Alliance produced about 9.8 million tons of coal in the first quarter, up 15.4% from a year ago. Revenue was $548 million compared with $443 million in the first quarter of 2012, a 24% increase. Net income, meanwhile, was $102.9 million, versus $83.9 million a year earlier. Total average coal sales price in the first quarter climbed slightly to $55.12/ton sold. It was $54.99/ton sold a year ago. Alliance plans to produce only steam coal this year, no metallurgical coal. The company, through its subsidiaries, operates mines in Kentucky, Indiana, Illinois, Maryland and West Virginia.
“Compared to this time last year, favorable weather patterns and higher natural gas prices have contributed to increased coal demand and slowly improving market fundamentals for domestic steam coal,” Joseph Craft, Alliance president and CEO, told analysts during a conference call to discuss earnings. “We believe these fundamentals will be good for spot coal prices and should bode well” for the next few years.
Current trends are encouraging for U.S. coal producers, he added, as electric utility stockpiles are declining toward more historically normal levels while gas prices continue to rise.
The company, which produced 34.8 million tons in 2012, expects both 2013 production and sales to be in the range of 38.1 million to 39.1 million tons. After adding about 2 million tons of sales commitments in the first quarter, Alliance is committed to supply 38.6 million tons in 2013, 31.6 million tons in 2014, 23.9 million tons in 2015 and 19.2 million tons in 2016.
Alliance continues to get strong production from several of its larger underground mines including River View in Union County, Ky., and Onton No. 9, which it acquired in 2012, in Webster County, Ky. Development of the new Gibson County continuous miner operation in Gibson County, Ind., is on schedule, with production targeted to begin in the third quarter of 2014. The mine will turn out about 5.2 million tons annually at peak production. The new White Oak No. 1 longwall mine in Hamilton County, Ill., has secured sales for 2013 and 2014. The mine is owned by White Oak Resources, and Alliance is contributing financially to its development. Eventually, the mine will produce about 6.5 million tons a year.
However, Alliance has been forced to ratchet back 2013 production at Tunnel Ridge. “Our ramp-up of Tunnel Ridge production is going slower than expected,” Craft said, because of a “split coal zone that extended further into the reserves than was anticipated. This geologic condition has caused both lower run-of-mine production” as well as lower yields during the quarter.
As a result, Craft said Alliance has altered the mine plan at Tunnel Ridge, which went into production last year, “to minimize the longwall mining in this zone for the remainder of the year.” Alliance has “factored in 4.9 million tons of production from Tunnel Ridge in 2013.” Longwall moves are scheduled at the mine in June and October. “By going to the next panel after the second longwall move is when we should start seeing more benefit,” he said. Alliance expects the mine to produce about 6 million tons in 2014, a “conservative” estimate, Craft said, because Tunnel Ridge has the capacity to produce 6.2 million to 6.6 million tons annually.