Sunoco 2010 Annual Report Download - page 54

Coke
The Coke business, through SunCoke Energy, Inc. and its affiliates (individually and collectively, “SunCoke
Energy”), currently makes high-quality, blast-furnace coke at its Jewell facility in Vansant, VA, at its Indiana
Harbor facility in East Chicago, IN, at its Haverhill facility in Franklin Furnace, OH and at its Gateway facility in
Granite City, IL. SunCoke Energy is the operator of a cokemaking facility in Vitória, Brazil, which is owned by a
project company in which a Brazilian subsidiary of ArcelorMittal is the major shareholder. SunCoke also
produces metallurgical coal from mines in Virginia and West Virginia, primarily for use at the Jewell
cokemaking facility. In addition, the Indiana Harbor plant produces heat as a by-product that is used by a third
party to produce electricity; the Haverhill facility produces steam that is sold to Sunoco’s Chemicals business and
electricity from its associated cogeneration power plant that is sold to a third party and the regional power
market; and the Gateway facility produces steam that is sold to a third party. Construction is in progress for a
new cokemaking facility and associated cogeneration power plant to be built, owned and operated by SunCoke
Energy in Middletown, OH. Third-party investors in the Indiana Harbor cokemaking operations are currently
entitled to a noncontrolling interest amounting to 34 percent of the partnership’s net income, which declines to 10
percent by 2038. During the second quarter of 2010, Sunoco’s Board of Directors authorized a plan to separate
SunCoke Energy from the remainder of Sunoco as part of a strategy designed to unlock shareholder value. See
“Strategic Actions” above.
In January 2011, SunCoke Energy acquired Harold Keene Coal Co., Inc., based in Honaker, VA, for
approximately $40 million including working capital. Coal reserve estimates for this acquisition total
approximately 21 million tons, and the assets acquired include two active underground mines and one active
surface and high wall mine currently producing 250,000-300,000 tons of coal annually. Current production
volumes are contracted for sale through 2011.
2010 2009 2008
Income (millions of dollars) ........................................... $132 $180 $105
Coke production (thousands of tons):
United States ..................................................... 3,593 2,868 2,626
Brazil ........................................................... 1,636 1,263 1,581
Coke segment income decreased $48 million in 2010 primarily due to the absence of a one-time $41 million
investment tax credit associated with the start up of the Gateway facility in the fourth quarter of 2009, and lower
results from the Jewell coal and coke and Indiana Harbor operations. Partially offsetting these negative factors
were higher results from the Haverhill and Gateway operations which were driven by higher margins and
volumes. For 2011, coke segment after-tax income is expected to be approximately $90-$115 million excluding
any potential financing costs associated with the planned separation. This estimate reflects the impacts of the
contract restructurings with ArcelorMittal described below, contracted coal prices of approximately $165 per ton,
the expected inability to meet contracted volumes at the Indiana Harbor facility and general and administrative
costs associated with becoming a standalone entity and relocating the SunCoke Energy corporate office to the
Chicago area.
Coke segment income increased $75 million in 2009 primarily due to improved results from Jewell
operations largely associated with higher price realizations from coke production and the recognition of the
one-time $41 million investment tax credit. Also contributing to the improvement was $12 million of after-tax
dividend income from the Brazilian cokemaking operations.
Substantially all of the production from the Jewell and Indiana Harbor facilities and approximately 50
percent of the production from the Haverhill facility is sold pursuant to long-term contracts with affiliates of
ArcelorMittal. The technology and operating fees, as well as preferred dividends pertaining to the Brazilian
cokemaking operation, are payable to SunCoke Energy under long-term contracts with a project company in
which a Brazilian subsidiary of ArcelorMittal is the major shareholder. With respect to the Jewell operation,
beginning in January 2008, the price of coke from this facility (700 thousand tons per year) changed from a fixed
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