Editors Note: This content was originally posted on Substack, located here.
IHS Markit reported on August 20, 2021 that Foresight’s Sugar Camp complex is under an MSHA K order after a combustion event in one of its underground longwall mines. The Sugar Camp complex had two longwalls in operation, one in its MC-Class operation, and one in its Viking operation. This comes at a time when the longwall at Foresight’s Deer Run mine (aka Hillsboro) is also down due to either a methane or carbon monoxide event. Here’s a map of Foresight’s operations from their webpage:
Sugar Camp produces approximately 1 million tons per month from it’s two longwalls, and Hillsboro has historically produced just over 4 million tons per year (when operating). There is reportedly 400,000 tons stockpiled at Sugar Camp, which is an amount that normally would be depleted in a few weeks.
Sugar Camp is the largest Illinois Basin (ILB) operation. It produced 6.69 million tons in the first half of 2021. In 2018, it reached record production at 14.46 million tons. The Sugar Camp complex alone represents over 17% of all ILB volume. Foresight’s fourth longwall, located at its Williamson operation, could possibly be used as a substitute to fulfill their coal supply agreements. However, the Williamson operation is typically dedicated to serving the export market through the Convent Marine Terminal (CMT) in New Orleans (owned and operated by SunCoke Energy). Here’s a pic of CMT, these coals are typically sold into the API2 (Rotterdam) coal markets in Europe:
Nobody knows how long these 3 longwalls will be down however, this unfortunate event comes at a time when electricity generators are scrambling for incremental coal supplies, and they’re having to compete with demand from the export market where prices are booming.
If you look around at the landscape in the ILB, the only operators with potential excess capacity are Alliance Resource Partners (ARLP) and Peabody Energy (BTU). This is an opportunity for ARLP and BTU to capture incremental market share from Foresight, and to layer-into additional spot orders at premium prices for the duration of the year (at least). The impact may not be apparent in the third quarters earnings results but I think it will hit the bottom line in by Q4 2021.
I am going to increase my weighting in ARLP as a result of this, and continue to trade around BTU on the long side as I see fit. I will try to keep an eye on the situation and perhaps upgrade ARLP’s proforma as we move closer to the end of Q3.
Nothing in this Site constitutes professional and/or financial advice, nor does any information on this Site constitute a comprehensive or complete statement of the matters discussed or the law relating thereto. The author of this Site is not a fiduciary by virtue of any person’s use of or access to this Site or it’s Content.
