“We’re nearing a point where we could begin production” at Oaktown 2, Jerry Benkert, Vectren executive vice president and CFO, told analysts during an August phone conference to discuss the company’s second-quarter earnings. However, “the timing always has been tied to additional sales, so we’re no longer counting on that opening up in the 2012 year.”
Since it started production in 2010, Oaktown 1 steadily has increased production. The mine, operated by the company’s Vectren Fuels subsidiary, produced 1 million tons that first year, nearly 2.7 million tons in 2011 and 1.53 million tons in the first six months of this year. Vectren Fuels also operates the Prosperity underground mine in Pike County, Ind.
Prosperity produced 1.1 million tons in the first half of 2012 and 2.4 million tons in 2011.
Oaktown 1 has performed as anticipated, helping to lower Vectren’s production costs. Mining costs at Prosperity, largely because of thin seams and other adverse conditions, continue to be higher than expected despite some improvement over the first quarter. Oaktown 1 “has been very encouraging and has mitigated the higher costs at Prosperity,” Benkert said.
But the still slow economy and low natural gas prices have combined to deal a double blow to Vectren’s coal operations in 2012. The company earned $2.5 million from coal sales in the three months ended June 30, a mere fraction of the $8.5 million it earned a year ago.
“We’re not satisfied with the performance of coal and are pursuing both spot and export sales for our coal mines,” Carl Chapman, Vectren chairman, president and CEO, told the analysts.
For the remainder of this year, though, the company is playing it safe, reducing earnings expectations from its coal business. Going into 2012, the company planned to ramp up production to more than 6 million tons for the first time. Now, production is being ratcheted back to about 4 million tons.
Until now, the export business has not been a key part of Vectren’s coal sales portfolio. But that could be changing for the Illinois Basin coal producer, just as it is for more traditional coal companies in the region.
“We do continue to work with export customers, although that market has been cut back as well,” Benkert said. Still, Vectren has “opened the door to some export sales. Not huge but a decent number for us.”
All of Vectren’s mines are continuous miner operations.