Hamilton Beach 2013 Annual Report Download - page 8

6
NORTH AMERICAN COAL
2013 Results
NACoal has delivered stable financial performance
over the years, and 2013, while no exception, was not
without its challenges. Tons delivered, income before
income taxes and net income at NACoal’s unconsoli-
dated and consolidated mining operations, excluding
Reed Minerals, increased year over year. Increased
deliveries and lower operating expenses at Mississippi
Lignite Mining Company (“MLMC”), increased
deliveries at the Florida limerock dragline operations
and increased deliveries and contractual escalation at
the unconsolidated mining operations all contributed
to the year-over-year improvements. Royalty and other
income from third parties also increased very signifi-
cantly. These improvements, combined with reduced
professional fees and employee-related costs, primarily
due to the 2012 Reed acquisition, and a favorable shift
in mix of income to entities with lower tax rates added
to the net income improvement. However, despite
these favorable developments, income before income
taxes decreased to $35.4 million in 2013 from $41.8
million in 2012 and 2013 net income decreased to
$31.9 million from $32.8 million in 2012, primarily
due to a significant loss at Reed.
Reed Minerals, a coal mining business in
Alabama that produces steam and metallurgical coal,
was acquired on August 31, 2012. The 2013 financial
results include revenues of $71.8 million and a net
loss of $9.8 million for 2013 from Reed compared
with revenues of $29.3 million and net income of $1.0
million for the four months ended December 31, 2012.
Reed experienced a number of difficulties during 2013.
Reduced demand and lower-then-anticipated metal-
lurgical coal prices, combined with significantly higher
mining costs due to the unexpected thinning of a coal
seam in an isolated area, substantial costs associated
with the development of a new mining area and
temporary mining restrictions which significantly
increased hauling distances and reduced equipment
and overburden removal productivity, in total led to
very poor 2013 operating results at Reed. While 2013
was a very difficult year at the Reed Minerals operation,
NACoal is optimistic that productivity improvements
made in 2013 and being made in the first half of
2014 will begin to turn that operation around. The
company’s short-term objective for Reed is to achieve at
least break-even operations in the second half of 2014.
NACoal generated cash flow from operations
of $29.5 million, but had negative cash flow before
financing activities of $26.7 million predominantly
due to $52.7 million of capital expenditures primarily
for equipment and coal reserve acquisitions as part
of NACoal’s plan to improve operating results and
mining efficiencies at Reed by increasing production
capacity and reducing costs. The negative cash flow
before financing activities of $6.1 million in 2012 was
also largely as a result of the Reed acquisition.
Outlook for 2014
NACoal remains focused on safety, environmental
compliance and continuous improvement programs.
These well-established programs and the company’s
unique lignite coal business model-based largely on
long-term cost reimbursable contracts, provide stable
cash flow with minimal capital investment and provide
a solid foundation for all of the company’s coal and
limerock mining operations.
NACoal expects improved operating performance
overall at its coal mining operations in 2014. At the
unconsolidated mining operations, steam coal tons
delivered in 2014 are expected to increase over 2013
provided customers achieve currently planned power
plant operating levels. Demery Resources Company’s
Five Forks Mine commenced delivering coal to its
customer in 2012 and full production levels are
expected to be reached in late 2015. Liberty Fuels also
commenced production of lignite coal in 2013 for
Mississippi Power Company’s new Kemper County
Energy Facility. Production levels at Liberty Fuels are
expected to increase gradually from 0.5 million to
1 million tons in 2014 to full production of approxi-
mately 4.7 million tons of lignite coal annually in 2019.
Unconsolidated mines currently in development
are expected to continue to generate modest income
in 2014. The three mines in development are not
expected to be at full production for several years.
In the first quarter of 2013, mining permits needed