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Coal operators worldwide are praising the Australian Parliament and prime minister for repealing the nation’s carbon tax, which has had a negative impact on its people and economy.
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Alliance Invests in White Oak Resources


In a deal that could give Alliance Resource Partners entree into the export market for Illinois Basin coal, the Tulsa, Okla.-based coal producer plans to spend up to $525 million over the next three to four years to finance development of White Oak Resources’ new longwall mine under construction near McLeansboro in Hamilton County, Ill.

Under the transaction unveiled in early fall, ALRP also has the opportunity to participate in future White Oak mine projects. White Oak’s reserve block “is ideally suited for longwall mining operations,” said Joe Craft, president and CEO, ALRP, during a September 23 phone conference. Assuming market demand, the reserve area could support up to four longwalls, he said.

During the remainder of 2011, ALRP expects to fund $100 million to $115 million of its commitment to privately held White Oak, an upstart company formed three years ago by veteran coal industry official Mike Tracy after he left Alabama-based Drummond. Tracy’s return to Drummond in early 2010 fueled speculation the White Oak No. 1 mine might be left at the starting gate. However, construction got under way in early 2011 and the mine is targeted to be in limited production in 2014. At its peak, No. 1 could produce up to 6.5 million tons annually from the Herrin No. 6 seam coal, which typically averages 11,800 Btu/lb and 4.5% sulfur.

For ALRP, the White Oak partnership signals a departure of sorts from its tried-and-true mine investment strategy of growing production organically. Alliance already has acquired 100 million tons of reserves from White Oak and will purchase the remaining 100 million tons of reserves in a series of future moves. Then, Alliance will lease the acquired reserves back to White Oak in return for royalty payments. Although he did not disclose them, Craft said royalty rates “are based on a specific price per ton,” and contain escalators.

Craft said his company concluded White Oak’s growth potential simply was too good to pass up. ALRP is enjoying its 11th-consecutive year of record financial performance. The company forecasts total output of 31.6 million to 32.6 million tons this year with sales of 32 million tons to 33 million tons.

White Oak will operate the mine and handle all marketing of coal. Alliance will build and operate a prep plant, the loadout and coal-handling facilities. Thus far, Craft said, an “insignificant amount” of the projected production has been sold. “But we believe there will be plenty of opportunities to place the tonnage.”

Although he said it is premature to provide many specifics, Craft suggested as much as one-third to one-half of White Oak No. 1’s coal could go to the export market. The coal would be loaded onto barges at ALRP’s Mount Vernon terminal on the Ohio River in Posey County, Ind., just west of Evansville, and transported “to New Orleans or the Gulf” for shipment overseas.