Derivatives

12 Months Ended

Dec. 31, 2012

Derivatives

Derivatives

7. Derivatives

        We are exposed to various types of risk in the normal course of business, including fluctuations in commodity prices and particularly the prices we receive for our coal sales, both domestically and internationally, and the prices we pay for our consumption of certain raw materials such as diesel fuel. We seek to mitigate some of the volatility of these fluctuations by using derivative financial instruments.

        All of our derivative financial instruments are recognized in the balance sheet at fair value. As mark-to-market accounting is applied, changes in the fair value of the derivative financial instruments are included in "Operating income" on the consolidated statements of operations and comprehensive income each period. Amounts shown below represent the fair value position of individual contracts, but are presented on a net basis in the accompanying consolidated balance sheets by counterparty, where right of offset is allowed.

        We held derivative financial instruments for risk management purposes as follows at December 31 (in thousands except per barrel amounts):

International Coal Forward Contracts

        During 2011, we commenced the use of commodity contracts to manage certain exposures to international coal prices.

	2012							2011
Year of Settlement	Notional Amount		Asset		Liability			Notional Amount		Asset		Liability
	(tons)							(tons)
2012		—	$	—	$	—			215	$	1,090	$	—
2013		516		9,288		—			322		1,185		—
2014		198		2,776		—			—		—		—
2015		212		1,598		—			—		—		—
2016		132		15		(30	)		—		—		—
Total		1,058	$	13,677	$	(30	)		537	$	2,275	$	—

WTI Collars

        In addition, during the second quarter of 2012, we commenced the use of costless collars to help manage our exposure to market changes in diesel fuel prices. The collars are indexed to the West Texas Intermediate ("WTI") crude oil price as quoted on the New York Mercantile Exchange. As such, the nature of the collar does not directly offset market changes to our diesel costs. Under a collar agreement, we pay the difference between the index price and a floor price if the index price is below the floor, and we receive the difference between the ceiling price and the index price if the index price is above the ceiling price. No amounts are paid or received if the index price is between the floor and ceiling prices. While we would not receive the full benefit of extreme price decreases, the collars mitigate the risk of extreme crude oil price increases and thereby increased diesel costs that would otherwise have a negative impact on our cash flow.

	2012
			Weighted-Average Per Barrel
	Notional Amount
Settlement Period			Floor		Ceiling		Asset		Liability
	(barrels)
January 2013 to March 2013		129	$	66.24	$	105.47	$	13	$	—
April 2013 to June 2013		126		70.30		110.43		34		—
July 2013 to September 2013		126		70.00		110.00		91		—
Total		381	$	68.83	$	108.61	$	138	$	—

        As of December 31, 2011, there were no WTI collars.

        See Note 9 for a discussion related to the fair value of derivative financial instruments.

Total Derivative Activity

        For all derivative financial instruments we had the following activity for the years ended December 31, 2012 and 2011 (in thousands):

	Total
Derivative financial instruments asset at January 1, 2011	$	—
Total mark-to-market gains		2,275
Derivative financial instruments asset at December 31, 2011		2,275
Total mark-to-market gains		22,754
Realized gains upon settlement		(11,244	)
Derivative financial instruments asset at December 31, 2012	$	13,785

        For the year ended December 31, 2010 there was no derivative financial instrument activity.