Illinois Basin 2014 coal production stays flat while Alliance expands footprint

Production at the largest active coal mines in the Illinois Basin declined slightly in the fourth quarter of 2014 from the previous quarter, but full-year 2014 production was 4.6% higher than the previous year, reflecting continued strong demand for coal from the region.

Output at the 25 most productive mines in the region slipped from 26.8 million tons in the third quarter to 26.4 million tons in the fourth quarter, ending the year with 104.9 million tons, up about 4.6 million tons from 2013 to 2014, according to U.S. Mine Safety and Health Administration data analyzed by SNL Energy.

Led by strong production from Foresight Energy LP and Murray Energy Corp., two of the basin’s largest producers, the modest year to year increase in the region represents one of the few growth stories for a domestic coal industry facing continuing challenges.

Once again, Alliance Holdings GP LP, which includes Alliance Resource Partners LP and Alliance Resource Management, led the production pack for the year with 9.3 million tons at their River View mine. In the quarter, the mine produced 2.4 million tons, compared with 2.2 million tons in the year-ago period.

Alliance saw slight increases from the third quarter at its Elk Creek and Onton No. 9 mines and decreases at its Dotiki, Gibson and Pattiki mines.

The company’s Illinois Basin presence will soon increase with the announced acquisition of approximately 452.2 million tons of regional reserves, which will boost their total coal reserve position by about 50% to 1.6 billion tons.

According to a company earnings release Jan. 28, the transaction cost Alliance $11.5 million in cash and $6.0 million in related reclamation liabilities.

“Our acquisition of an additional 452.2 million tons of Illinois Basin coal reserves provides important growth opportunities for [the company] in the future,” Alliance reported. “We will immediately benefit from acquiring these reserves by expanding our preparation plant at River View in 2015 and adding three more continuous mining units in 2016, increasing River View’s total capacity to 11.2 million tons per year.”

According to an official on the company’s Jan. 28 earnings call, the acquisition allowed Alliance a low-cost option for effectively doubling their reserves. “We felt like that was the best opportunity for us to have a low cost entry of capital with low cost reserves, with low cost transportation. So it just fit our model,” a company official told analysts. “We’ve had our eyes on these reserves for many years. I think with the pressures of the coal business, the owners of these reserves decided that they would rather have the cash than hold onto it for themselves. So the opportunity presented itself in 2014-2015 for us to make that acquisition.”

Foresight Energy, which relies on the Illinois Basin for all of its production output, saw the largest yearly percentage production increase at its MC No. 1 mine, where production soared 40.1% from the prior year. Production, however, slipped from 2.8 million tons in the third quarter to 2.6 million tons in the final quarter of 2014. Production at the company’s Mach No. 1 longwall mine slipped 3.17% for the year. Production at Mach No. 1 declined from 1.7 million tons in the third quarter of 2014 to 1.5 million tons in the final quarter of the year.

Foresight’s indirect parent company, Cline Group LLC, has announced plans to seek out an international presence, including an expansion into Australia and Canada, which would rival the company’s current domestic footprint.

Private coal producer Murray Energy saw production at its American Coal Co. New Era mine continue to recover after a sharp decline in 2013, reporting a modest increase from 1.4 million tons in the third quarter to 1.5 million tons in the fourth, finishing the year with 24.7% improvement over the previous year. Meanwhile, Murray’s New Future mine production climbed from 1.4 million tons to 1.6 million tons quarter over quarter, culminating in a 5.4% increase for the year from 2013.

Peabody Energy Corp. reported increased production for the year at three of four mines the company operates in the Illinois Basin, with its Gateway mine slipping from 600,169 tons in the third quarter to 574,212 tons in the fourth quarter, ending the year with an overall 12.6% decline. The quarter ended what company officials called a turbulent year for Peabody, which saw a reported $513 million loss for the final quarter of the year and a reduced quarterly dividend.

On the company’s quarterly earnings call Jan. 27, Chairman and CEO Gregory Boyce said the company would continue to push for adjustments to help adapt to anticipated challenges in the months ahead.

“Peabody continues to drive improvements in safety, costs and productivity as we respond to challenging market conditions with additional cost reduction programs, capital efficiency initiatives and non-core asset sales,” Boyce said. “While we expect coal fundamentals to improve over time, we are implementing further steps in our comprehensive plan to improve competitiveness and maintain adequate liquidity.”

Arch Coal Inc. reported a mixed quarter, with its partially owned Prairie Eagle — Underground mine output climbing to 879,050 tons in the fourth quarter from 740,465 tons in the previous period. The mine, which Arch owns alongside Coal River Mining LLC, finished the year up 39.6% from 2013. Arch has a 49% equity in the mine’s operator, Knight Hawk Coal LLC.

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