Alliance received strong contributions from several mines in setting a quarterly sales record of 10.4 million tons in the April- June period. They included the Tunnel Ridge longwall mine in Pennsylvania and West Virginia, the River View and Dotiki underground mines in western Kentucky, the MC Mining underground complex in eastern Kentucky and the Gibson North underground mine in southern Indiana.
“Our Tunnel Ridge mine turned in its second consecutive solid quarter,” said Craft, noting the mine currently is targeted to produce 6 million tons of steam coal in 2014, up from 3.7 million tons in 2013. “Our other Appalachia mines, MC Mining and Mettiki, also performed well, driving our costs per ton for this operating segment to its lowest level ever.”
Adding to the upbeat sales picture in Q2 was the new Gibson South underground mine, which is located about a mile south of Gibson North near Princeton, Indiana, and started production several months ago.
Alliance now expects Gibson South, whose eventual 5.3-million-tons-per-year output is expected to serve both domestic and export thermal coal markets, to produce about 880,000 tons this year, up from a previous estimate of 700,000 tons.
Although Alliance remains on track to produce about 40 million tons in 2014 and reached 20 million tons by mid-year, its output dipped slightly in the latest quarter to 9.8 million tons, a 3.5% decrease. That was due to the continued transition to a new mining area at the Cardinal underground mine in Hopkins County, Kentucky. Cardinal is operated by Warrior Coal LLC, an Alliance subsidiary.
Alliance had a record income of $137.7 million in the second quarter, a 32.3% gain over a year ago, on record revenue of $598.6 million, an 8.1% increase from the second quarter of 2013.
Brian Cantrell, senior vice president and chief financial officer, said Alliance expects coal sale price realizations this year “will be comparable to last year. We anticipate Alliance’s results in the second half of 2014 should be comparable to the first half of the year.” Craft said coal market conditions generally have improved this year, although they “remain challenging due to cooler temperatures so far this summer.” In the first half of 2014, coal accounted for 41% of the generation mix in the United States, he said. “Over the near term, we continue to believe fundamentals point to improved coal markets,” Craft said. “Longer term, we expect coal to remain a significant provider of baseload electricity in the U.S. despite the Environmental Protection Agency’s (EPA) efforts to reduce domestic demand,” a reference to the federal EPA’s proposed numerous pollution control rules during President Barack Obama’s administration.
In response to a question about cost pressures facing Alliance, Craft replied, “It all comes back to productivity. Our costs, because of our scale, are rather predictable as long as the geology [of the mines] is predictable. Costs have usually come when we face geologic conditions we didn’t anticipate.”