RBC Capital Market Second Annual MLP Conference November 17, 2006 Alliance Resource Partners, L.P. Alliance Holdings GP, L.P. 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 state ments 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 |
5th largest eastern coal producer 549 million tons of reserves at 1/1/06 642 million tons at 4/12/06 following River View acquisition 7.9% 32.2% $1,361 mm $1,253 mm 1.99x $2.00 $34.41 ARLP $19.49 Unit Price (11/07/06): $1,167 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 / Book Cap: $1,167 mm Enterprise Value: $0.86 Distribution: AHGP NASDAQ Symbol: 0.0% Net Debt / Enterprise Value: 1.00x Total Unit Coverage: Alliance Partnership Profiles 2 |
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 3 |
Increase cash distributions to unitholders by actively assisting ARLP in implementing its business strategy AHGP supports 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 Complementary Business Objectives Alliance Holdings GP, L.P. 4 Create sustainable, capital efficient growth in distributable cash flow to maximize growth in distributions to ARLP unitholders Maximize existing asset base – expand / extend current operations, continuous focus on productivity improvements Build on strong coal platform – develop new mining complexes, enhance customer / strategic relationships, pursue strategic opportunities Alliance Resource Partners, L.P. |
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 12/31/05 Alliance Resource Partners, L.P. Snapshot Unit Price at 11/07/06: $34.41 Current Annualized Distribution: $2.00 Current Yield: 5.81% Equity Market Value: ~$1,253 mm Enterprise Value: ~$1,361 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 6 |
Operations Summary Northern Appalachia 15% Illinois Basin 70% Central Appalachia 15% 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; TVA Warrior 4.1 17.8 Synfuel Solutions, LG&E Pattiki 2.6 47.6 TVA; Tampa Electric Hopkins 0.9 64.3 LG&E, Tampa Electric Gibson (North) 3.4 35.1 Duke Energy, Alabama Electric Gibson (South) - 82.7 - Region Total 15.7 337.0 Central Appalachia Pontiki 1.7 18.4 ICG, Progress, Ontario Power MC Mining 1.6 22.8 Progress, NRG, East Kentucky 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 Allegheny Energy |
Efficient Operator Source: Public filings EBITDA margin represents EBITDA / Total Revenues. EBITDA is a non-GAAP measure. See reconciliation slide 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 Arch Consol Foundation Peabody Massey Alpha 2003 2004 2005 2006YTD |
Focused on Safety ARLP’s safety performance has been consistently better than our industry peer group State-of-the-art Leaky Feeder mine communication system installed at all operations in 2005 except Pontiki Fiber optic based mine monitoring system expected to be completed at all operations by year end Partnership with Norwest for periodic mine inspections 8 |
18.0 19.2 20.4 22.3 24.1 10.0 15.0 20.0 25.0 2002 2003 2004 2005 2006E __________________ Note: EBITDA is a non-GAAP measure defined as income before net interest expense, income taxes and depreciation, depletion and amortization. See reconciliation slide of EBITDA to Net Income. (a) Based on the midpoint of management guidance. Consistent Track Record of Growth at ARLP Production $499.9 $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 $245.0 $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 $250.0 $0.0 $50.0 $100.0 $150.0 $200.0 $250.0 2002 2003 2004 2005 2006E EBITDA CAGR: 7.6% CAGR: 16.5% CAGR: 25.0% CAGR: 24.7% (a) (a) (a) 9 (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 $2.00 $2.00 $0.75 $0.95 $1.15 $1.35 $1.55 $1.75 $1.95 (a) In October 2006, ARLP management announced a quarterly cash distribution to $0.50 per unit for the second quarter ended 9/30/06 ($2.00 per unit, annualized). Continuous Unit Distribution Growth __________________ ARLP has increased its quarterly distribution by 100% over the last four years (a) 10 |
Leader in Distribution Growth ARLP compares favorably to the broad MLP universe in terms of distribution growth since the beginning of 2004 (a) 11 114% 60% 54% 48% 41% 39% 38% 38% 35% 33% 24% 21% 19% 17% 16% 16% 14% 9% 2% 0% __________________ (a) Total distribution growth from distribution paid in the first quarter of 2004 to the latest announced distribution as of November 9, 2006. |
Alliance Holdings GP, L.P. Overview |
Note: This graph shows the impact to AHGP as a result of ARLP raising or lowering its quarterly distribution from the current announced distribution of $0.50 per common unit ($2.00 annualized). This information is presented for illustrative purposes only and is not intended to be a prediction of future performance. __________________ 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 ($2.00 per unit) 12 |
Note: Assumes constant 36.4 million common units outstanding at ARLP. __________________ Impact of ARLP Distribution Growth 13 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% |
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 AHGP 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 2006E distributable cash flow (per Wall Street equity research) divided by current annualized cash distributions. (b) Coal MLP Index includes NRP and PVR. Coverage calculated as 2006E distributable cash flow (per Wall Street equity research) 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, RGNC, SXL, TCLP, TLP, TPP, WPZ and VLI. Coverage calculated as 2006E distributable cash flow (per Wall Street equity research) divided by current annualized cash distributions. __________________ (b) (c) 14 1.99x 1.32x 1.15x ARLP Coal MLP Index Pipeline MLP Index |
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 Alliance Holdings GP due to the IDR leverage Implied Yields (a) 9.41% 7.41% 10.55% 4.27% 4.54% 6.64% 6.27% 5.76% 5.15% 7.62% 1.50% 3.00% 4.50% 6.00% 7.50% 9.00% 10.50% 12.00% ARLP Coal MLPs Pipeline MLPs AHGP GP Holdcos Distributed Yield Assuming 1.00x Coverage at MLP (a) Yields as of 10/10/06. (b) Coal MLPs Index includes NRP and PVR. (c) 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. (d) GP Holdcos includes AHD, BGH, XTXI, EPE, ETE, HPGP, MGG, NRGP and VEH. __________________ (c) (d) (b) 15 |
Positioned for Continued Growth |
Growing Domestic Coal Demand Strong U.S. economy New coal-fired power plants expected to result in 120 MTPY of additional coal demand by 2010 (a) Btu conversion technologies could more than double U.S. coal demand by 2030 (b) Constrained Domestic Coal Supply Regulatory environment – safety and permitting Increasing capital requirements and operating costs Shortages of equipment and labor Ongoing transportation infrastructure issues Increasing Global Coal Demand Global economic expansion continues to drive escalating demand for energy Global coal demand has increased by 23% or 1 billion tons since 2001 (c) Worldwide coal demand expected to nearly double by 2030 (d) Challenges for Competing Fuels Nuclear utilization at full capacity Non-competitive oil and natural gas prices Continued challenges for LNG Robust Coal Industry Fundamentals __________________ Sources: (a) Energy Information Administration, (b) National Coal Council, (c) BP Statistical Review of World Energy, (d) Department of Energy, Energy Information Administration, International Energy Outlook 16 |
ARLP Has Benefited from Positive Coal Markets 2006YTD average coal sales prices have increased 9.4% since 2005Q3 (a) $25.77 $28.79 $33.65 $36.58 $38.53 $0.00 $10.00 $20.00 $30.00 $40.00 2003 2004 2005 2006YTD 2007E Coal Sales / Ton Sold CAGR: 10.6% 17 (a) See ARLP Press release dated October 26, 2006. (b) Average sales price per ton for the nine months ended September 30, 2006. (c) See ARLP Press release dated January 30, 2006. __________________ (b) (c) |
ARLP Is Positioned for Future Sector Growth Future revenue growth potential enhanced by meaningful exposure to market pricing Coal Sales Volumes Open to Market Pricing 18 15.8 3.4 0.1 0 5 10 15 20 2006 2007 2008 |
Major Supply Shifts Influenced by Clean Air Act Source: MSHA / Platts 19 U.S. Coal Supply (Million Tons) Change % Change 1990 1995 2000 2005 90 - '05 90 - '05 Illinois Basin 141 109 87 92 (49) -35% Northern Appalachia 166 137 140 140 (26) -16% Central Appalachia 287 272 263 232 (55) -19% Powder River Basin 199 286 362 430 231 116% Subtotal 793 804 852 894 101 13% Other 225 228 224 233 8 4% TOTAL 1,018 1,032 1,076 1,127 109 11% |
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 20 Source: Company analysis. __________________ |
ARLP Well Positioned in Scrubber Markets 6 Illinois Basin Second largest producer in the basin Strong reserve base of ~423 million tons of high and medium sulfur coal Currently accounts for ~70% of total ARLP coal production Northern Appalachia Strong reserve base of ~168 million tons of high and medium sulfur coal Currently accounts for ~15% of total ARLP coal production Approximately 590 million tons of “scrubber” quality coal 21 6 |
Tunnel Ridge Permitting in progress Development cost ~ $260 million Estimated reserves ~ 70 million tons high- sulfur coal Production capacity ~ 6 million tons/year Initial production in 2008 – 2009 River View Permitting in progress Development cost ~ $200 million Estimated reserves ~ 99 million tons high- sulfur coal Initial production in 2008 – 2009 Gibson South Permitting in progress Development cost ~ $200 million Estimated reserves ~ 83 million tons high- sulfur coal Initial production in 2008 – 2009 Large Inventory of Organic Growth Projects Estimated development costs based on 2006 dollars. Timing of anticipated initial production dependent upon obtaining required permits and customer contracts ` Penn Ridge Permitting in progress Development cost ~ $200 million Estimated reserves ~ 55 million tons high- sulfur coal Production capacity ~ 6 million tons/year Initial production in 2008 – 2009 22 __________________ |
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 23 |
Appendix |
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). Estimate midpoint reflects the Partnership’s most recent guidance. 24 2006E 2002 2003 2004 2005 Midpoint Cash flows provided by operating activities 101,306 $ 110,312 $ 145,055 $ 193,618 $ 245,000 $ Reclamation and mine closing (1,365) (1,341) (1,622) (1,918) (2,000) Coal inventory adjustment to market (48) (687) (488) (573) - Other 1,014 353 (255) (2,057) (5,200) Net effect of changes in operating assets and liabilities (13,714) (8,240) (12,405) 26,577 400 Interest expense 16,360 15,981 14,963 11,816 9,500 Income taxes (1,094) 2,577 2,641 2,682 2,500 Minority interest income - - - - (200) EBITDA 102,459 $ 118,955 $ 147,889 $ 230,145 $ 250,000 $ Depreciation, depletion and amortization (52,408) (52,495) (53,664) (55,637) (73,200) Interest expense (16,360) (15,981) (14,963) (11,816) (9,500) Income taxes 1,094 (2,577) (2,641) (2,682) (2,500) Minority interest income - - - - 200 Net Income 34,785 $ 47,902 $ 76,621 $ 160,010 $ 165,000 $ Year Ended December 31, |
RBC Capital Market Second Annual MLP Conference November 17, 2006 Alliance Resource Partners, L.P. Alliance Holdings GP, L.P. |