In their first earnings call as co-CEOs for Contura Energy, Andy Eidson and Mark Manno, discussed results that were positive, but did not meet expectations. During the quarter, the company produced 6 million tons, a 2-million-ton increase over the same period last year. More than half of that increase was met coal selling at average price of $123.68/ton.
The company’s board of directors approved the $25 million to $30 million Lynn Branch metallurgical coal project in Logan County, West Virginia, which is expected to reach full production by the second quarter of 2020. They announced they had encountered geological issues at Marfork and they had resolved infrastructure-related issues at Mammoth Slabcamp. Despite a longwall move, the Cumberland mine posted good results.
“As we worked to integrate our expanded asset portfolio over the past quarter and a half, certain operational challenges arose that negatively impacted production efficiency, particularly at [Marfork], while a temporary, partial idling of one of [Mammoth Slabcamp] was required to bring mine infrastructure up to Contura standards,” Manno said. “Both issues are being addressed to better position these assets for long-term success.”
Marfork encountered geology that yielded less clean tons per foot of advance. The decision was made to relocate the sections to other areas with better mining conditions. Manno referred to it as a temporary issue that will be remediated by the end of the year. The issues at Mammoth Slabcamp were resolved in mid-April and the mine is back to full production.
“These factors, along with softer than anticipated sales volumes due to pricing dynamics, converged this past quarter to result in performance that trended below our expectations,” Eidson said. “While we anticipate costs to revert to our previously forecast run rate before year end, we are revising our cost guidance slightly to better reflect updated full-year expectations.”
The Lynn Project is expected to unlock a high-quality, 25-million-ton high-vol met coal reserve. The project is expected to produce approximately 1 million to 1.2 million tons annually at its full estimated run rate, with a projected cash cost per ton in the low $60 range. The capital investment includes improvements to the Band Mill prep plant to accommodate this coal. Production is expected to commence in the second quarter of 2020.
The company maintained its total 2019 coal shipments guidance of 24.6 million to 26.7 million tons. Met coal guidance remained at 12.2 million to 12.8 million tons, with the T&L segment remaining at 1 million to 1.5 million tons. NAPP shipments are expected to remain between 6.8 million and 7.2 million tons in 2019. Thermal shipments were unchanged at 4.6 million to 5.2 million tons.