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Top Central Appalachian mines reel back output 25% in Q2'20

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Production from the top 25 coal mines in the Central Appalachian region of the U.S. slipped during the second quarter as some of the largest operators lowered output in light of the coronavirus pandemic. The region includes mines in West Virginia and portions of eastern Kentucky and eastern Tennessee.

The top 25 mines in the region produced 5.5 million tons of coal in the second quarter, decreasing 24.7% quarter over quarter and 26.2% year over year, according to federal mining industry data analyzed by S&P Global Market Intelligence. In the 12 months ended June 30, the top mines' output fell 7.8% year over year to 26.2 million tons.

U.S. coal companies, already struggling under the weight of poor market conditions and mounting concerns over the resource's carbon footprint, have also had to weather the rough chop of the coronavirus pandemic and the ensuing economic slowdown. Declining electricity use in the U.S. and falling steel consumption at home and abroad have already significantly cut into producers' earnings, and though the summer season has brought some return to coal demand, some executives have predicted that the rest of 2020 will have its challenges.

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Twenty-one of the area's top 25 mines saw some amount of production decline after the first quarter, with 16 of those mines booking double-digit drops in output. Though still the region's top producer, Coronado Global Resources Inc.'s Buchanan No. 1 mine cut back production by nearly 58% to 559,000 tons, from 1.3 million tons in the first three months of 2020.

Contura Energy Inc., which operates 11 of the top 25 producing coal mines in the region, instituted a widespread idling of its mines in April in response to the pandemic in order to normalize inventory levels and analyze the business impacts of the virus. Contura said all of its operations came back online by the first week of May.

Ten of the 11 Contura-operated mines saw double-digit output slips in the second quarter compared to the first quarter. The company's Deep 41, Workman Creek Surface and Slabcamp mines, which were the second-, fourth- and fifth-largest producers in the region for the quarter, respectively, saw production fall 6.8%, 30.9% and 22.1%.

"Unprecedented is a word that has been overused to describe this pandemic, but it's an accurate descriptor," Contura CEO David Stetson said on an Aug. 7 earnings call. "We've all been forced to continuously adapt to a rapidly shifting environment that none of us have ever seen before."

Arch Resources Inc.'s Holden No. 22 Surface mine, the region's third-largest coal mine during the second quarter, reduced production by 15.1% to 357,000 tons, from 420,000 tons in the first quarter. The coal miner also reduced output from its Beckley Pocahontas mine by 3.1% quarter over quarter to 280,000 tons from 288,000 tons.

The Beckley asset remains cash positive in the current market environment and has provided "a small but meaningful contribution to cash generation," COO John Drexler said on a July 28 earnings call. Drexler said the mine helps round out the company's coking coal product slate. At the same time, the company has the "flexibility" to adjust operations at the mine as necessary to align with market conditions, the executive said.

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