Alliance Resource Partners Q3 2024 Earnings Report

Alliance Resource Partners EPS Results

• Actual EPS: $0.66
• Consensus EPS: $0.82
• Beat/Miss: Missed by -$0.16
• One Year Ago EPS: $1.18

Alliance Resource Partners Revenue Results

• Actual Revenue: $613.57 million
• Expected Revenue: $646.17 million
• Beat/Miss: Missed by -$32.60 million
• YoY Revenue Growth: N/A

Alliance Resource Partners Announcement Details

• Quarter: Q3 2024
• Date: 10/28/2024
• Time: Before Market Opens
• Conference Call Date: Monday, October 28, 2024
• Conference Call Time: 10:00AM ET

Alliance Resource Partners (NASDAQ:ARLP) (NASDAQ: ARLP) is a Tulsa, Oklahoma–based master limited partnership engaged in the production, marketing and transportation of bituminous coal. Through its subsidiaries, the company develops, owns and operates surface and underground coal mines, providing fuel primarily for electric power generation and various industrial applications. Alliance’s integrated business model covers the extraction of raw coal, processing at preparation plants and delivery to domestic and export customers.

The partnership operates multiple mining complexes across Illinois, Indiana, Kentucky and West Virginia. Alliance’s marketing organization arranges rail, barge and truck logistics to deliver both steam coal for utilities and specialty coals for steel mills and cokeries. By leveraging long-term transportation agreements and an extensive railcar fleet, Alliance seeks to ensure reliable coal supply chains in regions served across the central and eastern United States.

Founded in the early 1990s and headquartered in Tulsa, Alliance Resource Partners has grown through disciplined acquisitions and organic expansion of its mining footprint. Joseph W. Craft III serves as Chairman and Chief Executive Officer, overseeing strategic initiatives and operational performance. Alliance maintains a board of directors drawn from mining, energy and financial backgrounds, positioning the partnership to navigate evolving market dynamics while continuing to supply baseload energy requirements.

Alliance Resource Partners Q3 2024 Earnings Call Transcript

Key Takeaways

• Coal sales shipments rose 6.7% sequentially and 11.9% domestically, and proactive production cuts reduced coal inventory by over 500,000 tons toward a year-end target of 500k–1M tons.
• Coal sales price per ton fell 2.1% year-over-year (down 5.8% in Appalachia) and EBITDA expense per ton jumped 11.9%, squeezing margins.
• Oil & gas royalty volumes grew 11.9% year-over-year to 864,000 BOE driven by Permian well activity, but realized prices dropped nearly 10%, offsetting gains.
• 2025 committed coal tonnage increased by 5.9 million tons with strong domestic contracting, boosting the 2025–2030 order book to near historical levels.
• The partnership generated $209.3 M of cash from operations, maintained a 0.64x leverage ratio and $657.7 M liquidity, while major capital projects underway should lower costs starting in early 2025.

Presentation

[Operator]

Greetings, and welcome to Alliance Resource Partners LP Third Quarter 2024 Earnings Conference Call. At this time, participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Cary Marshall, Senior Vice President and Chief Financial Officer. Thank you. You may begin.

[Cary P. Marshall, SVP and CFO at Alliance Resource Partners LP]

Thank you. Good morning, and welcome, everyone. Earlier this morning, Alliance Resource Partners released its third quarter twenty twenty-four financial and operating results, and we will now discuss those results, as well as our perspective on current market conditions and outlook for twenty twenty-four. Following our prepared remarks, we will open the call to answer your questions. Before beginning, a reminder that some of our remarks today may include forward-looking statements subject to a variety of risks, uncertainties, and assumptions contained in our filings from time to time with the Securities and Exchange Commission and are also reflected in this morning's press release. While these forward-looking statements are based on information currently available to us, if one or more of these risks or uncertainties materialize, or if our underlying assumptions prove incorrect, actual results may vary materially from those we projected or expected.

[Cary P. Marshall, SVP and CFO at Alliance Resource Partners LP]

In providing these remarks, the partnership has no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise, unless required by law to do so. Finally, we will also be discussing certain non-GAAP financial measures. Definitions and reconciliations of the differences between these non-GAAP financial measures and the most directly comparable GAAP financial measures are contained at the end of this morning's press release, which has been posted on our website and furnished to the SEC on Form 8-K. With the required preliminaries out of the way, I will begin with a review of our results for the third quarter, touch on our guidance for the year, and then turn the call over to Joe Craft, our Chairman, President, and Chief Executive Officer, for his comments.

[Cary P. Marshall, SVP and CFO at Alliance Resource Partners LP]

Starting with our coal operations, our performance during the third quarter of 2024, which we refer to as our 2024 quarter, continued to be impacted by persistently low natural gas prices, low export market activity, and difficult mining conditions at our Appalachian operations. However, our total and domestic coal sales shipments did improve from the previous quarter, increasing 6.7% and 11.9%, respectively. Additionally, in response to the soft market conditions, we took proactive steps during the third quarter to more closely align production with shipments. The increased shipments and adjustments to production resulted in a reduction of our coal inventory by over 500,000 tons, which we expect will continue to decline over the coming months to an end-of-year target range of 500,000 to 1 million tons.

[Cary P. Marshall, SVP and CFO at Alliance Resource Partners LP]

Coal sales volumes of 8.4 million tons were essentially in line with the 2023 quarter and increased 6.7% sequentially, while coal production of 7.8 million tons declined 7.2% year over year and 8.1% sequentially. In the Illinois Basin, tons sold increased by 3.1% sequentially due to higher sales volumes from our Riverview and Hamilton mines. In Appalachia, tons sold increased by 16.9% in the 2024 quarter compared to the sequential quarter, primarily due to improved conditions on the Ohio River, allowing for higher shipments from our Tunnel Ridge operation.

[Cary P. Marshall, SVP and CFO at Alliance Resource Partners LP]

For the 2024 quarter, coal sales price per ton sold of $63.57 was down 2.1% year over year and 2.6% sequentially, primarily due to lower Appalachia volumes and pricing related to our export sales from our MC Mining and Mettiki operations. Appalachia coal sales price per ton declined 5.8% and 7.7% compared to the prior year and sequential quarters, respectively. Segment adjusted EBITDA expense per ton sold was $46.11 during the 2024 quarter, increasing 11.9% year over year and 1.6% sequentially. In Appalachia, segment adjusted EBITDA expense per ton sold increased 19.3% versus the 2023 quarter, but declined 1.3% versus the sequential quarter.

[Cary P. Marshall, SVP and CFO at Alliance Resource Partners LP]

The increase in year-over-year costs was due to a longwall move at our Tunnel Ridge operation, higher subsidence costs, and challenging mining conditions at all three Appalachia operations that lowered recoveries and increased costs related to roof control and maintenance. In the Illinois Basin, segment-adjusted EBITDA expense per ton sold was $37.79, an increase of 7.2% year-over-year and 1.2% sequentially. The increase versus the 2023 quarter was due primarily to lower shipments and an extended longwall move at our Hamilton operation due to high inventories at the mine.

[Cary P. Marshall, SVP and CFO at Alliance Resource Partners LP]

Turning to our oil and gas royalty segment, our third quarter volumes reached 864,000 barrels of oil equivalent, or BOE, representing an 11.9% increase year over year and a 5.8% increase sequentially, driven by new well activity on our royalty acres in the Permian Basin. Higher volumes were largely offset by lower commodity pricing for crude, natural gas, and NGLs. Average realized sales prices per BOE were down 9.8% versus the 2023 quarter and down 10.6% sequentially. During the 2024 quarter, our coal royalty segment reported a 2.3% increase in coal royalty volumes and a 3% decrease in coal royalty revenue per ton compared to the prior year. Sequentially, coal royalty tons were up 2.7%.

[Cary P. Marshall, SVP and CFO at Alliance Resource Partners LP]

Overall, consolidated revenue was $613.6 million, down 3.6% from $636.5 million in the year-ago period. Sequentially, consolidated revenue was up 3.4% due to higher coal sales tons. Our net income for the 2024 quarter attributable to ARLP was $86.3 million, or $0.66 per unit, which compares to $153.7 million or $1.18 per unit in the year-ago period. Adjusted EBITDA in the 2024 quarter was $170.4 million, which compares to $227.6 million in the prior year period. These decreases reflect the lower revenues and higher total operating costs previously disclosed. Now turning to our balance sheet and uses of cash.

[Cary P. Marshall, SVP and CFO at Alliance Resource Partners LP]

Alliance generated $209.3 million of cash flow from operating activities in the 2024 quarter, compared to $215.8 million in the sequential quarter, invested $110.3 million in capital expenditures, and paid our quarterly distribution of $0.70 per unit. At quarter end, our total and net leverage ratios were 0.64x and 0.39x total debt to trailing twelve months adjusted EBITDA, and liquidity was $657.7 million, which included approximately $195.4 million of cash on the balance sheet. During the 2024 quarter, we continued to make good progress on all of the capital and infrastructure projects at our operations that we have discussed throughout previous earnings calls.

[Cary P. Marshall, SVP and CFO at Alliance Resource Partners LP]

The new portal at our Warrior operation should be occupied by the beginning of 2025, which will consolidate three portals into one and generate meaningful expense savings. The West Alexander portal at Tunnel Ridge is anticipated to be fully completed by the beginning of 2025, and will allow us to access better mining conditions than the current panel and reduce overtime and other expenses next year. We are beginning to receive shipments of the new longwall shields at our Hamilton operation and anticipate all of the shields to be delivered and in place in mid-2025, which we expect will enhance productivity and generate considerable maintenance-related savings for Hamilton at that time. Finally, at the Riverview Complex, the Henderson County Mine inter-seam slope is approaching completion one month ahead of schedule. The first unit is now scheduled to start December 1.

[Cary P. Marshall, SVP and CFO at Alliance Resource Partners LP]

By September of twenty twenty-five, we expect the production mix at the Riverview Complex will be three units at the Riverview Mine and six units at the Henderson County Mine. This project, when completed, should also contribute to lower operating costs per ton beginning next year from our Riverview Complex, with the full benefit of the investment occurring in twenty twenty-six. Now turning to our guidance. Based on our results year-to-date, current visibility into our order book, and outlook for markets through year-end, we are maintaining our full year guidance for coal sales volumes, coal sales price per ton sold, segment adjusted EBITDA expense per ton sold, royalties volumes, and royalties unit expenses.

[Cary P. Marshall, SVP and CFO at Alliance Resource Partners LP]

We now expect total coal volumes and realized coal sales prices to be closer to the bottom of their respective ranges, and for segment adjusted EBITDA expense per ton to be at the high end of the range. For modeling purposes, the two longwall moves previously scheduled for the fourth quarter of this year at Tunnel Ridge and Mettiki are now planned to occur in the first quarter of twenty twenty-five, leaving one in the fourth quarter at our Hamilton Mine. We made some minor adjustments to our twenty twenty-four committed and priced sales tons to reflect modest net contracting activity and movement in the timing of customer shipments that occurred during the twenty twenty-four quarter. At the end of the twenty twenty-four quarter, our committed tonnage for twenty twenty-four was 33.4 million tons.

[Cary P. Marshall, SVP and CFO at Alliance Resource Partners LP]

Of that total, 28.2 million tons are currently committed to the domestic market, while 5.2 million tons are committed to the export markets. More notably, we increased our committed tonnage for 2025 by 5.9 million tons, with significant contracting activity from our domestic customers. In total, we are in the process of finalizing new contract commitments for approximately 21.7 million tons over the 2025 to 2030 time frame. We are also in active discussions with our customers to add to future commitments that, if secured, will lift our 2025 domestic sales order book to a level near our historical contracted positions heading into the new year. The remainder of our guidance ranges remain the same. And with that, I will turn the call over to Joe for comments on the market and his outlook for ARLP. Joe?

[Joseph W. Craft III, Chairman, President and CEO at Alliance Resource Partners LP]

Thank you, Cary, and good morning, everyone. I want to begin my comments by thanking the entire Alliance organization for their resilience, continued hard work, and dedication. At our coal operations, we had our lowest injury rate for a quarter since the fourth quarter of 2017, excluding the 2020 COVID-impact quarters. Every operation safety statistics have improved from 2023 to 2024. Our results year-to-date are currently 32% below the ARLP 2023 year-end comparable incident rate. In addition to the excellent safety results, Alliance had two national champions from the National Mine Rescue Contest in August. Jake Sayre from Tunnel Ridge in the bench competition, and James Forrest from Warrior in the pre-shift competition. Congratulations to Jake and James. Cary did an excellent job summarizing challenging near-term market conditions and adverse mining conditions that impacted our third quarter 2024 results.

[Joseph W. Craft III, Chairman, President and CEO at Alliance Resource Partners LP]

Unfortunately, the hotter-than-normal weather we saw at the start of the summer in several regions of the country failed to carry through in the back half of the 2024 quarter, limiting spot domestic sales opportunities and caused shipments on some of our higher contracted coal sales to be deferred. This, coupled with export pricing, keeping us out of the market, led to our sales volumes being below expectations for the 2024 quarter. During the 2024 quarter, our coal segment operating team focused on improving the safe operation of our facilities, providing reliable service to our customers, managing through difficult operating conditions, and adjusting production lower to meet demand. During the quarter, we advanced major capital and infrastructure projects at our Tunnel Ridge, Hamilton, Warrior, and Riverview complexes as part of our stated long-term commitment to our customers and our operations.

[Joseph W. Craft III, Chairman, President and CEO at Alliance Resource Partners LP]

These investments will make our operations more productive, improve their future cost structure beginning in early 2025, and extend their mine lives, allowing us to remain the most reliable, low-cost producer in our operating regions for many years to come. The overall mild summer that followed a mild winter last year continues to impact prompt coal demand. However, looking at the intermediate and longer term, the underlying coal demand fundamentals of nontraditional demand growth from data centers, AI, and onshoring of manufacturing capacity are accelerating, particularly in the markets we serve in the Midwest, Mid-Atlantic, and Southeast United States. On October 16, the Federal Energy Regulatory Commission hosted a major conference focused on electric reliability. Participants discussed the urgent need to preserve baseload generation to meet the growing demand for electricity.

[Joseph W. Craft III, Chairman, President and CEO at Alliance Resource Partners LP]

Recent integrated resource plans filed by utilities also support the view that power demand will exceed generating supply, increasing dangers to grid reliability. The harsh reality is that the push to electrify many aspects of our economy, coupled with accelerating computation and storage speed demand, requires more generation capacity than our current renewables-based energy policy can provide. The sources of this new demand require 24/7 reliability, which we believe only fossil fuel and nuclear generation sources can provide. A recent report by McCloskey echoes this, calling for a doubling of data center electric demand from 17 gigawatts in 2022 to 35 gigawatts by the end of the decade, which they estimate represents 74 million tons of incremental utility coal burn during that time period.

[Joseph W. Craft III, Chairman, President and CEO at Alliance Resource Partners LP]

An additional 179 million tons across the next decade. They, plus other third-party sources, also importantly point out that over 40% of previously announced nationwide coal plant retirements have pushed back their planned closure dates, some indefinitely, while new announcements of coal unit retirements have virtually stopped. The chronic under investment in fossil fuel and nuclear generation became readily visible in the results of the recent PJM capacity auction. Capacity payments, which are the market signal mechanism used to incentivize the construction of new generation sources, increased almost tenfold. This is a clear market signal that our power grid continues to become more unreliable in a time of rising demand forecast. This situation is not limited to PJM, but extends to all regions we market to, and we believe it will continue.

[Joseph W. Craft III, Chairman, President and CEO at Alliance Resource Partners LP]

Many of our largest customers have been in the market recently with solicitations for significant tonnage to serve their plants in twenty twenty-five and beyond, with some looking for volume commitments through twenty thirty. As our customers look to fulfill their long-term and short-term coal needs, we will leverage our well-capitalized operations and history of reliability to maintain and opportunistically grow our market share in the coming months. Before I wrap up, I would like to highlight a few points related to our oil and gas royalties business. As Cary mentioned, we realized another solid quarter of year-over-year volumetric growth. We continue to reap the benefits of a minerals portfolio that is heavily weighted towards the Permian Basin, where top-tier upstream operators are actively drilling and completing new wells on our minerals.

[Joseph W. Craft III, Chairman, President and CEO at Alliance Resource Partners LP]

Additionally, we continue to enhance our position in the Permian, successfully closing $10.5 million of ground game acquisitions during the 2024 quarter. As we previously mentioned, the value and prospects for our oil and gas royalty segment was a major contributor to the successful completion of our June 2024 senior notes offering. We remain committed to growing this segment as a complement to our coal, excuse me, to our core coal operations, and as we scale the business, we believe investors will continue to recognize the intrinsic value this segment possesses as a growth vehicle. In closing, while our 2024 quarter results reflect a difficult market and operating conditions, I will repeat what I said on our last quarterly call. We believe the fundamentals for electricity demand over the next five years and beyond are poised for rapid growth.

[Joseph W. Craft III, Chairman, President and CEO at Alliance Resource Partners LP]

We also believe reliable, affordable, base load generation is a cornerstone of our nation's economy. With our well-capitalized and strategically located coal mines and growing minerals acreage portfolio, we are well-positioned to benefit from the anticipated increased demand for many years to come. That concludes our prepared comments, and I will now ask the operator to open the call for questions. Operator?

[Operator]

Thank you. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press Star two if you would like to remove your question from the queue, and for a participant using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is from Nathan Martin with The Benchmark Company. Please proceed.

[Nathan Martin, Analyst at The Benchmark Company]

Thanks, operator. Good morning, Joe. Good morning, Cary.

[Joseph W. Craft III, Chairman, President and CEO at Alliance Resource Partners LP]

Morning, Nate.

[Nathan Martin, Analyst at The Benchmark Company]

Cary, you gave some updates on the full year guidance ranges. Maybe starting on the shipment front, I believe you said the expectation is now to be towards the lower end of that range. Clearly, you know, what transpired with the mild summer, low gas prices, you know, likely caused your 3Q shipments to be a little bit shorter than you planned, as Joe mentioned. But thinking about the export side, right? So prompt API 2, I think, was around $115 for the third quarter. It's close to $120 today, which I think is kind of your target level. Are there any opportunities for you guys to ramp-up export sales in the fourth quarter? And could that determine ultimately where you end in that full year shipment range?

[Cary P. Marshall, SVP and CFO at Alliance Resource Partners LP]

Yeah, I mean, I do think, you know, that is fair that, you know, we do have opportunities in the fourth quarter to be able to participate in the export market. We have been in active discussions with our partners on the export market to commit to volumes, some in the fourth quarter, and we are obviously having discussions, you know, as we move into the new year, given where the pricing range is right now. The discounts are still a little bit higher than what we have typically seen in terms of participating in the export market.

[Cary P. Marshall, SVP and CFO at Alliance Resource Partners LP]

But, you know, certainly with where the API 2 pricing is today, you're certainly getting within that range, particularly for our lower sulfur Gibson product, to be able to have some conversations to where we can participate in that export market in the fourth quarter and into the new year as well. Joe, I don't know if you'd like to add to that, as well.

[Joseph W. Craft III, Chairman, President and CEO at Alliance Resource Partners LP]

Yeah. The only other thing that I would add is that we do have one customer that has contracted tons that declared force majeure in the third quarter, and we're trying to determine whether that will be lifted or not. I think that we'll not forgive the tons, but it may impact the timing of the tons. So that even if we do pick up some volume, it could be offset by timing from this one customer that has declared force majeure for some operations difficulties that they have, that they use our product as a blend into their shipments. So I think that-

[Nathan Martin, Analyst at The Benchmark Company]

Okay. Yeah

[Joseph W. Craft III, Chairman, President and CEO at Alliance Resource Partners LP]

... Our midpoint's still thirty-four. We'd love to get to that, you know, right at just ten seconds. I think, you know, it's a little bit less than that, but there is that potential, you know, just based on how the market times out.

[Nathan Martin, Analyst at The Benchmark Company]

Okay. Thank you for those thoughts, guys. And then maybe just related on the inventory front, what amount of inventory drawdown, you know, is kind of assumed in getting to that range? I think, Cary, you mentioned you wanted to get down to 500,000 to 1 million tons by year-end. Where are you today?

[Cary P. Marshall, SVP and CFO at Alliance Resource Partners LP]

Today, you know, at quarter end, we were right at two million tons at quarter end. So as we look into the fourth quarter, we do anticipate that inventory level coming down to being within that range here within the fourth quarter.

[Nathan Martin, Analyst at The Benchmark Company]

Got it. Thank you. And then maybe on the cost side, as you guys talked about Appalachian costs, you know, well above the high end of full year guidance. I think that's second quarter in a row, right? So longwall move, challenging mining conditions at all three operations. You know, looks like Appalachian costs in particular will need to improve kinda meaningfully in the fourth quarter if we wanna get within, you know, your full year guidance of $57-$60 for that segment. Cary, you said, I think overall, I'm assuming that, you know, overall company costs will be at the higher end of the range. Is there any risk to not hitting that range? Are you through those challenging mining conditions? Any other color there would be great.

[Cary P. Marshall, SVP and CFO at Alliance Resource Partners LP]

... Yeah, I do think, you know, as you look at the range, when I made the comment of being toward the higher end of the range, that was specifically meant to be in total for the costs. So when you combine both Illinois Basin and Appalachia regions. You know, Illinois Basin costs have been pretty, you know, fairly consistent. You know, it's within that range. The Appalachia cost, as you point out, is on the higher end of the range. So, you know, it could very well be, you know, as we move into the fourth quarter, as you mentioned, it could be a little challenging to get to the upper end of that range just as it relates to Appalachia.

[Cary P. Marshall, SVP and CFO at Alliance Resource Partners LP]

So, you know, we could have Appalachia fall outside the range for the total year. But we do think within the range toward the upper end, when you combine them both, makes sense. You know, as it relates to conditions, you know, through October, we have started to see some improvement toward the end of October, particularly at Tunnel Ridge, in terms of those conditions. So we do anticipate it being improving in November and December. Still, you're gonna see, you know, levels that, you know, our anticipation is it should come down slightly within the Appalachia region within the fourth quarter. But, you know, that'll be what impacts the numbers overall.

[Cary P. Marshall, SVP and CFO at Alliance Resource Partners LP]

But, you know, to your point on have we started to see improvements? Yes, we have started to see improvements as we move into November.

[Nathan Martin, Analyst at The Benchmark Company]

Got it, Cary, appreciate that. Maybe just one last question. As we look out to 2025, looks like you guys added 5.9 million tons of committed and priced 5.9 million tons since last quarter. 5.5 of that, domestic, looks like 400,000, export. Can you give us an idea on the pricing for those tons?

[Joseph W. Craft III, Chairman, President and CEO at Alliance Resource Partners LP]

I think when you look at 2025, I would just say that, you know, we're target to have sales. You know, our goal is to have sales back at the 35 million, back to the, you know, 30 million domestic, 5 million export. You know, right now or if you look at this year, if we would hit what our goal would be, we would be basically. We would need another million tons of market next year on the domestic side. When we look at the cost savings that Cary talked about relative to various projects, and I also mentioned, and then we look at the revenue just in total, that we think we can maintain margins. So our target is 30%. So, we believe we should be able to, to achieve that this year.

[Joseph W. Craft III, Chairman, President and CEO at Alliance Resource Partners LP]

And then going forward, you know, our goal and expectations will be at that same 30% margin, so we will see some reduction in average sales price, but we'll also see corresponding savings on the cost side that our expectation, it's still a little early because we don't have all the sales contracts completed. Don't really want to get into actual pricing on ranges because we're still in negotiations with folks. But we do anticipate that, you know, our margins will be at that 30% level in the coal segment next year as well as this year. And hopefully, we'll have an extra million tons of sales next year.

[Nathan Martin, Analyst at The Benchmark Company]

Appreciate that, Joe. Thank you both for your time, and best of luck here in the fourth quarter.

[Cary P. Marshall, SVP and CFO at Alliance Resource Partners LP]

Thanks, Nate.

[Nathan Martin, Analyst at The Benchmark Company]

Our next question is from Mark Reichman with Noble Capital Markets. Please proceed.

[Mark Reichman, Analyst at Noble Capital Markets]

Just focusing on Appalachia for a moment. Roof control and maintenance expenses were an issue in the second and third quarters, and in the second quarter of 2023, when there was a roof fall in July of 2023. What steps is the partnership taking to cure this issue? What factors will have the biggest impact on improving Appalachia segment-adjusted EBITDA expense going forward?

[Joseph W. Craft III, Chairman, President and CEO at Alliance Resource Partners LP]

The impact is, in large part, has been geologic. So as we look to the future mine plans, as we indicated with the Tunnel Ridge longwall move, the first part of next year, right in the beginning of January, we're getting into a new district, new reserve area, that is going to be better conditions than what we experienced. I mean, Tunnel Ridge has been a very consistent mine for us ever since we've opened it. Unfortunately, this last panel that we have in this district has been the worst conditions we've seen. And fortunately, we're moving out of this district and into a new district that we've already, you know, planned or we are in the process of developing.

[Joseph W. Craft III, Chairman, President and CEO at Alliance Resource Partners LP]

And so we know the conditions are gonna be better there than they have been in this longwall panel that we're currently in. And as we look at Mettiki, we've got a similar situation. We knew that the longwall panel that we are in this particular quarter or this past quarter had some challenging geology, and we don't anticipate to have the same situation in the next panel as we had in the one that we are currently in. So I think those are two observations that give us hope that our costs will improve next year at both Mettiki and Tunnel Ridge. MC is just tough. It's a thin seam.

[Joseph W. Craft III, Chairman, President and CEO at Alliance Resource Partners LP]

It's just thin. It's really driven more by the fact that it is such a thin seam, and in order to mine that seam, we do have higher recoveries or lower recoveries just because of the amount of overburden we have to take to cut that coal seam. So there's not much we can do there. The geology is what it is. But we do believe that both at Mettiki and Tunnel Ridge, brighter days are ahead, starting next year.

[Mark Reichman, Analyst at Noble Capital Markets]

Then Alliance experienced an equity method investment loss of $2.3 million in the third quarter. I was just kind of curious what your expectations are for that line item going forward. Does it cause you to rethink any of your investments?

[Cary P. Marshall, SVP and CFO at Alliance Resource Partners LP]

I think as it relates to the number going forward, you know, we don't anticipate, you know, any of those on a going-forward basis. It was related to one of the investments that we've made historically, where, you know, related to the EV charging side of it, our Francis Energy investment was related to, you know, some adjustments we made for that particular investment we've made, where we marked to market on that.

[Mark Reichman, Analyst at Noble Capital Markets]

And just one last question. Considering the pending merger between Arch and CONSOL, do you think there are any more consolidation opportunities within the U.S. coal industry? And then, what is your outlook for the U.S. versus the international market?

[Joseph W. Craft III, Chairman, President and CEO at Alliance Resource Partners LP]

I don't know that there would be any other major consolidation. I don't anticipate any myself. I think that as the impact of that on the markets, I don't believe it'll have any impact on the domestic market. It may, in fact, improve the domestic market opportunity for others, 'cause I think with that merger, there will be some efficiencies that may enhance their export opportunities. And that could mean that they would ship more export than they are domestic, but I don't... You know, they're gonna have to speak to that. But as far as impacts to us, we see no impact relative to that merger impacting you know, our current market competitiveness.

[Mark Reichman, Analyst at Noble Capital Markets]

Thank you very much. This is very helpful.

[Cary P. Marshall, SVP and CFO at Alliance Resource Partners LP]

Thank you, Mark.

[Operator]

Our next question is from David Marsh with Singular Research. Please proceed.

[David Marsh, Analyst at Singular Research]

Yeah, hi. Thanks, guys, for taking the questions. First, just want to touch on the crypto briefly, if we could. You know, since the halving is behind us, could you give us an update on your cost to mine Bitcoin, and are you continuing to do that?

[Cary P. Marshall, SVP and CFO at Alliance Resource Partners LP]

We are continuing to mine Bitcoin. At quarter end, we don't really provide too much guidance as it relates to the cost side of that. But you know, as we look at quarter end, total holdings of Bitcoin was a little bit over 457 coins, which at quarter end price was $63,333. It was $29 million in total of coins that we owned at the end of the quarter. The net addition of about five coins for us over the quarter. As we mentioned in previous quarters, talking about those operations, we do sell ours on a monthly basis to cover our operating costs.

[Cary P. Marshall, SVP and CFO at Alliance Resource Partners LP]

So that is a net addition of, you know, as I mentioned, five coins during the quarter.

[Joseph W. Craft III, Chairman, President and CEO at Alliance Resource Partners LP]

During the quarter, we did buy some miners, and retire some of our older miners, about one-third of the fleet, and we think that will improve our efficiency going forward, to where we should be in position to, mine, you know, end up realizing or retaining, a little higher, Bitcoins on a quarterly basis than what we've done most recently.

[David Marsh, Analyst at Singular Research]

Okay, that's good. And then just kind of a bigger picture question. You know, with the election in front of us, and obviously, it's, you know, tough to predict where things end up, but, you know, if we were to have an election result that was, you know, kind of a blue heavy, if you will, you know, what do you see on the legislative landscape that, you know, could be potentially adverse to the company? And what do you think that, you know, the timing would be of enacting any type of legislation that would be, you know, harmful to the company and the industry overall?

[Joseph W. Craft III, Chairman, President and CEO at Alliance Resource Partners LP]

I think we're in a unique situation with the growth of AI, which is a national security issue, and the primary investors in that space, the hyperscalers, all, historically leaning towards wanting their power generated by renewables as opposed to baseload generation, generating by fossil fuels. So we are seeing that growth significantly right now. They want to grow right now, 2025, 2026, 2027, 2028, and then into the future, that the growth numbers are pretty staggering. So when you look at those growth numbers, you know, as I mentioned, the FERC conference that they had just recently, they are emphasizing the need to maintain what we have and continue, to warn that we will be short capacity, because of delays in replacing and or even meeting the demand of AI.

[Joseph W. Craft III, Chairman, President and CEO at Alliance Resource Partners LP]

I think the economic aspect, the national security aspect, will limit any adverse legislation to try to restrict any type of generation just because of the demand that's gonna be and, you know, expected and advocated for by the hyperscalers. And when you look at that growth, almost a lot of it's in the Washington, D.C. area, and it's being, you know, instigated by the Department of Defense and other aspects of government. And that's one reason why you see that growth in PJM and in the Washington, D.C. area. So I don't anticipate any adverse legislation. Now, the regulatory environment, you know, we'll continue to have debates on what the timing of transition is. We've been very clear repeatedly that the transition, you know, the Harris-Biden administration has been pushing is way too fast.

[Joseph W. Craft III, Chairman, President and CEO at Alliance Resource Partners LP]

It's in total conflict with their goal to try to electrify America, so there will be reality that comes to bear there. I think also, you know, as those regulations that are already being advocated for political reason, in my opinion, not environmental reasons, that as those make their ways through the court, we believe they'll be overturned, so I think the reality of what the demand picture is to maintain power, reliable, low-cost power, is going to mitigate or potentially negate any political desires to advance the premature closing of coal-fired generation, so elections matter for a lot of other reasons, and I'd be glad to get into that, but probably it's not the appropriate time for me to share what my view is. I think most people have heard that in the past.

[Joseph W. Craft III, Chairman, President and CEO at Alliance Resource Partners LP]

But I think back to if it goes the other way, how impactful could it be? You know, I still believe that we're in great shape. People are gonna need our generation. You know, one of our largest customers just came out with their IRP in October, and they said that they're expecting load growth by 2032 of anywhere from 30%-45% compared to 2024. And they backed off of closing plants that were in their last IRP in 2022, recognizing that they're gonna need those plants to 2035 to 2040 something. And we're hearing that consistently by our domestic customers. So it would be nice if our energy policy would track our domestic policy for onshoring, for growth in electrification.

[Joseph W. Craft III, Chairman, President and CEO at Alliance Resource Partners LP]

So it'd be nice if that was clear to the markets. But, like I said, even if there is political motivation to continue down a path that is crosscurrent or cross purpose of that objective, I think that the demand for the AI is going to actually rule. The science is gonna rule over the politics. That's my view.

[David Marsh, Analyst at Singular Research]

Very helpful. Thank you very much. Appreciate it.

[Operator]

Our next question is from Dave Storms with Stonegate. Please proceed.

[Dave Storms, Analyst at Stonegate]

Good morning. Just hoping we could start with outside purchases were a little bit above expectations. Is that just lingering challenges, or how should we think about that going forward?

[Cary P. Marshall, SVP and CFO at Alliance Resource Partners LP]

I think going forward for the quarter, I think you're referring to. Outside purchases were about $8.2 million for the quarter. As we've talked in the past, we do purchase some coal at our Mettiki operation for our metallurgical exports. And so that's what those purchases are related to. That is a little bit higher than where I would anticipate the fourth quarter number to come in. We do anticipate continuing to purchase some coal in the fourth quarter. I think in the past, it's ranged anywhere from $2-$2.5 million per month, $2-$2.5 million per month of purchased coal.

[Cary P. Marshall, SVP and CFO at Alliance Resource Partners LP]

I would imagine somewhere within that range is a good estimate in terms of where we would anticipate the fourth quarter number to come in this year.

[Dave Storms, Analyst at Stonegate]

... Thank you. And then just looking forward to the contract negotiations and, you know, increased order book, how would you classify some of that order book pickup? Is that new customers coming into the fold, or is that current customers increasing their demand?

[Joseph W. Craft III, Chairman, President and CEO at Alliance Resource Partners LP]

It's current customers basically fulfilling their book for contracts that are expiring. So we're, in most cases, maintaining market share with those customers. In some cases, we're actually increasing our you know our market share. But in most cases, they're just maintaining their purchasing with some optionality to increase volume in anticipation of this growing demand that they see that's gonna you know that they anticipate will occur starting in 2026. So there's some optionality to the upside for increased demand on their part. But when we're looking at the 30 million commitment, we're just maintaining or anticipating and maintaining of the market share we've had with the existing customers. So there is potentially some upside to that.

[Joseph W. Craft III, Chairman, President and CEO at Alliance Resource Partners LP]

But our primary planning horizon is to be consistent at a 35 million ton production rate, 5 million export, 30 million domestic.

[Dave Storms, Analyst at Stonegate]

Understood. Thank you. And then just one more for me. You made the $10.5 million oil and gas closing. I understand that's in the Permian. Is there anything else you can tell us about this acquisition? Was it just opportunistic? Maybe how it all came together, anything like that?

[Joseph W. Craft III, Chairman, President and CEO at Alliance Resource Partners LP]

These are several small transactions. We have what we call a ground game, where we contract with landmen that are going out and buying individual tracts that just add to our portfolio. We allocate around $25 million a year for that program. I would not say it's opportunistic. I'd say that we have underwriting standards, and if there are people that would like to sell their mineral position, then we will make offers at economics that are pretty much consistent to what the market is, but at least, but definitely consistent with what our normal underwriting standards are to get, you know, attractive returns. We do anticipate that there will be opportunities for us on a year in, year out basis, in that range.

[Joseph W. Craft III, Chairman, President and CEO at Alliance Resource Partners LP]

We feel that we can execute on that based on the normal activity in the marketplace, where there's, you know, sellers that are trying to look to monetize their assets for whatever reason.

[Dave Storms, Analyst at Stonegate]

Understood. Thank you for taking my questions, and good luck in the fourth quarter.

[Cary P. Marshall, SVP and CFO at Alliance Resource Partners LP]

Thank you.

[Operator]

Our next question is from Yves Siegel with Siegel Asset Management. Please proceed.

[Yves Siegel, Analyst at Siegel Asset Management]

Oh, thank you. Hey, good morning.

[Cary P. Marshall, SVP and CFO at Alliance Resource Partners LP]

Good morning.

[Yves Siegel, Analyst at Siegel Asset Management]

Hey, guys, can you just update more broadly your thinking on capital allocation? And then also, you know, within that context, you know, how are you thinking about the new ventures investments going forward?

[Joseph W. Craft III, Chairman, President and CEO at Alliance Resource Partners LP]

Yeah. So I think from a capital allocations standpoint, we've indicated that, you know, first priority will be maintaining our coal operations. So we've done that over the last two to three years with the major projects that we've talked about, in addition to the normal maintenance. So starting in 2025, we expect that the capital for maintenance capital or the actual capital expenditures in our coal operations will decrease to a level, Cary?

[Cary P. Marshall, SVP and CFO at Alliance Resource Partners LP]

Somewhere in the neighborhood of 675-775 per ton produced is kind of what the current thinking is right now, somewhere within that range.

[Joseph W. Craft III, Chairman, President and CEO at Alliance Resource Partners LP]

Yeah, so that's a decrease of $100 million from what

[Cary P. Marshall, SVP and CFO at Alliance Resource Partners LP]

in terms of total capital.

[Joseph W. Craft III, Chairman, President and CEO at Alliance Resource Partners LP]

Yes.

[Cary P. Marshall, SVP and CFO at Alliance Resource Partners LP]

Yeah.

[Joseph W. Craft III, Chairman, President and CEO at Alliance Resource Partners LP]

This year.

[Cary P. Marshall, SVP and CFO at Alliance Resource Partners LP]

That's right.

[Joseph W. Craft III, Chairman, President and CEO at Alliance Resource Partners LP]

So then the next allocation goes to our minerals group, which we've taken a position historically that whatever cash flow they generate, that they could reinvest within the minerals group. And then the third would be for other type investments that could include what we're doing at our Matrix subsidiary that we've discussed in the past, that most of their growth is organic in nature, but does take some working capital. And then as far as looking at participating in the transition, you know, we've continued to, you know, be active in that area to evaluate the landscape. And as you know, we've made some investments in battery recycling with Ascend. We've made investments with Infinitum on their innovative motor design.

[Joseph W. Craft III, Chairman, President and CEO at Alliance Resource Partners LP]

We've got the joint development agreement with Infinitum, that's going well. We expect to see some benefit in that in 2025 and 2026 for sure. As we think through the rest of the transition, I think the election may matter, so we're trying to wait and see what happens. If the current incentives stay in place and, and investor, excuse me, if customers demand more EVs, et cetera, trying to understand what the demand for batteries are. We're continuing to look in the battery space, whether it's recycling or battery storage, but we're waiting to see what happens with the election. And if Trump wins, you know, there's been some indication he'll look at some of the tax credits in the Inflation Reduction Act.

[Joseph W. Craft III, Chairman, President and CEO at Alliance Resource Partners LP]

So I think the investment in that space is all trying to anticipate what the policy of the new administration's gonna be before they take any major steps in making investments. So we're still very interested in looking at opportunities. We're very focused on trying to continue to grow year after year. And we do believe because of our relationships with our utilities, because of our knowledge in the space, and our strategic location and the human resources we have to participate in that space, that there are opportunities for us to invest and add you know value to our shareholders over the next decade.

[Joseph W. Craft III, Chairman, President and CEO at Alliance Resource Partners LP]

But, exactly, what that strategy is gonna be, in large part, is gonna be dependent on what the next administration is and what incentives are either continuing or discontinued, and how the market reacts to that.

[Yves Siegel, Analyst at Siegel Asset Management]

Hey, Joe, you didn't mention distributions.

[Joseph W. Craft III, Chairman, President and CEO at Alliance Resource Partners LP]

Oh, yeah, we like those, too. That's definitely high on my list.

[Yves Siegel, Analyst at Siegel Asset Management]

Just a quick follow-up, though. Has your thinking changed at all, given that the narrative has changed in terms of... You know, I think folks are you know, recognizing that you know, fossil fuels and coal are gonna be here for a long time. Has that changed, or informed, you know, how you think about capital allocation going forward?

[Joseph W. Craft III, Chairman, President and CEO at Alliance Resource Partners LP]

I think, you know, we've made, you know, significant capital investments in our own operations. You know, we believe that, the operations that we have invested in do put us in a position to be the low-cost producer in the regions where we operate. I think that if Harris wins, the disconnect between the enormous increase in electricity demand versus the policies and EPA rules that they continue to advocate make it challenging to think in terms of wanting to do something different. I think in answer to your question, if, you know, if Trump wins, a lot of it's, again, going to have to see, you know, how our customers react.

[Joseph W. Craft III, Chairman, President and CEO at Alliance Resource Partners LP]

I do believe, just like the customer I just quoted a few minutes ago with their most recent IRP, we're gonna see that more and more in the domestic market, that utilities are not gonna wanna close those plants, but they're not adding plants. And so each of these plants do have a useful life that still mirror the 2035, 2040 time period. So I think we'll really focus on coal being steady and stable, but I don't see us growing and develop, you know, devoting capital to that area in a large amount that would be at the expense of what we're doing in minerals, as an example. You know, we do believe the runway for minerals is significantly longer than coal.

[Joseph W. Craft III, Chairman, President and CEO at Alliance Resource Partners LP]

We believe we've had success in it, but to go in steady as we go, year in, year out, adding and hitting our underwriting standards, you know, we would not wanna do anything that would challenge or would change the course we're doing there, so we got decisions to make whether to go back to distributions or reinvest in coal. And I think we're pleased with where we are on the coal space, so I don't see us wanting to invest significant payout capital to, you know, participate in acquiring things, believing that the coal is gonna be here for the next twenty-five or thirty years on these new projects, if that makes sense.

[Yves Siegel, Analyst at Siegel Asset Management]

Mm-hmm. Yep. Yep, it does. All righty. Well, thank you so much.

[Joseph W. Craft III, Chairman, President and CEO at Alliance Resource Partners LP]

Yep. Thank you.

[Operator]

Our final question is a follow-up from Mark Reichman with Noble Capital Markets. Please proceed.

[Mark Reichman, Analyst at Noble Capital Markets]

The Supreme Court recently turned down a request from parties, you know, seeking to put a hold on the EPA emissions rule while the litigation moved forward in federal appeals court, and from what I read, at least three of the justices seemed somewhat sympathetic to the states and the energy companies bringing the case, so do you think this is gonna get overturned in the lower court? And if not, would you prevail at the Supreme Court level? Or if Trump is elected, would he just undo it? Kind of your thoughts on the EPA emissions rule.

[Joseph W. Craft III, Chairman, President and CEO at Alliance Resource Partners LP]

Yeah, I think that. You know, the pattern has been, it's not gonna be changed at the, you know. The pattern has been that the D.C. Circuit has not, you know, been friendly to look at these rules. They have given more discretion to EPA and other federal agencies in the past. I think with the change by the court on the West Virginia decision, as well as the Chevron deference, I do believe that it, when it gets to the Supreme Court, that it will be overturned. When you look at everybody that's in the energy space file comments on the 111(d), what we call a Clean Power Plan Two, saying that it is totally outside the realm of what is achievable in that space.

[Mark Reichman, Analyst at Noble Capital Markets]

Mm-hmm.

[Joseph W. Craft III, Chairman, President and CEO at Alliance Resource Partners LP]

So the evidence is overwhelming that it should be defeated, in my opinion, and I think that the court's decision was more focused on the procedural aspects of the, you know-

[Mark Reichman, Analyst at Noble Capital Markets]

Mm-hmm

[Joseph W. Craft III, Chairman, President and CEO at Alliance Resource Partners LP]

... what is needed for a stay versus

[Mark Reichman, Analyst at Noble Capital Markets]

Right.

[Joseph W. Craft III, Chairman, President and CEO at Alliance Resource Partners LP]

You know, what the underlying fundamentals of the case are. You know, the Supreme Court's gotten a lot of heat about making decisions during political season. Maybe that was influence. I don't really know, but I do believe that that rule and the other rules that are going to be litigated, if Harris wins, they will be overturned, and it is sort of a waste of the judicial process to have to go through it, but it is what it is. That's the way the government works, so if Trump wins, on the other hand, I do believe that the EPA will look at these rules and do what they did his first term and take a different approach.

[Joseph W. Craft III, Chairman, President and CEO at Alliance Resource Partners LP]

Yeah, the Biden administration has been very strategic to try to push all these rules through before they are subject to the Congressional Review Act.

[Mark Reichman, Analyst at Noble Capital Markets]

Mm-hmm.

[Joseph W. Craft III, Chairman, President and CEO at Alliance Resource Partners LP]

So it complicates the ability for Trump to just immediately reverse them, but he can go through the same normal regulatory process that they did to get to the position that they got to. And, I think that, as I said earlier, the hyperscalers and the demand is going to coincide with the national security interests for America to, as we see as much investment onshore for artificial intelligence as possible. And the inherent disconnect or conflict, I think will be more dealt with as a policy issue under the Trump administration than a political issue, like it's been managed under the Biden-Harris administration.

[Mark Reichman, Analyst at Noble Capital Markets]

All right. Well, thank you very much. That's really helpful.

[Joseph W. Craft III, Chairman, President and CEO at Alliance Resource Partners LP]

Appreciate it, Mark.

[Operator]

We have reached the end of our question-and-answer session. I would like to turn the conference back over to Cary Marshall for closing remarks.

[Cary P. Marshall, SVP and CFO at Alliance Resource Partners LP]

Thank you, operator. And to everyone on the call, we appreciate your time this morning, as well as your continued support and interest in Alliance. Our next call to discuss our fourth quarter and fiscal year 2024 financial and operating results is currently expected to occur in early February, and we hope everyone will join us again at that time. This concludes our call for the day. Thank you.

[Operator]

Thank you. You may disconnect your lines at this time, and thank you for your participation.

Participants

Executives

• Joseph W. Craft III, Chairman, President and CEO
• Cary P. Marshall, SVP and CFO

Analysts

• Mark Reichman, Analyst at Noble Capital Markets
• Dave Storms, Analyst at Stonegate
• David Marsh, Analyst at Singular Research
• Yves Siegel, Analyst at Siegel Asset Management
• Nathan Martin, Analyst at The Benchmark Company