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Joseph Craft

Thank you, Cary, and good morning everyone. Our operations ran well in the first quarter, in line with our expectations, thanks to the hard work and dedication of our entire team. Our Illinois Basin operations continue to deliver strong results, and we are seeing cost improvements in Appalachia.
While costs have not yet reached our target levels, they remain on track with our 2025 full year guidance expectations. Importantly, as we near the completion of mining in the more challenging areas at Tunnel Ridge and Mettiki, we expect our cost in those operations will continue to decline in the quarters ahead.
Now turning to an update of current market conditions, the domestic markets strengthened considerably in early 2025 due to the cold weather -- cold winter season, higher natural gas prices, declining coal inventories, leading to increased coal consumption and upward revisions to electricity demand forecasts from our customers.
In contrast, export opportunities for our high sulfur coal out of the Illinois Basin have not been as attractive. With the strength of domestic demand for Illinois Basin coal, our guidance assumes we will not enter into new export contracts for Illinois Basin deliveries this year.
With the outlook for near term data center driven demand growth and the extended life of the coal plants we ship to, we will continue to give preference to the domestic market. I want to emphasize that we remain a cornerstone of our customers supply plans, consistently supporting them throughout market cycles.
We will prioritize customers who recognize our quality, reliability, and financial strength based on years and even decades of service to their critical assets. With inventories on the decline, utilities have come back to the market for both flex tonnage requests for 2025, as well as term business in 2026 and beyond.
I'm pleased to report that we have been successful in a number of those solicitations year-to-date, including entering into an arrangement with a long term customer to supply essentially all of their needs through 2025 -- 2028. As Cary stated, we are nearly sold out and priced our expected production for 2025. Current market indications suggest sales for the year could even approach the upper end of our guidance range.
Next, I would like to spend a few minutes highlighting the ongoing shift in energy policy out of Washington. The administration's recent actions regarding the coal industry and grid reliability directly address the realities we have warned about for years.
That overdependence on intermittent renewable energy sources, while simultaneously disadvantaging coal, puts the reliability of our country's energy backbone at risk. We welcome these policy actions as a recognition of coal's essential role in energy security.
Notably, on April 8, 2025, President Trump signed four executive orders to expand domestic coal-fired generation, seeking affordable electricity for the American people and grid stability in anticipation of growing energy demand which is critical for our country's national security interests.
The executive order addressing grid reliability cited that rapid technology advancement, an expansion of AI data centers and increased domestic manufacturing are driving an unprecedented surge in electricity demand and placing a significant strain on our nation's electric grid.
The White House now forecast US electricity demand is expected to rise 16% over the next five years or 3 times the growth forecasted just a year ago. These orders are designed to help level the playing field, inject common sense approaches to the calculation of reserve margins, and prevent premature retirement of critical generation.
Additionally, the administration is calling for greater federal involvement in decisions regarding capacity reserves that have typically been made at the utility or regional transmission organization level, which could further promote the extension of base load capacity lives.
The results are likely to be material for our customers and our industry. Recent analysis by Energy Ventures analysis estimates that 10.6 gigawatts of coal plants scheduled to retire or convert to natural gas by the end of 2027 could be extended representing coal demand of 23 million tons per year as a result of these executive orders.
This includes a number of coal plants we currently serve. We have long maintained that premature closing of cogenerating capacity would threaten grid reliability. The market has already signaled the scarcity value of coal-fired generation, as evidenced by last year's PJM capacity auction, clearing price increasing tenfold.
The next PJM auction scheduled for June of this year will cover the period from June 26 through May of 2027 and is indicating more of the same with a $350 per megawatt day price cap already announced. While this policy momentum supports constructive long-term fundamentals for future coal production. The initial fallout from the April 2, 2025 Liberation Day tariff announcements has created significant uncertainty as to the future inflation, supply chain interruptions, global economic activity, and energy prices, among other things, making it difficult to predict with any certainty how these policies will impact us.
As Cary mentioned, we have secured solid volume commitments for 2025 and 2026. However, similar to this year is our higher price multi-year contract signed during the 2022 energy crisis roll off. Our average coal sales price per ton is trending lower. Based on current market developments, including a favorable natural gas futures price curve, we anticipate that 2026 average coal sales price per ton could be 4% to 5% below the midpoint of our 2025 guidance.
Like this year, we are hopeful we can maintain margins with cost savings. The trade policy uncertainty makes actual costs, sales opportunities, and pricing very hard to predict. For 2025, we have tried to factor in what we believe the known impacts of the terrors are into our cost and our guidance that Cary mentioned.
A royalty segment faces the same uncertainties from potential trade implications. As we navigate rapidly evolving market dynamics, we are committed to maintaining a strong balance sheet and disciplined approach to capital allocation while carefully monitoring the potential impacts of trade policy uncertainty on coal demand, pricing and costs.
As Cary mentioned, we declared a quarterly distribution of $0.70 per unit for the 2025 quarter, equating to an annualized rate of $2.80 per unit. This distribution level is unchanged sequentially and compared to the 2024 quarter.
The board in making this decision recognized the uncertainty regarding the trade policies. But decided it was premature to make any adjustment this quarter. Cary also outlined the multiple factors the board considers in determining the appropriate distribution level. The board will closely be evaluating the potential impacts of tariffs on future results, which will, among other factors, inform the board's decision regarding future distributions.
In closing, we are off to a solid start for the year. With an improving regulatory framework and the realities of natural gas and coal-fired electric generation being critical for grid security, we believe Alliance's investments in oil and gas minerals, as well as the recapitalization of our coal mines have positioned us well for continued success.
That concludes our prepared comments, and I will now ask the operator to open the call for questions.

Question and Answer Session

Operator

(Operator Instructions)
Nathan Martin, The Benchmark Company.

Nathan Martin

Thanks, operator good morning guys.

Cary Marshall

Morning Nate.

Nathan Martin

Joe, I appreciate your thoughts on recent executive orders in (technical difficulty)

Cary Marshall

Nate, you're kind of breaking up a little bit here.

Nathan Martin

Is that better.

Cary Marshall

A little bit better.

Nathan Martin

Stop again, if you can't understand, I apologize. You go back to what I was saying, your comments on Trump's, executive orders (technical difficulty) one directive under these orders is allowing to your waivers from that for a number of plants before we're starting to see some coal plant retirement delays. So what are you guys hearing from your customers at this point?
I think you mentioned a couple plants you served are, impacted there. Any additional color would be helpful. And then second, do you see the possibility of additional capital being spent to bring online either more thermal coal production or keep coal-fired plants running longer, if not, what kind of commitments do you think the industry needs to feel comfortable doing that?

Joseph Craft

As far as the response, I mentioned the EDA analysis, and that's on top of announcements that already been made previously, which is about double the amount that the EDA was analyzing. I think you mentioned the Mats extension, which is a two-year extension.
There was a schedule attached to that included the various utilities had requested that extension, I would say most if not all of the utilities we serve were included on that list and intend to take advantage of that. I think that window is still open for those utilities that haven't declared that there would be openness to consider utilities to take advantage of that extension.
As far as trying to understand exactly what that is, what is clear in our conversations with utilities is this demand for electricity for data center. Construction is real and so I think every one of our customers is trying to determine exactly how fast that electricity can come online and what that means for them.
I think again the executive order from President Trump was driven primarily because of the realization that the growth for these data centers is real and there's a national security interest that is under consideration that wants these data centers to be completed.
So as a result, the data, the executive orders are driven to make sure that the coal fleet stays open. And I think that reality is going to occur specifically as to whether there's going to be increased investments for bringing on more coal. I don't think that's going to happen.
I think that there is adequate capacity to meet the existing coal fleet. I think from a utility perspective, will they continue to invest and hopefully there's going to be strong encouragement for the utilities to invest in the existing coal fleet. So that they can in fact operate at higher capacity factors as part of the executive orders, there are evaluations on new source review modification or adjustments which would give the utilities the comfort to go ahead and make some investments, there's actually been encouragement that.
Both at the state level and the federal level to see if they can help the utilities and encourage them to make investments in their current fleet if they have not been maintaining those to the level that allow them to run it at nameplate capacity.
So I do see that the utility industry is being responsive because they see the increased demand is requiring them to provide power at the lowest cost possible. And I think from my perspective, it's only common sense that if you can maintain what you have, it's a lot cheaper than trying to build new, especially with the supply chain.
That's not going to allow for the new construction to come on at a rate that the projected energy demand is being forecast. So hopefully that's responsive. I didn't hear totally your question, but if there's something I missed please ask me.

Nathan Martin

No, that was great. That was great, Joe. I appreciate that. I mean, just maybe sticking with the macro for a second, you guys talked about how clearly everybody is dealing with trade policy uncertainties at the moment, making things difficult on a number of fronts.
Could you talk a little bit more specifically about which policies or potential policies you maybe are impacting ARLP's business the most and then how you plan to, mitigate or manage any potential challenges?

Joseph Craft

Well, the impact that we've included is what we're actually seeing from the tariff increases for steel and aluminum and then also monitoring copper prices, those are gone up, so those are the main things that we've factored in through our guidance. I think that as we try to think beyond that, we're like everybody else in the world, trying to understand.
What the intent is and what the unintended consequences could be. And I think our, the impact of mining, there's been several articles, by different publications of investment banks that try to show the impact of various industries and mining is on the low end, which is good, but the general economic impact of the entire economy, obviously would have an impact.
On what the future demand could be, and then you have the total uncertainty of supply chain interruptions. Again, I think for us we don't anticipate any significant Impact there, but it's really hard to predict. I think that one of the things that is encouraging for us is the administration is serious about this emergency for protecting the grid.
And so they are very responsive to hearing what the industry has to say, if there are issues that start popping up that would suggest that the trade policies could have a negative impact To achieve the goal that that he's striving For the energy, landscape. So -- and I feel that the administration is very aware of the importance of both oil, gas, and coal, the whole energy space to the strength of our economy.
And is not intent, his intent, the President's intent is not to allow the -- let's see yeah. So his intent is to not impact the energy sector by his trade policies, if he can avoid it. That's my view, but it's very hard to predict, if not impossible.

Nathan Martin

Okay, great, Joe. Yeah, I don't think you guys are alone there. I guess just shifting gears finally just to the Appalachian segment again, costs stubbornly high, as we expected they would continue to be. I know you guys are still working through a panel at Tunnel Ridge, I think before you move to some better conditions. But how confident are you that you can kind of get within that four year cost per ton guidance range obviously you maintain.
But where do you think cost per ton can trend for Appalachia once you're past all these challenging conditions?

Joseph Craft

When we've guided to where we think that would be for the year, we are confident that we can achieve those costs and we've already moved into a new long wall panel with Mettiki and seeing positive results there still work to do. At Tunnel Ridge, our movement to the next district is now scheduled for the end of June I believe.
So, for the second half, we should see improvement next quarter in second quarter, but the second half is what we're targeting to get us into to the range of costs that are shown in our guidance numbers.
So when you think through what that means for '26 on a full year basis we should have more stability compared to our '25 numbers. And that's why it gives us some hope that we will be able to have lower cost in '26 to match the lower cost in sales prices to hope that we can maintain our margins in '26 like we're doing in '25 compared to '24.

Nathan Martin

Got it. I appreciate those thoughts, guys. Thank you for your time and best of luck here in the second quarter.

Operator

Mark Reichman, Noble Capital Markets.

Mark Reichman

Thank you. You talked a little bit about the uncertainty, I think everybody recognizes that. So how are you kind of positioning in terms of when you talk about capital allocation internally and particularly as it pertains to 2026, how are you thinking about, capital expenditures, investments, the distribution.
Are you taking kind of a more defensive posture or because I know you did make an investment in a power plant, and I think it was $25 million. So I'm just kind of curious kind of how this environment is influencing your capital allocation.

Joseph Craft

Yeah, right now our guidance is just totally driven off just maintenance capital for our co-operations. We are evaluating opportunities to participate in the data center infrastructure side of the business. You mentioned that $25 million investment we made in a power plant through a larger, fund if you will, where.
There's a group that bought the Gavin plant and so we bought 1% of that. We think more opportunities like that will present themselves. We're not going to slow down our growth capital if we can find assets that would be promising for the growth in the future. At the same time we're going to be prudent in looking at those and trying to understand whether there are opportunities that allow that growth and we there will be some opportunities in what we call the data center infrastructure.
Arena, where we can work with customers and try to understand how we can be beneficial to them as they need to grow at the same time, provide growth opportunities for our company. You know we've mentioned a little bit in the mineral space that we're very committed to staying and wanting to grow that. However, with the decline in oil prices, it has muted seller expectations or it has not muted there.
In other words, they're not adjusting their expectations, but it does if we maintain our underwriting standards, it's going to limit our ability to allocate capital to that area unless there's some change in mindset or we get back to a price curve that's comparable to what we've experienced over the last three or four years.
So I think that will play as to exactly how much we can participate in that area.

Mark Reichman

Well, I was just curious because --

Joseph Craft

I think the question is really back to when we think of opportunities, we will be mindful of our balance sheet to determine what to do in an uncertain environment.

Mark Reichman

Okay. No, that's helpful. And just, you've got that portfolio of infinitum and Francis Energy and the infinitum has a great relationship with Matrix, but like this this executive order, I mean, does that -- have you broadened or maybe even narrowed kind of the scope of your investments so you mentioned the power plant, but with this grid reliability, could there be investments around the grid or just kind of curious how you're thinking about those investments and the opportunity set?

Joseph Craft

Yeah. I think we've narrowed our focus -- so the various transition type investments that were made under the previous administration as to where the direction was going and sort of stalled. Our Infinitum we still are working closely with them and we are advancing.
The joint development agreement we have with them and we're very encouraged by the prospects of that, so that's moving. As we contemplated, it doesn't take much capital, but it does take labor and a growing sales prospects, so that looks good, it's when you think of significance, it's not going to be a significant number for '25, '26, but we're still very excited about the longer term growth potential for that relationship back to the infrastructure.
There are areas within Matrix that we're looking at that will allow us to do some things in the components of data centers that sort of fit this infrastructure concept of how we could participate in that could add some value that we're excited about and then beyond that it would be looking at properties we have and or that are in regions where our existing coal fleet that we serve are located.
To see if we can't facilitate somehow data centers being located to where the coal burn would benefit from the investments in those regions.

Mark Reichman

And just one final very specific question related to the executive order, do you think there's any possibility that that two-year relief, will kind of be made permanent --

Joseph Craft

Well, I think that, well, all six of the EPA rules that are needed to be repealed and or replaced are actively being acted upon and the mass rules one of them. So the law gave the President the opportunity to go ahead signal to the utilities that they had the automatic extension there.
I think that the quicker that they can move on the Clean Power Plan 2 or the coal combustion residual rule or the ELG rule, they're already doing some things on the ozone transport rule. The EPA is very focused on trying to move as fast as possible with the goal of having clarity by the end of this year.
So that the utilities can make decisions with what the new rules are going to be and not be constrained by the rules on the books today. So I do believe that there will be more clarity for the utilities to where they're not having to be bound by the dates and the various rules that were designed to actually prematurely coal plants, so I do believe that as the year progresses.
All those six rules will be revised in some way, shape, or form to give the utilities more clarity on exactly how they should invest and factor in the lives of their existing coal fleet.

Mark Reichman

Okay, thank you very much. That was very helpful.

Cary Marshall

Thank you Mark.

Operator

(Operator Instructions)
Dave Storms, Stonegate.

Dave Storms

Morning everyone. I appreciate you taking my questions. Just wanted to get started with your current capacity levels, volumes and commitments are, really strong, and just curious as to what your thoughts are, with your current capacity levels given those strong volumes?

Joseph Craft

Assume you're talking about our customers' capacity?

Cary Marshall

Or our sales volumes to meet customer capacity?

Joseph Craft

Yeah.

Cary Marshall

I think Dave as you as you look at ours, our capacity, we've tried to factor that within our guidance ranges that we have, out there right now for 2025, not to say that as we get into 2026 we may be able to have, a little bit more, capacity out there we're just not quite there as we get to 2026.
But I will say within the guidance ranges that we've provided there may be a little bit more that we can get out of there because typically we don't account for a weekend type production and things of that nature so there could be a little bit more capacity that we have in terms of what we provided out there. But we think, with within that guidance range that's a pretty good number to be focused on in terms of overall capacity.

Joseph Craft

Yeah for '25 I understand the question. Now '26 we'll have the benefited better conditions we're projecting for Tunnel Ridge so that could add another 1 million tons of capacity compared to what we produced in '25 or 20 over the last 12 months say at Tunnel Ridge.
And we with the completion of the transition at River View into our new reserves there, there's potential for another 1 million or 15 million tons there if the market would allow for us to grow for that to be able to utilize the prep plant capacity we have at that complex.

Dave Storms

Understood. That's very helpful, thank you. And then just trying to think about inventory levels in the industry, you mentioned that there's diminishing coal inventories. Do you expect that to be rectified with maybe a ketchup?
Buying spray or maybe is this just a more normalization of buying patterns going forward?

Joseph Craft

Yeah. I don't think that the utilities are looking to really add. I think they're just looking to maintain the current levels, I think that -- you look at last year and we had good demand -- excuse me, good coal consumption. But a lot of that was taken out of their piles as opposed to being coal production selling into that market. So we're seeing that continue coal consumption first quarter was like 20% higher than it was last year.
We see a very favorable natural gas curve, that would support, continued demand for coal. And so I think the utilities are not trying to build for anything. I think they're just looking at buying to meet what they see the demand's going to be for '25 is an example of the solicitation that are out there as well as they're looking to.
Just, build their book of contracts that are rolling off for '26 and beyond.

Dave Storms

Understood. Thank you for taking my questions, and good luck to you too.

Operator

Thank you. At this time I'd like to turn the floor back over to Mr. Marshall for closing comments.

Cary Marshall

Thank you operator. And to everyone on the call, we appreciate your time this morning and also your continued support and interest in Alliance. Our next call to discuss our second-quarter of 2025 financial and operating results is currently expected to occur in July, and we hope everyone will join us again at that time. This concludes our call for the day. Thank you.

Operator

Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log off the webcast at this time, and enjoy the rest of your day.