Alliance Resource Partners LP (NASDAQ: ARLP) plans to grow its coal production from 30.8 million tons in 2011, to as much as 36.4 million tons this year, to roughly 53 million tons in 2016, with that growth keyed largely on the Tunnel Ridge, Onton No. 9, Gibson South and White Oak mining operations.
- Alliance said in a May 23 conference presentation that the longwall at the new Tunnel Ridge mine, which works the Pittsburgh No. 8 coal seam in northern West Virginia, began operating on May 16. The company is projecting 2.8 million tons of production from this mine in 2012, growing to its full run rate of 6.5 million to 6.8 million tons per year in 2013. The mine has been in low-level, pre-longwall development production since an early 2010 production start. U.S. Mine Safety and Health Administration data shows output of 126,400 tons in the first quarter of this year and 275,227 tons in all of 2011. Tunnel Ridge has 97 million tons of coal reserves.
- The company bought the Onton No. 9 deep mine in western Kentucky in April. The Webster County mine produces about 2.1 million tons per year now with three continuous miners, with the company adding a new ventilation shaft that would allow addition of a fourth CM and expanded output. This operation has about 40 million tons of coal reserves in the West Kentucky No. 9 coal seam. MSHA data shows the registration for the mine was transferred on April 2 from Advent Mining LLC to Alliance’s Sebree Mining LLC unit, with production of 535,670 tons in the first quarter of this year and 2.1 million tons in all of 2011.
- Alliance initially plans four CMs at the Gibson South deep mine in Indiana, which is due for first production in the third quarter of 2014. The mine should hit its full run rate of 3.3 million tons per year in 2015. The operation has 48.4 million tons of mid-sulfur coal in the Indiana No. 5 coal seam.
- No specific timeline was given in narrative form for the development of the White Oak No. 1 longwall mine, to be located in southern Illinois and developed by a company, White Oak Resources, in which Alliance has an investment stake. But a bar chart shows first sales out of the mine in 2013.
The presentation also took a highly critical look at the U.S. Environmental Protection Agency’s various rules, including the Mercury and Air Toxics Standards, that are forcing the shutdown of coal-fired plants in the eastern U.S., Alliance’s prime coal marketing area.
But, Alliance noted that out of the 225 MW of eastern U.S. coal-fired capacity in 2011, only 33 GW has been announced for retirement by 2020. The eastern coal plants burned a total of 467 million tons of coal in 2011, with only 45 million tons of that from the plants targeted for retirement. Like other coal producers, Alliance indicated that increased capacity factors for the surviving coal plants should more than make up for the plants that are shut in terms of coal consumption.
Alliance in some sense is betting on new EPA regulations, since its major new mines would produce mid- to high-sulfur coal that would go to power plants with new or longstanding scrubbers forced into construction by past, present and future EPA air initiatives. But, like other coal producers and power generators, Alliance has to worry that EPA will force a lot of coal plants out of existence, meaning no future markets for coal at all at those plants.
Alliance indicated that coal-to-gas switching by power generators should ease later this year, with at least one forecast saying that gas prices should rise to $4/mmBtu by November of this year, up from under $2/mmBtu recently, as gas producers shut in production.
In 2011, Alliance produced 30.8 million tons of coal and sold 31.9 million tons of coal, of which 8.1% was low-sulfur coal, 19.2% was medium-sulfur coal and 72.7% was high-sulfur coal. It operates ten underground mining complexes in Illinois, Indiana, Kentucky, Maryland and West Virginia, including Tunnel Ridge.