AHGP Alliance Holdings Dec 2009 Presentation

8/14/2019 AHGP Alliance Holdings Dec 2009 Presentation

1/28

Wells Fargo SecuritiesWells Fargo SecuritiesMLP & Pipeline SymposiumMLP & Pipeline Symposium

December 8, 2009December 8, 2009

Brian L. CantrellBrian L. Cantrell

Chief Financial OfficerChief Financial Officer


2/28


3/28

Why Coal?Why Coal?

Drives Economic GrowthDrives Economic Growth

AbundantAbundant

ReliableReliable

AffordableAffordable

DomesticDomestic

33


4/28

Coal Consumption Grows with GDPCoal Consumption Grows with GDP

0

200

400

600

800

1000

1

9

4

9

1

9

5

4

1

9

5

9

1

9

6

4

1

9

6

9

1

9

7

4

1

9

7

9

1

9

8

4

1

9

8

9

1

9

9

4

1

9

9

9

2

0

0

4

Coal ConsumptionCoal Consumpt ion

Source: EIA, Bureau of Economic Analysis (BEA)

GDPGDP

0

2000

4000

6000

8000

10000

12000

1

9

4

9

1

9

5

4

1

9

5

9

1

9

6

4

1

9

6

9

1

9

7

4

1

9

7

9

1

9

8

4

1

9

8

9

1

9

9

4

1

9

9

9

2

0

0

4

BillionsofD

ollars

AnnualCo

alConsumption(MillionShortTons)

44


5/28

Coal Creates HighCoal Creates High--Paying JobsPaying Jobs

How Many People areHow Many People are

directly employed in the coaldirectly employed in the coalindustry?industry?

~ 134,000~ 134,000

What is the average annualWhat is the average annual

wage in the coal industry?wage in the coal industry?

Over $72,000Over $72,000

Source: National Mining Association

55


6/28

Sources: EIA 2008 Annual Energy Review; Barclays Capital Markets Research

U.S. Total Electricity Generation by FuelU.S. Total Electricity Generation by Fuel

Coa l

H y d r o

W i n d O the r

Nuc l e a r

O i l

N a t u r a l Ga s

49%

21%

20%

2%

6%

1%

1%

66

Coa l i s t he bac kbon e o fCoa l i s t he bac kbon e o f

el ect r i c i t y g en er a t i o n i n t h eel ect r i c i t y g en e r a t i o n i n t h e

U n i t ed St a t e s & t he r easons a r eU n i t ed St a t e s & t he r easons a r e

sim p l e ~ Coa l i s b y f a r t h e m ostsim p l e ~ Coa l i s b y f a r t h e m ost

a bu n dan t a n d l e a st ex pen si v eabu n dan t a nd l ea st ex pen si v e

f o ssi l f u el i n t h e coun t r y f o ssi l f u el i n t h e coun t r y

Cost in $ per mmbtuCost in $ per mmbtu

Fuel TypeFuel Type 19931993 19981998 20032003 20082008

CoalCoal $1.39$1.39 $1.25$1.25 $1.28$1.28 $2.07$2.07

NaturalNaturalGasGas $2.56$2.56 $2.38$2.38 $5.39$5.39 $9.11$9.11

OilOil $2.43$2.43 $2.14$2.14 $4.94$4.94 $15.50$15.50

Coal Serves as the Cornerstone forCoal Serves as the Cornerstone for

AmericaAmericas Electricity Generations Electricity Generation


7/28

Anthracite

Bituminous Coal

Subbituminous Coal

Lignite

Powder RiverBasin (PRB)

NorthernAppalachiaRegion(NAPP)

CentralAppalachiaRegion (CAPP)

Illinois BasinRegion (ILB)

Source: Energy Information Agency; BP Statistical Study 2009Source: Energy Information Agency; BP Statistical Study 2009

77

SouthernAppalachiaRegion (SAPP)

Gulf LigniteFour Corners

NorthernLignite

Western Bit

Coal is AbundantCoal is Abundant

Coa l i s t h eCoa l i s t h ef ou n d a t i o n o ff ou n d a t i o n o f

Ame r i c a Ame r i c a ss

e n e r g ye n e r g y

secu r i t y ~secu r i t y ~

a cco u n t i n g f ora cco u n t i n g f o r

93% o f f ossi l93% of fossi lf u el r eser v es i nf u el r eser v es i n

t h e U .S. & 27%t h e U.S. & 27%

o f w o r l d w i d eo f w o r l d w i d e

coa l r eser vescoa l r eser ves


8/28

$0

$4

$8

$12

$16

$20

1991 1993 1995 1997 1999 2001 2003 2005 2007 2009YTD

Coal Oil Natural Gas

$ per mmBtu

Th e de l i v e r edThe del i v er ed

cost o f coa l i scost o f coa l i s

cons i st en t l y l esscons i s t en t l y l ess

t h a n t h a t o f o t h ert h a n t h a t o f o t h erf ossi l f u el sf ossi l f u el s

Sources: Energy Information Agency; Barclays Capital Markets ReSources: Energy Information Agency; Barclays Capital Markets Researchsearch

Coal is Reliable

88


9/28

MA 16.2 25%

CT 17.0 15%

NH 14.6 15%

RI 16.1 0%

NJ 14.9 15%VT 12.3 0%

MD 13.0 58%

DE 12.3 70%

= average retail priceper kilowatt hour

for CY 2008% = percent of totalgeneration from coalfor CY 2008

10.830%

7.462%

6.6

91%

6.78%

6.566%

5.794%

8.665%

7.37%

7.673%

8.374%

9.922%

13.01%

6.5

82%

7.152%

10.937%

7.077%

7.860%

8.048%

6.981%

9.248%

9.137%

9.066%

7.847%

9.426%

9.261%

7.195%

8.485%

8.935%

8.651%

9.063%

7.941%

6.3 94%

9.453%

8.161%

8.0 63%

5.71%

14.510%

29.215%

< 9.5

> 9.5

Hydro

16.714%

8.1

44%

5.698%

Coal is Affordable and Results in LowerCoal is Affordable and Results in Lower

Electricity Costs to ConsumersElectricity Costs to Consumers

99


10/28

Coal Drives Economic GrowthCoal Drives Economic Growth

November 3, 2009: Warren BuffettNovember 3, 2009: Warren Buffett

announced Berkshire Hathaway, Inc.announced Berkshire Hathaway, Inc.ss

Purchase of Burlington Northern Santa FePurchase of Burlington Northern Santa FeCorp. for $44 BillionCorp. for $44 Billion

Coal accounted for almost half theCoal accounted for almost half the

tonnage moved by BNSF in the first ninetonnage moved by BNSF in the first nine

months of 2009months of 2009

ItIts an alls an all--in wager on the economicin wager on the economic

future of the United States.future of the United States.

-- Warren Buffett, Berkshire Hathaway, Inc.Warren Buffett, Berkshire Hathaway, Inc.

Source: Reuters

1010


11/28

Coal is the WorldCoal is the Worlds Fastest Growing Fuels Fastest Growing Fuel

27 %

20 %

16%

7 %

4%

0 5 10 15 20 25 30

Coal

Hydro

Natural Gas

Oil

Nuclear

FiveFive--year change in global energy consumption (2003year change in global energy consumption (2003 2008)2008)

CAGR

0.7%

1.3%

3.1%

3.8%

4.9%

Source: BP Statistical Review of World Energy, June 2009.Figures represent change from 2003 to 2008.

1111

Coal demand expected toCoal demand expected to

exceed growth in naturalexceed growth in naturalgas, nuclear, hydro, wind,gas, nuclear, hydro, wind,

and solar combinedand solar combined

through 2025through 2025(1)(1)

(1) International Energy Agency, World Energy Outlook 2008.


12/28

Coal Provides Developing Nations A Path ToCoal Provides Developing Nations A Path To

ProsperityProsperity

Electricity Usage Per Capita

0

3,000

6,000

9,000

12,000

15,000

$0 $10,00

0

$20,00

0

$30,00

0

$40,00

0

$50,00

0

GDP Per Capita (in $U.S.)

Kilowatt-HoursPerCapita

U.S.U.S.

RussiaRussia

AustraliaAustralia

U.K.U.K.

ItalyItaly

MexicoMexico

BrazilBrazil

IndiaIndia

S. KoreaS. Korea

ChinaChina

Sources: World Bank (2208); United Nations Human DevelopmentSources: World Bank (2208); United Nations Human Development

Report 2007/2008; and United Nations World Statistic PocketbookReport 2007/2008; and United Nations World Statistic Pocketbook

and Statistical Yearbookand Statistical Yearbook

Passenger Vehicles / 1,000 People

0

200

400

600

800

$0 $10,000 $20,000 $30,000 $40,000 $50,000

GDP Per Capita (in $U.S.)

Carsper1,00

0People

U.S.U.S.

RussiaRussia

AustraliaAustralia

U.K.U.K.

ItalyItaly

MexicoMexicoBrazilBrazil

IndiaIndia

S. KoreaS. Korea

ChinaChina

Saudi ArabiaSaudi Arabia

Saudi ArabiaSaudi Arabia

1212


13/28

Outlook for CoalOutlook for Coal

Main fuel source for electricity generationMain fuel source for electricity generation

Global demand outpaces other energy sourcesGlobal demand outpaces other energy sources

U.S. demand slowed due to downturn,U.S. demand slowed due to downturn,

growth expected to rebound with recoverygrowth expected to rebound with recovery

Illinois Basin and Powder River Basin willIllinois Basin and Powder River Basin will

gain market share, Northern Appalachia will holdgain market share, Northern Appalachia will holdsteady, Central Appalachia will retreatsteady, Central Appalachia will retreat

1313


14/28

Investing in AllianceInvesting in Alliance


15/28

Why Alliance?Why Alliance?

3939thth out ofout of 10,00010,000 companies forcompanies for total returntotal return toto

shareholders over the lastshareholders over the last 10 years10 years

DeliveredDelivered 29.0% compounded annual return29.0% compounded annual return toto

ARLP unitholdersARLP unitholders over that periodover that period

1515

Standard & Poors recently rankedStandard & Poors recently ranked ARLP ARLP ..

Source: S&P, November 2009


16/28

Why Alliance?Why Alliance?

Positive longPositive long--term coal fundamentalsterm coal fundamentals

Growing scrubber marketsGrowing scrubber markets

Strong balance sheet and liquidityStrong balance sheet and liquidity

Aligned interests of management and unitholdersAligned interests of management and unitholders

Consistent track record of cash flow and distributionConsistent track record of cash flow and distribution

growthgrowth

1616

TheThe M L P Co a l I n v estm en t M L P Co a l I n v estm en t leveragingleveraging..


17/28

Alliance SnapshotAlliance Snapshot

Corporate HeadquartersCorporate Headquarters Tulsa, OklahomaTulsa, Oklahoma

11

22

33 55 66

44

99

88

1212

1111

1010

llinois

llinois

ndiana

ndiana

Ohio

hio

Pennsylvaniaennsylvania

Maryland

aryland

Virginia

irginia

West

est

Virginia

irginia

entucky

entucky

77

Current Mining OperationCurrent Mining Operation Future Growth ProjectFuture Growth Project Transfer TerminalTransfer Terminal

Pattiki ComplexPattiki Complex

River View ComplexRiver View Complex

Dotiki ComplexDotiki Complex

Mount VernonMount Vernon

Transfer TerminalTransfer Terminal

Warrior ComplexWarrior Complex

Hopkins ComplexHopkins Complex

Gibson ComplexGibson Complex

Pontiki ComplexPontiki Complex

MC Mining ComplexMC Mining Complex

Tunnel Ridge ComplexTunnel Ridge Complex

Penn Ridge ComplexPenn Ridge Complex

Mettiki ComplexMettiki Complex

33

44

11

22

55

66

77

88

99

1010

1111

1212

1717

Nine underground miningNine underground mining

complexescomplexes

Three development projectsThree development projects

in the growing ILB and NAPPin the growing ILB and NAPP

marketsmarkets

Currently over 3,000Currently over 3,000employees growing to moreemployees growing to more

than 3,700 by 2011than 3,700 by 2011


18/28

Alliance Operations SummaryAlliance Operations Summary

2008 Production26.4 Million Tons

Reserves - 2008686 Million Tons

Illinois Basin77% Illinois Basin74%NorthernAppalachia

22%

CentralAppalachia

12%

NorthernAppalachia

11%

CentralAppalachia

4%

1818


19/28

Well Positioned in Scrubber MarketsWell Positioned in Scrubber Markets

Future growth potential for scrubber market bodes well for AlliaFuture growth potential for scrubber market bodes well for Alliancences highs high

sulfur operationssulfur operations

Source:Source: VentyxVentyxNet Winter Capacity as of September 2009Net Winter Capacity as of September 2009

(1)(1) Assumption used to convert gigawatts of capacity to million tonsAssumption used to convert gigawatts of capacity to million tons of coal:of coal:9,600 Btu/9,600 Btu/KwhrKwhrplant heat rate, 75% plant capacity factor, 12,500 Btu coal.plant heat rate, 75% plant capacity factor, 12,500 Btu coal.

Current and Projected Eastern U.S. Installed Scrubber CapacityCurrent and Projected Eastern U.S. Installed Scrubber Capacity

220220220220220220 220 220 220 220 220 220

190160

13011060

0

170 170 170 170 180 190

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

MillionTo

ns

(1)

Installed Scrubber Capacity Incremental Scrubber Capacity

12,500 Btu Equivalent12,500 Btu Equivalent

1919


20/28

Large Inventory of Organic GrowthLarge Inventory of Organic Growth

ProjectsProjects Under constructionUnder construction

Estimated reserves ~ 70 million tons high sulfur coalEstimated reserves ~ 70 million tons high sulfur coal

Production capacity ~ 6 million tons/yearProduction capacity ~ 6 million tons/year

Initial longwall production in late 2011Initial longwall production in late 2011

Capital estimated to be $265Capital estimated to be $265--$285 million excluding$285 million excludingcapitalized development and interest costscapitalized development and interest costs

Tunnel RidgeTunnel Ridge

Initiating permitting processInitiating permitting process


Production capacity ~ 5 million tons/yearProduction capacity ~ 5 million tons/year

Penn RidgePenn Ridge

Currently operating three production unitsCurrently operating three production units

Scheduled to reach full production capacity of 6.4Scheduled to reach full production capacity of 6.4million tons/year by mid 2010million tons/year by mid 2010


Estimated capital expenditures of $250Estimated capital expenditures of $250--$275 million$275 million

River ViewRiver View

Permitting in progressPermitting in progress

Estimated reserves ~ 83 million tons medium sulfurEstimated reserves ~ 83 million tons medium sulfurcoalcoal

Production capacity ~ 2.7Production capacity ~ 2.7 3.1 million tons/year3.1 million tons/year

Gibson SouthGibson South

IllinoisIllinois

IndianaIndiana OhioOhio

PennsylvaniaPennsylvania

MarylandMaryland

VirginiaVirginia

WestWest

VirginiaVirginia

KentuckyKentucky

2020


21/28

Strong Balance SheetStrong Balance Sheet

Ample LiquidityAmple LiquidityConservative LeverageConservative Leverage

$350 million private placement of$350 million private placement ofSenior Notes completed 06/26/08Senior Notes completed 06/26/08

$205 million at 6.28% due 2015$205 million at 6.28% due 2015

$145 million at 6.72% due 2018$145 million at 6.72% due 2018

Existing $150 million revolvingExisting $150 million revolving

credit facility expires in 2012credit facility expires in 2012

Liquidity of ~ $228 millionLiquidity of ~ $228 millionavailable at September 2009available at September 2009

Current debt amortization of $18Current debt amortization of $18million annuallymillion annually

Visible cash flow growthVisible cash flow growth

2121

ARLP Oil & Gas

MLPs

Propane

MLPs

Pipeline &

Processing

All Ener gy

MLPs

2.2x2.2x

1.1x1.1x

4.5x4.5x4.5x4.5x

3.1x3.1x

Debt / LTM EBITDADebt / LTM EBITDA(1)(1)

(1) Source: SMH Capital, Inc. as of October 29, 2009.


22/28

Alliance Partnership ProfilesAlliance Partnership Profiles

NASDAQ Symbol:NASDAQ Symbol: ARLPARLP AHGPAHGP

Unit Price:Unit Price: $39.04$39.04 $24.61$24.61

Annualized Distribution:Annualized Distribution: $3.04$3.04 $1.76$1.76

Distribution Yield:Distribution Yield: 7.8%7.8% 7.2%7.2%

Equity Market Cap:Equity Market Cap: $1,424 mm$1,424 mm $1,455 mm$1,455 mm

Enterprise Value:Enterprise Value: $1,772 mm$1,772 mm $1,455 mm$1,455 mm

Ownership Interests in Alliance ResourceOwnership Interests in Alliance Resource

1.98% G.P. Interest1.98% G.P. Interest

100% of Incentive Distribution Rights100% of Incentive Distribution Rights

15.5 mm Alliance Resource common15.5 mm Alliance Resource common

units representing approximatelyunits representing approximately

42.5% of the ARLP units outstanding42.5% of the ARLP units outstanding

5th largest eastern coal producer5th largest eastern coal produceroperating 9 underground miningoperating 9 underground mining

complexescomplexes

686 million tons of reserves at686 million tons of reserves atDecember 31, 2008December 31, 2008

Asset Profile:Asset Profile:

Source: Market data as of December 2, 2009.Source: Market data as of December 2, 2009.

2222


23/28

Consistent Track Record of GrowthConsistent Track Record of Growth

(1)(1) Excludes transportation revenuesExcludes transportation revenues

(2)(2) EBITDA is a nonEBITDA is a non--GAAP measure defined as income before net interest expense, incoGAAP measure defined as income before net interest expense, income taxes and depreciation, depletion and amortizationme taxes and depreciation, depletion and amortization(3)(3) LTM as of September 30, 2009LTM as of September 30, 2009

EBITDAEBITDA(2)(2) ARLP Distribution Per UnitARLP Distribution Per Unit

CAGR:1

8.4% $2.89

$1.24 $1.58

$1.92$2.20

$2.53

2004 2005 2006 2007 2008 2009LTM

ProductionProduction RevenueRevenue (1)(1)

CAGR:1

4.8% $1,243.8

$623.5

$799.6

$920.0$995.6

$1,111.8

2004 2005 2006 2007 2008 2009LTM

$inmillio

ns

CAGR: 16.7

%

$320.0

$147.9

$230.1 $250.9 $267.0 $257.8

2004 2005 2006 2007 2008 2009LTM

$inMillions

CAGR:5.0%

26.026.424.323.722.3

20.4

2004 2005 2006 2007 2008 2009LTM

MillionsofTon

s

2323Source: Company filingsSource: Company filings


24/28

Consistent Track Record of DistributionConsistent Track Record of Distribution

GrowthGrowthOver the last three yearsOver the last three years

ARLP has increased distributions 52%ARLP has increased distributions 52%

AHGP has increased distributions 105%AHGP has increased distributions 105%

$2.24

$2.64

$3.04

$2.00

$1.25

$1.50

$1.75

$2.00

$2.25

$2.50

$2.75

$3.00

$3.25

Sep-06

Dec-06

Mar-0

7

Jun-07

Sep-07

Dec-07

Mar-0

8

Jun-08

Sep-08

Dec-08

Mar-0

9

Jun-09

Sep-09

ARLPARLP

Source: Company filings

AHGPAHGP

$1.06

$1.76

$1.56

$0.86

$0.20

$0.40

$0.60

$0.80

$1.00

$1.20

$1.40

$1.60

$1.80

Sep-06

Dec-0

6

Mar-0

7

Jun-0

7

Sep-07

Dec-0

7

Mar-0

8

Jun-0

8

Sep-08

Dec-0

8

Mar-0

9

Jun-0

9

Sep-09

15.0%

CAGR

AnnualizedQuarterlyD

istribution

AnnualizedQuarterlyD

istribution

27.0%

CAGR

Annuali

zedQuarterlyDistribution

Annuali

zedQuarterlyDistribution

2424


25/28

8.6%

12.8%

(16.7%)

1.4%

2.4%

0.7%

7.1%

ARLP AHGP Oil & Gas

MLPs

Propane

MLPs

Pipeline &

Processing

All Energy

MLPs

All GPs

Strong Distribution GrowthStrong Distribution Growth

LTM Distribution Growth %LTM Distribution Growth %

Source: SMH Capital, Inc. as of October 29, 2009

2525


26/28

Alliance Resource Partners, L.P.Alliance Resource Partners, L.P.

Pe r f o rm a n c e P e r f o rm a n c e

Proven track record ofProven track record of superior operatingsuperior operating andand financial resultsfinancial results

Clear strategy andClear strategy andvisible inventory of growth prospectsvisible inventory of growth prospects

Resu l t sResu l t s ( a )( a )

ARLPARLP has delivered a 603has delivered a 603% total return to unitholders% total return to unitholders since its IPOsince its IPO

Alliance Holding GP, L.P.Alliance Holding GP, L.P.

Op p o r t u n i t y O p p o r t u n i t y

IDRsIDRs provide leverage to distribution growth potential of ARLPprovide leverage to distribution growth potential of ARLP

Management Investors own 79.4% of all outstanding unitsManagement Investors own 79.4% of all outstanding units

Resu l t sResu l t s ( a )( a )

AHGPAHGP hashas increased distributions 105%increased distributions 105% since its IPOsince its IPO

(a) As of November 2, 2009 (assuming reinvestment of dis(a) As of November 2, 2009 (assuming reinvestment of distributions)tributions)

Alliance Investment Take AwaysAlliance Investment Take Aways

2626


27/28


28/28

Wells Fargo SecuritiesWells Fargo SecuritiesMLP & Pipeline SymposiumMLP & Pipeline Symposium

December 8, 2009December 8, 2009

Brian L. CantrellBrian L. Cantrell

Chief Financial OfficerChief Financial Officer

AHGP Alliance Holdings Dec 2009 Presentation

Documents

Transcript of AHGP Alliance Holdings Dec 2009 Presentation