Good morning. Welcome to Alliance Resource Partners LP Fourth Quarter 2019 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note that this event is being recorded. I will now turn the conference over to Brian Cantrell, Senior VP and CFO. Please go ahead.

Thank you, Kate and welcome everyone. Earlier this morning, Alliance Resource Partners released earnings for the 2019 year end fourth quarter and we will now discuss these results as well as our outlook for 2020. Following our prepared remarks, we will open the call to your questions. Before we begin a quick reminder that some of our remarks today may include forward-looking statements that are subject to a variety of risks, uncertainties and assumptions contained in our filings from time-to-time with the Securities and Exchange Commission and are also reflected in this morning’s press release. 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. And providing these remarks, the partnership has no 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 be discussing certain non-GAAP financial measures. Definitions and reconciliations of the differences between these non-GAAP measures and the most directly comparable GAAP measure are contained at the end of ARLP’s press release, which has been posted on our website and furnished to the SEC on Form 8-K. With the required preliminaries out of the way, I will begin with a review of our 2019 results and initial 2020 guidance and then turn the call over to Joe Craft, our Chairman, President and Chief Executive Officer for his perspective on the markets and ARLP’s outlook for 2020. I will start this morning reviewing with – I will start my review this morning, sorry, with a look at the performance of ARLP’s coal operations which are impacted by challenging…

Thank you, Brian. Good morning, everyone. Alliance entered 2019 with positive coal fundamentals intact and expectations of building on the strong performance achieved in 2018 when we delivered record coal sales volumes at higher price realizations and posted year-over-year increases to coal production, revenues, net income and EBITDA. And ARLP’s strong start to the year supported those initial expectations as we reported increased coal sales volumes in prices, revenues, net income and EBITDA in the 2019 first quarter compared to the first quarter of 2018. Unfortunately, positive coal market fundamentals soon began to turn negative. As the year progressed, the international coal markets deteriorated significantly as weak power demand in Europe, aggressive Russian coal production and collapsing LNG prices all contributed to the significant drop in the API 2 forward year thermal price index since the beginning of 2019. As a result, international markets became uneconomic for most U.S. coal producers causing exports to decline sharply. Reduced export volumes and tepid domestic coal demand due to persistently low natural gas prices caused a significant oversupply in the United States creating additional pressure on domestic coal prices and producers. We continue to believe that current market conditions are unsustainable for most of ARLP’s competitors. Accordingly, additional supply rationalization is necessary to correct the continuing oversupply situation. ARLP anticipates that much of this market correction will occur this year making 2020 an inflection point for domestic thermal coal producers. In this fluid environment, we have adjusted our coal operations to reflect the realities of the current market and as outlined in ARLP’s initial 2020 guidance are targeting our coal production to match anticipated demand at the lowest possible cost. With this prudent approach, we are confident in ARLP’s ability to generate strong cash flows from our coal operations even in this difficult…

[Operator Instructions] Our first question is from Mark Levin from Benchmark Company. Go ahead.

Alright. Thank you. Good morning, gentlemen. Just a couple of questions. One, when you look at the high and low ends of your sales or your shipment range and also the high and low end of the pricing ranges, maybe you can give us some color as to how to think about what gets you to the low end, what gets you to the high end? Is this – is the midpoint based sort of on where market conditions are today or is the midpoint based on things getting a little better as the year goes on?

I would say the midpoint is based on our current expectations for the year. We do, as Brian mentioned, we have targeted 2.8 million tons of export and 900,000 of that is already committed. Another 0.5 million that’s uncommitted, we believe will go into the metallurgical market from our Mettiki operation, which we feel is a high probability of occurrence. So that leaves you 1.4 million that’s in the Illinois Basin primarily. There is a little bit in East Kentucky but most of that’s Illinois Basin. And that does assume that there are pockets of markets that we believe we can transact to and we feel like we have appropriately priced in our guidance. Now, the international market continues to be very soft in API 2 markets, but if you look at API 4, you see a vast difference. You have got a $30 swing there. So, not all the world trades off API 2, so our expectation is that our base case or at the midpoint of the guidance that we believe that’s achievable. Now, what could take it up, what could take it down? On the downside, we have this – depending on natural gas prices and the weather, I think that we have to look at that and the global economy as to what happens in the global economy. There could be further reduction. We are still operating at less than full capacity at some of our operations in the Illinois Basin to try to match our production to the demand. So, there could be some downsides. We believe we have got it bracketed pretty well. That’s our expectation as we speak today. What could trigger it up? I think if we can participate in assisting others to exit the industry and close other mines that could push us up to the high-end of the range if there would be any transactions those aren’t predicted, but that’s – we do believe there is potential to push us to the high end of the range if there is one or two contracts that need to be serviced by other operators that may decide that they want to close their operations.

Yes, that’s great. And that segues to my next question which is I guess if you go back 5, 6 years ago, the Illinois Basin was doing about 135 million tons around the peak. It looks like ‘19 somewhere around 100 plus or minus. Joe, what do you think is the right number for ‘20 and long-term when you think about what Illinois Basin demand should be, where do you think it balances?

We expect that in 2020 that, that demand is probably in the 88 million tons – or 85 million to 90 million ton range. And again, a lot of that depends on how much goes export, but that would assume about 5 million tons going in export if you hit the 90 million ton rate in 2020. That’s sort of our target for 2020. And rolling forward, we don’t see much decline in that area. There will be some gradual decline over time as a few plants that have been announced to close in the mid ‘20s era, there could be some decline at that point in time.

Got it. And two very quick modeling questions, one is oil and gas EBITDA at the midpoint, what is the assumed – are you using spot prices on whatever is not hedged or strip prices or maybe some sensitivity about how to think about the oil and gas EBITDA as that becomes a more important part of the earnings picture?

Yes. The estimates, Mark, we use the forward strip in place around year end. So obviously, as that pricing moves around, those EBITDA ranges could change. Part of the reason we tried to breakout the production streams in a bit more detail was to help folks like you with their modeling. We feel pretty comfortable about the volumes that we have indicated for oil, natural gas and natural gas liquids, which should allow you to then apply whatever price deck you think is appropriate to come up with your estimates.

Okay, got it. And then final question just when you look at sort of – and this is a really miniscule part of the business, but when you think about some of the – either the non-coal producing and the non-oil and gas mineral interest business, I am thinking stuff like Matrix and some of the other like small stuff. How much EBITDA contribution would you get from maybe some of those ancillary businesses? I realize it's small. But how much are you assuming?

It is pretty small. And I don’t think it will be materially different from what you have seen historically.

Okay.

So from a modeling perspective, utilizing that as a bit of a template would probably be appropriate.

Okay, great. Thanks guys for the time. Appreciate it. Thanks very much.

Thanks Mark.

Our next question is from Lucas Pipes from B. Riley FBR. Go ahead.

Hey, good morning, everybody.

Good morning, Lucas.

I wanted to follow-up on one of Mark’s questions, when I think about the coal realized sales price guidance of $41.50 to $42.30, what sort of price assumptions are baked into that and if you could maybe provide color by your different business segments, be it met coal prices, Illinois Basin, Northern App, to the extent they are open, un-priced positions, that would be really helpful? Thank you.

I think we have tried to reflect what we believe we can achieve in the marketplace. It is a competitive market, but we do have some niches that allow us to market into areas that would be higher than some of the index prices that you might look at. At the same time, we do have the 1.4 million tons in the export market that are at lower prices than what the domestic price targets are. So we have tried to factor all that in. It’s hard for me to give you precise numbers, because we are still competing for business. I’d prefer not to give signals to our competitors.

Yes, Lucas, things that could obviously influence overall realizations is sales mix, what the export market both domestic – I am sorry, both thermal and metallurgical ends up looking like if the met markets improve a bit, then you could see a bump in our average price realizations obviously in particular in Appalachia. But to Joe’s point, we have tried to factor in all of those ranges of possibilities in establishing the guidance that we provided.

That’s helpful color. Thank you for those parameters. And then maybe to follow-up with two industry questions, first, what are you seeing both in Appalachia and in the Illinois Basin in regards to curtailments from some of your peers, any anecdotes are appreciated if you have some numbers around what you expect the supply response to look like, I would certainly appreciate that as well? And then kind of going back 3 months, 6 months, I believe even 9 months, we have had a lot of conversations about consolidation in the industry. Are those kind of on hold for now, given the weakness in the market and the somewhat difficult financial market conditions or would you say that’s kind of still going on, but maybe we just don’t hear as much about it? Thank you very much for your perspective.

On the production side, there have been announcements both in Southern Appalachia for the cap area and then you have also heard a couple of announcements in Illinois Basin within the last month with Hallador’s – our Carlisle mine and the Genesis mine with Murray’s operations in West Kentucky. As I mentioned in my prepared remarks, we believe that there are opportunities. We believe that there will be a couple of mines more that will close in the near future in the Illinois Basin. I don’t believe it’s appropriate for me to mention names. It’s possibly there could be two others depending on how long the market prices stay where they are and/or really the demand for the Illinois – demand in MISO. So we do expect further mine closings from our competitors in early part of 2020. In Appalachia, I mean, we have got niche markets for our MC Mining property. So what happens in a supply sense there really is not a major factor to us. We have got targeted markets that have been long-term customers of ours in both the industrial – in the industrial sector as well as using our MC product. It is a blend product and certain – and met shipments. So, we don’t really feel that, I don’t follow that as closely as because it doesn’t really directly impact us. Specifically, to your question on consolidation, I believe that the strategic observations or considerations that I mentioned in the last quarter are continuing with all co-producers. The speed with which decisions are made it’s challenging, so it probably hasn’t moved as fast as I thought it would, but the market changes everyday. I do continue to believe there is a need for consolidation. There is a need to try to find opportunities to be able to bring the supply and demand into balance. And I think the reality is that the marketplace will eventually force the hand of the decision-makers and we will see decisions made, whether they hold on or want to combine, it’s hard to tell. It’s just – I can’t, I just don’t know, have to wait and see.

I appreciate that color. Thank you very much and best of luck.

Our next question is from Lin Shen from HITE. Go ahead.

Hi, good morning. Thanks for taking my question. When I look at your 2020 guidance for the per ton estimate, the midpoint of the sales price like $42 and the cost is about $30. So the EBITDA should be $12ish, but your midpoint of EBITDA is like over $13. So can you tell me what is the – how to reconcile this?

Yes, it’s not just the direct subtraction taking the average price and backing off the average cost per ton, so people often try to do that. It’s just not the way the math actually works when you are looking at it region by region and all of the factors that go into it.

Okay, got it.

So there is some coal inventory that is the primary reason for that. So you have got – we have got 1.8 million tons of coal inventory that has cost baked in from last year. So that’s why it doesn’t work precisely that way of the coal inventory adjustment.

Yes, there are just a number of factors that come into the final segment adjusted EBITDA calculation that makes it not just a clean linear calculation.

Got it. That makes sense. Also Joe, I think you mentioned that for the demand in Illinois Basin, you are seeing 2020 going to be $88 million to $90 million and then...

Lin, I am sorry, I am having a hard time.

Okay, sorry. Can you hear me now, sorry?

That’s much better. Thank you.

Sorry. Also I think Joe mentioned that for the Illinois Basin, demand beyond 2020, you are expecting some kind of flattish or maybe gradually small decline, but when we see the natural gas price, it’s below $2. How should we think about the natural gas price is going to be high impact the coal demand?

Yes, we think – and I think we have said this on prior calls is that much of the impact of low natural gas prices on coal demand we have already seen. So said another way, the permanent switching of baseload demand and power generation from coal to natural gas, I think much of that has already been exhausted and that going forward, while you may definitely see some marginal movement by region, we think for the most part, it’s going to be relatively stable in particular in our markets. PRB maybe a bit more impacted than others just given the transportation cost that, that part of the business is faced with. So I think there has been some – yes, there has been some recent analysis on that, that in a sub-$2 per MBTu world, $1.50 type MMBTu world that it looks like coal demand is going to remain relatively sticky at this point in particular, as I said in our specific marketplaces.

Great, thank you. The last question is the distribution of $0.40 for the new distribution, is this primarily based on the DCF coverage or primarily based on your metric for the kind of reduced leverage? I guess what I am trying to ask is that how should we think about distribution going forward, what is the metric should we look, is more like leverage important or more like DCF ratios?

I think that when we made the decision, we did look at downside cases and we also did look at the leverage and we looked at the opportunities. So, as we are thinking about whether we have an opportunity to participate in consolidation, whether we have the opportunity to invest another $100 million to $150 million in oil and gas. So having that excess capacity that the distribution reduction provides was a factor in setting the guidance at $1.60 annualized. So, we do believe it’s sustainable. The market – I think we tried to respond to the earlier question that do we feel that our tight ranges are appropriate given the uncertainties in the market. We feel like because prices are so low, they can’t go any lower really on the coal side, because of where our competitors are on the cost curve. Since we are down to 2.8 million on export versus a year ago, we were guiding at 12 million. We think the downside for exports is limited. So yes, we have a downside of 1 million tons in our ranges that we gave. So as we think through the downside protection, we still have a coverage ratio of greater than 1.1, which gives us some added liquidity. So it was a combination both what was sustainable and what liquidity it brings. We do believe also and what somewhat makes it difficult is when we look to 2021, we believe that we will continue to show growth just from our existing assets that we have in oil and gas. And we also believe that 2020 is an inflection point for the coal markets. And so we expect that we will get the supply demand balance by the end of 2020. So, 2021 should be an improved year also in the coal space. So, there will be – we believe that the distribution coverage ratio will grow in 2021 compared to where it is targeted here with our guidance for 2020. So, it’s not just one factor. You have to factor in coverage. You have to factor in the liquidity and then you also need to factor in sustainability. I would say that all three of those were factored into trying to select the right level and that was the thought that went into the decision to make the reduction to $0.40 per quarter.

Great. Thank you very much. Appreciate it.

Thank you, Lin.

Our next question is from Matt Russell from Hudson Bay. Go ahead.

Hi, guys. Thanks for taking the question. I guess my first question is, on the CapEx side, you have $15 million to $18 million of specific CapEx related to development and then you are budgeting your distribution on a 5-year plan I think you said of $5.04 per ton of CapEx, is that the right range to think of going forward like what are the delta there? Could you take it down to floor if you are wrong on the market this year or is that pretty close to as low as it can go?

It could go lower. There are some projects in the 5-year plan that we could – what we call – even though they are maintenance capital, they are somewhat discretionary. There would be payout projects in some sense if we wanted to have a man and material shaft, as an example to – as we make further development in an underground coal mine. So there is a potential for that. Another potential that could reduce the CapEx is if we do participate in consolidation, there could be opportunities where that we would end up buying equipment at prices that are on a used basis instead of a new basis, which is all of our capital that’s built into our plan is all assuming new pricing and it also has an escalator factor in it. So, it’s possible that we would end up buying equipment from people that closed mines like we did last year with one of the transactions we did. So there is potential that, that number should go lower, but it’s not a matter of weeks. We believe that we need to have give our coal miners the best tools they can to be successful. So, we do not – we constantly, excuse me, what we try to do is make sure that our mines are well capitalized that they have got the best equipment so they can be successful. So we don’t plan to cut for cut’s sake and starve the operations. That’s just not what we believe in. So I think that number is a reasonable number to assume as accurate as to what you can see.

Okay. Okay, thank you. And then if I look at regionally your segment reporting, Northern App and Illinois Basin basically sort of move in the same direction and neither one was outlier sort of on an underperformance basis. If I look into 2020, I guess Illinois Basin is going to be potentially impacted by lower seaborne shipments. If you look at NAPP, they are going to have that issue as well and then they also maybe have a little more coal to gas switching. So in your forecast for realizations, I guess there – do you have one segment doing sort of relatively better than the other or directionally, are they pretty similar?

Yes. If you look at Northern Appalachia, not just Northern App, but all of Appalachia and you look at the volume ranges that we provided in our guidance they are relatively stable year-over-year. So that’s how we view that particular market. Illinois Basin has definitely been impacted more just given the state of the export markets. And at this point, all of our exports go out of the Illinois Basin. So hopefully, that answers your question.

Yes, that does. Thank you. And then last question if I may, on the capital structure, it looks like you have – I think as you alluded to on the third quarter call, you have increased your equipment financing. You still haven’t – there is still been sort of nothing we have done with the banks in terms of a revolver extension or any terming out of the debt and I am assuming that’s market related. With your revolver maturing in first half of next year I believe and potential interest in deploying more capital into the Minerals business, is there any updates on where things stand with the capital structure? Do you have much more capacity on the equipment financing or are there any other things you could do incrementally?

And I will kind of try to answer the last part of that question first. So yes, we think there is more capacity on the equipment finance side and we are exploring those options as we speak. On the revolving credit facility, we have actually begun the syndication process with our current bank group a couple of weeks ago. We are anticipating finalizing – receiving final commitments or an extension on that facility within the next week or so and closing it sometime in the mid-February timeframe. And your comment on the long-term markets, yes, we don’t particularly like the long-term debt markets right now. So we are being a little bit patient there. Those things do tend to cycle. And when the cycle becomes more favorable, we will absolutely look at that. And then finally as part of the extension on the revolver, we have structured it in a way that will allow us to go out and separately finance our minerals business at the appropriate time, which could provide additional capacity to help grow that part of our business as well.

Got it. Thank you. That’s all I had.

Thanks a lot.

Our next question is from Mark Levin from The Benchmark Company. Go ahead.

Okay, great. Just a follow-up question. So when you think about modeling 2020 and kind of the midpoint of the guidance, Brian, is there a certain cadence meaning, are you guys expecting the second half to be better than the first half or should the first half, I mean, when you just try to think about how to allocate the EBITDA over the course of the quarters, are there some puts and takes that might make one quarter or another better than – better or worse?

Yes. I mean, obviously you have got the normal seasonality with miner’s vacation holidays, etcetera that has some impact. As a more macro view though we think the first half of the market of this year is going to be very challenging. And so you are likely to see an uptick in performance in the back half of the year.

And so not to put a fine tooth on it, but maybe 30% of the EBITDA of the midpoint in the first half, 70% second, is there maybe a way to think about how the split might be as you envision it today?

Mark, I really haven’t tried to get that granular quarter.

Okay, fair enough. There is a lot of moving pieces. I totally get it, I just thought I would ask. Second question is I am sorry – second question – well, thank you. Second question is just target liquidity, I think you mentioned you ended little shy of $300 million in liquidity at the end of the quarter. Brian, what’s the target number, where are you comfortable and where you think the business should be run?

Yes, I would like to see it a bit higher than it is right now. I mean, a big part of the drawings on our revolver today are due to the $320 some odd million we invested in oil and gas last year. And if the debt capital markets long-term have been a bit more favorable, we likely would have termed that out and freed up some liquidity. Expect that we will be able to do that sometime this year. Specific target, it’s a relative metric depending on the size of the business. I think historically we have run somewhere in the $350 million to $450 million range. That’s just been the actual results and not necessarily a target.

Got it. Thanks. That’s helpful. And then my final question is something I think I asked last quarter, just about how to think about pricing the met. I think you mentioned you have got 0.5 million tons in your guidance for 2020. And again wondering if there is some sort of rule of thumb or some way, I know it doesn’t – I can’t necessarily look at indices and derive what the met price is, but maybe some way for us to kind of think about what to put in for price or at least how to approach making some assumptions around that met price?

I think our plan is based off the $150 benchmark.

Okay.

So that’s what our plan is based off.

Okay.

So if that benchmark moves up, then there is upside. If it moves down, then there would be an adjustment there.

Got it. Fair enough. Thanks guys. Appreciate letting me ask all these questions.

Thanks Mark.

Our next question is from Lucas Pipes from B. Riley FBR. Please go ahead.

Hey, thanks for taking my follow-ups. Two quick ones. The customer buyout that resulted in the $5.4 million gain in the fourth quarter, is that something that we are seeing more off in the current environment? And then secondly as to your committed and priced export volumes, would those all fall into first quarter or are they spread over the course of the year? Thank you.

On the customer buyout, no, I don’t think you are seeing that accelerating that, that was – I am not saying it will never happen again, but it was a bit more of a one-off and I apologize. Lucas, what was the second part of your question?

Second question was the committed and priced export tons if those would be for the first quarter, second quarter or the rest of the year?

I believe the numbers that we have today is over the first half of the year.

And so about half of it is pro rata and then so – then like 400,000 is first half of the year. Most of that’s carryover.

Okay. Okay, great. I really appreciate it. Thank you.

Our next question is from Joseph Lazaro, a Private Investor. Go ahead.

Yes, I just understood, did you spend dividends completely?

No.

We reduced it from $0.545 to $0.40 per quarter.

Per quarter. Okay, another question, is anything to factor in, if another political party gets in November, how this might affect the industry and the company?

You listen to what they say on the campaign trails. As far as the Democrats, they all would like to go back to the Obama regulatory environment. So you would have to expect that, that would be the case. We believe that if that were to be the case, it would take them 4 years to implement that at best and then we would have to see what that means to the country and whether they would continue beyond that. So, there could be impact beyond that, but the way we look at it, we are the one of the survivors in this industry and we believe that the United States needs to have the diversification, especially for the Eastern markets. So, we expect that the utilities that we sell to and we have had conversations with all of them, they expect the plants that we are selling to, to continue to be in existence until 2030, 2035 to 2040 in the most case, no matter what, just because in order to have the reliability for their market regions, they need to add diversity of supply and they need to continue to have coal in their mix. So, it’s obvious that from – again from the campaign trail that the different views from this President Trump to any candidate that’s campaigning for the Democratic nomination, they are pretty stark when it comes to our industry. But when it comes to practicality of what can be done, I believe that all candidates are going to want the United States to continue to provide reliable low cost energy to their industrial base. They would not…

I know, I am in Connecticut, I know for a fact, let’s say something like Yale University or Hospital, I am just pulling those numbers – that names out. They might run on natural gas, but during the winter, they might – depending they might get a phone call from the utilities commission, say you know, you are going to have to switch to oil now, because we are running low. So, you do need both.

Yes.

Alright.

Appreciate the question.

Okay, very good. Thank you.

Our next question is from Peter Grossman, Private Investor. Go ahead.

Hi.

Peter?

A few quarter – yes, can you hear me?

Yes.

You can hear me?

Yes, we can.

Okay, great. Yes. A few quarters back, you had mentioned peer group pricing for the oil and mineral business, which is clearly a bright spot. I’m wondering if you have any intentions down the road to monetize that part of the business?

I think our current focus is to grow the business. We are pleased with the progress that we’ve made as we started in 2014. And as the gain that the GAAP required us to make in the first quarter, it shows the value of the growth and value what we have bought from 2014 to the first part of this year. When we did the transaction to buyout the other 28%, those minerals that we had 72% ownership in. And then with the transaction that we had in August and continuing to look in that space, we believe there is opportunity to grow it. I think that right now, our objective is to continue to grow at the pace that we’ve been growing. And that you would see that the minerals segment would be a larger percentage on an annual basis every year of our EBITDA. So right now, we’re looking to that business segment. It was a long-term part of our future. So I don’t think we would ever just turn around and sell it. And now whether it would make sense to do other things in joint venture or thinking of the public markets to value that differently, if the market can’t see through the way those assets should be valued in our stock price and we would have to think about what options should we take so that the market would appreciate the value of what we have been able to do and hopefully what we will be able to do. But at this moment in time, our objective is just to focus on managing what we have, maximizing what we have, and looking for opportunities to prudently grow that to where we continue to have growth in that cash flow like we’ve seen since 2014.

Alright. Well, you hit on the reason that I asked the question because the EBITDA multiple that you had mentioned for peers is basically more than the market cap of the total, of the whole company right now along those lines?

We do what we can to try to educate investor universe to understand the value that minerals brings to the future of our company.

Yes. Well, very good luck with that. Following along those lines, the NIM in the company’s Alliance Resources, it’s not coal consolidated. So do you see any further diversification – you have already mentioned growing that business, but potentially in other energy arenas? And secondly, you mentioned the percent of I think that being 13% next year. Do you see that growing in the longer term to 20%, 25%?

Yes, so as you read, we have hired a gentleman in the name of Kirk Tholen. And we hired him not only to be President for our minerals segment, but also to be Senior VP Strategic Officer for Alliance Resource Partners. I think based on that title his responsibilities are broader than just the minerals segment. So we will, in fact, look at further diversification into opportunities to invest capital. It may be in the fossil fuel area, it may be outside the fossil fuel area as we think about the long term energy and components within the U.S., does it make sense for us to be involved in other segments that are non-fossil fuel related. But currently the focus will be putting a team in place, which is on the path to do as we speak, so that we can maximize the investment we have. There are several opportunities in that space that we are evaluating, but I would say, hopefully by the end of this year, we may have other areas that we would be focused on beyond the minerals segment and the coal segment. But that’s going to take a little time, but I think that longer term, we would expect that there could be a third leg to the stool in our future.

Interesting.

As far as…

Okay. Any target?

As far as the growth in the minerals segment, I think that every year, it’s going to grow and grow and grow. So I would think that it would be higher than 20%, five years from now. We will just have to see what the market opportunities will bring. We’re not going to grow for growth sake. We have never done that. We are not going to do it now, but we are hopeful that there will be opportunities to make transactions with folks that are long term in nature, that we can partner with and or just people that will sell at reasonable prices. I think that’s our challenge always as we will try to be the people, what their expectations are for parting with their assets. That’s always been the case in the coal space. And right now, that’s sort of the view in the mineral space that there’ve been several mineral opportunities that have been trying to – there are several other people that own minerals and tried to sell those or go public in the fourth quarter of last year that were not successful. And there is only one reason for that. That’s because they were asking too much. Their assets are good quality. They just have not faced the reality as to what the market will pay for them.

Alright. Okay, very good. Thank you for taking my call.

Pleasure.

Our next question is from Alan Arch, Private Investor. Go ahead.

Good morning. I am one of those who thinks of your business as the glass half full and not half empty. And I am wondering whether you have an existing unit repurchase program in place. How much is still authorized for you to use? And how you think about unit repurchases relative to other types of capital investments?

Yes, we do have a little bit remaining on $100 million that was authorized. And I think first or second quarter of last year, we did transact a little bit in the fourth quarter when our yield popped up above 18%. We did execute some repurchases. At this stage of the game, we are looking at preserving our liquidity. Obviously, the distribution reduction was part of that effort. So I am not expecting that we will finish out the authorized amount in the near term, but we will certainly take a look at finishing that out and potentially putting another authorization in place at a later date.

Okay. Even at 16% yield, compared to cost of debt, the long-term debt, I’m not sure you were referring to it as being unattractive. But it’s got to be way less. Should be – I would think it’s 6% or 7%. It’s just – to me, just as a financial transaction, it would be a cash savings to buy units in on a current yield basis, on a cash savings basis. So I just wondered if you – if it’s just that you have a hard cap on your – the relationship between debt and EBITDA that you are preserving, or is it something else?

It is primarily just keeping capacity to take to participate in either growing the minerals space and or participating in the consolidation of the industry.

And we see significant opportunities there today, which if we are successful in making those transactions that will provide for long-term growth. The financial math that you referred to is pretty straightforward, but repurchasing – using our capital to repurchase units doesn’t drive long-term growth of the business and that’s where our focus is today.

Okay. Thank you.

You are welcome.

Our next question is from Shelly McNulty from Loomis Sayles. Go ahead.

Hi, yes. I have a couple of questions. So where Illinois Basin prices are right now, would you say that they are kind of at where marginal costs would be in a couple of years when you said the demand will kind of shake out at the 85 million to 90 million tons? I guess I am just trying to understand the shape of the cost curve. If some of those higher cost players do exit, is the cost curve a lot flatter? And just kind of how that translates to what your longer-term margins would look like?

There are people – their marginal costs – one of the reasons I said earlier that I believe there will be two mines that close this year. One is – soon, one is – because there are – two of them, because their costs are appreciably higher than that Illinois Basin curve. Where the other volume is that incrementally their costs may be similar to where the pricing is, but the volume is just not there. And the demand is just not there to get down to that 85 million to 90 million ton demand forecast. Some of it is driven by the cost just cannot compete. And then the other is because there is just no market being forced at the curtailed production because the market is just not there at the moment. So then rolling into 2021, there could be excess capacity that could participate at price curves that you are seeing today, but it would – it would take increased demand. And largely, that’s going to come from the export market for that to come back. So in order to determine where the production would be in large part is an exports story. With respect to margins, I think margins would rebound, because in order to bring that production back on from the domestic market standpoint, they’re going to have to pay higher pricing.

Okay. And then in terms of the balance sheet, how are you thinking about – well, first of all, can you reaffirm what your targeted growth leverage is and how high you’re willing to take it in order to participate in these growth avenues that you’ve talked about and whether if you add additional debt, whether it is going to be mostly at the secured or unsecured level? And then lastly, I think we have talked about before though, how are you thinking about just having access to refinance existing debt that comes due in five years? Even if you have a better business profile, if you are still viewed as a coal company, and people don’t want to own coal, what’s the plan in place to have liquidity to pay off the bonds in 2025? Thanks.

Yes, we have been pretty consistent in saying that maintaining low leverage is a critical objective. For the recent past, we have been running at one times or lower. And that is a very comfortable level that we would be pleased with long term. We have also been player in saying that should the right opportunity present itself, we would be willing to lever up to some degree, but I don’t think you would see us going up into anything above 2x,. 2.5x level. If we did lever up, it would only be if we had a view toward being able to bring that back down into something in the 1.5x or less within a relatively short period of time. I am trying to remember the various components for your question, but if we were going into the debt capital markets today, yes, I think we would be looking at a secured market whether that’s first or second lien bonds or institutional term loans. I think that is where the depth and breadth of the market is at this 10-second split. Will it improve again to where we would be able to do that on an unsecured basis, time will tell. With respect to your last question on what – I think what you are really asking about is what’s our refinancing risk? As Joe alluded to earlier, we don’t see any circumstance where coal is not a meaningful part of the power generation in this country. There may be fewer players, but strong financially viable producers are going to be necessary to supply the product that the country is going to demand over the long term. And internationally, you are seeing growth, which will also require strong financially viable producers to be able to supply those markets. People I think recognize that, headlines notwithstanding. And we are in constant touch with our advisors and with our current and potential investors on the debt side, and we at this stage feel comfortable that we’ll be able to refinance as necessary.

And I think with the growth that we anticipate in minerals, there could be sufficient value there that, as Brian mentioned earlier, we are trying to position ourselves to where we can finance that separately, yet it is still within the same umbrella. So there should be sufficient capacity from our growing minerals business that will give you comfort that the bonds will be – we will be able to refinance those bonds in the 2025 maturity timetable. I think as I also mentioned earlier, it’s hard for me to believe that people would just consider as a coal company at that point in time if we execute on our strategy, as well. So our focus and goal is to continue to provide growth and be the long-term player in this space – mineral space as well as coal space.

Okay, thank you.

You are welcome.

Our next question is from Elliott Sink [ph] from Alta Fundamental Advisers. Go ahead.

Hi, thanks for taking my question. So just two quick points. First of all, given trading levels and yield on the bonds, do you have any thoughts on perhaps repurchasing any bonds in the open market? And two, how is recent announcements regarding ESG factored into your conversations about potential refinancing?

We are not looking to repurchase bonds in the open market. If we were going to deploy capital in that manner, we would be looking more toward repurchasing units. And I think we have already addressed where we stand on that today. Regarding ESG, Yes, I mean, obviously it is a growing factor in the decision-making process for investors, financial institutions, etc. But we have been very clear in our communications that we intend to maximize the cash flows from all of our assets, and coal, minerals at this point in time, and looking for opportunities to continue to grow the business in the future either through additional transactions, long term on the minerals side or looking at other potential parts of the energy business to invest those cash flows.

So again even in light of the bonds trading in excess of 10%, you would look to repurchase units before purchasing bonds?

Just looking at it on the financial math when we are yielding well above that level that would be a better financial transaction than repurchasing the bonds at this point.

Thank you for taking my question.

You bet.

This concludes our question-and-answer session. I would now like to turn the conference back to Brian Cantrell for closing remarks.

Thank you, Kate and thanks to everyone for joining us today. We appreciate your time this morning as well as your continued support and interest in Alliance. We look forward to our next call in April 2020 for discussion of our first quarter results as well as an update on ARLP’s initial guidance for this year. This concludes our call for today. Thanks to everyone for your participation and continued support of ARLP.

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.