Good morning and welcome to the Alliance Resource Partners, L.P. and Alliance Holdings GP, L.P. First Quarter 2018 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Brian Cantrell, Senior Vice President and Chief Financial Officer. Please go ahead.

Thank you, Phil and welcome everyone. Earlier this morning, we released 2018 first 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, a reminder that some of our remarks today may include forward-looking statements that are subject to a variety of risks, uncertainties and assumptions that are contained in our filings from time-to-time with the Securities and Exchange Commission and are also reflected in this morning's 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 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 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. With the required preliminaries out of the way, I'll start this morning with a review of our operating and financial results for the most recent quarter, and then turn the call over to Joe Craft, our President and Chief Executive Officer. As announced earlier this morning, ARLP reported strong financial results for the 2018 quarter benefiting from an $80 million gain from the settlement of a…

Thank you, Brian, and good morning everyone. I'm extremely pleased with our performance during the 2018 quarter. As Brian just mentioned, ARLPs strong performance to the start the year bodes well for the balance of 2018. I am equally optimistic about our future and our ability to grow our cash flow as we increase production and reap the growing benefits from our non coal investments. Our financial results this quarter obviously benefited from the $80 million gain resulting from the settlement of the coal sales contract dispute. In addition to the cash payment I received in the 2018 quarter, the settlement also provides ARLP with future conditional coal supply commitments, continued access to transloading capacity for exports from our Appalachian mines and the right to acquire 56.7 million tons of coal reserves adjacent to our Tunnel Ridge mining operation footprint. ARLP also strengthened its contract portfolio during the 2018 quarter reaching agreements to deliver up to 19.7 million tons to customers during the 2018 through 2022 time period, including an additional 4.8 million tons for delivery this year. Domestically, we anticipate U.S. power generators will be in the market for coal to replenish stockpiles over the balance of the year after a solid quarter of coal burn due to colder than normal temperatures year-to-date, even with low natural gas prices. Demand for ARLP coal in international market remains strong. To-date we have booked commitments to export 7.3 million tons of thermal and metallurgical coal in 2018. Export commitments booked so far this year exceed the 6.7 million tons, ARLP exported for all of 2017 and we continue to evaluate additional opportunities in the international markets. We expect export sales could approach 20% of ARLP'S total sales volume in 2018. These sales commitments and favorable expectations led ARLP to increase our…

[Operator Instructions] First question comes from Mark Levin with Seaport Global. Please go ahead.

Congrats on a good quarter particularly under - sounds like some pretty tough circumstances logistically. Just a few questions and Joe you really, kind of got to it right at the end there, when you mentioned about considering a buyback. I was just trying to get a better handle for how you view the relative return opportunities with regard to where the units are trading now obviously to 12% yield around there which is pretty high by anybody standards I would think versus some of the coal opportunities that you've discussed and also some of the non-coal E&P opportunities you've discussed. I know that units have gotten weaker in the first quarter, and I'm just curious if that's kind of changed your view in terms of return preference or return - what you see the most upside in?

The decline in the price of the units in the first quarter are really hard to understand. So that has increased our urgency I guess and make that a evaluation but we do if you just mentioned - we got to compare that against our other options for investments and good news is there is plenty of those that we've got on our plate right now also. So we are in a process trying to bring those to probability of success if you will to determine exactly how much leverage is prudent as we think about competing capital for the long-term versus maybe being an opportunistic on whether to be an investment in assets or investment in our units. So it’s a high-class problem I guess. We got plenty of opportunities to make some great investments with our excess cash flow.

Second question also more bigger picture, given some of the - I guess the noise in the MLP space over the last quarter some of the regulator decisions and kind of what's going on there. Has there been any sense or any thought process around potentially converting from an MLP structure to a C-Corp structure serious consideration or is that something is off the board at this point?

I think we're evaluating those options as well. I do not believe we would convert to the full up C. I think the hybrid is worth looking at. Again it's hard to understand why we as MLP are trading it a little over 3.3 multiple on EBITDA and our C-Corp competitors if you will or the analyst estimates when they value the C-Corp's are saying there are five to eight times. So I don’t really understand that when we’re more tax efficient vehicle, but - so it causes us to have to think about well maybe looking at the hybrid but the tax benefits are the MLP structure are so much better than the C-Corp that I can't imagine that we would convert their full up C. But if we can take advantage in partial way then we have to evaluate that.

That makes perfect sense.

You looked at us as an example, I mean we got our bonds trading at little under 6% at a interest rate tax rate and then we got units that have a 20% reduction to the normal income tax rates for individuals and yet they are trading at 12 it just doesn't make sense.

I absolutely agree with you on that point. Last question for me for more specific, I guess you guys put some 19 tons to bed. You changed your 18 realization higher I guess my two parts one is, what caused you to change the 18 - move the 18 realization, was that an export driven increase or was that a utility code driven increase or some combination of the two. And then the last question then I’ll hang up is 2019 price realizations maybe any early thoughts in terms of whether or not that will be flat down, up versus 2018? Thank you.

I think that it was a combination of the two largely driven by the export market there. I think when you look at our sales mix, we were able to sell close to half - how much in the quarter metallurgical tons that do let that price. But for the year, I think we got booked 500,000 tons so that rolls into our forecast and those are prices that do let their average sales price. The export market has been very good. And so we have been getting prices equal if not better at certain coal mines in the export market and we are getting domestically but because of the export shipments bringing tightness in the marketplace that’s also impacted some of the domestic prices. As we looked to 2019, we think the unidentified price has potential to go higher again back to the discipline and coal the industry is far as what supply demand is. And I think same time as we look forward, we think the margins are going to be comparable in 2019 as they are in 2018 as we’re trying to think through forward - look at what our cash flow will be.

[Operator Instructions] The next question comes from Lucas Pipes with B. Riley FBR. Please go ahead.

I wanted to ask a couple of more questions on the capital allocation side. Obviously, it has been very busy both in terms of evaluating distributions and then buyback programs and such, but then also in the investment side last quarter you mentioned potentially having an interest in met coal. So my first question on the capital allocation side is to what extent you continue to look at met coal opportunities in the U.S. Thank you.

We are continuing to look at that. I would say that of the opportunities we are looking at its lower in the priority ranking. I think the met coal opportunities we would look at probably would not happen this year. It's possible but it is lower on our ranking at this moment. We will continue to making investment in it, but its - we've got other investments that are more attractive to this in 2018.

So maybe not to lead with any questions on what those could be, could you describe those priorities?

We prefer not to just because we are in the middle of evaluation and in negotiations and some of them and it is just better I think not to address those until we have something where we've got something closer to the definitive arrangement.

And then you mentioned Joe evaluating the potential for a new mine due to depletion in 2020. I wanted to tie that into the M&A capital allocation discussion. Would not it maybe make more sense to purchase some competitors in the region to maintain market share, how do you think about that?

We feel like that the result we are looking at is very low cost - excuse me, will be a low cost operation from an operations perspective. It will allow us to take advantage of the existing capital that we already have deployed and allows to maintain a management team that we think is the best in Eastern Kentucky. So as we think of the risk return benefits, we feel like our best option is to invest in the team we have and utilize the good assets and we think we can get higher return as oppose to trying to buy someone that you don’t always know what you are getting when you’re making a purchase of another assets.

Do you have a sense for the development cost of that new mine.

It's in the probably $60 million plus or minus rate and that will be over three year period. It would be a small amount this year grow more in the 19 and 20 as we would try to move this to be seen was with the depletion of our MC Mining reserves.

And how many tons per year would this operation produce roughly?

Around 1.3 I think something like that, but it could be expanded depending upon market opportunities. And as we think about market opportunities in the export market, we are becoming more and more encouraged that we can enter into long term contracts with end users and this is would be attractive in that regard. So it's possible we could adequately increase that volume if we could get contracts to match.

I may have a few more questions on that, but maybe to finish my questions on the capital allocation side. You continue to invest in oil and gas, here in 2018 looking out, what's your goal for the oil and gas business. Do you want to continue to contribute capital and grow that business if you think it's now at a point where it ought to be self funding?

Well the commitments we've made - the last commitment we made will be completely funded this year. So we are at a point where we got to make the decision do we continue or not and at what level. So it could be that we do look at the cash flows coming from that entity from that the previous investments and decide their scale, the investments in the future based off of what we anticipate to get from our first three investments and commitments we made. But that’s part of our decision process right now, but that decision is in front of us and we will be making that before the end of the second quarter. So we will have more color and exactly what we are going to do on our next call if not sooner.

And now maybe to round out my questions with the export market. Can you give us sense of the net-backs that you're realizing in the Illinois Basin on export tons and Joe you mentioned the ability to maybe enter into some longer term contracts. What would those look like, would this be multi-year agreements with fixed prices?

Along your first question, a lot of our Illinois Basin coal that we are selling is coming from our Gibson County Mine, which is the lower sulfur operation. So we are not - so we are able to get realizations that are above what you have considered to be smart price in the Illinois Basin because of the lower sulfur. So we are not suffering as largest sulfur discount so to speak. So we are getting prices there that are definitely better than the domestic market and better than what you see in Illinois Basin, you have price on any index that you are looking at. As far as the other higher sulfur Illinois Basin, those two are coming in at slightly higher. Again, I will remind everyone that when we made a sale into the export market, we also get the benefit of not having to pay the $1.10 per ton excise tax that we have to pay to domestics. So when we get something similar to what our price would be in the domestic market, we are basically getting another $1.10 in the margin lift. As far as the concept of being able to have a longer term contract, it would be more commitment for tons and the price would probably be indexed to an API 2 with may be some basis differential but it would be imploding price as both a fixed price more than likely.

But ask one final question, and I think I ask this almost every quarter. When you think about 2019 contracting kind of - I know not all times I created equal in the Ohio River Valley, but kind of an average ton what you think what it sell for, for 2019 to domestic utility?

Again I think, our pricing - what we have been able to book so far has been better than the indexes, I think I am just going to leave it at that. I think we do have a mix between our high BTU rail tons and the River tons and so there is demand for these rail tons as different than just a straight BTU differential. So when you look at our average sales price you got it back to that and to our Illinois Basin price curve. So, as we look at 2019 as I mentioned on the first call say our pricing in Illinois Basin will be comparable in 2019 versus 2018.

[Operator Instructions] The next question comes from John Bridges with JPMorgan. Please go ahead.

I was just wondering obviously pricing and supply demand in Illinois masked by the big pick up in export demand but then with some of the changes that we have seen there, mines coming off et cetera, what do you see as the sort of medium term trend in terms of the supply demand dynamics there.

I think they are in balance, the challenge gets to be on the demand side domestically because our customers do have in the Southeast they got the natural gas option, the gas prices are low. So the challenge even though we got maybe even the potential for supply demand that’s favorable to a producer I mean we’ve seen stocks drop inventories. But at the same time our customers do have the flexibility if they’re - our price is pretty much somewhat kept out of the natural gas price. So, depending upon what they want to do relative to their coal burn versus gas mix, they’re still able to keep the price pretty balanced even if there is a favorable supply demand balance domestically. Export markets are little different so that just gets in to what the global price is what API 2 does and we’ve seen volatility in that in the last month or two. At the same time even with that volatility, the export market is still very constructive for us as an option and we can still make nice margins by participating in that that's why we're bringing up another million tons of production this year - to be able to increase our cash flow by participating primarily in the export market.

And then with respect to the contract settlement, what’s the importance of the tons that you have accessed or you can buy close to - was it Tunnel Ridge. And then the importance of the River pool capacity that you have access to?

Its not River pool it’s basically - they’ve got a rail - we can gain access by barging some coal up to their Warrington facility and then putting it out in the rail that allows that to go to the export market. So that’s the advantage that we were able to negotiate. On the availability of tons to buy, there are opportunities to buy tons in that area to put on those contracts but we also have the ability with other suppliers that if we want to move tons to Illinois Basin then we got so with the Tunnel Ridge we have the option to do that as well. So, again depending on slight demand what are opportunities are we could either broker those tons or we could decide to move some - what are now allocated tons to be sold at our Tunnel Ridge we could sell those tons to customer out of the Illinois Basin and that will just be an evaluation depend upon when the customer needs the tons, what's available and what the right decision to be made is.

And you mentioned the greater interest in rail tons, could that be related to the difficulties you’ve been experiencing with the River in Q1 or is this a bigger thing?

I think it's just a high BTU. So it’s 12,000 plus BTU and so when you think in terms of that higher BTU, it has value when it travels a long distance.

So is that part of the export mechanism?

When you back method this the delivered pricing since the transportation is based on tons and the buyers looking to deliver BTU, you get an improvement in their analysis of the higher BTU product, because of [6] per million delivered on it for the higher BTU coal.

And the next question comes from Lin Shen with Hite. Please go ahead.

Just one quick question, Joe. After the merge between ARLP and the GP, how should we think about their distribution policy for ARLP? You're being great in distribution every quarter. But the market seems very weak for MLP, is now rewarding. So how should we think about your policy for distribution goals?

As I mentioned in the previous - in my introductory comments, we do plan to grow the distribution 1% per quarter and that's at the ARLP level. So that will continue. So once the simplification occur, we’ll still be paying out the 1% per quarter assuming that everything goes as we have planned today. Obviously that decision is made by the Board on a quarterly basis but if we’re going to achieve our results for 2018, we would expect that - you would see a distribution of 1% per quarter for the remainder of this year. And as we look to 2019, we will make a choice at that moment in time what the run rate would be but the only guidance I can give you right now is that we are continuing to plan for a 1% per quarter for ARLP for the rest of the year which includes obviously the period time after the simplification is closed and completed.

[Operator Instructions] Okay, seeing no further questions in the queue, this concludes our question-and-answer session. I would like to turn the conference back over to Mr. Brian Cantrell for any closing remarks.

Thank you, Phil. We appreciate everyone's time this morning, as well as your continued support and interest in both ARLP and AHGP. Our next quarterly earnings release and call is scheduled for late July and we look forward to discussing our results for the 2018 second quarter with you at that time. For this morning this concludes our call. Thanks to everyone for your participation.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.