For Rhino, a main culprit, as it has been for most U.S. coal producers in the past couple of years, was low natural gas prices that have caused some electric utilities to switch from coal to gas, leaving bulging coal stockpiles on the ground at their power plants.
During the latest quarter, Rhino idled the majority of its CAPP mining operations as they had built excess coal inventory levels due to ongoing weak market conditions.
“We have been able to reduce our inventory levels this quarter as we completed strategic sales transactions to monetize this inventory,” said Joe Funk, Rhino president and CEO. “We will continue to monetize our Central Appalachia inventory in the fourth quarter to generate cash for the partnership to further reduce our debt level.”
Funk added that the majority of Rhino’s CAPP operations will remain idle in the October-December period as the company meets customer demands by shipping coal from inventories.
Rhino’s overall coal production was 836,000 tons in the third quarter, down from 924,000 tons in the same period of 2014, or 9.5%. Coal sales totaled 940,000 in the latest quarter, versus 943,000 tons a year earlier, a modest 0.3% decline.
The company continues to hemorrhage production in Central Appalachia, however. Output fell by 70.9% in the third quarter across the region, to only 94,000 tons from 324,000 tons in the third quarter of 2014. CAPP’s sales decline was less, though, to 232,000 tons from 330,000 tons a year ago, a 29.7% sales decrease.
In the NAPP region, production edged up 4.3% to 249,000 tons in Q3, from 239,000 tons in the preceding year period. Sales also climbed by 8.4%, to 264,000 tons from 244,000 tons.
Perhaps the brightest spot for Rhino was the high-sulfur ILB. There, the company produced 230,000 tons in Q3, a 166.8% increase over just 86,000 tons in the third quarter last year.
Pennyrile, also known as Riveredge, accounted for all of that output. The mine, located near Calhoun in McLean County, now is shipping coal to two Kentucky utility customers — Louisville Gas & Electric Co. and Big Rivers Electric Corp. Rhino is contracted to sell 800,000 tons a year for five years to LG&E, a PPL Corp. subsidiary, and 1.1 million tons through 2017 to Big Rivers, a Henderson-based generation and transmission co-op.
Pennyrile produced 623,647 tons of high-sulfur steam coal in the first nine months of 2015, federal Mine Safety and Health Administration figures show. The mine produced only 229,910 tons in 2014, its first year of operation.
According to Funk, the company has received regulatory approval for Pennyrile’s deep-cut mining plan, which has contributed to the mine’s rising productivity.
“During the fourth quarter,” Funk said, “we will increase the coal processing capability of the Pennyrile preparation plant, which should lead to future cost improvements.” The mine, he added, gives Rhino additional diversification “and we expect it to be a significant generator of stable cash flow as it ramps up to its full potential run rate of two million tons per year.”
In August, Rhino completed the approximately $5.7 million sale of its oil and natural investment of approximately 1,900 net mineral acres in the Cana Woodford region of western Oklahoma. Proceeds from the transaction were used to reduce the outstanding balance on Rhino’s revolving credit facility.