PCX Patriot Coal Corp.

Results at Patriot Coal Corporation (PCX) slumped in third quarter 2011. The company posted a loss per share of 54 cents, a cent below the Zacks Consensus of 55 cents. The loss during the quarter came mainly from longwall moves at two longwall mines, the Federal and Panther mines, which caused production to fall and costs to rise, offsetting the rise in price per ton.

Top Line Scenario

Revenue in the third quarter rose 17.7% from last year to $589.4 million due to higher average selling prices. The company’s quarterly revenue was slightly above the Zacks Consensus Estimate of $588 million.

Of the third quarter revenues, around $504 million came from the Appalachia Mining Operations, $80.2 million from the Illinois Basin Mining Operations and $5.3 million from Other Appalachia Operations, representing contributions of 86%, 13% and 1%, respectively.

Operating Highlights

Volumes sold in the reported quarter totaled 7.4 million tons (marginally below the year-ago quarter levels), including 5.6 million tons of thermal and 1.8 million tons of metallurgical coal. On a segmental basis, Appalachia Mining Operations contributed 5.5 million tons to total company sales while Illinois Basin Mining Operations contributed 1.9 million tons.

Revenue per ton in the third quarter rose 18.6% to $78.68 from the year-ago quarter, with Appalachia revenues increasing 25.2% to $90.82 per ton and Illinois revenues expanding only 3.0% to $42.77 per ton.

Operating cost per ton rose significantly to $70.30 in the reported quarter, compared with $58.35 in the year-ago quarter. EBITDA in the quarter was $14.8 million, up 12.1% from last year, mainly driven by higher average selling prices, offset largely by higher operating costs.

Financial Performance

Patriot Coal’s liquidity position as of September 30, 2011 was quite sound with cash and cash equivalents of roughly $239 million, and no borrowings on its revolving credit facility. Available liquidity was over $450 million as of September 30, 2011. Patriot’s capital expenditure totaled $48.7 million for the third 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.

On the thermal side, Patriot continues to benefit from rising prices in the global marketplace, and has contracted more than 7 million tons for export delivery in 2014. The company expects to see the initial benefits of its expiring legacy thermal contracts as it steps into 2012.

Further, with the longwall moves now complete and production returning to normal, Patriot expects to see improved sales in the fourth quarter. The company also highlighted that there are no longwall moves scheduled in the fourth quarter, which should also lower production costs.

Patriot forecasts sales volumes of 8.0 to 8.3 million tons in the fourth quarter, including met coal sales of nearly 2 million tons. Fourth quarter cost per ton for the Appalachia segment is expected to be between $72 and $75, while Illinois Basin cost should reach $44. 

Our View

Patriot’s bottom line results in the just-ended quarter were slightly affected by the costs over-runs due to issues at the two longwall moves. However, the company has settled these issues and projects a positive operating scenario in the fourth quarter.

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 Penn Virginia Resource Partners L.P. (PVR) and Peabody Energy Corp. (BTU).

 
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