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CONSOL Energy boosts coal production in Q2'16

CONSOL EnergyInc. boosted production at its four coal mines by 10.7% in thelatest quarter, according to federal data analyzed by S&P Global MarketIntelligence.

U.S. Mine Safety and Health Administration data shows thatCONSOL, scheduled to report its second-quarter earnings on July 26 at 10 a.m.,increased total production at two of its four active coal mines during theperiod. Even though many coal producers have been cutting back production overthe past few quarters, production at the four CONSOL mines is down just 2.2%compared to the second quarter a year-ago.

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While CONSOL's two largest mines — Bailey and Enlow Fork —recorded small production decreases quarter-to-quarter, the Harvey and MT-101mines boosted production significantly compared to the same period. The EnlowFork, Bailey and Harvey mines are all part of CONSOL's Pennsylvania operations,which utilize a longwall mining system as well as continuous mining machines.CONSOL's other operation is located in southern West Virginia.

On an earnings call for CNX Coal Resources LP, CONSOL's master limitedpartnership that runs the Pennsylvania operation, CEO Jimmy Brock noted thatproductivity at the operations had improved in the first quarter. He also saidthe company had planned to run at least four longwalls through the secondquarter of 2016.

"While several of our competitors are focused onbalance sheet issues, the stability and consistency of our mines allow us tocapture market share by penetrating newer markets," Brock said on theApril 25 call. "In the first quarter, we successfully tested Bailey coalat two new customer plants, and are currently in active negotiations foradditional ton business."

At the time, he projected a gradual recovery in shipments ascustomers normalized currently high stockpiles.

The S&P Capital IQ consensus normalized earningsestimate for CONSOL's second-quarter is a loss of 19 cents per share. However,some analysts see long-term potential in CONSOL, due to its selective coalportfolio and exposure to potential improvement in prices for coal and naturalgas.

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"Our preferred long in the space continues to be CONSOLEnergy, given its exposure to rising gas and coal prices," FBR & Co.analyst Lucas Pipes wrotein a recent note. "While some investors may argue that the company's higherleverage levels could potentially limit growth opportunities and the strategicgoal of separating the coal and gas business, we believe that higher commodityprices allow the company to unlock value through asset sales and de-lever thebalance sheet without issuing equity."

CONSOL's Pennsylvania operations mine coal from the NorthernAppalachia Basin. In a July 5 note, Pipes wrote that a potential supply disruption in the regionover a labor disagreement between MurrayEnergy Corp. and its workforce could benefit CONSOL Energy and itsmaster limited partnership. Pipes said industry sources claimed Murray had mademany concessions on a deal with the United Mine Workers of America, but broaddiscontent regardinga proposed agreementamong the rank and file members indicates negotiation could become a challenge.

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According to Pipes, Murray Energy produces about 40% of thecoal that comes out of Northern Appalachia, while CONSOL Energy produces about25%. Much of the coal Murray Energy produces from the region comes from minesit bought from CONSOLin a deal announced in 2013.