CNX Coal Resources LP (NYSE: CNXC) today reported financial and operating results for the quarter ended June 30, 2016.

"Earlier this month, we completed our first year as a public company," said Jimmy Brock, Chief Executive Officer of CNX Coal Resources GP LLC (the "General Partner"). "Reflecting on our journey since the initial public offering of CNXC, we have made significant progress on the marketing and operations fronts. At the time of the IPO, we had a significant open position in our 2016 sales book while utility inventories were building and the price for coal was declining. Today we are fully sold out for 2016 and 79% sold for 2017. The shipment schedule is improving and for the first time we have an opportunity to optimize our customer mix. On the operational front, we inherited historical costs and as we entered the weak winter period, customer deferrals forced us to reduce work schedules and eventually idle the Harvey mine. Earlier in the second quarter, we restarted the Harvey mine and are now running all five longwalls on a full five days per week schedule. We have achieved significant cost reductions through productivity improvements, headcount reductions and extracting value from suppliers. This has helped us reposition the mines to successfully compete and gain market share even outside of our core regions while many of our competitors remain in financial distress. While commodity markets still remain challenging, the warm winter weather and falling export prices seem to finally be giving way to a hot summer and rising export prices. Natural gas prices have also recovered from sub-$2 per mmBtu to approximately $3 per mmBtu. All of the above sets us up very well heading into the second half of 2016 and beyond. While our financial metrics, such as coverage and leverage ratios, were negatively impacted by challenging market conditions, we expect that trend to reverse as the above mentioned improvements begin to be realized. In the meantime, we are taking steps to improve our financial metrics including keeping the leverage ratio under 3.0x. While it is our goal to pay all unitholders, to the extent we fall short of our financial goals, we are taking prudent measures using the tools we have available to protect our common unitholders. Accordingly, for the second quarter, we have elected to not pay the subordinated unit distribution."

"For the second quarter of 2016, the CNXC team delivered another strong operating performance despite four longwall moves, difficult mining conditions at the Enlow Fork mine and difficult longwall recovery conditions during one of the Bailey mine longwall moves. Despite the continued decline in average realized price per ton, our operating performance allowed us to modestly improve earnings compared to the first quarter of 2016."

"On the safety and compliance side, I am very pleased to announce that our Bailey mine was awarded the 2015 Safety Award in the underground bituminous coal mine category by the Joseph A. Holmes Safety Association at the Pennsylvania State Council. Specifically during the quarter, we were able to reduce the severity of the incidents compared to the same period last year. We remain focused on our core values of safety and compliance and continue our efforts to improve further."

Sales & Marketing

The second quarter of 2016 had the strongest coal shipments since the first quarter of 2015, marking a significant improvement in coal sales over first quarter of 2016. While the domestic shipments were challenging for much of the second quarter, our marketing team was successful in improving overall coal shipments by taking more export business. During the quarter, we were successful in selling 1.2 million tons to 51 different end users. While the overall trend of customer deferrals peaked in May 2016, our marketing team continues to work with a few customers who are still facing challenges due to high inventory levels. Earlier this month, we pursued legal action against one of our customers, who we believe is in breach of the contract terms. We believe this will continue to weigh on our average realized price per ton.

We contracted for 0.9 million additional tons for years 2016-18, which allowed us to improve our contract book and positions us well going into the fall contracting season. Specifically for 2016, we are now committed to sell approximately 5.0 million tons or 100% of estimated sales volumes. For 2017 and 2018, the total sold position is 79% and 55% respectively, assuming a 5.2 million ton run rate for sales volume.

According to the most recent estimates published by the EIA in its short term energy outlook, U.S. coal demand declined approximately 19%, while industry-wide coal production declined almost 28% in the first half of 2016 compared to the year-earlier period. With summer weather now upon most of the nation and warmer-than-normal conditions expected to continue through the fall, we anticipate a boost in power demand and thus coal consumption, which will draw down coal stockpiles at utilities. As customers throughout the eastern half of the nation become exceedingly concerned about the financial stability of a growing number of coal suppliers, we continue to grow our market share into non-traditional markets. We have established new customer bases and displaced competing CAPP and ILB coals with our production. These new outlets have strategic advantages in the grid system and have been successfully dispatching even in this challenging environment.

We continue to take advantage of export opportunities driven by the recent improvement in API2 prices, which are up 28% during the second quarter. For the second quarter 2016, we exported 0.4 million tons compared to 0.2 million tons in the same quarter of 2015. We also booked additional business for the remainder of 2016 and 2017. Looking forward, even though the export market has become more attractive, we expect the share of exports to come down in the second half of 2016, while the demand for contracted tonnage picks up as power plants improve their dispatch during summer months and the railroads return from downtime.

Operational Update and Outlook

From an operational standpoint, the second quarter came in ahead of our expectations primarily due to higher shipments. Our operational team delivered those tons despite four longwall moves, difficult mining conditions at the Enlow Fork mine and difficult longwall recovery conditions during one of the Bailey longwall moves. The Harvey mine, which was idled in January 2016, was brought back online during the second quarter to meet customer demands while the Bailey and Enlow Fork mines were undergoing longwall moves. Based on our current outlook for shipment volumes, we expect to run all five longwalls for the rest of 2016. Productivity for the second quarter, as measured by tons per employee-hour, improved by 17% compared to the year-ago period, despite the higher number of longwall moves negatively impacting production. For the third quarter, we expect coal shipments and average realized price per ton to increase slightly, and the cost of coal sold per ton to decrease compared to the second quarter.

Quarterly Distribution

During the second quarter of 2016, CNXC generated distributable cash flow2 of $4.8 million and distribution coverage of 0.40x. While we are seeing positive developments in the coal markets, the Board of Directors of the general partner, has elected not to pay a distribution to holders of subordinated units, which are held in their entirety by CONSOL Energy, for the period ended June 30, 2016. The general partner declared a cash distribution to the Partnership's common unitholders for the second quarter of 2016 of $0.5125 per unit and the general partner interest for the second quarter of 2016. The cash distribution will be paid on August 15, 2016 to the common unitholders of record at the close of business on August 8, 2016.

"The board's decision to not pay subordinated distributions for the second quarter of 2016 is tough, but prudent," said Mr. Brock. "This decision not only underscores the support we have from our sponsor, CONSOL Energy Inc., but also highlights the flexibility our structure provides to preserve the distribution to our common unitholders. For the partnership, this decision strengthens the balance sheet, boosts near term liquidity and improves our resources to bridge to better market conditions."

Second Quarter Summary

For our 20% undivided interest in the Pennsylvania mining complex, we sold 1.2 million tons of coal during the second quarter of 2016 compared to 1.1 million tons in the year ago period as weakness in domestic shipments was offset by higher export sales. Sales price per ton was impacted due to weakness in domestic coal prices, reduced burn at utilities, and lower priced export tons replacing higher priced domestic tons. During the quarter, one of our customers executed a partial contract buyout, which resulted in a $1.3 million increase in other income. However, this also resulted in an adverse impact on our average realized price per ton as those tons were replaced by lower priced export sales.

Our total unit costs for coal sold in the quarter improved to $34.46 per ton, compared to $44.15 per ton in the year-earlier quarter, primarily driven by the cost reduction measures undertaken earlier in 2016.

About CNX Coal Resources LP

CNX Coal Resources is a growth-oriented master limited partnership formed by CONSOL Energy Inc. (NYSE: CNX) to manage and further develop all of CONSOL's active thermal coal operations in Pennsylvania. Its assets include a 20% undivided interest in, and operational control over, CONSOL's Pennsylvania mining complex, which consists of three underground mines and related infrastructure. More information is available on our website www.cnxlp.com.