In its third quarter earnings report, North American Coal Mining attributed a 7.9% increase in revenues to an increase in the per ton sales price at Mississippi Lignite Mining Co. Operating profit, however, decreased significantly in part due to a reduction in the per ton management fee at the Falkirk mine and the termination of the Bisti Fuels contract at the end of September. Mississippi Lignite Mining Co. posted significantly lower earnings due to the impact of higher diesel and increased repairs and maintenance costs on the cost per ton delivered, as well as an increase in operating expenses resulting from higher employee-related costs.
The company said it expects coal deliveries to increase moderately in the fourth quarter over what was reported in Q4 2021. It also expects Q4 operating profits to be comparable to the prior year. Lower earnings anticipated at the Falkirk mine as a result of the reduction in the per ton management fee through May 2024, to support the transition of the Coal Creek Station power plant to Rainbow Energy, are expected to be offset by higher earnings at Coteau Properties Co. due to an increase in tons delivered and contractual price escalation. Earnings are also expected to improve at the Mississippi Lignite Mining Co.
The owner of the power plant served by the North American Coal’s Sabine mine in Texas intends to retire it in 2023. Sabine expects deliveries to cease in the first quarter of 2023 at which time Sabine expects to begin final reclamation.
The company warned its 2022 operating profit will not likely be as high as in 2021. The contract structure at each of its coal mining operations eliminates its customers’ exposure to spot coal market price fluctuations. However, fluctuations in natural gas prices and the availability of renewable power generation, particularly wind, can contribute to changes in power plant dispatch and customer demand for coal. Sustained higher natural gas prices could result in increased demand for coal. These changes to expectations for power plant dispatch could affect the company’s outlook for the remainder of 2022 and 2023.
In 2023, the company expects coal deliveries to decrease moderately from 2022. The company said earnings from coal mining operations are projected to decrease significantly. Costs per ton delivered are expected to increase significantly at Mississippi Lignite Mining Co. in 2023. Anticipated cost inflation on repairs, diesel fuel and supplies, as well as higher depreciation expense related to recent capital expenditures to develop a new mine area are expected to contribute to the higher cost per ton.
The contract that protects its customers from swings in spot prices exposes Mississippi Lignite Mining Co. to increasing inflationary pressures. The increase in production costs will not be offset by an immediate increase in the revenue generated from contractual price escalation as there is a lag in the timing of the effect of inflation on the index-based coal sales price.
