Alliance Resource Partners LP (ARLP) 2011 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Second Quarter 2011 Alliance Resource Partners LP and Alliance Holdings GPLP Earnings Conference Call. My name is Carol, and I'll be your coordinator for today.

At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (Operator instructions)

As a reminder, ladies and gentlemen, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to Mr. Brian Cantrell, Senior Vice President and Chief Financial Officer. Sir?

Thank you, Carol.

Welcome, everyone, and thank you for joining our conference call this morning for Alliance Resource Partners, which we refer to as ALRP, and Alliance Holdings GP, which we refer to as AHGP.

As you know, we released our 2011 second quarter of earnings earlier this morning, and we'll now discuss these results, as well as our outlook for the remainder of 2011. Following our prepared remarks, we'll open the call to your questions.

Before we begin, let me start with a few reminders.

First, since AHGP's only assets are its ownership interests in ALRP, our comments today will be directed to ALRP's results and outlook unless otherwise noted.

Also, our remarks this morning will include some forward-looking statements. Such statements are 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.

These forward-looking statements are subject to a variety of risks, uncertainties, and assumptions and should be considered in conjunction with the risk factors contained in our filings from time to time with the Securities and Exchange Commission, and they are also noted at the end of today's press releases from the partnerships.

If one or more of these risks or uncertainties materialize or if our underlying assumptions prove inaccurate, actual results of the partnerships may vary materially from those we anticipated, estimated, projected, or expected.

In providing these remarks, neither ALRP nor AHGP has any obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise.

And, finally, we will also be discussing certain non-GAAP financial measures. Definitions and reconciliations of the differences between these non-GAAP financial measures and the most directly comparable GAAP financial measure are contained at the end of the ALRP press release, which has been posted on ALRP's website and furnished to the SEC on Form 8-K.

Now that we're through the required preliminaries, I'll start the call this morning with a review of the partnership's quarterly results, and then I'll turn the call over to Joe Craft, our President and Chief Executive Officer.

As noted in our release this morning, ALRP once again posted record results for all key income statement measures for the 2011 quarter and period.

For the 2011 quarter, ALRP posted records for revenues, EBITDA, and net income, which were up 14.4%, 13.7%, and 14.9%, respectively, all as compared to the 2010 quarter.

Likewise, revenues for the first half of 2011 rose 12.8% compared to the first half of 2010, while EBITDA and net income for the comparable period jumped 16.5% and 20.6%, respectively.

Increased revenues for the 2011 quarter were led by record coal sales volumes and price realizations. ALRP's average coal price realizations rose 8.8% in the 2011 quarter to a record $56.08 per ton sold as we experienced improved pricing in all of our operating regions, particularly for our Northern Appalachian coal sold under the high-priced export markets.

Looking at volumes, consolidated coal sales in the 2011 quarter rose to a record 7.9 million tons, an increase of 5.4% over the 2010 quarter.

Increased sales volumes reflect continued strong sales performance from our River View mine and increased production and sales from the Pattiki, MC Mining, and Pontiki mines during the 2011 quarter.

Increased sales of purchased tons and sales from met coal inventory also contributed to higher total coal sales volumes in the 2011 quarter.

Turning to costs, ALRP's segment adjusted EBITDA expense increased to $36.70 per ton sold in the 2011 quarter.

Compared to the 2010 quarter, labor and labor-related expenses rose due to capacity expansions at our River View and Pontiki mines, as well as an increased headcount at the Tunnel Ridge mine development project.

Increased costs for maintenance, materials, and supplies reflect higher run-up mine production and the rising cost of consumables, particularly commodity price-sensitive items, such as steel, copper, fuel, and oil-related products.

Stringent [Mcha] oversight continues to hamper productivity and push certain costs higher, such as root control and rock dust expenses. These factors, along with weather-related disruptions, difficult mining conditions at various operations, increased sales-related expenses, and purchased coal costs combined to drive segment-adjusted EBITDA expense per ton higher in the 2011 quarter.

Sequentially, the seasonal impact of miners' vacation also contributed to higher comparative costs in the 2011 quarter.

I'll wrap up my comments this morning with a brief review of our outlook for the balance of the year.

Based on results to date and current estimates, ALRP expects 2011 coal production to fall within our previous range of 31.6 to 32.6 million tons, and we continue to anticipate 2011 total coal sales of 32 to 33 million tons.

With substantially all of these tons priced and committed, we are [typing] our estimate for 2011 revenues, excluding transportation revenues, to a range of 1.8 to 1.85 billion as ALRP now anticipates average coal sales price realizations will increase roughly 8 to 10% over 2010 realizations.

Reflecting the cost impacts I discussed a moment ago, ALRP now expects segment-adjusted EBITDA expense per ton for the full year will also increase approximately 8 to 10% compared to 2010.

ALRP is tightening its full-year estimates for 2011 EBITDA and net income to ranges of 550 to 585 million and 355 to 385 million, respectively.

And, finally, with approval of the Gibson South mine opening, the previously announced addition of the continuous mining unit at the Pontiki mine and current construction schedules at the Tunnel Ridge mine development project, we are now expecting 2011 total capital expenditures, including maintenance capital, near the upper end of our current range of 320 to 360 million.

Now that we've taken a detailed look at the quarter and our new outlook, I'll turn the call over to Joe.

Thank you, Brian.

Good morning, everyone. As you have just heard, ALRP completed the first half of 2011 with our best performance ever, and we are well on the way toward posting our 11th consecutive year record financial and operating results.

While obviously pleased with ALRP's results to date, we are even more encouraged by the opportunities that lie ahead. We are expecting positive supply/demand fundamentals to exist for the foreseeable future for all of our operations.

At Mountain View, metallurgical coal demand and pricing remains at near all-time highs, reflecting the shortage of coking coal across the globe.

In Eastern Kentucky, we are experiencing higher demand and pricing for our high-quality steam coal as our competitors are selling more of their production into the metallurgical market that they previously sold into this steam market.

For Tunnel Ridge and our Illinois Basin markets, we are seeing increased demand as more and more domestic utilities are switching from Central Appalachia production, seeking a lower cost supply.

Additionally, export demand continues to rise for all of the coal products we produce.

Since the beginning of the year, these dynamics have allowed ALRP to secure new long-term sales contract commitments for the delivery of approximately 9.7 million tons through 2016 at average prices well above those of the legacy sales contracts they are replacing.

This favorable long-term outlook was one of the key factors our Board considered when they approved new capital for development of our Gibson South organic growth project, which was announced earlier this morning.

This low sulfur coal to be mined from this new operation fits well into our existing product portfolio, and along with the production from our existing Gibson North operation, we'll enjoy extensive market reach, commanding prices at significant premiums over typical high sulfur Illinois Basin coal qualities.

At our Tunnel Ridge mine, we are beginning to add additional continuous miner units as we begin bottom and panel development for the longwall, which remains on schedule to start in the second quarter of 2012.

The strength of our performance to date in 2011 and the opportunities we see for ALRP in the future again gave us the confidence to declare another increase at the top end of the MLP sector for quarterly cash distributions to unit holders.

ALRP unit holders will receive a second quarter distribution of 92.25 cents per unit, a sequential increase of 3.7% and an increase of 13.9% over the distribution for the second quarter of 2010.

AHGP unit holders will receive a quarterly increase of 5% to 58.25 cents per unit, which represents an increase of 20.7% over the distribution for the 2010 quarter.

This concludes our prepared comments. Now, with the operator's assistance, we will be -- we'll open the phone to answer your questions.

Thank you, sir. (Operator instructions)

Jim Rollyson, Raymond James.

Another ho-hum record quarter and industry-leading distribution growth, I see. (laughs)

Thanks.

Great job. On Gibson, Joe -- on Gibson South, in the past, you guys have typically not pulled the trigger on the CapEx to start these projects until you've either had contracts in hand or certainly some advanced customer discussions. Can you kind of talk about where you stand on that and kind of what your customers are saying?

Sure, Jim. We are looking at marketing that product in combination with Gibson North. So as we look at the total complex, we do have a substantial amount of that tonnage committed, maybe 50% of the combined production. Now, we are in advanced conversations with customers. This particular operation, we've been wanting to bring it on for some time. We've been waiting for permits from the EPA. We finally got those in May, and it made it difficult to get firm commitments because we really didn't know when we were going to get the permits. We thought we were going to get them in October.

So we have continued to have dialog with our customers. They have picked up in earnest. We went ahead and started the construction so we could bring this on in 2014 as soon as we can, and we did not want to delay because we believe the demand for the product is quite strong. So we're very confident and comfortable with our ability to market this coal at prices that are going to make this a very attractive investment for our company.

That's great color. And on the contract commitment side, you guys continue to layer in contracts now, I think you said, out to 2016. Can you give us some indication on how the pricing, say, going into next year and the year after overall with what's in your contract portfolio today may be compared to what you're looking at for '11? Just kind of get a sense of what kind of growth we're looking at in pricing next year.

And then, also, are you predominantly still contracting everything domestically with the exception of your met contract, or are you seeing interest for some of this to go export?

I think, relative to your first question, we're not ready to give an indication or guidance on what our revenues will be next year. I think it's fair to say they will be an improvement year over year, as we have been replacing older contracts with newer pricing, and even the pricing year over year is positive.

So I can give you some comfort that we do expect our revenues to rise on an average sales price per ton basis, but I can't give you a precise number at this time because we still have some key negotiations that we're trying to get through and maybe by the next call, we'll be able to do that.

But we're encouraged that that top-line growth for both the sales price and tons will continue to grow in 2012 and position us for, hopefully, another record year.

Specific to your second question, we have transacted some in the export market for domestic sales, and we do expect that as we move forward, that we'll see more tons going into the domestic steam market than what we've done in the past. It's probably -- it's not going to be a significant amount, but we are participating in that market, and we do plan to continue to participate in Mettiki with our -- and/or Mountain View with our metallurgical product there. And the volume, I don't have the precise number, but we do expect that we'll grow next year, as well.

Okay. And then just lastly for me, Brian, on the CapEx front, you bumped it up a little bit, well, toward the higher end of the range for this year. Given the CapEx that's going to be going to Gibson South starting, I guess, this year but into next, any kind of early indicator and directionally where CapEx might be for 2012 relative to the 360 for this year?

Again, we're obviously beginning our planning process for '12, and as you know, Jim, there are a lot of moving parts around that. So it's probably a little early to give an indication on what expect the trend to look like for next year, but we'll certainly be ready to address that either on the next call or at the end of the year with the fourth quarter results.

Okay. Thank you. Great quarter.

Thanks.

Thanks.

Mark Reichman, Madison Williams.

First of all, I just wanted to start out talking a little bit about the production profile over the next few years.

And just starting out with your current guidance, 31.6 to 32.6 million tons in '11, looking at 2012, I think Tunnel Ridge was expected to be about 660,000 tons in 2011, so by my calculation, you should add about another 4 million tons in 2012, so Tunnel Ridge will be up to about 4.6 and then growing to 5.5 to 5.7 in 2013.

And then I guess you've got Gibson South. You'll get about one quarter's benefit of a 3.3 million-ton production from that mine in 2014, and I see it kind of staying in that 3 to 3.5 million tons 2015 and beyond. Is there anything else to factor in there I mean beyond maybe Penn Ridge if you eventually get it permitted and approved?

I think -- I'm not exactly sure I'm following your numbers exactly, but we do have the increase in the production at Tunnel Ridge, and then we've got -- that would be '12 and '13. So you're going to see partial year '12, full production in '13, and then you'll (inaudible - technical difficulty) South coming in.

And, really, that's what we've got today, so we don't have any other excess capacity that would benefit those particular years based on our current portfolio.

So is Tunnel Ridge expected to be at 660,000 in 2011 and then at 4.6 in 2012?

Mark, I think we were looking more in the 550,000-ton range this year, I believe.

Okay.

But then the incremental between that in '11 and '12, I think, is directionally fairly...

Ramps up over the four quarters.

Then as Joe said, once we have that for a three-quarter benefit in '12, and then we'll see a full year in '13.

Okay.

So you'll (inaudible) from that operation between now and the end of 2013.

Okay. And then River View, I think, was expected to be at 7.5 million tons in '11. Is that still tracking?

Yes, it is.

Do you think --

There was some confusion on River View. The public reports that came out, I think, had River View producing this quarter at a little over 3 million tons. More the 1.85, 1.87 million ton range. It was just erroneous.

Okay.

Likewise, Dotiki they had producing about 1.86 million tons, and that's about a million tons high.

Okay, okay. And then, also, in your release, you talked about the higher the geological difficulties at Mountain View. I know you had the longwall moved last quarter, right? So could you just maybe kind of give a little color there on Mountain View?

Yes. We ran into some sandstone issues at our longwall in the second quarter, so it affected productivity and obviously affected our cost.

So as we look to the third quarter, we will have another longwall move in third quarter, but we're encouraged with the same conditions. We've also rebuilt equipment so -- through miners' vacation, etcetera, so we would expect at Mountain View our costs to be more in line with the first quarter as opposed to the second quarter and get back to what we would typically experience at Mountain View on a quarter-by-quarter basis that we'd hope for.

Okay, and then, lastly, on the CapEx, is 4.70 a ton appropriate for the second quarter or -- because I think it was 4.70 per ton in the first quarter and then the five-year view was kind of a $4-per-ton rate.

So I guess the question is what number to use in the second quarter and then maybe for the balance of the year, and then how much of the [320] to [360] is related to expenditures for Gibson South?

Let me take your last question first. It looks like we're going to spend roughly 10 to $12 million for Gibson South this year with the approval that the Board gave us earlier this week.

On maintenance capital market, if you recall, the way we tend to look at that is over a long period, about a five-year average. I wasn't quite following the numbers you were quoting. I believe what we have been guiding toward --

$4?

-- over that five-year average since the beginning of the year is 4.70 a ton. Given some of the individual schedules and infrastructure projects that we have going on this year, it will likely be somewhat higher than that, but when -- because we look at distributions over a long-time horizon, we tend to look at maintenance CapEx in the same way, so we still think 4.70 is a reasonable expectation over the next three to five years.

Okay, great. Thank you very much.

Thank you, Mark.

Mark Levin, BB&T Capital Markets.

Just a couple of quick questions, first related to cost. Brian and Joe, as you kind of think about cost inflation '11 to '12 and you look at the various buckets where there are inflation, whether it's raw material or labor, can you maybe give us some of your guidance as to how you see sort of those inflationary forces working next year, potentially offset maybe by higher fixed cost absorption from increased production?

I mean how should we think about costs going forward in the inflationary environment that we're in?

I think that components on labor, we're running about 2% year over year '11 to '10, and that will probably continue for the foreseeable future given the competition for labor in the growth markets where we are. I would expect on overall that's probably what they'll do on the costs there.

Then you get into what's crew prices going to be and in steel and copper, and your guess is as good as mine. I think we're probably in the 3.5 to 4.5% on an annual basis sort of a target to where we see consumables being.

And the third component for cost, other than just pure inflation and wage rates and the impact there, we've got medical insurance. This year, our medical has gone down compared to where we were a year ago. Some of that's just driven by experience as opposed to cost. Costs are up, but our experience is down, so that should be probably in the same 3.5 to 4.5% range if we can continue to experience positive health habits of our employee base.

And then the final thing is back to productivity, and that's going to be driven in large part by conditions and outside forces. As we look forward, we're encouraged with our operations. They continue to do an outstanding job, and we see no reason from a mine planning perspective that our productivity should change that much, but you get into the other factors, they're somewhat outside our control.

Got it. And just another question, Joe. As you kind of look at the Illinois Basin's growth and maybe some of the issues that Central App is experiencing, I know a lot of the press reports have been discussing how maybe the acceleration of Illinois Basin coal into the Southeastern market has picked up maybe even more furiously and maybe more quickly than people might've thought. Is that something that you're seeing in the market, as well, when you look at RFPs and people -- some of the larger Southeastern utilities? Are you seeing a noticeable increase in the desire to access Illinois Basin coal, maybe even vis--vis Central App coal?

Yes, we are. We are seeing more interest, and I think the dialogues are picking up to transact, as opposed to explore, so we are encouraged about the supply/demand balance, if you will, in Illinois Basin. So we do see that right now in the next four to five years, the demand will be -- supply is going to be lagging demand over the next four to five years in the Illinois Basin.

Got it. And then one last question. As we kind of think about the distribution going forward, optimal coverage ratio, as you kind of see the business profile right now?

Mark, as you know, we really aren't trying to drive toward a particular coverage ratio. It has ebbed and flowed over the years depending on where we are in new capital projects, and as you know, this business tends to be a little bit lumpy, so the capital will be well in front, sometimes several years in front, of getting the cash flow benefits. So it's obviously a bit high, higher than normal right now, but we're also on a pretty strong distribution growth profile. And I know this quarter at ALRP it was 3.7. That was really more due to rounding, not necessarily a signal that 3.5% -- that we're exceeding our 3.5% going forward, but the Board will just continue to look at it every quarter.

But suffice it to say, we see with the production growth that we talked about a few minutes ago coming out of Tunnel Ridge as it ramps up and Gibson South as we begin our initial production there, we feel pretty good about our cash flow outlook, and we hope to show continued distribution growth at the top into the MLP space.

Got it. Great. Thanks very much. Appreciate it.

Ron Londe, Wells Fargo.

It looked like on the Gibson South project that the reserve production ratio in years was around 14.5 years. Are there any ancillary reserves in the area that would extend that production in years?

Yes. The reserves that we have stated in the release are 10-K reserves, so the only reserves the SEC will allow us to report are those that we have under contract and are contiguous that could be mined with the capital deployed. So for the capital, we are deploying to meet the SEC standards. That is the reserve number you're seeing.

There are some windows in that reserve that we consider controlled that will allow the reserve that we anticipate to mine to be greater than what we're reflecting, but due to SEC rules, all we can do is reflect the number that they allow us to reflect, and that's the 48 million tons.

Can you give us kind of a guesstimate of when you'll reach that 3.3 million tons of production? I assume it'll be sometime in 2015.

I think that's fair.

(Inaudible - multiple speakers) feel for that.

If we go into second quarter, it'll probably be the first quarter of '05 before we would be fully implementing all four units that we anticipate.

At that particular mine, this capital, we are going to design it to be able to support with infrastructure six units of continuous mining units. However, our current operating plan is targeting four units at the 3.3 million annual production rate, and depending on construction schedule, by the end of the first quarter, we should be at full production, I believe.

Okay. Earlier you said that you expected your labor cost -- if I'm not mistaken -- your labor cost to increase somewhere around 2% annually for the next few years.

That's 2% per ton --

Per ton.

-- as opposed to 2% of the labor cost. So as we're thinking of the cost per ton, I was really responding to what it would cost per ton as opposed to what it costs per hour.

Okay, because per hour, I've seen some much higher numbers from --

Yes, because it would be a higher number on a per-hour basis.

-- (inaudible - multiple speakers).

But when you look at the cost per ton, the 2% I was quoting was really on a per-ton basis and not a per-hour basis.

Okay. Thank you. That's all I have.

Thanks, Ron.

Paul Forward, Stifel Nicolaus.

On the Illinois Basin, I think you talked about some production issues related to flooding Gibson North and Hopkins. I was just wondering the transport and production issues on the flooding. I don't know if you gave a number earlier, but is there a chance you could quantify what the impact was in the second quarter? And are there any lingering effects that we can anticipate going into the third?

Yes, and my hat's off to both our marketing team and our production team and really the resilience of our customers. Second quarter was as disruptive a time that we've ever experienced. Mount Vernon, our barge loading facility, in fact, had to close for the first time in its history, and it's been around since the '80s, the 1980s.

So we did have disruptions. Notwithstanding that, we dropped our inventory from first quarter to second quarter about 230,000 tons. Most of that was in Illinois Basin. So we're at budgeted inventory levels at the end of June. We made significant shipments during miners' vacation to where we're trending down to what we believe at the end of the year will be normal inventory levels, which last year was around 300,000 tons for the entire operation, and we're expecting that we'll be at that level by the end of 2010.

So we did have increases in stockpiles during the quarter, but within the quarter, we eventually got them shipped, and again, my hat's off to our operating folks and marketing folks for making that happen.

We did have some disruptions just with people getting to the coal mines, so it affected us a little bit, but there, too, our people were -- they came above and beyond because there were a lot of roads that were flooded and they had to go the long way to get to work, but they showed up, and it was just amazing effort by our operating folks and really the whole team. So my hat's off to them in the second quarter now.

Lingering, we're not seeing any significant impact, lingering for our operations and/or our shipments as a result of flooding similar to what you're reading about for PRB. So we're not seeing that, and hopefully, like I said, we've already experienced some significant shipments earlier in July just from the miners' vacation to get our inventories moving in the right direction.

Great. And I guess keeping a focus on the Illinois Basin, I wonder if you could talk a little bit about where you see Alliance fitting in on the production cost side of things and the competitive landscape among Illinois Basin producers.

Where you can read about competitors anywhere from kind of low 20s to mid-40s on a cost-per-ton basis, Alliance has typically been toward the lower end of the range. Just wondering if you could comment a little bit on the Gibson South project and what you think that's going to do as far as your competitiveness on a cost-per-ton basis and just kind of how you see yourself fitting in over time relative to other producers on a cost-per-ton basis?

If you look at our product, we are right at the $30 a ton in what we show in the quarterly.

We were 30.50, I think, for the year --

Yes. For the --

-- there or lower.

For Illinois Basin. So that's where we are. And when you compare to the other Illinois Basin, what we've got is a higher BTU, lower chlorine, better transportation logistics.

So the market has rewarded our reliability as well as the quality coals, and they're in high demand. So we're very comfortable with our ability to compete in the marketplace. We consider ourselves low-cost producer for the products that we produce, but we're not longwell operators, and they do have an absolute cost advantage from a cost per ton, but as we look at the other aspects of coal quality and transportation, we're in a position to compete very well with other producers in the Illinois Basin.

Specific to Gibson South, we believe that the cost there will be comparable to our Gibson North. The same conditions appear to be about the same, and yet the same height is higher than what we have at Gibson North.

So our expectations are that on a -- at the (inaudible) mine cost will actually be lower than Gibson North. However, we will have a little higher cost to get the coal from the prep plant to the load out into the marketplace, so they'll tend to offset each other as we get forward. So I think our cost profile for Gibson South and Gibson North will be very comparable, and those are pretty much within the range of where our average cost is.

For the Basin.

For the Basin. And when you look at the price it demands because it's a lower sulfur product, we're very excited about the return on our Gibson South investment.

Okay, great. Thanks for the commentary.

Thank you.

[Paul Chang], Deutsche Bank.

Congratulations on a great quarter. Have a quick simple question on liquidity, just kind of back office bookkeeping question. What exactly was it?

Liquidity at the end of the quarter?

Yes.

Let's see. Total liquidity is about 478 million.

Great, thanks. Good luck.

Thanks.

Chris Haberlin, Davenport and Company.

Looking at the Northern App segment in the current -- I guess in Q2, realizations were up $14 a ton. Can you just talk about what happened there to cause realizations to jump so significantly? I know in the release you mentioned some additional purchased coal. Did you have additional met coal going out of there, or what was kind of going on there?

Our met coal contract price is April 1 to April 1. So what you're seeing is the improvement in our metallurgical coal contract that was reflective in the second quarter versus the fourth -- first quarter. So that's just the year-over-year price increase that we had for our met coal contract that's reflected in that higher realization.

As you go out the rest of the year, we would expect revenue to be at that same level. It's obviously at the blended price between our steam coal sales and our met coal price, but you could expect that that should be the average -- around the average revenue on a per-ton basis in the second part of the -- third and fourth quarter, as well.

Great. And then looking at the Central App production, I guess volumes were up about 100,000 tons quarter to quarter. Is this level sustainable here in Central App, or was this kind of just a one-time increase with demand?

It's sustainable. We added a fourth unit at our Excel mine, and that is reflective in this increased production. So, yes, we do believe that would be sustainable going forward.

Okay. Thank you very much.

Thank you.

(Operator instructions)

William Adams, [FAM Co.].

Going back to the Gibson South project, I had in my notes that originally you guys were guiding to like 100 million to $100 million capital cost. Can you guys explain what would account for the difference now versus then? Are you getting any -- it looks like you're getting a little more production you originally thought, as well?

I don't know. That may have been four years ago when we first started getting that permit, trying to get the permit. I don't know.

I think that's -- I do not recall the numbers being quite that low, Bill, but whatever you were looking at is fairly dated. We haven't been giving capital estimates for some time.

Okay. But I guess relative to River View, which is Illinois Basin, it's significantly above River View, as well, on a per-ton basis of production.

Well remember, too, we're designing the infrastructure for this mine as a six-unit mine, and the initial production that we're showing is for four.

So at six units, it would be about a 5 million-a-year producer.

Okay.

So if you want to look at it that way on an annual ton basis, I think it would be comparable with River View.

Okay.

And if the market allows, then we'll ramp it to that level. But right now, we're targeting the four units. If it's like River View, we will -- we would be there. If you remember at River View, we were targeting four units. Now we're at eight. So maybe it's if you build the field, they will come. I don't know. We'll see.

Okay, so right now, you're planning for the three millions tons and potentially goes to five millions tons if you can expand it?

Yes, 3.3.

Right, 3.3. Great. Okay, that's all I had.

Thanks, Bill.

Noah Lerner, Hartz Capital.

Two questions. One, I just want to circle back to something that was referred to earlier, the expansion into the international markets.

In the press release, there was a couple of mentions of different opportunities. One is specifically tied to the new Gibson South mine. So I just wonder if you could put a little more color around what type of opportunities you see growing into over the next two to three years in the international market above what we're doing right now?

I think, as I mentioned earlier, we have sold a couple of vessels, one in the second quarter, and we've got, I think, another one in the third. We would ramp up to -- I can foresee us ramping up to a million tons in the international market in the steam coal sector.

In the past, we've wanted to have longer-term contracts, so if we can secure longer-term contracts that give us some price certainty, we would move to that level.

Great. And then I guess the other question I have -- this is more for Brian -- in the comparison of sales committed and price --

Right.

-- it seems that, which makes sense because of the increase in the contracts, that the amount of sales committed has gone up, but yet for 2012 and 2013, the amount priced is flat.

Does that -- I'm just curious. Is it that we have certain contracts that don't pre-price and are just subject to spot price so those numbers would basically stay that way right until the year, or is something else going on within the numbers there?

Well, the total increases in contracted positions that we've talked about are spread out and really are through 2016, whereas numbers are just limited to '12 through '14.

Right.

I think it just gets back into the timing of when deliveries will occur, contracts we've entered into.

And there are price reopeners in these contracts to where we have specific windows where we negotiate the price. So that does move just off of a calendar so the contracts are committed. Contract terms explain exactly when you would price that product, and some of them have collars on them, some of them are wide open --

(Inaudible - multiple speakers)

And so the reason why the same amount of unpriced volumes are there at the end of this quarter versus the previous quarter is basically because we haven't hit those windows yet?

Exactly.

Yes.

Okay, great. Thanks a lot, guys. Enjoy the rest of the summer.

Thank you, Noah.

Ladies and gentlemen, this concludes your question-and-answer portion of today's conference. I'm going to now turn the presentation back to your host for their closing remarks. Gentlemen?

Thanks, Carol. And, again, thanks to everyone for joining us today to learn about our record quarter and what should prove to be the best year in our history. We appreciate your continued support and interest in both ALRP and AHGP, and we look forward to updating you next quarter.

Thank you.

Thank you, sir. Ladies and gentlemen, you may now disconnect. Your conference has concluded. Have a great day.