Until demand and prices rise, the St. Louis-based company’s Armstrong Coal subsidiary is unlikely to boost production and sales. Just two years removed from turning out and selling a record 9.4 million tons of high-sulfur coal, Armstrong expects to mine and sell about 5.6 million tons this year as several of its mines in western Kentucky are not operating at capacity. But it would not take long to ramp up output if demand warranted.
“We certainly could get back to 6 million tons plus [annually] in short order,” Martin Wilson, Armstrong president and CEO, told analysts during an August conference call to discuss second-quarter earnings.
Wilson said coal purchases could climb this fall, “but not at increased prices,” as utilities that have stayed out of the market for months get back in.
During the April-June period, Armstrong sold 1.4 million tons of coal, in the process generating $60.3 million. That was down from sales of 2 million tons and total revenue of $93.1 million in the second quarter of 2015.
For the first six months of 2016, the company sold 2.8 million tons, representing $120.7 million in revenue. That, too, was less than 4 million tons and total revenue of $189.4 million in the same period last year.
Armstrong fetched an average price of $42.85/ton on coal sales in the latest quarter, down from $45.65/ton a year earlier. It cost Armstrong an average of $35.81/ton to produce that coal in the second quarter, up from $34.41/st a year ago.
Overall, the company lost $15 million in the second quarter of this year after posting a modest profit of $894,000 in the comparable period of 2015. For the first six months of 2016, Armstrong lost $28.4 million, or roughly double its half-year 2015 loss of $14.3 million.
As a result of continued weakness in U.S. steam coal markets, Armstrong said it has continued to evaluate its operations and rationalize production to meet current demand levels, as necessary. In April, it issued federal WARN Act notices to employees at its Parkway underground mine and related prep plant in Muhlenberg County in anticipation of closing the mine before the end of June. Now, however, Parkway will continue mining through the end of December, at which time it will be closed as its economically recoverable coal will be depleted.
Until the market recovers, Armstrong is in cost-cutting mode. The company is targeting capital spending of only $4 million to $6 million in 2016, which is primarily related to maintenance capital expenditures.
With respect to any significant development projects, Armstrong said it plans to defer them “to time periods beyond 2016 and will continue to evaluate the timing associated with those projects based on changes in overall coal supply and demand.”