ICO International Coal Grp.

Coal producer Patriot Coal Corporation (PCX) posted operating earnings of 13 cents per share for the second quarter, surpassing the Zacks Consensus Estimate of 10 cents.

On a GAAP basis, the company reported a net loss of 14 cents as compared to a loss of 15 cents reported in the year-ago quarter. One-time charges included in the second quarter results related to a planned treatment of certain selenium discharges at the Hobet surface mine as ruled by the court.

Top Line Scenario

Revenue in the second quarter rose 17.3% from last year to $632.2 million due to higher average selling prices and a swell in sales volume recorded in 2011. The company’s quarterly revenue was also above the Zacks Consensus Estimate of $612 million.

Of the second quarter revenues, around $543.1 million came from the Appalachia Mining Operations, $80.8 million from the Illinois Basin Mining Operations and $8.3 million from Other Appalachia Operations, representing contributions of 86%, 13% and 1%, respectively.

Operating Highlights

Volumes sold in the reported quarter totaled 8.1 million tons (up marginally from year-ago quarter), including 6.1 million tons of thermal and 2.0 million tons of metallurgical coal. On a segmental basis, Appalachia Mining Operations contributed 6.2 million tons to total company sales while Illinois Basin Mining Operations contributed 1.9 million tons.

Revenue per ton in the second quarter rose 16.4% to $77.05 from the year-ago quarter, with Appalachia revenues increasing 20.5% to $87.12 per ton and Illinois revenues expanding only 2.7% to $43.35 per ton.

Operating cost per ton totaled $63.07 in the reported quarter, compared with $56.69 in the year-ago quarter. EBITDA in the quarter was $70.2 million, up 73% from last year, mainly driven by higher average selling prices and sales volumes.

Financial Performance

Patriot Coal’s liquidity position as of June 30, 2011 was quite sound with cash and cash equivalents of roughly $263 million, and no borrowings on its revolving credit facility. Available liquidity came to about $480 million as of June 30, 2011. Patriot’s capital expenditure totaled $40.7 million for the second quarter.

Guidance

Going forward, Patriot continues to actively manage its strategies to further improve performance in 2012 and beyond. As a result, the company is continuously looking to lock in excellent margins by selling its expected met coal production at attractive prices.

Additionally, as part of its initiatives for met sales growth, the company has started production at two new met mines – the Gateway Eagle mine in the Rocklick complex and the Workman Branch mine in the Wells complex. Also, it continues to make progress in constructing the entry slope at Kanawha Eagle's Peerless mine, where it expects to begin production late this year.

On the thermal side, too, Patriot continues to benefit from rising prices in the global marketplace, and has contracted more than 7 million tons for export through 2014.

Patriot forecasts sales volumes in the range of 31 to 32 million tons for full-year 2011, including metallurgical coal sales of at least 8 million tons.

On the cost side, the company expects Appalachia segment cost per ton in the third quarter to be in the mid-$70's, declining to the low-$70's in the fourth quarter.

The full-year cost is expected to average just over $70 per ton, as the met percentage increases to about 35% by year-end, from 30% at the beginning of 2011. For the Illinois Basin segment, Patriot expects cost per ton for the 2011 year to average $42 to $44. 

Our View

Patriot’s bottom line results in the just-ended quarter were slightly affected by the costs incurred, while robust sales volumes and prices led to the beat. Going forward we expect the company to benefit from its met coal expansion plans. Further, forecasts continue to point to the sustainability of coal market globalization, which point to a substantial rise in the demand for metallurgical as well as thermal coal over the next several years.

Based in St. Louis, Missouri, Patriot Coal is a leading coal producer in the eastern United States, having 14 mining complexes in Appalachia and the Illinois Basin. The company primarily competes with International Coal Group Inc. (ICO) and James River Coal Co. (JRCC).

 
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