Consol Energy Q2 coal production, sales tumble due to coronavirus pandemic

Houston — Consol Energy reported coal production volumes of 2.4 million st for the second quarter, down from 7.2 million st in the year-ago quarter, due to the coronavirus pandemic, the company said Aug. 10.

The Canonsburg, Pennsylvania-based company said in its quarterly earnings statement the lower production at its three mines that make up the Pennsylvania Mining Complex -- Bailey, Enlow Fork and Harvey – were due to an "unprecedented reduction in customer demand and an increase in force majeure requests from our customers," as well as idlings of two mines. The Enlow Fork mine was idled in April and remained idled throughout the quarter, while the Bailey mine was idled earlier in the quarter, but "ran only on an as-needed basis while the Harvey mine produced to the reduced demand levels," according to the company statement.

Coal sales volumes were at 2.3 million st in Q2, which generated an average revenue per ton of $43.82/st, compared with 7.4 million st sold in the year-ago quarter at $47.53/st.

Average cash costs of coal sold were at $25.90/st in Q2, resulting in an average cash margin of $17.92/st, compared with average cash costs of $31.07/st and an average cash margin of $16.46/st in the year-ago quarter.

Consol recorded a net cash decrease of $45.8 million to end the quarter with $33.02 million in cash and cash equivalents, compared with $2.4 million and $174.37 million, respectively, in the year-ago quarter. The company reported a net loss of $21.06 million in Q2, compared with a net income of $48.83 million a year earlier.

CEO Jimmy Brock said on the earnings call on Aug. 10 that the company has "literally stopped most of the spending" on the Itmann low-vol metallurgical coal mine project. In Q1, spending was significantly reduced, which deferred $25 million in capital expenditures.

"Now we are continuing with a very, very low-cost exploratory mining. It's very low volume tons, one crew, one shift a day that's working there now," Brock said. "But we will not be spending a lot of money on Itmann moving forward until we have a better idea of where the market is and timing of what we need to continue that project."

Export market

Throughput volumes at Consol's Marine Terminal in Baltimore were at 1.6 million st in Q2, down from 3.7 million st in the year-ago quarter.

Terminal revenues and operating costs were at $15.9 million and $3.8 million in the quarter, compared with $16.7 million and $5 million, respectively, in the year-ago quarter.

"Although throughput volumes were lower compared to the year-ago quarter, the impact on terminal revenues was lessened as a result of the take-or-pay contract in place with our largest customer at CMT," the company said.

Net income at CMT was at $7.8 million in Q2, down from $8.2 million a year ago.

Brock said the company began the year expecting to export between 9 million and 10 million st of coal in 2020, and was on target after Q1 with exports of 2.4 million st.

"However, in the second quarter, we shipped roughly 800,000 [short] tons, which was entirely caused by the worldwide economic shutdown created by the COVID-19 pandemic," Brock said. "It is important to note that these tons were not replaced by other tons or other fuels that were lost due to unprecedented demand destruction. As global demand begins to recover and India's retail season restarts as monsoon season comes to an end, demand for our products remain strong."

Contracts booked in Q2

Consol is 100% contracted for 2020 shipments, but Brock said "we understand the significant uncertainties that will exist in the marketplace."

Based on an annual sales volume of 26 million st and not including any potential 2020 deferrals, the company is 49% booked for 2021 shipments, up from 44% after Q1.

"From a marketing perspective, it is encouraging to see that demand for our coal has steadily improved month-over-month since May, which was the lowest point of the demand for our coal this year," Brock said.

In Q2, the company contracted a combined 4.3 million st for the 2021-2024 period.

With natural gas prices expected to rise above $3/MMBtu in 2021, which could result in an additional 100 million-125 million st of incremental domestic coal burn, Brock said "the lack of investment across the coal space will limit the coal industry's ability to quickly ramp back up to meet this demand."

"This could be a very advantageous situation for us as we prioritize, keeping our mines well capitalized in strong markets, which gives us the ability to scale up very quickly," Brock added.