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Corsa to grow metallurgical coal footprint after shedding thermal coal assets

Recently freed of its Central Appalachia thermal coal division, pure-play metallurgical coal producer Corsa Coal Corp. is now eyeing major growth.

The company sold 811,905 tons of metallurgical coal it produced in 2017, according to its earnings report. Corsa is aiming to double its metallurgical coal production from 2017 to 2019, CEO George Dethlefsen said on the company's March 14 earnings call.

"We believe we can [do that] for less than $35 million of growth capital expenditures," Dethlefsen said. "Very few companies can make that statement."

Corsa faced a number of challenges in recent months, including issues with mining conditions, weather-related transportation problems and regulatory hurdles and delays. The company was able to offset those, Dethlefsen said, and even forged relationships with new customers and advanced several of its coal mining projects.

Improved export opportunities, particularly for metallurgical coal producers, have driven positive earnings results for several U.S. coal companies. Corsa recently became a pure-play metallurgical coal producer through the sale of its thermal and industrial coal division in Tennessee.

While recent improvements in export markets have relieved some of the pressure on coal companies selling to domestic utilities that use coal to generate power, the market has been somewhat tepid as demand stagnates and coal plants continue to go offline.

"Thermal coal is off-strategy for Corsa," Dethlefsen said on the call. "This divestiture enables our management team to dedicate 100% of its time and resources to growth on the metallurgical side."

The executive believes that, with coking coal prices holding at levels much higher than recent years, now is a good time to be dedicated to coal used for making steel.

"Overall, this is the healthiest rally in metallurgical coal that we've experienced in many years. Most of the historical spikes in met coal prices have been attributable to supply shocks, principally weather-driven," Dethlefsen said. "This rally feels particularly well-supported because it's both demand-driven, owing to strong steel and coke prices, as well as supply-driven, owing to continued supply disruptions and tight logistics chains globally."

While most U.S. metallurgical coal is used abroad, there is a domestic market for steel producers that use coking coal.

President Donald Trump had pointed to one of Corsa's new mines as evidence that he was fulfilling a campaign promise to put miners back to work. That was early in his presidency, and plans to open the mine had been in the works months before any of his policies went into effect, but Dethlefsen was optimistic for economic growth under Trump and a potential need for more steel once the administration's infrastructure plan is rolled out.

Dethlefsen said recent actions imposing tariffs for certain imported steel, only a few days old, have already had a positive effect on Corsa. He expects more demand as a result of the tariffs to materialize in the second half.

"We've gotten multiple discussions that have popped up in the last week that are related to incremental coal needs," Dethlefsen said. "We do think it's very much having an operational impact and a tangible impact on our business."

Corsa reported net income of $62.2 million in the fourth quarter of 2017, about 56 cents per share, compared to a loss of $10.7 million, or 13 cents per share, in the fourth quarter of 2016. The company shipped 537,000 tons of metallurgical and thermal coal in the fourth quarter, up from the 459,000 tons of coal sold in the year-ago quarter.