Patriot Coal announced it is cutting production at three southern West Virginia mining complexes.
The announcement came on the day Patriot announced it had a net loss of $38.3 million in the fourth quarter and $115.5 million for 2011.
The Big Mountain mining complex produces thermal coal from a single company-operated mine and two contractor-operated mines. The complex was idled effective Thursday, Feb. 2. Most of the mine workers at the complex are represented by the United Mine Workers of America.
"Given our view that the domestic thermal coal market is likely to remain depressed for an extended period, we have conducted a rigorous review of our Central Appalachia thermal mine portfolio," Patriot President and Chief Executive Officer Richard M. Whiting said. "As a result, we made the decision to idle the Big Mountain complex in Boone County, West Virginia, effective today. Big Mountain produced 1.8 million tons of thermal coal in 2011. This decision effectively positions Patriot with no remaining uncommitted Appalachia thermal coal in 2012."
Patriot also announced it is reducing production at its Wells and Rocklick mining complexes, both of which are in southern West Virginia.
"Metallurgical coal demand has trended downward in recent weeks, particularly in export markets," Whiting said. "As previously announced, we have taken actions to match our met production with expected sales volume. We are reducing production at both our Rocklick and Wells complexes, with particular emphasis on higher-cost operations, and delaying certain of our met expansion plans."
The Wells mining complex includes one mine sourced by contractor Rivers Edge and multiple contractor-operated underground mines. The Rocklick mining complex is made up of two company mines, Harris No. 1 and Black Oak, and one contractor-operated mine.
In June 2010, the Harris No. 1 mine, which produced metallurgical coal, was shut down due to a "roof-fall and adverse conditions." At Black Oak mine, production was idled in January 2010 and resumed September 2010
At the company-owned mines, both mining complexes are made up mostly of employees who are UMWA-represented.
In a release from Patriot Coal, Whiting explained that Patriot's "modular mine portfolio," allowed them the versatility of shifting production levels in response to market conditions.
"Looking forward, we believe Patriot and our stockholders are best served by leaving our high-quality coals in the ground until demand for these products strengthens," Whiting said.
According to Whiting, metallurgical coal demand has been on the decline in recent weeks, especially the export market.
"The demand for metallurgical coal used in the production of steel is dependent on the strength of global economies," the earning statement said. "In the near term, concerns over the pace of growth in China, the European financial crisis and the strength of the U.S. recovery have caused downward pressure on steel demand. Even with these short-term concerns, U.S. coke plants are running near capacity and global steel mill percentage utilization remains in the mid-70s."
Whiting added that natural gas prices, mild weather and international and domestic economic health have all played roles in weakening coal markets.
"In thermal markets, we believe that while the domestic market will remain depressed for some time, international markets will present profitable export opportunities in the future for Eastern U.S. coals," Whiting said. "In metallurgical markets, even with weakened global economies, current pricing remains high by historical standards. As economies strengthen and demand returns, we see excellent potential for met coal margin expansion."
Whiting has stated previously that the companies Met Build-Out program allows for response to fluctuating demands and that he still predicts a long-term trend of increased demand for metallurgical coal.
In announcing its fourth-quarter earnings, Patriot Coal also reported a record year for safety, with an incidence rate of 2.73 per 200,000 hours worked. The national rate is about 3.61 per 200,000 and lower than Patriot's record in 2010, which was 3.53 incidences per 200,000 hours worked.
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