Further Exploring The Uppercase Intensity Of Alliance Resources

In the last postal service of my Alliance series I demonstrated on telephone substitution operating metrics that Alliance Resource Partners was non only a bad coal mining functioning - it was a flat-out terrible operation.

It had raised its majuscule intensity 350 percent, substantially reduced the degree of the coal it exported together with reduced task productivity over twenty percent. And it had kicking the bucket more bureaucratic at the same time.

Moreover the maintenance majuscule expenditure per ton produced has risen from 43c to over $8. These seem to live fairly brittle machines - lay a ton of coal through the chute together with yous bring induced $8 of repair obligations on the kit. Like wow - imagine all the people running roughly repairing stuff.

This is - to lay it mildly - surprising. It is surprising because Alliance Resource Partners is the highest valued coal mining functioning inwards America alongside the best performing stock. There is at this fellowship a very large disconnect between operational performance together with fiscal performance.

To live fair though - rising majuscule intensity is a work across the manufacture (it is only to a greater extent than intense at Alliance). Peabody is the biggest coal mining fellowship - together with a adept comparable.

In 2000 Peabody had $5.2 billion of property, plant, equipment together with mine evolution alongside which they produced roughly 190 1000000 tons. That was roughly $27 of PP&E per ton. (Many of Peabody's tons are lower-quality Powder River Basin tons.)

By 2000 Peabody had 15.4 billion inwards gross PP&E was 225 1000000 tons. The majuscule required per ton was at in i lawsuit $68.4. The majuscule intensity had gone upward 2.5 times. Clearly this is an manufacture tendency - albeit a worse tendency at Alliance than at Peabody.

Employee numbers had moved from 7200 to 8200. Tons per employee so moved from 26,400 to 27,400 - a slight improvement inwards task productivity.

Peabody does non separately position maintenance majuscule expenditure - but suffice to notation that Peabody's full majuscule expenditures per ton are good below Alliance's maintenance majuscule expenditures per ton. Peabody's equipment is clearly less fragile...

The same trends are everywhere I look. The manufacture has substantial increases inwards majuscule intensity - but non equally intense equally Alliance Resources, but marginal improvements inwards task productivity. It is on the task productivity metric that Alliance stands out most intensely. Alliance has declining task productivity.

However only how startling Alliance is is meliorate demonstrated when yous await exclusively at the constitute together with equipment component division of belongings constitute together with equipment.

You see, most of the PP&E at Peabody is province together with coal interests - only the correct to mine. This is the breakup:

Peabody - $million - 2012
Property, plant, equipment together with mine development
Land together with coal interests	10947.7
Buildings together with improvements	1321.3
Machinery together with equipment	3162.2
Less: accumulated depreciation, depletion together with amortization	-3629.5
Property, plant, equipment together with mine development, net	11801.7

Peabody is exclusively using roughly $4.5 billion gross inwards buildings, improvements mechanism together with equipment. And it produces 225 1000000 tons annually.

Alliance Resource partners $million
Mining equipment together with processing facilities	1435
Land together with mineral rights	304
Buildings, exercise equipment together with improvements	208
Construction inwards progress	130
Mine evolution costs	285
Property, constitute together with equipment, at cost	2362
Less accumulated depreciation, depletion together with amortization	−832
Total property, constitute together with equipment, net	1530

Alliance it seems uses over $1.6 billion (gross) inwards mining improvements, processing facilities together with edifice improvements to gain almost 35 1000000 tons of coal annually.

To lay it mildly - Alliance Energy uses a lot of machines both relative to contest together with relative to its size together with relative to its history.

This matter keeps installing machines together with its task productivity keeps falling.

Very strange. Doubly foreign because the profitability measures at Alliance are together with then outstanding.





John