John Bridges CFA, ACSM AC
J.P. Morgan
212-622-6430
Alliance Resource Partners LP (ARLP) reported a strong beat of our and consensus estimates due to better-than-expected sales and higher realized prices in the Northern Appalachia region. ARLP also increased its quarterly distribution to $0.955/unit from $0.9225/unit in the last quarter, in line with our expectation of $0.958/unit. We remain excited about the company's strong yield and growth as it continues to deliver on its plans. We like the White Oak coal deal the company announced in the quarter and believe it will add value to the portfolio in the future …
The growth track record looks secure. ARLP has been growing its tonnage over the last decade, and with the pipeline of new mines under development, that trend looks secure. Tunnel Ridge is expected to ramp up and add four million tons (mt) in 2012, better than our expectation of 3 mt. Gibson South is expected to start production in 2014 and add another 3–3.5 mt. In the similar timeline, new production from White Oak is expected to come and add to the cash flows. We believe the strong cash position of ARLP and cash generation from operations place the company in the sweet spot to look for new growth opportunities.
The company reports that about 90% of its sales go to utilities that already have scrubbers installed. These units should, in our opinion, be less affected by the new EPA emissions rules than utilities that must still take the decision to build scrubbers to comply with the planned new rules. [Note: ARLP comments based on analyst's October 2011 report.]
Paul Forward, CFA
