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James River Coal Company (JRCC)

Q2 2010 Earnings Call Transcript

August 6, 2010 11:00 am ET

Executives

Beth Cook – Director, IR

Peter Socha – Chairman, President and CEO

CK Lane – SVP and COO

Analysts

Brett Levy – Jefferies & Company

Jim Rollyson – Raymond James

Jeremy Sussman – Brean Murray

Michael Dudas – Jefferies & Company

Justine Fisher – Goldman Sachs

Brian Gamble – Simmons & Company

Jeff Kramer – UBS

Shneur Gershuni – Union Bank of Switzerland

J.D. Kritser – Steelhead Partners

Brian Finkelstein – Catapult

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the James River Coal Company second quarter earnings conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. (Operator instructions) As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Beth Cook, Director of Investor Relations. Please go ahead.

Beth Cook

Thank you. And good morning. Welcome to James River Coal Company’s second quarter earnings call. We released our earnings this morning and our current release is posted on our website and furnished to the SEC on a Form 8-K. With me on the call today are Peter Socha, Chairman and Chief Executive Officer; CK Lane, Senior Vice President and Chief Operating Officer; Sam Hopkins, Vice President and Chief Accounting Officer; and Jim Ketron, Vice President and General Counsel.

Before we begin this morning, I need to remind you that this call will contain forward-looking statements. These forward-looking statements should be considered along with the risk factors that we note at the end of our press release as well as in our annual report on Form 10-K and other SEC filings.

I will now turn the call over to Peter Socha.

Peter Socha

Good morning, everyone. Thank you, Beth. And welcome to our call. We are going to have very, very short comments this morning, which is one reason why we didn’t do slides and we’ve already gotten lot of emails and calls about that. We are going to try to do the opening comments in about five minutes or so. Just a couple of things from me. Three points really.

Liquidity, two years ago, we had no liquidity. A year ago, we had $36 million of liquidity. And right now, we have over $200 million of liquidity. That is something that we are very happy about. We are very pleased with. It has given us an opportunity to strengthen the balance sheet and strengthen the company.

The second point in my opening comments would be profit margin. We did have a profit margin in Central App of almost $31 this quarter. That is from steam coal and stoker coal only. For those of you not familiar with James River Coal, until recently we really haven’t had any met coal at all. We will have met coal going forward. But our margins of $31 were for steam and stoker only. And we did sell a little bit of coal for next year. I guess the most important point there is we are about two-thirds sold in Central App for next year at a price of 101.28. And of what’s left, of the third that’s left, about half of that would be stoker, the other half would be steam coal.

With the market tightening as it is, people sometimes – they look at me with funny eyes when I say next year could be better than this year, and in fact, I think it will be. And I think 12 million probably better than 11 million. So that’s something I’m sure we will get into during the Q&A. The mines had a good quarter. Sales had a good quarter. So overall, I think we had a very good quarter. We are pleased with where we are and we’re pleased with where we are going.

And with that, I will turn it to CK.

CK Lane

Okay. Thanks, Peter. Welcome, everyone. For safety, we had another strong quarter in our safety performance. Our NFDL rate continues to track below the national average. All of this, though, was overshadowed by the fatal accident that we had at mine 68. Bobby Smith, a well regarded continuous miner operator was killed on June 24. He had been with our company approximately six years. He (inaudible) by his wife Amanda and three children. This was the first fatal accident at the mine since it opened in 1989 and then the tragic out for everyone there and his family. So this one on – we've been thinking about that a lot.

For the operations, in cap, production was at our expected level. We completed mining at one underground mine and moved the man and equipment to our new mine, which is called Old House [ph] branch. We also completed mining at one of our surface mines and moved to a new surface mine called Harmons Branch. We had a couple mines that had some pretest geological issues in the quarter, but we were able to work through those and didn’t impact production or cost a whole lot.

As in our press release, we did start the two new mines in the second quarter. They are operated with contract miners. There wasn’t any real significant startup issues. We had begun construction on the third met mine that will begin later this year, and we were able to start our preparation plant and get that up and running that will process the met coal.

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