UPDATE 2-Patriot Coal idles Kentucky mine, stock drops

Fri Apr 20, 2012 12:23pm EDT

* Further cut in thermal coal output

* Stock down 6 percent

April 20 (Reuters) - Patriot Coal Corp said it would idle a mine in Kentucky to reduce its production of thermal coal due to weak demand and prices, sending its stock down 6 percent.

The St. Louis-based company said it plans to idle its Freedom Mine in Henderson, Kentucky, which produced 1.2 million tons of Illinois Basin thermal coal in 2011.

It said the market for thermal coal remains weak as a result of a mild winter and lower demand from utilities that use the coal to fuel power plants. Thermal coal prices have slumped in recent months.

In Friday afternoon trading on the New York Stock Exchange, Patriot Coal shares were 6 percent lower at $6.32.

Analyst Lucas Pipes, of Brean Murray Carret & Co, said although Patriot was in a "challenging position," Friday's announcement was not "a meaningful negative catalyst."

"Patriot had negative EBITDA (earnings before interest, taxes, depreciation and amortization) margins in its Illinois Basin segment last year, and we expect only diminutive contributions to the company's earnings from the Illinois Basin segment in 2012," he said.

Patriot's move comes after the company idled three smaller Central Appalachian mines, producing about 1.2 million tons of thermal coal, and its Big Mountain complex in Boone County, West Virginia, which accounted for 1.8 million tons in 2011.

The company said it has now reduced its annual thermal coal production by more than 4 million tons, or around 20 percent of its 2012 output estimate.

In February, Patriot said it sold 31.1 million tons of coal last year and expected to sell 27 million to 29 million tons this year. The projected 2012 sales included 7 million to 7.8 million tons of steelmaking metallurgical coal; the rest is thermal.

The price per ton of thermal coal has dropped to $59 from $68.75 since Jan. 3, according to the industry newsletter Coal & Energy Price Report.

Clean-burning natural gas, whose prices have fallen to their lowest level compared with coal since 2009, is fast emerging as an alternative to coal for power generation.

Also, power producers such as FirstEnergy Corp, American Electric Power Co Inc and Duke Energy Corp are shutting down coal-fired plants in response to stricter environmental rules.