Cloud Peak Energy completed a test burn shipment to Japan during the third quarter and continues to look toward Asia for future demand growth, as increased domestic demand for US Powder River Basin coal during the period failed to boost prices, executives said on Tuesday.
Speaking during the Gillette, Wyoming-based company's earnings call, CEO Colin Marshall said that while domestic stockpiles have decreased and electricity production from coal has increased, the US market remains oversupplied.
"The domestic market has several favorable factors that help the outlook, but excess supply is still holding prices down," Marshall said.
The average realized price from the company's three owned and operated PRB mines during the quarter was $13.03/st, compared with $13.28/st in the year-ago quarter. Average cost per ton sold in the third quarter was $9.78/st compared with $9.14/st a year ago.
Sales at the three mines totaled 23.1 million st during the quarter, down 5.3% from 24.4 million st sold in the year-ago quarter.
The company said it expects US coal burn to increase by 50 million st in 2013 compared with 2012, which has helped reduce US PRB stockpiles to 71 million st at the end of September, down from 92 million st at the same time last year.
Due to a wet start to the fall and an early snow storm, the company said Tuesday it is adjusting its outlook for full-year production to between 88 million and 90 million st.
The company continues to forecast full-year 2014 production of roughly 90 million st. Marshall also said the company remains committed to cutting its 2015 production by roughly 10 million st due to the increased capital expenditures required at its Cordero Rojo mine that would be unrecoverable at current market prices.
Marshall said the 2015 outlook is not likely to change unless "something dramatic happens" in the market.
Marshall said pricing remains weak but that the company has satisfactorily used hedges to lock in roughly 40% of its book of business in 2014.
In 2014, the company has 79 million st committed, of which 69 million st are under fixed-price contracts with a weighted-average price of $13.24/st.
For 2015, the company said it has 42 million st committed, 28 million st under fixed-price contracts with a weighted-average price of $13.68/st.
Exports totaled 1.3 million st in the third quarter, down slightly from 1.5 million st in the year-ago quarter. For the full year, the company expects total exports of roughly 5 million st.
Marshall said the company continues to monitor the development of the proposed Gateway Pacific terminal in Washington state, through which it has an agreement with Seattle-based developer SSA Marine to export 16 million mt annually, but that it expects a long haul.
"We're still optimistic that the work will identify that the environmental impacts of the port are absolutely manageable ... but the opposition to building the ports is well-funded and well-organized, so 2018 if you're an optimist."
Cloud Peak owns and operates the Antelope and Cordero Rojo mines in the Wyoming portion of the PRB, and the Spring Creek mine in the Montana portion of the basin. It also has a 50% interest in the Decker mine in the Montana portion of the PRB.
Including Decker, the company sold 24.2 million st in the third quarter, down 3.6% from 25.1 million st in the year-ago quarter.
Marshall said Cloud Peak continues to work with Ambre Energy, which owns the other half of Decker, on maximizing cash flows with the hope that a sustained uptick in seaborne prices will provide Ambre with greater access to financial markets in order to complete its proposed purchase of Cloud Peak's share of the mine.
