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news Coal Industry Braces for an Uncertain Future The coal industry is grappling with President Obama's decisive victory. Clearly job creation from energy was not the most impor- tant issue among a majority of voters. While several large coal companies say they see the market strengthening in the second half of 2013, many operators, frustrated with the antics of the Environmental Protection Agency, remain exasperated. In Washington, the National Mining Association (NMA) extend- ed its congratulations to President Obama. Hal Quinn, president and CEO, NMA, said the mining industry remains committed to working with the administration and the Congress on an 'all of the above' energy strategy that includes coal, our most abundant ener- gy resource, and on policies that support a dependable supply of domestic minerals production to meet the nation's needs. "With world-class mineral and coal resources, technology and skilled workers, U.S. mining can be a valuable partner in creating a strong domestic economy while also providing the energy and minerals required to stimulate economic growth," Quinn said. Alliance Reports Record Production, Despite Pontiki Problems Two underground mines—one new, the other newly acquired— helped drive Alliance Resource Partners to record coal production and sales in the third quarter, and the company's president and CEO, Joe Craft, is forecasting coal market improvement in the second half of 2013. Output was up by almost 500,000 tons in the third quarter at the new Tunnel Ridge longwall mine in Washington County, Pa., and Ohio County, W.Va., while Onton No. 9, in western Kentucky's Hopkins County, also showed gains, Craft said during an October 26 conference call with analysts to discuss third-quar- ter earnings. Alliance, headquartered in Tulsa, Okla., purchased Onton earlier this year from Green River Collieries. ± B REAKI NG N E W S Patriot Proposes a Selenium Settlement Patriot Coal Corp. has reached a proposed settlement agreement with the Ohio Valley Environmental Coalition, the West Virginia Highlands Conservancy and the Sierra Club regarding claims under the Clean Water Act relating to surface mining activities in West Virginia. As a result of the proposed settlement, the deadline for compliance with selenium effluent limitations at outfalls under the Hobet 22 permit will be extended from May 2013 until August 2014. Additionally, compliance schedules under the global consent decree announced in January 2012 will be extended by 12 months. In exchange, Patriot will agree to certain restric- tions on large-scale surface mining activities. "This settlement agreement allows Patriot to defer up to $27 mil- lion of compliance-related cash outlays from 2012 and 2013 into 2014 4 www.coalage.com and beyond, which improves our liquidity as we reorganize our compa- ny and increases the likelihood that we will emerge from the Chapter 11 process as a viable business," said Patriot President and CEO Ben Hatfield. "Importantly, this proposed settlement allows Patriot to con- tinue mining according to existing permits and is consistent with our long-term business plan to focus capital on expanding higher-margin metallurgical coal production and limiting thermal coal investments to selective opportunities where geologic and regulatory risks are minimized." The settlement remains subject to approval by the Federal District Court for the Southern District of West Virginia following a public com- ment period, as well as approval by the Bankruptcy Court for the Southern District of New York. November 2012 For the quarter, Alliance produced 9 million tons and sold more than 8.9 million tons at its mines in the Illinois Basin, Northern Appalachia and Central Appalachia, representing increases of 17.7% and 7%, respectively, over the third quarter of 2011. Craft said Alliance expects to produce 34.4 million to 34.9 million tons and sell 34.8 million to 35.2 million tons in 2012. Alliance has secured sales commitments for essentially all of its 2012 coal sales volumes and for approximately 37.1 million tons, 29.9 million tons and 22.8 mil- lion tons in 2013, 2014 and 2015, respectively. In the quarter, it booked new sales agreements totaling 1.65 million tons through 2014, bringing its year-to-date new sales commitments to about 28.7 million tons for deliveries through 2018. Alliance earned $60.5 million in the three months ended September 30, down from $104.1 million a year ago. Revenues rose 5.3% to $499 million. The earnings picture could have been even brighter, however, if the Pontiki underground mine in eastern Kentucky had not been idled on August 29. The company closed Pontiki after the federal Mine Safety and Health Administration cited Alliance for the failure of a beltline between two coal stacking tubes. The prolonged shutdown—Pontiki still was not back in operation by the end of October—cost the compa- ny an estimated $24.1 million in losses and charges in the latest quarter. Craft said repairs at Pontiki were expected to begin "shortly" and be completed by the end of the year, with the goal of restart- ing the mine. He cautioned that the market outlook for Pontiki beyond 2013 "is uncertain and there are significant risks about long-term viability of the mine." Excluding Pontiki, the company's cash flows "were in line with expectations" in the third quarter, said Brian Cantell, Alliance senior vice president and CFO. The proper way to interpret Alliance's quarterly performance, he advised analysts, "is to look beyond Pontiki, which was an unexpected event."