Coal and natural gas producer, CONSOL Energy Inc. (CNX) has decided to temporarily shut down its Northern West Virginia Blacksville No. 2 longwall mining unit and has also planned to reduce its continuous mining operating schedule to 4 days per week. The move comes in the wake of sustained low natural gas prices that evinced higher demand. Also, the demand for coal has dwindled in cahoots with mild winter weather.

Additionally, we believe that a coal producer has to face increasing competition from renewable energy producers as some states have laid down policies for generation of energy from renewable sources and, as a consequence, producers with a renewable energy portfolio are gaining prominence. This would be one more reason for the short-term closure. As a consequence, CONSOL’s monthly production will be reduced by approximately 400,000 tons per month.

At its earnings call, in January this year, CONSOL had indicated that it expects coal production to be in the respective range of 15.5-15.9 million tons and 59.5 – 61.5 million tons in the first quarter and full year 2012. However, as a result of the shut down, we do not expect the company to meet its guidance.

The company indicated that there would be no layoffs and added overtime and other non-essential work will be delayed as a result of the temporary shut down. The company has not indicated any timeframe for the closure. In 2011, the mine produced 4.3 million tons of coal utilizing a single longwall and 3 continuous mining units.

In January, the company released fourth quarter and fiscal 2011 results. The company’s adjusted earnings of 70 cents per share for the fourth quarter of 2011 surpassed the Zacks Consensus Estimate of 64 cents. CONSOL Energy’s quarterly revenue increased 13.6% to $1.54 billion from $1.36 billion in the year-ago quarter.

CONSOL Energy Inc. is a multi-fuel energy producer as well as energy services provider, primarily catering to the U.S. power producers. The company principally operates two business lines: Coal and Natural Gas.

The company’s dependence on a small group of consumers for bulk sales, rising cost for producing coal along with stricter legislations and rigid penalties on underground mining, and rising competition from the renewable power generators remain concerns for underground miners like CONSOL Energy. Moreover, we believe that depressed natural gas prices are forcing the company to lower its drilling operation in 2012. The company presently retains a short-term Zacks #4 Rank (Sell).

The company mainly competes with Arch Coal, Inc. (ACI) and Peabody Energy Corporation (BTU).

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