Coal producer Alliance reports stronger results for Q3 2016

Coal producer Alliance Resource Partners LP (NASDAQ: ARLP) said Oct. 28 that net income in the 2016 third quarter rose 7.7% to $89.8 million, compared to $83.4 million for the year-ago quarter.

Total revenues in the 2016 third quarter declined 2.5% compared to the 2015 third quarter to $552.1 million, as lower coal sales prices more than offset increased sales volumes.

Led by increased coal sales volumes, ARLP’s revenues rose 25.7% compared to the second quarter of 2016. Increased revenues helped drive net income higher by 8.6% and EBITDA up by 5.2%, both compared to the 2016 second quarter.

“ARLP continued to perform well in the 2016 Quarter and slightly better than our expectations,” said Joseph W. Craft III, President and Chief Executive Officer. “Record sales volumes allowed us to significantly reduce coal inventories and, along with ongoing cost containment efforts, led to increased net income and EBITDA. We also continued to strengthen our contract portfolio during the 2016 Quarter, taking advantage of improving market conditions to secure coal sales agreements for the delivery of an additional 11.2 million tons through 2020.”

Strong sales performance at the River View (western Kentucky), Gibson South (Indiana) and Tunnel Ridge (northern West Virginia) mines in the 2016 third quarter drove total coal sales volumes to a quarterly record 10.8 million tons, an increase of 4.5% compared to the 2015 third quarter. Reflecting operating adjustments made in response to market conditions, coal production decreased 25.7% to 8.5 million tons in the 2016 third quarter compared to the 2015 third quarter, primarily due to idling the Onton (western Kentucky) and Gibson North (Indiana) mines in the fourth quarter of 2015, the planned depletion of reserves at the Elk Creek mine in the first quarter of 2016 and reduced production at the Hamilton, Dotiki and River View mines.

Total revenues decreased 18.9% to $1.4 billion for the nine months ended Sept. 30, 2016, compared to $1.7 billion for the nine months ended Sept. 30, 2015, due to the previously discussed reduction of volumes at the Onton, Gibson North and Elk Creek mines, lower average coal sales prices and the absence of coal royalty and surface facilities revenues from White Oak in Illinois.

ARLP ended the 2016 third quarter with total coal inventory of 2.0 million tons, a reduction of approximately 2.2 million tons compared to the end of the second quarter of this year.

Outlook

“Strong summer coal burn, favorable natural gas prices and reduced coal inventories, for both utilities and producers, all contributed to improved supply/demand fundamentals during the 2016 Quarter,” said Craft. “Several factors have also recently contributed to an improvement in seaborne markets, creating attractive opportunities for the export of U.S. coals. ARLP is participating in this rally by opportunistically contracting for the export of 3.0 million tons to be shipped over the next six months. Assuming a normal winter heating season, market conditions appear favorable through the end of the year and we expect our fourth quarter coal sales to be comparable to the quarter’s record volume.

“Looking to 2017 and beyond, we anticipate a recovery in the domestic thermal coal markets as higher natural gas prices spur increased demand for coal and supply is reduced by increased shipments of U.S. coal into the export markets. We remain convinced that our strategically-located, low-cost operations, conservative balance sheet and consistently strong performance have ARLP well positioned to benefit from an improved market environment. ARLP intends to capitalize on these advantages by continuing to deliver industry leading performance and create long-term value for our unitholders.”

Based on results to date and expectations for the remainder of 2016, ARLP is increasing its 2016 full-year estimates for coal production to a range of 34.5 million to 35.5 million tons and coal sales volumes to a range of 36.5 million to 37.0 million tons. ARLP is also adjusting its expectations for 2016 average coal sales price per ton to a range of 5.0% to 6.0% below 2015 average realizations. Reflecting updated coal sales volume and pricing estimates, ARLP now anticipates 2016 revenues, excluding transportation revenues, in a range of $1.88 billion to $1.92 billion.

In addition, ARLP continues to anticipate year-over-year improvement in its per ton costs and is now estimating total Segment Adjusted EBITDA Expense per ton in 2016 will be approximately 6.0% to 7.0% below 2015 levels. Based on year-to-date performance and updated volume, price and cost expectations, ARLP is adjusting its 2016 full-year estimate for net income to a range of $300.0 million to $310.0 million and increasing its estimate for EBITDA to a range of $650.0 million to $660.0 million.

ARLP continues to be essentially fully priced and committed for its estimated 2016 volumes and has also increased its coal sales and price commitments to about 29.1 million tons, 17.4 million tons and 8.9 million tons in 2017, 2018 and 2019, respectively.

ARLP is a diversified producer and marketer of coal to major United States utilities and industrial users. It is currently the second largest coal producer in the eastern United States with mining operations in the Illinois Basin and Appalachian coal producing regions. ARLP currently operates nine mining complexes in Illinois, Indiana, Kentucky, Maryland and West Virginia. ARLP also operates a coal loading terminal on the Ohio River at Mount Vernon, Indiana.

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.