Alliance Resource (ARLP) To Cease Production At Dotiki Mine
Zacks Investment Research | Aug 11, 2019 11:07PM ET
Alliance Resource Partners, L.P. (NASDAQ:ARLP) recently announced that it will shut operations at its Dotiki Mine from Aug 16, 2019. However, the company believes that the action will have no impact on the expected production and sales volume of 2019. Thus, Alliance Resource reaffirmed its full-year guidance.
Focus on Low Cost Mines
Dotiki mine is an underground complex in Kentucky and is operated by the partnership’s subsidiary— Webster County Coal, LLC — under its Illinois Basin reportable segment. In 2018, the partnership recognized $40.5 million of non-cash impairment charges, which comprise $34.3-million impairment related to the reduction of the economic mine life at Dotiki.
The coal industry is currently going through a very difficult phase. In the past few years, lower demand, rising competition from clean energy sources and increasing emission awareness have impacted coal players. The companies are trying every possible way to reduce cost of operation and survive. Alliance Resource decided to focus on other low-cost mines in Illinois Basin, while shutting Dotiki Mine. The move is in sync with the partnership’s goal to maximize production from low cost mines.
Other Initiatives
Apart from maximizing low-cost coal production, Alliance Resource is also shifting its focus to minerals. In June, the partnership announced a definitive agreement to acquire oil and gas mineral interests from Wing Resources LLC and Wing Resources II LLC. In January, the partnership acquired limited partnership interest in AllDale Minerals III, L.P.
All these acquisitions indicate the partnership’s focus to revamp the oil and gas minerals segment as a growth platform for the future. Per U.S. Energy Information Administration (EIA), crude oil production will average 12.3 million barrels per day (b/d) in 2019 and 13.3 million b/d in 2020. We believe that the partnership’s focus on oil-rich assets will provide it another alternate revenue source.
Other Developments in Coal Industry
Other companies involved with coal are also making mergers or acquisitions to maintain footing amid the current scenario. Recently, Peabody Energy Corporation (NYSE:BTU) and Arch Coal Inc (NYSE:ARCH) decided to form a joint venture by merging some of their productive coal mines in Powder River Basin and Colorado. The joint venture has the potential to deliver desired results and lower cost of operations.
SunCoke Energy (NYSE:SXC) recently announced that it has completed the acquisition of all remaining outstanding common units of its sponsored master limited partnership (MLP) subsidiary — SunCoke Energy Partners, L.P. A simplified large publicly-traded company increases liquidity in the market and enhances free float as well as increases growth opportunities.
Zacks Rank & Price Performance
Alliance Resource currently carries a Zacks Rank #5 (Strong Sell).
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