US coal producer Alliance Resource Partners LP is used to packing train cars and barges full of its black rocks, but lately, it has also been mining and stuffing bitcoins into its digital wallet, accumulating $30.3 million of cryptocurrency as of the end of the first quarter.
That is up from $9.6 million at the end of the fourth quarter of 2023, according to the company's first-quarter earnings release.
"We ended up with about 425 bitcoin at quarter-end in terms of what we own," Alliance CFO Cary Marshall said April 29 during the company's first-quarter earnings call. "We're not actually out there buying bitcoins or anything of that nature. We're mining the bitcoin."
The Eastern US coal producer has been diversifying its operations as domestic coal customers dwindle in a transition to cleaner forms of power generation. Alliance started mining bitcoin in the second half of 2020, the executive said on the call. Though not technically "mining," the energy-intensive computing process for creating bitcoin and other cryptocurrencies has long shared the term with those who extract metal and coal from the ground.
Marshall said the company first started mining bitcoin as a pilot project to monetize the excess power load it had already paid for at its River View mine in Kentucky.
In 2022, Kentucky Utilities Co. submitted to state regulators an electric service contract with Alliance cryptocurrency subsidiary Bitiki-KY LLC, seeking approval to offer it an "economic development rate" for electricity. Bitiki planned to invest approximately $25 million in bitcoin mining facilities at a former coal mine site in Waverly, Ky., creating five new jobs, according to a final order issued by the Kentucky Public Service Commission on Aug. 7, 2023, in which it approved the contract. The 10-year contract included demand charge discount credits for the first five years.
The power contract drew opposition from several groups, including environmental organizations and the Kentucky Solar Energy Society. They suggested that the bitcoin mining operation would create only paltry economic development opportunities, while the economic development tax credits would cost the state an estimated $4.3 million over the contract term, according to a June 2023 filing in the case.
Mining bitcoin cost the company an average of about $24,000 per coin in the first quarter, Alliance CEO Joe Craft said on the earnings call.
"Our costs are lower than where the bitcoin pricing is today," Craft said. "So, we would anticipate continuing to accumulate coins on a monthly basis."
Craft added that Alliance also rents extra capacity to other bitcoin miners in the datacenter, which was built to "take advantage of the low-cost energy we have."
Alliance mined 69 bitcoins in the first quarter and retained 51, selling the remainder to cover operating expenses, Marshall said. According to digital currency news site CoinDesk, the price of a bitcoin was about $64,135 at 8:46 p.m. ET on April 29. Craft estimated that Alliance would mine between 175 and 190 bitcoins this year.
Alliance did not immediately respond to a request for an interview about its bitcoin mining operations. While the company has been mining bitcoin for a few years, it adopted new accounting guidance on Jan. 1 that requires fair value measurement of cryptocurrency assets, with any change in fair value recorded as net income.
Overall, Alliance reported total first-quarter net income of $158.1 million, or $1.21 per unit, down from $191.2 million, or $1.45 per unit, in the year-ago period, as the company's revenues declined and operating costs increased.