trending Market Intelligence /marketintelligence/en/news-insights/trending/jeufqcginoj4g7q5hbby1g2 content esgSubNav
In This List

Growing US coal company looking for even more opportunities to expand footprint

Podcast

Next in Tech | Episode 49: Carbon reduction in cloud

Blog

Using ESG Analysis to Support a Sustainable Future

Research

US utility commissioners: Who they are and how they impact regulation

Blog

Q&A: Datacenters: Energy Hogs or Sustainability Helpers?


Growing US coal company looking for even more opportunities to expand footprint

A company that scooped up coal mines in a recent downturn of the sector says it has lowered production costs, grown its operational footprint and is considering further acquisition opportunities while taking advantage of improved markets for metallurgical coal.

American Resources Corp., whose president once said "we don't have jets" to encapsulate its no-frills, low-cost approach to running mines, has continued to increase production and acquire coal assets, largely in Kentucky. The diversified natural resources company built its coal operations from assets sold by James River Coal Co., Arch Coal Inc. and Rhino Resources Inc. at a time when many producers were disposing of assets for cheap or even paying companies to take liabilities off their balance sheets.

Since then, the metallurgical market has vastly improved, and American Resources says it has been able to take advantage.

"Demand continues to be healthy, but I think a lot of people were expecting a fair amount of supply to come online, this year especially," Mark LaVerghetta, vice president of corporate finance and communications, said in an interview. "I don't know that we've necessarily seen a lot of that new capacity come online or as much as a lot of people have been expecting, especially on the [metallurgical coal] side."

Metallurgical coal buyers are looking for producers with a cost profile that keeps the coal coming even if prices fall, American Resources President and Director Thomas Sauve told S&P Global Market Intelligence.

"Hopefully, we have these coal prices for a while, but naturally there will be a coal downturn so they want to have a diversified portfolio of coal producers so they are not overly risked with one or two large producers," Sauve said. "We're selling that primarily on the international market, although we have sold in the past and are looking to sell in the future domestically as well."

LaVerghetta said some of the assets American Resources purchased from larger companies were not running as efficiently as possible. Lowering expenses, whether at the mine or the office that supports it, has allowed the company to build a cost structure it says is viable in much worse markets than producers have been enjoying in recent months.

"We sort of take people out of their silos" to reduce headcount, Sauve said. "One person is not necessarily only a landman or one person is not only a chief operating officer."

One of the company's primary metallurgical coal mines had costs of around $101 per tonne under James River, Sauve said. The first company to buy the mine, which went bankrupt shortly after, was able to get prices to the low $70s per tonne. American Resources has trimmed prices to around $58 per tonne and has its sights on reducing that into the low $50s range as it brings on additional production.

The two executives said they continue to evaluate coal acquisitions that fit their profile and could benefit from their strategy to lower costs. While the industry is no longer in a "panic" and selling assets as cheaply as it once did, some companies that are trying to strategically focus their operational footprints are still engaging with American Resources, Sauve said.

"A lot of coal companies have regained confidence in the market and they've regained confidence — whether that's misplaced or not, I don't know, but the gain in confidence has allowed them to push back on potentially trying to downsize the coal operations or shed other idled or not-as-attractive operations," Sauve said. "Opportunities are there, it's just not a mad rush to the door to try to exit business like we saw."

American Resources reported $7.3 million in coal sales in the first quarter of 2018, up from $5.7 million in the prior period. The company has been ramping up production and reported development costs of $1.7 million in the quarter that contributed to a net loss attributable to shareholders of $2.7 million.

In a March 31 securities filing, the company reported recurring losses and a working capital deficit but also said it plans to generate profits by expanding existing coal operations and developing new ones. To do that, the company needs to raise funds through the sale of securities or loans through third parties; the filing said management believes that will occur. Mining activities from the company's inception through the first quarter have been funded by proceeds from acquisitions, series B equity investments and loans.

In the past two months, American Resources has commenced production at one of its Kentucky mines and acquired two other mining operations in the state.