Wachovia Securities Nantucket Equity Conference June 22, 2006 Exhibit 99.2 * * * * * * |
Forward-Looking Statements This presentation contains forward-looking statements and information that are based on the beliefs of Alliance Resource Partners, L.P. and Alliance Holdings GP, L.P. (the “Partnerships”) and those of their respective general partners (the “General Partners”), as well as assumptions made by and information currently available to them. When used in this presentation, words such as “anticipate,” “project,” “expect,” “plan,” “goal,” “forecast,” “intend,” “could,” “believe,” “may,” and similar expressions and statements regarding the plans and objectives of the Partnerships for future operations, are intended to identify forward-looking statements. Although the Partnerships and their General Partners believe that such expectations reflected in such forward-looking statements are reasonable at the time such statements are made, neither the Partnerships nor the General Partners can give assurances that such expectations will prove to be correct. Such statements are subject to a variety of risks, uncertainties and assumptions. If one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, actual results may vary materially from those the Partnerships anticipated, estimated, projected or expected. The Partnerships have no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. |
Alliance Overview |
Ownership of Alliance Partnerships (a) Includes general partner interest held directly in ARLP’s Intermediate Partnership. __________________ 56.7% L.P. Interest 42.3% L.P. Interest 1.98% General Partner Interest Alliance Holdings GP , L.P. (NASDAQ: AHGP) 59.9 million units outstanding Alliance Resource Partners, L.P. (NASDAQ: ARLP) 36.4 million units outstanding Public Unitholders Public Unitholders Management / Others 1 (a) IDRs 80.0% L.P. Interest 20.0% L.P. Interest Ownership structure provides two ways to invest in Alliance Partnerships Strong alignment of interests throughout the Alliance Partnerships Management owns significant interests directly in AHGP and indirectly in ARLP All unitholders benefit from increased distributions by ARLP |
5 th largest eastern coal producer 549 million tons of reserves at 1/1/06 642 million tons at 4/12/06 following River View acquisition 5.9% 29.4% $2,197 mm $2,067 mm 2.17x $1.84 $35.06 ARLP $22.31 Unit Price (6/12/06): $1,335 mm Equity Market Cap: Ownership Interests in ARLP 1.98% G.P. Interest 100% of Incentive Distribution Rights 15.6 mm ARLP common units Asset Profile: 0.0% Net Debt / Net Book Cap: $1,335 mm Enterprise Value: $0.74 Distribution: AHGP NASDAQ Symbol: 0.0% Net Debt / Ent. Value: 1.00x Total Distribution Coverage: Alliance Partnership Profiles 2 |
3 Increase cash distributions to unitholders by actively assisting ARLP in implementing its business strategy AHGP intends to support ARLP by assisting with the identification, evaluation and pursuit of growth opportunities AHGP may provide ARLP access to AHGP’s capital resources to facilitate such growth opportunities, including: Loans Capital contributions Guarantees Complementary Business Objectives Alliance Holdings GP, L.P. Create sustainable, capital efficient growth in distributable cash flow to maximize growth in distributions to ARLP unitholders Alliance Resource Partners, L.P. |
Strong operational and financial attributes of Alliance Resource Partners, L.P. Established history of operating and financial performance Efficient, low-cost operator Proven track record of executing growth strategy Robust industry fundamentals Meaningful upside through re-contracting exposure to market prices Experienced management team Visible inventory of growth prospects Industry-leading distribution coverage at ARLP provides stability and a catalyst for future growth Accelerated cash flow growth potential of Alliance Holdings GP, L.P. through ownership of ARLP incentive distribution rights Strong economic alignment throughout organization Management owns significant interests in both ARLP and AHGP Alliance Investment Highlights 4 |
Alliance Resource Partners, L.P. Overview |
__________________ ARLP is a diversified producer and marketer of coal to major U.S. utilities and industrial users Fifth largest eastern coal producer and eleventh largest in the U.S. (a) Only publicly-traded master limited partnership involved in the production and marketing of coal At 1/1/06, ARLP had approximately 549.0 million tons of proven and probable coal reserves in the Illinois Basin, Central Appalachia and Northern Appalachia regions On April 12, 2006, ARLP announced the acquisition of River View, adding 99.3 million tons of reserves (a) Source: Platts coal data as of 9/30/05. (b) Includes value of ARLP general partner interest / IDR interest as of June 12, 2006. Net debt as of March 31, 2006. Alliance Resource Partners, L.P. Snapshot Unit Price at 6/12/06: $35.06 Current Annualized Distribution: $1.84 Current Yield: 5.25% Equity Market Value (b) : ~$2,067 mm Enterprise Value (b) : ~$2,197 mm ARLP Trading Information 5 1 2 3 4 Pattiki Complex River View Complex Dotiki Complex Mount Vernon Transfer Terminal 5 6 7 8 Warrior Complex Hopkins Complex Gibson Complex Pontiki Complex 9 10 11 12 MC Mining Complex Tunnel Ridge Complex Penn Ridge Complex Mettiki Complex |
Operations Summary 2005 Production Northern Appalachia 31% Illinois Basin 61% Central Appalachia 8% Reserves - 2005 YE 6 2005 Summary (MM Tons) Production Reserves Primary Customers Illinois Basin Dotiki 4.7 89.5 Seminole; LG&E; TVA Warrior 4.1 17.8 Synfuel Solutions Pattiki 2.6 47.6 TVA; Tampa Electric Hopkins 0.9 64.3 LG&E Gibson (North) 3.4 35.1 PSI Energy Gibson (South) - 82.7 - Region Total 15.7 337.0 Central Appalachia Pontiki 1.7 18.4 ICG MC Mining 1.6 22.8 Various Region Total 3.3 41.2 Northern Appalachia Mettiki / Mettiki WV 3.3 43.6 Virginia Electric Power Tunnel Ridge - 70.5 - Penn Ridge - 56.7 - Region Total 3.3 170.8 Total Company 22.3 549.0 Including River View Reserves (4/12/06) 642.0 Northern Appalachia 15% Illinois Basin 70% Central Appalachia 15% |
Efficient Operator Source: Public filings EBITDA margin represents EBITDA / Total Revenues. EBITDA is a non-GAAP measure. See Slide 22 for a reconciliation of EBITDA to Net Income. ARLP is a low-cost, efficient coal operator, delivering sector-leading EBITDA margins __________________ 7 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% Alliance Foundation Consol Peabody Massey Arch Alpha 2003 2004 2005 |
__________________ Note: EBITDA is a non-GAAP measure defined as income before net interest expense, income taxes and depreciation, depletion and amortization. See Slide 22 for a reconciliation of EBITDA to GAAP. (a) Based on the midpoint of management guidance. Consistent Track Record of Growth at ARLP 18.0 19.2 20.4 22.3 24.4 10.0 15.0 20.0 25.0 2002 2003 2004 2005 2006E Production $499.0 $523.2 $623.5 $799.6 $920.0 $0.0 $200.0 $400.0 $600.0 $800.0 $1,000.0 2002 2003 2004 2005 2006E Revenue $101.3 $110.3 $145.1 $193.6 $250.0 $0.0 $50.0 $100.0 $150.0 $200.0 $250.0 2002 2003 2004 2005 2006E Cash Flow from Operations $102.5 $119.0 $147.9 $230.1 $255.0 $0.0 $50.0 $100.0 $150.0 $200.0 $250.0 $300.0 2002 2003 2004 2005 2006E EBITDA CAGR: 7.9% CAGR: 16.5% CAGR: 25.6% CAGR: 25.3% (a) (a) (a) 8 (a) |
$1.00 $1.00 $1.05 $1.05 $1.05 $1.05 $1.13 $1.25 $1.30 $1.30 $1.50 $1.50 $1.65 $1.65 $1.84 $1.84 $0.75 $0.95 $1.15 $1.35 $1.55 $1.75 $1.95 (a) On 4/24/06, ARLP management announced a quarterly cash distribution to $0.46 per unit for the first quarter ended 3/31/06 ($1.84 per unit, annualized). Continuous Unit Distribution Growth __________________ ARLP has increased its quarterly distribution by 84% over the last four years (a) 9 |
Leader in Distribution Growth ARLP compares favorably to the broad MLP universe in terms of distribution growth since the beginning of 2004 (a) 10 81% 64% 41% 40% 36% 36% 35% 34% 30% 26% 19% 19% 18% 16% 16% 13% 10% 5% 2% 0% __________________ (a) Total distribution growth from distribution paid in the first quarter of 2004 to the latest announced distribution. |
Benefits of Industry-Leading Distribution Coverage ARLP’s coverage ratio is among the highest of publicly traded limited partnerships in the energy sector (a) Benefits to Alliance investors include: Greater potential for future distribution growth Capital efficient financing for ARLP organic growth projects Added stability across operating and pricing environments (a) Source: public filings. Coverage calculated as last twelve months (as of 12/31/05) total cash available for distribution divided by current annualized cash distributions. (b) Coal MLP Index includes NRP and PVR. Coverage calculated as last twelve months (as of 12/31/05) total cash available for distribution divided by current annualized cash distributions. (c) Pipeline MLP Index includes APL, BPL, BWP, XTEX, DPM, EEP, EPD, ETP, HLND, HEP, KMP, MMP, MWE, MMLP, NBP, PPX, PAA, SXL, TCLP, TLP, TPP, WPZ and VLI. Coverage calculated as last twelve months (as of 12/31/05) total cash available for distribution divided by current annualized cash distributions. __________________ 2.17x 1.33x 1.02x ARLP Coal MLP Index Pipeline MLP Index (b) (c) 11 |
-50 0 50 100 150 200 250 300 350 400 1/1/2003 6/29/2003 12/26/2003 6/23/2004 12/19/2004 6/17/2005 12/14/2005 6/12/2006 Indexed Total Return (%) ARLP Coal MLP Index Pipeline MLP Index S&P 500 +253.1% +202.5% +85.8% Total Returns Since 1/1/2003 +40.5% Superior Total Returns to Unitholders (a) Coal MLP Index includes NRP and PVR. (b) Pipeline MLP Index includes APL, BPL, BWP, DPM, XTEX, EEP, EPD, ETP, HLND, HEP, KMP, MMP, MWE, MMLP, NBP, PPX, PAA, RGNC, SXL, TCLP, TLP, TPP, WPZ and VLI. __________________ (a) (b) CAGR: 44.2% 12 |
Alliance Holdings GP, L.P. Overview |
13 Note: This graph shows the impact to AHGP as a result of ARLP raising its quarterly distribution from the current announced distribution of $0.46 per common unit ($1.84 annualized). This information is presented for illustrative purposes only and is not intended to be a prediction of future performance. Assumes constant 36.4 million common units outstanding at ARLP. __________________ Incentive distribution rights provide AHGP unitholders with significant financial leverage to ARLP distribution growth $0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000 $80,000 $1.84 $1.94 $2.04 $2.14 $2.24 $2.34 $2.44 Hypothetical ARLP Annual Distribution per L.P. Unit Hypothetical Distributions to AHGP AHGP Leverage to ARLP Growth G.P. Interest IDRs L.P. Interest Current ARLP Distribution ($45.8 million) |
Note: Assumes constant 36.4 million common units outstanding at ARLP. __________________ Impact of ARLP Distribution Growth 14 AHGP Leverage to ARLP Distribution Growth ARLP Distribution Growth 0% 10% 20% 30% 0% 5% 10% 15% 20% 9.5% 25.5% 17.9% 32.6% |
Value Inherent in Underlying Cash Flows ARLP’s value proposition becomes clear through its current cash available for distribution The impact is even more pronounced at AHGP due to the IDR leverage Implied Distributions Across Coverage Levels (a) Implied Yields (b) Current ARLP Distribution / Unit (a) Source: public filings. Coverage calculated as last twelve months (as of 3/31/06) total cash available for distribution divided by current annualized cash distributions. (b) Yields as of June 12, 2006. (c) Coal MLPs Index includes NRP and PVR. (d) Pipeline MLPs includes APL, BPL, BWP, DPM, XTEX, EEP, EPD, ETP, HLND, HEP, KMP, MMP, MWE, MMLP, NBP, PPX, PAA, RGNC, SXL, TCLP, TLP, TPP, WPZ and VLI. (e) GP Holdcos includes XTXI, EPE, ETE, MGG, NRGP. __________________ (c) (d) 15 (e) $0.74 $0.82 $0.98 $1.18 $1.47 $1.90 $1.84 $1.94 $2.12 $2.36 $2.69 $3.19 $0.50 $1.00 $1.50 $2.00 $2.50 $3.00 $3.50 2.17x 2.00x 1.75x 1.50x 1.25x 1.00x ARLP Coverage Ratio Implied ARLP Distribution Implied AHGP Distribution 9.11% 7.90% 8.53% 4.68% 3.57% 3.32% 7.03% 5.86% 5.25% 7.50% 0.00% 2.00% 4.00% 6.00% 8.00% 10.00% ARLP Coal MLPs Pipeline MLPs AHGP GP Holdcos Distributed Yield Assuming 1.00x Coverage at MLP |
Positioned for Continued Growth |
Growing Domestic Demand for Coal Continued U.S. economic strength Electric power demand near all-time high and expected to grow ~2.0% annually through 2030 (a) Energy Policy Act of 2005 favors coal as fuel of the future New coal-fired power plants total ~174 GW by 2030 (a) Btu conversion – coal to liquids, coal gasification Domestic Coal Supply Constraints Significant barriers to entry (permitting, regulatory compliance, etc.) Higher capital costs and extended mining equipment backlog Skilled labor shortages Ongoing transportation infrastructure issues Low Coal Stockpiles Inventory levels at 4Q’05 15.4% below five-year average (a) Favorable Global Dynamics Continued global expansion (China, India, U.S.) Challenges for Competing Fuels Nuclear utilization at full capacity Non-competitive oil and natural gas prices Continued challenges for LNG Robust Coal Sector Industry Fundamentals 127 118 126 112 113 112 123 106 109 90 100 110 120 130 140 4Q 2003 1Q 2004 2Q 2004 3Q 2004 4Q 2004 1Q 2005 2Q 2005 3Q 2005 4Q 2005 U.S. Coal Inventories (a) __________________ (a) Source: Energy Information Administration. 0 15 30 45 60 1980 1990 2000 2010 2020 2030 Historical and Projected Energy Consumption by Source (a) Petroleum Coal Gas Nuclear Renewable Hydropower 16 |
ARLP Positioned to Benefit from Sector Growth Future revenue growth potential enhanced by meaningful exposure to market pricing $25.77 $28.79 $33.65 $36.01 $38.53 $0.00 $10.00 $20.00 $30.00 $40.00 2003 2004 2005 2006E 2007E Coal Sales / Ton Sold CAGR: 10.6% Coal Sales Volumes Open to Market Pricing (a) Tons of Year Coal (mm) 2006 1.4 2007 10.6 2008 16.7 17 (a) Based on ARLP press releases dated 1/30/2006 and 4/24/2006. __________________ (a) (a) |
Significant Scrubber Market Dynamics Scrubber Additions - Announced Planned Current and pending legislation has caused utilities to add or announce plans to add scrubbers which management expects should lead to additional market opportunities for the Illinois Basin and Northern Appalachian regions As utilities execute their environmental compliance initiatives, a significant amount of coal demand historically supplied from the Central Appalachian region should switch to higher sulfur Illinois Basin and Northern Appalachian coal 18 Source: Company analysis. __________________ |
ARLP Well Positioned in Scrubber Markets Current Position Four mining complexes currently producing in the Illinois Basin and one in Northern Appalachia serving the scrubbed utility markets #2 overall producer in the Illinois Basin Growing presence with announced projects in Northern Appalachia In 2005, 70% of the 22.3 million tons produced serviced the high or medium sulfur markets Approximately 540 million tons of “scrubber” quality coal reserves (high and medium sulfur) Recent Contract Agreements Allegheny Coal Sales Agreement • New 10 year, 20 million ton coal supply agreement commencing with initial production from Penn Ridge mine LG&E Coal Sales Agreement • New 6 year, 23.5 million ton coal supply agreement commencing January 1, 2006 with option to extend VEPCO Coal Sales Agreement • New 7 year, 15.8 million ton coal supply agreement commencing January 1, 2007 Current Mine Developments Elk Creek Mountain View Van Lear New Mine Developments Tunnel Ridge (Permitting in Progress) Penn Ridge (Initiating Permitting Process) Gibson South (Permitting in Progress) River View (Initiating Permitting Process) 19 |
20 Large Inventory of Organic Growth Projects ARLP has a number of significant, near-term development opportunities Tunnel Penn Gibson Development Project: Ridge Ridge South Status: Permitting in progress Initiating permitting process Permitting in progress Expected Development Cost: $200 million $165 million $100 million Anticipated Initial Production: 2008 - 2009 2009 - 2010 2008 - 2009 Estimated Reserves (million tons) : 70 55 83 Coal Quality: High Sulfur High Sulfur Medium Sulfur Estimated Annual Production Capacity (million tons): 6.0 5.0 3.1 River View $110 - $130 million 99 High Sulfur 3.5 2008 - 2009 Initiating permitting process |
Summary |
Strong operational and financial attributes of Alliance Resource Partners, L.P. Established history of operating and financial performance Efficient, low-cost operator Proven track record of executing growth strategy Robust industry fundamentals Meaningful upside through re-contracting exposure to market prices Experienced management team Visible inventory of growth prospects Industry-leading distribution coverage at ARLP provides stability and a catalyst for future growth Accelerated cash flow growth potential of Alliance Holdings GP, L.P. through ownership of ARLP incentive distribution rights Strong economic alignment throughout organization Management owns significant interests in both ARLP and AHGP Alliance Investment Highlights 21 |
Questions and Answers |
ARLP EBITDA Reconciliation EBITDA is defined as income before net interest expense, income taxes and depreciation, depletion and amortization. Management believes EBITDA is a useful indicator of its ability to meet debt service and capital expenditure requirements and uses EBITDA as a measure of operating performance. EBITDA should not be considered as an alternative to net income, income from operations, cash flows from operating activities or any other measure of financial performance presented in accordance with generally accepted accounting principles. EBITDA is not intended to represent cash flow and does not represent the measure of cash available for distribution. The Partnership's method of computing EBITDA may not be the same method used to compute similar measures reported by other companies, or EBITDA may be computed differently by the Partnership in different contexts (i.e. public reporting versus computation under financing agreements). 22 ($ in thousands) Year Ended December 31, 2006E 2002 2003 2004 2005 Midpoint Cash flows provided by operating activities 101,306 $ 110,312 $ 145,055 $ 193,618 $ 250,000 $ Reclamation and mine closing (1,365) (1,341) (1,622) (1,918) (1,800) Coal inventory adjustment to market (48) (687) (488) (573) - Other 1,014 353 (255) (2,057) (1,000) Net effect of changes in operating assets and liabilities (13,714) (8,240) (12,405) 26,577 (5,700) Interest expense 16,360 15,981 14,963 11,816 10,700 Income taxes (1,094) 2,577 2,641 2,682 2,800 EBITDA 102,459 $ 118,955 $ 147,889 $ 230,145 $ 255,000 $ Depreciation, depletion and amortization (52,408) (52,495) (53,664) (55,637) (71,500) Interest expense (16,360) (15,981) (14,963) (11,816) (10,700) Income taxes 1,094 (2,577) (2,641) (2,682) (2,800) Net income 34,785 $ 47,902 $ 76,621 $ 160,010 $ 170,000 $ |
Wachovia Securities Nantucket Equity Conference June 22, 2006 * * * * * * |