Coal Age Magazine - For more than 100 years, Coal Age has been the magazine that readers can trust for guidance and insight on this important industry.
Issue link: https://coal.epubxp.com/i/640014
Illinois Basin (ILB) and Northern Appalachian (NAPP) steam coal producer applies the brakes to output and shifts produc- tion to lower-cost mines as it waits for the abysmal coal mar- ket to improve. Joseph Craft, the company's president and CEO, delivered that message to analysts during a January 26 conference call to discuss Alliance's fourth quarter 2015 and full-year earnings. A s u s u a l , A l l i a n c e h a d a n o t h e r g o o d y e a r . I t p o s t e d n e t income of $306 million before taxes for the 12 months, but saw income dip to $21.5 million in the fourth quarter, an 82.6% decrease, as the company felt the impact of lower coal prices and reduced sales, reflecting a deferral in shipments by some electric utility customers. Alliance produced 41.2 million tons and sold 40.2 million tons last year, or 1.1% and 1.3% more than in 2014, respectively. Because of the market's continued softness, Alliance has ratcheted back planned 2016 production to a range of 33.7 mil- lion and 35.7 million tons. It expects sales to range between 34.6 million and 38.1 million tons. Part of the decrease is the impending closure of the Elk Creek underground mine near Madisonville, Kentucky, oper- ated by the company's Hopkins County Coal subsidiary. High- sulfur coal reserves at Elk Creek, a big producer for years, have played out, and the mine is expected to shut down by the end of March. Alliance recently placed its Gibson North under- ground mine in Gibson County, Indiana, and Onton under- ground mine in Hopkins County on "hot idle." Craft said he hopes both will resume production later this year, although that is far from certain. E v e n i t s R i v e r V i e w n e a r U n i o n t o w n i n U n i o n C o u n t y , K e n t u c k y , i s b e i n g a f f e c t e d . R i v e r V i e w , o n e o f t h e l a r g e s t underground mines in the ILB, produced 9.1 million tons in 2015, down slightly from 9.3 million tons in 2014, according to the federal Mine Safety and Health Administration (MSHA). For now, however, Alliance has shelved a previous plan to boost production even more at River View, Craft said. "Conditions in the U.S. thermal coal markets continued to deteriorate during the 2015 quarter as mild weather reduced overall power demand," he said. "Utilities responded by delay- ing contracted tons and adding to their already above normal coal stockpiles." Looking ahead, Alliance believes 2016 coal demand for its ILB and NAPP markets will be 6% and 7%, below 2015, respec- tively, depending on the weather, he said. As a result, the com- pany is uncertain whether utilities "will satisfy this demand by reducing inventories or taking advantage of current low spot prices and purchase coal to match their coal burn." Craft said coal supply in 2016 is likely to be close to 800 mil- lion tons in the U.S. In Alliance's primary markets, the ILB and N A P P , s u p p l y w a s a b o u t 5 3 m i l l i o n t o n s i n t h e O c t o b e r - D e c e m b e r p e r i o d , o r a b o u t 2 1 2 m i l l i o n t o n s o n a n a n n u a l basis. "We expect 2016 coal demand to be about 215 million tons, which is 20 million tons below 2015 levels." In the fourth quarter, Alliance actually sold 1.5% more coal, 7.8 million tons, in the ILB than the 7.6 million tons it sold a year earlier. But sales in NAPP and Central Appalachia were 2.1 million tons, down 8.3% from 2.3 million tons in the fourth quarter of 2014. Alliance has had some recent success in adding to its long- term sales book. Since its third quarter earnings release in October, the company has contracted for an additional 7.5 million tons at an average price of $41.73/ton. Thus far, the company has secured coal sales of about 19.1 million tons, 14.5 million tons and 7.1 million tons for 2017, 2018 and 2019, respectively, and Craft said he expects those figures to increase by the end of the second quarter this year. Blackhawk to Meet Forecast for 2016 Blackhawk Mining said on February 1 its planned shutdown of several Central Appalachian (CAPP) coal mines this spring is not expected to change its 2016 production forecast of 16 mil- lion tons, which would represent more than a 50% increase from 2015. This year's tonnage will be divided almost evenly between m e t a l l u r g i c a l a n d s t e a m c o a l , a c c o r d i n g t o J e s s e P a r r i s h , s p o k e s m a n f o r t h e L e x i n g t o n , K e n t u c k y - b a s e d c o m p a n y . Blackhawk produced about 10 million tons in 2015 and has been increasing output steadily since it was founded in 2010 through the acquisition of the Spurlock mining complex in F l o y d C o u n t y , K e n t u c k y , f r o m b a n k r u p t B l a c k D i a m o n d Mining Co. The bulk of this year's output is slated to come from CAPP, where Blackhawk now operates additional mines it picked up from bankrupt Patriot Coal Corp. last year. The company is targeting about 2 million tons of production from its Triad Mining subsidiary in Indiana, similar to last year. Blackhawk acquired Triad, its first purchase in the high-sulfur Illinois Basin, from bankupt James River Coal Co. in 2014. According to Parrish, Blackhawk has enough sales to cover most of this year's anticipated production. However, the company continues to be adversely affected by soft market conditions, like other U.S. coal producers. T h a t i s w h y i t i s s u e d f e d e r a l W o r k e r A d j u s t m e n t a n d Retraining Notification (WARN) Act notices on February 1 to approximately 160 employees at the Rowdy Gap, Spencer Fork and Thunder Ridge surface mines that are part of the compa- ny's Pine Branch business unit in eastern Kentucky's Perry and Leslie counties. Together, the three mines produced nearly 1 million tons of steam coal in 2015. Unless Blackhawk is able to obtain more sales in the coming weeks, the mines are expected to close in March. In early January, Blackhawk also issued WARN notices to employees at the Winchester underground mine and Hampden No. 2 mine, as well as the Tom's Fork prep plant, in West Virginia's Kanawha and Logan counties. Two mines will continue to operate at the Pine Branch com- plex in several eastern Kentucky counties. They include the Wiley Branch and East Long Fork mines. Pine Branch sells steam coal from the CAPP basin to a num- ber of electric utilities in the southeastern U.S. and internation- al utility customers, according to Blackhawk's website. Foresight Restarts All Mines Except Deer Run High-sulfur steam coal was being produced again at three Foresight Energy mines in Illinois in early 2016 following a lengthy n e w s c o n t i n u e d February 2016 www.coalage.com 7