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 updated its 2014 shipment and Adjusted EBITDA(1)
guidance ranges and provided its current medium term outlook.
Updated 2014 Guidance
The Company updated its guidance for 2014 coal shipments for its
three owned and operated mines to between 83 million and 86 million
tons, compared to its July 29, 2014 guidance of 85 million to 89
million tons. The Company also updated its guidance for 2014
Adjusted EBITDA to between $170 million and $200 million. On July
29, 2014, the Company issued 2014 Adjusted EBITDA guidance of $180
million to $210 million.
Colin Marshall, Cloud Peak Energy’s President and Chief
Executive Officer said, “As we previously stated, our earlier
guidance ranges were dependent upon an improvement in rail
performance through the end of the year. While we believe the rail
performance issues are being addressed, the reality is that the
improvements have not taken place at a sufficiently robust pace to
allow us to maintain our previous guidance. In addition, in late
August our Cordero Rojo Mine was impacted by a significant rain
storm causing flooding and damage to some equipment, which will
slow shipments and cause us to incur some additional costs.
Accordingly, we are updating our Adjusted EBITDA and shipment
guidance ranges to reflect these impacts.”
Medium Term Outlook
Looking ahead to 2015 and 2016, the Company anticipates annual
shipments to be between 78 million and 84 million tons from its
three owned and operated mines, as the previously announced
reductions take place in 8400 Btu production from the Company’s
Cordero Rojo Mine.
For 2015, at August 22, 2014, the Company had committed to sell
65 million tons from its three owned and operated mines, or
approximately 80 percent of its anticipated total 2015 shipments.
Of this committed 2015 production, 51 million tons are under
fixed-price contracts with a weighted-average price of $13.12 per
ton.
As such, for 2015, the Company has approximately 30 million tons
still to be priced between now and the end of 2015. Of these,
approximately 14 million tons are under various index price
mechanisms, which can result in a slight premium to market
prices.
We continue to believe that current domestic and international
prices are unsustainably low as they are not providing economic
returns to a large number of major producers. Over the last few
years, domestic and international prices have been volatile and
have moved significantly in short time periods. We estimate that a
near-term $1 per ton improvement in domestic pricing for 2015
deliveries would add approximately $21 million to 2015 Adjusted
EBITDA based on our current open and indexed positions. Any
increase in international prices from current low levels would
result in a significant improvement to our Logistics and Related
Activities segment results next year. We estimate that a $10 per
tonne improvement in benchmark Newcastle prices would add
approximately $34 million of Adjusted EBITDA in 2015.
Taking these pricing and volume factors into account, our
preliminary estimates are that Adjusted EBITDA for 2015 could be
approximately $120 million if coal prices were to remain at recent
depressed levels through the end of next year. A $1 per ton
improvement in domestic prices and a $10 per tonne improvement in
Newcastle prices could result in Adjusted EBITDA for 2015 of
approximately $180 million depending on the timing of improved
prices and actual shipments.
In 2015, the Company expects to spend between $30 million and
$50 million on capital expenditures to sustain the existing
equipment fleet and a further $20 million on the repair and
relocation of a dragline from the Cordero Rojo Mine to the Antelope
Mine. The fifth and final installment of $69 million on the West
Antelope II LBA will be paid in 2015, with no further LBA payments
anticipated in 2016.
Cash taxes in 2015 are expected to be zero and no payments will
be made under the now terminated Tax Receivable Agreement with Rio
Tinto. In 2015, cash interest on the outstanding bonds is expected
to be $40 million.
For 2016, the Company has approximately 48 million tons still to
be priced, which we believe offer significant opportunity to be
priced at higher and more sustainable levels than current depressed
pricing, giving the potential of significant upside to 2016
revenue, Adjusted EBITDA, and cash flow, relative to 2015. In
addition, as there are no further LBA installment payments
anticipated in 2016, cash flow will benefit independent of the coal
price environment.
Recent Developments
Last month, Cloud Peak Energy completed two opportunistic
transactions to increase its ability to benefit from growth in
Asian exports; and to eliminate a $103 million legacy
liability.
First, the Company paid $37 million to expand its access to the
growing Asian markets by securing additional port capacity at the
fully utilized Westshore Terminal. The payment secured increased
committed capacity of 6.3 to 7.1 million tons (compared to current
long term committed capacity of 2.75 million tons), and extended
the term of its throughput agreement with Westshore through 2024.
As a result, the Company expects to increase its 2015 Asian exports
to 6.0 to 6.5 million tons, compared to the 4.0 to 4.5 million tons
currently forecasted for 2014. This opportunistic transaction
allows us to increase near-term export sales at the existing,
highly efficient Westshore port, further diversifying our customer
base and markets.
Second, the Company paid $45 million to Rio Tinto to terminate
the Tax Receivable Agreement (“TRA”) that was established at the
time of our Initial Public Offering in 2009. This payment settled
all future liabilities that would have been owed under the TRA, and
eliminated the undiscounted liability of $103 million (as at June
30, 2014) in respect of estimated future obligations under the TRA.
As a result, previously anticipated cash payments of approximately
$14 million each year in 2014 and 2015 and additional payments in
subsequent years were eliminated.
Colin Marshall continued, “In summary, with lower shipments and
current weak coal pricing, 2015 results are expected to be lower
than 2014 results. However, our 30 million ton unpriced position
will allow us to benefit from any increases in domestic and
international pricing in 2015. For 2016, with significant exposure
to the potential of improving coal prices and no LBA payments,
Adjusted EBITDA and cash flow have the opportunity to rebound.
In the context of the current coal markets, we have continued to
focus on running our low-cost operations as efficiently as
possible, controlling all aspects of our costs, and optimizing
capital expenditures to maximize cash flow generation. We have also
actively managed our balance sheet to position ourselves to weather
the current environment and to take advantage of potential cyclical
recoveries in domestic and international coal prices. We were
pleased to be able to take advantage at this point in the market,
of the opportunities to increase our near-term export terminal
capacity and extinguish the TRA.”
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 (PRB) 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 2013, Cloud Peak Energy
shipped 86.0 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 1,700 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 four percent of the nation’s
electricity.
(1) Non-GAAP financial measure; please see definition below in
this release.
Cautionary Note Regarding Forward-Looking Statements
This release contains “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 “may,” “will,”
“expect,” “believe,” “anticipate,” “plan,” “estimate,” “seek,”
“could,” “should,” “intend,” “potential,” or words of similar
meaning. Forward-looking statements are based on management’s
current expectations, beliefs, assumptions and estimates regarding
our company, industry, economic conditions, government regulations,
energy policies and other factors. Forward-looking statements may
include, for example: (1) our outlook for 2014, 2015 and future
periods for our company, the PRB and the industry in general, and
our operational, financial and export guidance, including any
potential increases in domestic F.O.B. mine prices or benchmark
Newcastle prices and logistics revenues and our estimated Adjusted
EBITDA sensitivies to any such pricing increases; (2) anticipated
economic conditions and demand by domestic and Asian utilities,
including the anticipated impact on demand driven by regulatory
developments and uncertainties; (3) the impact of competition from
natural gas and other alternative sources of energy used to
generate electricity; (4) coal stockpile and natural gas storage
levels and the impacts on future demand and pricing; (5) our plans
to replace and/or grow our coal tons; (6) business development and
growth initiatives; (7) operational plans for our mines, including
anticipated production decreases at our Cordero Rojo Mine; (8) our
cost management efforts; (9) our future liquidity and cash flows;
(10) anticipated improvements in rail performance; and (11) other
statements regarding our plans, strategies, prospects and
expectations concerning our business, operating results, financial
condition and other matters that do not relate strictly to
historical facts. These statements are subject to significant
risks, uncertainties, and assumptions that are difficult to predict
and could cause actual results to differ materially and adversely
from those expressed or implied in the forward-looking statements.
Factors that could adversely affect our future results include, for
example, (a) future domestic and international economic conditions;
(b) weather conditions or weather-related damage that impacts
demand for coal, our mining operations, our customers, or
transportation infrastructure; (c) coal-fired power plant capacity
and utilization, demand for our coal by the domestic electric
generation industry, Asian export demand and terminal capacity, and
the prices we receive for our coal and our logistics services; (d)
reductions or deferrals of purchases by major customers and our
ability to renew sales contracts and to effectively execute our
forward sales strategy, and changes in utility purchasing patterns;
(e) competition from other coal producers, including the current
oversupply of thermal coal in the marketplace, impacts of currency
exchange rate fluctuations, and government energy and tax policies
that make foreign coal producers more competitive for international
transactions, (f) competition with natural gas and other non-coal
energy resources, domestically and internationally, which may be
increased as a result of energy and tax policies, regulations and
subsidies or other government incentives that encourage or mandate
use of alternative energy sources or public perceptions and the
political dynamic with regard to climate change; (g) environmental,
health, safety, endangered species or other legislation,
regulations, treaties, court decisions or government actions, or
related third-party legal challenges or changes in interpretations,
including new requirements or uncertainties affecting the use,
demand or price for coal or imposing additional costs, liabilities
or restrictions on our mining operations, the utility industry or
the logistics, transportation and terminal industries; (h) public
perceptions, third-party legal challenges or governmental actions
and energy policies relating to concerns about climate change, air
and water quality or other environmental considerations, including
emissions restrictions and governmental subsidies or mandates that
make wind, solar or other alternative fuel sources more
cost-effective and competitive with coal or that may cause domestic
and international electric utilities to phase out or close existing
coal-fired power plants, reduce construction of any new coal-fired
power plants, or reduce consumption of PRB coal; (i) operational,
geological, equipment, permit, labor, weather-related and other
risks inherent in surface coal mining; (j) our ability to
efficiently and safely conduct our mining operations; (k) railroad,
export terminal and other transportation performance, costs and
availability, including the availability of sufficient and reliable
rail capacity to transport PRB coal ; (l) availability, timing of
delivery and costs of key supplies, capital equipment or
commodities such as diesel fuel, steel, explosives and tires; (m)
our ability to acquire future coal tons through the federal LBA
process and necessary surface rights and permits in a timely and
cost-effective manner and the impact of third-party legal
challenges; (n) access to capital and credit markets and
availability and costs of credit, surety bonds, letters of credit,
and insurance; (o) litigation and other contingent liabilities; (p)
proposed Pacific Northwest export terminals are not developed in a
timely manner or at all, or are developed at a smaller capacity
than planned, or we are unable to finalize and enter into
definitive throughput agreements for potential future capacity at
proposed terminals, including the Gateway Pacific Terminal; (q)
future development and operating costs for our development projects
significantly exceed our expectations; and (r) other risk factors
described from time to time in the reports and registration
statements we file with the Securities and Exchange Commission,
including those in Item 1A - Risk Factors in our most recent Form
10-K and any updates thereto in our Forms 10-Q and Forms 8-K. There
may be other risks and uncertainties that are not currently known
to us or that we currently believe are not material. We make
forward-looking statements based on currently available
information, and we assume no obligation to, and expressly disclaim
any obligation to, update or revise publicly any forward-looking
statements made in this release, whether as a result of new
information, future events or otherwise, except as required by
law.
Non-GAAP Financial Measures
This release includes the non-GAAP financial measure of Adjusted
EBITDA. Adjusted EBITDA is intended to provide additional
information only and does not have any standard meaning prescribed
by generally accepted accounting principles in the U.S.
(“GAAP”).
EBITDA represents net income (loss) or income (loss) from
continuing operations, as applicable, before (1) interest income
(expense) net, (2) income tax provision, (3) depreciation and
depletion, (4) amortization, and (5) accretion. Adjusted EBITDA
represents EBITDA as further adjusted for specifically identified
items that management believes do not directly reflect our core
operations. For the periods presented herein, the specifically
identified items are: (1) adjustments to exclude the updates to the
company’s recently terminated tax agreement liability, including
tax impacts of our 2009 initial public offering and 2010 secondary
offering, (2) adjustments for derivative financial instruments,
excluding fair value mark-to-market gains or losses and including
cash amounts received or paid, and (3) adjustments to exclude a
significant broker contract that expired in the first quarter of
2010, to the extent applicable to the periods presented herein.
Because of the inherent uncertainty related to the items identified
above, management does not believe it is able to provide a
meaningful forecast of the comparable GAAP measures or
reconciliation to any forecasted GAAP measures.
Adjusted EBITDA is an additional tool intended to assist our
management in comparing our performance on a consistent basis for
purposes of business decision-making by removing the impact of
certain items that management believes do not directly reflect our
core operations. Adjusted EBITDA is a metric intended to assist
management in evaluating operating performance, comparing
performance across periods, planning and forecasting future
business operations and helping determine levels of operating and
capital investments. Period-to-period comparisons of Adjusted
EBITDA are intended to help our management identify and assess
additional trends potentially impacting our company that may not be
shown solely by period-to-period comparisons of net income (loss)
or income (loss) from continuing operations. Our chief operating
decision maker uses Adjusted EBITDA as a measure of segment
performance. Consolidated Adjusted EBITDA is also used as part of
our incentive compensation program for our executive officers and
others.
We believe Adjusted EBITDA is also useful to investors, analysts
and other external users of our consolidated financial statements
in evaluating our operating performance from period to period and
comparing our performance to similar operating results of other
relevant companies. Adjusted EBITDA allows investors to measure a
company’s operating performance without regard to items such as
interest expense, taxes, depreciation and depletion, amortization
and accretion and other specifically identified items that are not
considered to directly reflect our core operations.
Our management recognizes that using Adjusted EBITDA as a
performance measure has inherent limitations as compared to net
income (loss), income (loss) from continuing operations, or other
GAAP financial measures, as this non-GAAP measure excludes certain
items, including items that are recurring in nature, which may be
meaningful to investors. Adjusted EBITDA should not be considered
in isolation and does not purport to be an alternative to net
income (loss), income (loss) from continuing operations, or other
GAAP financial measures as a measure of our operating performance.
Because not all companies use identical calculations, our
presentation of Adjusted EBITDA may not be comparable to other
similarly titled measures of other companies. Moreover, our
presentation of Adjusted EBITDA is different than EBITDA as defined
in our debt financing agreements.
Cloud Peak Energy Inc.Karla Kimrey, 720-566-2932Vice
President, Investor Relations