Good day, ladies and gentlemen, and welcome to the Third Quarter 2014 Alliance Resource Partners, L.P. and Alliance Holdings GP Earnings Conference Call. My name is Lisa, and I'll 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, Mr. Brian Cantrell, Senior Vice President and Chief Financial Officer. Please proceed, sir.

Thank you, Lisa, and welcome, everyone. Yesterday, we released 2014 third quarter earnings for both Alliance Resource Partners or ARLP and Alliance Holdings GP or AHGP, and we will now discuss these results as well as our outlook for the balance of the year. Following our prepared remarks, we will open the call to your questions. Before beginning, just a reminder that some of our remarks today 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 our press releases. 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. In providing these remarks, neither partnership has any obligation to publicly update or revise any forward-looking statements, 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 the required preliminaries, I'll start this morning with a review of the partnership's operating and financial results for the most recent quarter and the first 9 months of 2014, and then I'll turn the call over to Joe Craft, our President and Chief Executive Officer. Driven primarily by volume growth, ARLP's results for the 2014 quarter improved across the board compared to the 2013 quarter. Coal sales and…

Thank you, Brian, and good morning, everyone. As Brian just reviewed, both ARLP and AHGP added to their historic track record of delivering exceptional results by posting across-the-board improvements to operating and financial metrics for the 2014 quarter and the first 9 months of 2014. Our operating teams remained focused on maintaining ARLP's low cost advantage, driving per cost per ton down $0.96 in the 2014 quarter and $1.47 year-to-date. Since the beginning of the year, our marketing team has also secured new coal sales commitments for the delivery of approximately 18.3 million tons through 2017. With these agreements, ARLP now has price commitments for approximately 33.5 million tons in 2015 and 26.6 million tons in 2016. During the 2014 quarter, ARLP also continued to move forward on its current projects. Development is progressing in our Gibson South mine. And as recently announced by White Oak Resources, LLC, their new Mine No. 1 has begun longwall operations. Although ARLP's performance has remained solid, the industry-wide marketing environment for domestic thermal coal continues to be challenging. Mild summer weather and weak exports, both for met coal and steam coal, have largely eliminated any carryover benefits derived from strong coal demand last winter. Persistent transportation shortages affecting both rail and barge shipments and a soft natural gas price outlook are also pressuring current coal markets. Adding to the downward pressure, regulatory uncertainty is causing utilities to limit the term transactions for coal as they have reverted back to a quarter-by-quarter coal buying strategy. Assuming normal winter weather, we currently anticipate the coal markets to remain difficult through 2015. While we always strive to operate at full capacity, in this environment it may be necessary to delay our production growth to match the market. Reflecting these concerns, we plan to moderate the pace…

[Operator Instructions] And your first question comes from the line of John Bridges with JPMorgan.

I was just wondering, with respect to the winter, we're hearing out in the Plains that they're struggling to get coal, but you're pointing to difficulties -- utilities who feel that they may have a surplus of power-generating options, with gas perhaps through the winter. Might Illinois Basin power generators run a bit harder and push power into the Plains? Is that something that could help you?

That's possible. I think that -- I know that has been considered by some. But we aren't modeling that in our projections. But it is a possibility.

Okay. And then maybe on rail. I see you're having difficulties as well. Are those difficulties going to increase as the grain hits the system in Q4 or do you see some incremental improvements?

I think we're anticipating they will continue to have problems, primarily because of the grain. So we factored that into our comments. So we don't believe -- we speak -- we see tightness in the fourth quarter. We hope and believe and listening to our transportation partners that they're working on improvements. But it's hard to predict exactly when that's going to get back to normal.

And your next question comes from the line of Jim Rollyson with Raymond James.

Joe, going back to John's questions, just on the rail. The third quarter sounds like timing of shipments pushed a little bit of volume out from the quarter. Is there enough rail and barge capacity to help you make up for that in the fourth quarter? Or do you think the rail performance issues we've dealt with all year are going to be kind of limiting how much you can make up of that?

It's going to be tight. We're working with our customers who primarily arrange for that transportation. And they're trying to get their contractual commitments because they are committed. I think, that it's just going to be a tight market. And we're hopeful that since we do have commitments that the utility also have commitments with their transporters, and we'll be able to move our production in the fourth quarter as we currently have it planned in our sales production forecast.

Okay. That's helpful.

Jim, let me touch a little bit on the change in Illinois Basin sales times, in particular, compared to the sequential quarter. You do need to recall that we drew down inventory significantly in the second quarter after having a build in the first quarter due to transportation issues related to weather. By way of example, River View substantially depleted its inventory at the end of the second quarter. And so when you're making that comparison, it's not necessarily just timing differences that Joe discussed here, but it's also timing differences back to the previous quarters as we're trying to manage the inventory situation and coal flows.

Makes sense. Historically, you guys, cut over a long period of time now, have been developing your growth by mainly organic projects and maybe tack on an M&A project here and there. When you think out, Joe, over the next 3 or 4 or 5 years, obviously, you've got the continued development of Gibson South at whatever pace the market allows you to ramp that up. We've got White Oak starting and ramping up. When you think beyond those 2 projects, I mean how are you thinking about things? You clearly have other potential organic growth opportunities that you guys have in the portfolio, but what do you think about the market conditions we've seen? Just curious how you balance all that to think about continued growth here over the next 5 years like you've had over the last several years?

So I think as -- when you look at the market landscape, right now, the big question is how fast will the high-cost producers close shop? And how fast will that balance? And will it get overshoot combined with when will the export market come back? So both of those have high probabilities of occurrence. We just don't know when. So what we will do is try to focus on how we can grow our production in the lowest cost possible so that we're prepared when those -- the export market comes back and/or other competitors drop out of the market and that market share becomes available.

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

Well, just -- I think you had talked about how it might be necessary, given the market conditions, to cut back some of the production growth at Gibson South -- talking about, I think the number was 3.1 million tons for 2015. So I was just wondering if -- when you look across, it's kind of like there were some in the third quarter, you mentioned some geological issues at some of the other mines. Can you look at the other mines in the Illinois Basin and say that they should, in your modeling, should they basically be flat next year? Or is Gibson South going to replace any of that if you experience some continuation of these adverse geology? Or how do you look at that? Is Gibson South, is that just all growth or any replacement of volumes elsewhere?

For us, is that your question back to where you were...

Yes.

Now we look at that as additive right now. So that would be additive to the supply in the Illinois Basin as opposed to replacing any of our internal tonnage. At this moment in time, that's the way we would look at it. Now if the market doesn't respond, I mean, we think there'll be additional central lap times [ph] fall out of the market. So we think that we will see some, not a lot, but some increase in demand for the Illinois Basin in 2015. And if we have the benefit of a little colder winter or a little hotter summer, you could see that market tightening more than what is currently built in their plans. Because we -- because I think we've said in the past, we try to model off just normal weather patterns. We don't anticipate the export market to come back in 2015. But as you look at all our competitors and you look at the supply coming on, there is probably an oversupply at the moment. And the question is going to be what our competitors do relative to whether they want to continue to compete in a market where they're not making money or whether they're ready to do something different. And if that were to happen, I think that it's more likely than not, it would be our competitors that do something than us. But if we have to, we will do -- as far as going back production that is.

Sure. Great. And I was just wondering, it was a good quarter for pricing in the Illinois Basin, another uptick, almost $53 a ton. I was just wondering if you could comment about this relatively soft market when thinking about all the other -- all the factors that you've mentioned. Can we think about that near $53 dollar per ton price as something that's going to be sustainable? Or when you put to bed all the remaining on price tons for next year, do you think that might be something that drag on your average realized price outlook for '15?

I think that as we look at overall pricing and not specific to your question for Illinois Basin, but as we look at overall pricing, as you balance in the contract escalators with the spot market that we and/or the term market who we're going to sell into, we do think that our pricing on a per ton basis for coal sales in 2015 will be slightly lower than what we have in 2014. And by slightly, I'm saying $0.50 a ton plus or minus a quarter, maybe. It's still being determined. I think a lot of the noise you hear on the markets in the Illinois Basin, in particular, are revolving around this new exchange that's been -- that was launched a couple of weeks ago, which targets the longwall coal, basically, it's the higher chlorine product that has a little transportation disadvantage to what we do. So we don't see that reflective of our markets in our coal. Plus, we think that it's just getting started, it's got very limited liquidity. And it's really not a good indicator of what the market prices are for the Illinois Basin. Now having said that, I mentioned that we are projecting a slight oversupply in 2015, so there is pressure. But it's not as bad as what some of these public indices are suggesting. The determining factor is going to be, again, weather and demand. So we are seeing some industrial demand increase supported, and the utility growth is not -- I mean, it's holding its own. So it's growing like at 1%, but as far as the general economy itself. But as we think about the pricing and our position and our historical customer base and what we anticipate for 2015 and going forward, we think we'll be able to be close to where market price is even though we'll have some impact probably in that $0.50 a ton level overall in 2015.

[Operator Instructions] Your next question comes from the line of Mark Levin with BB&T Capital Markets.

Two very quick questions. One, regarding future growth opportunities. Brian, as you alluded to, the balance sheet less than 1x levered. When you think about growth beyond White Oak and some of the projects that you guys are executing on, where do you go from here? As you kind of think about maybe the intermediate term, not necessarily the next couple of years, but beyond that point, will -- I mean, is there the possibility that you guys would consider diversifying outside of coal? Does that remain an interest of the board or is that an interest of the board? That's my first question. And then the second question, I think I ask every quarter, has to do with sort of the ARLP, AHGP, the way those 2 trade. If you guys have any further thoughts or updates on trying to maybe make those 2 equities trade a little bit more rationally.

Relative to your first question as to whether we would look outside coal, the answer is yes. I mean, for several years, we do have internal analysis, tracking all of the MLP qualifying income opportunities and trying to determine if there's a niche for us with our skills, management skills to participate in that. And we have on and off again looked at things. We continue to look at them. So there is that possibility. If we were to do that, it would be walking before we run. Now you wouldn't expect us to go out there and make a big splash. So we would be thinking in terms of something that's modest that would give us an opportunity to see if we can find something that would also be a platform for us to grow off of. So we would want to do it strategically as opposed to just financially. But that is a possibility. As you know, in MLP space, it's pretty competitive right now. So we will -- we're not going to get in to something, unless we feel like we can get results comparable to what we've been able to deliver in the coal space and what our alternatives are. Anything we would do there would be additive to what we do in coal. We still believe we're very strongly positioned to migrate in the coal space. And so we think with our balance sheet, there's going to be opportunities beyond just organic projects as the future unfolds in the coal environment. So we plan to participate in that just as aggressively as we have in the past, which some people might not say aggressive, but it's methodical and it's allowed us to have the 14 years of record growth that we've been able to enjoy…

Your next question comes from the line of Chris Straub [ph].

First, as a long time shareholder, I want to just thank you. You've done a wonderful job and you're making me a lot of money. So thank you very much. I enjoy these year-over-year distribution increases a lot. You've kind of touched on a few of my questions already, so I'm not going to repeat them, and thank you for that. But, I guess, maybe as a summarizing kind of a question, what or how does ARLP's business -- how is it significantly different than the other coal miners? And what's your winning strategy right now? Because you guys definitely are a different -- you have differentiations or you're definitely a differentiator among the other coal miners that appear to be gone away or definitely in dark days, and ARLP continues to prosper and that's exciting. But -- And I'm not a significant -- I'm not an analyst or anything, so layman terms would be best for me, please.

All right. Thank you for your long-time support. We're happy to benefit your net worth, and hopefully we continue to do that. We're working hard to make that happen. I think the distinguishing factors for us is, one, we are very focused on the domestic utility market, and a lot of our competitors have a more global view and a lot of them are in the metallurgical markets. So those markets have been hit hard -- significantly harder than the domestic utility market. Second factor is because of what their focus is, they have much more levered balance sheets than we have. So having a very strong balance sheet has benefited us well. Another distinguishing factor is we positioned ourselves in anticipation of the markets moving to the Illinois Basin and the Northern Appalachia Basin. And fortunately, we're able to secure very low cost operations that have advantages from a transportation standpoint. And, of course, finally, a distinguishing factor that I believe strongly about is our people. I mean, we have tremendous people. They are dedicated, day-in and day-out, to do what it takes to excel at the highest level. So they make decisions every day that are long-term in nature. And they're very focused on job security and trying to be service-oriented to our customers, which means that we do enjoy very good customer relations as well. I'm sure our customers -- or our competitors feel equally as strongly about the latter two points, but I'd rather have my team than anybody and I'd rather be in this position than in any other company in America. So thank you for your support. We're committed to the business. We believe that coal is the low cost producer for this nation, it's the right thing for our nation, we need low cost energy, it has built the economy. We're committed to continuing that for many years to come. And we don't see any reason why we can't continue for the next 14 like we've done the last 14.

Great. Well, I'm looking forward to that. No reason to change my portfolio as it stands.

There are no additional questions at this time. I would now like to turn the presentation back over to Mr. Brian Cantrell for closing remarks.

Thank you, Lisa. We appreciate everybody's time this morning as well as your continued support and interest in both ARLP and AHGP. Our next call is currently scheduled for late January of next year. And we look forward to discussing our fourth quarter results with you at that time as well as our outlook for 2015. Thank you all very much.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.