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CNX Coal nearly sold out for 2017 coal, executives say

CNX Coal Resources LP has sold 98% of its coal targets for 2017 and is now moving into the following years, according to company executives.

Speaking on a Jan. 30 earnings call, CEO Jimmy Brock said the company had a "solid position" of approximately 66% of 2018 coal sold.

While international metallurgical coal prices have declined a bit from the autumn of 2016, Brock said "this remains a very attractive market for us" particularly in the international high-vol coal market.

CFO and chief accounting officer Lori Ritter said additional production might be possible if buyers are willing to pay more for it. "We know our mines are ready to run the tons," Ritter said in the call. "If the markets will accept them at the price, we're ready to produce."

The coal producer said in its quarterly earnings report that 8.5% of the 1.8 million tons sold in the recent quarter was sent to end users in high-vol metallurgical markets in Asia and South America.

But the executives added in the earnings call that a further 8.5% of that 1.8 million tons was exported thermal coal.

"The fourth quarter was totally different from what we saw in the first half of 2016," Brock said. "As you may recall, the first half was all about managing costs as commodity prices were declining, customers were pushing back on delivery, and we had to idle our Harvey mine."

Brock said the company's production would have been even higher if it had not had to conduct two longwall moves during the fourth quarter of 2016. "The results are even better than they appear," he said.

Jim McCaffrey, the senior vice president of sales, said on the earnings call that nine of CNX's top 15 customers had less than 30 days of inventory left in stockpiles. "We think that our customer base is a lot closer to normal, or a little below normal, than is being reported," he said.

Brock said CNX would also pursue additional dropdowns from its sponsor, CONSOL Energy Inc., of the Pennsylvania mining complex.

On its own earnings call Jan. 31, CONSOL said it is pursuing two other possible ways to offload its coal assets besides dropping down to CNX. Executives said CONSOL is looking for the best net asset value per share and is examining the possibility of selling to a third-party buyer or spinning off its coal mining assets. CONSOL said in its recent quarterly earnings report that it hopes to separate its coal and gas assets in 2017.

While Brock said that CNX had mostly grabbed the "low-hanging fruit" in terms of cutting costs, he said the company is pursuing new technology options it could not yet disclose that might further slice costs. He also expressed hope that the new Trump administration might help existing coal plants stay in operation. "I certainly think it's going to have a new meaning for the Clean Power Plan," he added.

FBR & Co. analysts said CNX Coal had slightly missed their prediction for the fourth quarter, with an adjusted EBITDA of $25.1 million compared to estimates of $27.4 million. In another recent note, FBR said the expected rollback of the Stream Protection Rule would likely help production at the company's Pennsylvania mining complex.