SunCoke Energy Begins Plan to Downsize Coal Mining Business
12/17/2014 - SunCoke Energy Inc. announced it is executing a phased plan to scale back its Coal Mining business.
“While we plan to continue pursuing opportunities to sell all or a portion of our Coal Mining business, the challenging coal price environment has led us to make these hard decisions,” said Fritz Henderson, chairman and chief executive officer of SunCoke Energy Inc. “I’ve been very impressed by and thankful for the leadership and commitment of our coal team, which has consistently achieved high levels of productivity, safety and regulatory compliance during this difficult time. However, idling a significant portion of the Coal Mining business is the right step going forward and allows us to focus on our core competencies of processing and handling raw materials for industrial customers.”
Our initial actions include immediately idling certain mines to reduce coal production from approximately 1.1 million annual tons to about 500,000 annual tons of mid-vol coal and eliminating approximately 175 positions. In the short term, we expect to continue to mine about 500,000 annual tons as we pursue a sale or explore other alternatives such as potentially retaining contractors to mine on our behalf or purchasing all our coal requirements to supply our Jewell Coke facility. We also plan to reduce operations at our coal preparation plant by 50 percent to further reduce costs.
While we expect our downsizing plan to significantly reduce the ongoing cost to supply coal to our Jewell Coke operations, in light of current coal market conditions, we will continue to incur costs whether we mine the mid-vol portion of Jewell Coke’s coal supply requirements or purchase all coal from third-parties. If we are ultimately unsuccessful in selling the Coal Mining business and mining mid-vol coal becomes less economic than procuring from third-party sources, we may decide to idle the remaining mines, demolish the preparation plant and purchase all Jewell Coke coal requirements from third-parties. The anticipated impact to Jewell Coke of purchasing 100% third-party coal is estimated to be approximately US$20 million annually, primarily due to incremental coal transportation and material handling costs. This is approximately US$20 million favorable to the anticipated cash loss of continuing to operate the Coal Mining business absent any wind down actions.
We expect to incur one-time cash costs of US$25 million to US$35 million related to our plans to downsize our coal operations including:
Our initial actions include immediately idling certain mines to reduce coal production from approximately 1.1 million annual tons to about 500,000 annual tons of mid-vol coal and eliminating approximately 175 positions. In the short term, we expect to continue to mine about 500,000 annual tons as we pursue a sale or explore other alternatives such as potentially retaining contractors to mine on our behalf or purchasing all our coal requirements to supply our Jewell Coke facility. We also plan to reduce operations at our coal preparation plant by 50 percent to further reduce costs.
While we expect our downsizing plan to significantly reduce the ongoing cost to supply coal to our Jewell Coke operations, in light of current coal market conditions, we will continue to incur costs whether we mine the mid-vol portion of Jewell Coke’s coal supply requirements or purchase all coal from third-parties. If we are ultimately unsuccessful in selling the Coal Mining business and mining mid-vol coal becomes less economic than procuring from third-party sources, we may decide to idle the remaining mines, demolish the preparation plant and purchase all Jewell Coke coal requirements from third-parties. The anticipated impact to Jewell Coke of purchasing 100% third-party coal is estimated to be approximately US$20 million annually, primarily due to incremental coal transportation and material handling costs. This is approximately US$20 million favorable to the anticipated cash loss of continuing to operate the Coal Mining business absent any wind down actions.
We expect to incur one-time cash costs of US$25 million to US$35 million related to our plans to downsize our coal operations including:
- The previously disclosed estimated expense of approximately US$10 million primarily related to contract terminations, which will be incurred primarily in fourth quarter 2014
- Anticipated employee severance and other one-time costs to idle mines of US$10 million to US$15 million to be recognized in fourth quarter 2014 and early 2015
- Expected capital expenditures of US$5 million to US$10 million in 2015 to demolish our coal preparation plant and install additional coal handling and storage to enable third-party coal purchases for our Jewell facility.
