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Oxford Resource Partners, LP (OXF)

Q3 2012 Earnings Call

November 6, 2012 10:00 am ET


Karen Van Horn – Investor Relations

Charles C. Ungurean – President, Chief Executive Officer and Director

Gregory J. Honish – Senior Vice President, Operations

Bradley W. Harris – Senior Vice President, Chief Financial Officer and Treasurer


James Rollyson – Raymond James & Associates

Mark A. Levin – BB&T Capital Markets

Sam Dubinsky – Wells Fargo Securities, LLC



A very good day to you ladies and gentlemen, and welcome to the Oxford Resource Partners, LP Third Quarter Earnings Conference Call. My name is Nancy, and I will be your operator for today. At this time all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference.

(Operator Instructions) As a reminder, this call is being recorded for replay purposes.

And I would now like to turn the call over to Karen Van Horn. Please go ahead.

Karen Van Horn

Thanks, Nancy. Good morning, and welcome everyone to our third quarter 2012 earnings conference call. We appreciate your continued interest in Oxford Resource Partners. I’m Karen Van Horn, Investor Relations Representative with Oxford.

Participating on the call today are Oxford’s President and CEO, Chuck Ungurean; Oxford’s Senior Vice President of Operations, Greg Honish; and Oxford’s New Senior Vice President and CFO, Brad Harris. Oxford released its third quarter results earlier this morning.

On today’s call, we will be discussing our financial results for the quarter. Following our prepared remarks, we will open the call up to questions. Please be aware that some of our remarks may include statements that are not historical in nature and that may involve expectations, plans and objectives regarding future operations.

These remarks are forward-looking statements and are subject to the cautionary language regarding forward-looking statements contained in our press release. Additionally, we’ll be discussing certain non-GAAP financial measures. Definitions and reconciliations of the differences between these measures and the most directly comparable GAAP financial measures are included at the end of our press release. Our press release has been posted on our website and furnished to the SEC in our Form 8-K filing.

With that, I would like to turn the call over to Chuck for some opening remarks. Chuck?

Charles C. Ungurean

Thanks, Karen, and thanks everyone for joining us today. Before beginning my remarks, I would like to take this opportunity to introduce our new CFO, Brad Harris. He has extensive coal industry experience, including almost five years as CFO of International Coal Group. Brad is a welcome addition to our management team.

As you saw on our earnings release this morning, we continue to focus on our core Northern operations, while restructuring our Illinois Basin assets. Northern App continues to realize the benefits of the productivity improvements that we put in place earlier in the year.

In the Illinois Basin, we are continuing to manage our mining operations in a way that allows us to reliably serve our Illinois Basin customers, while producing coal at lower costs. These combined efforts enabled us to maintain a consistent year-over-year cash margin per ton in the third quarter in spite of lower sales volumes and higher fuel costs.

It is significant to note that we are fully committed in price for the remainder of 2012 and for 2013 we are presently 97% committed in price. We remain a low-cost producer in our region with strong longstanding relationship with key utilities. We’re committed to maximizing the cash margin on every ton we produced. Although, coal markets remain weak, natural gas prices have been increasing, setting up for what we expect will be an increase in thermal coal demand.

Given our capacity to increase production, Oxford is well-positioned to participate in a market rebound. In the near-term, we continue to work hard to sale our excess Illinois Basin equipment at acceptable values and further reducing CapEx to enhance liquidity.

Now, I’ll turn the call over to Greg to provide an update on our mining operations. Greg?

Gregory J. Honish

Okay. I’m going to report on our progress in three key areas. First, safety; second our operations; and third permitting. On the safety front, seven of our eight mining complexes completed the third quarter with zero reportable accidents. Our MSHA reportable incidents rate for the quarter was less than half the national average. Our employees remained focus on mining safely and employee safety remains our highest priority.

Moving on to operations, we completed the move into lower ratio reserves at our Illinois Basin mining complex at the end of quarter. This included the downsizing of the workforce and freeing up of some additional equipment that was moved to our Northern App mines. As discussed on previous calls, we continue to right size our Illinois Basin operations to better align production with sales.

Production cost at our Northern App operations decreased from the second quarter, driven primarily by the equipment relocated from the Illinois Basin operations and then increase in high-wall miner production. Both high-wall miners operated the entire quarter without leading to be moved. We do expect to move one miner during the fourth quarter.

And finally regarding permitting, we were issued six permits covering 6.3 million tons during the quarter. Year-to-date, this brings us to 10 permits totaling 8.8 million tons. We also expect to receive additional permits before year-end. So despite the challenging permitting environment, we continue to make progress on this front.

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