The company, a subsidiary of St. Louis-based Armstrong Energy Inc., has struggled with geological issues at Lewis Creek since the mine opened last year. In a mid-May filing with the U.S. Securities and Exchange Commission, Armstrong said the mine “has experienced significant operating inefficiencies since its completion in July 2013, due to the geological conditions of the portion of the reserve being mined.”
Because of the ongoing difficulties, the company decided at the end of March not to continue advancing under the current mine plan but, instead, “to retreat and mine only in the eastern portion of the reserve.”
Armstrong said it expects coal reserves in that portion of the mine to be fully depleted in the first half of 2015, “at which time all of the equipment from the Lewis Creek underground mine will be relocated to our other mining operations and put back in service.”
An Armstrong official said the company was aware of potentially adverse geological issues with the reserve before production began at Lewis Creek. He declined to disclose the exact nature of the geological problems at Lewis Creek.
Lewis Creek’s production has held fairly steady over the past three quarters, its output ranging from 221,420 tons in the third quarter of 2013 to 234,541 tons in the first quarter of 2014. The mine has about 130 employees.
Armstrong recently was issued a mining permit by the Kentucky Department of Natural Resources for 12,108.2 underground acres for the Armstrong West No. 6 underground mine in the Webster County-Union County area, according to a DNR official. Armstrong has not said when the mine is expected to start production.
Armstrong Energy posted record quarterly revenue, $110.8 million, in the first three months of 2014, easily surpassing revenue of $101.2 million in the comparable period of 2013. Coal sales increased by 100,000 tons to 2.4 million tons in the first quarter this year, from 2.2 million tons a year earlier. Armstrong realized an average sales price of $47.94/ton in the latest quarter, up from $45.73/ton in the first three months of last year. Its cost of coal sales also rose, however, to $38.24/ton, from $37.06/ton a year ago.
Armstrong is targeting 2014 coal sales between 9.8 million and 9.9 million tons. As of March 31, the company had 9.8 million tons committed and priced this year at an average price of $46.81/ton.