Survant, part of the company’s Parkway mining complex near Central City in Muhlenberg County, was using a single continuous miner section to produce high-sulfur western Kentucky No. 8 seam coal in late fall, Marty Wilson, Armstrong president and CEO, told analysts during a mid-November conference call.
“We hope to increase the production at Survant in the future if market conditions warrant,” Wilson said. Eventually, Survant could become one of Armstrong’s most productive mines, extracting about 2.4 million tons of coal annually.
Survant cost approximately $25.2 million to develop, according to an Armstrong filing with the federal Securities and Exchange Commission. The outlook was less optimistic for Armstrong’s Parkway underground mine and Midway surface mine in Muhlenberg and Ohio counties, respectively. Both faced cutbacks and/or closings by year’s end because of the continued market downturn. Wilson described Midway as one of the company’s highest-cost surface mines.
“This will allow us to leverage our lower-cost operations,” he said. “Our priorities moving forward will be to preserve liquidity and control costs.” Armstrong had about $94 million of liquidity as of September 30, he noted.
Wilson disclosed that Armstrong agreed to defer “a few hundred thousand tons” from 2015 into 2016 at the request of a couple of unidentified utility customers. As a result, the company expects to ship 7.9 to 8.1 million tons of coal in 2015, even though it is contractually committed to sell 8.4 million tons this year. “We don’t want to overcommit and underachieve,” Wilson said.
Armstrong, which posted record production of 9.4 million tons in 2014, has at least 4.7 million tons of committed sales for 2016. Although Wilson said the company had “sold some more tons” in recent months for next year, he declined to reveal specific amounts.
In the third quarter, Armstrong’s coal sales decreased to 1.9 million tons from 2.3 million tons in the same period of 2014. For the first nine months of 2015, the company sold 5.9 million tons, down from 7.1 million tons a year earlier.
Hord Armstrong, the company’s executive chairman, said U.S. steam coal production is forecast to be lower in 2016 than in 2015. “In addition, we believe utility demand for coal will be down roughly 35 million tons in 2016, mainly due to the excess of natural gas and closure of some coal-fired [power] plants.”
Because of fierce competition among coal companies for short-term sales, “we don’t see pricing improving in the short term,” he said. Meanwhile, coal inventory levels at utilities are still high and are expected to remain so into the early part of 2016,he added.
“This has created a situation where utilities are reluctant to commit to longer-term contracts, preferring to commit to smaller amounts and leaving more open positions,” Armstrong said. “Utilities still have significant open positions for coal in 2017 and beyond.”
