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Alliance reports Q4 earnings, plans to reopen Gibson North mine

Houston (Platts)--29 Jan 2018 535 pm EST/2235 GMT


Improved pricing, increased demand due to cold weather and higher exports all point to a favorable 2018 for Alliance Energy, the coal producer said during its fourth quarter earnings call Monday.

Particularly due to the strong export market, the Tulsa, Oklahoma-based company said it plans to bring its Gibson North mine back into production.

"We continue to see strong opportunities in the export business," said CEO Joe Craft in the call. "And in large part, we sell quite a bit of our Gibson product in the export market that has [lower sulfur] and is being received very well in the export markets."

Craft added that higher export demand, which "we would like to believe is sustainable moving into 2019," is one reason for bringing Gibson North "back into the marketplace."

The underground Indiana mine last produced coal in Q4 2015.

Coal from the Gibson reserves contains roughly 2.5 lb SO2/MMBtu compared with 5 lb SO2/MMBtu for much of the coal from the rest of the basin.

Craft also said coal pricing appears to have "bottomed" in the back half of 2017 and has been showing signs of improvement, and that recent cold weather has increased customer demand and reduced utility stockpiles.

"With favorable weather patterns expected to continue in the near-term, we anticipate coal burn ... will remain strong and customers will seek to maximize tonnage under existing contracts and accelerate spot purchases," Craft said. In the fourth quarter, the company sold 7.39 million st of Illinois Basin coal at an average sales price of $39.13/st, down 14.1% from the year-ago average price of $45.56/st. Sales volume was down 7.8% from the year-ago quarter.

Appalachian tons sold came to 2.71 million st, up 8.6% from last year, while the average sales price was $60.12/st, up 13.9% from $52.80/st last year.

Illinois Basin volumes decreased in the fourth quarter as a result of the closure of the company's Pattiki mine in southern Illinois late 2016 as well as reduced sales from River View, the company's most productive mine, in western Kentucky.

Alliance produced 6.9 million st in the fourth quarter, up 14.8% from Q3 2017 and up 0.3% from the year-ago quarter, according to MSHA data.

In its quarterly earnings call Monday, Craft said the company has secured delivery commitments in 2018 for 5.7 million st of thermal exports and 150,000 st of export metallurgical coal.

Craft said the primary driver for reopening the mine is increased demand for lower sulfur coal, given that the Gibson South mine that operates in the same reserves is "pretty much at full capacity."

Craft said Alliance is exporting into Europe, but is also looking to "establish relationships with those countries that are signaling a willingness to continue to build new generation and grow their low cost energy production."

When asked by an analyst, Craft said it hopes to establish longer term deals, but those "would always be priced annually, if not quarterly."

Craft emphasized that the company's domestic utility business will remain its core, and that it expects the market share for US coal generation to hover between 28% and 32% of the total power market.

But he noted that exports will likely grow from less than 10% of its production in years past, perhaps nearing as high as 25% "if we are successful in establishing long-term relationships and contracts that we can manager similar to the way that we do our domestic business."

Craft also added that domestic pricing on a FOB mine basis would be around $40/st, "maybe a little better than [$40/st], that's right in that zip code."

Alliance reported net income in Q4 of $74.4 million compared with $119.7 million in the year-ago quarter.

--Andrew Moore, andrew.moore@spglobal.com

--Edited by Derek Sands, derek.sands@spglobal.com




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