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Obscure Coal CEO Rains Money on Trump While Outflanking Rivals

Obscure Coal CEO Rains Money on Trump While Outflanking Rivals

Wednesday, 19 July 2017 08:07 AM

Coal mogul Joseph Craft was at a Department of Energy conference last month where everyone was reveling in President Donald Trump's call to achieve "global energy dominance."

A big-oil chief wanted more exports of America's oil and natural gas riches. A union leader called for more investments in energy infrastructure. And Craft? More coal, of course.

"We have been the backbone of the economy" the 66-year-old chief executive officer of Alliance Resource Partners LP declared. "Obviously, we can't have 'Energy Dominance' without coal."

That's Craft's bet, anyway. But he's got some credibility to talk up his book. He steered Alliance Resource through the teeth of the industry's worst downturn in generations and came out largely unscathed. For 17 straight years, Alliance has turned an annual profit and in 2016, when Peabody Energy Corp. and Arch Coal Inc. were mired in bankruptcy, the nation's sixth biggest coal miner was making more money than any of its U.S. rivals.

Little known to the general public, the camera-shy Craft is now being thrust into the spotlight. In January, he donated $1 million for Trump's inauguration. In March, he sat front and center at the Environmental Protection Agency as the president signed an executive order and declared the "war on coal" over. And he's well-connected: Craft's wife, Kelly Knight Craft, a political fundraiser in her own right, has been nominated as U.S. ambassador to Canada.

In Trump, Craft sees a return to the pro-coal policies that lured him into the industry four decades ago -- and reason to believe Alliance can keep growing into the 2020s.

"Some people don't like his style," he said of Trump at an investor conference in Florida this June. "But you can't argue with the substance."

Craft's bullish view on coal runs up against staggering trends going in the opposite direction. Since 2008, U.S. production of the fossil fuel has fallen 40 percent, to 728 million tons last year.

In April, coal generated just 28 percent of America's electricity, about half the share it had when George W. Bush was president. Cheap gas, wind and solar power, tougher environmental policies and flat electricity usage in the U.S. have all played a part in coal's decline. Few experts predict a rebound.

But amid the carnage, Alliance Resource is better-positioned to thrive than most peers. Its customers -- a few dozen power plants in states from Florida to Indiana, Alabama to West Virginia -- are located too far from America's prolific shale-gas fields to switch energy sources, he said at the Florida conference.

Craft insists he can supply them with cheap-enough coal from his eight non-union mines to make burning the rock worth their while. While Alliance's revenue and earnings declined last year -- when it cut production and its dividend to weather the collapse in demand -- he predicts the company can get back to growing production by about 5 percent annually over the next several years.

"They've stuck to their own knitting, kept their heads down and kept costs low without much debt," said Mike Dudas, an analyst at Vertical Research Partners LLC. "Without question, they've managed through the category 3 hurricane in the industry."

Craft declined to comment for this story.

His name looms large in Kentucky, where he grew up (in Hazard) and later attended the University of Kentucky. At his alma mater, the mine-engineering program has a special professorship named after Alliance Coal. The school's powerhouse basketball teams practice in the $30 million Joe Craft Center. The men's squad lives in a building Craft helped bankroll -- the "Wildcat Coal Lodge."

He's long given to political candidates in Kentucky and nationally. In the 2016 campaign season, Craft donated at least $1.3 million to Republican candidates and GOP political action committees and other organizations, according to U.S. Federal Election Commission filings. His wife donated at least $500,000, including two payments totaling about $265,000 to Trump Victory, FEC filings show.

Craft's career took off while working at Mapco Inc., a pipeline company based in Tulsa, Oklahoma that had diversified into other energy sectors. He was named head of the coal division in 1986 and, 10 years later, led a management buyout of that unit. In 1999, he took Alliance public as a master-limited partnership, the industry's first such entity. The tax-friendly business model forces a company to produce consistently high levels of cash flow that it returns to investors. 

Craft had inherited a company with substantial operations in the Illinois and Appalachia coal basins, where much of the coal has high levels of sulfur. That type of coal fell out of favor with many utilities after the 1990 Clean Air Act amendment that aimed to cut down on acid rain.

But Craft and a handful of other coal executives saw an opportunity. During the late 1990s and early 2000s, they bought up additional reserves of that high-sulfur coal on the cheap, betting successfully that more utilities would install scrubber technology to remove the sulfur-dioxide rather than ship in low-sulfur coal from as far away as Wyoming. Between 2000 and 2015, Illinois coal production grew almost 70 percent to 56 million tons.

"He made the right move," said George Dethlefsen, CEO of Corsa Coal, which produces the metallurgical coal used in steelmaking. "He's stayed true to his strategy arguably better than anyone else in the industry."

For all the industry's complaints about tough regulation under Barack Obama, the real crusher for several coal giants was self-inflicted. In 2010 and 2011, amid skyrocketing prices tied to booming Chinese demand, Peabody Energy, Arch Coal and Alpha Natural Resources Inc. took out multi-billion dollar loans to make big acquisitions -- right before the market crashed.

Craft, displaying his characteristic restraint, stayed away from any big deals. By 2015, Alliance had methodically grown to produce a record 41 million tons, just when many of his rivals were flailing.

At the Department of Energy panel, Craft called on the federal government to prevent more coal-fired power plants from shutting down and to come up with a way to make building new ones economical.

But even with Trump's regulatory rollbacks and promises to bring coal jobs back, competitive challenges remain in a world that appears mostly united in cutting carbon emissions to combat climate change.

"He can't change that in the end," said Tom Sanzillo, director of finance at the Institute for Energy Economics and Financial Analysis. "But in the meantime, he's running a disciplined operation."

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Coal mogul Joseph Craft was at a Department of Energy conference last month where everyone was reveling in President Donald Trump's call to achieve "global energy dominance." A big-oil chief wanted more exports of America's oil and natural gas riches....
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Wednesday, 19 July 2017 08:07 AM
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