NEW YORK SunCoke Energy Inc. is planning to sell its metallurgical coal mining business as part of a strategic option to divest noncore assets, the company said March 11.
"The first step is to begin executing a plan to drop down our entire domestic coke making business to (SunCoke Energy Partners LP) over the next few years. ... While our Coal Mining team has delivered significant improvement in productivity, safety and production costs, we believe shareholder value will increase if we exit this business," SunCoke Energy chairman and chief executive officer Frederick "Fritz" Henderson said in a statement March 11.
The Lisle, Ill.-based coke producer said the process would take several months, although it didnt give a specific time frame. As part of a multiyear plan, directors have approved the initial winding down of a 33-percent interest in the Haverhill, Ohio, and Middletown, Ohio, coking operations, of which SunCoke Energy Partners already has a 65-percent interest.
"We have selected an advisor to look at different options for our business," a company spokeswoman told AMM. "The small scale of the business is a challenge. Were competing with other met coal mines that are seven to 10 times our size, and we have the same regulatory standards. Also, the geology of the met coal had been a challenge, which has made the cash cost per ton difficult to make a profit on."
Once a potential sale of its coal mining assets is completed, SunCoke Energy plans to source its metallurgical coal from several existing supplies in North America.
Pricing in the U.S. coal industry has been depressed recently, particularly amid global oversupply. As a result, some reasoned that international buyers likely wont be interested in SunCokes assets.
"The business is too unpredictable relative to the stable fee-based profit stream in its existing and growing metallurgical coke assets. We see metallurgical coal in an oversupply situation globally, which mutes coal pricing power until supply-demand are in better balance," Philip Gibbs, an analyst at KeyBanc Capital Markets Inc., Cleveland, told AMM. "We dont see international buyers as interested in U.S. metallurgical coal assets like they have been in past years. We also dont see public metallurgical coal companies interested in securing more assets."
The most likely buyer would be a privately financed coal company, trading organization or a major domestic steel mill, he added.
"People are saying there needs to be more consolidation. We see it having a negligible impact on the market. We believe there needs to be more global consolidation given slowing growth in China, the largest global consumer of metallurgical coal; muted growth in Europe and Brazil (two key export markets); and long-term carbon steel share gains from (electric-arc furnace) steel producers in the (United States) away from blast furnace technology," he said.
The company uses metallurgical coal to produce coke at its Jewell facility in Vansant, Va., which has an annual capacity of 720,000 tons, and its Middletown facility, which has annual capacity of 550,000 tons.