Craft credited increased sales and production volumes at the Tunnel Ridge longwall mine in Pennsylvania and West Virginia, MC Mining in eastern Kentucky, Dotiki mine in western Kentucky and new Gibson South mine in southern Indiana for his company’s Q3 performance that beat analysts’ estimates.
In the latest quarter, Alliance sold 2.46 million tons of coal in Appalachia, a 42.9% increase over 1.7 million tons a year earlier. That was more than enough to offset the 7.36 million tons sold in the IB, down from 7.5 million tons, or 3.1%, in the third quarter of last year.
In the IB, coal sales volumes decreased because the River View continuous miner operation in Union County, Kentucky, substantially depleted its coal inventory “prior to the end of the sequential quarter,” as well as reduced production from the Warrior mine in Hopkins County, Kentucky, reflecting its continued transition to a new mining area, the company said.
Although the U.S. coal market remains difficult, Craft said he anticipates the company’s results in the last half of this year to be similar to the first half, with Alliance on track for its 14th straight year of record earnings in 2014.
Along with the increased sales and production, Craft said prices also improved in Q3. Alliance received an average sales price of $55.81/ton, up from $54.55/ton, or 2.3%, last year.
Since the start of 2014, Alliance has secured new sales for about 18.7 million tons through 2017. The company now has pricing commitments for 33.5 million tons in 2015 and 26.1 million tons in 2016.
In October, the new longwall mining system at the White Oak No. 1 mine in Hamilton County, Illinois, in which Alliance has a financial interest, started production. The mine is operated by privately owned White Oak Resources.
In response to the continued difficult coal market, Craft said Alliance “may have to delay production growth to match the market.” That means a possible slowing in the ramp-up at Gibson South, which began production earlier this year. The mine is targeted to produce about 800,000 tons this year and 3.1 million tons in 2015, “operating three production units through the end of 2015 or until the market improves,” he said. Alliance has said Gibson South ultimately will produce more than 5 million tons of thermal coal annually for both domestic and export markets.
In response to a question, Craft offered an explanation for why Alliance has been able to turn a robust profit when some of its coalfield competitors go out of business or lose money. “We are very focused on the domestic utility market,” he said. “A lot of our competitors have a more global view and are in the metallurgical markets. Those markets have been hit harder than domestic steam markets.” Many of Alliance’s competitors also have more leveraged balance sheets than it does.
In addition, Alliance “positioned ourselves in anticipation of the markets moving to the IB and Northern Appalachia” and away from Central Appalachia, he added. “We were able to secure very low-cost operations with advantages from a transportation standpoint.”
