4. 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 manage 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, where right of offset by counterparty is allowed.

We held derivative financial instruments as follows (in thousands except per barrel amounts):

International Coal Forward Contracts

We use international coal forward contracts linked to Newcastle coal prices to help manage our exposure to variability in future international coal prices.

	March 31, 2013
Year of Settlement	Notional Amount	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Consolidated Balance Sheet			Net Amounts Presented in the Consolidated Balance Sheet
	(tons)
2013	646	$	12,964	$	(848	)	$	12,116
2014	1,124	9,831		—			9,831
2015	344	4,268		—			4,268
2016	132	1,215		—			1,215
Total	2,246	$	28,278	$	(848	)	$	27,430

	December 31, 2012
Year of Settlement	Notional Amount	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Consolidated Balance Sheet			Net Amounts Presented in the Consolidated Balance Sheet

2013	516	$	9,288	$	—		$	9,288
2014	198	2,776		—			2,776
2015	212	1,598		—			1,598
2016	132	15		(30		)	(15		)
Total	1,058	$	13,677	$	(30	)	$	13,647

There were no cash collateral requirements at March 31, 2013 or December 31, 2012.

WTI Collars

We use 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.

	March 31, 2013
	Notional	Weighted-Average per barrel				Gross Amounts of Recognized		Gross Amounts Offset in the Consolidated			Net Amounts Presented in the Consolidated
Settlement Period	Amount	Floor		Ceiling		Assets		Balance Sheet			Balance Sheet
	(barrels)
April 2013 to June 2013	126	$	70.30	$	110.43	$	5	$	—		$	5
July 2013 to September 2013	126	70.00		110.00		41		—			41
October 2013 to December 2013	138	73.78		113.85		14		—			14
January 2014 to March 2014	144	73.00		115.10		—		(29		)	(29		)
Total	534	$	71.86	$	112.47	$	60	$	(29	)	$	31

	December 31, 2012
	Notional	Weighted-Average per barrel				Gross Amounts of Recognized		Gross Amounts Offset in the Consolidated		Net Amounts Presented in the Consolidated
Settlement Period	Amount	Floor		Ceiling		Assets		Balance Sheet		Balance Sheet
	(barrels)
January 2013 to March 2013	129	$	66.24	$	105.47	$	13	$	—	$	13
April 2013 to June 2013	126	70.30		110.43		34		—		34
July 2013 to September 2013	126	70.00		110.00		91		—		91
Total	381	$	68.83	$	108.61	$	138	$	—	$	138

There were no cash collateral requirements at March 31, 2013 or December 31, 2012.

Domestic Coal Futures Contracts

During the first quarter of 2013, we commenced the use of futures contracts to help manage our exposure to market changes in domestic coal prices. The contracts are referenced to the 8800 Btu coal price, sold from the PRB, as quoted on the Chicago Mercantile Exchange. Amounts due to us or to the exchange as a result of changes in the market price of our open contracts and to fulfill margin requirements are received or paid through our brokerage bank on a daily basis; therefore, there is no asset or liability on the balance sheet.

	March 31, 2013
	Notional
Year of Settlement	Amount	Gain		Loss
	(tons)
2014	420	$	67	$	91
Total	420	$	67	$	91

There were no domestic coal futures contracts as of December 31, 2012.

Total Derivative Activity

For all derivative financial instruments, we had the following activity (in thousands):

	2013		2012
Derivative financial instruments net asset at January 1,	$	13,785	$	2,275
Total derivative mark-to-market gains (losses) for the three months ended March 31,	13,652		(2,056		)
Total derivative cash settlements paid (received) for the three months ended March 31,	24		(524		)
Derivative financial instruments net asset (liability) at March 31,	$	27,461	$	(305	)

See Note 5 for a discussion related to the fair value of derivative financial instruments.