Alliance Resource Partners, L.P. ARLP announced that it has taken certain initiatives to counter the challenges created by the breakout of novel coronavirus. COVID-19 has been spreading like wildfire in the United States and its impact is being felt across the globe. Per Johns Hopkins University and Medicine, this virus has already infected 189,633 people in United States and claimed 4,081 lives. To control further spread of this virus, the guidelines for social distancing will stay in place through Apr 30.
The extended period of lockdown will mean lower demand for electricity from the manufacturing and commercial space. Markedly, coal as an energy source is gradually being replaced by other cleaner sources of fuel to lower emissions. Alliance Resource Partners has decided to withdraw its operational and financial guidance. At present, it anticipates 2020 sales to be at least 25% lower than the prior expectation.
Amid the above scenario, the firm is temporarily ceasing coal production from its Illinois Basin mines through Apr 15, 2020. Future coal production from these mines will be decided depending upon the demand from customers. In addition, the firm will take steps to lower costs, expenses, working capital and capital expenditures to preserve liquidity and withstand the challenges created by depressed commodity prices.
The board of directors has also suspended cash distribution to its unitholders for the quarter ended Mar 31, 2020.
Per U.S. Energy Information Administration (“EIA”), coal’s share in U.S. electricity generation will fall from 24% in 2019 to 21% in 2020 and 2021. EIA forecasts that U.S. coal production will total 573 million short tons (“MMst”) in 2020, indicating a 17% decline from 2019. Coal production can further decline due to coronavirus-induced lockdown in major countries across the globe, which has lowered the demand for coal domestically and internationally.
In addition to lower demand, risks of coronavirus infection among workers could result in forced shutdown of coal mining operation. CONSOL Energy Inc. CEIX has idled its thermal coal mine in Pennsylvania after two workers tested positive for coronavirus.
Per EIA, U.S. coal exports are expected to drop 15.9% to 78.1 MMst in 2020 from the 2019 level. Since the spread of the virus has not yet stopped, lockdowns across the globe are expected to continue lowering the demand for coal, and adversely impacting the prospects of coal producers like Arch Coal ARCH and Peabody Energy BTU, among others.
Alliance Resource currently has a Zacks Rank #3 (Hold).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Units of Alliance Resource have underperformed the industry in the past 12 months.
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