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James River Coal (JRCC)

Q2 2011 Earnings Call

August 09, 2011 11:00 am ET

Executives

Joseph Czul - President - Logan & Kanawha

Peter Socha - Chairman, Chief Executive Officer and President

James Ketron - Vice President, Secretary and General Counsel

Samuel Hopkins - Principal Financial Officer, Chief Accounting Officer and Vice President

Coy Lane - Chief Operating Officer and Senior Vice President

Analysts

Jeffrey Cramer

David Beard - Iberia Capital Partners

David Martin - Deutsche Bank AG

James Rollyson - Raymond James & Associates, Inc.

William Burns - Johnson Rice & Company, L.L.C.

Shneur Gershuni - UBS Investment Bank

Brian Gamble - Simmons & Company International

J. Haberlin - Davenport & Company, LLC

Jeremy Sussman - Brean Murray, Carret & Co., LLC

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the James River Coal Second Quarter Earnings Conference Call. [Operator Instructions] As a reminder, today's conference call is being recorded. I would now like to introduce your host for today's conference call, Mr. Jim Ketron. You may begin, sir.

James Ketron

Thank you, and good morning. Welcome to James River Coal Co.'s Second Quarter Earnings Call. We released our earnings this morning and our current release and Investor Presentation are posted on our website and were furnished to the SEC on our Form 8-K. With me today on the call today are Peter Socha, our Chairman and Chief Executive Officer; C.K. Lane, Senior Vice President and Chief Operating Officer; Sam Hopkins, Vice President and Chief Accounting Officer; and Joe Czul, President of Logan & Kanawha.

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.

With that, let me turn the call over to Peter.

Peter Socha

Thanks, Jim, and good morning, everyone. We've got a few more slides than normal today. So we'll go as quickly as we can through the slides and get to your Q&A.

You can see on the slides, we did have earnings per share before the, what I would call, extraordinary items. But that has all kinds of accounting connotation, but before the extraordinary items of $0.31, with EBITDA of $54 million. We did complete the acquisitions of IRP and Logan & Kanawha. Very, very happy with the acquisitions, they are pretty much exactly what we had hoped for and maybe even a little bit better than that.

The integration is pretty much complete. We had the accounting side still to integrate, but everything else operationally and from a sales and marketing standpoint, we are acting and functioning as 1 company now. So we're very happy with that.

I do want to make 1 comment and I don't want to skip too far ahead on the guidance or anything and that is on cost. In that, you'll notice that the cost guidance number did go up quite a bit. Our mines right now are running the same way they've always run, maybe even a little bit to the better side of that. So our mining costs have really not gone up very much at all. Our cost guidance is up, because we're now in the Met business, and we're in the Met blending business, so we're buying a lot more coal.

But the operating mines both on the IRP side and on the James River side, very happy. I'm very happy with where they are in production. I'm kind of happy with where they are on cost. C.K. is never happy with either one, but we're continuing to run the company at a dialed-down rate. And as we've talked before, that does have an impact. But we're pleased with the operation.

On the selling side, on marketing. Clearly, in the domestic thermal market, we are seeing more market activity. It continues to be a bimodal market in that one or 2 accounts have a lot of coal. But there are also many accounts who are short of coal to the point where they could probably use some coal, some topping up here in the very short future. And so we're working with both accounts, actually, with both types of accounts. But there is not many that are in the middle. They either need coal or they won't need coal for a very long time, but we're pleased to see that.

And with that, I'll turn it over to C.K.

Coy Lane

Okay. Thanks, Peter. Just to touch a little bit on the safety and regulatory side. Our NFDL rate for the second quarter was 1.49. That's tracking very closely to where we were at, at this time last year. We are well below the national average. I'm very pleased with that. We have completed the installation of all the tracking and communication systems. They're in, working well and have that big project behind us. We have begun several projects to seal off underground areas to reduce the size of the mines. This is building the 120-psi seals. We've got probably 80 plus of those to build in the second half of the year. And really doing that just to reduce the size of the mines to meet the New Hampshire requirements is basically trying to make the mine smaller.

We've managed to stable the surface delays. We do have pending permits both in Indiana, Kentucky and West Virginia, but we were just issued a new permit last week in Kentucky which adds about 1.5 million surface mines on. So we are getting permits, but it is a delay -- as always, delayed in the timing.

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