Consol Idles Buchanan Mine

Zacks

Pennsylvania-based coal and natural gas company, Consol Energy Inc. (CNX) announced the temporary closure of its Buchanan Mine in southwestern Virginia. In addition, the company will shut down its Amonate Mining complex located in this region.

The company’s decision to shut down either partially or fully the Amonate Mine is currently under review. Both Buchanan and Amonate are longwall mining complexes involved in the production of metallurgical coal which is used as a raw material in steel making.

The operations at these two mines are expected to remain idle for one to two months. The Buchanan Mine and the Amonate Mine have an output capacity of roughly 400,000 tons per month and 35,000 tons per month, respectively.

Consol often resorts to momentary closure of mines to cushion its financials from weakening market conditions, both in the domestic as well as in the international spheres. The company previously halted its operations at the Fola Mine complex in West Virginia in late June 2012 owing to the bleak thermal coal market expected ahead.

Consol’s decision comes as a response to the depressed market conditions prevailing in its overseas export markets of Asia, Europe and South America. Steel demand is projected to weaken globally, which will lead to a decline in demand for metallurgical coal. We believe this downward trend in global steel demand and the consequent closure of operations will severely impact Consol’s top-line results in the near term.

In view of the challenging coal market outlook, CONSOL expects third quarter 2012 coal sales to be 14.9 million tons and 2012 coal production to be 59.4 million tons. The company expects coal production in 2013 and 2014 to be 57.6 million tons and 62.0 million tons, respectively.

The Zacks Consensus Estimates for the third quarter and full year 2012 are currently pegged at 42 cents per share and $1.64 per share, respectively. The company’s closest peer is Peabody Energy Corporation (BTU).

Consol presently holds a Zacks #3 Rank implying a short-term Hold rating. The company is involved in the production of coal and natural gas for energy and raw material markets. The company engages in the mining, preparation, and marketing of steam coal primarily to the electric power generation industry; and metallurgical coal to steel and coke producers.

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