Q1 2021 Alliance Resource Partners LP Earnings Call
Good day and welcome to the Alliance resource Partners L. P first quarter 2021 and earnings conference call on.
All participants will be in a listen only mode and <unk>.
You need assistance. Please signal a conference specialist by pressing Star then zero. After today's presentation, there will be and opportunity to ask questions to ask a question. You May Press Star then one on a touchtone phone to withdraw your question. Please press Star then two please note. This event is being recorded I would like now to turn the conference over to Brian Cantrell.
Senior VP and Chief Financial Officer. Please go ahead.
Thank you, Matt and welcome everyone.
Earlier. This morning Alliance resource partners released its first quarter 2021 financial and operating results and we will now discuss these results as well as our perspective on market conditions and outlook.
Following our prepared remarks, we'll open the call to 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 that.
And that are contained in our filings from time to time with the Securities and Exchange Commission and are also reflected on this morning's press release.
These forward looking statements are based on the information currently available to us.
And 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.
And providing these remarks the partnership has no obligation to publicly update or revise any forward looking statement.
And whether as a result of new information future events or otherwise unless required by law to do so.
Finally, we'll 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 FTC on form 8-K.
With the required preliminaries out of the way I'll turn the call over to Joe craft, Our chairman President and Chief Executive Officer for his opening comments scope.
Thank you, Brian and good morning, everyone.
We entered 2021 with the expectation that alliance was poised to benefit from improved U S and global economic activity and increased energy demand as vaccines became more available.
The solid financial performance, we posted earlier this morning.
And then Brian will review in more detail on a moment suggest our expectations were well founded.
Coming into the year, we focused on advancing key initiatives across the alliance organization.
Among those initiatives where efforts we mentioned during our last earnings call to maximize the value of our existing assets and to explore new value creating opportunities.
We took the first step to unlock and highlight value embedded in our existing assets with the addition of a new coal royalty segment to separately report royalty income from coal reserves owned by Arlp's land company.
And Lisa to certain of our mining subsidiaries, primarily on the Illinois Basin.
We believe combining coal royalties with oil and gas royalties to form a larger enhanced total royalty is great provide several benefits.
Aggregating the results of all of our royalty activities.
Laos us to better inform arlp's unitholders and Atlas and the cash flow potential of this part of our business to generate long term royalty income.
We have capex requirements with minimal working capital requirements and limited operating costs.
With visibility to the mine plans of our coal operating subsidiaries.
We expect results from our coal royalty segment will be rather predictable adding.
Adding greater certainty and stability to the results of our total royalty activity.
We also expect to realize future cost efficiencies by combining the management of our various royalty activities.
In addition, we believe aggregating the cash flow from these two royalty sources will improve our ability to secure lower cost financing.
To support future growth for these segments.
As we look at other royalty companies and a recent total enterprise value multiples have been and a range of seven to 11 times EBITDA.
Well above Arlp's current three three times multiple.
And the emphasizing the full magnitude of Arlp's royalty activities and as we continue to expand in this area we.
We are hopeful that the market will begin to fully recognize the true value of this part of our business.
As we have managed through the uncertainties and disruptions created by the pandemic over the last year.
LP has been clearly focused on protecting our balance sheet and we continue to make progress on this initiative during the 2021 quarter.
Utilizing free cash flow generated during the quarter and cash on hand.
LP reduced its total debt and finance lease obligations by $52 $9 million and.
And lowered total total leverage to 143 times.
Six 5% improvement from the sequential quarter.
We have also been very clear that once the situation began to stabilize returning cash to our unitholders was among our highest priorities.
On the strength of our recent performance and with our outlook continuing to improve management believes we have reached that point and I am very pleased that the board supported our view by declaring a 10 cent per unit cash distribution.
To unit holders for the 2021 quarter.
And setting and annualized distribution level at approximately 30% of this year's anticipated free cash flow before investments and growth opportunities. This distribution provides ARLP with the flexibility to pursue projects capable of providing long term value for our unit holders, while maintaining a conservative balance sheet.
With our estimated distributable cash flow coverage ratio comfortably above four times for the year. We also believe this distribution is sustainable for the foreseeable future.
I'll now turn the call back to Brian for a more detailed look at our results Brian. Thank you Joe.
This morning, ARLP reported net income for the 2021 quarter of $24 $7 million or <unk> 19 per basic and diluted limited partner unit.
And increase of $169 5 million compared to a net loss of $144 $8 million per the 2020 quarter.
And excluding the impact of $157 million of noncash charges and the 2020 quarter, we more than doubled the adjusted net income of $12 2 million and that prior quarter.
Lower coal shipments contributed to a nine 2% decline and total revenues compared to the 2020 quarter.
Lower revenues, however were largely offset by $37 $8 million reduction on operating expenses as efficiency initiatives at our coal operations continued to drive down costs as.
As a result segment adjusted EBITDA on the 2021 quarter decreased only slightly to $109 8 million compared to $111 $7 million and the 2020 quarter.
While these results were generally in line with our expectations Arlp's performance for the 2021 quarter would have been even better but for weather related transportation disruptions and and unplanned customer plant outage costs and approximately 950000 tons of delayed coal shipments and negatively impacting our cash.
Flow and EBITDA by approximately $13 million.
We currently expect these delayed coal shipments will be delivered to customers over the balance of the year.
Taking a closer look at the performance of Arlp's coal operations. The previously mentioned shipment delays as well as lower price realizations due to the expiration of higher price legacy contracts.
Led coal sales revenue and the 2021 quarter lower compared to both the 2020 and sequential quarters.
On planned shipment delays also impacted total coal inventories, which increased by $1 2 million tons during the 2021 quarter.
Ongoing expense control initiatives at all ARLP operations drove cost per ton lower compared to the 2020 quarter with total segment adjusted EBITDA expense declining 10, 5% to $29 72 per ton and for the 2021 quarter.
Impaired to the sequential quarter total segment adjusted EBITDA expense per ton increased five 2%.
Primarily due to increased subsidence expense and severance taxes at our tunnel Ridge mine and higher costs associated with increased metallurgical coal sales at our and our Peaky mine.
Arlp's royalties segment posted solid results for the 2021 quarter.
Our oil and gas royalty segment benefited from significantly higher commodity prices compared to both the 2020 and sequential quarters.
<unk> Arlp's average price realizations per Boe higher by 21, 6% at 35% respectively.
Although sales volumes continue to reflect the impacts of dramatically reduced drilling and completion activity during much of last year and.
Increased operator activity on our acreage led production for the 'twenty, one 2021 quarter to exceed our expectations.
Strong commodity pricing and greater than anticipated production drove segment adjusted EBITDA for oil and gas royalties to $11 $9 million and increase of 16, 7% compared to the sequential quarter.
For our coal royalty segment increased revenue per royalty pounds sold more than offset lower volumes, leading segment adjusted EBITDA higher to $7 $3 million and increase of five 3% and three 7% compared to the 2020 and sequential quarters respectively.
On a combined basis, our oil and gas royalties and coal royalties contributed $19 $2 million and segment adjusted EBITDA and the 2021 quarter or approximately 17, 5% of Arlp's consolidated total.
I'll close my comments with an update on guidance.
On the strength of Arlp's performance to start the year and an improved outlook for the balance of the year, we are increasing full year guidance for 2021.
With strong coal burn during the polar vortex and February.
Lower utility stockpiles and a favorable natural gas price curve, we expect increased coal buying activity and our domestic markets over the rest of 2021.
Improving international coal market fundamentals should also create additional export sales opportunities this year.
As a result, ARLP is increasing the midpoint of its 2021 coal sales volumes to 31 million tonnes.
I mentioned earlier that production volumes for oil and gas royalties exceeded our expectations during the 2021 quarter.
The current pace of drilling completion and permitting activity on our acreage suggests this trend will continue for the remainder of 2021.
And we are now anticipating full year production near the top end of our initial ranges.
With increased production and continued strength and commodity pricing. We now anticipate the 2021 EBITDA contribution from our oil and gas royalty segment will be 20% to 25% above 2020 levels.
I will also note that we've increased the range for total segment adjusted EBITDA expense for our coal operations by approximately $1 per ton.
This increase reflects the cost of intercompany coal royalties at our coal operating segments that are now reported separately and our coal royalty segment.
With that I'll turn the call back to Joe for some final comments, Joe and thank you Brian.
As we look to the future ARLP is committed to creating long term value for our unitholders and.
And I want to clearly state and we intend to achieve that goal.
First ARLP remains committed to thermal coal.
And I'll headlines and rhetoric may suggest otherwise recent challenges and disruptions experienced in Texas, and California emphasized the importance of coal to maintaining and efficient reliable and resilient power grid.
The common sense reality is that until science and innovation and allow for a transition away from coal and other fossil fuels coal remains and are central to the wellbeing and economic success of our country.
Until that transition occurs ARLP to intends to be there with our low cost operations proudly supporting the economic vitality standard of living and quality of life that the communities, we serve desire and deserve.
Secondly, we recognize and embrace the ongoing transition towards new energy and power technologies as.
As I mentioned due on our last earnings call we.
We intend to participate in and transition.
And are focused on evaluating and pursuing opportunities to do so.
And as these opportunities continue to develop we plan to utilize the talent and entrepreneurial spirit of our people opt.
And optimize the cash flow and value of our existing assets and leverage arlp's financial strength to pursue activities that we believe have the potential to generate attractive returns with sustainable long term growth and cash flows.
And as we've always done and we intend to execute on our plans and a disciplined manner.
Capital allocation priorities will be balanced and focused.
Designed to return cash to unitholders, while providing ARLP with the flexibility to simultaneously pursue strategic strategic opportunities and protect our balance sheet and maintain access to capital.
And while challenges exist, we are optimistic and excited about the future for alliance as.
As we continue to define our future ARLP remains focused on delivering strong performance and generating attractive long term total returns for all our stakeholders.
That concludes our prepared comments and I'll now ask the operator to open the call for questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys and fed.
And any time your question has been addressed and you would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Our first question will come from Nathan Martin with Seaport Global. Please go ahead.
Hey, good morning, guys. Thanks for taking my questions more on a day.
And I guess first it looks like you price and additional 2 million tons and domestic market and about 400000 and the export market since last quarter can you guys give us and sense of where those incremental tons mayor price.
And we've all.
All of that pricing has been embedded in our and our ranges.
We gave.
And our guidance this quarter, which we did not change from the last quarter.
So we're right on target and with what our expectations are for the year.
Okay, and Directionally, Joe and any comments there and like you said I saw you maintained your full year 40 to $42 guidance.
I hesitate to discuss that we're right in the middle of some price negotiations.
Referred to.
That comment on a more specific basis and if you understood.
Fair enough totally understand.
And maybe then on that.
On the roughly 5 million tons, you guys have left to commit and price kind of to get to.
The midpoint of your guidance can you give us an idea on the breakdown between.
Between domestic and export expectations for those tons.
We've got about.
Anywhere from 500 to 800000, we've got and our plan is debt.
We provided these numbers there is right.
500000 tons and the forecast.
So that would show you the split between domestic and export that were targeting.
However, we believe that we could sell anywhere from another million day $1 million five times and the export market.
And that pricing.
It would be more attractive and some of the domestic opportunity. So we're trying to evaluate that as the year goes on as to.
We're better to place those tons, and the export market or or place them and the domestic market.
Our.
Pretty confident as we.
Look at on our open position and the opportunities that will be presented in 2021.
That will have plenty of opportunities to place that tonnage.
We're not currently anticipating increasing volumes.
Beyond what we've given guidance Steve.
And this quarter's.
A press release.
Got it thanks for that color and then.
And you guys made some comments on this and your prepared remarks, but you did build about 1 million tons of inventory I think the one H and the quarter, Brian and I believe you said, maybe thats kind of ratable throughout the rest of the year.
Can you give us moving or more.
And more specific idea about kind of what you guys see for shipment cadence Q2 or Q4.
Yeah, well part of the inventory build and the first quarter is obviously just due to some seasonality.
And not unusual to see.
On.
And just to clarify too.
I don't believe I said, it's Ratably, we just do expect that those tons will be delivered over the balance of the year I believe we have by way of example.
220 million tons, plus or minus and transit.
Scheduled for export.
I recall correctly those tons were actually delivered and monetized.
Very early in April.
I think in terms of overall cadence going forward.
And normal seasonality that you see mid year around miners' vacation and and the fourth quarter.
Due to the year.
Year on holiday schedules for Thanksgiving Christmas et cetera.
B fairly typical with what we've done historically I believe and gets to that 1000.
On the quarter standard.
And at $200 million I'm sorry.
100 million times.
Sure.
Thank you for correcting that.
Yes, so we had interruptions by weather and.
And we also had interruptions by.
Transportation sources, just not being able to fill out their crews.
So.
We would hope and we'll leave some of that will roll right into the second quarter or so.
Okay.
And that was actually going to be one and my other questions Joe.
You touched on on <unk>.
<unk> and infrastructure kind of side of things.
How is that looking today versus obviously a couple of months ago during the polar vortex and maybe from both of our rail and barge standpoint.
Barge I think we're seeing.
With the waters.
Receding.
Becoming a little bit more.
And focus.
On the rail side, it's continuing to be on.
The item that we're having to have discussions.
So that we do in.
And in fact, as we believe that the volumes will be consistent going forward we've got.
Be ready for it.
And to delivering that coal when the customer needs it and.
And when we wanted to deliver it so we're having conversations.
They've been constructive.
We're hopeful people.
Sorry to go back to work.
I think we've got a challenge right now.
Throughout everywhere, we see and state of Kentucky as an example, there was 100000 jobs that the Kentucky Chamber just posted that are open and that we're finding people not wanting to come back to work.
So this is a real challenge when we want to take care of.
People that are on and unfortunately, not having a job, but when we give the benefits that are so.
Generous.
That they don't want to come back to work it really creates a problem and.
Not sure how that's going to shake out but.
Labor is tight and.
Across the board, whether it's service industries are railroads or collaborators and aluminum operators labor is tight and.
It's great to talk about jobs plan that.
It seems like we get job opportunities and we need it workers to step up and go back to work.
Got it thank.
Thank you guys for your for your answers and I wish you best of luck.
Sure.
Thank you.
Again, if you have a question. Please press Star then one our next question will come from Alan <unk>, a private investor. Please go ahead.
Good morning, great quarter.
I had a question about your relationship.
And your royalty revenue per barrel.
And relationship to West, Texas intermediate crude pricing.
And I mean, it's up to around $57 today and thank you.
You were averaging in the high priorities for Q1.
And I wondered is there a one to one relationship or something less.
Do you look at that.
Yes, thanks al on and it's definitely not a one to one relationship when we are.
Disclosing our volumes were doing that on a barrel of oil equivalent.
And so that takes into.
Account natural gas I believe thats typically converted on a six to one basis for.
Moving from <unk> to barrel of oil.
And it also includes.
Our oil liquids volume stream.
Which again is not correlated to the price of oil and so when you look at our volumes.
Embedded within the operating results and analysis table on our press release, we show that about for this past quarter, a little over 48% of our beer volumes were specifically oil.
And on our price per BOE again includes all three revenue streams and not just the oil stream.
Got it and when you look at <unk>.
And oil stream it was reflecting the WTO and later in the month of March and it does correlate and <unk>.
Actually when you look at our average sales per Boe.
This quarter I believe that's a record for us.
Since we've been and the oil and gas space.
So with the strength and natural gas prices and and I guess Ngls.
That should be.
And nice upward trend for you.
Yes.
The forward curve on all three of those products is <unk>.
Currently favorable.
And expectations are today that they will remain that way through the balance of this year and just as importantly.
The volumes that we're seeing.
Definitely exceeded our expectations by about 10% or so and the first quarter relative to what we thought would occur.
So that improved pricing for those products is encouraging operator activity.
And the basins that we are participating in so we're.
And the middle of a updated reserve report for our oil and gas activities, hopefully, we'll be able to incorporate.
Debt adjusted volume stream as well as.
The forward curve and give some more details during our next earnings discussion.
And one other question really to one other question about.
The possible acquisition of unrelated coal royalties.
Is that and your and your plans.
We are looking at different ways that we could utilize our talent and.
And the land royalty business.
So that could be two other minerals debt.
We will participate at a greater level.
And with battery technology et cetera, it could be some other land related.
And investments.
Turbines so were facilities. So yes, we are.
We are looking at that segment to think in terms of deploying capital that would provide long term stable.
Royalty cash flow.
And noticed this is this is kind of slightly office subject, but some other big dry and natural gas companies have so.
Overriding royalty interests.
As a form of financing.
And I wondered if those.
Could happen and the coal industry as well.
And on the coal side Sn.
Essentially.
It's not.
And when they are selling that for.
Our financing they are sound and people like us.
So we could buy overriding royalties and and that's essentially some of what we're doing on the coal side if you.
On the mineral side, we havent participated as much and override royalties, we could and we've looked at that.
And the coal side, we have bought properties that we own fee, but we had to also buy leases and.
And that's one reason when you look at our guidance for our cost on royalties were.
And it shows.
And on a release.
Yes.
Royalty revenues $2 45 to $2 55, or expanse is 95 to $1 five.
And at roughly a dollar or third party leases that we have to pay to other people that own the fee property some of the coal leases.
Beyond these ourselves so there's a blend of some override that we're charging back too.
Plus or so.
There is opportunity for.
Financing coal acquisitions, and providing capacity to other collaborators.
And it would be low cost reserves and we.
Would be interested and looking at that that's not really where our primary interest is.
Primary interest is looking at.
Areas it would be.
Either and the oil and gas sector or and non fossil fuels that would participate and the transition.
And this new transition to a new energy.
Vision.
Being discussed.
Political circles today.
Okay.
And then finally I was curious about the details of your recent bond offering.
Look I didn't see them and your release.
Yeah.
On the bonds were issued a number of years ago mature in may of 'twenty five.
Currently they are trading.
About 93, and a half I think is the last trade offs.
Which is roughly a nine 5% yield compared to the pace of seven 5%.
Oh, I thought you had refinanced debt.
You may be you may be thinking about our revolving credit facilities with our commercial banks.
Did that.
A year ago and March and it debt matures in March of 2024.
Got you.
Well, thanks again, great quarter I appreciate it. Thank you appreciate it al and thank you.
Our next question will come from Lucas pipes with B Riley. Please go ahead.
Hey, good morning, everybody.
Martin and Luca.
And Joe and Brian You mentioned, the royalty business and your prepared remarks, specifically the value are between where alliance trading today, and where you see our comps for the royalty business trade.
And.
And now you're also shifting.
Royalty and coal royalty profits into into that segment further furthering increasing its relative size and so so I wonder whats the end game to close this or.
Is it.
Separating these businesses completely.
On a public listing for example would really appreciate your thoughts on that thank you.
And right now and Lucas, we're trying to make sure people understand our cash flows and.
And when you think of that are.
We don't see any difference between a coal royalty and and oil and gas royalty.
And the sense that they are both stable cash flows from production.
With limited capital limited operating expense limited working capital and we've got management teams that book.
Basically you're managing land, whether it's oil and gas or coal is similar so as we think about trying to manage those together to to bring some efficiencies.
We felt it was yeah.
Reasonable to say.
Let's bring these cash flows that are very predictable on the coal side that we know from our mine plans at <unk>.
And then be mining for the next 10 years plus debt.
That should be provided to this segment to provide the ability that when we go try to finance oil and gas acquisitions in particular.
We may be able to get a lower cost of financing and we would be if we try to do it as a coal company.
So, it's really driven more by our financing needs and thinking on ways, we can finance our growth of our company.
ESG has discriminated against a well run coal company like ours.
If you took the name of coal off of our company.
We would be able to borrow and the low single digits.
Cause where a coal company people wanted charges double digits.
Just because.
And ESG stigma or whatever that they want to call it but and I mean.
We're being discriminated against and we need to bind.
A way to address that issue, but and their interim and I think one way to provide.
<unk> did get low cost financing is to show stable cash flow to potential lenders.
And that would allow for us growing that segment without.
And having to borrow it.
Rates at.
Our non justifiable.
So I think.
That's part strategy as far as trying to grow it we do want to grow it but we're trying to grow it.
Primarily to grow the strength of alliance.
And transition, we think that transition should be 15 to 20 years, not add or not nine to 15.
And the follow up.
What and the world and the utility industry really do practically speaking.
Most utility executives talk in terms of 2050, not 2030% and 2035 and.
And 2030 to 2035 is just not practical.
Yes.
The administration is not telling the truth, they're misleading the American people and investors to believe that week and transition that fast.
Now, having said that we've got to deal with reality they might do it anyway.
And so we've got to think in terms of how do we take the cash flow we have today redeploy it so that by 2000 32035, we've got as much cash flow generated and the future as we have today and hopefully even more.
And so we've got to grow where.
The market is going to be so I think minerals can be a large part of that yes.
There is some effort as well on the transportation sector to reduce the demand.
And that everything I read believes that.
These best case, most optimistic case may penetrate 50% and the market.
And I think thats.
And a very aggressive target.
So we believe that investing and oil and gas deal will provide for good long term returns for.
Three decades, and so we're not.
And still feeling that that's an area, where we can make investments that can be very attractive.
Debt.
We got a solid base that we can invest around.
So where we can generate long term investments and returns for growth.
Shareholders.
So we really appreciate all that color is super helpful.
You touched on this just now, but but the balance sheet and when I think about and EV to EBITDA and the rates.
One could make.
Any dollar that you allocate towards.
Debt reduction.
Quick creates value for shareholders and <unk>.
My opinion.
Let's now get into it, but but anyway. So.
Brian is there and arguably to be made to be running this business with no leverage at all and thank you.
I mean, certainly you could.
And theories suggest that I don't think it makes rational zone.
Running our business as we have traditionally.
And the one times level.
To be.
Conservative and.
And achievable.
I think current enterprise value multiples.
To your point I believe Lucas do reflect.
Concerns about ability to refinance.
We do have strong relationships with our banks, we recently participated in a.
High yield conference a few months ago.
<unk> had.
Very good discussions with a variety of different investors.
And while there certainly are some who have four.
Virtual investing purposes put.
On a red line around.
Thermal coal.
There remains a very.
Why deep pool of capital that continues to be available to thermal coal.
Sales point.
On cost is above where we think that should be.
But we are continuing to.
Wait those markets strengthen the relationships that we have and.
And look at opportunities to pursue pools of capital that we haven't necessarily done so in the past.
I think driving our leverage.
Year, one to one as we have done historically remains an objective.
But to completely de lever.
It makes it pretty difficult to grow the company and I think we are absolutely focused on growth.
We're able to achieve that.
Cash flows will take care of themselves and the ability to.
Our return value to the unitholders and.
And our creditors will be cleared.
Let me add to that Lucas.
And I think your question was centered around being a coal company.
And I think the message.
We.
Started with last quarter and we're trying to.
Continue to talk through.
But this is an evolving.
Evaluation every.
And so fuel company, that's publicly traded company debt.
Pay attention to have transition teams trying to think through.
What is the definition of this transition and how can we participate and the transition.
This energy.
Business model to the next one.
So we are in the energy business.
Her name is alliance resource partners not alliance coal, particularly.
And it was set up that we'll see and the middle 90 days, because we wanted to be and investor and energy because we believe people love to have their lights on and.
And we saw that in Texas and speeds.
Two weeks.
Disruption.
The electric generation.
Created shortage worldwide and plastics is still a contributing factor to the shortage and chips.
But he is talking about so people need to understand the scale.
The U S energy.
Generation and this country and what it means to the world economy.
And we've got relationships, we've been and this business from day, one going way back to the sixties.
Predated me.
We've been and this business and.
We are and the energy business and we've got relationships with our customers and our utility customers that if they want and transition to something else. There is no reason why we can't help be a supplier to them and whatever choice. They make theres going to be a lot of capital Youre reading about it with this.
The the buying infrastructure plan and two trillion dollar and Theyre talking hundreds of billions of dollars.
And that they want a channel back into.
And the electric grid and and the transportation sector.
And specifics there is $18 billion plus $4 billion that Senator Manchin has earmarks, so theres $22 billion and.
Federal money, that's going to come to areas affected by their policy.
And the coal communities.
Specifically.
And who's going to invest $18 billion of federal money or take advantage of tax credits.
It's not people that are already there.
So im hopeful and conversations with the banks that they will start looking at how am I going to participate and this transition am I going to lend money to the solar industry. The wind industry. The transmission industry. The EV industry are they going to lend money to new technologies and <unk>.
They are.
Can we participate and that and they can can they look at that and a different vein and just looking at it.
Does just.
The solid cash flow that we're going to have from coal for the next 15 years.
It's just unfortunate that we get we get labeled because when the coal company that people can't look beyond just that definition and cat and look at the strength of our cash flow and.
And as a low cost producer two and essential fuel theres going to be needed over the next three quarters or three decades.
Now.
So we're targeting areas and areas, where we live where we have skilled people, where we have relationships with the state governments with the federal governments with utilities to say, we can be your partner.
And.
And the skills that are very transferable to what we do and and that's our target we can't do it overnight, but we recognize that.
And that we've been discriminated against and lending practices and Unfortunately, that's one reason why we're only using 30% of our cash flow to pay to our unit holders.
We should be able to do more than that but we are having to use our.
Free cash flow.
That we're generating without borrowing too.
And to see how we're going to define what areas that we start investing and to show that we have the capability to build businesses like we've done in the past and we've got a track record of doing.
And that we can build businesses that are ready to be financed for that future growth whatever that transition and that time period is.
And Fortunately I believe we got two decades to do that.
It may be 15 years I don't know.
But we're very focused on it. Unfortunately, we got enough cash flow that we can engage and businesses.
And we're one of the few and these areas of coal communities that have the financial resources.
And that can benefit from all of these tax credits and all of this federal money that they want on.
Throw out to encourage.
This transition.
Fossil fuels.
So that's our strategy and hopefully that helps you understand the context of how we're looking at the balance sheet and.
And its something Thats got some uncertainty to it and that's why we're being conservative.
But.
Im very confident.
Debt.
And a great.
Great place to be able to take advantage of these.
Opportunities probably more so than a lot of people.
So I really appreciate all the color very helpful and I wish you and all of this.
And all the luck thank you.
Thank you Lucas.
Our next question will come from Arthur caliber Tina's with ANC capital. Please go ahead.
Hey, guys.
Couple of questions, one short term and a couple of longer term and the great great discussion on the last question.
I've been getting a lot of reports and Europe, being very cold and being sort of running short on stuff and I'm. Just wondering on your <unk> and particularly in April and what's going on with the any color on the export market.
Are you getting any extra lift tariffs and I think you can speak to that.
So for the month of April.
We've been there.
Basically been dealing with this and.
High transportation costs.
Driven by oil prices diesel.
And then driven by just the capacity some driven by the Suez Canal disruption.
So there are several things that are happening and the.
And the transportation piece of the business.
And that we believe and have started.
So some reduction that could provide opportunities.
We're still bullish.
We do sales sound of Europe, but we are more targeted to India right now and Andy has got the virus resurging.
And that's created.
Some pause.
But we're still and conversations.
With our customers and we believe that.
That there is definite demand because not only does that virus effect.
The demand for products, but it really affects their ability to mine coal.
Because.
And.
We know what it did to us a year ago when people.
We're testing positive as to how disruptive it can be to the operation. So.
We continue to feel that the export market is constructive.
Again, I would remind that.
And large part this recent resurgence was tied to the.
The political issues between Australia, and China and.
And those still exist and.
They are also unpredictable.
But and that backdrop.
April.
Was slowed a little bit because of the cost of the transportation.
We think that will correct itself and we do believe second half of the year.
And as I said earlier that we will have the potential potentially to be more than 1 million to 2 million tonnes day than what we had planned for and what's in our current forecast.
And if we do that that would probably take away from domestic market sales.
Strength in.
Lower inventories for our customers going into next year.
Okay alright, thank you.
And then just a couple of longer term questions I've been getting a lot of research reports just.
Big picture thing, but just on the use of electrons.
The amount of electricity people are using and countries are using for the next 30 to 50 years I had to report and I can say is going to increase by 60% again. This may be 2015, and what I'm seeing is.
Now I'm seeing like companies like Amazon and Google They use and they have the cloud to have data storage and all that stuff uses electricity, but unlike a steel plant and never shuts off right I mean, and the old day should have a steel plant and making sheet metal and that's 150 and it shuts off right a lot of electricity, but then it shuts off and then and you can speak to it.
And when I look at technology companies and they think of tech as being green, but these tech guys use a lot of electricity did never supposed to shut off and just any color you may have other thoughts on that I'd. Appreciate it. Thank you.
There is and then you add to that the eds and you know when you start day on electric vehicles.
And that is an increase in demand.
The policymakers would suggest that a lot of their focus is going to be buildings.
And efficiency and that debt could offset some of that increased usage.
We will be and we'll see coming on and the.
And opportunity and live in New York per year last year, and there was discussions about that and theyre going to parity on buildings, because they're not a vision and build these gas scrapers again more efficiently.
I don't know how that works mathematically but.
And so there is.
And Theres a lot of analysis would suggest that.
The efficiency could offset some of that growth.
And that's in the developed countries then you get into the.
And to the emerging countries.
<unk>, China, and India and that.
There is going to continue to be tremendous uses and electricity, including coal fired generation. So no matter, what we do on fossil fuels and America.
China, and India are going to Trump that plus.
So that's a challenge.
You got to think through as to are we really making a difference and now it makes a lot of people feel good.
But im not sure that the cost benefit.
Is there for our country, but.
And I can speak about that but.
No the day by administration listens to that.
Yes, that's funny.
On the skyscrapers I've heard I've read and heard debt you can build them but.
Very small windows and so nobody wants that product so yes, yes.
And then.
On the on the other thing.
Two things one.
On the electric cars.
Is like what is like 5% to 10% of the fleet like any any math on that or like what 5% and 10% of the fleet. If they were electric I think we've got 220 million cars.
What does that do remain or anything like that does that move the needle like permanently for for gas and coal for electricity or are we still and the early stages.
It's okay.
Again, I think they are somewhat offset by the renewed.
Renewables as well as efficiency.
At that level and.
And I'd start go on and greater than that then yes, there is going to be greater.
Demand for electricity and.
Coal and natural gas and I don't know.
Natural gas has to supply and as part of the challenge that the states are dealing with.
As I shut down a coal plant and that really going to.
Replace it with and natural gas plant that you want to be shut down and five years or seven years.
You've got allow me and run that plant for 40 years.
Neil.
It's a real challenge when we start throwing out all these numbers and and deciding that we wanted to cut down and shut down coal plants by 2030, well what are you going to replace it with.
And again, we get reports the MISO report that was.
Issued in February and again this <unk>.
<unk> that renewable energy penetration increased more risk on their electric systems and.
Back to the transmission.
And basically saying, 30% renewables.
Raise significant challenges.
And <unk> and <unk>.
Difficult dollars and our transmission grid and we all know that debt cannot be done and nine to 10 years, you can't get permitting debt that quickly so.
We really need to.
The truthful with how long this transition is and I.
I think our country would be better served and we started talking about year 2050.
With commitments to get there and then starting to talk about 2030 to 2035.
And it makes it so confusing for investors.
To discern to determine exactly how to make sure theyre investing and the right technologies and doing it and a low cost way, where we can compete.
And in international marketplace.
Okay, Great and then last one just.
Hydrogen and I've been reading about hydrogen and Japan is doing and experiment and utility with hydrogen from coal. So I just got me thinking about you guys and you mentioned it on the last call with new technologies do that phrase and last call. On this call are you guys have and a lot of incoming calls or guys. It wanted to do hydrogen and I assume you must have some great engineers that know the properties of coal and what it could.
Do and a new energy <unk>. What these guys are doing and then you saw the money and other administrations plan. It just seems like you guys might be a natural fit for summit.
The JV partner or some kind of alliance with one of these newer like hydrogen technologies and more of the hydrogens focused on natural gas is coal.
But that doesn't mean that we can't have a role but.
And they want to eliminate all coal mining so they don't want any new technology that would utilize that but.
And there are some carbon capture things that are being worked on that we're evaluating.
So there are things that can be done and and that does feed into what you are saying. So there are some carbon capture and would allow that to be tied into the hydrogen formula but.
We do have some folks looking at that.
I don't know that.
That's something we're going to pursue the candid and as possible.
And more focused on.
Where our customers are.
Where the footprints are that we know there's going to be a lot of capital flow.
And there are things that.
Fit.
Some of our.
Not only geographic footprint, but where we have people that have skills and talent that can provide random businesses other than just coal mining.
Okay got you alright, thank you very much thank you.
Thank you.
Yes.
Our next question will come from Matthew fields with Bank of America. Please go ahead.
Okay.
Hey, everyone.
I wanted to talk about capital allocation a little bit.
I think you mentioned and your answer to Lucas and the question about and.
No leverage debt you kind of are trying to continue managing towards a one time.
Level.
Appreciate that you've thought through the distribution to be 30% of your sort of cash flow before growth projects.
Do you think that youre going to end the year and about one times or is that kind of a longer term target.
And it's more of a longer and it's more of a longer term.
Target and made this possible.
And you get there both two ways right and.
Non debt or.
Or grow on your EBITDA.
And I think we've made investments.
The ability to make them that accretive this year.
And would be very difficult.
Because.
And we will just be getting into them.
And therefore, if we use that capital to grow we're not paying down debt now where we are right. Now we are effectively paid down our debt, except for our equipment leases and on our own and our bonds.
So.
And we can still buy back the bonds, but I think that right.
Right now our focus is on trying to find growth.
And if we find that growth it'll.
It'll be hard to get to one times and of the year.
And some great deal of it.
We get one times EBITDA per meter investment right off the bat.
You still got about 90% $95 million between your outstanding between your facility and your revolver do you see that being paid down.
Close to zero by the end of the year.
On our revolver and our revolver.
Well between our facility and revolver and <unk> got a facility no and yes.
And our facility probably will stay intact.
And obviously it depends on weather.
And whether we can deploy the capital or not.
And we're hopeful we can use it.
Free cash flow to grow and therefore maintain our revolver on the AR facility.
Facility.
But the price.
Yeah.
Okay and then.
Your I think your revolver shrinks by about $80 million, maybe $78 million and May next month.
Greg.
Do you plan on kind of upsizing, the facility or growing establishing some other credit facility to or are you. Okay.
And with kind of debt reduction and sort of overall facility availability is that just are we just going on kind of leave it there.
Yes, I don't think you would see us go out and on <unk>.
Sara-lee upsize the facility.
<unk> until ever news and <unk>.
December of this year, we'll take a look at it at that point in time.
And obviously, we are stepping down on capacity under the revolver.
But we have paid it down to a level, where we still have.
Meaningful capacity.
<unk> to be available to us.
So absent other.
Other transactions that could cause us to touch one or both of those facilities. I think you can expect to see us, leaving those and impact for now.
Okay, great. That's it for me thanks very much.
Thanks, Matt.
Our next question will come from Scott FERC Eisen with Pacific value. Please go ahead.
Hi, there.
So just unclear on the distribution.
So that 40 distribution is.
30% of.
Anticipated free cash flow for this year.
Roughly yes.
40, 40, <unk> annualized 40 annualized.
And that.
And that distribution levels.
Is that being constrained by.
Your creditors.
No it's not not at all.
Wanting to make sure that we.
Execute on our objectives of returning appropriate levels of cash to our unit holders, but maintaining.
And maintaining the flexibility to pursue the growth projects that we've been talking about.
But there is no constraints on our.
Facilities that we're bumping up against right now we have plenty of room.
With $3 40.
Coal.
Per unit on an annualized basis.
And when you guys are.
Predatory and prioritizing cash flow.
And doing your planning.
Are buybacks ever and that discussion and if they are and where do they fall.
Obviously, we have.
Repurchase units on the path.
And so it's a tool that remains on the table I think in fact, we still have.
Six or seven or $8 million of.
And <unk> to buyback units.
But again, our focus is on deploying our cash flow to grow as well as return on that cash to our unit holders through distribution and so it's possible, but I wouldn't say, it's a high priority at this stage.
Okay. Thanks.
This concludes our question and answer session I would like to turn the conference back over to Brian Cantrell for any closing remarks.
Thank you everyone for your time this morning, good conversations we appreciate.
Your continued support of and interest on alliance.
Our next call to discuss our second quarter 2021 results is currently expected to occur in late July and we hope that you'll join us again at that time.
This concludes our call for today thanks for.
And your participation and support thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.