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Export prices, water conditions plague Foresight in Q2'19; conditions to persist

After a challenging second quarter stymied by high and swift water on the Mississippi River that hindered shipments, low thermal export coal prices and subdued domestic utility demand this summer, Foresight Energy LP decreased its 2019 adjusted EBITDA and increased its capital expenditures guidance.

The Illinois Basin producer expects to generate an adjusted EBITDA in the range of $240 million to $270 million, down from $260 million to $300 million as announced previously. Foresight also expects to spend between $75 million and $85 million on capital expenditures this year, an increase from the previously guided range of $70 million to $85 million. The producer previously said it expected sales to total between 20 million and 22 million tons, with more than 6 million tons exported, and increased the minimum to 21 million tons.

Foresight has more than 600,000 tons of coal inventory in storage at the Convent Marine Terminal as a result of water conditions leading to loading restrictions at the facility, said President and CEO Robert Moore on an Aug. 7 earnings call. While recent river condition forecasts project modest improvements in vessel-loading in the second half of the year, Moore said he expects the company will continue to be impacted in the third quarter.

The price on thermal coal being sold into Europe remained depressed throughout the quarter, he said, noting that the Argus/McCloskey API2 European coal index dropped into the high $40 range for several days. The company exported nearly 1.7 million tons of coal, representing more than 33% of its total sales during the period, he said.

While there has been an uptick in the API2 price in recent weeks due to European temperatures, among other things, "we're not certain that this represents a significant upward trend in the near term," Moore said.

The company has already exported 4 million tons of coal and expects to ship another 2 million tons to the international market in the second half of the year, he said, about half of which is already hedged. That limits the company's exposure to the export market in the back half of the year.

"However, I do believe that we could see some uptick on the API2 in that fourth-quarter time frame," the CEO said. "I don't think it's going to be a situation where we see prices really take off. I think it's going to be a gradual increase based on our guidance on the current forwards, but I do believe there are some upsides to those forwards."

The producer's assets will allow it to compete in every basin, he said, and the company is already seeing success in marketing its coal into new territory.

"If these export markets aren't there, then we're poised to take domestic share, and that's what we're going to do," the CEO said.

The company is also developing longwall gate entries to potentially resume longwall mining at the Deer Run mine after it closed following a 2015 combustion event, he said. Foresight has obtained all necessary approvals from the U.S. Mine Safety and Health Administration to resume longwall mining operations at the site.

Foresight reported $224 million in coal sales made on 5 million tons during the period, according to an earnings release. It produced 5.4 million tons during the period and generated $45.1 million in adjusted EBITDA. The miner reported a net loss of $33.7 million, or a loss of 23 cents per common unit and subordinated unit, over the period.