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Atlantic Coal quarterly output hits new high

It would appear that Atlantic Coal’s new excavator is continuing to boost production.

According to a research note released by City broker Fox-Davies, output in the final quarter hit its highest level of 2010.

The group owns the Stockton mine in Pennsylvania, which produces anthracite for the domestic market. 

In April it took delivery of a Liebherr R9250 19.6-yard bucket hydraulic excavator at a cost of £3.5 million. 

And according the Fox-Davies update today, it appears to have transformed the Stockton operation.

The broker, repeating its 1.2 pence a share price target (current price 0.75 pence), said total sales of anthracite for the quarter were 31,600 tons. 

“This is further good news for the company,” Fox-Davies analyst Peter Rose told clients.

“Production increased every quarter in 2010. Since there were fewer working days in the December quarter than any other quarter we are optimistic that this steady rate of improvement will continue.”

The next major event for Atlantic (LON:ATC) will be the arrival of two new 100 ton trucks, which should enable waste removal to be increased significantly. 

This in turn is expected to help increase raw coal production. 

“These trucks are expected on site by the end of January, and we do not expect the full impact of their presence to be felt until the June quarter,” said the F-D analyst.

The market for anthracite in Pennsylvania, meanwhile, remains firm with prices holding up well. 

“Following the floods in Australia and wet weather problems in South Africa, there is the potential for coal prices to escalate dramatically,” Rose added. 

“This upward price pressure is in addition to the low stocks of anthracite currently available in Pennsylvania.”

Earlier this week Atlantic received a huge vote of confidence as Blackrock reversed a previous decision to reduce its investment in the coal miner by increasing its stake.

The investment giant is buying 75 million new shares in the company at a price of 0.4p, raising its stake from 3.47 per cent to 7.24 per cent. 

In August last year Blackrock announced it had reduced its holding to below 4 per cent.

The cash call will bring in around £300,000, and Blackrock will receive a warrant for every share it buys exercisable a 0.65p for two years.

Managing Director Steve Best said: "We are delighted that Blackrock has more than doubled its investment in Atlantic to 7.24 per cent and welcome its further investment and participation in the development of Atlantic and the advancement of our operations.  

“We believe we are entering a new phase in the development of the company, something that our new investors have recognised."

Fox-Davies predicts Atlantic’s turnover this year will be US$11.8 million, rising to US$21 million in 2011, delivering EBITDA of US$10.7 million.

Creating a profitable cash generative business has always been only phase-one for Best, who originally set out to be a mine consolidator in Pennsylvania.

And this is still the aim, although the Atlantic boss is guarded on just how he will fulfil this strategy with no obvious source of cash to fund these deals. 

Yet he seems upbeat and confident of his ability to make things happen.

“I’ve always said that Atlantic coal has got to be a consolidation play,” Best told Proactive Investors recently.  

“What I like about Pennsylvania is there are more sites and opportunities than we need fulfil our ambitions. 

“You could easily produce one million tonnes and have no problems selling it.

“The worst case scenario is we will produce 170,000 tonnes of clean coal from Stockton (next year) where we are already committed to selling to existing customers. 

“That will throw out a decent amount of money. If our bigger picture idea comes off it will change the whole perspective of the company.

“Plan B is we acquire perhaps one site or two on our own."