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Rain affects Cloud Peak's Antelope mine, takes toll on coal shipments in Q2

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Essential Energy Insights - February 2021

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Six trends shaping the industries and sectors we cover in 2021

Six trends shaping the industries and sectors we cover in 2021


Rain affects Cloud Peak's Antelope mine, takes toll on coal shipments in Q2

Cloud Peak Energy Inc. cited the impact of heavy rains as a primary reason for reduced shipments from its Antelope mine during a quarter that saw a nearly $30 million income hit for the company.

The company's shipments decreased by 2.7 million tons to 11.6 million tons in the second quarter compared to the same period in 2017, according to a July 26 company release. On the company's July 26 earnings call, Cloud Peak President and CEO Colin Marshall said the company's higher loss compared to the same period in 2017 was due to "unusually high shipments" during the second quarter of 2017 that it did not expect to replicate this year.

While the company's Spring Creek and Cordero Rojo mines performed largely as planned during the most recent period, Executive Vice President and CFO Heath Hill said, "The low volume of shipments from our Antelope Mine had a significant impact to our second-quarter financial results."

The Antelope mine's strip ratio increased "significantly" this year, and one of the two draglines was down for nine weeks for planned maintenance, Marshall said.

Marshall also cited the impact of nesting golden eagles, which delayed the company's ability to move the other dragline by an additional five weeks.

"We are working to make up as many of the delayed shipments as we can through the second half of the year," Marshall said.

Hill added that the company has historically seen greater shipments and earnings in the third and fourth quarters, "which we are expecting to be the case again this year."

Export relief

Along with a number of U.S. producers with access to the export market, Cloud Peak found some relief in global demand this quarter. Cloud Peak's export shipments "went as planned," with 1.3 million tons exported during the most recent period, the CEO said. The company has contracted 4.1 million tons for the year and expects to ship 5.5 million tons as long as there are no interruptions in rail or port transportation.

The company also reached an agreement with Westshore Terminals LP in Vancouver, British Columbia, to "increase and extend" its yearly Westshore export capacity to 10.5 million tons for 2021 and 2022, Marshall said.

"Westshore has an awful lot of people very keen to put coal through the terminal, and I think the fact that we were able to negotiate this increase now shows … the value of our relationship with Westshore, being the existing producer and having the ability to increase tonnage through there," he said.

Cloud Peak's overseas customers are expected to be in South Korea, Japan and Vietnam, Marshall said. He added that increased demand in India could draw more attention from Indonesian coal producers, opening up the opportunity to increase exports to Japan and South Korea.

"... As long as we can put it on a ship at a reasonable price, then ... it should go to the nearest customers," he said. "But the important thing is the demand overall is growing."

Domestically, hotter weather is "clearly maxing out demand," and the falling utility stockpiles are encouraging, Marshall said. However, natural gas prices are still low because utilities expect there is "enough production coming on" to comfortably get through the winter.

In the Powder River Basin, utilities think that they can buy coal as needed, given the region's excess capacity, Marshall said, which is contributing to low coal prices.

Among steps taken to reduce company costs, Cloud Peak announced earlier in the quarter that it would close and sell its Gillette, Wyo., office and move employees to the Cordero Rojo mine to help keep the company viable. The Antelope and Cordero Rojo mines will also be run as one operation, "reflecting the reduction in demand for 8,400 Btu coal," Marshall said.

"Sharing support and maintenance employees between the two mines has been going on for a long time and will increase going forward," he said.