Oaktown 2, located near the company’s Oaktown No. 1 underground mine in Knox County, started up last spring. With a full year of production under Oaktown 2’s belt, Vectren is forecasting the two Oaktown mines to turn out more than 5 million tons this year. The rest will come from Prosperity, a Pike County mine that has struggled recently with thin coal seams and difficult mining conditions.
But a revised mining plan implemented last year at Prosperity is bearing fruit, according to Jerry Benkert, Vectren executive vice president and CFO. “We are pleased with the changes we have made, but we want to make more improvement in costs at Prosperity,” Benkert told analysts during a February 20 conference call to discuss fourth-quarter and 2013 earnings. “Obviously, mining conditions change all the time in an underground mine, but we are pleased where we are.”
Carl Chapman, Vectren chairman, president and CEO, said that, operationally, the company intends to “ramp up to full production at the second Oaktown mine, Oaktown 2, and continue to drive down operational costs at Prosperity.” The three mines are owned by the company’s Vectren Fuels subsidiary and are operated by contract miners.
Chapman said Vectren already has committed the sale of 6.8 million tons of coal in 2014, or about 90% of its projected sales of 7.6 million tons, at a price of $44.50/ton. Vectren expects to sell about 2.1 million tons of coal to its electric utility, Vectren South, this year.
And, the company has sold about 5.5 million tons, or about 70% of its anticipated sales, in 2015 at a price of $45.50/ton.
Looking ahead, Vectren continues to believe the Illinois Basin will benefit from reduced coal volumes in Central Appalachia. Scrubbers are being installed on larger, more efficient power plants by electric utilities, the company said, boosting the demand for high-sulfur Illinois Basin coal.
Benkert said Vectren is seeking state regulatory approval to spend $70 million to $90 million on pollution controls at its coal-burning power plants to comply with the Environmental Protection Agency’s new Mercury and Air Toxics Standard (MATS) rule that takes effect in April 2015.
Vectren’s coal mining sector lost $16 million in 2013, but the company is forecasting a loss of only $4 million in 2014 before possibly turning a profit in 2015 and beyond.