In a mid-August conference call, company officials said production at the new Survant underground mine in Muhlenberg County, Kentucky, would be ramped up in the final months of this year. The mine is producing coal from the western Kentucky No. 8 seam. Capital costs to develop the mine were approximately $24.3 million as of June 30.
Survant, part of Armstrong’s Parkway deep mine complex near Central City, is expected to produce about 1 million tons a year at full output. That means the Parkway complex will have an annual capacity of about 2.4 million tons. Survant has sold about 90,000 tons of development coal and is expected to produce a little less than 600,000 tons in 2016.
Armstrong sells most of its coal into the U.S. electric utility market.
The company forecasts production for 2015 will be lower than actual production in 2014, largely because of the premature closing of the Lewis Creek underground mine in Ohio County, Kentucky, early this year because of persistent geological problems and lower output from its surface mines in western Kentucky.
In the short term, Armstrong said it anticipates lower coal sales because of reduced utility demand as a result of low natural gas prices and utilities retiring coal-burning power plant capacity in response to new government pollution control regulations.
Armstrong Coal operates in the high-sulfur Illinois Basin (ILB) that is home to major low-cost producers such as Foresight Energy and Alliance Resources Partners. To more effectively compete in the ILB, Armstrong has been focusing on cutting production costs, with some success.
According to the company, its cost of coal sales were $70.2 million and $149 million for the three-month and six-month periods ending June 30. That was 26.3% and 19.6% lower than the comparable periods of the previous year due to both the decrease in volume and improved operating efficiency, primarily related to favorable repair and maintenance costs at its underground mines, lower diesel fuel costs, and better mining conditions.
However, operating efficiencies this year were partly offset by adverse weather during the first quarter of 2015.