Q4 2023 Alliance Resource Partners LP Earnings Call

Participants

Cary Marshall; Chief Financial Officer, Senior Vice President; Alliance Resource Partners LP

Joseph Craft; Chairman of the Board, President, Chief Executive Officer of General Partner; Alliance Resource Partners LP

Presentation

Operator

Greetings. Welcome to Alliance Resource Partners, L.P., fourth-quarter 2023 earnings conference call. (Operator Instructions) Please note this conference is being recorded.
At this time, it's my pleasure to turn the conference over to Cary P. Marshall, Senior Vice President and Chief Financial Officer. Mr. Marshall, you may now begin.

Cary Marshall

Thank you, operator, and welcome everyone. Earlier this morning, Alliance Resource Partners released its fourth-quarter and full-year 2023 financial and operating results, and we will now discuss those results as well as our perspective on current market conditions and outlook for 2024. Following our prepared remarks, we will open the call to answer your questions.
Before beginning, a reminder that some of our remarks today may include forward-looking statements 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 financial measures and the most directly comparable GAAP financial measures 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 results for the fourth quarter and full year; give an overview of our 2024 guidance; then turn the call over to Joe Craft, our Chairman, President, and Chief Executive Officer, for his comments.
During 2023, we delivered another record full year in terms of revenues, coal sales price per ton, oil and gas royalty volumes, and net income. We accomplished these records in a challenging year for the global economy, pressured by high interest rates, global/geopolitical unrest, and continued volatility in commodity prices.
Operationally, we had to contend with reduced volumes across the Appalachia region primarily caused by lower recoveries, fewer operating units at MC Mining, and challenging geologic conditions that delayed development of the new district at our Mettiki longwall operations. Notwithstanding these obstacles, we achieved our outstanding results through a combination of our well-contracted order book, tight focus on operating efficiencies, and investment for longer-term strategic positioning with our customers.
Full-year revenues were $2.6 billion, an increase from $2.4 billion in 2022. Net income was $630.1 million, up from $586.2 million, And earnings per unit increased nearly 10% from $4.39 in 2022 to $4.81 in 2023.
Looking more closely at the fourth-quarter comparisons, total revenues were $625.4 million in the 2023 quarter compared to $704.2 million in the 2022 quarter. The year-over-year decline was driven primarily by lower coal prices, lower oil and gas prices, and reduced coal sales volumes in Appalachia, which more than offset record oil and gas royalty volumes and higher transportation and other revenues.
Total coal sales price per ton was $60.60 for the 2023 quarter, a decrease of 10.7% versus the 2022 quarter. Softer demand in both domestic and international markets resulting from a mild start to winter and lower natural gas prices negatively impacted coal pricing. This was partially offset by the positive impacts of our contracted order book. On a sequential basis, coal sales price per ton was 6.7% lower.
As it relates to volumes, total coal production of 7.9 million tons was 6.6% lower compared to the 2022 quarter, while coal sales volumes decreased 7.5% to 8.6 million tons compared to the 2022 quarter.
Illinois Basin coal sales volumes increased by 2.1% and 6.1% compared to the 2022 and sequential quarters, respectively. The increase is the result of higher volumes from our Hamilton and Warrior mines compared to the 2022 quarter and from our Gibson South operation sequentially.
Coal sales volumes in Appalachia were down 27.4% and 8.8%, respectively, compared to the 2022 and sequential quarters. The reduced volumes across the region was primarily caused by lower recoveries, reduced operating units at MC Mining, a scheduled longwall move at our Tunnel Ridge mine, and challenging geologic conditions at our Mettiki longwall operation that delayed the development of a new longwall district.
Additionally, 2023 quarter coal inventory and tons sold were negatively impacted by approximately 0.6 million tons due to an unexpected temporary outage at a third-party Gulf Coast export terminal we used for export market sales.
In our royalty segment's total revenues were $53 million in the 2023 quarter, down 1.9% year over year but essentially unchanged sequentially. The year-over-year decrease in revenues reflects lower realized oil and gas commodity pricing that more than offset record oil and gas volumes and increases in coal royalty revenue per ton.
Specifically, coal royalty revenue per ton was up 24.3% compared to the 2022 quarter, while lower commodity prices led to oil and gas royalties' average realized sales prices being down 19.7% per BOE versus the 2022 quarter. Sequentially, coal royalty revenue per ton was 0.9% lower, and oil and gas royalties and average sales prices were up 0.9% per BOE oil and gas royalty volumes increased 13.1% on a BOE basis to a new record, while coal royalty tons sold declined 5.4% year over year. The record volumes from oil and gas resulted from increased drilling and completion activities on our interests and acquisitions of additional oil and gas mineral interests.
Turning to costs, segment adjusted EBITDA expense per ton sold for our coal operations was $42.91, an increase of 7.9% and 4.2% versus the 2022 and sequential quarters, respectively. The impacts of lower volumes I just discussed and Avalanche and and higher cost purchased coal more than offset improvements in the Illinois Basin. Specifically, the Illinois Basin saw higher volumes and lower expenses at the Hamilton Mine as compared to the 2022 quarter when the facility experienced an unexpected outage that lasted four weeks last quarter, we gave additional color to our Avalanche longwall operation at Medici. It was in it was idle for the entire third quarter and ended the fourth quarter, but returned to production in late December in 2024, we expect to move the longwall again, skipping over a region of adverse geology and resume production under much more favorable mining conditions in March. This is expected to benefit overall production volumes and cost in Appalachia in 2024 when compared to the back half of 2023, which is reflected in the guidance I will discuss in a moment. Our net income in the 2023 quarter was 115.4 million or 46.8% lower as compared to the 2022 quarter. The decrease reflects the previously discussed lower coal sales volumes and realized prices, higher production expenses and lower realized prices in oil and gas royalties, partially offset by higher coal royalty sales price per ton realizations and record volumes in oil and gas royalties. Ebitda for the quarter was 185.4 million, down 37.6% as compared to the 2022 quarter.
Now turning to our balance sheet and uses of cash, Alliance generated free cash flow for the full year 2023 of 421.6 million. During the 2023 quarter, we completed two acquisitions of mineral interest totaling $24.8 million for 3,236 net royalty acres in the Permian and Anadarko and Williston Basin. Additionally, during the 2023 quarter, we paid a quarterly distribution of $0.7 per unit equating to an annualized rate of $2.80 per unit. This distribution level is unchanged sequentially and as compared to the 2022 quarter.
Lastly, we reduced our debt outstanding by $22.9 million, resulting in total and net leverage ratios of 0.37 and 0.31 times, respectively. Total debt to trailing 12 months. Adjusted EBITDA total liquidity was 492.1 million at year end, which included $59.8 million of cash on the balance sheet.
Turning to our initial guidance detailed in this morning's release, 2024 is shaping up to be a solid year for ARLP with a well contracted order book and the opportunity to flex additional export tons should market conditions warrant the move. As you will notice, we have provided some additional color to our outlook by detailing both estimated realized pricing and cost per ton by region. Our expected realized full year 2024 price is based on a common combination of our contracted order book and our expectations for additional contracting, both domestic and export for the open position. We expect the logistic issues that pressured the second half of 2023, including low river system water levels and an extended outage at the third party export terminal we utilized in the Gulf of Mexico to no longer impact 2024 results. We anticipate ARLP's overall coal sales volumes in 2024 to be in a range of 34 to 35.8 million tons, with over 90% of these volumes committed and priced at attractive levels similar to the 2023 averaged realized pricing. Specifically, our committed tonnage for 2024 is 32.5 million tons, including 28.4 million domestically and 4.1 million to the export market coal sales prices in the Illinois Basin are expected to range between 54 50 and $56 per ton compared to $55.21 per ton in 2023 and in Appalachia in the range of 80 15 to 83 50 per ton compared to $86.98 per ton sold in 2023.
On the cost side, we expect full year 2024 segment adjusted EBITDA expense per ton in the Illinois Basin to be in a range of 35 25 to 37 25 per ton as compared to 34 84 in 2023. And in Appalachia, 54 25 to 57 25 per tonne has compared to 53 15 per tonne in 2023. During the full year 2024, we have three scheduled longwall moves at Hamilton three at Tunnel Ridge and two at Mesquite with one of the moves at mid teen and one in Hamilton scheduled in March.
In our oil and gas royalty segment, we expect sales of 1.4 to 1.5 million barrels of oil, 5.6 to 6 million Mcf of natural gas and 675 to 725,000 barrels of liquid segment. Adjusted EBITDA expense is expected to be approximately 12% of oil and gas royalties revenues for the year. In 2024, we are anticipating 450 to $500 million in total capital expenditures, consistent with messaging in recent quarters 2023 and 2020 for our years of elevated capital expenditures.
As we make long-term strategic investments in our Riverview Warrior, Hamilton and Tunnel Ridge mines to ensure they remain reliable, low-cost operations for many years to come.
Starting in 2025, we anticipate our capital expenditures to return to more normalized levels of $6.75 to $7.75 per ton produced. Additionally, we remain committed to investing in our oil and gas minerals business, the amount of which will be dependent upon the opportunities available that meet our underwriting standards.
Next, we remain focused on continuing to improve our balance sheet maintaining flexibility and strong liquidity. We expect to retire the $285 million outstanding on our senior notes periodically throughout the balance of 2024 using a combination of average operating cash flows and a number of attractive financing options currently available to us, including increases to our existing facilities, equipment financings and utilizing the collateral value of our high quality and unencumbered royalty assets, all of which are at various stages of execution today. Thereafter, we will continue to evaluate the highest return and best use of excess cash flow this includes returning capital to our unitholders in the form of cash distributions or unit repurchases and accretive growth opportunities that extend beyond our base business.
With that, I will turn the call over to Joe for comments on the market and his outlook for ARLP.

Joseph Craft

Joe?
Thank you, Gary, and good morning, everyone. I wanted to begin my comments by thanking and congratulating the entire alliance organization for their resilience, continued hard work and dedication for delivering another record year for total revenue, realized pricing per ton sold, oil and gas royalty volumes and net income. Carrie did an excellent job summarizing our 2023 results and outlining our guidance for the upcoming year as well as explaining the factors that contributed to our success in 2023. As we look to 2024, our coal sales book is expected to be equally as strong as last year and be the anchor to deliver another solid year of revenue. Our dependability and the reliability of our coal quality are highly valued by our customers, evidenced by the premium pricing we have received relative to the spot market on recent commitments with domestic customers for multi year contracts, we are entering 2024 with over 90% of our coal sales volumes committed and priced at similar levels relative to 2023, we are expecting our production to be more consistent than 2023, believing we have moved beyond the several negative geologic areas that we faced this past year. As we think about the outlook for the coal industry and the markets we serve, several key themes emerge and underscoring the critical need for reliable, affordable baseload fuel for electric generation The first relates to increasing market expectations for nationwide energy demand over the past year. We should all take notice that grid planners have nearly doubled 5-year load growth forecast in support of ongoing investment in US industrial and manufacturing sectors as well as citing rising energy needs associated with data centers and artificial intelligence. While the speed of electrifying the transportation sector may have slowed. The enthusiasm for AI has accelerated. The power demand requirements for data center cannot be understated, highlighted by recent estimates that electric demand from operational and announced data centers in the US will reach over 30 gigawatts in the coming years with some individual sites needing upwards of 600 megawatts of power. These increase revisions are not temporary fluctuations, but represent fundamental changes to energy consumption patterns. Just last week, the governor of Indiana announced Facebook parent, Meta. We'll build an 800 million data center on a 600 acre site in Jeffersonville, Indiana across the river from local Kentucky. And the governor said, his state aims to be the a high capital of the Midwest. While Kentucky's governor for several years has declared Kentucky as the undisputed electric battery production capital of the United States of America. Both of these messages suggest more to come more proved to support our belief that low growth in our key markets will be exceptionally strong over this decade. Furthermore, we are observing a renewed emphasis and urgency by regulatory bodies such as Merck and Merck to ensure power grid reliability a fundamental attribute coal-fired generation provides in the markets we serve. Regulators, elected officials and leaders focused on economic development are evaluating actions needed to ensure reliable electricity capacity is available to meet this growing electric demand, especially in peak times, impacts from weather time and time again displayed the weakness of the grid domestically. And unfortunately, at times the danger to consumers two weeks ago after what was a relatively mild start of this winter, the US experienced a cold snap in which over three-quarters of the country was exposed to below freezing temperatures and hundreds of thousands were without power from Texas to the eastern United States winter demand approach record levels in the States grid operators ask for consumers to curb consumption due to a capacity shortage. It is times like that when wind turbines are often unable to turn and natural gas pipelines can be constrained in their ability to deliver that the grid is tested and failure can have catastrophic consequences having the strategic flexibility of coal on the ground elevates the service and reliability we provide to unmatched levels. As for reasons, similar to these that we believe the US will continue to see delays in extensions and the premature closure of critical coal plants and why we are committed to serve these markets for many years to come over the past year, utilities have extended the plant operating life of approximately 10 gigawatts of coal generating capacity as a result of increasing electricity demand and delays in the construction of replacement generation, particularly renewables. We acknowledge the US grid will evolve with time. The policy decision makers must be responsible and practical and doing so. And currency policy needs to reflect the realities of exploding demand and have the laws of physics that dictate how electricity is generated, transmitted and delivered. We believe we are well-positioned to be part of a long-term solution supplying reliable, affordable baseload energy for consumers and creating long-term value for our unit holders.
Now turning to strategic updates related to our business. In 2024, we expect to complete the major infrastructure projects at Tunnel Ridge, Hamilton all year and the Riverview complex. As Cary mentioned, ARLP will start to recognize the benefits from these strategic investments in 2025 as capital expenditures will be significantly lower and our mines will be more productive, ensuring we maintain our position as the most reliable, low cost producer in the United States in the eastern United States over the next decade.
Turning to our royalty segment, we remain committed to growing our oil and gas royalties business, which delivered record volumes in 2023 over the past year, we acquired 111 million in additional oil and gas metals, primarily concentrated in the Permian Basin. This marks our largest investment year since 2019. We love the cash flow potential, the segment offers via hedge free exposure to commodity price and organic growth.
As we look to 2024, I would comment that during periods of commodity price volatility. The size and timing of acquisitions can be difficult to predict as our growth strategy relies on strict underwriting standards for investment that we will not compromise in tight markets. We also remain committed to pursuing growth opportunities beyond coal and oil and gas royalties. As we advance these initiatives, our investment decisions will be selective aligned with our core competencies and focus on areas where we can add significant strategic value.
Let me be clear. We are not interested in building a portfolio of Passave venture capital style investments. Initial position should be thought of as potential platforms for future lines of business with long-term growth and cash flow generation. To that end, two weeks ago, we announced that our wholly owned subsidiary matrix Design Group entered into an agreement with Infinitum to develop and distribute high efficiency, reliable motors and advanced motor controllers designed specifically for the mining industry. This collaboration represents a natural progression and extension of our initial investment in Infinitum back in 2022. We believe their groundbreaking motor technology will bring much needed innovation to the mining industry by delivering more efficient and high higher-performing production equipment specific to Alliance. We believe their technology will improve our mining processes, reduce capital and operating costs and help extend the life of certain mining equipment. Additionally, while we are unable to publicly quantify any potential revenue impacts at this time, we believe the relationship could lead to new revenue streams for Matrix by selling additional products to third party mining customers and OEMs around the world like matrix is currently doing as a technology leader for underground proximity detection systems.
In closing, our business continues to be a generator of strong cash flows that positions us to continue improving our balance sheet by simultaneously pursuing the highest and best uses for our capital.
I am proud of ARLP's performance in 2023 and encouraged by the opportunities in front of us as we gear up for what should be another successful year in 2024.
That concludes our prepared comments, and I'll now now ask the operator to open the call for questions.

Thank you, operator, and thank you.

Question and Answer Session

We'll now be conducting a question and answer session. If you'd like to ask a question today, please press star one from your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two, if you'd like to remove your question from the queue for participants are using speaker equipment. It may be necessary to pick up your handset before pressing the star keys. One moment, please. While we poll for questions.

Thank you.

Thank you. And our first question will be coming from the line of Nathan Martin with The Benchmark Company. Please proceed with your questions.

Cary Marshall

And thanks, operator.

Good morning.

Joe. One.

Kerry, thanks for taking my questions.
Morning, Tom, I wanted to start with the distribution. This quarter. Our coverage ratio was 1.8 times, looks like for the full year 23, and we did dip to 1.3 times in the fourth quarter. I know you guys have said you're okay with the distribution dipping down temporarily, but it seems like keeping it closer to two times is where you prefer to be, obviously, but it would be great to get your thoughts there.
On the distribution and the coverage. I think you mentioned last quarter that your Board Meeting will be behind you by the time this call came around. So maybe any takeaways from those conversations as well.

Thank you.

Joseph Craft

And thank you for the question. So well, we did finish of the year, as you mentioned, with those coverage ratios that are included in our in our press release. As we look to 2024. As we've indicated, we believe 24 has a potential to be just as good as 2023. There are opportunities as we go looking towards 25. We're also optimistic about our opportunities in 25. We just talked about the capital will be coming down substantially in 25 versus 24. We believe our operating costs will be lower and primarily because of the efficiency of projects we've talked about. We believe natural gas should be higher price in 2025 because of the LNG terminals that are coming online back half of 2024 in the United States. So there's a lot to be optimistic about. We signed some long-term contracts that give us some stability through 2028. Yet at the same time, we do have not as much contracted in 25 as we have in 24 where we've got over 90%. So I think as we move through the year, the Board will make a decision on a quarter-by-quarter basis as to whether to maintain the distribution at the 70% level.

I believe we're in a position to do so.

Joseph Craft

And that would be my expectation.

And the other factor that we'll have to consider is as does the market data reactive to our continued growth and our continued the opportunities that we have in front of us.

Joseph Craft

As I have mentioned in the past, we've been disappointed that our again priced at and track the distribution increase that we gave in 2023. So it will be a quarter-by-quarter decision. But we're, as Carrie mentioned in his prepared remarks, we're very focused on growing our company, maintaining and growing our cash flow and returning that to the shareholders is similar to what we've been doing over the last 25 years.

Appreciate the color there, Joe, on maybe next, just a bit of a multipronged question. You just mentioned some of the contracts and you guys did it looks like an additional 12 million tons over that 2024 to 2020 period on first, is it possible to get a breakdown of how those tons were spread throughout that time period? And then maybe some more color on what the pricing look like.
And then second, for this year, specifically in 24 and what portion of those committed tons are fixed price and what portion are open to market pricing still at this point, I would assume the domestic tons are largely fixed, but for your export tons tied to an index like JP. two or something on where you could have some volatility are there any floors or ceilings in those contracts, maybe like some of your peers on that?

Joseph Craft

So as far as the actual volume beyond 2024, and I don't have those numbers right now. I don't know if you've got those carry, but back to the pricing, the pricing in 24 of our contract book is comparable to what our 2023 average revenues are our domestic contracts. Do have escalators in them are some are big, some are actually indices. There are export volumes and believe this just goes through 2024.

And I don't think we have any in out years and those are fixed prices. Some of them do have in this do tied to indices specifically or metallurgical contracts are tied to some indices that will fluctuate based on what the market is and what else did I miss from your question?

Yes, I think in saying they just in a follow-up in terms of the out year than if you go back and look at where we were guiding last quarter, I'm just in terms of commitments. If you look in the out years of those 12 million tons. They do go, as we mentioned out to 2028. And most of those volumes that go out for that period of time are in the 1.5 million tonne range once you get beyond the 2024 period. So if you look at 2025 to 2028, that would give you an indication of the low contract, some of them won't scale up and scale down, but they may be 2,000,001 year and then kind of scale down to closer to $1 million in a quarter as you get toward the tail end of it, generally speaking, it's a fairly significant volume as you go over that 2025 through 2028 time period.

And the message is they understand that they need to start late layering in some volume, and they're basically giving us confidence that those plants are needed not only through the 28 time period but beyond. So we are hearing from our customers that the expectations are that with grid reliability with the growth in electrification and that the existing fleet of coal plants need to stay open longer, and we will see that play out. I mean, the Biden administration continues to I suggest that they don't need to keep the plants open, whereas Republican candidates have all suggested that we do. So I think that we believe that the laws of physics is going to require and the growth in demand that these plants will stay open. And that are we're very confident that our production volumes will be sustained for in the next five to six to seven years.

But that's very helpful, guys. And maybe just to kind of kind of wrap that up. I mean, really, I guess my questions kind of revolve around maybe what gets you to the lower the high end of your full-year 24 price per ton guidance and got 32.5 million tons. It looks like a committed and priced and maybe what's the assumption there in API. to price, if that's what your export volumes are tied to and we've seen some pressure there. Obviously, you mentioned that domestic contracts where the pricing goes it has been above the spot rates and that's that's a positive. Just trying to get a sense of maybe what gets to the lower high end of that range that you can hold range is going to be dependent on the export market.

Certainly seeing the export pricing on the indexes drop, in fact, probably 10 to $12 in the last month we don't believe that's sustainable. We believe that the pricing will get back in into a PAT level that's greater than 110 to $120 range. Because we believe that that's what the world supply will demand for that there. And for those products, we do believe that demand is stable. However, the pricing right now is a little soft. And so the whole swing will be how we place those export tons throughout 2024. That will B. The determining factor is to the ranges that you spoke to. But when you look at the total compared to RUI. position, it doesn't move the the needle that much because we have so little tons that are needed to be placed for 2024.

Great.

I appreciate those comments, guys. I'll pass it along to the next caller. Thanks for your time and best of luck here in 24.

Cary Marshall

Thank you.

Our next question is from the line of Mark Reichman with NOBLE Capital Markets. Please use your question.

Thank you, and good morning.

Morning.

So going into the fourth quarter, the delta between what was committed and priced in 2023 and the your guidance that was kind of expected to be kind of what happened in the export market. So the tons sold came in kind of at the low end compared to the guidance. So when do you expect that delta between committed and priced and what was sold to carry over into 2024. Will that mainly be in the first quarter? And I assume that's kind of already kind of baked into the 2024 guidance?

Yes.

Cary Marshall

That's right.

That's right, Mark, we would expect those tonnages to roll over into end of the first quarter, and it is baked into the guidance that we provided.

Okay.

And then during the last conference call, you didn't expect much in the way of 4Q outside coal purchases, but sequentially the number increased over $20 million from 11.5 million. So the adverse conditions at Mesquite. Did those just extend beyond your expectations? And do you think we're done with the outside coal purchases?

So yes, so we in the last earnings call, we felt like the longwall would be up and running by the end of November, and it was actually delayed to the end of December. So we did have some shipments that we needed to buy some coal that we thought we would be able to produce that we came up with short and we may have to actually buy some in the first quarter. The longwall did come up the last week of December. It is operating as expected, depending on whether the timing of shipments It's possible. We may have some purchases in the full in the first quarter. I don't believe we are anticipating anything beyond that.

Okay.

That was at least when I compared to what our estimates look like. I think we were at the low end, but that was kind of a difference.
And then just lastly, and you know, I know it's too early to talk about revenues, but this agreement between Infinitum and Matrix rather than revenue numbers. Can you just kind of maybe highlight the economics of becoming a global distributor for Infinitum? And are there any shared arrangements on the development of new mining products. So I mean, will they just get the margin, you know, from the sale of Infinitum to projects products? Or are there some other like when they go in and install you know, a project for a mining customer. Are there other sources of revenue? What is kind of the revenue sub stack and revenue stack look like for Matrix when they enter an arrangement like that with Infinitum?

Well, the initial projects that we're working on, yes, they basically are making now equipment effectively. We are going to be testing in our operations in 2024. That will start, I believe, in the second quarter of this year and carry you have those more specifics and then that will roll in. And then we will start that hoping hopefully be marketing those in 2025?

Cary Marshall

Yes, that's right.

That's right, Joe. On our the products, it kind of goes back to similar to what we did was it until a zone where we're providing proof of concept for these underground. And so we have been in discussions with the regulatory agencies here for underground mining and do anticipate those going underground here, certainly by the second quarter, we're hoping to push it even a little bit quicker than that.

And we've got another motor technology that we're also working on that would also meet MCA approval and that to we would think that that would be manufactured and then sold into 2025. And our initial focus will be domestically. But then it had to be rolling out similar to our proximity device and until his own candidate is currently being marketed in South Africa and Australia.

Well, that's very helpful.

Joseph Craft

And I think that we look at that and tried to give you some idea.

So I think we've got invested around $67 million in infinitum, and we believe that cash flow that we'll receive just from these two announcements are going to give us an attractive double-digit return just on that investment as a byproduct of that relationship. And that dunning anticipate what we would get on an actual investment in infinitum. So that sort of gives you an idea of the scale of the opportunity just from this one or these two products that we are talking are more ready to design, build and sell into the marketplace.

Well, that's really helpful. And I appreciate that. I really didn't have too many questions on the guidance and I thought that was pretty straightforward and look pretty good. So thank you very much.

Cary Marshall

Thank you, Mark.

Our next question's from the line of David Marsh with Singular Research. Please proceed with your question.

Again, thank you for taking the questions. Appreciate it, and congrats on a really great year on to just as we start to look forward into 24 I guess some of my questions kind of echo a little bit some of the questions previously. I mean on particularly in Appalachia, it looks like you guys had some margin compression was that in part or largely due to your production shortfall there and your need to purchase the externally produced?

Both?

Yes, I mean, yes, that's right, David. I mean that there was margin compression in Appalachia, you know, and primarily driven by the items that we talked about with the production issues, particularly in the back half of the year that we experienced within the region.

And so we had a long while it may take you didn't operate second half of the year. So that now is operating. So you're going to see Asco that volume to come back into the market. At MC, we went from four units to three units starting, I believe, in September, October. So we are planning to operate at three units at MC as we do have some new equipment there. So we think that our cost should be rather relatively stable and then 24 there.

But and then, David, you look into 2024 in terms of the compression that you see on the margins on that side of it, that's primarily on the top line driven as we had some higher price contracts that were on that we shipped on in 2023 that that expired and the market environment is a little bit lower as we look at where we're contracted in 2024 related to the Appalachia region.

Right, understood. So just pulling that thread forward on the Apple action on EBITDA expense per ton, we should naturally expect that to decline from the fourth quarter level?

Correct.

And then what would the trajectory be of that? I mean, do you think you can get back down into the into the 40s or is that are we, you know, living in the 50s kind of world in terms of expense per ton there?

I'm glad that's a you're looking at the 50s, not the 40s or the industry is I've experienced inflation like all others, but the so all of our cost is going up somewhat just because of inflation and the value that factor and going from four years to three.
Another factor in Appalachia, 2024 is we're in the process of moving to the new reserves we bought at Tunnel Ridge. And so we do have shorter panels in 2024 compared to historic as well as projected in 25 forward. So we're probably going to have some reduction in volume at Tunnel Ridge that enters into into that mix. But yes, you're looking at probably mid 50s in Appalachia for the year would be the estimate right now somewhere in the middle, which is what we've sort of guided to at the wrong way back to 87, 25?
Yes.

I mean, are we going to I'm just trying to get an understanding of trajectory on it. Will it start? So kind of closer to the Q4 level gradually decline throughout the year?

Or is it going to just is there going to be a pop down and then a flat pattern throughout the right now are in order first quarter appears to looks like it will be in the low low end of the range, if not lower than the range. So we can get the volume out of that TE. that we're anticipating first quarter should be a good quarter. And then when you look at the trajectory beyond 2024 and 25, we should start seeing the benefits of us getting into the new reserves at Tunnel Ridge. So we should see some decline in the 2025 time period, depending on how fast that moves, you mean inversion could take some of that away?

Yes, sure. Absolutely. Absolutely. That's excellent. That's very, very helpful. And then just lastly, from me in terms of.
Yes, as you look at your cash flow and your, you know, your opportunity set with that cash flow, could you just kind of rank in terms of priorities on the expansion CapEx into like the new lines of business that you've been pursuing versus debt reduction and potential increased distribution?

So I think our priority, as Carrie mentioned, will be pay down the debt. We will be paying down the senior notes and 24 million potentially in the first quarter of next year. However, he's also looking it was financing a refinancing for entering into some into some facilities that will give us capacity to grow. Some of them will be funded, but most now hopefully some of it will be unfunded revolver type arrangements. So then yes, as far as growth, we've talked about oil and gas, we'll continue to invest there. We will still have opportunities to invest in in other items. There's nothing on the horizon that if I can give you any specifics on how we would allocate that capital. But we are continuing to look at multiple areas of investment and so we get a capital allocation process that will evaluate investments and future cash flow growth, which we do put as a priority. And then alternatively, we will look at the and whether there are other uses for that capital. I mean, I think that distributions have continued to be high on our priority list. So that's my goal of it and distributions will be consistent, but we got to evaluate the future is on a quarter-by-quarter basis as we talked about. So that will include not only just near the future markets, but just as important the opportunities in front of us to make investments.

Yes.

Thank you very much that. So that's all I have.

Our next question's from the line of Dave storms with Stonegate Capital. Please proceed with your questions.

Joseph Craft

Good morning, late morning.

Morning.

Just a couple of quick ones for me. Curious as to how you're thinking about the labor outlook now that we're kind of through the holidays and maybe labor might start picking up. I know you mentioned that you might be sticking with the three units at McKee. I believe it was but some of these capital improvement projects expected to be completed this year, is that going to require we increased hiring.

So we have seen an improvement in our in our retention and our availability of labor is specifically in Illinois Basin as an example. So we do have the Henderson county mine that we are developing that should become operational and will it is operational as we're ramping, but it should get to that and where we will be increasing staffing at that mine by the end of 2024 during 2024 as that ramps up, we expected that plant and where that mine will be will have more production starting in 25 that we can effectively. What we're doing at Riverview is basically having two portals and said, I want that second portal, it will be at Henderson County. So there will be some hiring there. There still is need of some hiring at our mines just back to normal attrition now, not what we've been experiencing in the last two or three years, but what we would consider to be normal. So I think on a labor front, we're in a better position than we have been historically at MC Mining. We still see challenges. We're currently not anticipating increasing that mine back to four units is possible. But the that's the one area that we're continuing to see challenges of being able to attract sufficient numbers to commit to bringing back that unit. But I think everywhere else we've been encouraged by the recent activity people want to become workforce.

Very helpful.

Thank you. And then just on that on the inventory front, how comfortable you are with your current inventory levels. So I expect it to continue to fund those off.

I know they were impacted by the temporary outage and now that hopefully things are starting to normalize, would you expect your inventory levels, can you track down slightly and I think our goal is to maintain that more than likely just as a working inventory level, given the amount of tons we're putting in the export market, it's right at 1 million tons a month, but it will fluctuate based on timing of vessels because you have the vessels, I'll take.
Yes, it may be here on the 30th. It may be on the second. So there could be 60 to 100,000 tons right there that could put us in a position if we can be a little higher than that, but our goal would be to maintain inventory at right at that million ton a month level right now, I think it's around 12,000,003, something of that nature, but so it's going to be in it swing area, I would say.

Understood.

And then last one for me, kind of on a macro level I thought I saw that LNG. export terminal constructions have been paused in the US. Do you anticipate that if this becomes prolonged pause, federal increased demand for us, international coal as consumers need to switch from LNG to coal or not something that is really have on our radar at this point, the cause is not in construction.

It's on the records on new permits that may be permits at the under currently under regulatory review. But as far as the terminals that are under construction, they're continuing to be completed and the permits that have been issued that are not under construction construction. It's our understanding that those two are allowed to to proceed. So we don't anticipate any interruption and the demand and or supply for LNG until the end of the decade as a result of these permits. So we believe that these permits, these plants that have been permitted will in fact be developed and that the demand for LNG will continue to be strong as for the remaining decade.

That's very helpful. Thank you.

Thank you.

At this time I have this concludes our question-and-answer session. And I hand the call back to Mr. Carey Marshall for closing remarks.

Cary Marshall

Thank you, operator, and to everyone on the call. We appreciate your time this morning and also your continued support and interest in Alliance.
Our next call to discuss our first quarter 2024 financial and operating results is currently expected to occur in April, and we hope everyone will join us again at that time. This concludes our call for the day. Thank you.

Thank you. You may now disconnect your lines at this time, and thank you for your participation.