Coal-dependent businesses fight to hold on, as industry shrinks
The price of coal continues climbing while natural gas is increasingly a more affordable alternative, leaving businesses dependent on the coal industry in a tight spot.
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"We are, by nature, survivors," said Nick Carter, president and chief operating officer of Natural Resource Partners in Huntington, which owns coal properties throughout the country. "We've done it every time there's been a downturn in the market. This is the — I don't know — sixth, seventh, eighth downturn in the 30 years I've been in the business, and it's the third downturn since we went public 10 years ago. It's a cyclical market, and you learn to live with the ups and downs."Skip to next paragraph
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For NRP, that's involved limiting its Appalachian investments to properties with metallurgical coal, which is still in demand internationally. That type of coal is used in the production of steel.
However, "Metallurgical is only 6 percent of total coal production," Carter said. "It's only 60 million tons out of a billion tons of coal produced. ... It's the high quality, high valued product, but it's not very much of the market."
Meanwhile, Foresight Energy, a low-cost operator in Illinois, has been successful in selling coal and building new mines where NRP owns the reserves. That will produce in excess of 20 million tons in 2013, Carter said.
"We've certainly seen a number of mine closures and cutbacks in Central Appalachia that have impacted our production and the revenue from our properties, but percentage-wise it has not been as bad as many companies have been," Carter said. "We have been buying assets in the rock quarry business — limestone, sand, gravel, slate."
The percentage of NRP's income from those products has increased, and NRP has been buying oil and gas revenue streams in addition to the aggregates and coal properties it has, Carter said.
"We're trying to diversify our income stream as much as possible, both within the coal space and outside the coal space," he said. "We've made it fairly well. We had earnings released and it was a pretty good quarter. ... Tonnage to be produced from our property was down, but other revenue other than coal revenue was up."
For the six months that ended in June, total revenues were up less than 1 percent from 2011, according to the report. He thinks shareholders were happy though, as the stock prices went up a bit.
At J.H. Fletcher & Co., trends in the coal industry have slowed work down in terms of domestic customers, but it helps that Fletcher does a lot of work internationally — particularly with Australia, Poland and South Africa, said Rod Duncan, president.
Fletcher makes various equipment for the mining industry — such as roof bolters, scaling machines, power loads and more — and does business with 17 countries around the world.
"We're diversifying in our industrial minerals markets, and it's cut back on employee overtime and temporary labor.
"We do everything we can to keep our permanent employees," Duncan said.
Fletcher employs 290 people.
While it has reduced employee hours, several of the company's vendors have let people go due to the reduced parts orders they have received from Fletcher, he said.
"It's an interesting period to see which way the market is going to go," he said. "We've seen the market go up and go down many times in our 75 years."
Tim Duke, president of Steel of West Virginia, said that coal is not a big part of his company's business but it is a core part of its business, in terms of making mine rails and ties that hold rail down in the mines.