Steep declines in Alliance Resource Partners' second quarter of 2020 coal sales and revenues arrived as expected after the US producer idled mines, but its executives are more optimistic about the second half of the year and 2021 as consumption by domestic generators is starting to increase.
"The first half of 2020, presented many challenges due to the COVID-19 pandemic, which negatively affected economic activity around the globe, resulting in lower demand for coal, oil and natural gas," CEO Joseph Craft said July 27 during the company's Q2 earnings call.
"The entire energy industry, including [Alliance], has had to react quickly to the rapid loss of demand," Craft said. "Year-over-year power demand in the eastern United States declined 7% during the first half of 2020, with coal-fired generation falling by a third compared to the first six months of 2019."
Driven by the resultant lockdowns and decline in demand, Alliance temporarily idled mines in the Illinois Basin and East Kentucky in order to reduce production enough to match existing sales commitments of about 28 million st for all of 2020, Chief Financial Officer Brian Cantrell said.
Alliance sold nearly 5.2 million st of coal in Q2, down 49.2% compared with the year-ago quarter.
Of those tons, about 3.4 million st were from the Illinois Basin, down 55.7% year on year, and 1.8 million st from Appalachia, down 30.7% on the year.
In the Illinois Basin, the company's output was sold at an average of $40.05/st, compared with $39.91/st in the year-ago period, while the average price per ton in Appalachia was $55.62/st, down from $59.63/st.
The company's Q2 output totaled 4.3 million st, down 57% year on year.
Additionally, the producer had to furlough more than half its workforce for most of the quarter as production was cut back.
All seven of Alliance's mining operations are now producing, although at different rates given the limited domestic spot market and an uneconomic seaborne market.
While the Warrior and Mettiki mines are currently running at full capacity, River View will be back to normal capacity by August and the MC complex is scheduled to be at full capacity by the end of the year. On the other hand, the Tunnel Ridge mine is working on reduced shifts alongside Hamilton mine and Alliance's Gibson operations since the Indiana marketplace is oversupplied.
Alliance posted a net loss of $46.7 million in Q2, compared with a net profit of $58.1 million in the year-ago quarter.
Its revenues totaled $255 million, down 50.6% year on year. The producer's coal segment posted revenue of $236 million, down 48.8% on the year.
"While financial and operating results for the 2020 quarter were significantly lower compared to the sequential quarter, [Alliance's] performance actually came in slightly better than we expected," Cantrell said, considering the impact of the coronavirus pandemic and subsequent shutdowns.
2020 expectations
"While the pandemic continues to create uncertainty in the global economy and suppress energy demand, our customers have indicated their intention to take all tons contracted for this year, in most cases, at the minimum levels," Craft said.
Craft noted recent "encouraging signs," particularly improved economic activity and favorable weather patterns for increased electricity demand.
Power demand jumped 55% month on month in June, marking the second consecutive month of increased coal burn and pushed utility coal stockpiles lower for the first time since August 2019.
Current 2020 targets include production and sales volumes of 27 million st and 28 million st, respectively.
Contracted tons for 2021 sit at over 17 million st, Craft said, adding that the company hopes to be near 2019 levels in 2021, based on conversations with customers and domestic sales expectations.
