Alliance does tentative deal for western Kentucky coal assets

In a move that may be of concern of coal-fired utilities that rely on western Kentucky coal, Alliance Resource Partners LP (NASDAQ: ARLP) announced Feb. 24 that its Alliance Coal LLC subsidiary has a definitive agreement with Green River Collieries LLC to acquire coal assets in Webster and Hopkins counties, Ky.

The transaction includes the Onton No. 9 mining complex and an estimated 40 million tons of coal reserves in the West Kentucky No. 9 coal seam. ARLP currently anticipates consummation of the proposed transaction following the completion by Green River of certain closing requirements.

“Strategically the acquisition of Green River further expands our presence and enhances ARLP’s existing operating platform in the growing Illinois Basin coal market,” said Joseph Craft III, President and CEO of ARLP. “The Onton No. 9 mine is an attractive addition to our current operations in western Kentucky and provides ARLP with increased flexibility to service our existing customer base. We look forward to welcoming Green River’s employees and management to the Alliance team.”

The Onton No. 9 mine uses three continuous mining units employing room-and-pillar mining techniques. The mine currently produces annually an estimated 2.1 million tons of coal and employs about 315 workers. Green River Collieries is in the process of completing an air shaft which would allow the addition of a fourth continuous mining unit should market conditions warrant increased production from the mine. Essentially all of the planned 2012 production from the mine is committed and priced under Green River Collieries contracts with existing ARLP customers.

ARLP is already a major coal producer in western Kentucky and this new deal further cements that position. That potentially raises concerns at power genrators like Louisville Gas and Electric, Kentucky Utilities and Big Rivers Electric that rely on coal, and a shrinking base of coal suppliers, in this region.

A fuel procurement report that Big Rivers Electric filed Feb. 15 with the Kentucky Public Service Commission shows that the cooperative had a contract for Onton No. 9 coal that expired at the end of 2011, with a 2011 contracted tonnage of 500,000 tons. That contract was with Allied Resources, a prior operator of the mine. Big Rivers Electric also reported a second contract for Onton No. 9 coal, executed in 2010 and due to expire at the end of 2015. This second contract called for 250,000 tons in 2011, growing to 750,000 tons in 2012 and 960,000 tons in 2013.

ARLP didn’t say who owns Green River Collieries, but the U.S. Office of Surface Mining database shows that it is 100% owned by veteran western Kentucky coal operator Chester Thomas. Onton No. 9 is listed with the U.S. Mine Safety and Health Administration under Thomas’ Advent Mining LLC. The mine got a production start in 2005 and turned out 2.1 million tons in 2011 and 2 million tons in 2010, according to MSHA figures.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.