Alliance Resource Partners LP (NASDAQ: ARLP) on July 26 reported strong financial and operating results, posting new records for coal sales and production volumes, revenues and EBITDA for the second quarter.
Led by higher coal sales volumes in the quarter, revenues climbed to $553.6m, an increase of 4.5% compared to the year-ago quarter. Record revenues and coal sales volumes contributed to record EBITDA of $178.4m for the 2013 second quarter, an increase of 14.7% compared to the 2012 second quarter. Net income was also higher in the 2013 second quarter, increasing 9.0% to $104.1m.
“ARLP continued its strong operating and financial performance in the 2013 Quarter – posting new benchmarks for coal sales and production volumes, revenues and EBITDA,” said Joseph Craft III, President and CEO. “The ability to deliver these exceptional results, especially in such challenging market conditions, speaks to the soundness of ARLP’s strategy, the quality of our assets and the hard work and dedication of our people.”
During the 2013 second quarter, increased volumes at the Tunnel Ridge longwall operation in northern West Virginia, which began production in May 2012, and strong performance at the Gibson North (Indiana), River View (western Kentucky) and Onton (western Kentucky) mines, drove coal sales volumes up 13.3% to a record 9.8 million tons and production volumes higher by 23.6% to a record 10.1 million tons, both as compared to the 2012 second quarter. Volume growth led to record revenues and EBITDA and increased net income in the 2013 Quarter, more than offsetting lower average coal sales prices that resulted primarily from ARLP electing not to participate in the weak metallurgical export markets.
Coal brokerage and purchasing activity declined in the 2013 second quarter, resulting in a $15.4m reduction in outside coal purchases. Segment Adjusted EBITDA expense per ton declined to $35.44 in the 2013 second quarter, an improvement of 11.9% compared to the 2012 second quarter.
Accounting for White Oak development costs bit into earnings
As anticipated, ARLP’s financial results for both the 2013 and 2012 second quarters were negatively impacted by losses related to White Oak Resources LLC‘s development of its Mine No. 1 longwall operation in Illinois. Since Alliance’s equity investment in White Oak entitles ARLP to receive substantially all distributions from White Oak until Alliance achieves it contractual preferred return, accounting rules require it to currently reflect substantially all of White Oak’s income and losses. As a result, ARLP reported net equity in loss of affiliates of $5.7m for the 2013 second quarter and $4.4m for the 2012 second quarter, primarily due to the allocation of losses related to White Oak’s mine development activities.
For the six months ended June 30, increases at the River View, Gibson North and Tunnel Ridge mines and production from the Onton mine, which Alliance acquired in April 2012, led to record production and sales volumes as tons produced climbed 19.4% and tons sold increased 18.5%, compared to the six months ended June 30, 2012. Higher coal sales volumes drove 2013 six-month period revenues to a record $1.1bn, an increase of 13.2% compared to the 2012 six-month period. The increase in coal sales volumes was partially offset by lower average coal sales prices, which decreased to $55.14 per ton sold in the 2013 period compared to $57.19 per ton sold for the 2012 period, primarily due to the previously mentioned lack of sales into the met export markets in the 2013 period.
Reflecting higher Illinois Basin and Northern Appalachia coal sales volumes, ARLP sold a record 9.8 million tons of coal in the 2013 second quarter, an increase of 13.3% over the 2012 second quarter. Coal sales volumes in the Illinois Basin increased from the 2012 second quarter primarily as a result of strong sales and production performance at the River View, Gibson North and Onton mines. In Central Appalachia, coal sales volumes declined sequentially as a result of timing differences on contract shipments in the 2013 second quarter compared to the first quarter of 2013.
ARLP’s coal inventory of approximately 808,000 tons at the end of the 2013 second quarter was comparable to ending inventory of approximately 822,000 tons for the 2012 second quarter.
As anticipated, compared to the 2012 second quarter, ARLP’s total coal sales price per ton sold was lower due to the lack of metallurgical coal sales during the 2013 second quarter. Sequentially, higher prices in the 2013 second quarter for Illinois Basin and Central Appalachian sales volumes essentially offset lower prices in Northern Appalachia, due to the timing and allocation of contract shipments in the region.
- Strong performance at the River View, Gibson North and Onton mines was offset in part by lower recoveries at the Dotiki deep mine in western Kentucky reflecting its continued transition to the No. 13 coal seam. Sequentially, Segment Adjusted EBITDA Expense per ton for the Illinois Basin was higher primarily due to the seasonal impact of miners vacation, increased roof support expense at Dotiki due to poor mining conditions and higher maintenance costs at nearly all of Alliance’s Illinois Basin mines.
- In Central Appalachia, Segment Adjusted EBITDA Expense per ton improved in the 2013 Quarter compared to the Sequential Quarter, primarily due to lower inventory costs, reduced repair costs at the Pontiki mine and increased production in the new Excel No. 4 mining area at the MC Mining operation.
- Compared to both the 2012 and Sequential Quarters, Segment Adjusted EBITDA Expense per ton in Northern Appalachia benefited from the continued ramp-up of longwall production at the Tunnel Ridge mine and improved recoveries at the Mettiki longwall mine in northern West Virginia, partially offset by higher employee benefit costs at Mettiki. In addition, compared to the 2012 Quarter, Northern Appalachia benefited from lower outside coal purchases and reduced coal processing expenses at the Mettiki mine due to the lack of coal sales into the metallurgical export markets during the 2013 second quarter.
Tunnel Ridge nears 6 million tons per year run rate out of Pittsburgh seam
Craft said: “ARLP continued to make progress on several fronts during the 2013 Quarter. Production at Tunnel Ridge increased nearly 54% compared to the Sequential Quarter and remains on track to reach an annualized run rate of 6.0 million tons by year end. The strong performance of our Illinois Basin operations through the first half of 2013 is expected to continue over the balance of the year. In addition, we further enhanced our already strong contract portfolio during the 2013 Quarter, securing new coal sales commitments for delivery of approximately 2.6 million tons through 2015. Our performance to date and expectations for the remainder of 2013 allow us to increase full year guidance and give us confidence that ARLP will deliver its thirteenth consecutive year of record results.”
ARLP is now anticipating 2013 coal production in a range of 39.3 million to 39.6 million tons and sales volumes in a range of 38.6 million to 39.6 million tons. Assuming customer deliveries occur as planned, ARLP is essentially fully priced and committed for its anticipated 2013 coal sales volumes and has secured commitments for about 31.9 million tons, 25.7 million tons and 19.1 million tons in 2014, 2015 and 2016, respectively, of which approximately 1.0 million tons in 2014, 2.5 million tons in 2015 and 3.3 million tons in 2016 remain open to market pricing.
ARLP is increasing its estimated ranges for 2013 revenues, excluding transportation revenues, to $2.165bn to $2.225bn, EBITDA to $675.0m to $695.0m, and net income to $375.0m to $395.0m.
ARLP continues to anticipate total capital expenditures during 2013 in a range of $370.0m to $400.0m, which includes expenditures for mine expansion and infrastructure projects, maintenance capital, continued development of the Gibson South deep mine in Indiana, and reserve acquisitions and construction of surface facilities related to the White Oak mine development project in Illinois. In addition, ARLP has funded $47.5m of preferred equity investments to White Oak in 2013 and, based on currently anticipated equity capital contributions by its partners, does not expect to make further equity investments in White Oak this year.
ARLP operates eleven mining complexes in Illinois, Indiana, Kentucky, Maryland and West Virginia. It is also constructing a new mine in southern Indiana and is purchasing and funding development of reserves, constructing surface facilities and making equity investments in a new mining complex in southern Illinois. ARLP also operates a coal loading terminal on the Ohio River at Mount Vernon, Ind.