Good day, ladies and gentlemen, and welcome to the Alliance Resource Partners, L.P. and Alliance Holdings GP second quarter 2010 earnings conference call. (Operator Instructions) I would now like to turn the conference over to your host for today, Mr. Brian Cantrell, Senior Vice President and CFO.

We appreciate your interest in Alliance Resource Partners, which we refer to as ARLP; and Alliance Holdings GP, which we refer to as AHGP. We released our 2010 second quarter earnings earlier this morning and will now discuss these results as well as our outlook for the remainder of 2010. Following our prepared remarks, we will open the call to your questions. Before we begin, however, let me start with a few reminders. First, since AHGP's only assets are its ownership interest in ARLP, our comments today are directed to ARLP's results and outlook unless otherwise noted. In addition, please be aware that some of our remarks may include statements, which are not historical in nature and may concern future expectations, plans and objectives of the partnerships regarding their future operations. Such comments constitute forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 and are based on the beliefs of the partnerships and those of their respective general partners and management as well as assumptions made by and information currently available to them. Although the Alliance partnerships, their general partners and management, believe these forward-looking statements to be reasonable at the time, no assurances can be given that such statements will prove to be correct. Forward-looking statements 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. If one or more of these risks or uncertainties materialize or if any of our underlying assumptions prove incorrect, actual results for the partnerships may vary materially from those we anticipated, estimated, projected or expected. In providing these remarks, neither ARLP nor AHGP has any obligations 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 financial measures and the most directly comparable GAAP financial measures 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're through with the required preliminaries, I'll turn the call over to Joe Craft, our President and Chief Executive Officer. Joe?

Thank you, Brian. Good morning, everyone. Thank you for joining us as we review the best quarterly financial performance in ARLP's history. As you saw in our earnings release this morning, ARLP again delivered record financial results, posting new benchmarks for sales volumes, revenues, EBITDA and net income during the second quarter and first half of 2010. This exceptional performance reflects the ongoing benefits of our strategy of capturing higher-priced long-term sales contract positions and executing on our organic growth initiatives. I'd like to take a few moments to expand on each of these areas now. Turning first to our contract portfolio, as you know, ARLP's success in securing sales commitments during favorable market conditions that existed prior to 2009 laid the foundation for us to enter 2010 with approximately 97% of our anticipated sales volumes committed at attractive prices. We further strengthened this position in the first quarter of this year by committing to deliver 1 million tons of metallurgical coal at prices in the range of $100 per ton for the fiscal year that began in April 2010. Since then, we have executed several new contracts to deliver over 7 million tons of coal over the next four years at prices 15% to 20% above ARLP's current average price realizations. ARLP continues to see improving coal market conditions and increased customer interest for the coal qualities we produce. I am hopeful that we will be discussing several new long-term contracts during our earnings call next quarter. ARLP's operating flexibility and organic growth initiatives also played a major role in our performance during the second quarter. While we obviously anticipated increased sales volumes during the quarter from the planned ramp-up of the River View mine, we did not anticipate the failure of the vertical hoist conveyor system at the…

Thanks, Joe. Led by record coal sales volumes and price realizations, ARLP posted record revenues, EBITDA and net income for the 2010 quarter, which were up 31.7%, 67.3% and 106.1% respectively compared to the 2009 quarter. Likewise, revenues for the first half of 2010 rose 23.3% compared to the first half of 2009, while EBITDA and net income for the comparable period jumped 34.1% and 40.8% respectively. As Joe discussed earlier, higher sales volumes in River View and increased sales from Mettiki into the higher priced export market were key contributors to ARLP's record 7.5 million tons of coal sales during the 2010 quarter. These increases more than offset the impact of production disruptions at the Pattiki and Dotiki mines in the Illinois Basin and reduced production at our Central Appalachian operations due to increased regulatory enforcement. Strong coal sales also led to inventory reductions, as coal inventories declined by more than 30% during the 2010 quarter. Average sales price increases also contributed to record revenues in the 2010 quarter, as ARLP's coal price realization per ton climbed to a record $51.53, a jump of $5.49 per ton over the 2009 quarter. Higher pricing in the 2010 quarter also reflects approved contract pricing in the Illinois Basin and Central Appalachian regions, as well as increased sales from Northern Appalachia into the significantly higher priced export markets. Increased third party sales of mine safety technology developed by our engineering, research and development subsidiary, Matrix Design Group, also contributed to record revenues in the 2010 quarter. As you may have seen, Matrix recently announced several innovative technologies designed to improve safety throughout the mining industry, one as a portable wireless communication and electronic miner tracking technology known as METS 2.1 which we have already received orders for, for use in over 50%…

(Operator Instructions) And we will take a question from the line of Jim Rollyson, Raymond James.

Joe, you talked about adding some additional contracts of 7 million tons. I think you said 15% to 20% above kind of current realizations. Can you talk about how you view what's in the contract base for second half of '10 just relative to the first half, are those higher; and then secondly, maybe some color on 2011 as compared to 2010 overall.

As far as the first, I think the revenue projections on the second half, we're going to be comparable. If you look at the second quarter revenues versus the first quarter, it was higher because of some carryover tons in the first quarter. But if you look at third and fourth, it's going to be comparable to second quarter pretty much. And I'm sorry, your second question?

As you've now locked in, I think you're up to 28 million tons for 2011. Maybe some color on how the 2011 pricing looks relative to 2010?

I think on the pricing, we do look at it to be higher. Again, some of these contracts that we've signed, as we mentioned, they're showing realizations that are higher. And you also have the benefit of some of our lower-priced contracts expiring in 2010. So we are looking forward to seeing a higher average sales price per ton in the 2011 time period.

There is a follow-up question I guess on the cost side of things. As you look at particularly Illinois Basin, you've got Pattiki now just last week and now that's coming back up and running. And I'm guessing that River View stays running at elevated levels throughout the year. How should we think about costs given that you will eventually get both mines up and running at more optimal levels?

As we mentioned in our press release, when we brought Pattiki up, we started last week using three units. We are going to evaluate the belt performance, and we will bring that mine up gradually. Depending on the level of production, Pattiki will obviously impact the cost. It's not very efficient to operate three units when it's designed for eight. So that will be a higher cost operation until we get it to the eight unit shifts. I think as you look at it over the balance of the quarter, the increased production at River View should potentially offset. Again, I don't have those precise numbers, but it's close. So I think if you look at third and fourth quarter, it shouldn't be that significant of a difference to the second quarter.

We also obviously are monitoring very closely the regulatory situation. Enforcement has been stepped up, what the impact of that will be on our expense and productivity under current status as well as any potential impact of additional legislative action, but it's just unknown at this point.

Stepped up over 2Q or just stepped up over the last few months in general?

Just stepped up in general.

Yes. I think the second quarter was higher than first, and we haven't seen that that's subsided any.

And the next question will come from the line of Paul Forward, Stifel Nicolaus.

In the very near term, in your talks with utility customers, are there any ongoing concerns at all about their stockpile levels with all this hot weather, or is everybody still pretty comfortable?

I don't sense that there's much concern. I think that as we look at the contracts that we were able to secure, they were all really focused on 2011 forward. So the activity that we've seen in the marketplace is really more focused on trying to position themselves over the next three years as opposed to the next quarter.

And when do you think about the export opportunity for the Northern App coal as a met coal? Is that opportunity still there, or has that dried up somewhat with steel prices fading over the past quarter?

If you look at our Mountain View mine where we signed the 1 million ton a year contract for the fiscal year starting in April, we were able to ship pro rata the tons that we had contracted. So we have not seen any indication that they'll do anything but honor that contract as indicated previously. We're still hopeful that for fiscal year 2011 that demand for that product will still be there and that we'll be able to continue to be able to ship at that same rate at prices comparable if not higher than where we were this year in the 2011 fiscal year end.

That's great news that River View could go up potentially 10% above that 6.4 million ton design level. Just thinking about maybe a little bit kind of mid to long term, is there anything special about the mine plan and the geology where you are now that is allowing the higher production rate? Can you anticipate, as that mine matures, any changes to productivity just due to the geology or just as the mine gets a little older? Can it maintain that kind of level of kind of well north of 6.4 million ton production rates?

I think that we are benefiting obviously from a brand new coal mine. So you got the benefit of having very little travel time. So as you expand the mine, your travel time will increase, and as your travel time increases, your productivity is impacted. However, we have also got a new team coming together. So hopefully the experience of working together will help mitigate that to where we can maintain the productivity at the level or production level that's close to the 7 million ton a year rate that it is running today. But based on the geology that we are experiencing, it is probably equal to what we thought, so there are really no surprises, both positive end or negative. And I think the benefit goes to the quality people we have and the management team for pulling that team together, and how well they're working together for such a new coal mine. So my hats off to them. And as far as the future, a lot of it will depend on geology, but our experience in Illinois Basin, it has same conditions, are usually pretty consistent.

And the next question will come from the line of Ron Londe, Wells Fargo.

Curious on your new term contract re-openers. Do you have any significant re-openers, and has there been any change in kind of the emphasis on the re-openers from the standpoint of, I know it's always price and volume, but are any of the other factors that have been emphasized or not emphasized versus in the past?

For re-openers, I think we mentioned in our release, we got 2 million tons that's open in 2012, but there's not in 2011 for price for the contracts we have. And then I think we mentioned that it was up to 5 million I believe in 2013. I'll refer you to the press release; 5.4 million. Specifically as to new terms and conditions in those re-openers, no, we're not seeing anything other than price nothing new. To be responsive to your question, just price.

(Operator Instructions) The next question will come from the line of Joel Havard, Hilliard Lyons.

Joe, I guess I need some help understanding sort of what the timeframe and steps will be getting the Pattiki belt issue result? I'm just in the dark still about sort of what you all need to go through, what the timeframe might look like on you all getting comfortable with it. We've repaired the old belt, number one. It's not completely fair if you think in terms of that vertical belt. It's got pockets attached to it. And so we haven't completed repairing all of the pockets. So we need to add pockets, and therefore we need some time to be able to do that as we bring the mine back into operation. Once those pockets are installed, then we want to run it at a level that our engineers confirm to as that it's safe to run. We have ordered a new belt, but it takes time to get the new belt on property. So we're a little concerned with the stress of the old belt as to what speed it can run and be operational at a safe level. So that's just going to have to be measured as we watch the progression of the operation to determine what's a safe level to operate that belt.

You had the original problem. I guess should we characterize that as sort of fixed good enough for now? You're back on production but at a suboptimal rate. The plan is to try and tweak that up until you're able to replace entirely?

I think it's probably fair. I mean, I think we are looking towards getting that new belt on property and installing it immediately.

And what sort of timeframe to get that in place and then work through the changeover, Joe? Just your best guess. At this point we know that's probably all that we can say.

I think you're going to see that take the good part of the remainder of this year in all likelihood. I mean, obviously we want to make sure the integrity is there from a safety standpoint, but additionally, we don't want to get ahead of our sales ramp up. But we have that at a comfortable level, and then have the system go down again.

The belt's a special order from Germany, and it could be December before we get it, maybe earlier, maybe a little later. We just have to get receipt of the belt.

Right. There had been a plan to replace the hoist system components early next year. Obviously, this event's caused us to accelerate that. So our anticipated schedule of getting the new equipment in place, Joe said it's a special order item coming from Germany, and this takes time.

Well, more generally then, Brian, is the lift in the CapEx forecast, a function of going back and making this and a couple of other repairs from the issues you've dealt with lately, or is this a more general expansion effort?

It's a couple of things, and obviously the repair of the hoist system plays a part in that. We also have identified a couple of efficiency projects that we'd like to get done this year in particular at I believe our Warrior mine. And throughout the year we've also made some additional coal reserve acquisitions, and weren't necessarily anticipated in our original guidance. So we elected to pump the top and bottom end of the ranges by about $10 million.

And some it's timing at Tunnel Ridge where we'll probably be spending some money this year versus 2011. I think our overall commitment levels at both River View and Tunnel Ridge had not changed. But there is some timing between 2010 and '11 that factor into that number.

That's correct.

Does that mean that Tunnel Ridge maybe coming on stream a little bit sooner or is this just a more timely opportunity to put a little bit more money in it?

No. It does not mean that we're changing our production level. It just happens to be timing based on more precise timing we anticipate between a December and January type expenditure.

Yes, I mean there's a lot of moving parts in a construction project like that and some of the scheduling is just dependent on what you encounter and when you encounter it.

What's available and when it comes.

But the longwall start-up is still anticipated late in the fourth quarter of '11.

We have a question from the line of Dave Martin of Deutsche Bank.

Just had a couple of quick ones, if you would. On the met coal business, I think you mentioned you did a proportional share of the million tons in the second quarter. What was the figure in the first quarter?

In the first quarter, we were working off an old contract and I think we shipped around a 170,000 tons, first quarter met coal, at lower prices. In this quarter, we shipped around 260,000, but about 20,000 of that was off the older contract. That was finishing up the old contract.

And in general, you should expect in the range of about 0.25 million to 1 million tons a quarter for the next three quarters.

And then secondly, can you just comment on export opportunities for the company excluding your Northern App business?

We are evaluating export opportunities; however, our primary focus is the domestic market. Realizations we see for us are both higher in the domestic market. But as I've probably mentioned on previous calls, we find the export market to be more volatile. So we're primarily focused on the domestic market for long-term contracts to give us stable cash flows over several period of years as opposed to relying on export contracts that are more annual in nature. We are swing producer on the domestic on the thermal side. So it's not there. It's not consistent year-in year-out. We like to have customers that we basically supply year-in year-out. We see that more on the domestic side than the export side.

And then lastly, I'm just going to ask about your comment on inventory. You said they declined about 30% quarter-over-quarter. What's the right inventory level for the company if you could on a run rate basis?

Historically, it's in the 300,000 to 400,000 ton range.

And as you grow production and probably just say bad days production, 400,000 to 500,000.

So you are still well above normal, if you will.

We're still above normal. We are still above where we want to be.

(Operator Instructions) And the next question will come from the line of William Adams, FAMCO.

I just had a question on your capital spending for 2011. How much will be leftover to finish up the Tunnel Ridge project and any other growth initiatives you might be having for next year?

Tunnel Ridge, this quarter we spent about 50% of our amount we committed, about 70%. So we are roughly $160 million in spare, commitment level of $216 million. I don't have that specifically between 2010-2011.

That calculation is about right though.

Maybe we can get that to you later. I don't have that number off the top of my head, I'm sorry. Brian, if you've got that in your information? Is there another question while he's looking for that?

The other two big project was at Penn Ridge and Gibson South. I just wanted to target generally how you're making progress and are customers ready to sign contracts for those two big mines?

I think for Gibson South, given the increased activity we've seen recently for Illinois Basin coal, we're probably more encouraged this quarter than we were last quarter. However, we have not begun negotiations with anyone for Gibson South. That would probably, as far as the market demand for the coal, I'd say Gibson South probably is ahead of Penn Ridge. And for Penn Ridge, we are primarily focused right now on Tunnel Ridge and we still have about 40% of the expected production in 2012 to sell at Tunnel Ridge. So we need to put that to a long-term contract before we consider investing more capital at Penn Ridge. And some of that unfortunately is just timing. There are some customers that will enter into three-year contracts. It's sometimes is hard to get to people to enter into contracts for two years out given the utility is focused right now on two to three-year contracts as opposed to five to 10.

Bill, back on your question regarding Tunnel Ridge capital, as of the end of the second quarter, we have $140 million to $150 million left in cash that we'll deploy there and in terms of commitments maybe $75 million to $80 million remaining. So as Joe was pretty close, I mean we're a little bit above 50% in terms of cash that's been deployed and a little bit above 70% in terms of the capital that we've committed to.

There are no more questions in the queue. I'd like to turn the call back to Mr. Brian Cantrell, Senior Vice President and CFO, for closing remarks.

Thanks again to everybody for joining us. We very much appreciate your continued support and interest in both ARLP and AHGP, and we look forward to visiting with you again next quarter. Thank you very much.

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