In releasing quarterly results in late July, Craft said Alliance’s “operating strength, quality customer relationships and solid contract position allowed us to overcome challenging market conditions and deliver another quarter of excellent results to our unitholders.” Alliance posted revenues of $529.9 million in the three months ended June 30, coal sales volumes of 8.7 million tons and average pricing of $59.17/ton—all company records.
The only off note for Alliance was a slight 2.8% decrease in quarterly earnings, to $95.5 million.
Still, the performance drew plaudits from coal analysts during Craft’s July 27 phone conference to discuss earnings. They marveled at the way Alliance has managed to churn out solid quarterly profits while planning to boost production at a time when some coal companies are closing or curtailing operations to combat the triple whammy of low natural gas prices, the mild winter of 2011-2012 that left bulging coal stockpiles, and a hostile regulatory environment as evidenced by new federal Environmental Protection Agency rules.
“There’s no secret that times have been and are tough in the coal industry,” Craft said. “Challenges are many. Coal will continue to be the fuel of choice for most of the electricity produced around the globe. We believe demand for coal has hit bottom and brighter times are ahead. The question is when.”
During the second quarter, an increase in output at the Warrior, Tunnel Ridge and Onton No. 9 mines contributed to higher coal production of 8.2 million tons for Alliance, which has mines in Northern Appalachia, Central Appalachia and the IB. Outside coal purchases rose $10.3 million to $16.2 million in the second quarter compared to a year ago, primarily as a result of increased brokerage coal sales volumes and higher cost per ton of coal purchased.
The company blamed depreciation and development costs at the White Oak No. 1 underground mine under construction in Hamilton County, Ill., for the small dip in earnings. Alliance acquired a major equity interest in privately owned White Oak Resources, the mine’s original developer, in 2011.
Alliance is hoping 2012 is another year of record earnings for the company. As he looked to 2013, Craft said he expects revenues on a per-ton basis to be “comparable” to this year.
In terms of market demand for IB coal, Craft said the Midwest basin appears poised to profit from steadily declining demand for Central App coal. “But we haven’t seen much movement for that yet” in the IB.
The low-sulfur Powder River Basin most likely will be the first coal basin to recover lost sales from some electric utilities switching back to coal from gas, as the price of gas begins to slowly increase. “There are certain utilities today at $3.50 (mmBtu) that are definitely looking to burn Illinois Basin coal,” he said. “We are projecting the IB will grow from 10 to 20 million tons over the next 12 to 18 months.”
Alliance’s venerable Dotiki underground mine in western Kentucky is transitioning from the No. 9 seam coal to the No. 13 seam, “so we’ve had some productivity losses there,” he said. He added, however: “We expect the No. 13 to be productive once we get there.” Dotiki is operated by Webster County Coal, an Alliance subsidiary.
Construction also continues on the new Gibson South underground mine in Gibson County, Ind. Meanwhile, the new Tunnel Ridge longwall mine in Ohio County, W.Va., and Washington County, Pa., is ramping up. Tunnel Ridge produced almost 300,000 tons in the second quarter, and is expected to reach 900,000 tons in the third quarter and 1.2 million tons in the fourth quarter. It should hit 6.2 million tons in 2013 and max out at 6.5 million to 6.8 million tons in 2014.
