Foundation reported strata conditions at its Emerald longwall cost the company $14 million for the quarter.
Lower than expected shipments from the Powder River Basin due to the combination of transportation interruptions stemming from severe flooding throughout much of the Midwest and heavy rainfall in Wyoming cost the company $5 million for the quarter.
While CEO James Roberts said the company was "disappointed" with the results, he anticipated stronger results in the second half of the year.
“Results should benefit from higher average realisations, fewer miner vacation days in the third quarter, and the operation of two longwalls at the Emerald Mine throughout the fourth quarter which should enable us to achieve the targeted 14 million ton annual production level in Northern Appalachia," he said.
Roberts said based on the anticipated turnaround, Foundation would maintain it full-year guidance for 2008 and increase its 2009 adjusted EBITDA guidance to $625–725 million.
Foundation continued its organic growth during the quarter with advancement of the permitting process for its new Foundation and Freeport mines in Northern Appalachia.
The Foundation mine will be a longwall complex that will enable the company to maintain its Pittsburgh No. 8 production and potentially expand production in this high margin region.
The Freeport mine, which will access metallurgical grade reserves in the Freeport Seam, is expected to be a 2–3 million ton per year continuous miner operation beginning production in 2012.
Together with its Kingston and Pax mines, the reserves at Freeport bring the company's total metallurgical reserves to 81Mt.
Despite the transport and strata issues, sales revenues for the quarter were up $404.8 million reflecting higher realisations across all production regions.
Roberts said Foundation had adopted a policy of leaving large open positions on its coal sales to take advantage of strong spot prices. The company said it had selectively signed multi-year business contracts in the East.
Looking ahead Foundation was positive on world demand for coal, particularly from Asia.
“United States exports are expected to increase in 2009, and production in the East is expected to continue to be constrained by permitting issues, long lead times for new mines, and limited labour,” Foundation said.
“As a result, domestic demand is projected to outstrip supply in the near term. Therefore, tight market conditions and a strong pricing environment should persist for the next few years.
“Furthermore, as the shortage of Eastern coals continues, many analysts now expect that Eastern utilities will increase their consumption of Western coals in order to maintain inventories and control fuel costs, which is expected to result in increased prices for Powder River Basin coals."
