Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
Rocked by weakening thermal coal demand and a depressed metallurgical coal market, James River Coal Co. met the same fate as two other Central Appalachian coal producers — Patriot Coal Corp. and Trinity Coal Corp. — when it filed for 
bankruptcy reorganization April 7.
But James River also is burdened by a wealth of expiring utility contracts and a sharp decline in coal purchases in 2013 compared to 2012. The biggest blow was Southern Co.’s decision to all but cease coal purchases from Central Appalachia by 2016 and retire units at three older, coal-fired power plants in Georgia.
On a companywide basis, James River was the largest supplier of Central Appalachian coal to Southern plants in 2012, shipping 1.7 million tons to the company. Southern was James River’s largest utility customer overall in 2012, and it purchased exclusively Central Appalachian coal from the company.
Based on U.S. Energy Information Administration fuel contract data, nearly 51% of the Central Appalachian coal and about 31% of the total coal delivered to electric utilities by James River in 2012 went to Southern-operated plants. The diminishing number of sales contracts also may limit interest in James River’s assets. James River Chairman and CEO Peter Socha said in an April 7 news release that the coal producer will evaluate strategic alternatives such as selling one or more portions of the company.
In 2013, Southern’s Bowen plant was the second-largest purchaser of James River coal. James River also supplied Southern unit Georgia Power Co.’s Harllee Branch plant, which has units slated to retire.
SNL Energy data, based on generators reporting coal purchases to the EIA, show that James River sold approximately 4.2 million tons of coal to U.S. power plants in 2013, down 30.1% from the nearly 6 million tons sold in 2012. James River sold its 2013 tonnage at a much lower price, according to the data.
A sizable portion of James River’s coal delivered under contract in 2013 — at least 67.9%, according to the data — had terms that expired in either 2012 or 2013. Another 987,000 tons of 2013 deliveries to plants are under contracts scheduled to expire in 2014.
Keep reading the full report and analysis here: http://www.snl.com/InteractiveX/Article.aspx?cdid=A-27696844-11556
