Alliance sees strong Q1 coal output at Tunnel Ridge, Gibson South

Alliance Resource Partners LP (NASDAQ: ARLP) said April 28 that on the strength of record coal production and solid cost control in each of its operating regions, its net income rose 12.6% to a record $115.9m in the first quarter of this year.

EBITDA also climbed to a record $190.4m for the first quarter, an increase of 10% compared to the 2013 first quarter.

“ARLP continued its record-setting performance in the first quarter of 2014, starting the year by establishing new quarterly benchmarks for coal production, EBITDA and net income,” said Joseph Craft III, President and Chief Executive Officer. “Several factors contributed to these strong results. Our Tunnel Ridge mine completed a major longwall move in late January and its revised mine plan performed above expectations for the quarter, helping drive production in our Appalachian region higher by almost 25%. Collectively, our operations were able to operate efficiently despite severe winter weather during the quarter, pushing ARLP’s sequential Segment Adjusted EBITDA expense lower by 6.5% or $2.34 per ton sold.”

Tunnel Ridge is a relatively new mine working the Pittsburgh seam at a mine opening in northern West Virginia, with its coal reserves spreading into Pennsylvania. The new Gibson South deep mine is in Indiana.

Craft added: “Initial production at our new Gibson South mine also began this month, ahead of schedule. The increased production now expected this year from both Tunnel Ridge and Gibson South, combined with ARLP booking approximately 7.8 million tons of new sales commitments during the 2014 Quarter, put us on track to achieve our fourteenth consecutive year of record results. Based on our record quarterly results and its confidence in ARLP’s future performance and growth prospects, the Board announced today a two-for-one unit split and elected to increase unitholder distributions for the twenty-fourth consecutive quarter.”

For the 2014 first quarter, revenues decreased slightly to $542m compared to $548.1m for the 2013 first quarter. Weather-related transportation disruptions in the Illinois Basin and the cessation of operations at the Pontiki mine in November 2013 resulted in lower coal sales volumes in the 2014 first quarter, which declined 2.1% to 9.5 million tons sold, despite higher sales volumes from longwall operation at Tunnel Ridge.

ARLP’s total average coal sales price of $55.35 per ton sold in the 2014 first quarter was slightly higher compared to $55.12 per ton sold for the 2013 first quarter.

Alliance posts record coal production in the first quarter

Increased production from the Tunnel Ridge mine and strong performance at the Dotiki and MC Mining mines contributed to record coal production of 10.3 million tons in the 2014 first quarter, an increase of 4.4% compared to the 2013 first quarter. Although total coal production increased during the 2014 first quarter, total operating expenses declined by 7.6% compared to the 2013 first quarter. This decrease reflects a favorable production mix in the 2014 first quarter, primarily due to increased longwall production and improved recoveries at the Tunnel Ridge mine and the absence of higher cost production at the Pontiki mine.

As anticipated, ARLP’s financial results for both the 2014 and 2013 first quarters were negatively impacted by losses related to White Oak’s development of its Mine No. 1 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.

ARLP’s coal shipments were negatively affected by weather-related transportation disruptions during the 2014 first quarter, as total tons sold declined to 9.5 million tons or approximately 2.1% lower than the 2013 first quarter. These disruptions particularly impacted the Warrior, Gibson North and Pattiki mines in the Illinois Basin. Increased coal sales volumes from the Tunnel Ridge longwall operation drove sales tons for the 2014 first quarter higher in Appalachia. Shipment delays also pushed total coal inventory higher to approximately 1.1 million tons, an increase of approximately 759,000 during the 2014 first quarter.

Alliance ups its full year 2014 guidance

Commenting on ARLP’s current outlook for the rest of the year, Craft said: “Based on the increased productivity experienced at Tunnel Ridge mine during the first quarter, we are now expecting 2014 full-year production from the mine of approximately 6.0 million tons. In addition, as a result of the early start-up of our Gibson South mine, we are expecting this new operation to produce approximately 700,000 tons this year. Increased coal volume expectations and additional sales commitments made during the first quarter gave us the confidence to increase 2014 full-year guidance as discussed below.”

Based on results to date and current estimates, ARLP is now anticipating coal production and sales volumes during 2014 in a range of 40.25 million to 41.00 million tons. Adding approximately 7.8 million tons of new coal sales commitments during the 2014 first quarter, ARLP has now committed and priced approximately 95% of its anticipated coal sales in 2014. ARLP has also secured coal sales and price commitments for approximately 29.0 million tons, 23.1 million tons and 9.4 million tons in 2015, 2016 and 2017, respectively.

ARLP also continues to anticipate total capital expenditures during 2014 in a range of $320.0m to $350.0m, which includes expenditures for mine expansion to complete development of the new Gibson South mine, infrastructure projects, maintenance capital, and reserve acquisitions related to the White Oak mine development project. In addition to these capital expenditures, ARLP continues to anticipate funding approximately $80.0m to $95.0m of its preferred equity investment commitment to White Oak in 2014.

ARLP is a diversified producer and marketer of coal to major U.S. utilities and industrial users. ARLP, the nation’s first publicly traded master limited partnership involved in the production and marketing of coal, is currently the third largest coal producer in the eastern U.S. with mining operations in the Illinois Basin and Appalachian producing regions. ARLP operates ten mining complexes in Illinois, Indiana, Kentucky, Maryland and West Virginia.

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.