Alliance sees coal production boost, strong profit in Q3 2013

Alliance Resource Partners LP (NASDAQ: ARLP) said Oct. 28 that led by higher coal sales volumes in the third quarter, its revenues climbed to $537.2m, an increase of 5% compared to the year-ago quarter.

Increased revenues and coal sales volumes contributed to higher net income, which jumped 44.1% to $87.2m, and EBITDA, which rose 24.3% to $158.5m. Comparative results were also impacted by a non-cash asset impairment charge of $19m at the Pontiki mining complex in the 2012 third quarter.

“Posting increases to coal sales and production volumes, revenues, EBITDA and net income, ARLP once again delivered growth in the 2013 Quarter,” said Joseph Craft III, President and CEO. “The high performance of our teams and continued focus on expanding ARLP’s presence in the Illinois Basin and Northern Appalachian markets has allowed us to succeed in the current challenging market environment. Our solid contract portfolio and ongoing growth projects also leave ARLP well positioned for the future.”

During the 2013 third quarter, increased volumes at the new Tunnel Ridge longwall mining operation in northern West Virginia and strong performance at the River View (western Kentucky), Gibson North (Indiana) and Dotiki (western Kentucky) mines, drove coal sales volumes up 6.7% to 9.5 million tons and production volumes higher by 7.6% to 9.7 million tons, both as compared to the 2012 third quarter. Volume growth more than offset lower average coal sales prices, leading to increased revenues, EBITDA and net income in the 2013 third quarter.

As anticipated, ARLP’s financial results for both the 2013 and 2012 third 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 it achieves its contractual preferred return, ARLP currently reflects substantially all of White Oak’s income and losses in its financial results. Reported net equity in loss of affiliates of $6m for the 2013 third quarter and $2.8m for the year-ago quarter was primarily due to the allocation of losses related to White Oak’s mine development activities.

For the first nine months of 2013, increases at the River View, Gibson North and Tunnel Ridge mines and production from the Onton mine (in western Kentucky), which Alliance acquired in April 2012, led to record production and sales volumes as tons produced climbed 15.3% and tons sold increased 14.3% compared to the nine months ended Sept. 30, 2012.

The increase in coal sales volumes was partially offset by lower average coal sales prices, which decreased to $54.95 per ton sold in the 2013 nine-month period compared to $56.77 per ton sold for the 2012 nine-month period, primarily due to ARLP electing not to participate in the weak metallurgical export markets in the 2013 period.

The Illinois Basin mines led Alliance’s sales increase

On the strength of higher Illinois Basin coal sales volumes, ARLP sold 9.5 million tons of coal in the 2013 third quarter, an increase of 6.7% over the 2012 third quarter.

  • Coal sales volumes in the Illinois Basin increased 9.8% over the 2012 third quarter as strong sales and production performance at the River View, Dotiki and Gibson North mines more than offset the impact of a temporary halt of production operations at the Onton mine due to adverse geological conditions. Alliance sold 7.6 million tons of this coal (at $52.13/ton) in the third quarter, against 6.9 million tons (at $52.20/ton) in the third quarter of 2012.
  • Coal sales volumes declined in Central Appalachia primarily as a result of timing differences in customer shipments during the 2013 third quarter compared to the 2012 third quarter. It sold 0.49 million tons of this coal in the third quarter (at $81.49/ton), against sales of 0.52 million tons (at $79.96/ton) in the year-ago quarter.
  • In Northern Appalachia, coal sales volumes decreased due to the timing of shipments from the Mettiki operation in the 2013 third quarter compared to the 2012 third quarter, offset in part by increased coal sales from the continued ramp-up of longwall production at the Tunnel Ridge mine. Compared to the second quarter of this year, Northern Appalachia coal sales declined due to a longwall move and lower coal recoveries at the Tunnel Ridge mine during the 2013 third quarter. Northern App coal sales came in at 1.4 million tons in third quarter (at $57.97/ton), against 1.5 million tons and $65.43/ton in the year-ago quarter.

More coal output expected in 2014 with full operation of Tunnel Ridge

Commenting on ARLP’s outlook, Craft said: “ARLP remains on track to deliver its thirteenth consecutive year of record financial and operating results in 2013. As we look forward, ARLP is poised for more growth in 2014. Our production will increase next year as Tunnel Ridge is currently expected to produce approximately 5.5 million tons in 2014. In addition, our new Gibson South mine is scheduled to begin initial production in the third quarter of 2014 and longwall production at the White Oak mine development project is anticipated to begin in the second half of next year. We also continue to enhance ARLP’s already strong contract portfolio. During the 2013 Quarter, we secured new coal sales commitments for delivery of approximately 3.3 million tons through 2016.”

U.S. Mine Safety and Health Administration data shows that Tunnel Ridge, which works the high-sulfur Pittsburgh coal seam, produced 2.9 million tons in the first nine months of this year, with output of only 2 million tons in all of 2012.

Due to the unanticipated disruption to production operations at Onton, which reduced ARLP’s expected EBITDA in the 2013 third quarter by approximately $13.3m, ARLP currently anticipates 2013 full year results near the lower end of its previous guidance ranges for: coal production, 39.3 million to 39.6 million tons; coal sales volumes, 38.6 million to 39.6 million tons; revenues, excluding transportation revenues, $2.165bn to $2.225bn; EBITDA, $675m to $695m; and net income, $375m to $395m.

ARLP said it remains fully priced and committed for its anticipated 2013 coal sales volumes. For 2014, ARLP currently has about 32.6 million tons priced and committed. In addition, ARLP currently has commitments for around 26.6 million tons and 20.5 million tons in 2015 and 2016, respectively, of which about 2.5 million tons in 2015 and 3.3 million tons in 2016 remain open to market pricing.

ARLP continues to anticipate 2013 total capital expenditures of $370m to $400m, which includes mine expansion and infrastructure projects, maintenance capital, continued development of the Gibson South mine, and reserve acquisitions and construction of surface facilities related to White Oak No. 1.

ARLP is a diversified producer and marketer of coal to major U.S. utilities and industrial users. ARLP is currently the third largest coal producer in the eastern U.S. and operates eleven mining complexes in Illinois, Indiana, Kentucky, Maryland and West Virginia. In addition, ARLP operates a coal loading terminal on the Ohio River at Mount Vernon, Ind.

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.