Cloud Peak Energy may reduce coal production at its Cordero Rojo Mine by nearly a quarter in 2015 if market conditions do not improve, the company’s president told investors Tuesday.
Colin Marshall said the company planned to reduce production at the mine by 10 million tons and noted that coal prices need to improve for Gillette-based Cloud Peak to lessen the reduction.
“The important thing is to be clear that we’re going down until things change enough to make it worthwhile going up,” Marshall said in a conference call announcing the company’s third quarter earnings. “We will wait until markets improve significantly before we want to look at that.”
Cordero Rojo produced nearly 40 million tons of coal in 2012, the last full year for which production numbers were available. Production at the mine stands at around 27 million tons through the first nine months of the year, according to the company’s statistics. The third quarter saw the mine post its
highest production total of the year, with slightly more than 10 million tons of coal produced.
The announcement underlined the grim market conditions facing coal companies. Cloud Peak and Arch Coal Inc., which also announced its quarterly earnings Tuesday, tried to strike an optimistic tone during their respective calls with investors.
Both noted a small uptick in natural gas prices and pointed to dwindling coal reserves as a sign of increasing future demand. But any optimism was tempered by the fact that the companies’ gains largely came in the area of cost containment.
Cloud Peak said it had reduced costs to $9.78 per ton in the third quarter, compared to $10.81 in the second quarter. Arch said its Powder River Basin mines recorded their lowest cost per ton ratio in 10 quarters.
Like Cloud Peak, Arch said future production levels would remain dependent on improved coal prices. Unlike Cloud Peak, the St. Louis Company did not announce any intended reductions for the basin, saying instead that production there was expected to stay relatively flat.
“I have to be honest, for us to even consider ramping up or bringing back equipment in any fashion, prices have got to be quite a bit better than what they are today,” Arch Chief Operating Officer Paul Lang said. “The numbers just don’t support any further volume pick-up.”
Arch’s difficulties were highlighted by the company’s dwindling operating margins. While Arch’s costs in the basin declined, so too did the price of Powder River Basin coal. The average price of PRB coal stood at $13.79 per ton in the third quarter last year, according to Arch. This year that price was down to $12.26 per ton.
The company’s operating margin per ton fell accordingly from $1.28 per ton in the third quarter last year to 58 cents per ton this year, Arch said. Overall, Arch posted a $128.4 million loss in the three month period between July and September.
Meanwhile, Cloud Peak production ticked up to 23 million tons in the third quarter compared to 20 million tons in the previous three months. The company reported a net income of $18 million for the quarter down from $85.3 million during the same period last year.
Arch operates the Black Thunder and Coal Creek mines in the Powder River Basin in Wyoming while Cloud Peak operates the Cordero Rojo and Antelope mines in the region.