ARLP or Alliance Resource Partners, LP, is another commodity-based company whose stock price has benefitted greatly from the recent commodity boom.
The company’s stock price has been on a tear as of late, rising more than 300% in just a year.
As shown in the snapshot above, ARLP’s stock price was traded at around $7.59 USD per share as of August 2021, one of the highest levels in the last 52 weeks.
Unlike Peabody (BTU) and Arch Resources (ARCH) whose mining operations have been primarily on coal, Alliance Resource Partners is a diversified natural resource company that generates income not only from coal mining but also from oil & gas mineral interests located in strategic regions across the United States.
While ARLP gets its revenue source from multiple channels, its primary source of income is still coming from coal sales.
In fiscal 2020, 2019 and 2018, ARLP’s revenue from coal sales alone took up more than 90% of the company’s total sales and operating revenues.
Therefore, ARLP is still pretty much a coal company with the majority of its sales coming from coal mining.
In this article, we will take a look at ARLP’s coal sales volume, including the coal sales by segment, coal royalties, and the profitability of each segment.
ARLP’s profitability by segment is reflected in the adjusted EBITDA margin per ton and adjusted EBITDA margin provided by the company.
So, let’s check them out!
ARLP’s Total Coal Sales And Coal Sales By Segment
Let’s first look at ARLP’s total coal sales and coal sales breakdown as shown in the chart above.
ARLP’s coal sales are broken into 2 segments, namely Illinois Basin and Appalachia.
In terms of total coal sales, ARLP reported a figure of 28.2 million tons in fiscal 2020, representing a year-on-year decline of as much as 28%.
Also, the FY2020 coal sales volume is the lowest since fiscal 2018, driven primarily by lower energy consumption due to the COVID-19 pandemic.
However, ARLP expects coal sales volume to be recovering going into fiscal 2021 at 32.9 million tons, about 17% higher compared to the figure reported in 2020.
The same goes for the coal shipment from the Illinois Basin and Appalachia in which a significant recovery is expected in fiscal 2021.
In this regard, ARLP expects to ship 22.9 million tons and 10.1 million tons of coals from the Illinois Basin and Appalachia segment, respectively, by the end of fiscal 2021.
Despite a higher coal sales volume in fiscal 2021 compared to 2020, it will still be significantly lower compared to historical figures, thereby underscoring the continuous downtrend of ARLP’s coal sales on a long-term basis.
ARLP’s Total Coal Sales By TTM
The TTM plot in the chart above is highlighting the trend of ARLP’s coal sales on a quarterly basis.
According to the chart, ARLP’s total coal sales have been on a decline since fiscal 2019 but the downtrend seems to have bottomed out in 1Q 2021 at 27.8 million tons.
In fiscal 2021 2Q, ARLP’s total coal sales have ticked higher to 30.4 million tons, marking the first sequential increase in more than a year.
ARLP’s Coal Sales By Segment
Similarly, ARLP’s coal sales from the Illinois Basin and Appalachia have both recovered as of fiscal 2Q 2021 and turned significantly higher to 20.9 million tons and 9.6 million tons, respectively, on a TTM basis.
On a side note, ARLP’s coal sales from the Illinois Basin are more than twice the volume of coal sales that come from the Appalachia in fiscal 2Q 2021.
For your information, the majority of the coal sold from the Illinois Basin and Appalachia went to electric utilities for power generation purposes.
While ARLP’s coal sales volume has turned higher in fiscal 2Q 2021, they are still significantly down from their historical highs, illustrating that coal shipment volume is still on a declining trend on a long-term basis.
ARLP’s Coal Royalties Sales Volume
In addition to running its own mining operations, ARLP also leases some of the mine complexes that it owns to some of its subsidiaries.
For this reason, ARLP gets a portion of the revenue from the leasing of the mine complexes as coal royalties.
ARLP’s coal royalties sales volume is shown in the chart above on a quarterly basis.
While ARLP’s coal royalties sales volume reported in fiscal 1Q 2021 is still slightly lower than the figure a year ago, the respective sales volume turned significantly higher in fiscal 2Q 2021 on a year-on-year basis.
As of fiscal 2Q 2021, ARLP’s coal royalties sales volume measures at 4.7 million tons, a nearly 40% increase over the same quarter a year ago.
ARLP’s Total Coal Sales Adjusted EBITDA Margin Per Ton
The adjusted EBITDA margin per ton is a measure of the profitability of the coal sales on a per ton basis.
According to the chart above, ARLP’s total coal sales adjusted EBITDA margin per ton is significantly higher in fiscal 2021 compared to fiscal 2020.
Respectively, the company’s total coal sales adjusted EBITDA margin clocked in at 32.9% and 29.4% in fiscal 2Q and 1Q 2021, which are much higher than the figures reported in the same quarter a year ago.
In short, ARLP earned a much better profit in fiscal 2021 for coal sales on a per ton basis than in fiscal 2020.
ARLP’s Coal Sales By Segment Adjusted EBITDA Margin Per Ton
On a by-segment basis, both Illinois Basin and Appalachia coal sales adjusted EBITDA margins per ton are seen recovering in fiscal 2021 compared to 2020.
In fiscal 2Q 2021, the Illinois Basin adjusted EBITDA margin per ton clocked in at 33.3%, nearly double the figure reported a year ago.
Similarly, ARLP reported an adjusted margin per ton of as much as 35.7% for the Appalachia segment in fiscal Q2 2021, nearly 10ppt higher than the figure reported a year ago.
While the coal shipment volumes in the Illinois Basin have been doubled that of Appalachia all these years, their adjusted EBITDA margins per ton have been relatively the same except for fiscal 2020.
In fact, the Appalachia adjusted EBITDA margins per ton have slightly surpassed that of the Illinois Basin in most of the quarters as shown in the chart.
Therefore, the Appalachia coal sales are much more profitable than the Illinois Basin coal sales due to the lower shipment volume but higher EBITDA margin per ton.
ARLP’s Coal Royalties Adjusted EBITDA Margin
Of all segments of coal sales, ARLP’s coal royalties garnered the highest adjusted EBITDA margin among all segments at more than 50% as shown in the chart above.
Additionally, ARLP’s coal royalties adjusted EBITDA margins are seen gaining higher in fiscal 2021 compared to 2020.
Respectively, ARLP reported an adjusted EBITDA margin of 58% and 64.6% in fiscal 2Q and 1Q 2021, which are considerably higher than the figures in 2020.
Despite the higher profitability, ARLP’s coal royalties contributed only 5% of the total adjusted EBITDA in fiscal 2Q 2021 and about 7% in fiscal 1Q 2021.
ARLP is still pretty much a coal mining company with more than 80% of the adjusted EBITDA coming from coal sales in fiscal 2Q 2021.
Out of the 30 million tons of coal sales reported in 2Q 2021, about 21 million tons or 70% of the total came from the Illinois Basin whereas the rest or 10 million tons were from the Appalachia.
Aside from mining operations, ARLP also leases some mine complexes to its subsidiaries.
In return, the company gets a fair share of the coal sales that come from these complexes as coal royalties.
However, coal royalties adjusted EBITDA contributed only 5% to the total adjusted EBITDA in fiscal 2Q 2021 and 7% in fiscal 1Q 2021.
Of all coal sales, ARLP’s coal royalties are the most profitable at more than 50% of the adjusted EBITDA margin whereas the Illinois Basin, as well as the Appalachia segment, reported a 30% plus adjusted EBITDA margin per ton in fiscal 1Q and 2Q 2021.
Despite a challenging year in fiscal 2020, ARLP expects to ship a higher coal volume in fiscal 2021 but the projected figures are still way below their historical highs, underscoring the long-term downtrend of the coal industry.
References And Credits
1. Financial data in this article was obtained and referenced from Alliance Resource Partners, LP’s financial statements which are available in ARLP’s Quarterly and Annual Results.
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