Cloud Peak Energy Inc. Announces Results for Third Quarter and First Nine Months of 2018
October 25, 2018
GILLETTE, Wyo.–(BUSINESS WIRE)–Cloud Peak Energy Inc. (NYSE:CLD), one of the largest U.S. coal
producers and the only pure-play Powder River Basin (“PRB”) coal
company, today announced results for the third quarter and first nine
months of 2018.
Colin Marshall, President and Chief Executive Officer, commented, “Third
quarter shipments from our Antelope Mine were reduced due to significant
ongoing spoil failures that started in mid-August related to the rain in
the second quarter. The spoil failures will reduce fourth quarter
shipments as pre-stripping was delayed when equipment was diverted to
deal with them. We are working with our customers to move Antelope tons
to our other mines or into 2019 where possible. Exports went very well
during the quarter, though the recent drop in the Kalimantan price index
will reduce fourth quarter logistics earnings. Our third quarter results
included a one-time, non-cash gain of $19.5 million relating to the
winding up of our postretirement medical plan that should be considered
when assessing our financial performance.”
Third Quarter Highlights
-
Shipments were 13.1 million tons during the third quarter of 2018
compared to 15.5 million tons for the third quarter of 2017. Lower
shipments resulted primarily from our Antelope Mine as work continued
to mitigate significant mid-August spoil failures resulting from heavy
rains in the second quarter. -
Exported 1.5 million tons during the third quarter of 2018 at prices
higher than those realized in 2017 and have contracted 4.9 million
tons for 2018 delivery. As previously announced, we have amended and
extended the existing Westshore throughput agreement to increase
annual capacity from 5.5 million tons to 10.5 million tons in 2021 and
2022. -
Announced the termination of our postretirement medical plan, which
reduced our liability by approximately $25 million. A non-cash gain of
$19.5 million is reflected in net income and Adjusted EBITDA for the
third quarter of 2018. An additional non-cash gain of $8.2 million
will be released ratably through the plan termination date of December
31, 2019. -
Net income was $12.7 million for the third quarter of 2018 compared
with net income of $2.6 million during the third quarter of 2017.
Adjusted EBITDA was $40.7 million during the third quarter of 2018
compared to $36.0 million for the third quarter of 2017. Both net
income (loss) and Adjusted EBITDA for 2018 include the $19.5 million
non-cash gain noted above. In addition, the third quarter results
include our quarterly mark-to-market adjustments for certain
performance share units, which resulted in a $5.3 million non-cash
gain during the quarter. -
The lower operational results in the third quarter of 2018 further
compressed our availability under our Credit Agreement, and we ended
the quarter with liquidity of $131.6 million, of which $109.5 million
was cash and cash equivalents. -
Cost reduction efforts continued with the announced move of our
corporate headquarters to an existing structure at our Cordero Rojo
Mine scheduled to be completed by year end.
|
Third Quarter Results |
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| Quarter Ended | Year to Date | ||||||||||||||||||
| (in millions, except per ton amounts) | 09/30/18 | 09/30/17 | 09/30/18 | 09/30/17 | |||||||||||||||
| Consolidated | |||||||||||||||||||
| Net income (loss) (3) | $ | 12.7 | $ | 2.6 | $ | (24.9 | ) | $ | (24.5 | ) | |||||||||
| Adjusted EBITDA (1) (3) | $ | 40.7 | $ | 36.0 | $ | 59.6 | $ | 86.0 | |||||||||||
| Owned and Operated Mines Segment | |||||||||||||||||||
| Shipments – owned and operated mines (tons) | 13.1 | 15.5 | 36.9 | 43.9 | |||||||||||||||
| Realized price per ton sold | $ | 12.16 | $ | 12.32 | $ | 12.18 | $ | 12.23 | |||||||||||
| Average cost per ton sold | $ | 11.05 | $ | 9.65 | $ | 11.28 | $ | 9.77 | |||||||||||
| Cash margin per ton sold (2) | $ | 1.11 | $ | 2.67 | $ | 0.90 | $ | 2.46 | |||||||||||
| Segment operating income (loss) | $ | (2.6 | ) | $ | 25.8 | $ | (13.6 | ) | $ |
50.3 |
|||||||||
| Segment Adjusted EBITDA (1)(3) | $ | 32.3 | $ | 45.6 | $ | 56.2 | $ | 116.1 | |||||||||||
| Logistics and Related Activities Segment | |||||||||||||||||||
| Shipments – Asian exports (tons) | 1.5 | 1.3 | 4.1 | 3.1 | |||||||||||||||
| Realized price per ton sold – Asian exports | $ | 60.63 | $ | 48.67 | $ | 59.21 | $ | 48.97 | |||||||||||
| Average cost per ton sold – Asian exports | $ | 53.57 | $ | 46.42 | $ | 53.31 | $ | 48.52 | |||||||||||
| Cash margin per ton sold – Asian exports (2) | $ | 7.06 | $ | 2.25 | $ | 5.90 | $ | 0.45 | |||||||||||
| Segment operating income (loss) | $ | 9.2 | $ | (1.9 | ) | $ | 20.2 | $ | (12.8 | ) | |||||||||
| Segment Adjusted EBITDA (1) | $ | 10.5 | $ | 3.2 | $ | 24.9 | $ | 2.2 | |||||||||||
| Selling, general and administrative expenses | $ | 5.1 | $ | 13.1 | $ | 25.4 | $ | 33.9 | |||||||||||
| (1) |
Non-GAAP financial measure; see definition and reconciliation in this release and the attached tables. |
|
| (2) |
Calculated by subtracting the average cost per ton sold from the realized price per ton sold. |
|
| (3) |
Gain on termination of postretirement medical plan is a non-cash |
| Quarter Ended 9/30/18 | Year to Date 9/30/18 | |||||||||||||||||||||||||
|
Adjusted |
OPEB |
% of |
Adjusted |
OPEB |
% of |
|||||||||||||||||||||
| Consolidated | $ | 40.7 | $ | 19.5 | 47.9 | % | $ | 59.6 | $ | 19.5 | 32.7 | % | ||||||||||||||
| Owned and Operated Mines Segment | $ | 32.3 | $ | 16.2 | 50.2 | % | $ | 56.2 | $ | 16.2 | 28.8 | % | ||||||||||||||
|
Excluding this non-cash OPEB gain, Owned and Operated Adjusted EBITDA would have been $16.1 million for the third quarter of 2018 and $40.0 million for the nine months ended September 30, 2018. |
Health, Safety, and Environment
During the third quarter of 2018, among our approximately 1,100
full-time, mine site employees, there were two reportable injuries.
Through the third quarter of 2018, the Mine Safety and Health
Administration (“MSHA”) All Injury Frequency Rate (“AIFR”) is 0.23
compared to a rate of 0.12 through the third quarter of 2017. During the
quarter, there were 20 MSHA inspector days at the mine sites. We were
issued no significant and substantial citations during the quarter.
There were no reportable environmental incidents during the quarter.
Operating Results
Owned and Operated Mines
The Owned and Operated Mines segment comprises the results of mine site
sales from our three mines primarily to our domestic utility customers
and to the Logistics and Related Activities segment.
| Quarter Ended | Year to Date | |||||||||||||||||
| (in millions, except per ton amounts) | 09/30/18 | 09/30/17 | 09/30/18 | 09/30/17 | ||||||||||||||
| Tons sold | 13.1 | 15.5 | 36.9 | 43.9 | ||||||||||||||
| Revenue | $ | 162.0 | $ | 198.0 | $ | 459.6 | $ | 550.2 | ||||||||||
| Cost of product sold | $ | 146.3 | $ | 152.7 | $ | 421.9 | $ | 435.2 | ||||||||||
| Realized price per ton sold | $ | 12.16 | $ | 12.32 | $ | 12.18 | $ | 12.23 | ||||||||||
| Average cost per ton | $ | 11.05 | $ | 9.65 | $ | 11.28 | $ | 9.77 | ||||||||||
| Cash margin per ton sold (1) | $ | 1.11 | $ | 2.67 | $ | 0.90 | $ | 2.46 | ||||||||||
| Segment operating income (loss) | $ | (2.6 | ) | $ | 25.8 | $ | (13.6 | ) | $ |
50.3 |
||||||||
| Segment Adjusted EBITDA (2) (3) | $ | 32.3 | $ | 45.6 | $ | 56.2 | $ | 116.1 | ||||||||||
| (1) |
Calculated by subtracting the average cost per ton sold from the realized price per ton sold. |
|
| (2) |
Non-GAAP financial measure; see definition and reconciliation in this release and the attached tables. |
|
| (3) |
Impacted by the non-cash gain from the termination of our postretirement medical plan disclosed above. Excluding this non-cash OPEB gain, Owned and Operated Adjusted EBITDA would have been $16.1 million for the third quarter of 2018 and $40.0 million for the nine months ended September 30, 2018. |
Shipments during the third quarter of 2018 were 15 percent lower than
the third quarter of 2017, primarily due to lower shipments at the
Antelope Mine. Antelope production continued to be impacted by the heavy
rain experienced during the second quarter. While the immediate impact
of the rain was mitigated by early August, the increased moisture caused
significant spoil failures in both dragline pits in mid-August. This
occurred as coal was removed from the base of the wet spoil piles. Coal
removal has recently been completed from these pits. The rehandling of
spoil out of the pits reduced coal shipments and diverted resources from
pre-stripping, which significantly increased per ton costs. Fourth
quarter shipments will be reduced as pre-stripping needs to be advanced
in front of the draglines so they can resume their normal operating
cycle.
Revenue from the Owned and Operated Mines segment decreased 18 percent
in the third quarter of 2018 compared to the third quarter of 2017 due
to the lower shipments as well as $0.16 per ton lower average realized
prices. Cost per ton was $11.05 for the third quarter of 2018 compared
with $9.65 for the third quarter of 2017. The 15 percent higher cost per
ton in 2018 was driven by the forecast increase in stripping ratio at
our mines this year, increased diesel prices, the unplanned impact of
the spoil failures resulting in increased material rehandle, and lower
shipments.
Logistics and Related Activities
The Logistics and Related Activities segment comprises the results of
the logistics and transportation services to our domestic and
international export customers including the incremental production
taxes and royalties associated with these sales.
| Quarter Ended | Year to Date | ||||||||||||||||
| (in millions, except per ton amounts) | 09/30/18 | 09/30/17 | 09/30/18 | 09/30/17 | |||||||||||||
| Total tons delivered | 1.5 | 1.4 | 4.2 | 3.3 | |||||||||||||
| Asian exports (tons) | 1.5 | 1.3 | 4.1 | 3.1 | |||||||||||||
| Domestic (tons)(1) | — | — | 0.1 | 0.2 | |||||||||||||
| Revenue | $ | 91.0 | $ | 67.7 | $ | 250.0 | $ | 161.9 | |||||||||
| Total cost of product sold | $ | 81.8 | $ | 69.6 | $ | 229.8 | $ | 174.7 | |||||||||
| Asian Exports (per ton sold) | |||||||||||||||||
| Realized price | $ | 60.63 | $ | 48.67 | $ | 59.21 | $ | 48.97 | |||||||||
| Average cost | $ | 53.57 | $ | 46.42 | $ | 53.31 | $ | 48.52 | |||||||||
| Cash margin (2) | $ | 7.06 | $ | 2.25 | $ | 5.90 | $ | 0.45 | |||||||||
| Segment operating income (loss) | $ | 9.2 | $ | (1.9 | ) | $ | 20.2 | $ | (12.8 | ) | |||||||
| Segment Adjusted EBITDA (3) | $ | 10.5 | $ | 3.2 | $ | 24.9 | $ | 2.2 | |||||||||
Note: Due to the tabular presentation of rounded amounts, certain
numbers reflect insignificant rounding differences.
| (1) |
For the three months ended September 30, 2018 and 2017, the domestic logistics volumes were 35,000 tons and 44,100 tons, respectively. |
|
| (2) |
Calculated by subtracting the average cost per ton sold from the realized price per ton sold. |
|
| (3) |
Non-GAAP financial measure; see definition and reconciliation in this release and the attached tables. |
Strong Asian utility demand and favorable pricing allowed us to export
1.5 million tons during the third quarter of 2018. Third quarter 2018
segment operating income was $9.2 million, as compared to a loss of $1.9
million for the third quarter of 2017. Segment operating income (loss)
includes amortization of logistics contract amendment payments settled
in previous years. With the previously disclosed logistics contract
extension for the Westshore agreement, this non-cash amortization will
reduce but continue to the end of the extended agreement with Westshore
in December 2022. Higher prices, partially offset by rail fuel
surcharges, higher severance taxes, and price variable rail rates,
resulted in third quarter Segment Adjusted EBITDA increasing from $3.2
million in 2017 to $10.5 million this year.
Cash, Liquidity, and Financial Position
Cash and cash equivalents as of September 30, 2018 were $109.5 million.
Cash provided by operations totaled $24.1 million during the first nine
months of the year. Capital expenditures were $7.2 million for the nine
months of 2018, of which $2.4 million occurred during the third quarter.
During the second quarter of 2018, we amended our Credit Agreement to
extend the maturity to May 24, 2021 while reducing the maximum borrowing
capacity from $400 million to $150 million. New quarterly financial
covenants were also added. The borrowing capacity is limited by the
financial covenants, calculated on a quarterly basis, and will fluctuate
from quarter to quarter, depending on our financial results. As of
September 30, 2018, our available borrowing capacity under the Credit
Agreement was reduced to $16.2 million, and no amounts were borrowed
under the Credit Agreement.
In the second quarter, we also amended our A/R Securitization Program to
extend the term, which matches the Credit Agreement maturity date. The
A/R Securitization Program allows for a maximum borrowing capacity of
$70 million. The borrowing capacity is limited by eligible accounts
receivable (as defined under the terms of the A/R Securitization
Program), calculated on a monthly basis, and will fluctuate from month
to month. As of September 30, 2018, we had a borrowing capacity of $27.9
million under the A/R Securitization Program.
We had $22 million in undrawn letters of credit under our A/R
Securitization Program as of September 30, 2018. These letters of credit
are currently being used to provide collateral for our reclamation
bonds. The available capacity under the A/R Securitization Program was
$5.9 million at the end of September 2018, reducing the required
cash-collateralization to zero and releasing $3.8 million of restricted
cash in October.
Including cash on hand and the availability under the Credit Agreement
and A/R Securitization Program, we ended the quarter with total
available liquidity of $131.6 million.
Domestic Outlook
Mine shipments to domestic customers during the third quarter of 2018
were 11.6 million tons, as compared to 14.2 million tons shipped to
domestic customers in the third quarter of 2017. Shipments during the
third quarter of 2018 were negatively impacted by the previously
discussed spoil failures at the Antelope Mine, as well as low demand at
the Cordero Rojo Mine. We continue to work with our customers to agree
on deferrals, or other resolutions, for a portion of contracted volumes
that we do not expect to be able to ship from the Antelope Mine in the
fourth quarter due to the ongoing impact of the spoil failures.
Natural gas prices during the third quarter remained in the range of
$2.75 to $3.00 per MMBtu and have recently increased to over $3.20 per
MMBtu. While storage volumes remain well below average, natural gas
prices have been steady due to increasing production. As of October 12,
2018, U.S. Energy Information Administration data showed that natural
gas inventories have declined by 17 percent compared to year ago levels.
Energy Ventures Analysis estimates there were 51 million tons of PRB
coal inventories on utility stockpiles at the end of September 2018, a
decline of 21 million tons from December 2017 levels. We believe
declining customer inventories will increase contracting approaching
winter, although our capacity to contract for additional 2018 shipments
is limited due to the operational issues at our Antelope Mine discussed
above.
We have current commitments to sell 52 million tons, which includes 4.9
million tons contracted with export customers. All of the 52 million
tons are under fixed-price contracts with a weighted-average price of
$12.20 per ton. The approximately 3.0 million tons for 2018 that were
priced during the third quarter of 2018 averaged $11.06 per ton, in line
with prevailing prices at that time for the qualities of coal
contracted. Due to operational issues at the Antelope Mine, we currently
expect to ship between 49 and 51 million tons in 2018.
We are contracted to sell 35 million tons in 2019. Of this committed
production, 28 million tons are under fixed-price contracts with a
weighted-average price of $12.34 per ton. For 2019, there were 6.0
million tons contracted during the third quarter of 2018 averaging
$11.57 per ton.
We are contracted to sell 30 million tons in 2020. Of this committed
production, 24 million tons are under fixed-price contracts with a
weighted-average price of $12.65 per ton.
International Outlook
The international thermal Newcastle coal price index during the third
quarter remained over $100 per tonne, currently settling around $114 per
tonne due to strong demand. During the same period, the Kalimantan 5000
GAR index price, which the Spring Creek Mine coal typically prices
against, has declined to under $55 per tonne. The recent collapse of the
Indonesian rupiah has lowered producers’ U.S. Dollar cost and the
Indonesian Government has removed export restrictions to increase U.S.
Dollar exports. The result has been an increase in Indonesian exports
and a drop in the Kalimantan 5000 index. The current wide gap between
Newcastle and Kalimantan 5000 index pricing is not common compared to
typical historical spreads between those indices.
Based on estimates through August 2018, year-to-date thermal imports
into China have increased 33 million tonnes, or almost 27 percent,
compared to August 2017. China’s electricity generation has increased by
7.8 percent through August after increasing by 6.5 percent last year,
with most of this increase from thermal coal generation.
Thermal coal imports to India have increased by nearly 18 percent this
year as domestic coal production has struggled to keep pace with rising
demand. South Korean thermal coal imports continue to grow as recently
commissioned plants increase their generation. Since we announced the
JERA Trading contract to supply a new integrated gasification combined
cycle (“IGCC”) power plant in Japan from late 2019, we have been
discussing test burns with five Japanese utilities. Two test burns have
been successfully completed and discussions for five more test cargos
are underway. There is no assurance that these test burns will lead to
future sales.
We exported 1.5 million tons during the third quarter of 2018. We expect
lower prices during the fourth quarter of 2018 as subbituminous prices
have declined. Demand for our coal has remained strong, and the rail and
port system operated as expected. For 2018, we plan to export
approximately 5.5 million tons.
2018 Guidance – Financial and Operational Estimates
The following table provides the current outlook and assumptions for
selected 2018 consolidated financial and operational metrics:
| Estimate or Estimated Range | ||||||
| Coal shipments for the three mines(1) | 49 – 51 million tons | |||||
| Committed sales with fixed prices | Approximately 52 million tons | |||||
| Anticipated realized price of produced coal with fixed prices | Approximately $12.20 per ton | |||||
| Adjusted EBITDA(2) (3) | $60 – $70 million | |||||
| Net interest expense | Approximately $37 million | |||||
| Cash interest paid | Approximately $42 million | |||||
| Depreciation, depletion, amortization, and accretion | $70 – $72 million | |||||
| Capital expenditures | $13 – $15 million |
| (1) | Inclusive of intersegment sales. | |
| (2) |
Non-GAAP financial measure; please see definition below in this release. Management did not prepare estimates of reconciliation with comparable GAAP measures, including net income, because information necessary to provide such a forward-looking estimate is not available without unreasonable effort. |
|
| (3) |
Includes a non-cash gain from the postretirement medical plan termination of $21 million disclosed above. |
Conference Call Details
A conference call with management is scheduled at 5:00 p.m. ET on
October 25, 2018 to review the results and current business conditions.
The call will be webcast live over the Internet from www.cloudpeakenergy.com
under “Investor Relations”. Participants should follow the instructions
provided on the website for downloading and installing the audio
applications necessary to join the webcast. Interested individuals also
can access the live conference call via telephone at (855) 793-3260
(domestic) or (631) 485-4929 (international) and entering pass code
9052799.
Following the live webcast, a replay will be available at the same URL
on the website for seven days. A telephonic replay will also be
available approximately two hours after the call and can be accessed by
dialing (855) 859-2056 (domestic) or (404) 537-3406 (international) and
entering pass code 9052799. The telephonic replay will be available for
seven days.
About Cloud Peak Energy®
Cloud Peak Energy Inc. (NYSE:CLD) is headquartered in Wyoming and is one
of the largest U.S. coal producers and the only pure-play Powder River
Basin coal company. As one of the safest coal producers in the nation,
Cloud Peak Energy mines low sulfur, subbituminous coal and provides
logistics supply services. The Company owns and operates three surface
coal mines in the PRB, the lowest cost major coal producing region in
the nation. The Antelope and Cordero Rojo mines are located in Wyoming
and the Spring Creek Mine is located in Montana. In 2017, Cloud Peak
Energy sold approximately 58 million tons from its three mines to
customers located throughout the U.S. and around the world. Cloud Peak
Energy also owns rights to substantial undeveloped coal and
complementary surface assets in the Northern PRB, further building the
Company’s long-term position to serve Asian export and domestic
customers. With approximately 1,300 total employees, the Company is
widely recognized for its exemplary performance in its safety and
environmental programs. Cloud Peak Energy is a sustainable fuel supplier
for approximately two percent of the nation’s electricity.
Cautionary Note Regarding Forward-Looking Statements
This release and our related quarterly investor presentation contain
“forward-looking statements” within the meaning of the safe harbor
provisions of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. Forward-looking statements are
not statements of historical facts and often contain words such as
“anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,”
“plan,” “potential,” “seek,” “should,” “will,” “would,” or words of
similar meaning. Forward-looking statements may include, for example:
(1) our outlook for 2018 and future periods for Cloud Peak Energy, the
Powder River Basin (“PRB”) and the industry in general; (2) our
operational, financial and shipment guidance, including the impact of
the issues at our Antelope Mine on our shipments, costs and financial
results, export shipments expected in 2018 and the anticipated timing,
volumes and benefits of our export supply agreement with JERA Trading;
(3) estimated thermal coal demand by domestic and Asian utilities; (4)
coal stockpile and natural gas storage levels and the impacts on future
demand and pricing; (5) our ability to sell additional tons at improved,
economic prices; (6) the impact of the Trump administration energy
policies, ongoing state, local and international anti-coal regulatory
and political developments, NGO activities and global climate change
initiatives; (7) potential commercialization of carbon capture
technologies for utilities; (8) the impact of competition from other
domestic and international coal producers, natural gas supplies and
other alternative sources of energy used to generate electricity; (9)
the timing and extent of any sustained recovery for depressed thermal
coal industry conditions; (10) the impact of industry conditions on our
financial performance, liquidity and compliance with the financial
covenants in our Credit Agreement; (11) our ability to manage our
take-or-pay exposure for committed port and rail capacity; (12) our
future liquidity and access to sources of capital and credit to support
our existing operations and growth opportunities; (13) the impact of any
hedging programs; (14) our ability to renew or obtain surety bonds to
meet regulatory requirements; (15) our cost management efforts; (16)
operational plans for our mines; (17) business development and growth
initiatives; (18) our plans to acquire or develop additional coal to
maintain and extend our mine lives; (19) our estimates of the quality
and quantity of economic coal associated with our development projects,
the potential development of our Youngs Creek and other Northern PRB
assets, and our potential exercise of remaining options for Crow Tribal
coal; (20) potential development of additional export terminal capacity
and increased future access to existing or new capacity; (21) industry
estimates of the U.
Contacts
Cloud Peak Energy Inc.
John Stranak, 720-566-2932
Investor
Relations