Alliance plans higher coal production and sales in 2017
Louisville, Kentucky (Platts)--30 Jan 2017 541 pm EST/2241 GMT
Illinois Basin and Appalachian coal producer Alliance Resource Partners expects higher coal production and sales in 2017, citing improvements in domestic thermal coal markets, after posting a 74% increase in net income during the fourth quarter of 2016 over a year ago.
"Supply and demand fundamentals have improved meaningfully compared to this time last year and are pointing to cyclical recovery in domestic thermal markets," Joseph Craft III, president and CEO of the Tulsa, Oklahoma-based company, told analysts during a conference call Monday to discuss Q4 and full-year 2016 earnings.
Craft also anticipate the administration of President Donald Trump will have a positive impact on the coal industry, including Trump's intention to reduce burdensome federal regulations on industry.
In 2016, Alliance produced and sold 35.2 million and 36.7 million st of coal, 15% and 9%, respectively, below 2015 levels as the company strategically shifted production to its lowest-cost mines to offset a decline in demand and lower prices.
This year, Alliance expects production to rise by about 3 million st with sales up around 2 million st. Already, the company has committed sales of 34.9 million st for 2017, or roughly 90% of its anticipated output. So far, it also has secured sales commitments for 18.9 million st in 2018.
Alliance realized 3.3% less on the 10.5 million st it sold in the October-December period, an average of $48.01/st, compared with an average of $49.63/st it received in the fourth quarter of 2015.
But costs fell even more. Fourth quarter costs averaged $27.72/st, down 16.5% from average costs of $32.44/st a year earlier.
Craft said Alliance's projected increase in production this year is driven largely by an anticipated rise in output at its Hamilton No. 1 longwall mine near McLeansboro in Hamilton County, Illinois. Alliance acquired the mine, then known as White Oak No. 1, two years ago from privately owned White Oak Resources.
According to Craft, there was a temporary work force and production cut last summer at the mine, but more miners were recalled and production began increasing again late last year.
In the fourth quarter, Hamilton 1 turned out 1.3 million st, almost triple the 500,000 st or so it had produced in previous quarters of the year.
"We didn't really start that ramp until November at Hamilton," he said. "If we can get Hamilton to full production, we believe it will be our lowest-cost mine."
The mine is capable of producing as much as 6 million st annually.
Alliance also expects to boost production this year at its Gibson South underground mine near Princeton in Gibson County, Indiana. Its other top performing mines include the River View continuous miner operation in Union County, Kentucky, and Tunnel Ridge longwall mine in West Virginia and Pennsylvania.
Although it never has been a major coal exporter, Alliance already has contracted for 1.5 million st in export sales for 2017 over last year, including 167,000 st of metallurgical coal. However, it expects to sell its remaining 10% of uncommitted tons this year into the domestic market.
"We feel confident those tons will be placed," Craft said. 'The reason they're open today is that our customers are continuing to stick to a shorter-term buying practice instead of committing more long term."
Overall production in the high-sulfur ILB is expected to be flat in 2017, he added.
"The only tons we've seen go up are our own 3 million from us," he said. "We expect flat production to continue into 2017" in the basin.
There is hope for higher realized prices, though, in 2018 if not in 2017, depending upon electric utility demand and natural gas prices staying in the range of $3.25/MMBtu. "We do anticipate growth in both tonnage and price as we look to 2018," he said.
Brian Cantrell, Alliance's chief financial officer, said the company recorded net income of $119.6 million in the fourth quarter and $339.4 million for all of 2016, compared with $21.5 million in the fourth quarter of 2015 and $306.2 million for all of 2015.
Total revenue fell to $527.4 million, down 2.7% in the latest quarter, and to $1.93 billion in 2016, versus $2.27 billion in 2015, mainly because of lower price realizations.