Despite the ongoing robust coal market demand, Rhino Resources experienced delays in rail service late in the third quarter due to weather conditions that temporarily closed East Coast export terminals. The company incurred substantial demurrage costs from shipments that were delayed due to previous rail constraints from weather conditions experienced earlier in the year. The Pennyrile operation experienced adverse geological conditions and the mining areas have been adjusted to improve future production. Mining costs increased at Castle Valley as the operations transitioned to an adjacent coal seam.
“During the current quarter, we experienced modest improvements in rail service, which contributed to increased sales particularly for our export coal orders,” said Rick Boone, president and CEO of Rhino. “On the cost side, we experienced an escalation of steel prices that increased our roof support costs as well as increases in fuel pricing, both of which affected our margins.”
In to 2019, Boone said coal prices have improved for met and thermal coal.
“We have more than 85% of our 2019 coal production contracted at prices exceeding our 2018 benchmark,” he added. “Met coal prices have improved both domestically and internationally. In addition, we have seen thermal coal pricing improve in our CAPP (Central Appalachia) and NAPP (Northern Appalachia) segments year-over-year as well.”
“As we prepare to move into 2019, we believe there will be additional opportunities to market any uncontracted coal on the spot market for prices that could exceed our current contracted pricing,” Boone said. “With the improved coal prices, we expect margins to improve as we maintain strong cost controls in our mining operations.”
The Pennyrile, Castle Valley and Hopedale operations are substantially sold out for 2019 at prices that are above current year levels. In addition, the company has executed long-term contracts with various utility customers for thermal coal for 2020 at both Pennyrile and Castle Valley. Mining costs at Castle Valley should improve as the mine completes the transition to the adjacent mining area. With reliable rail service and improved pricing for 2019, Rhino’s financial performance next year could be very strong for Rhino.