Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)

Alliance Holdings GP, L.P. (NASDAQ:AHGP)

Q2 2014 Earnings Conference Call

July 28, 2014 10:00 AM ET

Executives

Joseph W. Craft III – Chairman, President and Chief Executive Officer

Brian L. Cantrell – Senior Vice President and Chief Financial Officer

Analysts

James Rollyson – Raymond James

John Bridges – JPMorgan

Mark A. Levin – BB&T Capital Markets

Paul Forward – Stifel, Nicolaus & Company

Operator

Good day, ladies and gentlemen, and welcome to the Second Quarter 2014 Alliance Resource Partners and Alliance Holdings GP Earnings Conference Call. My name is Jackie, and I will be your coordinator for today. At this time, all participants are in a listen-only mode and we will be facilitating a question-and-answer session towards the end of the presentation. (Operator instructions)

I would now like to turn the conference over to Mr. Brian Cantrell, Senior Vice President and Chief Financial Officer. Please proceed, sir.

Brian L. Cantrell

Thank you, Jackie, and welcome, everyone. Earlier this morning, we released 2014 second quarter earnings for both Alliance Resource Partners, or ARLP, and Alliance Holdings GP, or AHGP, and we’ll now discuss these results as well as our outlook for 2014. Following our prepared remarks, we’ll open the call to your questions.

Before beginning, we remind you that some of our remarks may include forward-looking statements that are subject to a variety of risks, uncertainties and assumptions, which are contained in our filings from time-to-time with the Securities and Exchange Commission, and are also reflected in today’s press releases.

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, neither partnership has any obligation to publicly update or revise any forward-looking statement whether as a result of new information, future events or otherwise.

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 the ARLP press release, which has been posted on ARLP’s website and furnished to the SEC on Form 8-K.

Now that we’re through the required preliminaries, I’ll start this morning with the review of the partnerships operating and financial results for the most recent quarter and the first six months of 2014. And then I’ll turn the call over to Joe Craft, our President and Chief Executive Officer.

As noted on our releases this morning, ARLP and AHGP once again delivered strong results, posted new operating and financial records for both 2014 quarter and year-to-date. At AHGP, net income rose 26.8%, record $77.3 million for the 2014 quarter and 19.7% to record $144.8 million for the first half of 2014.

ARLP’s revenues increased 8.1% compared to the 2013 quarter, funding $45 million to a record $598.6 million our revenues climbed to a record $1.14 billion for the first half of 2014, an increase of 3.5% over the comparable period in 2013. Growth in coal sales revenue during the 2014 quarter was led by strong sales performance in the Illinois Basin at our Dotiki, and Gibson North as well as the startup of coal production at our new Gibson South mine.

In Appalachia, higher production at our Tunnel Ridge longwall mine and at MC Mining also contributed a record coal sales volumes of 10.4 million tons, an increase of 5.6%, compared to the 2013 quarter. These increases also contributed to record volumes for the first half of 2014 of tons sold climbed from 19.9 million tons and tons produced increased to 20 million tons.

On the strength of record revenues, ARLP also reported record EBITDA of $213 million for the 2014 quarter, an increase of 19.4%, compared to the 2013 quarter, and $403.5 million for the first six months of 2014, a jump of 14.8% over the first half of last year.

Net income was also higher compared to the 2013 quarter and first half, climbing 32.3% to a record $137.7 million in 2014 quarter and 22.5% to a record $253.6 million to date. The increased longwall production of Tunnel Ridge, along with strong performance of Dotiki and MC Mining drove ARLP’s consolidated production cost per ton lower than the 2014 quarter, as total segment adjusted EBITDA expense per ton declined approximately 4% quarter-over-quarter. Reflecting strong year-to-date operating performance, year-to-date segment adjusted EBITDA expense per ton has also been better than originally anticipated. As a result, we are now estimating 2014 cost per ton will be 1% – 2% lower than in 2013.

Turning to the top line, we continue to expect average coal sales price realization in 2014 will be comparable for last year. Based on our current expectations we now anticipate ARLP’s results for the second half of 2014 should be comparable to our performance year-to-date.

I’ll wrap up my comments this morning with the quick look at the balance sheet ARLP’s liquidity at the end of the 2014 quarter remains strong at approximately $544 million and our leverage is a very compatible 1.06 times total debt to trailing 12 months EBITDA. We continue to believe that ARLP’s solid balance sheet and cash flow leave us well positioned to execute our current plans and take advantage of additional opportunities that may arise.

With that let me turn the call over to Joe for his take on the second quarter performance and our perspectives on the coal market. Joe?

Joseph W. Craft III

Thank you, Brian. And good morning everyone. As Brian just reviewed both ARLP and AHGP added to their history of delivering exceptional results, but posting new operating and financial benchmarks for the 2014 quarter in the first half of 2014. Once again ARLP’s teams have demonstrated their ability to effectively execute our close strategy and deliver long-term value to ARLP and AHGP unit holders despite of challenging environment for the coal industry.

Operationally performance at Tunnel Ridge continues to improve as production was again higher both quarter-over-quarter and sequentially. The mine remains on track to produce approximately 6 million tons this year and increase of approximately 2.3 million tons over last year. We are experiencing better than anticipated mining conditions at our new Gibson South mine and we now expect to produce approximately 880,000 tons from that mine this year.

Working closely with our customers and transportation service providers, our marketing and operating teams did a tremendous job of bringing ARLP’s year-to-date coal shipments back on schedule. Driving coal inventories down significantly and substantially overcoming the weather related delays that impacted the first quarter of this year. Their efforts contributed to record sales volumes revenues EBITDA and net income at ARLP and record net income at AHGP.

During the 2014 quarter our marketing team also continued to build on ARLP already solid contract position. Securing new coal sales agreements for the delivery of approximately 8.1 million tons to 2017. These agreements bring our total new coal sales commitments to approximately 15.9 million tons since the beginning of the year. ARLP is essentially sold out in 2014 and as commitments for approximately 70% to 80% of anticipated sales volumes in 2015.

Turning for a moment to the current state of U.S. thermal coal markets conditions to this year have generally improved, they remain challenging due to cooler temperatures experienced so far this summer. Year-to-date U.S. power generation has increased 2.5% over 2013 with coal generation up roughly 6% accounting for approximately 41% of the domestic generation mix during this period.

On the supply side utility stockpiles have declined as coal production remains muted with year-to-year production down slightly compared to 2013. Over the near term, we continue to believe that the U.S. supply demand fundamentals point to improve coal markets, the competition from natural gas and a week outlook for exports could dampen the potential for meaningful price recovery through the end of 2014.

Longer-term, we expect coal to remain a significant provider of base load electricity in the United States despite EPA’s efforts to reduce domestic demand. The industry fundamentals have been challenging for sometime now and will continue to be served due to the regulatory, uncertainty surrounding the recently proposed green house gas regulations the ARLP has proven it can succeed, now withstanding these challenges as we are on track to achieve our 2014 consecutive year of record results for this year.

With the proven track record as reliable low cost producer able to meet the needs of our customers with the diversity of operations co-qualities, hand transportation options, we believe, we can continue our record setting performance in the future as a Gibson South, and wild mines reach their full potential.

Reflecting ARLP’s strong year-to-date performance and our confidence in the future, the Alliances Board’s elected to increase distributions to our unit holders for the 25th consecutive quarter. Cash distributions for the 2014 quarter where increased over the sequential quarter by 2.25% at ARLP and by 2.7% at AHGP, compared to the 2013 we announced distributions represented at 8.5% increase for ARLP and a 10.8% increase for AHGP.

Going forward, we currently anticipate quarterly distribution growth at ARLP of approximately $0.05 annualized and approximately $0.09 to $0.10 annualized at AHGP. This concludes our prepared comments; we appreciate your continued support and interest in both ARLP and AHGP.

So with Jackie’s assistance, we’ll now open the call to your questions.

Question-and-Answer Session

Operator

(Operator Instructions) and your first question comes from the line of James Rollyson with Raymond James. Please proceed.

James Rollyson – Raymond James

Good morning, guys and congratulations on continued outstanding performance.

Joseph W. Craft III

Thank you, Jim.

Brian L. Cantrell

Thank you.

James Rollyson – Raymond James

Joe, maybe a little color on your customer attitude, you guys have been able to put away, pretty good amount of coal, so far this year and obviously, you had a nice strong start on the gas side of things with the cold winter but as things have been cool this summer and gas has drifted back some for, maybe a little color on what conversions are like with customers in terms of talking about, looking coal out in 2015, 2016 and beyond are they, have they been as wishy-washy, as gas price have been?

Joseph W. Craft III

I would say that, but as a result of the cold weather we did see an increase in activity and a movement to sort of go back a little more longer term focus and has a I think we talked about in our last call, they started the year wanting to have lesser their current year production, or excuse me consumption under contracts and more booking their, there is no set about an 80% of needs basis. They want to get cut short in the winter; several utilities decided they might want to moderate that back to something similar to what they had in the past. And so we were successful with some of those utilities to get two to three-year contracts in some cases.

Now as you mentioned as the weather’s become little cooler and gas prices had dropped I think that the utilities are trying to decide what is the proper mix between going ahead and committing and going longer term.

I think specifically to us we are experiencing most of our customers wanting to go ahead and lockup some tonnage for us at least on a one to two-year basis as opposed to trying to be what quarter-to-quarter. We feel like that we are definitely going to be in their portfolio and its to both parties advantage to go ahead and make those commitments, so that planning can be efficient and that they assured on ability to have us as one of their suppliers.

So it continues to be a question that the utilities are focused on, but I think as it relates to us. We’ll still continue to have the ability to sign contracts that will be in the one, two to three-year range that allowed us to continue to layer out our revenues on a consistent basis similar to what we have been able to do in the past, even though it might be one-year shorter than what it’s been in the past, it still more with long-term focus in our stability in that.

James Rollyson – Raymond James

Great. Thanks for that color, Joe, appreciate that. Are we still on track for White Oak to start up somewhere around October?

Joseph W. Craft III

Yes, we still believe that there will be starting in the October one timeframe, again plus or minus a month. So they are working hard to try to hit that October date.

James Rollyson – Raymond James

Excellent. And last one Brian, when you mentioned guidance just kind of basically saying second half of the year is probably going to looking off like, lot like the first half of the year, but in my math that implies total full-year EBITDA somewhere maybe north of 800 million bucks. Am I hearing that right just in relation to the original guidance of the year which of course you are competing was 660 to 760?

Brian L. Cantrell

Yes, I mean obviously we didn’t change our guidance ranges, but we are pretty comfortable that the second half of the year will also be strong, if you are looking at it on a quarter-to-quarter basis third quarter will directionally be similar to what we saw in the first quarter and second quarter, I’m sorry fourth quarter will be more similar to what we saw in the second quarter. Remember as we are going into the balance of the year did have a one off with regard to the insurance settlement on the Onton that last year that won’t be duplicated in the second half. And then the second half of the year also tends to be burdened a bit more with modification, holiday’s et cetera. So that’s what we are.

James Rollyson – Raymond James

Perfect, appreciated. Thanks guys.

Joseph W. Craft III

Thanks Jim.

Operator

And your next question comes from the line of John Bridges with JPMorgan. Please proceed, sir.

John Bridges – JPMorgan

Good morning, Joe, Brian, everybody. I just wanted to dig a bit more into the White Oak outlook, what sort of things should we expect in your accounts in the second half to come from there, we got royalties and the development costs coming through, what sort of numbers should we expect to see?

Brian L. Cantrell

Yes, I think this quarter we saw roughly $4.6 million hit the other revenues line from throughput royalties until the longwall starts that run rates as were in development production is probably going to be fairly similar. On the equity loss flow through I think we’ve maintained our belief it will be a roughly $32.5 million for the full-year, that really hasn’t changed. So probably until the longwall starts and it hit that right on production is going to be fairly similar for the balance of this year, as we’ve seen so far this year. You really begin seen a ramp up in cash flows and operating revenues as longwall production starts and as our investments are completed.

John Bridges – JPMorgan

And some of the results from this quarter came through with the improved volumes were offsetting some of the margin pressure. How long should we expect that to carry on, what sort of growth you are looking for the next couple of years?

Brian L. Cantrell

I think as we look at growth over the next two years, in 2015 we’ll see the benefit of the given tonnage coming through. So we believe that will provide continued growth into 2015. As we look at our margins, we believe our revenues currently we’re forecasting those to be comparable to what we see in 2014 and our cost would be up slightly in 2015, just reflecting inflationary type pressure. In 2016, we should see the cash flows really escalating at White Oak.

So we see growth from White Oak delivering in numbers as far as cash flow. I think their tonnage again are not reflective in our number since, accounting reflects White Oak as an investment, but from a cash flow standpoint we’ll continue to see growth in 2016 additive to what we have in 2015. As we look at cost and revenues going out that far it’s was it more uncertain however based on our market reed. We believe again we can maintain margins with maybe some slight inflationary pressure on cost, but we are confident that our record over the past 14 years we can continue to build on that. So my commitment in our goal is to have another record year in 2015 and another one in 2016, let’s keep ongoing. I like it.

John Bridges – JPMorgan

We like it too, could you talk a little bit about what sort of cost pressure you are seeing and how are you controlling them. I know it’s a big topic particularly to some of the Alliance customer?

Joseph W. Craft III

I think from our perspective, it all comes back to productivity, and our cost because of our scale and the maturity of our minds is really predictable as long as the geology is consistent and predictable. So our challenge usually comes on the cost side when we face some geologic conditions that we didn’t anticipate. So we had put a significant amount of time and interest into drilling and mine planning, so that we can put ourselves in a position to have consistent productivity as best as possible in the coal business. So that’s our biggest pressure point on the cost side, it is – in this environment, that we’re dealing with today.

John Bridges – JPMorgan

Okay, great. Thanks again, Joe, Brian. Well done.

Joseph W. Craft III

Thanks, John.

Operator

And your next question comes from the line of Mark Levin with BB&T Capital Markets. Please proceed.

Joseph W. Craft III

Mark?

Operator

Mr. Levin, would you please check your mute feature?

Mark A. Levin – BB&T Capital Markets

Okay, sorry about that. I think I’m on.

Joseph W. Craft III

All right.

Mark A. Levin – BB&T Capital Markets

Congratulations again, on a very, very strong quarter. I wonder you shift a little bit of pricing. Maybe if you can give us some market color about where Illinois Basin prices are today, as you contract them versus maybe where they were before the winter started and just general direction from a pricing perspective?

Joseph W. Craft III

We’ve seen the Illinois Basin pricing go – be a little stronger as the year has progressed, on average say it’s fair to say that towards the end of last year, we are at a low point or during 2013, we’re in a low point. So as we move into 2014 pricing has become stronger. At the same time, it’s far from being robust. So but it does allow us to with the current contracts combined with the strength of our existing contracts, that’s what allows us to maintain our revenue on a year-over-year basis to be comparable, when you look at a consolidated.

The benefits that we have are the increase of our production coming from Tunnel Ridge and coming from our Gibson mines, those are two quality products that do command a premium to what you would see in the Illinois Basin. So when you think in terms of looking at Illinois Basin market and how we’re participating in that, you need to bear in mind that a lot of our growth there is in a product because of its lower sulfur content does in fact attract a premium in the marketplace.

Likewise, the Tunnel Ridge, because of its transportation advantage in high BTU, can bring an attractive price relative to today prices as well which is in fact higher in Illinois Basin again do the transportation in BTU components.

Mark A. Levin – BB&T Capital Markets

Yes. And Joe, that’s a good sort of lead in. When you think about visibility – pricing in 2015 and 2016, but when you think about like what revenue per ton, I think you mentioned in your 70% to 80% contract in 2015, which probably gives you some pretty good, pretty good visibility, feel comfortable with revenue per ton being up as a whole across the whole portfolio, up in 2015 over 2014, or is it looking more flattish?

Joseph W. Craft III

I’d say it’s flat up, I mean we’ve got ranges on where we think the markets would be. So if you look at those ranges it would probably straddle in 2014. So I’d say then – let say it straddle, it could be up slightly, it could be down slightly. But I would sort of model year-over-year price is being flat.

Mark A. Levin – BB&T Capital Markets

Okay, great.

Brian L. Cantrell

It just depends on where are the remaining 20% to 30%, actually in 2013 and how the rest of the year goes, I mean where we have, I mean what the market had anticipated was the natural gas storage being a little light and therefore more gas to coal switching, and I think with the gas prices dropping that may not materialize. But then if we start to have a cold winter and that’s going to make – that’s going to – actually break the situation there to where we could see strengthen coal prices because the gas price volatility, but it’s going to be a pretty much weather dependent and gas price dependent as to how the rest of the year shakes out.

Mark A. Levin – BB&T Capital Markets

When you look out to 2016 which I realize is, Brian you’re half way through 2014 that I guess is not that far away, some concern would be EBIT as some of the older contract was offset, but some of the factors that you had mentioned before that pricing per ton would take a or could potentially take a larger step down in 2016 realizing that long ways away. How would you address someone is concerned about looking out into the future when maybe some of these other contracts had rolled out?

Brian L. Cantrell

We think that in the markets where we are located, that there will be continued – some continued demand increase as more Central App comes offline. We believe that from a supply standpoint, we should be pretty much imbalances not a little, but a little short that with the existing capital that’s been committed. I think the catalysts to watch is whether other people want to bring more tonnage into the market, if that were the case it would put pressure on us being able to sustain these types of revenues. But if the supply is consistent with what has been announced no more I think we’re going to be imbalance and that it will allow for the markets to give us a little bit more price increase that will allows us to maintain that position.

What we’re trying to do on the cost side is look at depending of which markets go where, how can we position ourselves to meet the market demand that put our units in the lowest cost position possible. So we’re going back in steady and our mine plants to determine how we react depending on what the markets are, so that we can continue to maintain the cash flow and generate the record results year in, year out. So…

Mark A. Levin – BB&T Capital Markets

One last question, then I’ll probably – sorry taking up too much time. I mean could you vary at all to about once the export markets and the weakness there in some of the Illinois Basin tons that kind of return, and then, obviously White Oak which is you guys are participating in as a lower cost producer that’s ramping, but in another competitor that has a lot of permitted excess capacity at the moment. I mean do you worry a little bit about what that may need for pricing over the next in a couple of years.

Joseph W. Craft III

We think that that’s been part of the issue as the coal prices haven’t move today. So I think the lack of export shipments and but more importantly the commitments that were made where the traders have brought their tonnage back into the marketplace have had an impact. So I think there is low commitments, those past commitments expired which should happen in the 2015 timeframe and we think that will stabilize the markets instead of put pressure on the market.

So no I don’t worry about it I think that really just create our view. So if the export markets come back then we’ll be in a stronger, even in stronger position. So we’re not counting on our return of the export markets when we, – when I am speaking to you that haven’t stable pricing on our consolidated basis, we are not factoring in, the return of any export tonnage of any significance.

Mark A. Levin – BB&T Capital Markets

Thanks, that’s it. Great, thank you very much.

Joseph W. Craft III

Thanks Mark.

Operator

(Operator Instructions) And your next question comes from the line of Paul Forward with Stifel. Please proceed.

Paul Forward – Stifel, Nicolaus & Company

Good morning.

Joseph W. Craft III

Good morning, Paul.

Paul Forward – Stifel, Nicolaus & Company

Joe, I just wanted to ask just a little clarification on your last sentence in your prepared remarks, you talked about a $0.05 annualized distribution growth, I just wanted to clarify on that, that you’re currently at $62.5 and so year from now of that, goes according to plan you would then be at $67.5 so approximately at 8% growth is that the right way to think that?

Joseph W. Craft III

No, you look – what we are saying. In the past, we’ve sort of set 2% and we sit in a board room and talk about that and we are starting to five digits and the rounding starts to come complicated. So what we are trying to do is target 5% annualize. So if you look at the $62.5

Brian L. Cantrell

5% annualize.

Joseph W. Craft III

5% annualize, I am sorry. So when you look at $62.05 per unit that equates to $2.50 annualized, so if you look at last quarter – 245 annualized so you get expect next quarter would be 255 annualized.

Paul Forward – Stifel, Nicolaus & Company

Okay.

Joseph W. Craft III

That’s, what we are saying. And in the cash flow it goes through, – for the IR as well as, the LP interest in AHGP. We are essentially paying net out one-to-one and it will vary again become as a rounding to where if you look at the AHGP there 348 annualize this quarter, next quarter would be 357 or 358 on quarter-by-quarter how its sort of round though. So does that help you understand?

Paul Forward – Stifel, Nicolaus & Company

Yes. That explain…

Joseph W. Craft III

If you feel roughly 2%, but it’s not precisely 2%.

Paul Forward – Stifel, Nicolaus & Company

Okay.

Joseph W. Craft III

At the quarter.

Paul Forward – Stifel, Nicolaus & Company

And I guess, just as a follow up on that, the coverage is very strong especially with the execution as good as it’s been for the last couple of quarters, I was just wondering if you could discuss, what might allow a stronger distribution growth than that target rate over the next year or so? Would you need a significant confirmation and in a coal market recovery to consider it or Do you think, you’ve got a, do you think you’ve got potential to have further strong execution drive similar results that could allow something greater than that level of distribution growth?

Joseph W. Craft III

I think our caution is just back of the demand for coal. So we got a government that’s trying to reduce demand. We have the view the green house gas regulations will not be implemented in their current form and it will take several years to understand what really the final rules will or will not be, whether why we have them or whether we won’t and what they will be.

So in large part and our hesitancy to jump out there with a higher distribution even though we compared with our distribution coverage ratio, and really try to understand what’s happening to the demand side of our business relative to government regulations. And I think what would impact that year probably elections matter is to what would happen in 2014, is to where the direction of the country is going to go and then obviously that would portend possibly where America is relative to 2016, but what we have seen with the proposed greenhouse gas regulations, we really started to see states that are affected actually starting to pay attention to what these regulations are doing.

Even with the market rule which is the most expensive regulation ever passed in this – nor ever adopted in this country. It seem as they have a lot of the consuming states that are being impacted by that really didn’t appreciate what that was going to mean. They are starting to realize that now, they are starting to realize the impact of what these greenhouse gas regulations may mean to them. If they now have the challenge to try to grab the bill or the regulations that they are going to have to live with to try to meet these standards that EPA has put out.

So in large part as we’ve looked at the future, we assume that they are not going to be successful and we’ve assume that our demand is in fact – even though overall demand is going to be flat that we think that demand in our basins where we operate we’ll have the opportunity to grow a little bit especially with increase capacity utilization to where we can say with confidence that we focus on growing at the pace we have and capturing record years in 2015, 2016, 2017 et cetera.

But what could be real there is government coming in and significantly impacting demand and/or utilities deciding I don’t know what’s going to happen, there is so much uncertainty and I’m going to make some decisions to take economic plants offline similar what PDA did or as planning to date, we’d like to take two units offline, it should not be taken often our view back to economics, but there are pressure to do so for political reasons in my opinion. So that’s the area that we want to watch, so we just don’t want to get ahead of ourselves too far to where – until we have some clarity in that area.

Paul Forward – Stifel, Nicolaus & Company

All right, thanks for the comments there I guess I would just…

Joseph W. Craft III

But I do believe I mean I think that we are focused on continuing at that pace that as we’ve talked about the annualized for ARLP in nine to 10 for AHGP. We think we can do that year in, year out hopefully.

Paul Forward – Stifel, Nicolaus & Company

Well, and I guess, sorry, thinking about the – obviously you’ve got policy, uncertainty and headwinds that you had mentioned that a cool summer comes in, lower natural gas prices come in and threaten some of the outlook for 2015 and I think you talked about exports as well. Is it just a more dynamic market today and would therefore could we expect a more cautious almost like a permanently cautious outlook on what kind of distribution coverage you would expect when you consider how different the market is today compared to where it might have been historically that would argue for keeping a stronger coverage ratio.

Brian L. Cantrell

I don’t know if I would characterize it to keep a stronger one, I mean we’ve been fortunate to have outstanding performance to where it’s sort of a – has resulted in a stronger coverage ratio. So I don’t anticipate we’re going to adjust distributions to higher coverage ratios and what we’ve done historically. But so I think we can still go down to own our coverage ratio and sustain our distributions, unless we start seeing significant impacted demand that we don’t anticipate.

So I think we’re just being cautious until it’s clear I think there will be more volatility back to utilities, not contracting as much in I would like to see and continue to do at least three-year contracts if they would consistently do that, that could change our view on how aggressively we get on distributions, but until we start seeing again I think all this uncertainty is created by regulations and we just need some leadership and some certainty to where we know that when the government says, we’re going to have 30% of our coal, our electricity generated at coal and start to act in that way.

So it gives people certainty, so they can plan around that instead of this constant pressure and now we aren’t building a coal-fired power plant is an example. So I’m not sure if I’m answering your question, but that’s not to be as prudent as we can be with our commitment, and no less than what we’ve had from day one is to grow our production at a 10% year clip and get that market share margins and allow us to continue a record year, year in, year out with stable cash flow.

And we see visibility for that through the next five years, but it’s going to be harder as long as the government keeps putting out policies that sort of raise the bar a little bit for us. And but that doesn’t discourage us from just being laser focused to deliver the results that we’ve all come to enjoy and expect and that goes through every employee in our company.

So we are committed and we believe we can deliver and we really appreciate everybody’s interest in us and your support for us and encouraging us to keep that focus.

Paul Forward – Stifel, Nicolaus & Company

Okay, well I’d like to ask a smaller follow-up question and which is I just wanted to ask about you did a great job during the quarter and pulling your own inventories down I was wondering if you could talk a little bit about the Illinois Basin in particular, are you seeing anything on customer inventories that would be affected by rail transportation issues or some improvement there and combine that with this mild summer. Can you characterize what you are seeing at customer inventories just nearby in the Illinois Basin over the last couple of months.

Joseph W. Craft III

I think that we’ve not been as impacted in the Illinois Basin, as I’d say the Powder River Basin for transportation issues. At the same time, we have definitely lost some demand in 2014, because utilities selected to reduce their coal generation strictly, because of inventory issues. And as we think through the summer, known as summer side still have coal being your base load and gas usually gets to benefit in a real hot summer, because they’re the peakers. So, we don’t think it’s impacted total demand for the year greatly, obviously it’s impacted it somewhat.

So, as we think of demand in the Illinois Basin for 2014 versus 2013. We see that there is probably going to be $5 million to $10 million ton draw on inventory from the beginning of 2014 to the end of 2014. So, that means demand is probably $5 million to $10 million more than supply for the year, is what we are projecting today.

And as we look into 2015, we think that supply will become greater because of couple of longwall’s coming up and one from Foresight and one from White Oak, and as well as our Gibson production. So, we think with that supply it’s going to bring it back and balance even with another $5 million more demand increase in 2015 compared to 2014. So, $5 million to $10 million draw in 2014, in a balance in 2015 is what we are projecting at this moment.

Paul Forward – Stifel, Nicolaus & Company

Great. Thanks a lot, Joe.

Joseph W. Craft III

Okay.

Operator

And, ladies and gentlemen with no further questions. I’d like to turn the call over to Mr. Joe Craft for closing remarks.

Joseph W. Craft III

Thank you. In conclusion, I would like to dedicate this quarter to Robert E. Thomas, who is the Founder of Mapco, Inc., what was a Fortune 500 company, before it’s acquired by the Williams Company in the late 1990s. Today is Bob’s 100th Birthday and Bob’s vision and leadership has started and built Mapco Coal our predecessor, who assets in many of its leaders have formed the foundation for the Alliance Partnerships. I think its safe to say that without Bob Thomas, we would not be here today, talking about the Alliance success story. So, I’d like for you to join me in thanking Bob Thomas for the opportunities, he has given to so many of us. And, join me again in wishing him a very Happy 100th Birthday. We love you, Bob Thomas.

Thank you everybody, we appreciate your time this morning as well as your continued support and interest in both ARLP and AHGP. Our next call is currently scheduled for late October and we look forward to discussing our third quarter 2014 results with you at that time. Thank you.

Operator

Ladies and gentlemen, that concludes today’s conference. Thank you for your participation. You may now disconnect. And have a great day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Alliance Holdings' (AHGP) CEO Joe Craft on Q2 2014 Results - Earnings Call Transcript

Check out Seeking Alpha’s new Earnings Center »

This Transcript
All Transcripts