Diversified fuel producer, Consol Energy Inc. (CNX) resumed production in Bailey and Enlow Fork Mines in southwestern Pennsylvania. The coal production was paused due to mechanical failures in the newly installed conveyor system at the company’s Bailey preparation plant, as reported on July 30, 2012.
With the first of the two collapsed belts returning to service, production at the mines will operate at a 60% capacity. Full-scale production is expected to start in the month of September with complete replacement of the second damaged belt. The Bailey plant is used for the processing of coal from these mines.
Although operations from these mines remained closed for three weeks, the company expects this production loss will not have any significant impact on its financials as it intends to back up the volume decline by sourcing coal from the Appalachian region which is operating at normal capacities.
We still believe unplanned breakdown in equipment is a generic risk that the company faces at any given point. However, the company’s recent successful take on safety measures will act as a catalyst to the smooth operational process.
In the second quarter of 2012, the company clocked coal volumes of 14.6 million tons and the company intends to keep production at a moderate level in the upcoming quarters. Consol expects coal sales volume to be 14.9 million tons for the third quarter and coal production to be 59.4 million tons for full year 2012.
The company expects coal production in 2013 and 2014 to be 57.6 million tons and 62.0 million tons, respectively. The Zacks Consensus Estimates for the third quarter and full-year 2012 are currently pegged at 42 cents per share and $1.64 per share, respectively.
The moderate outlook on coal is due to the current depressed trend in coal prices which is expected to linger in the upcoming quarters in the US markets. However, increased demand for coal in the Asian economies of India, China and South Korea will certainly prove to be a silver lining for the company. A slight delay in exports may well be a fallout of this temporary shutdown.
We remind investors that the company’s closest peer Peabody Energy Corporation (BTU) is also continuing to expand its operations in Australia in order to cater to the high-demand Asian markets.
Consol Energy presently retains a Zacks #3 Rank which translates into a short-term Hold rating.
Based in Canonsburg, Pennsylvania, the company produces coal and natural gas for energy and raw material markets. The company is involved in the mining, preparation, and marketing steam coal primarily to electric power generation industry; and metallurgical coal to steel and coke producers.
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