Hamilton Beach 2015 Annual Report Download - page 10

8
ranchers and outdoorsmen who live near mining
areas. They care deeply about the land, water and
wildlife where they live, and are excellent stewards.
As evidence of this corporate and individual
commitment to the environment, NACoal’s Coteau
Properties Company received the inaugural 2015
Distinction in Reclamation Award. This award
was given by the American Society of Mining
and Reclamation for construction of a lake and
reclamation of surrounding grasslands on mined
land, which were donated by Coteau to the North
Dakota Game and Fish Department for public use.
Strategic Initiatives and Long-term View
NACoal’s unconsolidated operations, which
constitute a large majority of its earnings and
cash flow capabilities, provide a strong core that
is central to NACoal’s business model. NACoal
has been very fortunate to enter into eight new
agreements over the last several years to develop
or operate new mines, or provide value-added
services to customers. With the exception of
Centennial, these arrangements have all been
structured as cost-plus contracts. Camino Real
began delivering coal to its customer during the
fourth quarter of 2015, Coyote Creek will begin
delivering coal to its customer mid-2016, and
Liberty Fuels’ and Bisti Fuels’ customers have
indicated they expect to begin accepting deliveries
during the second half of 2016.
Over the longer term, NACoal’s goal continues
to be to increase earnings of its unconsolidated
mines by approximately 50 percent from the 2012
level of $45.2 million through the development and
maturation of its newer mines and normal escala-
tion of contractual compensation at its existing
mines. Income related to a full year of deliveries
at the Camino Real mine, the commencement of
deliveries at the Liberty Fuels and Coyote Creek
mines and income at Bisti Fuels will contribute to
this goal in 2016 and beyond. However, generally
low U.S. inflation rates, as reflected in typical
market indices such as the Consumer Price Index
and the Producer Price Index, will determine the
extent to which contractual compensation at the
unconsolidated mines will change year by year.
Achievement of the goal to increase earnings
of the unconsolidated mines by 50 percent is
currently expected to occur in 2017 or 2018, but
timing will depend on future inflation rates and
customer demand.
At MLMC, NACoal’s only operating consoli-
dated mine, profits are determined by customer
demand for coal, index-based coal prices, and
actual operating costs incurred. As previously
mentioned, as long as low diesel prices persist
MLMC’s earnings will be affected. NACoal will
focus efforts on increasing sales, reducing costs
and evaluating capital requirements at MLMC.
Generally, the power plants served by NACoal
are lower-cost producers of electricity on their
respective grids. NACoal expects to continue to
be a low-cost miner of coal at existing mines and
its mines in development.
Given the current unsupportive regulatory
environment for developing new traditional coal-
fired power plants, and based on lessons learned
at Centennial, NACoal is taking an extremely
disciplined approach with respect to growth. This
includes thoughtful consideration of NACoal’s core
skills, strengths and relationships. Opportunities
may exist to serve as a cost-plus contract miner
for those who continue to need coal for power
generation or other processes using coal. NACoal
is well suited to serve as a cost-plus contract miner
in non-coal mining operations, such as aggregates
or other minerals. Also, strategic growth could
come from projects based on new technologies
that utilize coal, such as integrated gasification
combined cycle power generation, and production
of alternative fuels made from coal, as well as
other clean coal technologies and non-traditional