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Lower Diesel Costs Help Cloud Peak Reduce Cost per Ton in 1Q15

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May. 11 2015, Updated 5:05 a.m. ET

Cost performance

Cloud Peak Energy’s (CLD) cost per ton dropped significantly to $10.02 in 1Q15 compared to $10.63 in 1Q14, primarily due to a drop of more than 40% in the company’s diesel costs. International crude oil prices remained subdued throughout 1Q15, helping the company save on diesel costs. Moreover, lower repair and maintenance costs also helped the company exhibit stellar cost performance in 1Q15.

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Organic cost saving opportunities

Coal producers (KOL) are actively looking at cost saving opportunities in the current low price environment. Alpha Natural Resources (ANR), Walter Energy (WLT), and Arch Coal (ACI) have taken measures such as shutting down high cost mines and curtailing production.

The cost of producing coal generally shows an uptrend over time, due to increasing labor and equipment required to extract coal. In spite of lower shipments, the company was able to save on cost per ton, primarily due to external factors. The company is already the lowest cost producer in the region. The organic cost saving opportunities in front of the company seem to be limited.

Capital expenditure

CLD spent $6.4 million on capital expenditure in 1Q15 compared to $4.5 million in 1Q14. During the quarter, the company moved certain machinery from Cordero Rojo to West Antelope mine. As discussed, the company is scaling down production at Cordero Rojo mine.

The company expects to spend $45 million to $55 million on capex in 2015, including movement of machinery. The company also has a mining lease payment of $69 million to be paid in the last quarter of 2015.

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