1H15 cost performance
Cloud Peak Energy’s (CLD) 1H15 costs came in at $10.34 per ton compared to $10.56 in 1H14. While its 2Q15 costs surged on lower shipments, as we saw in the previous part of this series, stellar cost performance in 1Q15 more than offset the impact. Multi-year-low crude oil prices were a major driver of cost savings during the period, as the company reported lower diesel costs on the back of weak crude oil prices. Moreover, lower repair and maintenance costs also helped the company exhibit stellar cost performance in 1Q15.
Organic cost-saving opportunities
American coal producers (KOL) are actively looking for cost saving opportunities in the current low-price environment. Alpha Natural Resources (ANRZ), Peabody Energy (BTU), and Arch Coal (ACI) have taken measures such as shutting down high-cost mines and curtailing production. Cloud Peak Energy (CLD) has been curtailing production at its Cordero Rojo Mine actively. ANRZ filed for Chapter 11 bankruptcy on August 3, 2015.
The cost of producing coal generally shows an uptrend over time due to the increased labor and equipment required to extract coal. Despite lower shipments, the company was able to save on costs per ton in 1H15, primarily due to external factors. The company is already the second-lowest-cost producer in the region. So the company’s cost-saving opportunities are limited.
Cloud Peak Energy (CLD) spent $14.8 million on capital expenditure in 1H15 against $7.1 million in 1H14. The spike in capital expenditure shows that savings in this area may not be sustainable. Apart from the capital expenditure, the company also paid $69 million on federal coal lease payments in 1H15.