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Alliance reports Q4 earnings, plans to reopen Gibson North mine

Houston — Improved pricing, increased demand due to cold weather and higher exportsall point to a favorable 2018 for Alliance Energy, the coal producer saidduring its fourth quarter earnings call Monday.

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

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

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

The underground Indiana mine last produced coal in Q4 2015.

Coal from the Gibson reserves contains roughly 2.5 lb SO2/MMBtu comparedwith 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 halfof 2017 and has been showing signs of improvement, and that recent coldweather 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 tomaximize tonnage under existing contracts and accelerate spot purchases,"Craft said. In the fourth quarter, the company sold 7.39 million st of Illinois Basincoal at an average sales price of $39.13/st, down 14.1% from the year-agoaverage price of $45.56/st. Sales volume was down 7.8% from the year-agoquarter.

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 lastyear.

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

Alliance produced 6.9 million st in the fourth quarter, up 14.8% from Q32017 and up 0.3% from the year-ago quarter, according to MSHA data.

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

Craft said the primary driver for reopening the mine is increased demandfor lower sulfur coal, given that the Gibson South mine that operates in thesame 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 willingnessto continue to build new generation and grow their low cost energyproduction."

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

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

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

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

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

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

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