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Alliance Holdings GP, L.P. (AHGP)

Q2 2012 Earnings Call

July 27, 2012 10:00 a.m. ET


Brian Cantrell - SVP and CFO

Joseph Craft III - President, CEO and Chairman


Praveen Narra - Raymond James

Garrett Nelson - BB&T Capital Markets

Chris Haberlin - Davenport & Co

Wayne Atwell - Global Hunter



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Good day ladies and gentlemen and welcome to the second quarter 2012 Alliance Resource Partners L.P. and Alliance Holdings GP earnings conference call. My name is Erica and I will be your coordinator for today. (Operator Instructions) I would now like to turn the presentation over to your host for today’s call Mr. Brian Cantrell, senior vice president and chief financial officer. Please proceed.

Brian Cantrell

Thank you Erica and welcome everyone. Earlier this morning we released 2012 second quarter earnings for both

Alliance Resource Partners or ARLP and Alliance Holdings GP or AHGP and we will now discuss those results as well as our outlook for the remainder of this year. Following our prepared remarks, we will open the call to your questions.

Before beginning, we will start with a few customary reminder. First, AHGP’s only assets are its ownership interest in ARLP, our comments today will be directed to ARLP’s results and outlook unless otherwise noted. In addition, please be aware that some of our remarks may include forward-looking statements that are subject to a variety of risks, uncertainties and assumptions which are contained in our filings from time to time with the Securities and Exchange Commission and are also reflected in today’s press releases from the partnerships.

All these forward-looking statements are based on information currently available to partnerships and those with their general partners and management, if one or more of these risks or uncertainties materialize or if our underlying assumptions prove incorrect, actual results of the partnerships may vary materially from those we projected or expected. In providing these remarks, neither ARLP nor AHGP has any obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

Finally, we will also be discussing certain non-GAAP financial measures. Definitions and reconciliations of the differences between these non-GAAP measures and the most directly comparable GAAP financial measure are contained at the end of the ARLP press release, which has been posted on ARLP’s website and furnished to the SEC on Form 8-K.

Now that we are through the required preliminaries, I’ll start this morning with a review of the partnerships operating and financial results for the 2012 quarter end period. Then turn the call over to Joe Craft, our President and Chief Executive Officer.

It was noted in our release earlier this morning, ARLP once again posted strong results for both of 2012 quarter end and year to date. Looking first at the top line, ARLP posted record revenues in the 2012 quarter of $529.9 million, an increase of 15.7% compared to the 2011 quarter and $973.5 million for the first half of 2012 or 10.5% higher than the 2011 period.

Growth in coal sales revenues during the 2012 quarter was led by record coal sales pricing and volumes. Improved contract price realization at the Illinois Basin and increased sales from Northern Appalachia into the high price metallurgical export markets drove total average coal sales prices higher in the 2012 quarter to a record $59.17 per ton sold, an increase of 5.5% compared to the 2011 quarter.

High Illinois basin sales volumes from the Warrior and newly acquired Onton and the Northern Appalachia from the start-up of longwall production at Tunnel Ridge as well as increased brokered sales volumes, pushed coal sales volumes up 9.8% compared to the 2011 quarter to a record 8.7 million tons.

For the first half 2012 higher sales volumes from the River View and Tunnel Ridge mines as well as the acquisition of the Onton mine more than offset lower sales into the export markets, driving total sales volumes to a record 16.5 million tons, an increase of 6.8% compared to the 2011 period.

Average coal sales prices also increased to a record $57.19 in the 2012 period, rising $2.08 per ton sold compared to the 2011 period. On the strength of record revenue, ARLP also reported record EBITDA of $155.5 million in the 2012 quarter, an increased of 6% compared to the 2011 quarter. compared to the 2011 period, however, EBITDA year to date fell slightly to $287 million due to the passthrough of losses related to ARLP’s investments in the White Oak development project and the impact on margins from lower export sales into 2012 period I mentioned a moment ago.

As anticipated, higher DD&A related to the start of longwall production at Tunnel Ridge and the passthrough of White Oak losses contributed to lower net income in the 2012 quarter which declined 2.8% compared to the 2011 quarter. For the 2012 period, these factors along with reduced export sales volumes and revenue combined to drive net income lower by 7.8% compared to the 2011 period.

Turning now to costs, ARLP’s total segment adjusted EBITDA expense increased to $40.23 per ton sold in the 2012 quarter. Costs in the Illinois basin were impacted the most by lower coal recoveries and difficult mining conditions at Dotiki as this mine continued its transition into the West Kentucky number 13 coal seam and in addition, the acquisition of Onton number 9 mine.

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