Thanks to increased volumes at its year-old Tunnel Ridge longwall mine and strong performances at its Gibson North, River View and Onton No. 9 underground mines, Alliance produced a record 10.1 million tons of steam coal in the April-June period, up from 8.1 million tons a year earlier. The company posted net income of $104.1 million, or $1.96/share, on revenue of $553.6 million in the second quarter, compared to net income of $95.2 million, or $1.83/share, on revenue of $529.9 million in the 2012 quarter. That beat analysts’ forecast of $1.59/share and revenue of $548.1 million.
Tunnel Ridge is in Pennsylvania and West Virginia, Gibson North is in southern Indiana and River View and Onton No. 9 are in western Kentucky.
The Tulsa, Okla.-based company boosted its already strong contract portfolio during Q2, adding fresh coal sales commitments of about 2.6 million tons for delivery through 2015. Alliance now anticipates total production this year of 39.3 to 39.6 million tons and sales volumes of 38.6 to 39.6 million tons. Alliance essentially is fully priced and committed for its expected 2013 production and has obtained commitments for approximately 31.9 million tons, 25.7 million tons and 19.1 million tons in 2014, 2015 and 2016, respectively, of which about 1 million tons in 2014, 2.5 million tons in 2015 and 3.3 million tons in 2016 remain open to market pricing.
“The ability to deliver these exceptional results, especially in such challenging market conditions, speaks to the soundness of ALRP’s strategy, the quality of our assets, and the hard work and dedication of our people,” said Joseph Craft III, the company’s president and CEO.
About the only flaw in Alliance’s latest earnings report was a slight decrease in average coal sales prices. Prices fell to $55.14/ton during the quarter from $57.19/ton a year ago. The primary reason for the decline was Alliance’s absence from metallurgical coal export markets in the latest quarter versus last year.
Craft told analysts during a July 26 conference call the company sees continued weakness in the met market. Alliance would like to resume met coal production in 2014, he said, but that depends on demand and price recovery for met coal. “We’re disappointed where met prices are,” he said. “We think there will be some supply reductions for the balance of the year and hopefully in 2014 we will see increased pricing so we can participate” in the met market.
In response to a question about whether Alliance would need to see met prices climb to $200/ton next year before recommitting to the market, Craft replied, “We may not need to be” at that level to trigger a return. He did not elaborate.
Alliance realized higher prices for Illinois Basin and Central Appalachian coal in Q2, essentially offsetting lower prices in Northern Appalachia. The high-sulfur IB accounted for the bulk of Alliance’s coal sales in the quarter, about 7.5 million tons, up from 6.9 million tons in the second quarter of 2012. Next came Northern Appalachia where, because of Tunnel Ridge’s continued ramp-up, sales increased to 1.7 million tons from 1 million tons a year ago. Finally, Central Appalachian sales bumped up a bit, to 498,000 tons from 493,000 tons in the corresponding period of 2012.
Higher coal production and sales usually translate to higher operating expenses, and that was true for Alliance in the quarter. Operating expenses were $347.4 million, a 3.8% increase, compared to the 2012 quarter.
Craft said the company continues to construct its Gibson South underground mine in southern Indiana. The mine, targeted for production in the fourth quarter of 2014, is expected to produce about 5.2 million tons of steam coal annually at peak output for both domestic and export markets. Meanwhile, the longwall at the new White Oak No. 1 mine in Hamilton County, Ill., should begin operating by mid-2014, according to Craft. At peak, White Oak should produce about 6.5 million tons a year. White Oak Resources, a privately owned company, is developing the mine, but Alliance is contributing financially to the project.