Alliance forecasts production from two new mines in 2014-2015 period

Alliance Resource Partners LP (NASDAQ: ARLP) is looking for first production from the new Gibson South deep mine in Indiana in late 2014 or early 2015, with the full run rate achieved in 2015 or 2016, and first output from the White Oak longwall mine in Illinois perhaps in 2013, with a full run rate in 2014 or 2015.

Joseph Craft, Alliance President and CEO, also noted during an Oct. 26 earnings call that Gibson South may be able to sell coal into the export market.

Brian Cantrell, Alliance Senior Vice President and CFO, said that in 2013, production growth for the company would principally come out of the ramp up of the new Tunnel Ridge longwall mine in the Pittsburgh seam in Ohio County, W.Va. Then in 2014, Alliance would begin to see benefits from White Oak, and then in 2015 benefits from both White Oak and Gibson South.

Craft noted that coal markets in 2013 should pick up as natural gas prices rise, with gas prices up from less than $2/mmBtu earlier this year, to roughly around $3.60/mmBtu now. “So as natural gas prices continue at the $4 range, we believe that the demand should be improving,” he said. “So if natural gas prices can stay in the $4 range, we feel like, we should be okay with our sales contract position.”

Craft said the coal inventories for its power plant customers will hold down new coal sales until those inventories are reduced. He said inventory reduction should dominate the first half of 2013. “But we do believe that by the end of the first half of 2013, assuming we have growth in the economy and the normal weather pattern in the first quarter of 2013, that we will be in balance in both the Illinois Basin and Northern App by the middle of 2013,” Craft added.

One analyst said that Powder River Basin coal over the last couple of decades “ate your lunch” in terms of non-PRB producers like Alliance, and asked if that tide is turning at all. “We believe that as far as the PRB competition, we don’t see that changing much,” Craft replied. “And if it does change it will probably go to Illinois Basin advantage. The scrubber technology and transportation is the key. So it’s going to be totally depending on what the rail rates are out of the PRB into our areas. But then you also have the aspect of what plants want to burn, and that check has already been written, and really comes down to rail rates, then we don’t see that changing. So as we look at the competition, we think that more than likely it’s going to drive more towards the Illinois Basin benefit versus PRB. But more than likely, it’s just going to be not that much different than what we’ve experienced to date.”

The longwall at the new Tunnel Ridge mine began operating on May 16. The company is projecting the mine could hit its full run rate of 6.5 million to 6.8 million tons per year in 2013. The mine had been in low-level, pre-longwall development production since an early 2010 production start.

Alliance initially plans four CMs at the Gibson South deep mine. The mine’s full run rate would be 3.3 million tons per year. The operation has 48.4 million tons of mid-sulfur coal reserves in the Indiana No. 5 coal seam.

The White Oak No. 1 longwall mine, located in southern Illinois and is being developed by a company, White Oak Resources, in which Alliance has an investment stake. White Oak No. 1 will eventually produce up to 6.5 million tons per year. This is a high-sulfur coal headed primarily to scrubber-equipped power plants in the eastern U.S.

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.