James River Coal Earnings Negatively Impacted By Higher Costs
James River Coal Company's (NASDAQ: JRCC) third quarter earnings were negatively impacted by high costs and reduced tonnage due to regulatory activity. Dahlman Rose continues to remain cautious on near-term thermal markets and is maintaining a Hold rating.
James River reported 3Q10 adjusted EBITDA of $34MM versus our estimate and consensus of $42MM and $40MM, respectively. Variance from our estimate can be attributed to higher than expected costs and lower volumes partly offset by better realized pricing. Cash costs in CAPP were $71/ton, above our forecast and the 2Q10 level of $66 as regulatory pressures have impacted productivity. In the Illinois Basin costs were $4/ton higher than we had anticipated and $1 higher versus 2Q10.
Dahlman remains cautious on the near-term outlook in thermal coal markets as it finishes the second consecutive year of extremely compressed dark spreads for domestic power generators. That being said, JRCC's tenacity in holding off forward contracting leaves the company much upside in a thermal recovery scenario. Dahlman is awaiting a better entry point on JRCC shares and are maintaining a Hold rating at this time.
JRCC is trading higher at $16.75
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