Consol idles coal operations

Wall Street cannot figure out how to interpret Consol Energy's decision to halt longwall mining at two mines
March 8, 2012 12:01 am
  • Consol Energy's R. Barry Palmer brings four barges of coal up the Monongahela River.
    Consol Energy's R. Barry Palmer brings four barges of coal up the Monongahela River.
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A spring-like winter and a slowed-down economy have forced adjustments in the energy industry, and in recent weeks claimed their latest victims: two Consol Energy longwall mining operations that produced hundreds of thousands of tons of coal for the Cecil-based energy firm.

Two operations in West Virginia and Virginia were idled within a week of each other earlier this month, in one case reducing operations at the site for the first time since 1997. No employees are being laid off, but the moves bring the local energy giant into an industry-wide reshifting to weaker coal demand.

"These decisions are market driven," said Consol spokeswoman Lynn Seay. "And inventories are high and demand soft."

Among the reasons: Low prices have cast natural gas as the cheaper fossil fuel, an unseasonably warm winter has reduced energy demand everywhere and a weakened global economy has curtailed European and Asian development that imports coal from Appalachian mines.

Analysts on Wall Street aren't yelling "sell!" at the news, but said the idlings were surprising for a successful coal company like Consol and signal trouble for other firms in the coming months.

Both of the affected Consol mines -- the Blacksville No. 2 mine in northern West Virginia and the Buchanan Mine in southwest Virginia -- saw their longwall mining operations idled and their continuous mining operation schedules shortened by two or three days. Longwall mining is when a large panel of coal is mined in a single slice, while continuous mining prepares panels for future longwall mining.

The mines specialize in different kinds of coal, and were idled for different reasons.

The Blacksville mine supplied thermal coal used to power electricity generators, a market that can turn to natural gas as a cheaper power source now that natural gas is trading at record lows. Consol said its thermal coal sales are now expected to be a few hundred thousand tons below a prior guidance of 13.2 million tons for the quarter ending March 31.

The Buchanan Mine idling in Virginia reduces production there by approximately 400,000 tons per month. It specialized in metallurgical coal, which is used to produce steel and services international construction markets. A global economic slowdown -- particularly related to depressed steel production in China and Europe -- prompted the reverse-course at Buchanan for Consol, which sold a record 11.4 million tons of coal to overseas clients in 2011, an increase of 68 percent from the year prior.

The decisions affect a total of nearly 1,400 employees; the curtailed schedules will eliminate most overtime. Ms. Seay said the company is watching utility and market demand before setting a date to resume operations.

Analysts at Goldman Sachs in New York said the Buchanan idling challenges the previously-held assumption that Consol "will be able to sell whatever it can produce and be very profitable."

Consol shares have fallen more than 10 percent in the past month, closing Wednesday at $32.95, up 5 cents.

The Cecil company is not alone in adjusting to a weaker coal climate.

Alpha Natural Resources of Virginia announced in February it would suspend operations at four mines in Kentucky and West Virginia, with two more idling by early 2013.

Some critics see culprits for the declines in Washington, D.C.

"I believe the Obama administration's war on coal is real," said Rep. Morgan Griffith (R-Va.) in a statement after the Buchanan Mine news came out. "Coal is under attack from this administration, and the rest of the world knows it."

Meanwhile, Consol said the two leading candidates for the Republican presidential nomination -- former Massachusetts Gov. Mitt Romney and former Pennsylvania Sen. Rick Santorum -- share the company's commitment to fossil fuel development.

"Both Mitt Romney and Rick Santorum support energy policies that Consol Energy embraces, and so we watch this spirited primary contest with great interest -- hopeful that the 2012 elections bring us a renewed commitment to domestic energy which is so critical to our economic recovery and global competitiveness," the company said.

First Published 2012-03-07 23:37:40

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