Company officials updated analysts on Rhino’s plans for new mines, including Taylorville, and expansions during an August conference call to discuss second-quarter earnings. Rhino’s earnings increased in the three months ended June 30 to $9.4 million, compared with $7.1 million a year ago. Revenues totaled $83.8 million, up 14.6% from the second quarter of 2010. Coal sales grew by 100,000 tons in the latest quarter to 1.2 million tons.
In June, Rhino acquired Elk Horn Coal, a coal leasing company with properties adjacent to Rhino’s eastern Kentucky operations. Dave Zatezalo, Rhino president and CEO, said his company expects Elk Horn to provide a long-term stream of royalty income from properties that are leased to other operators without direct exposure to the associated operating expense and risk. In addition, Rhino anticipates a contractor to start mining soon on a portion of the Elk Horn unleased southern Floyd County reserves.
“In addition to the substantial diversification efforts made during the second quarter, our underlying coal business continued to show strong results,” he said. “We have seen substantial interest among our customers for both our met and steam coals. We have entered into several multi-year steam contracts and expect to place our met coal in the next few months.”
Rhino is proceeding with plans to boost its metallurgical coal production by building a new prep plant at its Tug River mining complex in eastern Kentucky. The prep plant is scheduled for operation in the first quarter of 2012. “We are also ramping up new production at Rhino Eastern and are expecting improved results from the existing mine,” Zatezalo said. “We expect Elk Horn to provide a steady and growing stream of cash flow and we believe the met properties we acquired in Randolph and Upshur counties [in West Virginia] will prove to be an economically viable project with substantial long-term value to the company.”
Rhino Eastern’s Eagle No. 1 underground mine in West Virginia resumed operations following a June 27 rib roll fatality. Rhino Eastern is owned jointly by Rhino and Patriot Coal, although Rhino is the operator.
Zatezalo said the Remining 3 surface operation at Tug River is expected to begin producing coal before the end of 2011, with a projected run rate of 375,000 tpy. The company expects the mine’s output to double within 12 months, with met coal accounting for half of the production.
Meanwhile, the Access mine at Rhino’s Deane complex in eastern Kentucky was expected to begin production before the end of September with a projected run rate of 240,000 tons annually of high-quality steam coal. Access is being counted on to replace production from depleting mines and will provide access to expansion properties the company expects will produce a pulverized coal injection product.
In related news, the company recently closed on an agreement to sell and assign certain non-core mining assets and related liabilities located in the Phelps, Ky., near its Tug River mining complex for $20 million. The mining assets include leasehold interests and permits to surface and mineral interests that include steam coal reserves and non-reserve coal deposits. Additionally, the sales agreement includes the potential for additional payments of approximately $8.7 million dependent upon the future issuance of certain permits and the commencement of mining activities by the purchaser. According to a statement from the company, Rhino believes the sale of these assets will allow the partnership to concentrate more resources on internal development projects that are focused on producing metallurgical coal and pulverized coal injection product.