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Edited Transcript of ARLP earnings conference call or presentation 30-Jul-18 2:00pm GMT

Q2 2018 Alliance Resource Partners LP and Alliance Holdings GP LP Earnings Call

Tulsa Aug 6, 2018 (Thomson StreetEvents) -- Edited Transcript of Alliance Resource Partners LP earnings conference call or presentation Monday, July 30, 2018 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Brian L. Cantrell

Alliance Resource Partners, L.P. - Senior VP & CFO of Alliance Resource Management GP, LLC

* Joseph W. Craft

Alliance Resource Partners, L.P. - President, CEO & Director of Alliance Resource Management GP, LLC

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Conference Call Participants

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* John David Bridges

JP Morgan Chase & Co, Research Division - Senior Analyst

* Lin Shen

Hite Hedge Asset Management LLC - Analyst

* Lucas Nathaniel Pipes

B. Riley FBR, Inc., Research Division - Senior VP & Equity Analyst

* Mark Andrew Levin

Seaport Global Securities LLC, Research Division - MD & Senior Analyst

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Presentation

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Operator [1]

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Good morning, and welcome to the Alliance Resource Partners Second Quarter 2018 Earnings Conference Call. (Operator Instructions) Please note, this event is being recorded. I would now like to turn the conference over to Brian Cantrell, Senior Vice President and Chief Financial Officer. Please go ahead.

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Brian L. Cantrell, Alliance Resource Partners, L.P. - Senior VP & CFO of Alliance Resource Management GP, LLC [2]

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Thank you, Gary, and welcome, everyone. Earlier this morning, Alliance Resource Partners released its 2018 second quarter earnings and we'll now discuss these results as well as our outlook for the balance of the year. Following our prepared remarks, we'll 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, 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. In providing these remarks, the partnership has no obligation to publicly update or revise any forward-looking statements, 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 their 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'll turn the call over to Joe Craft, our President and Chief Executive Officer, for his take on our second quarter performance, our perspectives on the coal markets and ARLP's outlook for the remainder of 2018. Joe?

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Joseph W. Craft, Alliance Resource Partners, L.P. - President, CEO & Director of Alliance Resource Management GP, LLC [3]

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Thank you, Brian. Good morning, everyone. I hope you would agree with me that Alliance's financial and operating performance during the 2018 quarter was impressive. Recovering from weather-related transportation disruptions earlier this year, barge, rail and port operations, for the most part, have returned to normal. As a result, ARLP was able to deliver substantially all of the 1.4 million tons of coal shipments delayed during the sequential quarter. This led to strong coal sales volumes, which enabled ARLP to post increases to all of our major operating and financial metrics for the 2018 quarter compared to the 2017 quarter.

Our marketing team continued to strengthen ARLP's contract book during the 2018 quarter, securing new commitments in both the domestic and international coal markets to deliver approximately 13.5 million tons through 2021, including an additional 4.6 million tons of export shipments over the next 12 to 18 months. We are now essentially sold out for our planned production in 2018, and have increased ARLP's anticipated export sales for this year to approximately 11.1 million tons or 27% of estimated shipments this year.

Operationally, our mines performed well, delivering operating cost consistent with the sequential quarter as we expected. We also increased production by 2.6% to serve the growing export demand in the 2018 quarter as well as the 2018 period.

Looking ahead, we anticipate market conditions should remain favorable for both domestic and international coal demand. In the U.S. thermal markets, strong demand has reduced utility coal inventories by approximately 15% year-over-year. As a result, customer buying activity has increased with utilities looking to replenish stockpiles in 2018 and secure open positions for 2019 and beyond. The export markets' strong fundamentals continue to create opportunities for ARLP to participate. The seaborne thermal markets remain attractive, and we have now booked 10.4 million and 3.1 million tons for delivery to these markets this year and next. The forward price curve for seaborne thermal coal remains supportive of ARLP's continued participation in these markets.

Pricing in the metallurgical export markets has also been constructive, and year-to-date, we have now booked commitments to deliver approximately 725,000 tons in 2018, equaling the volume we delivered to these markets all of last year. For 2018, with the anticipated production increase at Gibson North, ARLP's total production this year is on track to be almost 3% higher than 2017. We expect to grow our production another 5% to 6% or approximately 2 million tons in 2019 compared to 2018. Essentially all of this additional productions will come from the Illinois Basin, targeted primarily for the export market.

ARLP's strong performance for the first 6 months of 2018 and our favorable outlook for the balance of the year led us to, again, increase full year guidance for revenues, net income and EBITDA. We continue to believe our anticipated 2018 performance will result in strong distributable cash flow and distribution coverage, supporting management's expectation of increasing unitholder distributions by approximately 1% per quarter for the rest of this year.

ARLP also achieved a significant milestone during the 2018 quarter, completing a process that began in July 2017 with the IDR Exchange Transaction. We closed the transaction to simplify the Alliance partnership structure at the end of May. As a result of these transactions, ARLP is now the only publicly traded Alliance entity, allowing ARLP to increase investor transparency, attract a broader investor base to the single larger entity, with increased public float and greater liquidity and eliminate the duplicate cost required to maintain 2 public companies.

Progress on our priority to invest in ARLP's core coal business also continued during the 2018 quarter. The first of 2 continuous mining units began production operations at our Gibson North mine and the second unit is scheduled to come online by the fourth quarter of this year. Additionally, production from these 2 mining units and the potential to ultimately increase capacity at Gibson North to the total of 4 continuous mining units will allow ARLP to meet increasing demand from the export thermal coal markets.

As I mentioned on our last call, we continue to evaluate an opportunity to maintain ARLP's market share for low-sulfur, high-BTU coal through the potential development of a new coal mine in East Kentucky as reserves deplete at our MC Mining operation in 2020. Results to date from ARLP's investments in oil and gas minerals and gas compression services have been better than expected, leading us to increase the expected contribution to ARLP's 2018 results to a range of $35 million to $40 million.

I continue to be optimistic about ARLP's future and our ability to generate cash flow growth over the long term. This confidence has encouraged us to remain focused on returning cash to ARLP's unitholders. The increased distribution just announced by our board is one way ARLP is committed to returning cash to our unitholders.

In addition, ARLP began executing on the $100 million unit buyback program, authorized by our board in May. During the 2018 quarter, we acquired approximately 384,000 units for a total cost of $7.6 million. These repurchases along with units contributed to ARLP by an affiliate in conjunction with the Simplification Transactions, reduced ARLP's unit count by approximately 851,000 units.

At the end of the 2018 quarter, ARLP had approximately 131.4 million units outstanding. We continue to believe ARLP's strategy of focusing on sustainable, long-term cash flow growth and returning cash to unitholders, while maintaining strong distribution coverage and a conservative balance sheet will serve us well by creating value for our unitholders in the future.

I'll now turn the call back to Brian for a more detailed review of our results. Brian?

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Brian L. Cantrell, Alliance Resource Partners, L.P. - Senior VP & CFO of Alliance Resource Management GP, LLC [4]

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Thank you, Joe. As mentioned earlier, ARLP reported strong financial results for the 2018 quarter and period. Looking first at our results for the quarter compared to the 2017 quarter, coal sales volumes increased 23.9% as we made up weather-related shipment delays from earlier this year and increased our export volumes. Led by higher production at our Gibson South and River View mines, and the resumption of operations at Gibson North, coal production increased 2.6% during the 2018 quarter.

Increased sales volumes and slightly higher coal prices drove coal sales revenues for the 2018 quarter up by 24.5% to $475.9 million, and along with a 38.9% jump in other sales and operating revenues, primarily from our Matrix and Mt. Vernon subsidiaries, led total revenues, excluding transportation revenues, higher by $97.2 million compared to the 2017 quarter.

Increased coal sales volumes also contributed to higher operating expenses of $311.2 million in the 2018 quarter. Segment adjusted EBITDA expense per ton was flat sequentially but increased 5.6% compared to the 2017 quarter, primarily due to difficult mining conditions encountered during the 2018 quarter at several Illinois Basin operations and our Tunnel Ridge mine in Appalachia.

For the 2018 quarter, net income attributable to ARLP and EBITDA rose 36.3% and 26.7%, respectively, both compared to the 2017 quarter. In addition to the factors just reviewed, results for the 2018 quarter also reflect the contribution of $8.7 million to net income and EBITDA from our investments in oil and gas minerals and gas compression services, an increase of $5.8 million compared to the 2017 quarter.

Comparative results between the 2018 and 2017 quarters were also impacted by the $8.1 million debt extinguishment loss related to ARLP's early repayment of its series B senior notes in May 2017, which was done in conjunction with our bond offering in April of last year. As a reminder, the IDR Exchange and Simplification Transactions impacted total units outstanding and the allocation of net income to our general partners, creating a lack of comparability of earnings per unit between periods.

We have, again, included at the end of this morning's earnings release a comparison of ARLP's actual EPU and pro forma EPU as if the Exchange and Simplification Transactions had occurred on January 1, 2017. On this pro forma basis, EPU for the 2018 quarter increased by 34% to $0.63 compared to $0.47 for the 2017 quarter, and by 43.2% to $1.79 per unit for the 2018 period compared to $1.25 for the 2017 period. We will also again provide investors with a detailed pro forma presentation of ARLP's EPU in our upcoming Form 10-Q filing with the SEC.

The factors we have discussed this morning also contributed to ARLP's strong results for the first half of 2018. Coal sales and production volumes, revenues, net income and segment adjusted EBITDA all increased compared to the 2017 period. On a per ton basis, slightly lower coal sales price realizations and higher segment adjusted EBITDA expense drove year-over-year segment adjusted EBITDA lower by 8.8%. As noted in our current guidance, however, we currently anticipate ARLP's performance over the next 6 months will result in slightly higher segment adjusted EBITDA per ton for the 2018 full year compared to 2017.

Net income attributable to ARLP increased $74 million to $242.1 million for the 6 months ended June 30, 2018, compared to $168.1 million for the 2017 period. The increase was due to higher revenues and investment income, the net gain on settlement of litigation from the sequential quarter and the 2017 debt extinguishment loss I discussed a few minutes ago, partially offset by higher operating expenses and depreciation, depletion and amortization.

Turning now to the balance sheet. We ended the 2018 quarter with ample liquidity of $672.4 million, and leverage remains conservative at 0.86x total debt to trailing 12 months adjusted EBITDA. Our strong conservative balance sheet provides ARLP with the financial flexibly and capacity to execute our plans and take advantage of future opportunities.

This concludes our prepared comments. And now with the operator's assistance, we'll open the call to your questions. Gary?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from John Bridges with JPMorgan.

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John David Bridges, JP Morgan Chase & Co, Research Division - Senior Analyst [2]

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I was just wondering, the Gibson -- the expansion in Gibson North, the 2 million tons of additional production you're talking about next year, would that largely be coming from Gibson North, 1 million tons per CM unit? Or is it more distributed around the other -- across the space?

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Joseph W. Craft, Alliance Resource Partners, L.P. - President, CEO & Director of Alliance Resource Management GP, LLC [3]

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Yes. It mostly will come from Gibson North. There are some incremental production at a couple of our other Illinois Basin mines that we expect in 2019 compared to 2018, some based off of some volumes in 2018 that didn't meet expectations that we believe the geology is going to be more favorable in '19 compared to '18.

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John David Bridges, JP Morgan Chase & Co, Research Division - Senior Analyst [4]

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So you should be relatively sulfur discount free on that stuff?

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Joseph W. Craft, Alliance Resource Partners, L.P. - President, CEO & Director of Alliance Resource Management GP, LLC [5]

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Yes. There's still some slight discount at Gibson, but it's not as much as it is at our other 3% coal mines.

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John David Bridges, JP Morgan Chase & Co, Research Division - Senior Analyst [6]

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Okay. Good. As you reported, the oil and gas section is stronger. Is there a sort of sensitivity of those -- that income to oil and gas price that we could use going forward that will help us predict earnings?

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Joseph W. Craft, Alliance Resource Partners, L.P. - President, CEO & Director of Alliance Resource Management GP, LLC [7]

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Well, I would say, going forward, the price is not as much as an issue as volume. So we're seeing our first investment and our second investment becoming more mature. So as our guys bought those properties ahead of the drill bit, the drill bit, the properties -- the drill bits coming closer to where those properties are, so it's going to be more volume driven than it is price driven. So we do have pretty good visibility and we do expect to see improved earnings going into '19 and '20, as a result of just the timing of when those reserves were bought and when do we see the drilling coming towards the reserves that were purchased.

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John David Bridges, JP Morgan Chase & Co, Research Division - Senior Analyst [8]

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Okay. That's helpful. And then we always appreciate your insights to what's going on to Illinois Basin coal pricing. So I wonder if you could just comment on that finally.

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Joseph W. Craft, Alliance Resource Partners, L.P. - President, CEO & Director of Alliance Resource Management GP, LLC [9]

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We have seen improvements on the domestic side. And I would say that since last quarter, prices are up probably 10%, at least. And it is, as I've suggested last quarter, I believe that we are in balance as far as supply and demand. There's expectations that some utilities will be out, looking for tons into 2018. I don't know that there's much supply out there for 2018, so we would expect that those utilities will be drawing from inventory. And then, therefore, they will need to buy a little bit more in '19 than what they did in '18 to replenish their stocks. So we're -- we feel good about where the price curve looks relative to 2017 and 2018 on the Illinois Basin pricing. So hopefully, that answered your question.

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Operator [10]

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The next question comes from Lucas Pipes with B. Riley FBR.

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Lucas Nathaniel Pipes, B. Riley FBR, Inc., Research Division - Senior VP & Equity Analyst [11]

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I wanted to follow up on the pricing side and you disclosed -- first, good job on the contracting, but in terms of the committed in price tons for 2019, I believe it's 24.7 million tons. And I wondered if you could comment directionally how those prices -- how the prices on those committed tons would compare to 2018?

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Joseph W. Craft, Alliance Resource Partners, L.P. - President, CEO & Director of Alliance Resource Management GP, LLC [12]

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I can't give you exactly how they [commit.] I don't have that breakdown specifically for the committed tons. But as we look at our revenue projections for 2019 compared to '18, we believe they're going to be favorable with the one wildcard being metallurgical coal sales in both price and volume, so it's hard to predict exactly what that price would be. So for example, if we had no met coal sales next year, then our average sales price would probably be lower by a couple of bucks, [consolidated] as an example. But if we were able to maintain pricing that we had in '18, volume and price for met coal, we should see slightly higher average sales prices by $1 or so or (inaudible).

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Lucas Nathaniel Pipes, B. Riley FBR, Inc., Research Division - Senior VP & Equity Analyst [13]

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And that's -- so $1 or so higher on average, holding met coal flat, 2019?

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Joseph W. Craft, Alliance Resource Partners, L.P. - President, CEO & Director of Alliance Resource Management GP, LLC [14]

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Yes. If we were able to keep the volume and this pricing, then that would show some improvement [consolidated] if we show some decline. It's really too early to tell. But my best guess, right now, is our revenue on a per ton basis should at least be equal to where we are this year, assuming we get any type of volume out of the metallurgical business next year.

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Lucas Nathaniel Pipes, B. Riley FBR, Inc., Research Division - Senior VP & Equity Analyst [15]

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All right. Got it. Okay, maybe to switch over to the cost side. I believe this year, you're guiding to 1% increase, but with a favorable impact from the mix. If we kind of were to look at it on a same-mine basis, so to say, do you have a sense for where cost inflation is running?

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Joseph W. Craft, Alliance Resource Partners, L.P. - President, CEO & Director of Alliance Resource Management GP, LLC [16]

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So we've seen some uptick on anything that's steel-related that flows through and we've also given some -- there've been some labor cost increases where we've given some increases throughout the operations this year. So I would say, that from a cost perspective, it's probably in the 2% range for those items that have inflationary aspects to them. So there are certain items in our cost that's not 100% to where they're just fixed year in, year out. But of those variable cost components, it's probably in that 2% range would be my guess.

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Brian L. Cantrell, Alliance Resource Partners, L.P. - Senior VP & CFO of Alliance Resource Management GP, LLC [17]

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Yes. And Lucas, and part of the cost differences we've seen so far this year compared to what we were initially thinking, where we thought we might see a slight improvement in 2018 versus 2017. At that time, we were not expecting or planning in our guidance for any metallurgical sales. And obviously, there's a higher cost associated with producing a met product than a thermal product. So there's a variety of factors that Joe just went through and sales mix is part of that equation.

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Joseph W. Craft, Alliance Resource Partners, L.P. - President, CEO & Director of Alliance Resource Management GP, LLC [18]

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And that 2%, really, was over the total. So it probably would be 3% just specifically on those items that had any type of inflation component to it. So I want to correct that.

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Lucas Nathaniel Pipes, B. Riley FBR, Inc., Research Division - Senior VP & Equity Analyst [19]

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Okay. Got it. Okay. And then maybe one last bigger picture high-level question. Obviously, the export market has been a tremendous benefit to you, and I would argue the entire U.S. coal industry. How sustainable do you think that is? Obviously, it tends to be somewhat of a cyclical market. Do you see the U.S. participating longer term and throughout the cycle? Or would you say the U.S. is still maybe what is commonly described as a swing supplier?

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Joseph W. Craft, Alliance Resource Partners, L.P. - President, CEO & Director of Alliance Resource Management GP, LLC [20]

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We believe that it has more sustainability going forward. We're continuing to see new coal-fired generation being built around the world, even -- most of which may be in the Asian markets, but there is enough in Africa and -- Northern Africa. And Europe, never -- in areas in India, basically, where there will be increased (inaudible). We also see Turkey opening their markets to the high-sulfur coal. So we do believe that the demand is going to be there. We're really not seeing a supply response anywhere around the globe, so we have no reason to believe that we can't maintain our market share, if you will, for Illinois Basin product. And as John alluded to earlier, our Gibson product is really a lower sulfur product compared to other Illinois Basin mines, so we can compete with a very low-cost product at Gibson and its low-sulfur content -- that gives us confidence that we can, in fact, grow our export market for the foreseeable future.

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Lucas Nathaniel Pipes, B. Riley FBR, Inc., Research Division - Senior VP & Equity Analyst [21]

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Got it. Do you believe there's a limit as to how much the U.S. can export either from an infrastructure perspective or in terms of the market being saturated with U.S. coal at a given point?

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Joseph W. Craft, Alliance Resource Partners, L.P. - President, CEO & Director of Alliance Resource Management GP, LLC [22]

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There is a limit. So we're looking at -- the Gulf, I think, has a little bit more capacity from a transportation perspective. The East Coast, it really depends again on metallurgical markets. But we're not talking huge volumes here. I mean, we're talking about 2 million tons out of 50 million for us. And even if the 2 other players that are in the market have us -- have an equal amount, we're only talking about 6 million tons or 10%, say, of what we did this year. And that's a very large global market that's growing. There's a plant in Latin America right now in a market trying to buy 2 million tons, as an example. So for the -- if you keep it within reason, in like I said, 5% to 10% increase range, it's definitely doable. And then if you want to try to double it, yes, there would be limits.

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Operator [23]

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The next question comes from Mark Levin with Seaport Global.

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Mark Andrew Levin, Seaport Global Securities LLC, Research Division - MD & Senior Analyst [24]

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A couple of quick questions. One relates to some of Joe's comment around 2019. Last quarter, I think you mentioned when you're kind of looking at the world, Joe, you felt like margins in '19 would be comparable to 2018, at least based on your initial look. I realize the met situation, the met coal situation can change the view. But do you feel any more or less confident about that statement about '19 margins being comparable to '18 3 months later?

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Joseph W. Craft, Alliance Resource Partners, L.P. - President, CEO & Director of Alliance Resource Management GP, LLC [25]

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I think the conclusion is the same, but I do feel more confident in that statement. Given the activity, the receptivity, the communication we're having with customers, how much tonnage we put to bed, how much we're continuing to talk and have dialogue, I think that as we look at, going forward, even though we still have quite a few tons to sell, we do feel confident in our ability to sell those tons. And so I think, again, the conclusion is probably the same as far as what that margin is. But our confidence level on knowing that the -- when we produce it, we can sell it at those margins, is higher today than it was a quarter ago.

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Mark Andrew Levin, Seaport Global Securities LLC, Research Division - MD & Senior Analyst [26]

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That's great. That's great to hear. Second question relates more to uses of cash. I know you guys initiated $100 million buyback. You bought back $7 million this quarter. I think Brian alluded to total debt-to-EBITDA being roughly 0.9x at the end of last quarter. When you look at the units as they are today, and I guess on our numbers we have a sort of a mid-teens type free cash flow yield, might even be a little bit higher than that, but just a tremendous free cash flow yield. Relative to the other opportunities you see out there, whether it's through developing another coal mine or going out and buying other coal mines or even future oil and gas investments, are you seeing opportunities out there to buy that or build that provides you with the same, if not, better risk-adjusted returns than, let's say, buying back your stock more aggressively?

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Joseph W. Craft, Alliance Resource Partners, L.P. - President, CEO & Director of Alliance Resource Management GP, LLC [27]

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I think, last quarter, we were looking at several things that we thought we could bring into a transaction this year. Those things have gone away from us for whatever reason, so there are still other things we're pursuing. I think we'll continue to measure both. I don't think we have to choose between one or the other because of our balance sheet, the way it is. So we're continuing to look for investing in assets, that would be our first priority, but we're also believing that buying stock is a good investment as well. So it's hard to comment because things change daily in this business, so we're actively just looking to be able to grow our company, grow our cash flow. We're managed for the long term. So that's what we do.

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Brian L. Cantrell, Alliance Resource Partners, L.P. - Senior VP & CFO of Alliance Resource Management GP, LLC [28]

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Yes. And Mark, I'll confirm capital allocation priorities remain the same. We've, as Joe alluded to, we are first focused on investing in our [coal -- coal] business and as well as potentially outside of coal to grow long-term cash flows. And then second priority is to return cash to unitholders either through distribution growth, unit buybacks or a combination of the 2 and we're really not in an "either or" situation. We can adjust to the opportunities that present themselves and continue to move forward as we try to consistently articulate for some time now.

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Mark Andrew Levin, Seaport Global Securities LLC, Research Division - MD & Senior Analyst [29]

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No, and you guys do. It was more around the fact that I think leverage is so low, and at least from my perspective, the stock is cheap. And does that give you an opportunity to maybe accelerate buying back, which is such a high-return opportunity that may not be there down the road, if the stock moves higher?

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Joseph W. Craft, Alliance Resource Partners, L.P. - President, CEO & Director of Alliance Resource Management GP, LLC [30]

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In looking at our 2018, we just announced it at the end of May, so we didn't have that -- we only had like 2 weeks to execute (inaudible). So you can't look at last quarter as being a full quarter, so you can just factor that in as well.

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Mark Andrew Levin, Seaport Global Securities LLC, Research Division - MD & Senior Analyst [31]

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No. That totally makes sense. Okay. And then the third question was more around export margins. Sitting with API 2 prices where they are, maybe can you comment a little bit on what -- from a margin perspective, in the current environment, what you guys might realize for a low-sulfur product versus what you might realize for a high-sulfur product, and just to give us maybe some comparability relative to what that looks like versus the domestic market?

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Joseph W. Craft, Alliance Resource Partners, L.P. - President, CEO & Director of Alliance Resource Management GP, LLC [32]

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I would say, the sulfur discount, so to speak, is probably 2/3 lower when you try to factor in the revenue side of the equation. And on the cost side, our Gibson product is our lowest cost mine, pretty much. So I don't want to get in to specifics on margins, but that business is very profitable for us.

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Operator [33]

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The next question comes from Lin Shen with Hite.

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Lin Shen, Hite Hedge Asset Management LLC - Analyst [34]

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You mentioned that your oil and gas revenue is growing and also you're commenting that they will grow next year based on the current volume expectation. Do you think that they probably -- they can go to similar growth rate like this year did?

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Joseph W. Craft, Alliance Resource Partners, L.P. - President, CEO & Director of Alliance Resource Management GP, LLC [35]

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Obviously, it's dependent on the 2 factors we discussed earlier, pace of drilling as the operators begin executing their development of our acreage and also pricing. But from what we can see, anticipation of a similar level of growth year-over-year, that's certainly possible.

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Lin Shen, Hite Hedge Asset Management LLC - Analyst [36]

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I just wanted to clarify, I believe Joe mentioned before that -- do you have a lot of price sensitivity or volume is a more important factor?

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Joseph W. Craft, Alliance Resource Partners, L.P. - President, CEO & Director of Alliance Resource Management GP, LLC [37]

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It's really going to be more volume driven rather than price driven.

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Operator [38]

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(Operator Instructions) The next question is a follow-up from Lucas Pipes with B. Riley FBR.

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Lucas Nathaniel Pipes, B. Riley FBR, Inc., Research Division - Senior VP & Equity Analyst [39]

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Joe, I wanted to -- and Brian as well, I wanted to follow up on the share repurchase program. I believe it's been out now for about 2 months. What's your initial kind of take on it? Would you say success, the market maybe didn't fully appreciate it? What are your comments? And if you feel so inclined, maybe include in your answer any inclination as to whether it may change your capital allocation priorities?

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Joseph W. Craft, Alliance Resource Partners, L.P. - President, CEO & Director of Alliance Resource Management GP, LLC [40]

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I think the execution, thus far, it's a little bit too early to tell. Again, we announced it a week or 2 weeks in advance of our trading blackout period. So there was a relatively short period of time where we were in the market. Our blackout period will end here very shortly and we expect to be back in the market. We're evaluating -- we've been trading under a 10b-18 program. We're evaluating whether we'll incorporate an 10b5-1 program as well to expand the period during which we can trade. But we're, frankly, going to take a little bit of a wait-and-see approach to watch how the market responds to any activity that we may be engaged in over the next 4 to 6 weeks or so. So I think that's what you could expect to see from us at this stage. Regarding the capital allocation priorities, no, I don't see those changing and think we elaborated on that when we were responding to, I think, Mark's question a little while ago.

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Operator [41]

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

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Brian L. Cantrell, Alliance Resource Partners, L.P. - Senior VP & CFO of Alliance Resource Management GP, LLC [42]

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Thank you, Gary. We appreciate everyone's time this morning as well as your continued support and interest in Alliance. Our next quarterly earnings release and call are scheduled for late October, and we look forward to discussing our third quarter 2018 results with you at that time. This concludes our call, and thanks to everyone for your participation.

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Operator [43]

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