Good day, ladies and gentlemen, and welcome to the third quarter 2012 Alliance Resource Partners and Alliance Holdings GP earnings conference call. (Operator Instructions) I would now like to turn the presentation over to your host for today's conference to Mr. Brian Cantrell, Senior Vice President and Chief Financial Officer.

Welcome, everyone. Earlier this morning, we released 2012 third quarter earnings for both Alliance Resource Partners, or ARLP, and Alliance Holdings GP, or AHGP, and we'll now discuss these results and update our full year outlook for 2012. After our prepared remarks, we'll open the call to your questions. Before we start, let's begin with a few customary reminders. First, since AHGP's only assets are its ownership interest in ARLP, our comments today will be directed to ARLP's results and outlook, unless otherwise noted. In addition, please be aware that some of our remarks may include forward-looking statements that are subject to a variety of risks, uncertainties and assumptions, which are contained in our filings from time to time with the Securities and Exchange Commission, and are also reflected in today's press releases from the partnerships. While these forward-looking statements are based on information currently available to the partnerships 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 results for 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'll 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 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.

Thank you, Brian, and good morning, everyone. ARLP experienced a number of positive results during the 2012 quarter. Production increases at Tunnel Ridge and Onton led to record volumes, as production increased 17.7% and sales tons climb to 7% compared to the 2011 quarter. Strong volume growth also grow coal revenues higher to $499 million, an increase of 5.3%. In addition to this topline growth, our segment adjusted EBITDA expense per ton for the 2012 quarter was 4.3% lower than the sequential quarter and only 1.9% lower than the 2011 quarter. Performance of our new Tunnel Ridge longwall mine continue to improve with production increasing by almost 500,000 tons over the sequential quarter. Our Gibson North, Pattiki and River View mines also performed well this quarter. Looking forward, we also added to the ARLP's already solid contract position. During the 2012 quarter, we booked new sales commitments for the delivery of $1.65 million tons through 2014. With these commitments, year-to-date ARLP has booked new arrangements to deliver nearly 29 million tons through 2018. In an extremely challenging market environment, we are pleased that ARLP has successful sold essentially all of our planned sales volumes for 2012, and as priced, they committed over 95% of our anticipated 2013 sales volumes. ARLP remains committed and focused on building for the future as our Gibson South and White Oak development projects move forward this quarter in line with our expectations. Our 2012 quarter was, however, negatively impacted by the unplanned idling of our Pontiki mining complex. On August 29, Pontiki was idled, following a closure order, issued by the Mine Safety and Health Administration with respect to the coal preparation plant and associated surface facilities at the complex. After a review of all surface structures by an external bridge construction engineer, we were…

Thank you, Joe. As noted in our release this morning, ARLP's results for the 2012 quarter were significantly impacted by three items: the idling of Pontiki; reduced sales for metallurgical coal into the export markets for Mettiki; and increased depreciation expense. Looking first at Pontiki. Results reflect approximately $5.1 million in loses due to the suspension of operations and a $19 million non-cash impairment of the long-lived assets at the mine. The impairment charge we recorded, essentially adjust the mine's assets to the fair value of equipment currently in use at Pontiki that could be used at other operations. Second, during our last earnings call, we indicated that our existing met coal contract would be completed in July. And given weakness in the metallurgical export markets at that time, express concerned about the likelihood of securing attractively priced new agreements. Our concerns were well founded as demand and pricing for metallurgical coal continue to decline, and as a result, ARLP elected not to participate in the currently depressed market environment. Consequently, metallurgical coal sales in the 2012 quarter decline by roughly 175,000 tons, leading to lower price realizations in Northern Appalachia and reducing ARLP's comparative financial results by approximately $17.8 million. Third, depreciation depletion and amortization increased $19.5 million to $59.8 million in the 2012 quarter compared to the 2011 quarter, primarily as a result of the start-up of longwall production at the Tunnel Ridge mine, the addition of Onton mine and capital expenditures related to infrastructure improvements at various other operations. As we evaluate our results for the 2012 quarter, the proper read is to look beyond Pontiki, which was an unprecedented one-off occurrence. Reporting Joe's comments that our strategy and growth plans remain intact, ARLP posted record volumes in the 2012 quarter as sales tons increased 7% to…

(Operator Instructions) And your first question will come from the line of Jim Rollyson with Raymond James.

Joe, obviously, third quarter you had a couple of things going on, but from the met perspective, it's sounds like you will be participating in a big way in the met market in the near term. So when I think about kind of Northern App, we look at met being softer and you look at Tunnel Ridge ramping up. Should we think about kind of average realized prices and cost of mix to kind of look similar in the next couple of quarters versus what it did in the third quarter?

I think that on the revenue side, you're correct. We will not be participating in a met market definitely in the fourth quarter and most likely not in the first quarter, and probably not even the second quarter of 2013. So from a revenue perspective, I think you can look at this quarter as indicative. Rather as to the cost, we would expect the cost to trend down, as our production continues to ramp up at Tunnel Ridge, which should drive the segment expense number lower. And I would expect incremental improvement both in the fourth quarter and it should be even better first quarter, as we move towards a full production rate at Tunnel Ridge.

Jim, you saw that sequential expense in Northern Appalachia dropped almost 23%. And that as we said is clearly indicative of the ramp up and lower cost production out of Tunnel Ridge. And we do expect to see a continuing trend of declining cost of met region as the mine ramps up to full production.

And if get to say, second half of next year and that's running full out like with pretty attractive cost, and you get back on the met side. Where do you think cost ultimately on a full run rate basis across the spectrum for Northern App, any kind of target where that cost number might turn out to?

Not at this moment. I mean it is impacted by the met sales. So if you assume no met sales it gives you one number, if you assume met sales it gives you another. We're right in the middle of our planning process for 2013. I would like to defer until the January meeting to give you better guidance on that.

One other point too, Jim. Everybody needs to remember that our participation in the met market over the past couple of years has been roughly 3% to 3.5% of our total volume. So while it's meaningful on the margins, it's not a significant portion of our activity. Our approach there has always been to tap into that market, when it's attractive and opportunistically. And that's what we're going to continue to do in the future at this stage.

And when we don't participate, we usually cut back purchased coal, which is also a factor on the cost side. But on a margin side, it's back what Brian just said.

Any particular price level on say benchmark met prices that kind of where is the threshold where you get back interested again?

I would say it probably needs to be $15 to $20 higher than what we've seen in the third quarter, not speaking of the fourth quarter.

On the sales contract side, you kind of continue to layer on some contracts. And I know you made a comment with regards to margins next year being fairly stable. Just curious, when you think about the all-in blended average pricing that you are still getting today or in the past quarter on contract, is it relatively consistent with what you've been experiencing in natural fields?

I would expect that the sales revenue per ton number in '13 will be close to what we are experiencing in 2012.

And then, last one just on Pontiki. It sounds like going to be out for most part of rest of this year. You mentioned us the covering of contracts you have next year. Is there a kind of Central App price level, above which you probably go ahead and try and keep this mine going longer-term, and below which you're obviously more impaired?

Based on what I would look at right now, we would expect the price would have to be north of $75 per ton.

Your next question will come from the line of Paul Forward with Stifel Nicolaus.

So a couple of questions, obviously, you've had to see the Northern App met export straying up a little bit. I was just wondering are you doing any exporting of Illinois Basin coal, and can you talk a little bit about whether it's domestic or export coal? Any issues related to the there River levels and whether that might be impacting the near-term outlook for deliveries?

I think we have mentioned in the past that we have been moving some thermal tons, particularly out of our River View and Gibson operations into the export markets. I think this quarter we did 335,000 tons again longer term. We think that we have a place to play in that market at current realizations, I don't view this particularly attractive on net backs to the mine. But we'll continue to evaluate it and lay it up against our other opportunities that determine how we participate from a River standpoint. There has been some disruptions in the system. I don't believe we have experienced any at our particular operations. It has been material.

I think as we look at the export markets, we do believe we will export more, once the Gibson South property comes into production. But as we look at the 2013 sales growth, we would not expect the export volumes to be that much different than what they are in 2012 in the steam market.

Looking a little longer term at the Illinois Basin, I was just wondering if you could give us a little sense of what your current thoughts are on, when you would expect the production ramps to occur at Gibson South and White Oak, as you're evaluating customer demand levels and inventories and the long-term outlook for Illinois Basin to displace coal from other regions? Just wondering if you could give us a sense on your current thoughts on timing of those projects?

Gibson South is going to be fourth quarter 2014 to early 2015. When we will start seeing the production ramp ups you'll see the full benefit of that really in 2015, 2016. As to White Oak, we would expect some production in 2013, but the bulk of that production will come in the 2014, 2015, timeframe at White Oak.

Again, when you kind of step back and look at it from where we are today, as Joe talked about next year, we'll see production growth principally coming out of the ramp up at Tunnel Ridge. And then as he just mentioned moving in the 2014, beginning to see benefits from White Oak, and then in 2015 benefits from both White Oak and Gibson South.

And then, the last question I have is, earlier in 2012 we had some impact of utility deferrals of shipments, and a great news for you guys, you've got over 95% of your planned 2013 deliveries committed and priced. And I was just wondering, if you could talk a little bit about you're anticipating inventories coming down as the year goes along, but still a pretty soft first half 2013 utility market. And I was just wondering if you could talk about the risk of any of that already priced business getting differed into later quarters?

As we look at the softness and that's more on the market side, not necessarily the consumption side, because we do believe demand is on the upswing, thanks to natural gas prices. So as natural gas prices continue at the $4 range, we believe that the demand should be improving. And therefore, hopeful that we would not have the pressures of deferral that we did feel in the first half of 2012. So the answer to your question is really depending on natural gas prices. So if natural gas prices can stay in the $4 range, we feel like, we should be okay with our sales contract position.

(Operator Instructions) Your next question will come for the line of Chris Haberlin with Davenport.

Can you just give us an idea of where your customer inventory stand as it relate to customers from Northern App coal and Illinois Basin coal?

I would say that our customers are typical of what you're seeing overall with the inventory positions for those basins. So they are above what historical levels have been. And as a result, we do think that the improvement in the market, as I mentioned in my last answer will only be to dropdown inventories as opposed to seeing new buys in the first half of 2013. But we do believe that by the end of the first half of 2013, assuming we have growth in the economy and the normal weather pattern in the first quarter of 2013 that we will be in balance in both the Illinois Basin and Northern App by the middle of 2013.

And then with gas now in the mid-threes and the strip out kind of north of $4, can you just give us an idea of where you see coal in those two regions regaining share?

We look at Illinois Basin and Northern App picking up some demand of about 24 million tons year-over-year. We believe about 15 million of that's going to come from Central App. And maybe, roughly 9 million ton or 10 million ton could come from Gas switch or weather and I can't distinguish between the two?

And then last question, what type of prices, API 2 would you want to see to encourage increased exports?

We'll love 120 again, but if I could see 105 plus then based on current domestics markets that would be at competitive pricing point that we could ship in the export market, if realizations there is comparable to what we're getting domestically.

And then just kind of looking at your crystal ball, given the recession in Europe, do you all have any view on when, I mean obviously spot prices on the API are in 80s, do you have any view on when we might recover to those levels. Would Europe have to recover from its recession or is that something that would be achievable next year in your opinion.

It is achievable. I think you got to look at the global economy, so you have to understand what's going on in China and you got to understand what's going on the United States. I think those are two critical parts of the global economy and both of those are going to be impacted by leadership and hopefully new leadership in the United States.

Your next question comes from the line of John Bridges with JP Morgan.

I just wanted to ask a big picture question, PRB ate your lunch in the last couple of decades and tide seems to have changed. I was just wondering, if you could talk a little bit about the competitive situation between Illinois Basin and PRB coal that you're seeing at the moment?

We believe that as far as the PRB competition, we don't see that changing much. And if it does change and if it does change it will probably go to Illinois Basin advantage. Getting into again the scrubber technology and transportation is the key. So it's going to be totally depending on what the rail rates are out of PRB into our areas. But then you also have the aspect of what plants want to burn, and that check has already been written, and really comes down to rail rates, then we don't see that changing. So as we look at the competition, we think that more than likely it's going to drive more towards in the Illinois benefit versus PRB. But more than likely, it's just going to be not that much different than what we've experienced to date.

There has been some comments that the rails have been a little bit more friendly to ensure the business. What sort of businesses you've been having with the rails?

Specifically, to PRB, we haven't seen any in-roads into our markets relative to the rail rate improvements. As far as our own experience with the rail is to secure business, and I think the railroads have been receptive to listen, but I can't say that we've seen much movement relative to our markets that have impacted our outlook one way or the other.

And at this time we have no further questions, I would like to turn the call back to Brian Cantrell for closing remarks.

Again, thanks to everyone for joining us today. We appreciate your interest and continued support for both ARLP and AHGP. As you heard this morning, we continue to see opportunities and growth ahead of us, and we look forward to updating you on our full year 2012 results and refreshing our outlook for 2013 on our January call. Thank you very much.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a wonderful day.