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Alliance Resources 2018 coal sales jump to record 40.42 million st

Highlights

Producer sold 10.46 million st in Q4, up 3.9% from Q3

Average sales price per ton at $46.34/st, highest since Q4 2016

Houston — Alliance Resource Partners' coal sales jumped to a record high in 2018, primarily due to a boost in thermal and metallurgical coal exports, the coal producer said Monday.

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In its Q4 earnings call, the Tulsa, Oklahoma-based company said it sold a record-high 40.42 million st of coal in 2018, up 6.9% from 37.82 million st sold in 2017.

"We achieved record sales volumes in 2018, driven primarily by a significant expansion of ARLP's presence in the international thermal and metallurgical coal markets with the year-over-year shipments to those markets increasing by 4.6 million tons to 11.2 million tons, or approximately 27.8% of our total 2018 coal sales volumes," President and CEO Joe Craft said on the call.

In Q4, the company sold 10.46 million st of coal, up 3.9% from Q3 and 3.6% higher than the year-ago quarter, "primarily due to increased export sales from our Gibson mining complex," CFO Brian Cantrell said.

Coal sales prices averaged $46.34/st in Q4, up from $45.71/st in the previous quarter and $45.03/st in the year-ago quarter. It was the highest quarterly average since $48.01/st in Q4 2016.

In the latest quarter, Alliance sold 7.98 million st of Illinois Basin coal at an average sales price of $40.26/st, compared with 7.25 million st sold at an average price of $39.92/st in Q3 and 7.39 million st sold at $39.13/st in the year-ago quarter.

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Appalachian tons sold came to over 2.48 million st in Q4, down from 2.83 million st in the previous quarter and 2.71 million st in the year-ago quarter. Average sales in the latest quarter were at $64.03/st, up from $59.60/st in Q3 and $60.12/st in the year-ago quarter.

At the end of the quarter, Alliance Resources reported coal stockpiles of 600,000 st, down from 900,000 st at the end of Q3 and 700,000 st after the end of the year-ago quarter.

"A strong winter heating season across our market territory has increased coal burn and reduced stockpiles, allowing ARLP to expand and strengthen its domestic contract position," Craft said.

Production increased to 10.2 million st in Q4, from 9.87 million st in Q3 and 9.4 million st in the year-ago quarter.

Craft said the company shipped coal to 31 countries in 2018, but most of the 11.2 million st of exports went into Europe, Africa and India.

The company reported net income of $50.77 million in Q4, down from $77.24 million in the year-ago quarter, while revenue increased to $531.84 million, from $483.23 million in Q4 2017.

Total net income and revenue in 2018 was $366.6 million and $2 billion, up 20.7% and 11.5% year on year, respectively.

LOOKING AHEAD

During the latest quarter, Alliance Resources priced and secured new commitments of about 3.9 million st of coal that will be delivered in 2019. The company now has volume and price commitments for approximately 36.8 million st in 2019, or over 82% of the 2019 production forecast.

In 2019, Alliance has 28.8 million st of commitments for domestic customers and export commitments of 8 million st.

"We position ourselves to grow in [the international] market and we continue to see pricing -- even though it's fallen off the last quarter -- we think that's relative to certain transportation interruptions, and we anticipate that price curve will, in fact, be more attractive as the year moves on in '19," Craft said. "And we see no real added supply in the international market coming on, yet we do see continued growth in that market, so we feel very confident that the international market can provide growth to us, both as well as margin as well as volume."

Production in the Illinois Basin in 2019 is expected between 32.8 million-33.8 million st, while Appalachian production is estimated between 10.7 million-11.2 million st.

Overall estimated production of 43.5 million-45 million st would be up 10% from 2018 volumes.

"To support this growth, ARLP plans to invest approximately $40 million to $45 million of capital to increase production at our River View and Gibson complex mines," Craft said. "Development of the Excel [Mine] No. 5 at our mine is underway and ARLP plans to also invest $40 million to $45 million of capital on this project in 2019."

Craft added later on the call that the majority, or 2 million st, of the year-on-year production increase would come from the Gibson mining complex, while nearly 1.5 million st and 500,00 st will come from the River View and Tunnel Ridge mines, respectively.

Average coal sales price per ton sold is expected to range from $44.75/st and $45.25/st, which would be down from $45.64/st averaged in 2018.

PRODUCTION, DEMAND TO REMAIN FLAT OVER NEXT FIVE YEARS

In 2020, the company has 18 million st of coal currently committed and priced to domestic customers, as Craft said the company has been able to sign multi-year contracts with utilities.

"We anticipate that domestically, in our market territories, over the next five years, production and demand will be relatively flat," Craft said. "We will probably lose some demand over the next two years in the 10 million ton range, so there will be some shortfall there, but for the plants that we have targeted, we see very stable market opportunity for us. Some of these customers have talked about longer term. We executed some in 2018."

-- Tyler Godwin, tyler.godwin@spglobal.com

-- Edited by Annie Siebert, newsdesk@spglobal.com