“This year has been an extraordinarily trying one for our management group with our focus diverted among several problems during the first half,” ICG chief Ben Hatfield said.
“Like many of our peers in the coal industry, we have tolerated certain high cost operations in anticipation of a market rebound. Even though we have been successful in placing a substantial volume of forward sales at attractive prices throughout this year, we have reached a price point in the market that dictates short-term adjustments in exchange for better long-term returns for our shareholders.
“Eight of our 11 mining complexes are performing reasonably well, so we will focus intensely on cutting costs and optimising performance at the operations that are not meeting expectations.”
The Sycamore 2 mine, located in West Virginia’s Harrison County, which was to produce 1.9 million tons annually, has been idled.
Sycamore 2 mine had struggled with adverse geologic conditions for most of the past year. Although conditions briefly improved in the second quarter, the mine subsequently encountered additional geologic and mine development concerns, the results of which will significantly impact the third quarter. The mine will remain idled during the fourth quarter.
ICG said it expected to reconfigure the mine and resume operations as a small-scale production unit late in the fourth quarter or early in 2007.
In response to cost pressures at certain other operations, coupled with the relative softening in recent coal prices, the company has also announced the implementation of substantial production cutbacks.
ICG intends to idle approximately 1.7Mt of high-cost production, comprising approximately 700,000t in its Northern Appalachian operations and approximately 1Mt in its Central Appalachian operations. Production cutbacks will be implemented over the next three to five days, ICG said.
Coal production from ICG operations in 2006 is now projected at about 17Mt, with sales of about 20Mt, compared to previous 2006 full-year guidance of 18Mt, with sales of about 22Mt.
EBITDA for 2006 is now projected to be $65-70 million, down from the previous projection of $130-150 million.
“Including the effects of the unusual first-half events of the Sago mine accident and the Viper mine fire, which negatively impacted earnings by approximately $15 million to date, earnings for the full year are now projected to be a net loss of between $10 million and $15 million, or a net loss of $0.07 to $0.10 per fully diluted share,” the company said.
ICG will evaluate its planned mining developments to determine which projects should be delayed in light of current market conditions.
“We are taking a hard look at each of our capital development projects to assess whether their timing is consistent with long-term profitability. We do not intend to repeat industry mistakes of the past by bringing marginal production into a softening market,” said
Hatfield.
“We expect to proceed with the signature projects that we believe will be winners in current and future markets, while delaying projects that rely on a more robust market.”
On a more positive note, ICG’s Knott County subsidiary successfully started the coal handling facilities and commenced testing of the primary plant operating systems at its new Raven mining complex.
The coal preparation plant and rail loadout facility are expected to be fully operational within the next two to three weeks.
The Raven No. 1 underground mine has added a second daily production shift in anticipation of the plant start-up. It is expected that the Raven complex will produce 1.2Mt of coal annually at full production.
ICG’s Vindex Energy subsidiary has entered into an interim lease agreement for a Buffalo Coal loadout facility in Mt Storm, West Virginia. The lease of this facility is expected to enable ICG to resume rail shipment of premium priced metallurgical coal to its customers.
