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Top Illinois Basin coal mines outperform year-ago production in Q3

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Essential Energy Insights - January 2021


Top Illinois Basin coal mines outperform year-ago production in Q3

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Coal miners work underground at an Illinois Basin coal mine operated by Knight Hawk Coal LLC. Coal companies in the area have been reporting increased interest in recent months from domestic utility buyers and customers abroad.
Source: S&P Global Market Intelligence

The 25 top-producing Illinois Basin coal mines mined about 24.0 million tons of coal in the third quarter, down from 24.4 million tons in the second quarter and up slightly from 22.0 million tons produced in the third quarter a year ago.

While domestic utility demand has declined, producers in the region have reported success moving tons into export markets in recent months. Coal production among the top 25 mines in the Illinois Basin increased by 4.7 million tons, or 5.2%, in the 12 months ending in the third quarter, according to an S&P Global Market Intelligence analysis.

Foresight Energy Corp. reported that its MC No. 1 mine, the largest in the basin by production, produced 3.8 million tons of coal in the third quarter, up from 3.2 million tons in the second quarter and 3.1 million tons in the year-ago period. The company also increased production at its Mach No. 1 mine. Foresight President and CEO Robert Moore said the increased production was largely the result of no longwall moves during the third quarter.

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"During the third quarter of 2018, we have placed over 6 million tons into the export market, and we have 2.5 million additional tons contracted and priced for export this calendar year," Moore said on the company's third-quarter earnings call. "The export demand for our product remains strong, and we believe that the export market will continue to provide an economical outlet for a significant portion of our production in 2019."

Foresight decreased quarter-to-quarter coal production from its smaller Shay No. 1 mine. The company also recently announced it had reached a settlement with Natural Resource Partners LP related to a fire at the company's Deer Run mine that had led to a force majeure on deliveries from that mine.

Murray Energy Corp., which owns a controlling stake in the Foresight mines, reduced quarter-to-quarter coal production from its Genesis and Pride mines, which it recently bought from Armstrong Energy Inc. in a bankruptcy reorganization sale.

Coal production from the second-largest mine in the Illinois Basin, Alliance Resource Partners LP's River View mine, increased slightly to 2.4 million tons, from 2.3 million tons in the prior quarter. Alliance also boosted coal production at its Gibson South, Gibson and Dotiki mines but decreased quarter-to-quarter coal production from its No. 1 mine, which has still produced more coal in the most recent 12-month period than in the comparable period a year ago.

Alliance President and CEO Joseph Craft said during a third-quarter earnings call that most of the company's competitors are producing at capacity, but the partnership is expecting a gap between coal production and consumption that it can fill both domestically and internationally.

"We still believe that the total production for Illinois Basin in 2019 will be below demand when you factor in both the thermal exports and domestic demand," Craft said. "If you look at 2017, '18 and '19, we are seeing utilities draw down their stocks, so the deliveries have been lower than their actual consumption. ... So we do believe that there is adequate demand for the tonnage we're bringing on. And we do believe that when we look at 2019 versus 2018, thermal exports will grow another 10% or so overall. And most of that will come from the Illinois Basin."

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Hallador Energy Co.'s two largest Illinois Basin coal mines reduced production in the third quarter compared to the second quarter. However, production at the Oaktown Fuels No. 1 and Oaktown Fuels No. 2 mines was up compared to the year-ago quarter and for the 12 months ending with the third quarter.

The company reported that it found success in securing new utility customers in recent weeks.

"The market is strengthening and acting as if it may need our increased production," President and CEO Brent Bilsland said. "This summer was four degrees warmer than average, but with the highly populated areas of the country experiencing the brunt of the heat, this increased power load occurred at a time when many utilities had previously planned to draw down their coal inventory levels. Thus, demand exceeded purchases more than expected, forcing several utilities to search for additional tons just to finish the year."