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CONSOL Energy Inc. (CNX - Analyst Report) announced its intention to discontinue the Miller Creek surface operations for a temporary period due to required permit delays from the U.S. Environmental Protection Agency (“EPA”). This operation is located near Naugatuck, West Virginia.

Per the notice, the company intends to idle its Wiley Surface Mine, Wiley Creek Surface Mine, Minway Surface Mine, Minway Preparation Plant, and Miller Creek Administration Group for a period of 14-days beginning from December 30, 2012. This temporary halt in operations will result in lay off of 145 employees. However, the shut down will not affect the underground operations of the company.

We know that temporary closure of the Miller Creek surface operations has company specific as well as social blows. Year to date, the output of this operations was 1.55 million tons of coal, including 83% gathered from surface operations. This shutdown has yearly direct estimated economic impact of $161.6 million. In addition, it also delays mine and highway projects in Mingo County and the state of West Virginia, which subsequently fails to create new employments.  

However, we consider this idling as a positive move after considering present global coal consumption trend. Currently, several coal companies’ exercised planned production slashes to tackle supply-demand equilibrium. Last month, the company’s peer Peabody Energy Corporation (BTU - Analyst Report) permanently discontinued coal production at its Air Quality Mine in Vincennes, Indiana, due to weak market conditions. We have observed that sluggish recovery of the U.S. economy, planned production curtailment in the manufacturing sector and decline in electricity generation is denting the demand for coal.

3Q12 Recap

In the third quarter of 2012, CONSOL Energy reported pro forma loss of 5 cents per share, lower than the Zacks Consensus Estimate of earnings of 2 cents per share. Quarterly earnings were way below the year-ago quarter’s earnings of 73 cents.

The company’s third-quarter 2012 revenue decreased 23.7% to $1,160.1 million from $1,521.7 million in the prior-year quarter. The top line fell short of the Zacks Consensus Estimate of $1,340.0 million.

CONSOL Energy’s quarterly results negatively impacted due to low sales from the Buchanan mine, a couple of shutdown in operations at certain plants along with unplanned outages at the Enlow Fork and Bailey mines.

Our View

We believe slow recovery of natural gas prices will increase the demand in the following quarters, which will subsequently enable the company to improve its forthcoming financial results.

However, continued weakness in global steel consumption rates, stringent regulations and price volatilities are creating obstacles for CONSOL Energy’s performance.  

CONSOL Energy Inc. currently has short-term Zacks #4 Rank (Sell rating).

Canonsburg, Pennsylvania-based CONSOL Energy Inc. produces coal and natural gas for energy and raw material markets. With a market capitalization of $8.01 billion, CONSOL Energy has 9,157 full-time employees.

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