“Our mine plans for the next few years have been adjusted to maintain adequate liquidity, but having flexibility to increase production,” J. Hord Armstrong III, the St. Louis-based company’s chairman and CEO, told analysts during a March 26 conference call to discuss earnings.
The company, whose Armstrong Coal subsidiary operates seven underground and surface mines in western Kentucky, is not so much pulling back as it is remaining mostly flat in 2015 with its troubled Lewis Creek deep mine in Ohio County now out of the picture.
Armstrong decided to close Lewis Creek prematurely in early 2015 because of persistent geological issues barely more than two years after the mine began production.
As a result, Armstrong is targeting coal sales of 8.4 to 8.7 million tons this year, down from the record 9.4 million tons it sold in 2014. A corresponding production decline is expected.
Hord Armstrong said natural gas prices of less than $3/mmBtu are applying pressure on U.S. coal pricing and demand. “We believe demand for ILB coal is continuing its growth, but uncertain regulatory conditions and low natural gas prices leaves the ILB in a challenging period, but advantageous compared to other basins.”
Some domestic coal producers groused this winter about the relative dearth of formal electric utility requests for proposals for coal, expecting more activity than what transpired. The good news, Armstrong said, is that solicitations appear to be increasing.
“We are starting to see RFP activities for coal deliveries for 2016 and beyond, primarily for shorter periods because buyers are reluctant to commit for longer periods,” he said.
As of March 1, 2015, Armstrong had 8.4 million tons of coal committed and priced at an average of $48.07/ton for this year. For 2016, Armstrong has slightly more than 6 million tons committed and priced at an undisclosed amount and roughly 3 million tons uncommitted and not priced. Marty Wilson, Armstrong president and chief commercial officer, told analysts it was too early to discuss commitments for 2017.
Armstrong also has experienced lower productivity at Parkway and its Kronos underground mine in Ohio County because of difficult mining conditions.
The company, though, is committed to underground mining. Forty-six percent of its production came from deep mines in 2014. That percentage is forecast to rise to 51% in 2015.
Hord Armstrong revealed that his company is developing the new Survant underground mine at the Parkway near Central City. Survant will burn western Kentucky No. 8 coal and draw upon a proven reserve base of 59.7 million tons. Development of the new room-and-pillar operation is expected to be completed this summer.
Survant’s coal will be processed at the nearby Parkway preparation plant. The Parkway mine produces coal from the western Kentucky No. 9 seam. The mine turned out about 1.1 million tons in 2014.