So the good news (for new investors) - ARLP is priced for a complete disaster. I think/hope that everything I have just said is already priced in.
For the past few months, AHGP has been trading at a higher yield than ARLP. This only makes sense if a distribution cut is imminent because AHGP would suffer disproportionately from a cut (IDRs). The yield differential peaked in the first half of March and has now been reduced. I take this to mean that people are a little more comfortable with the distribution being maintained or cut just a little.
If I was aggressive, I would buy ARLP and short AHGP. But I don't short things, so probably I will buy some ARLP with a very short leash.
And if you like ARLP, you really should be buying AHGP. It's the same operation with a higher yield.
I am tempted to buy back into ARLP for another short-term trade, but consider:
1. At 12/31/14 ARLP had contracted for the sale of 39.3 MM tons in 2015, not including White Oak/Hamilton. In Q4, ARLP acquired the rest of Hamilton and picked up some sales as a result. Total tons sold in 2015 was 41.1 MM, which means that basically ARLP didn't sell any incremental net tons in 2015. Basically, the deferrals of existing 2015 orders offset any new sales contracts they entered into for 2015.
2. At 12/31/14 ARLP had contracted for 28.9 MM tons in 2016. At 12/31/15, including the contracts picked up from Hamilton, 2016 contracted tons was 34.3 MM, meaning that they added a few MM tons in net new sales.
3. ARLP attributed the slow sales to (1) lower demand from utilities (weather, slow electric growth), (2) high inventories at the utilities, which ARLP hoped would be solved by a cold winter, and (3) a general reluctance by the utilities to enter into longer-term contracts and instead rely on the spot market.
4. So now look to 2017 - at 12/31/15, ARLP had contracted for the sale of 19.1 MM tons in 2017. I would bet that ARLP hasn't sold any significant amount of 2017 coal in Q1 - the winter was way warmer than ARLP had hoped for. Pricing seems to still be terrible. Even if ARLP is somehow able to reach 30 MM tons of sales in 2017, the poor pricing will kill DCF. If the projected 36 MM tons of sales in 2016 only produce 1.1 - 1.2X coverage, a further 20% drop in 2017 tons sold plus reduced prices doesn't support a positive coverage ratio.
5. ARLP has the best management in coal. Unless they see things in a sunnier light, I think they will cut the distribution sooner rather than later.
Among Endo’s branded products, management is particularly excited about Xiaflex, currently used to treat Dupuytren’s contracture and Peyronie’s disease, conditions related to collagen disorders, but it could have more than a dozen additional uses.
Xiaflex, which posted 2015 sales of $158 million, could soon become Endo’s best seller. Its current No. 1 product, Voltaren Gel, a nonsteroidal anti-inflammatory for the relief of joint pain, had $207 million in sales last year. But it faces competition from a generic version launched last month. Endo’s management also is excited about Belbuca, a treatment for chronic pain that has just been launched.
3 questions - what do you estimate the distribution coverage ratio to be in 2017? This is a general question based on what we know about ARLP's contracted sales for 2017 including contracts that are likely to be signed this year.
Does your answer change if Hillary/Bernie are elected?
Does your answer change if Donald/Ted/whoever gets elected?
I'm not trying to start a political discussion; I'm just interested in the answer as it relates to coal.