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Top Central App coal mines' output up quarter-to-quarter, flat for 12 months

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Top Central App coal mines' output up quarter-to-quarter, flat for 12 months

The top-producing coal mines in Central Appalachia increased production from 8.0 million tons in the first quarter to 8.8 million tons in the second quarter.

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Production is up just a half-percent for the combined 12-month period ending in the second quarter compared to the year-ago period, an S&P Global Market Intelligence analysis of federal coal production data shows. Producers have increasingly focused on metallurgical coal from the region as its higher quality can command better margins even as coal resources in the long-mined region become more scarce and costly compared to other U.S. coal mining regions.

The region is in the middle of a structural decline, but demand for metallurgical from overseas and domestic customers is cyclical. On a second-quarter earnings call, Consol Energy Inc. President and CEO Jimmy Brock said reduced production from Central Appalachia is part of the reason its new Itmann project should have no trouble finding a market when completed.

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"While we are starting to see several larger high-vol A and B projects being developed in the U.S., the pipeline for low-vol met coal projects is relatively light, and low-vol supply has recently come offline in Central Appalachia," Brock said. "Itmann is expected to fill this void."

The top producer in the region, Coronado Global Resources Inc.'s Buchanan No. 1 mine, saw production increase 2.6% from 5.1 million tons to 5.2 million in the recent 12-month period. The Australian-based company said the southwestern Virginia mine is one of the lowest-operating-cost low-vol metallurgical coal mines in the U.S. as measured by cash cost per tonne. Coronado decreased production at its Powellton No. 1, Lower War Eagle and Toney Fork mines.

Arch Coal Inc., which operates in multiple mining regions in the U.S., pulled back production at the second-largest mine in the region, the Holden No. 22 surface mine, by about 11.1% in the recent 12-month period. However, the company's other two top Central Appalachia mines, Mountaineer II and Beckley Pocahontas, increased production by 15.7% and 6.5%, respectively, in the same period.

Arch CEO John Eaves said higher coking coal prices held up through most of the second quarter, and the market remains relatively well-balanced despite a recent weakening in prices.

"Of course, trade tensions and the overall health of the global economy represent a risk to the marketplace going forward, but Arch is built to weather such downturns when they come, just as it's structured to deliver exceptional value when the markets are healthy," Eaves said.

Contura Energy Inc. operates six of the top 25 mines in the region. Cumulatively, the mines produced about 7.3 million tons of coal, roughly in line with the year-ago 12-month period. The company sold off its Powder River Basin thermal coal assets in 2017 to focus on eastern metallurgical coal mine operations. However, it recently reacquired those western assets in the face of potential liabilities Contura could face when the buyer filed for a bankruptcy reorganization.

Still, the company indicated it remains focused on its metallurgical coal assets and could be exploring a resale of the Powder River Basin mines.

"I'll be implementing changes that will lower our cost structure to more historic levels and provide for better coordination between sales and operations. This is an extremely high priority for me and the entire management team," Contura's new CEO, David Stetson, said on his first earnings call with the company. "I am confident that Contura can become one of the lowest-cost met producers in Central App and can sustain these lower costs without [negatively] impacting our commitment to safe and responsible operations."

Blackhawk Mining LLC, which has seven of the top mines in the region, which are controlled by multiple owners including JMP Holdings LLC, increased production from those mines to 7.5 million tons in the recent 12 months, compared to 7.2 million tons in the year-ago period. Blackhawk is in the middle of a bankruptcy restructuring. The company told the bankruptcy court that while it was over-leveraged, it has capable mine operations and one of the largest amounts of proven and probable reserves of metallurgical coal in the U.S.

"Blackhawk operations are strong and efficient, generating approximately $165 million of EBITDA in 2018, and Blackhawk projects strong revenue growth year-over-year as a result of strong market fundamentals," CFO Jesse Parrish said in a July 19 bankruptcy court declaration. "In addition, after years of elevated capital spend, Blackhawk is positioned to benefit from the reliability and efficiency gains that result from those investments."