Alliance completes buy of Onton No. 9 mine in western Kentucky

In a move that consolidates its dominant position in western Kentucky coal production, Alliance Resource Partners LP (NASDAQ:ARLP) said April 3 that its Alliance Coal LLC unit has completed the acquisition of substantially all of the coal-related assets of Green River Collieries LLC located in Webster and Hopkins counties.

“The acquisition of Green River provides an attractive addition to ARLP’s existing operations in the growing market for Illinois Basin coal,” said Joseph Craft III, President and CEO of ARLP. “Ongoing expansion of scrubber capacity by U.S. utilities supports our view that demand for Illinois Basin and Northern Appalachian coal will continue to increase. We remain committed to ARLP’s mission of creating exceptional value for our unitholders through sustainable cash flow growth and increases in unitholder distributions.”

The transaction includes an estimated 40 million tons of coal reserves in the West Kentucky No. 9 coal seam and the Onton No. 9 mine located near the city of Sebree. The underground mining complex currently operates three continuous mining units employing room-and-pillar mining. An air shaft is currently under construction which would allow the addition of a fourth continuous miner should market conditions warrant increased production from the mine.

Over the balance of 2012, ARLP anticipates that Onton No. 9 will produce about 1.5 million tons of coal, essentially all of which is committed and priced under contracts with existing ARLP customers.

ARLP is already a major coal producer in western Kentucky and this new deal further cements that position. That may raise concerns at power generators like Louisville Gas and ElectricKentucky Utilities and Big Rivers Electric that rely on coal – and a shrinking base of coal suppliers – in this region. Other major producers in the region include Patriot Coal (NYSE:PCX), which hasn’t shown any expansion ambition in this region lately, and very-expansive Armstrong Energy, which is about to go public in an IPO.

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 with Allied Resources for Onton No. 9 coal, which was executed in 2010, amended in November 2011 and is due to expire at the end of 2015. This second contract called for 250,000 tons in 2011, 750,000 tons in 2012, 960,000 tons in 2013, 800,000 tons in 2014, 890,000 tons in 2015 and 900,000 tons in 2016. That 2016 tonnage, by the way, is shown even though the contract ostensibly expires at the end of 2015.

ARLP didn’t say who owns Green River Collieries, but the U.S. Office of Surface Mining database shows that it was 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.

ARLP is a diversified producer and marketer of coal to major United States utilities and industrial users. ARLP is currently the third largest coal producer in the eastern U.S. with mining operations in the Illinois Basin, Northern Appalachia and Central Appalachia. ARLP operates eleven mining complexes in Illinois, Indiana, Kentucky, Maryland and West Virginia, including the new Tunnel Ridge longwall mining complex in northern West Virginia. ARLP is also constructing the new Gibson South deep mine in southern Indiana and is purchasing and funding development of reserves, constructing surface facilities and making equity investments in the new White Oak longwall mining complex in southern Illinois. In addition, ARLP operates a coal loading terminal on the Ohio River at Mount Vernon, Indiana.

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.