Alliance Resource Partners LP (ARLP) 2009 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth-quarter 2009 earnings call for Alliance Resource Partners, L.P. and Alliance Holdings GP. My name is Stephanie and I'll be your operator for today. (Operator Instructions). I would now like to turn the conference over to your host for today, Mr. Brian Cantrell, Senior Vice President and Chief Financial Officer. You may proceed.

Thank you, Stephanie, and welcome, everyone. We appreciate your interest in Alliance Resource Partners, which today we will refer to as ARLP, and Alliance Holdings GP, which we refer to as AHGP.

We released our 2009 fourth-quarter earnings earlier this morning and will now discuss these results, as well as our outlook for 2010. Following our prepared remarks, we will open the call to your questions.

Before we begin, however, let me start with a few reminders. First, since AHGP's only assets are its ownership interest in ARLP, our comments today will be directed to ARLP's results and outlook unless otherwise noted.

In addition, please be aware that some of our remarks may include statements which are not historical in nature and may concern future expectations, plans and objectives of the partnerships regarding their future operations. Such comments constitute forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and are based on the beliefs of the partnerships and those of their respective general partners and management, as well as assumptions made by and information currently available to them.

Although the Alliance partnerships, their general partners and management believe these forward-looking statements to be reasonable at the time made, no assurances can be given that such statements will prove to be correct. Forward-looking statements 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 from the partnerships. If one or more of these risks or uncertainties materialize or if our underlying assumptions prove incorrect, actual results of the partnerships may vary materially from those we anticipated, estimated, projected or expected. In providing these remarks, neither ARLP or AHGP 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 be discussing certain non-GAAP financial measures. Definitions and reconciliations of the differences between these non-GAAP measures and the most directly comparable GAAP measure 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 are through with these preliminaries, I will turn the call over to Joe Craft, our President and Chief Executive Officer. Joe?

Thank you, Brian. Good morning, everyone. Thank you for joining us today as we review the best financial performance in the history of our partnership.

For our long-term followers, this should resonate as a familiar year-end accomplishment. In September of 2009, ARLP celebrated its 10th anniversary as a publicly traded master limited partnership.

As we reported earlier today, ARLP delivered its ninth consecutive year of record financial results in 2009, meaning we have posted financial records each year since our IPO, and our goal is to make it 10 years in a row in 2010.

As I reflect on our accomplishments this past year, that fact that we were able to set new full-year records for revenues, EBITDA and net income and post strong 2009 fourth-quarter results during what was arguably the most challenging business environment in our history, it is truly remarkable. These results are a testament to the hard work and dedication of everyone in the Alliance organization. I would like to take a moment to salute our team for their contribution to our best year ever.

Let me highlight some of the major accomplishments they achieved during 2009. Now, we began initial production operations at River View, the largest single investment in our history, opening this mine on schedule and under budget. We made significant progress in the construction of our Tunnel Ridge development, with similar results of being on schedule and on budget.

We strengthened key customer relationships, improved our long-term sales position, most notably through a new coal sales agreement with TVA. As a result, we enter the new year with 29.6 million tons contractually committed and priced for 2010 and approximately 27.4 million tons in 2011.

Now, we successfully managed through weak market conditions and customer operating challenges by reducing production and sales volumes to meet demand and implementing rigorous cost controls to reduce operating expenses and capital expenditures.

2009 was also one of ARLP's safest years on record, and we made meaningful strides to enhance the safety of our operations, crowning several national champions in mine rescue team competitions, expanding market penetration of our miner tracking and communication systems, and launching our new MSHA-approved proximity detection device. And we again delivered for our unitholders, increasing our 2009 year-end unitholder distributions by 8.4% at ARLP and 12.4% at AHGP, contributing to significant improvement in our year-end unit prices compared to the beginning of the year.

ARLP not only delivered outstanding financial performance in 2009, we also continue to position the partnership for growth in 2010 and beyond. We're beginning to see encouraging signs that point toward positive supply demand dynamics in the US coal markets. The EIA currently estimates that after falling approximately 10% in 2009, coal consumption for electricity generation should increase nearly 4% in 2010 as the economy continues to recover.

Despite anticipated increase in electric power generation, the EIA expects coal production will remain low, falling an additional 4.6% in 2010 as producers continue to manage risk related to high inventory stockpiles, potential fuel switching and the possibility of slower than expected economic growth, particularly in the industrial sector.

In light of these near-term uncertainties, we intend to exercise discipline by slowing the expansion of production at our new River View mine. While we continue to assess the market, ARLP will delay production from the seventh and eighth production units at River View until the coal demand outlook is clearer.

Even as we manage ongoing challenges, we continue to anticipate growth in 2010. ARLP is currently expecting 2010 coal production will increase 14% to 17% over 2009 levels, which, when combined with the aggressive management of our coal inventories, should lead to growth in 2010 sales volumes of approximately 21% to 24%.

Increased sales volume and improved coal price realizations are currently expected to push ARLP's 2010 revenues, excluding transportation revenues, up by 24% to 30% over the prior year. Approximately 5% to 10% of our revenue projection is not covered by contractual agreements.

ARLP's expected topline improvement, coupled with our continued cost control efforts, are currently expected to result in 2010 EBITDA and net income growth of 20% to 32%, and 25% to 40%, respectively.

Clearly, ARLP delivered exceptional results in 2009 and as we enter 2010 remains focused on achieving our primary business objective of creating sustainable growth in cash flow to provide future growth in distributions to our unitholders.

At this time, I will turn the call back to Brian for a more detailed look at our financial results, after which Brian and I will be happy to address any questions that you may have. Brian?

Thank you, Joe. As just mentioned, ARLP again delivered record financial results in 2009. A nearly 16% jump in coal sales prices helped push 2009 revenues up by 6.4% to $1.23 billion, while EBITDA increased 32% to $340.4 million and net income climbed 43.2% to $192.2 million.

And as we announced earlier this morning, ARLP also reported solid results for the 2009 quarter. Although weak demand and reduced customer requirements drove coal sales volumes and revenues down in the 2009 quarter, ARLP's adjustments to production volumes, outside coal purchases and rigorous cost control initiatives to lower operating costs collectively resulted in increases to both EBITDA, which was up 31.7% to $82.7 million, and net income, which rose 65.8% to $41.7 million, all as compared to the 2008 quarter.

As evidenced by our strong coal price realization, ARLP also continued to benefit in the 2009 quarter from its solid contractual position, particularly in the Illinois Basin, and that is both quarter over quarter and sequentially. Improved contract pricing also drove average realizations higher in Central Appalachia quarter over quarter, while the mix of products sold in the 2009 quarter compared to the previous quarter resulted in a sequential drop in the average realized price per ton for that region.

Sales into the export markets impacted both quarter-over-quarter and sequential price comparisons in Northern Appalachia as ARLP shipped increased tons at higher prices into the export market in the 2009 quarter compared to the third quarter of 2009, but fewer tons at lower prices when compared to the 2008 quarter.

Weak coal demand and operating difficulties at several customers contributed to increased coal inventories in the 2009 quarter compared to both the 2008 quarter and the 2009 third quarter. Our Illinois Basin and Central Appalachia operations were impacted most significantly as force majeure events and contractual deferrals by several customers reduced our planned sales volumes in the 2009 quarter by approximately 420,000 tons and 107,000 tons, respectively. On a positive note, Northern Appalachia sales volumes increased sequentially, primarily due to the previously mentioned sales into the export market during the 2009 quarter.

As discussed earlier, ARLP responded aggressively through 2009 to address these challenges. By managing coal production and outside purchases during the year, ARLP reduced coal production and sales volumes in 2009 from our initial expectations by more than 10% and 8%, respectively. These efforts by our operations, along with tight control of operating expenses and capital expenditures, allowed ARLP to reduce total segment-adjusted EBITDA expense by nearly $21 million in 2009 compared to 2008 and capital expenditures by approximately $127 million below our originally planned levels for 2009.

ARLP reported total capital expenditures in 2009 of $328.2 million, primarily related to the continuing development of our River View and Tunnel Ridge mines, infrastructure improvements at various operations, and approximately $96.2 million in maintenance capital. For 2010, ARLP is currently estimating total capital expenditures, including maintenance capital, in a range of $275 million to $315 million, again to primarily continue the expansion of our new River View mine and development of the Tunnel Ridge mine.

Maintenance capital during our current planning period is anticipated to increase by approximately 3% over previous estimates to $4 per production ton. However, as we experienced in 2009, due to inherently cyclical nature of these expenditures, actual maintenance capital will likely vary period to period.

In addition, although total capital expenditure estimates for 2010 reflect our currently anticipated schedules, actual capital expenditures may vary due to construction accelerations or delays.

And finally, ARLP's balance sheet remains strong, and we continue to enjoy strong internal cash flow and sufficient liquidity to allow us to execute on our plans for 2010.

That concludes our prepared comments. Again, thanks to all for joining us today to learn about the best year financially in our partnership's history. We appreciate your continued support and interest in both ARLP and AHGP. And with Stephanie's assistance, we will now open the call to your questions.

(Operator Instructions). Jim Rollyson, Raymond James.

Joe, you had I guess through the second in particular last year kind of the issues with force majeures and the unplanned outages and that kind of stuff. Any kind of color on how that is proceeding now that you've got a little bit of cold weather and things are at least looking in the right direction? Just kind of curious what you guys are seeing out there.

We believe the problems of 2009 are behind us, so knocking on wood right now. All the force majeures declared in 2009 that impacted our shipments have been concluded. So all customers are now taking under contractual commitments consistent with our understanding and agreements. We did defer some tons in '09 to '10 as well, but at this moment in time, all of our contractual commitments are being honored consistent with the terms of the agreements as we speak.

The cold weather has definitely helped inventory draw. As you can tell from our projections, we're still anticipating 2010, with the increased levels of stockpiles, to still develop at a slower pace. So we're not anticipating any takes in the near term, anyway, from utilities. But at the same time, I think the inventory picture, the supply and demand picture is a lot more balanced than it was at our last earnings call.

That's great to hear. And on the production and sales side, you gave us, obviously, your full-year guidance, pretty nice step-up for you, given the contracts you have. Any color you can provide on kind of regional, when you've got the River View starting up in the Illinois Basin? It sounds like you guys have had some export opportunities out of Northern App. Just maybe give us a little idea kind of how you're thinking about this for the three regions.

We typically don't give you much detail, but I will say that the Illinois Basin at current production levels, without the seventh and eighth unit at River View, we are sold out in the Illinois Basin. So the unsold position is in the East, both for East Kentucky and Northern App.

Okay. And then on the cost side, I think 3% to 5% was your growth. Just curious, in the Illinois Basin, I know you don't usually get too specific, but costs came down there this quarter despite the fact that volumes were actually about as low as they've been in a while. Just kind of curious how you see Illinois Basin costs going through the course of '10 as River View comes on in particular. I'd think that would be helpful, all else being equal, but just kind of curious as to your thoughts directionally.

I think you've got that analyzed properly. As we ramp up, we have higher costs, and as we get to full production and get over the ramp-up curve, it should trend favorably. At the same time, there are some inherent cost increases for labor benefits, electric power costs and things of that nature that counter the productivity improvements. So we are looking for costs at Illinois Basin to be reflective of -- similar to what you've seen in the fourth quarter.

Got you. And last question for me, just distribution growth throughout 2009, around 2% a quarter, so it puts you up about 13% for the year -- kind of what your thinking is at this point, given your guidance for 2010.

We will continue our most recent pattern of considering that on a quarterly basis. And absent any unusual circumstances, I would be expecting that we can continue increases in a similar range as what we've had. It's going to be dependent on quarter-to-quarter look, based on the out-year forecast for the markets, as well as productivity costs, etc.

So I think we're in very good shape with the contractual position we have, the knowledge of where we are in our coal mines and our mine plans. I think if you look at this year's projection compared to a year ago, we had a lot more uncertainty a year ago than this year because we were developing a new coal mine. So we hadn't [hit in] the reserve yet, so now we've had that experience. We have more sales open in the market. And hopefully, with all the interruptions we had last year with our customers, we have that behind us, and going forward we can just execute our plan, which should provide for a sizable increase in distributable cash flow, as our projections reflect.

Thanks for the detail, Joe.

Mark Reichman, Madison Williams.

Just an update -- on the organic growth projects, River View, Tunnel Ridge and the others, how much has been spent to date on each of those projects? Just trying to get an idea of what remains to be spent.

At River View, we have spent approximately 70% of what we anticipate, and we've probably committed 83% of the total capital that we anticipate. We gave a range of $250 million to $275 million, I believe, Brian?

That's correct.

And we're at the low end of that range as to what we expect our total capital to be at River View. At Tunnel Ridge, we are -- about 25% of our cash contribution or of the capital has been expended, and we've committed about half, or about 45%, to date to that project. Brian, the Street estimate, what did we --

I think we provided $265 million to $285 million, excluding development -- I'm sorry, capitalized development costs and capitalized interest. But we believe we're on track to come in near those ranges.

Okay. And then on Gibson South and Penn Ridge, those are all just the costs on the permitting, right? I mean, really very little --

Yes, it's basically just the costs to continue with the permitting and keeping the projects ready to go. But as we've been pretty clear, I think, that will be dependent on the market in terms of timing.

Right. And then also on the outlook, it looks like a fair amount of the coal -- well, a fairly sizable amount of sales commitments have been gained for 2011, 2012 and 2013. And it looks like most of it has probably already been priced. And I was just wondering if there was anything you could say about some of the outlook on pricing, given that it looks like you've committed and priced a fairly sizable amount of the planned production for those years.

I think as you look for 2010, as I mentioned in my earlier comments, about 5% to 10% of our revenue projection is not covered by contractual agreements. And based on the first question, I indicated that of that revenue, we are looking at -- of all those sales tons coming out of the Eastern -- either Central App or Northern App.

Our focus in those markets are primarily export, both for our Northern App being metallurgical tons and our Central App being PCI tons. So we are seeing a different environment this year compared to a year ago. If you recall, a year ago, the steel industry end markets were very disrupted. Those have now balanced out, and in fact there's a lot of enthusiasm. As you probably know, the negotiations for that product typically are on a fiscal year April 1 to April 1. So trying to bring certainty to what that market is going to be for 2010, we'll have better insight for you on our next earnings call. But we are encouraged and optimistic that there is sufficient demand to where we're comfortable that we can give the guidance we're giving you based on what we know today.

As we look to 2011, since we will be dependent on the export markets in 2010, as we have seen over the past year, there is significant volatility there. So trying to project what that's going to do in 2011, 2012, etc., is difficult. However, the China story in the coal space continues to be very positive. We see China building several steel mills on the coast over the next three years, indicating or implying that they're going to be bringing in even more metallurgical coal into their country.

So we are cautiously optimistic that the export metallurgical coal markets are going to be at elevated levels to 2009 for the immediate near term, for the time period that you talked about. And therefore, in the past, we've, because we like stability, we haven't put as much reliance in that market. But as we are focused over the next three to -- let's say next three years, it appears that it may be the right decision for us to focus on that market as opposed to the domestic steam market for our product in Northern App at our Mountain View mine, as well as of some of our unsold coal position in Central App. I don't know if that's responsive (multiple speakers) another follow-on question, but --

No, that's great. That's very encouraging. And then just the last question, I just wanted to talk a little bit about your customers. You've had some very good, stable relationships with TVA and LG&E and others. And I was just wondering, as a result of utilities adding scrubbing equipment, whether you've seen any changes in your customer mix, adding new customers, etc. I know, like, I was talking with Wisconsin Energy the other day, and they had added those two units at their Oak Creek plant, which are scrubbed. And so they were taking deliveries, I believe, from Northern Appalachia. And I was just curious as to whether you've seen any movement among your customer base or any changes there.

I think the story there is pretty much intact with what we've previously discussed. So there's nothing real significant. I think that my view is that in large part, our coals for Northern App as well as Illinois Basin are going to compete with Central Appalachia coal. And the scrubber buildout has allowed us to do what we've done with River View and Tunnel Ridge.

I think the soft economy and the gas switching in 2009 was not anticipated by us, and that's the primary reason that we are delaying the actual bringing on the production for the seventh and eighth unit. But the fundamentals are still intact. And I think that we will, over time, once the stockpiles get back to normal and especially with (technical difficulty) improved metallurgical market situation, I think that the forward price curve, and I think for Central App still will be north of $70, and if you've got Central App pricing north of $70, then it bodes well for our opportunities in Northern App and Illinois Basin. And I think at that price point, you will see customers looking at lower-cost options in the two basins that we're operating and growing our business.

Paul Forward, Stifel Nicolaus.

Just back on that metallurgical coal question, I was just wondering if you could give us a sense of, when you look across your existing Northern and Central App mines and your new projects, in a -- let's call it a very strong export market for metallurgical coal, how much production do you have that might, in the best of all worlds, potentially have enough of coking properties to go into that market?

Our primary production source is our Mountain View mine, so we would not be looking for Tunnel Ridge or in particular for Northern App to be providing into that market. So we're really looking at Mountain View, and there we do have a contract with Dominion that limits our ability to participate. I think the upside is probably in the 1 million ton range, and that's utilizing some purchased coal, as well as our own production.

We do have -- I mean, we've had -- we've got some reserves that are associated with that mine that we can access through contractors, which we've done in the past and will continue to do in the future if the markets provide opportunities for us. So it's in the 1 million ton range for the metallurgical side of our business. (multiple speakers)

And you had mentioned the PCI out of Central App. Is there a number you might be able to put on that?

Yes, it's probably in the 400,000 to 650,000 range over a fiscal year, maybe a little higher. We don't know yet. But we would be somewhere in that range, I think, for this fiscal year. We would be happy with that.

All right. And I guess going back to your projection on this 3% to 5% cost inflation in 2010, I was just wondering if there were any -- if something is going to surprise you to the upside on that what you think it might be, and if there are any drivers of that that really stand out as being the most important of the increases?

I think that on the upside, if we were able to add additional units and get incremental tons, that could be a positive. But when you're just looking at the existing production, the major unknown in those numbers is our regulatory activity, just the impact MSHA has on your cost and productivity, and that's just very hard to manage.

I don't really anticipate that there's going to be major upside there, given the continued diligence that we are seeing from that regulatory agency. But if for some reason they decided to change their habits, that could have an impact. But I'm not anticipating that. So I think, really, our costs are pretty much focused in that area, with the exception, if we could bring on additional tons, that potentially could help us through just having incremental tons off of our larger base there at River View.

Another potential pressure, labor, labor-related type costs, health benefits, etc. We've begun to see movement up in copper, steel, diesel, those types of things. So our materials and supply costs could see some pressure as well, in particular if the economy continues to recover.

All right. Well, that wouldn't be such a bad thing if that were to happen. And the other -- well, I guess the other question I had would be you mentioned earlier the inventories at the power plants starting to make a move down over the past couple of months. I was just wondering, within the areas that you are serving, is there any sort of a regional difference that you're seeing among let's say the Illinois Basin consuming utilities versus Central App consuming utilities, or has it been pretty uniform?

I would say for us, it has been pretty uniform there. And again, to me, it depends on what the price curve is for both Central App and then the price for natural gas. And if natural gas prices continue to trade greater than $5.50, I think we're going to see the erosion for both our Illinois Basin and Central App stockpiles, the utilities' stockpiles, where we're going to get unbalanced pretty soon.

And I think the wildcard is back to natural gas. And that probably impacts both the Illinois Basin and Central App, but probably more Central App than the Illinois Basin. We, as far as customers that have actually shown a desire or an interest to even give us a hint that they made need more tons, we really haven't heard a lot of that. There's been one small RFP expectation in the $200,000 range for 2010, and that's the Illinois Basin. But other than that, I'd say they're pretty much the same.

Emily Christy, RBC Capital Markets.

Most of my questions have been asked, but just -- I'm wondering what your view is on coal-to-gas switching for 2010, what might be included in your guidance and kind of what your general assessment of that situation is for 2010.

As far as what is included in our guidance, we're not -- our production levels are anticipating discipline. So we do have an opportunity to expand our production if the markets become more -- higher than what they are today or what they are showing in the trade regulations.

And back to natural gas, I think that I am -- I really don't know. That's part of the reasons why we're being cautious. If the utilities tell us they want the coal, we will produce it for them. If they don't, we won't. And that's where we are for 2010. They're the ones who are going to make the decision on natural gas.

I think that there's been a lot of hedged positions at prices that utilities will definitely burn coal. But I don't really know how much gas these utilities bought for the first part of '10, how much they hedged back when prices were lower.

So we're just being cautious, and everything that you hear and every time I talk to my gas brands out here, half of them think that the forward curve is equal to where it is going to be, and half of them are a little nervous that there's going to be more supply. They're cautious. And so I don't know if that's a function of just what we've experienced in 2009, and people are just being cautious, or whether it is driven off of supply/demand factors that aren't reflected in the forward curve.

So where we're managing our Company is we're watching it closely and monitoring it very closely. And we're ready to take advantage if the markets move up. But at the same time, if they don't, we've got a plan to honor our contracts and commitments and deliver the results that we've shared with you in our guidance today.

Joel Havard, Hilliard Lyons.

I guess first of all, most of the big-picture stuff has been answered, so a couple of specifics. If I recall, the prep plant at River View was to be completed in Q4? Do I remember right, or is that correct?

Yes, it is operating. So we are --

I'm sorry; go ahead.

It is completed. We're washing coal and delivering as we speak.

Okay, good. And that -- well, that's the second part of that question, is what kind of milestone should we look for as far as reaching the six of eight over the course of 2010? Are you two of six yet, or --

We're --

We have five units operating today.

It's five today?

We have five today. We'll be six. We're probably going to delay that about six weeks, but it should be up and finalized by June 1, I think.

I think that's right.

And then we're going to delay seven and eight, depending on the market.

And do I recall right, Q3, you shut in some production, a unit or two, if I recall, in Central App? Is that still the case?

One unit, and that --

We did that earlier in the year.

Was it the -- second quarter, I believe.

Second quarter, that's right.

Yes. And that unit is still idle, if you will.

You made some comments earlier that you saw Central App pricing getting better. Are you okay leaving that idle until kind of that $70 range you were talking about? Or could it conceivably come online again before that?

It will come online again when we get committed sales.

Okay, so a volume issue, not necessarily a price issue.

Yes. And then we would like to have it, obviously, for more than six months or something.

All right, guys, that's all. Thanks and good luck.

Ron Londe, Wells Fargo.

A lot of my questions have been answered, but I'm just curious, the capital spending range of $275,000 to $315,000, could you kind of break down where that money is going and where you are from the standpoint of financing those expenditures?

On the breakdown, I think we indicated roughly $92 million or so of that -- well, $4 a ton, a production ton, was going into maintenance capital for this year, with the balance of it primarily to continue to build out at the River View and Tunnel Ridge.

In terms of financing, as I said, what we look at our cash position, our revolver is undrawn at this point. So with the exception of some letter of credit commitments, we have full capacity available to us there. And when you look at our anticipated cash flows, expectations on interest, distributions, etc., we have sufficient liquidity to execute on our 2010 plans without a requirement to go to the market.

I think as you know, we are constantly looking at access and availability of the markets. They are all open to us at this point in time. And we'll continue to see what our options are and react accordingly. So the good news is we don't have a need to go back, but we will continue to assess opportunities.

[Michael Marron, Pennant] Capital.

Just a couple follow-up questions. With the six units at River View, what do you anticipate their contribution to production to be for 2010? And what would the fully ramped production be on the six units?

And then just one follow-up to the CapEx questions. How much of the Tunnel Ridge CapEx will be remaining for 2011?

Well, let's talk about Tunnel Ridge first. We've indicated, I think as Joe talked about, we had roughly 25% that's been spent and 45% or so that has been committed. The plan is to bring that longwall into operation in November of '11 at this point in time. So between '10 and '11, you will see the remaining uncommitted and unspent portion spread out reasonably equally over that time period.

On River View, essentially, it's 800,000 tons per unit. And so it's --

On an annual run rate.

On an annual run rate basis. So that gives you -- if we were to bring on the other two units on an annual run rate basis, it would be 800,000 per unit. And as far as how it compares year over year, we've got roughly the 800,000 tons time the six, but then we moved a couple of units from other operations to help staff River View. So there are a couple of other capacity opportunities in our Illinois Basin that I don't really have those numbers off the top of my head to give you, but they are definitely factored into the guidance we've given to you, based on what our game plan is.

And right now, we don't anticipate that the markets for 2010 and '11 would demand any more units than potentially the seventh and eighth unit at River View. So the upside that we might be able to provide if the market responds would be two extra units at 800,000 per unit on an annualized run rate basis, if that's where you're headed.

Right. And then with the transfer of units from other operations, as Joe mentioned, should the market continue to develop beyond that, we have additional flexibility there as well.

Wayne Atwell, Casimir Capital.

Most of my questions have been answered, and you've sort of addressed this, but maybe you could give us a little more color. Can you talk about the export market and how much it's going to mean to you, how much volume you might put out over the next couple of years in your strategy?

Yes. Again, I think we'd be looking at roughly 1 million tons of metallurgical, again, plus or minus, and then on the PCI somewhere between 400,000 and I said 650,000. Could be as much as 800,000, but I think more reasonably speaking it's 400,000 to 600,000 tons a year.

And that's available capacity, assuming the market is there for us.

Right.

Well, based on what I'm hearing, the markets are pretty strong. So I would tend to think that maybe it will get even better. But is that something you're likely to be talking about in your next conference call, that you'd put that into that market?

We would hope that by the next conference call, negotiations should be completed. So we should have more definition on that for 2010, for fiscal year 2010, April 1 to April 1. We should have more information for you next quarter.

Geographically, would that be Europe or Brazil, or where would you likely be putting those tons?

No, it would probably be Asia and Brazil.

I would've thought geographically Asia would be the tough --

Well, there is demand there, though. Some of it would go to Europe.

Okay. And then, again, you've discussed this, but maybe you could add a little more light on (technical difficulty) talk about the general pricing environment and what you're seeing in the market right now.

The pricing, again, if you go back to the industry publications, they reported pricing. It's very fluid, but the pricing aspects or the anticipated pricing has been built into our guidance for you. So I think that we've giving you ranges and revenues, and I think that based on what we know today, without -- since we're right in the middle of negotiations, I would prefer not to give specific numbers. But we have tried to factor that into the guidance we've given today.

And did -- I understand that and I respect your issue. But the market seems to have heated up in the last maybe six weeks or so?

Yes, it's continuing to show strength. There's some reports about China backing off, but specifically -- backing off economically, but specifically to their demand for coal and metallurgical coal, we believe that it's continuing to be very positive for the coal industry, including the US producers.

(Operator Instructions). Norman Kramer, Kramer Investments.

I wonder if I might ask you just for a clarification on the met coal question. You mentioned that primarily your production for met coal is from the Mountain View mine, but that there is a lot of contracted capacity there for Dominion. Does this mean that this is one and the same, that the coal which could potentially be sold as met coal is being sold as steam coal to Dominion, or did you mean something else?

Yes, and they're different qualities, because you have to wash that raw product to lower ash for the metallurgical coal than what Dominion takes. But yes, the coal that we're selling to Dominion does have metallurgical qualities, and it could go in the met market if we did not have that contract. But based off of our contractual commitment and based off of the other opportunities for us to buy coals to blend with our product to sell in the met market, again, we feel like are targeted right at that 1 million tons I've mentioned.

Okay, thank you for that clarification.

There are no further questions. I would like to turn the call over to our Senior Vice President and Chief Financial Officer, Mr. Brian Cantrell, for our closing remarks. You may proceed.

Thanks, Stephanie. And again, thank you, everyone, for joining us today as we discuss the best year financially in our partnership's history. We appreciate your continued support and interest in both ARLP and AHGP. And we look forward to hopefully delivering continued growth for our unitholders in 2010. Thank you very much.

Thank you all.

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