David Zatezalo, Rhino president and CEO, said the company remains on target to commence production at Pennyrile in mid-2014. Rhino is spending $17 million this year and $22 million in 2014 to develop the mine, which has an initial, multi-year contract to supply 800,000 tons of high-sulfur coal to an unidentified regional utility customer.

Additional capital expenditures of $23 million are expected to increase Pennyrile’s production to 2 million tons a year by 2017.

When in operation, Pennyrile will be able to draw upon a large contiguous reserve base of 32.5 million tons of fully permitted proven and probable reserves under lease, with an opportunity to add another 15 million tons. Rhino said Pennyrile’s location on navigable Green River provides the mine with low-cost access to a large customer base, including export markets.

Rhino is counting on Pennyrile to help return it to profitability. The company posted a small, $200,000 loss in the first quarter of 2013, more than reversing a net profit of $9 million in the first three months of 2012.

Zatezalo said the quarterly results reflected reductions in volumes and prices from contract expirations. In northern Appalachia, unit prices improved and costs declined as the company’s Hopedale mine in Ohio remains fully contracted through 2014, while volumes declined at the Sands Hill operation, also in Ohio.

Christopher Walton, Rhino COO and senior vice president, said that while 2013 is seen as a tough year for the U.S. coal business, “We expect a higher level of cash flow in 2014 with the opening of our Pennyrile mine in western Kentucky.”

Rhino produced 942,000 tons of coal in the first quarter, down 25.2% from its 1.26 million-ton output in the same period last year.

The biggest decrease came in Central Appalachia, where Rhino produced only 388,000 tons in the first quarter compared with 569,000 tons a year earlier—a 31.6% decline.