Rain Damages Equipment, Returns for Third-Largest US Coal Mine

(Wyoming Business Report, September 2) – The rain – both figurative and literal – keeps coming for Cloud Peak Energy, Wyoming’s largest business by revenue. The coal mining company based in Gillette issued guidance to investors Tuesday that could be construed as the coal-world equivalent of “cloudy with a chance of thunderstorms.”

The Cordero Rojo Mine, the company said, was hit by an intense rainstorm in late August that caused flooding and damaged some equipment. The company didn’t elaborate much in the guidance, but said the storm would slow shipments and incur additional costs. 

“There was significant flooding in the pits,” said Rick Curtsinger, manager of media relations at Cloud Peak in a phone interview. He added that he doesn’t yet have details on what kind of equipment or how much of it was affected, but for the surface mine 25 miles south of Gillette, the storm’s intensity was abnormal. “It’s not a desert climate but it certainly doesn’t get a tremendous amount of rain.”

That storm, combined with a continued rail capacity shortage fed in part by a boom in crude oil shipments by train, will drop expected shipments from Cloud Peak’s three mines by 2 to 3 million tons of coal this year.

Cloud Peak also dropped its 2014 estimate for earnings before interest, taxes, depreciation and amortization, or EBITDA, by $10 million on the news. 

“As we previously stated, our earlier guidance ranges were dependent upon an improvement in rail performance through the end of the year,” said Cloud Peak CEO Colin Marshall. “While we believe the rail performance issues are being addressed, the reality is that the improvements have not taken place at a sufficiently robust pace to allow us to maintain our previous guidance.”

Curtsinger said that a good year for agriculture, a rebounding economy putting more goods on the rail and the increased popularity of crude by rail have strained railroad capacity across the board. And it will be a while before the problems can be corrected.

“We see rail delays lasting at least through this year,” he said.

Unfortunately for Cloud Peak, the weather will probably get worse before it gets better. For 2015 and 2016, the company plans to scale back shipments from its mines by 5 to 7 million tons more from the newly revised guidance for 2014.

“We continue to believe that current domestic and international prices are unsustainably low as they are not providing economic returns to a large number of major producers,” the Cloud Peak release stated. “Over the last few years, domestic and international prices have been volatile and have moved significantly in short time periods. We estimate that a near-term $1 per ton improvement in domestic pricing for 2015 deliveries would add approximately $21 million to 2015 Adjusted EBITDA based on our current open and indexed positions.”

The company has been making moves on international markets to best position itself for gains either domestically or internationally as the case may be. To do so, the company bought out export capacity from a port in British Columbia from a smaller producer. It is also watching closely the development of proposed export ports in the U.S. and Canada. In British Columbia, the Fraser Surrey Docks in late August received approval to add a coal terminal to its existing footprint, Curtsinger said. 

Stateside approval for coal exports through the northwest has been more halting, with another of an original six export ports being considered being struck down in Oregon last week – a decision organizers plan to appeal. But the fact that ports in Canada are expanding coal-export capacity, Curtsinger said it’s “a pretty stark reminder that that long-term demand exists and folks want to hurry to meet it.”

In a separate announcement, Cloud Peak said its Chief Financial Officer Michael Barrett will soon be leaving Cloud Peak and moving back to Australia with his family. Barrett has been with Cloud Peak since 2008 and will be leaving by the end of the first quarter of 2015.

Original article here.