April 27, 2017 - Cloud Peak Energy Inc. (NYSE:CLD), one of the largest U.S. coal producers and the only pure-play Powder River Basin (“PRB”) coal company, today announced results for the first quarter of 2017.

• Net income (loss) of $(20.1) million, Adjusted EBITDA of $20.4 million, and an average cost of $9.78 per ton, were all improved results as compared to the first quarter of 2016.

• Exported 0.5 million tons during the first quarter and have contracted 3.3 million total tons of Asian export sales to be delivered in 2017.

• The Company received proceeds, net of underwriting discounts and commissions, of $64.7 million on the issuance of 13.5 million shares of common stock. Equity issuance proceeds funded the full $64.5 million redemption of the outstanding 2019 Senior Notes. These transactions resulted in a reduction in outstanding long-term debt and no debt maturities until 2021.

• Ended the quarter with total available liquidity of $455 million.

Colin Marshall, President and Chief Executive Officer, commented, “Our lower operating costs reflect the many cost control and efficiency initiatives we put in place during 2016 to adapt to lower shipments. We delivered a solid operational and financial performance in the first quarter as the industry environment continued to improve. During the quarter, we continued to increase our export shipments, although the volume ramp-up was challenged by severe weather in the Pacific Northwest that negatively impacted rail performance. We currently have contracted 3.3 million tons to be exported during 2017, with additional sales anticipated as the year progresses.”

Health, Safety, and Environment

During the first quarter of 2017, of the Company’s approximately 1,150 full-time mine site employees, there was one reportable injury resulting in a Mine Safety and Health Administration (“MSHA”) All Injury Frequency Rate (“AIFR”) of 0.34. During the 36 MSHA inspector days at the mine sites during the quarter, the Company received one significant and substantial citation with an assessment totaling $934.

There were no reportable environmental incidents during the quarter.

Consolidated Business Results


Owned and Operated Mines

The Owned and Operated Mines segment comprises the results of mine site sales from the Company’s three mines primarily to its domestic utility customers and also to the Logistics and Related Activities segment.

Shipments during the first quarter of 2017 were stronger than the first quarter of 2016, supported by higher natural gas prices of around $3.00 per MMBtu. Utility coal-fired power plants continued to run during the quarter and drew down coal inventories, although not as much as anticipated due to the very mild winter.


Revenue from the Owned and Operated Mines segment increased four percent in the first quarter of 2017 compared to the first quarter of 2016 due to higher shipments, partially offset by lower average realized prices per ton. Cost per ton improved to $9.78 for the first quarter of 2017 compared with $11.15 for the first quarter of 2016. The year-over-year improvement was driven by increased shipments and the cost reduction and efficiency measures taken during 2016.

Logistics and Related Activities

The Logistics and Related Activities segment comprises the results of the Company’s logistics and transportation services to its domestic and international customers.


The Company exported 0.5 million tons to Asian customers during the first quarter of 2017. This reflected the continued start-up of export shipments announced in the third quarter of 2016, driven by increased international thermal coal demand and pricing. Adjusted EBITDA includes certain minimum payments pursuant to the Company’s new rail and port agreements and unexpectedly high demurrage charges caused by rail delays moving the coal to the terminal. The Company has currently contracted 3.3 million tons to export during 2017 and is planning to export approximately 5 million tons during the full year, which will largely be dependent on rail and port performance and prevailing prices.


Cash, Liquidity, and Financial Position


Cash and cash equivalents as of March 31, 2017 were $100.5 million. During the first quarter, the cash inflow from operations totaled $19.7 million, while capital expenditures (excluding capitalized interest) used $4.1 million.


At March 31, 2017, there were no borrowings outstanding under the A/R Securitization Program, which had an available borrowing capacity of approximately $22 million. On January 31, 2017, the A/R Securitization Program was amended to extend the term to January 23, 2020 to allow for the ability to issue letters of credit and to reduce the combined maximum borrowing capacity, subject to terms and conditions, for both cash and letters of credit to $70 million.


At March 31, 2017, the available borrowing capacity under the $400 million Credit Agreement was approximately $332 million, which reflects approximately $68 million of outstanding, undrawn letters of credit used as collateral for its reclamation bonds. The Company ended the quarter with total available liquidity of $455 million.

Throughout 2016 and early 2017, the Company made considerable progress improving its financial position, as it exited reclamation self-bonding, completed Exchange Offers on its senior notes, and renegotiated the throughput contracts with Westshore and BNSF. During the quarter, the Company issued 13.5 million shares of common stock for proceeds, net of underwriting discounts and commissions, of $64.7 million. These proceeds were used to retire the remaining 2019 Senior Notes, which were redeemed, including a premium of 101.417 and accrued and unpaid interest, for a total payment of $64.5 million. The Company now has no debt maturities until 2021.

Government Affairs


The early actions of the Trump administration and Congress have brought some welcome regulatory relief for the industry. The overturning of the Stream Protection Rule using the Congressional Review Act and the recent Executive Orders that directed a review of the Waters of the U.S. rule and the Clean Power Plan, the lifting of the federal coal-leasing moratorium and halting of the associated Programmatic Environmental Impact Statement will help U.S. coal producers. The suspension and re-evaluation of the 2017 federal coal valuation rule is also a positive change for the Company’s export logistics business as the Department of the Interior reverts to the previous long-standing methodology during this re-evaluation and removes the complexity and uncertainty that the new rule would have introduced. These actions are important and welcome, serving to add predictability and eliminate new and unnecessary costs for mining operations. Looking forward, the Company is optimistic that Congress and the current administration will support the development and commercialization of advanced coal technology, as well as establish a regulatory framework that gives utilities the confidence to invest in the nation’s critical coal power plant fleet, which provides safe, reliable and affordable electricity across the U.S.

Domestic Outlook


Mine shipments to domestic customers for the first quarter were 13.5 million tons, in line with customer schedules and reflecting the usual seasonal suspension of shipments on the Great Lakes. With natural gas prices around $3.00 per MMBtu, utilities have maintained their consumption levels of PRB coal and are taking their contracted coal. The latest data from the U.S. Energy Information Administration (“EIA”) shows that natural gas inventories have declined by 368 BCF, or 14.8 percent, due to winter heating demand and reduced production, compared to 2016 levels. Energy Ventures Analysis (“EVA”) estimates that PRB coal inventories at utilities were 82 million tons as of the end of the first quarter of 2017, a decline of 15 million tons from first quarter 2016 levels. Unfortunately, the very mild winter prevented PRB stockpiles from declining further, resulting in continued elevated levels. Full year shipments will largely depend on the level of summer cooling demand, natural gas prices and associated coal burn. These factors will dictate the level of third quarter coal buying and shipments utilities require in preparation for winter.


For 2017, the Company is currently planning to ship between 55 and 60 million tons, with current commitments to sell 56 million tons, which includes 3.3 million tons with export customers. Of this committed production, 55 million tons are under fixed-price contracts with a weighted-average price of $12.19 per ton. The approximately 2 million committed tons for 2017 that the Company priced during the first quarter of 2017 were at an average price of $11.39 per ton, in line with the prevailing prices at that time.


The Company is currently contracted to sell 29 million tons in 2018, all to domestic customers. Of this committed production, 27 million tons are under fixed-price contracts with a weighted-average price of $12.51 per ton. Utilities continue to delay new coal purchases due to their elevated stockpiles after the very mild winter. While this maximizes their flexibility, it could lead to some price support for coal during periods of increased natural gas prices and electricity demand.


“The current outlook for U.S. thermal coal producers is a lot brighter than it was at this time last year. After good first quarter shipments, many of our customers are indicating that they will continue to take their contracted tons and will buy more coal for in-year delivery, if summer demand is elevated. We remain optimistic that the PRB could see year-over-year demand grow by approximately 10 million tons or more if natural gas prices remain above $3.00 per MMBtu, and we have a normal summer,” said Marshall.


International Outlook

International thermal coal prices remained solid during the first quarter of 2017 as China continued to manage its domestic production levels and increase imports. This left international coal supplies better matched to demand. Disruptions to Australian coal producers caused by Cyclone Debbie in late March are forecast to impact the rail system until early May. While metallurgical coal prices have risen rapidly, Newcastle thermal coal prices have stabilized above $80 per tonne. It will take some time for the full impacts of the disruption from Cyclone Debbie to work their way through the system as buyers wait for supply to resume or find alternative coal sources.

Sustained international prices have allowed the Company to book export sales of 3.3 million tons for delivery throughout 2017. Strong demand should allow total 2017 export sales volumes of approximately 5 million tons dependent on the capacity of the rail and port system to increase shipment rates. The Company continues to receive strong interest from Asian customers for its Spring Creek coal and will seek to layer in sales for the remainder of 2017 as opportunities arise.


2017 Guidance – Financial and Operational Estimates


“First quarter shipments showed a marked improvement over the first quarter of 2016, with solid demand from both domestic and international customers. Although the early end to winter and export rail challenges negatively impacted our performance, we are now looking ahead to steady summer demand and normalized export rail performance. While 2017 will hold plenty of challenges, including a traditionally soft second quarter, the actions we took in 2016 to control our costs and improve our financial position mean we are well placed to successfully manage through the current environment and prosper as it improves,” commented Marshall.

As explained in the February 2017 earnings call, reaching the top of the Adjusted EBITDA range would have required an increase in the price of export sales from then prevailing levels. To reflect year-to-date sales made since then, the Company is lowering the top end of its Adjusted EBITDA guidance range by $10 million to $110 million.