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Consol Energy (NYSE:CEIX) Produces Cheap Coal For The US Market



Consol Energy (NYSE:CEIX) is a pure-play coal miner with mining assets that comprise three operating mines in Pennsylvania.  The mines have proven and probable reserves of around 700ml tons sold at $45 to $60 per ton. Equally the company has 1,281 ml tons recovery reserves in Illinois Basin and the Northern and Central Appalachian regions.

Consol controls thermal coal reserves in the US

Currently the total probable, proven and recoverable reserves that Consul controls are 2,260.7ml tons with over 90% being thermal while there is around 3.8% metallurgical quality coal. The current annual production estimate is around 28.5ml tons. The company directly owns around 79% of coal recoverable reserves and as a result, it does not pay royalties on those. Consul has leased the rest and it controls 100% of the reserves.

From 2003 through 2016 the company grew its natural gas business and formed a separate company CBX Gas. However, Consol split to form CNX Resources and retained Consol as a pure-play coal company. The split aimed to allow CNX resources to grow and become a pure-play gas company.

On November 17 shareholders of CNX were awarded one share of the common stake of Consol Energy for every eight shares of their common stock in CNX. Similarly, the parent company transferred its stake in CNX Coal Resources to Consol Energy as part of the split.

Consol sells most of its coal in the US

Coal consumption has been declining in mature economies although in China and India demand is relatively high. In 2017 there were around 8.3bl tons of coal produced with around 6.3bl tons being thermal coal. Last year around 38% of the world’s electricity was produced from coal which was responsible for the addition of 40% of the power generation globally.

Consol Energy sells around 60% to 80% of its coals to eastern US utilities and exports the rest. The company concentrates in the US market where there is demand for bituminous and sub-bituminous coal. Most of this coal powers electric transformation plants but there has been a decline in demand for thermal coals in recent times.

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