Good day, ladies and gentlemen, and welcome to the First Quarter 2012 Alliance Resource Partners and Alliance Holdings GP conference call. My name is Chanel, and I will be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, to Mr. Brian Cantrell, Senior Vice President and CFO.

Thank you, Chanel, and welcome, everyone. Earlier this morning, we released 2012 first-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 2012. Following our prepared remarks we'll open the call to your questions. Before we begin, let me start with a few reminders. First, since AHGP's only assets are its ownership interests in ARLP, our comments today will be directed to ARLP's result 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. While these forward-looking statements are based on information currently available to the partnership and those of their general partners and management, if one or more of these risks or uncertainties materialize, or if our underlying assumptions prove incorrect, actual result from 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 these differences between these non-GAAP financial 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're through 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 our call today. I am pleased with our performance during the 2012 quarter as the ARLP team again demonstrated the ability to meet challenges head on and achieve outstanding results. During the 2012 quarter, our operations successfully met their production and cost targets. They had one of their best safety performance quarters in our history. In April, we also expanded our presence in the growing Illinois Basin coal market by completing the acquisition of substantially all of the coal-related assets of Green River Collieries, including the Onton No. 9 mine and an estimated 40 million tons of coal reserves in Western Kentucky. This transaction provides ARLP with increased flexibility to service our existing customer base and enhances our ability to meet increased demand for scrubber quality coal. The integration of the Onton mine is going well and we currently expect this operation to add approximately 1.6 million tons to ARLP's production and sales volumes in 2012. Essentially all of these tons are priced and committed under contracts to existing ARLP customers, and as Brian will discuss in a moment, we have adjusted our full-year guidance to reflect the impact of this acquisition. During the 2012 quarter, our marketing team also added to ARLP's already attractive long-term contract position by securing new commitment to supply all of Seminole Electric's coal needs from 2013 to 2018. Annual coal deliveries to Seminole are expected to range between 3 to 4 million tons during this period on an annual basis. ARLP currently expects to ship approximately 3.65 million tons to Seminole this year and approximately 3.4 million tons in 2013. ARLP continued to make progress on its growth initiatives. The Tunnel Ridge longwall is poised to start production in the second half of May.…

Thank you, Joe. Let's walk through the numbers for the 2012 quarter in more detail starting with the top line. Quarter-over-quarter, ARLP's revenues rose 4.8% to $443.6 million on higher coal sales volumes and prices. Volume increases at River View and Tunnel Ridge and improved price realizations in the Illinois Basin and Central Appalachia, more than offset the impact of lower sales volumes in the high-priced export market, as our average price realizations in the 2012 quarter increased by $54.99 per ton. Sequentially, reduced brokerage sales and export delays contributed to lower total revenues, sales volumes and pricing, which were down by 6.5%, 4.4% and 2.8% respectively. Increases at River View and Tunnel Ridge drove production higher in the 2012 quarter, with total production increasing 3.6% to 8.5 million-ton. As you would expect, increased volumes in the 2012 quarter compared to the 2011 quarter impacted our cost as higher sales-related expenses, materials and supplies, maintenance costs and labor related expenses pushed total operating expenses up by 6.8% to $273.5 million. Costs during the 2012 quarter were also affected by increased expenses related to greater incidental coal production at the Tunnel Ridge mine development project, the impact of our Pontiki mine operating down 1 production unit and higher outside coal purchases. Total segment adjusted EBITDA expense per ton in the 2012 quarter rose 7% over the 2011 quarter to $36.80 per ton, primarily due to higher labor-related costs. Sequentially, however, improved productivity resulted in lower cost as total segment adjusted EBITDA expense fell by $2.59 per ton. Coal inventories increased by 900,000 tons over year-end levels to 1.1 million tons at the end of the 2012 quarter. Although these inventory levels are comparable to the year-ago, as Joe mentioned earlier, the bill during the 2012 quarter was higher than we expected.…

[Operator Instructions] Your first question comes from the line of David Feaster, Raymond James.

Looking at your production guidance, after adjusting for the additional production from Onton, it looks like production is actually down and essentially sold out for the year. Could you give us a little bit more color on the production mix and where you're making some adjustments?

Yes. I think when you look at -- talking off the mid points, when you look at what we've moved, it reflects the 1.6 coming in from Onton. We've also indicated that we expect sales into the export markets may be down by 200,000 tons or so, relative to where we originally anticipated. In addition, just as we look at actual results for the quarter and current development and execution on our mine plans, we've got various ups and downs at the other operations.

So Onton is 1.6, I thought it was closer to 2.1?

No. No, Onton is 1.6.

That's for this year.

Okay. For this year?

Yes, 2.7. That's from April 1 to December 31.

That's correct. 2.1 is the full annual run rate.

Okay. On the cost front, you had previously expected margins to be relatively flat, now we're going to see some compression. I know pricing is partially to blame as a cost per ton. Could you maybe give us a little bit more color regionally, more specifically Central App and Northern App?

I think the issue on the revenue side is just slightly down, and that's primarily tied to the shipping less Met tons this year than what we anticipated we would ship during our first quarter call. So those are higher-priced tons. So when you pull those out of the mix, it reduces the overall sales price. On our expense side, we're still expecting our cost to go up 3% to 6%, most of that's really tied to the White Oak contribution. So when you look at each of our regions, our Illinois Basin, Central App will go up with inflation in the 1% to 3% range maybe. And Northern App, we expect to actually go down as we get the benefit of the longwall at Tunnel Ridge.

Okay. And then last question for me, you guys were able to book some tons in the out years. Could you just give us a sense of the current pulse of the market and the appetite of your customers to book coal, given the weak environment here?

We did extend the contract with Seminole, that contract expired on its terms by the end of 2012. They had the option to extend for 4 years, we stretched that to 2018. So we were successful with that. We have a couple of other negotiations going on for multi- term sales and beyond that, I think the most of the market, the domestic customers are sort of waiting to see how the rest of the year develops and what their anticipated burns would be in 2013. The ones that we are talking to are our traditional customers that are in similar situations as where Seminole was where we've been long terms suppliers and we're trying to extend existing agreements by -- when they expire on their own terms and/or add to some tonnage that we have under existing contracts to meet their needs in the out years.

Your next question comes from the line of Paul Forward, Stifel, Nicolaus.

On White Oak, you have -- it looks like you've got a little bit lower capital spending outlook for 2012. But I think Brian, you talked about a little bit of an acceleration of the start-up in, or at least the coming additive to earnings a little earlier, at a late 2014 rather than 2015 and you said that it was going pretty well so far. I wondered if you could just expand on how you're able to pull the CapEx at least for 2012 a little lower and just what are you seeing so far in the development that gives you the confidence to say that it will be a contributor, positive contributor late 2014?

Well, a couple of things. Number one, when we look at total estimated expenditures, I think they are still within the range for the 3 categories being the reserve acquisition and development at approximately $140 million. The processing facility that we're going to be building roughly in $110 million as well as equity investments ranging from $150 million to $275 million. So our totals haven't really been adjusted at all. I would say that coming into the year, we were very early in the phase, start-up phase. We were probably a bit conservative on our estimates, but as the project develops and White Oak gets more comfortable with the actual timing of their capital requirements, especially in this year, we felt comfortable in adjusting it down. Whether the mine starts up in 2014 or we actually start seeing cash flows in late 2015, building an operation like this is a marathon and we're probably at milepost 5 or 6 right now, so it can continue to shift. But as we indicated when we first began talking about this project, we'll try to give you our best view as current status as we go along and that's what we've done here.

Okay. And you've got a number of development projects happening, I was just wondering if you might be able to comment a little bit about the equipment market. Is there -- obviously, the overall volumes are trending lower throughout the industry, I'm just wondering if this is as you're developing other projects or you see in the -- is this bringing up any equipment that might be kind of likely used or might there be other ways in which as your developing new projects, you're seeing the possibility that the capital budgets might come in lower than you might have anticipated 6 months or a year ago?

Yes. I think that -- this is Joe, I think that used markets will provide some opportunities. We haven't been able to capture a lot to date, but we do anticipate that there will be some used equipment that will become available into 2012, which we would take advantage of. A lot of that would be to replace our own maintenance pipe cap as opposed to thinking in terms of new projects, but we do think that the equipment availability in the used market will increase in 2012 and we'll try to take advantage of that. As far as the capabilities and availability, again, with the soft market, the availability of equipment does not pose any problems at this moment in time for our development projects.

Great. As you've -- I mean, to the extent that you've been able to make some longer-term commitments for Illinois Basin coal, I was just curious if you've had the -- there's a buyers' market for coal, inventories are flushed. Could you talk a little bit about whether over the long run, you think that there's -- the company's got to sacrifice a little bit on pricing to hold onto volumes? Or is that not something that really works into your equations as far as the longer-term thinking and that the short-term market doesn't have all that much of an impact on whether you can actually hang on to pricing power, looking out over the long-term contracts?

I think that as so much of the pricing at the moment really has driven the short-term deals, a barge here or a train here, and not conducive to be interpolated out on a long-term contract basis. At the same time there haven't been a lot of long-term contract discussions. Now, with Seminole, it was more of a long-term view than a spot view. So we expect that, that contract, we know that for 2013 pricing, it will be above 2012 realizations. And it has been, it was priced as a market as if we were in a normal market instead of a quarter-by-quarter where the utilities are selling more and they're depressing prices today as opposed to producers selling into that market, that are setting the price. So it's going to be more on the basis of a realistic supply-demand balance, which we expect will occur in about 2013. So the 2013 pricing will be dependent upon what the market demand is going to be at that time and that will be both the factor of the economy and weather. I think the supply side has become rashing and will become more rashing in 2012 to where we will see a balance in the marketplace again by the end of 2012 or early 2013. Let me just follow that by saying, as we look at our unidentified sales and as we focus on our distribution policy, we do anticipate that the revenues will be supportive of the rated growth that we're showing and planning on for 2012.

Your next question comes from the line of Kalpesh Patel of JP Morgan.

It's John Bridges jumping on for Kalp. I was interested in your comments about the market supply coming off by year end. How do you see that developing? We've seen exports perhaps acting as a bit of a safety valve for excess coal in the market. Is that part of the solution that those exports sort of decline? Or are they economic and likely to continue? Just, could you comment on the export ...

No, I think it's more driven by -- there are certain contracts that are being satisfied today by some of our competitors that when those contracts roll off, and they're looking to place their tons into the forward market, they're going to -- they're not profitable, bottom line. So I think that we'll see, like we have seen this quarter, with some announced mine closings, we'll see additional mine closings as the year develops. And that'll be more Central Appalachia but then that will benefit the entire market.

Because when you look at the coal structure of Illinois Basin coal, it looks as if you could conceivably, you could put coal in a vessel on the Gulf for a little more than 50,000 a ton.

Yes, I'm not speaking Illinois -- I'm not suggesting Illinois Basin will fall off anymore, I think it will be more Central App. I think as we look at Illinois Basin, we think the production this year will be close to 120 million tons. So we are seeing growth in Illinois Basin back to the opportunity to sell coal in the export market.

Interesting. And then we've seen a reduction in sales to the utilities. How do we factor that into our modeling? Because we see your sales as being largely committed now for the rest of the year, but then as the utilities fill up the stockpiles then perhaps we're seeing force majeures called on that. Is that a risk for the rest of the year?

It's a risk however, I think most of the utilities that we're dealing with aren't relying on force majeures. They are talking as to what their inventory levels are and we're trying to be as flexible as we can be, but at the same to factor in the investments we've made and the commitments we've made to folks. So far, we've been able to work in a win-win situation with our customers to try to take into consideration their situation, but then they too, are taking in consideration of our situation. So we're planning to be able to ship our tons this year. Now, if the summer is not a normal summer, and the demand is lower than we anticipated, I think that's a bigger risk than force majeure events. But likewise, if the summer is a little warmer than normal, then maybe we'll see an increase of opportunities in the back half of the year. But that would be my view on the market size, it's really weather dependent for the summer. I think the customers are trying to honor their commitments, at least ours are. And we expect that, that will be the case for 2012 and that's been totally factored into our guidance.

Your next question comes from Chris Haberlin of Davenport & Company.

Maybe first here on financing, you said that you're looking to replace the revolver here next month. I just kind of want to see what your appetite is to borrow on that and kind of what's your comfort level on leverage metrics sale like a net debt to EBITDA or any other metric?

Yes. The current facilities that were in the market for are looking to upsize our revolver. On the cover we were $500 million for that and we also had a $250 million term loan component. We do have an accordion that we can exercise at closing to bring that up if we desire to. We're having those conversations this week to determine final sizing. As we look at longer-term, where we like our leverage levels to be, they've obviously been very low recently in the 1.2 range up on a gross basis and I think on 0.8 or so on a net basis, long-term, probably somewhere in the 2x range is where our comfort zone is. And bottom line is, we just felt like it was a -- we needed to address the revolver because of the expiry coming up in September and as the company has grown, we wanted to put a facility in place that was going to give us the flexibility we needed going forward.

Okay. Kind of switching to the export volumes, and I just want to make sure that I've got this down correctly. I think your guidance was the calendar year, or I'm sorry, fiscal year '13 would be somewhere in the range of 800,000 tons and then you all lost in Q1 around 250,000. So I just want to make sure that, that kind of implies something on the order of 800,000 tons here in the back half or I guess in Q2 through Q4, is that fair?

I think the way you could think about it is we had 1 million ton a year contract, so that's roughly 83,000 tons a month, I believe. And so we lost -- we had delayed shipments on our 2012 fiscal year, about 100,000 tons in the fourth quarter last year and then 200 --

175, 000

175, 000 or so in the first quarter. So that 275,000 is going to be shipped. And so now, we're continuing to ship at an 83,000 ton basis on a monthly basis. So once we get to fiscal year '13, that's anticipating the new contract would start April 1, 2014. So for our '13, because we're shipping on the same ratable amount, were effectively shipping on last year's contract, first, and then the second contract, based on the run rate, it just shrinks that to close to 800,000 as opposed to the 1 million.

Right. So in your comment that we'd lost those tons, we don't view that as we lost those tons, it's simply a timing issue. Write that up through the summer as our current expectation.

Yes. So we'll get -- the price we have for the 2012 fiscal year will stay intact and then for the balance of that contract, and it will have a new price for roughly 800,000 tons rolling into next year.

Right, and those negotiations are ongoing. It could be in the 800,000 ton range, but there's an opportunity it could be back at the 1 million ton range. We just haven't settled those negotiations yet.

So we're just assuming it stays the same run rate and give you this guidance. Brian's saying it could be higher than that. We'll wait and see.

Okay. And then last question on Gibson South. Can you just kind of remind us what the timing of that project is and how your customer commitments are coming along?

Timing is, in late 2014, should be up and running. And right now, we're pretty much focused on the export market for that output. And so we are shipping some export Gibson product to the market today to build those relationships and as we get closer to the actual start up date, we'll begin the conversations more in earnest to try to increase the volume to the production of the Gibson County operation.

Your next question comes from Mark Levin, BB&T Capital Markets.

A couple of just sort of macro questions. Just curious to kind of get your thoughts on how you see the thermal export market evolving in the back half of the year and into 2013. I think on the last call or maybe 2 calls before, we're talking about API-2 prices that were last year, somewhere around 120 today, around 100 or even below 100. So I'm just kind of curious to hear how you see that market evolving into this year and into '13?

Again, we are seeing, in addition to the European market, we're seeing increased interest in the Asian market as well as India. So you can't look at it just off the API-2 pricing. So there is increased activity, I think back to those other markets that are billing in what would otherwise be a void to the European market because of the pricing pressure. As we look at 2013, we don't see any reason why the demand, the appetite would not continue when we believe it will continue. And we, like some others that are engaged in the export markets, do see opportunity for a continued strong demand for the U.S. production in the 2013 timeframe, as well as going forward. So the world demand for coal continues to be at a strong pace, contrary to what we're seeing right now in the United States.

Okay. And then the second question, maybe more specifically to the Illinois Basin, I think last year as a region, it did about 110 million tons or so of production. When you kind of look at your crystal ball maybe, we've seen maybe some higher cost stuff come off, but obviously, a lot of lower-cost production is coming online. As you sort of see the ramp in the Illinois Basin for maybe a bit 110 million level in 2011, how do you kind of see that over the next couple of years? And then maybe talk about Central App's team market where you -- how you kind of envisioned the decline there occurring?

I think for Illinois Basin, we see the production anywhere from 115 million to 120 million this year. We think that it has an opportunity to grow over 2013 and 2014, probably another 20 million tons, and that most of that increase in production will go to the U.S. domestic market, but there will be some of that going in the international markets as well. On Central App, we're seeing roughly 160 million a day and that could fall off maybe 40 million tons over the next 2 years. Somewhere in that zip code so -- with the Illinois Basin growing about 20 million , you're going to see Central App decline about 20 million. It's my projection at this moment of time.

Got it. And then the last question, just in terms of the rails, I know there's been a lot of discussion in terms of how different rails are approaching their customers and I realize, on the utility's side, they're dealing directly with them and you guys are not. But just from what you're hearing and your perspective, is your sense that the rails will be a little bit more accommodative or are you seeing any signs, real tangible signs, that they are being more accommodative to help move more coal in this type of environment?

I think that if you look at the Eastern export markets, we're not participating in that as much, so I don't have first-hand experience with that. But I have heard, back to your question, that they have been more accommodative for the Eastern export movements to allow for certain producers to participate in that declining market as you mentioned earlier about the pricing, or someone did. So I think the rails are obviously an important part of the distribution chain and sure, they'll continue to try to move their product to increase volume or to increase and/or sustain volumes but at the same time they're going to want to try to maintain their margins as well.

[Operator Instructions] Next question comes from Dave Martin of Deutsche Bank.

I had a couple of follow-ups. First, it's clearly an interesting time to be signing new large, long-term agreements and I think Joe, you mentioned earlier, as it related to the Seminole deal that you expect the '13 price is to be up versus '12. I'm wondering if you can also just comment on margins, do you expect the price improvement to be above and beyond the cost inflation you would expect?

Yes, we would. If you look at our relationship with Seminole, it goes back to late '70s, 1970s. We have a very solid, long-term relationship with them and again, the contract pricing, because we had a long term contract, I think it's fair to say that our 2011 or excuse me, 2012 price on our base tonnage there is below market. So, when we look at our pricing year-over-year in a large part, it's really bringing that contract up where the market price is for the base tonnage in 2013, which does give us the increase and it is -- it should be higher, it should be added to better Margins in 2013.

Okay. Great. And then coming back to your net export business, it's clear that you'll benefit in the short term from delays and higher-priced tons over the next quarters so, and I guess maybe the next quarter. I'm wondering if you can comment on what your realizations will be for your measurements this year?

As Brian said, we're right in the middle of negotiations for fiscal year 2013. So probably not appropriate to discuss what our pricing would be under that contract, at this time.

And you have a follow-up from Kalpesh Patel of JPMorgan.

I wanted to ask about your exposure to coal to gas switching. Are any of your customers that you know about, looking to possibly shut in coal fired power generation and fire up some natural gas that might be in their portfolio currently?

I think centrally, all utilities are looking at what their mix is going to be on a going forward basis. So I'd say most of our customers have engaged in some form of coal to gas switching, as they've done so this year. I think most of what we expect is, most of that has been to a level that we don't really anticipate seeing an increase in coal to gas switching in 2013. I think gas prices are sure to hit their bottom and won't be going up in the future. And I think most utilities anticipate the same. So we don't anticipate in the 2012 -- in the 2013 timeframe or even 2012, a further increase in coal to gas switching. If you get beyond that, a lot of -- will hinge on the election in 2012. We've seen a lot of announcements by utilities they're planning to shut down coal units and rely more on natural gas. We're seeing more utilities and basically anybody that is building plants today, that we're not in the construction or the permitting phase before this year pretty much, so we look into building natural gas units. So over time, you would expect that the market share for natural gas would be higher than coal. But having said that, I think there's a concern in some of the anticipation of the coal burn has been too conservative. I do believe that the base load units that are running today will continue to run for the next 10 to 15 years. So I think demand for coal for the next 15 years, and as we look at the projects that are in our pipeline and the capital we're spending, we believe we can have more than the sufficient adequate markets to make great investments and to be able to continue to show the type of growth that we've been able to show for the last 11 years. So some of the concern of -- some of these headlines and announcements of greenhouse gas rigs or whatever, they're not going to impact our markets year-to-year, it's more of an impact 10 years from now. And so there will be, in my view, increasing demand for coal in the world and in the U.S., we think it's pretty much flattened out and will have a sustainable 800 million to 900 million-ton utility burn for the next 10, 15 years.

Okay. And just to follow-up to that, do you see your basin, or particularly Illinois Basin, benefiting more versus other basins as these regulations and coal to gas switching dynamics like play out, in that timeframe that you're talking about, the 5 to 10-year time frame?

We do anticipate growth in Illinois Basin and a large -- that has largely been due to the capital that the utilities have spent, that allow them to burn the higher sulfur, lower cost coal. So we do anticipate the Illinois Basin will benefit from the regulations as the customers anticipate, or as they look to meet the needs of their customer base but also the obligations of their regulations. So yes, Illinois Basin should benefit, as well as Northern App, should benefit from these regulations as we look to the next 10 years.

Is Illinois Basin outperformed Northern App in the Powder River Basin?

I think there's more growth opportunity in Illinois Basin than you can see in Northern App. So, as a percentage of each of the basins, the Illinois Basin will grow at a faster clip than either Powder River basin or Northern App. And in absolute terms, I think that Illinois Basin will have increased tonnage that's greater than Northern App. Now, Powder River Basin, I can't really answer your questions specifically, because I think they are looking to export more tons in the out years so they may have and of course, they have some reduction this year that's probably larger in volumes. So on a volume basis, they may be able to get back to normal and grow at a little faster pace in volume but not in percentage. But most of that will be driven by the export markets.

And there are no further questions. I'd now like to turn the call back over to Mr. Brian Cantrell.

Thank you, Chanel. As you just heard, we view our results in the first quarter as being principally related to timing issues. And we continue to anticipate improved performance over the balance of the year, as we get back on schedule for our deliveries and realize the benefits from our Onton acquisition and the start-up of the Tunnel Ridge longwall. And as a result, we remain optimistic that 2012 will be another record year for ARLP. With this expectation, and along with our visible growth pipeline, those factors give us confidence that we can continue to deliver distribution growth to our unitholders in the future. We appreciate your time and interest this morning and look forward to catching up next quarter. Thank you.

Ladies and gentlemen, that concludes the presentation. Thank you for participation. You may now disconnect. Have a great day.