue would be calculated on basis of actual revenue or actual production mul- tiplied by 1.2 times of the Coal India Ltd (CIL) run-of-mine price for average grade of coal, whichever was higher. Laying out the eligibility parameters of prospective bidders, the working paper said that each bidder should have a minimum net worth of $230 million and experience of excavating at least 25 million m 3 per year. At the same time, the government proposed to lay down on production quantities. The private miner would have freedom to optimize production up to the maximum laid out in the sanctioned mining plan. But, in the case of adverse economic conditions, the miner would not be able to reduce production from the mine to less than half of the maximum sanctioned in the mining plan. The successful bidder would be required to make an upfront payment of 10% of the annual turnover value of coal in three in- stallments, 50% on execution of the mining plan, 25% on execu- tion of mining license and the balance on grant of mine opening permission from the government. Some private miners, however, expressed reservations on the revenue sharing formula. According to one private mine de- veloper who spoke on condition of anonymity as his company proposed to participate in the auction, several mining companies were expected to submit their concerns over revenue sharing to the government. It should be noted that adhering to a revenue sharing based on a fi xed formula would be impractical, since geological parameters of the coal blocks were unknown and margins from merchant sale of coal would differ from block to block as cost of production varied depending on diffi culty of mining in respective blocks, the private miner said. Continued from p. 8...

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