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North American Coal's long-term earnings uncertain in wake of Kemper shutdown

NACCO Industries Inc. attributed increases in its revenue and net income during the second quarter to its North American Coal Corp. subsidiary but said long-term earnings will hinge on the fate of the coal gasification operations at Mississippi Power Co.'s Kemper energy facility.

NACCO reported net income of $6.8 million in the recent quarter, while North American Coal's revenue and net income stood at $28.1 million and $8.4 million, respectively, with revenue rising primarily as a result of an increase in tons sold at Mississippi Lignite Mining Co and an increase in royalty and other income.

Year-to-date, North American Coal has posted net income of $17.7 million and revenue of $56.4 million.

Should the previously announced suspension of the coal gasifier portion of the Kemper project be made permanent, the company's long-term goal of increasing its earnings by about 50% from 2012's $42.5 million could be compromised.

North American Coal's Liberty Fuels Mine is the sole supplier of coal to fuel the gasifier at the Kemper plant.

"We continue to operate under our existing contract with Mississippi Power and will support them pending a final decision on the continued operation of the gasifier and the Liberty Mine," NACCO investor relations consultant Christina Kmetko said on an Aug. 2 earnings call. "To be clear, the terms of our cost-plus contract with Mississippi Power specify that Mississippi Power is responsible for all mine closure costs should that be required."

Full production at Liberty Fuels had been expected to reach about 4.5 million tons of coal annually beginning in 2023.

Kmetko said North American Coal expects an increase in tons sold in the second half of the year, compared with the same period in 2016, and a moderate increase over the first half of this year.

She said that while the current regulatory environment for the development of new coal projects has improved, "we will be re-evaluating our outlook over the longer term for coal deliveries to our customers' coal-fired power plants and, commensurate with this, the long-term financial goal" due to continued low natural gas prices and increased competition from renewable energy sources.