Alliance Resource Partners, L.P. (ARLP) - Description of business
” for a discussion of further risks affecting our ability to generate distributable cash flow. We may issue an unlimited number of limited partner interests, on terms and conditions established by our managing general partner, without the consent of our unitholders, which will dilute your ownership interest in us and may
increase the risk that we will not have sufficient available cash to maintain or increase our per unit distribution level. The
issuance by us of additional common units or other equity securities of equal or senior rank will have the following effects:
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our unitholders’ proportionate ownership interest in us will decrease;
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the amount of cash available for distribution on each unit may decrease;
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the relative voting strength of each previously outstanding unit may be diminished;
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the ratio of taxable income to distributions may increase; and
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the market price of the common units may decline. The market price of our common units could be adversely affected by sales of substantial amounts of our common units in the public markets, including sales by our existing unitholders. As of December 31, 2006, AHGP owned 15,544,169 of our common units. AHGP also owns our managing general partner. If AHGP were to sell and/or
distribute our common units to the holders of its equity interests in the future, those holders may dispose of some or all of these units. The sale or disposition of a substantial number of our common units in the public markets could have a
material adverse effect on the price of our common units or could impair our ability to obtain capital through an offering of equity securities. We do not know whether any such sales would be made in the public market or in private placements, nor
do we know what impact such potential or actual sales would have on our unit price in the future. An increase in interest rates may cause the market
price of our common units to decline. Like all equity investments, an investment in our common units is subject to certain risks.
In exchange for accepting these risks, investors may expect to receive a higher rate of return than would otherwise be obtainable from lower-risk investments. Accordingly, as interest rates rise, the ability of investors to obtain higher
risk-adjusted rates of return by purchasing government-backed debt securities may cause a corresponding decline in demand for riskier investments generally, including yield-based equity investments such as publicly traded limited partnership
interests. Reduced demand for our common units resulting from investors seeking other more favorable investment opportunities may cause the trading price of our common units to decline. The credit and risk profile of our managing general partner and its owners could adversely affect our credit ratings and profile. The credit and risk profile of our managing general partner or owners of our managing general partner may be factors in credit evaluations of us as a
master limited partnership. This is because our managing general partner can exercise significant influence over our business activities, including our cash distribution policy, acquisition strategy and business risk profile. Another factor that may
be considered is the financial condition of AHGP, including the degree of its financial leverage and its dependence on cash flow from us to service its indebtedness. As of December 31, 2006, AHGP had no outstanding debt. AHGP is principally dependent on the cash distributions from its general and limited partner equity
interests in us to service its indebtedness. Any distribution by us to AHGP will be made only after satisfying our then-current obligations to our creditors. Although we have taken certain steps in our organizational structure, financial reporting
and contractual relationships to reflect that we are separate from AHGP and entities that control AHGP, our credit ratings and risk profile could be adversely affected if the ratings and risk profiles of such entities were viewed as substantially
lower or more risky than ours. Our unitholders do not elect our managing general partner or vote on our managing general partner’s officers or
directors. AHGP owns 42.7% of our units, a sufficient number to block any attempt to remove our general partner. Unlike the
holders of common stock in a corporation, our unitholders have only limited voting rights on matters affecting our business and, therefore, limited ability to influence management’s decisions regarding our business. Unitholders did not elect
our managing general partner and will have no right to elect our managing general partner on an annual or other continuing basis. In
addition, if our unitholders are dissatisfied with the performance of our managing general partner, they will have little ability to remove our general partner. Our managing general partner may not be removed except upon the vote of the holders of
at least 66.7% of our outstanding units. As of December 31, 2006, AHGP and its affiliates held approximately 42.7% of our outstanding units. Consequently, it will be particularly difficult for our managing general partner to be removed without
the consent of AHGP and its affiliates. As a result, the price at which our unit’s trade may be lower because of the absence or reduction of a takeover premium in the trading price. Furthermore, unitholders’ voting rights are further restricted by a provision in our partnership agreement that provides that any units held by a
person that owns 20.0% or more of any class of units then outstanding, other than our managing general partner and its affiliates, cannot be voted on any matter. The control of our managing general partner may be transferred to a third-party without unitholder consent. Our
managing general partner may transfer its general partner interest in us to a third-party in a merger or in a sale of its equity securities without the consent of our unitholders. Furthermore, there is no restriction in the partnership agreement on
the ability of the members of our managing general partner to sell or transfer all or part of their ownership interest in our managing general partner to a third-party. The new owner or owners of our managing general partner would then be in a
position to replace the directors and officers of our managing general partner and control the decisions made and actions taken by the Board of Directors and officers. Unitholders may be required to sell their units to our managing general partner at an undesirable time or price. If at any time less than 20.0% of our outstanding common units are held by persons other than our general partners and their affiliates, our managing general partner will have the right to acquire all, but not less
than all, of those units at a price no less than their then-current market price. As a consequence, a unitholder may be required to sell his common units at an undesirable time or price. Our managing general partner may assign this purchase right to
any of its affiliates or to us. Cost reimbursements due to our general partners may be substantial and may reduce our ability to pay the
distributions to unitholders. Prior to making any distributions to our unitholders, we will reimburse our general partners and
their affiliates for all expenses they have incurred on our behalf. The reimbursement of these expenses and the payment of these fees could adversely affect our ability to make distributions to the unitholders. Our managing general partner has sole
discretion to determine the amount of these expenses and fees. For additional information, please see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Related Party Transactions,
Administrative Services, Item 8. Financial Statements and Supplementary Data – Note 18. Related Party Transactions and Item 11. Executive Compensation – Compensation Discussion and Analysis, Administrative Services Agreement with
Alliance Holdings GP, L.P.” Your liability as a limited partner may not be limited, and our unitholders may have to repay distributions or make
additional contributions to us under certain circumstances. As a limited partner in a partnership organized under Delaware law,
you could be held liable for our obligations to the same extent as a general partner if you participate in the “control” of our business. Our general partner generally has unlimited liability for the obligations of the partnership, except
for those contractual obligations of the partnership that are expressly made without recourse to our general partner. Additionally, the limitations on the liability of holders of limited partner interests for the obligations of a limited partnership
have not been clearly established in many jurisdictions. Under certain circumstances, our unitholders may have to repay amounts wrongfully
distributed to them. Under Section 17-607 of the Delaware Revised Uniform Limited Partnership Act, we may not make a distribution to our unitholders if the distribution would cause our liabilities to exceed the fair value of our assets.
Delaware law provides that for a period of three years from the date of the impermissible distribution, partners who received the distribution and who knew at the time of the distribution that it violated Delaware law will be liable to the
partnership for the distribution amount. Liabilities to partners on account of their partnership interest and liabilities that are non-recourse to the partnership are not counted for purposes of determining whether a distribution is permitted. Our partnership agreement limits our managing general partner’s fiduciary duties to our unitholders and restricts the remedies available to
unitholders for actions taken by our general partners that might otherwise constitute breaches of fiduciary duty. Our partnership
agreement contains provisions that waive or consent to conduct by our managing general partner and its affiliates and which reduce the obligations to which our managing general partner would otherwise be held by state-law fiduciary duty standards.
The following is a summary of the material restrictions contained in our partnership agreement on the fiduciary duties owed by our general partners to the limited partners. Our partnership agreement:
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permits our managing general partner to make a number of decisions in its “sole discretion.” This entitles our managing general partner to consider only
the interests and factors that it desires, and it has no duty or obligation to give any consideration to any interest of, or factors affecting, us, our affiliates or any limited partner;
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provides that our managing general partner is entitled to make other decisions in its “reasonable discretion”;
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generally provides that affiliated transactions and resolutions of conflicts of interest not involving a required vote of unitholders must be “fair and
reasonable” to us and that, in determining whether a transaction or resolution is “fair and reasonable,” our managing general partner may consider the interests of all parties involved, including its own. Unless our managing general
partner has acted in bad faith, the action taken by our managing general partner shall not constitute a breach of its fiduciary duty; and
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provides that our general partners and our officers and directors will not be liable for monetary damages to us, our limited partners or assignees for errors of
judgment or for any acts or omissions if our general partners and those other persons acted in good faith. In order to
become a limited partner of our partnership, a common unitholder is required to agree to be bound by the provisions in the partnership agreement, including the provisions discussed above. Some of our executive officers and directors face potential conflicts of interest in managing our business. Certain of our executive officers and directors are also officers and/or directors of AHGP. These relationships may create conflicts of interest
regarding corporate opportunities and other matters. The resolution of any such conflicts may not always be in our or our unitholders’ best interests. In addition, these overlapping executive officers and directors allocate their time among us
and AHGP. These officers and directors face potential conflicts regarding the allocation of their time, which may adversely affect our business, results of operations and financial condition. The managing general partner’s absolute discretion in determining the level of cash reserves may adversely affect our ability to make cash distributions to
our unitholders. Our partnership agreement requires the managing general partner to deduct from operating surplus cash
reserves that in its reasonable discretion are necessary to fund our future operating expenditures. In addition, the partnership agreement permits the managing general partner to reduce available cash by establishing cash reserves for the proper
conduct of our business, to comply with applicable law or agreements to which we are a party or to provide funds for future distributions to partners. These cash reserves will affect the amount of cash available for distribution to unitholders. Our general partners have conflicts of interest and limited fiduciary responsibilities, which may permit our general partners to favor its own
interests to the detriment of unitholders. As of December 31, 2006, AHGP and its affiliates directly and indirectly owned an
aggregate limited partner interest of approximately 42.5% of the limited partner interests in us. Conflicts of interest could arise in the future as a result of relationships between our general partners and their affiliates, on the one hand, and
us, on the other hand. As a result of these conflicts our general partners may favor their own interests and those of its affiliates over the interests of the unitholders. The nature of these conflicts includes the following considerations:
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Remedies available to unitholders for actions that might, without the limitations, constitute breaches of fiduciary duty. Unitholders are deemed to have consented
to some actions and conflicts of interest that might otherwise be deemed a breach of fiduciary or other duties under applicable state law.
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Our managing general partner is allowed to take into account the interests of parties in addition to us in resolving conflicts of interest, thereby limiting its
fiduciary duties to the unitholders.
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Our general partners’ affiliates are not prohibited from engaging in other businesses or activities, including those in direct competition with us, except as
provided in the omnibus agreement.
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Our managing general partner determines the amount and timing of our asset purchases and sales, capital expenditures, borrowings and reserves, each of which can
affect the amount of cash that is distributed to unitholders.
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Our managing general partner determines whether to issue additional units or other equity securities in us.
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Our managing general partner determines which costs are reimbursable by us.
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Our managing general partner controls the enforcement of obligations owed to us by it.
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Our managing general partner decides whether to retain separate counsel, accountants or others to perform services for us.
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Our managing general partner is not restricted from causing us to pay it or its affiliates for any services rendered on terms that are fair and reasonable to us or
from entering into additional contractual arrangements with any of these entities on our behalf.
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In some instances our managing general partner may borrow funds in order to permit the payment of distributions, even if the purpose or effect of the borrowing is
to make incentive distributions. Risks Related to our Business A substantial or extended decline in coal prices could negatively impact our results of operations. The prices we receive for our production depends upon factors beyond our control, including:
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the supply of and demand for domestic and foreign coal;
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the price and availability of alternative fuels;
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weather conditions;
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the proximity to, and capacity of, transportation facilities;
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worldwide economic conditions;
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domestic and foreign governmental regulations and taxes; and
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the effect of worldwide energy conservation measures. A substantial or extended decline in coal prices could materially and adversely affect us by decreasing our revenues in the event that we are not otherwise protected pursuant to the specific terms of our coal supply
agreements. A material amount of our net income and cash flow is dependent on our continued ability to realize direct or
indirect benefits from federal income tax credits such as non-conventional source fuel tax credits. If the benefit to us from any of these tax credits is materially reduced, it could negatively impact our results of operations and reduce our cash
available for distributions. The non-conventional source fuel tax credit is scheduled to expire on December 31, 2007. In
2006, we derived a material amount of our net income under long-term synfuel-related agreements with SSO, PCIN and Mt. Storm Coal Supply (see discussions under “Warrior Complex,” “Gibson Complex” and “Mettiki (WV)” in
Item 1, Business). These agreements are dependent on the ability of the synfuel facility’s owner to use certain qualifying federal income tax credits available to the facility and are subject to early cancellation in certain circumstances,
including in the event that these synfuel tax credits become unavailable to the owner. In 2006, the incremental benefit to us from these synfuel-related agreements was approximately $26.4 million. If, because of budgetary shortfalls or any other
reason, the federal government was to significantly reduce or eliminate synfuel tax credits, it could negatively impact our results of operations and reduce our cash available for distributions. Non-conventional source fuel tax credits are subject to a pro-rata phase-out or reduction if the annual average wellhead price per barrel for all
domestic crude oil (the reference price) as determined by the Secretary of the Treasury exceeds certain levels. The reference price is not subject to regulation by the United States Government. The reference price for a calendar year is typically
published in April of the following year. For example, for qualified fuel sold during the 2005 calendar year, the reference price was $50.26. The pro-rata reduction of non-conventional source fuel tax credits for 2005 would have begun if the
reference price was approximately $53.00 per barrel, with a complete phase-out or reduction of non-conventional synfuel tax credits if the reference price reached approximately $69.00 per barrel. In 2006, SSO, PCIN and Mt. Storm Coal Supply
temporarily suspended operation of the synfuel facilities located at the Warrior, Gibson, and Mettiki complexes as a result of the increase in the wellhead price of domestic crude oil. During the suspension periods, we sold coal directly to the
customers of SSO, PCIN and Mt. Storm Coal Supply under “back up” coal supply agreements. While these suspensions had no material impact on our results of operations in 2006, we could experience a material reduction of revenues associated
with non-conventional source fuel facilities in the future if non-conventional source fuel tax credits become unavailable to the owners of the non-conventional source fuel facilities we service as a result of the rise in the wellhead price per
barrel of crude oil above specified levels. The non-conventional synfuel tax credit is scheduled to expire on December 31, 2007. A loss of the
benefit from state tax credits may adversely affect our ability to pay our quarterly distribution Several states in which we
operate or our utility customers reside have established a statutory framework for tax credits against income, franchise, or severance taxes, which have benefited, directly or indirectly, coal operators or customers purchasing coal mine production
from within the applicable state. The state statutes authorizing these tax credits are scheduled to expire in accordance with their term provisions. Furthermore, these state statutes or our ability to benefit, directly or indirectly, from them may
be subject to challenge by third parties. One of the states in which we operate, Maryland, has established a statutory framework for tax credits against income or franchise taxes that have benefited, directly or indirectly, coal operators or
customers purchasing coal produced from mines within that state. In 2006, the indirect benefit of the Maryland tax credit to us was approximately $7.3 million. Although this credit is not set to expire by its terms in the near future, recent
legislative and interpretive changes, as well as our reduced coal production in Maryland, likely will delay and reduce the amount of the benefit, if any, of the tax credit to us in 2007. In addition, legislation may be proposed in the future that
would eliminate this credit. If the Maryland statutes expire or any challenges are successful, we would lose the benefits of these credits. Therefore, if our operations do not produce increased cash flow sufficient to replace any lost benefits, our
cash available for distribution could be adversely affected. Competition within the coal industry may adversely affect our ability to sell coal, and
excess production capacity in the industry could put downward pressure on coal prices. We compete with other large coal producers
and hundreds of small coal producers in various regions of the United States for domestic sales. The industry has undergone significant consolidation over the last decade. This consolidation has led to several competitors having significantly larger
financial and operating resources than we have. In addition, we compete to some extent with western surface coal mining operations that have a much lower per ton cost of production and produce low-sulfur coal. Over the last 20 years, growth in
production from western coal mines has substantially exceeded growth in production from the east. Declining prices from an oversupply of coal in the market could reduce our revenues and our cash available for distribution. Any change in consumption patterns by utilities away from the use of coal could affect our ability to sell the coal
we produce. Some power plants are fueled by natural gas because of the cheaper construction costs compared to coal-fired plants
and because natural gas is a cleaner burning fuel. The domestic electric utility industry accounts for approximately 90% of domestic coal consumption. The amount of coal consumed by the domestic electric utility industry is affected primarily by the
overall demand for electricity, the price and availability of competing fuels for power plants such as nuclear, natural gas and fuel oil as well as hydroelectric power, and environmental and other governmental regulations. A decrease in coal
consumption by the domestic electric utility industry could adversely affect the price of coal, which could negatively impact our results of operations and reduce our cash available for distribution. From time to time conditions in the coal industry may make it more difficult for us to extend existing or enter into new long-term coal supply agreements. This
could affect the stability and profitability of our operations. A substantial decrease in the amount of coal sold by us pursuant
to long-term contracts would reduce the certainty of the price and amounts of coal sold and subject our revenue stream to increased volatility. If that were to happen, changes in spot market coal prices would have a greater impact on our results,
and any decreases in the spot market price for coal could adversely affect our profitability and cash flow. In 2006, we sold approximately 91.7% of our sales tonnage under contracts having a term greater than one year. We refer to these contracts as
long-term contracts. Long-term sales contracts have historically provided a relatively secure market for the amount of production committed under the terms of the contracts. From time to time industry conditions may make it more difficult for us to
enter into long-term contracts with our electric utility customers, and if supply exceeds demand in the coal industry, electric utilities may become less willing to lock in price or quantity commitments for an extended period of time. Accordingly,
we may not be able to continue to obtain long-term sales contracts with reliable customers as existing contracts expire. Some of our long-term coal
supply agreements contain provisions allowing for the renegotiation of prices and, in some instances, the termination of the contract or the suspension of purchases by customers. Some of our long-term contracts contain provisions that allow for the purchase price to be renegotiated at periodic intervals. These price reopener
provisions may automatically set a new price based on the prevailing market price or, in some instances, require the parties to the contract to agree on a new price. Any adjustment or renegotiation leading to a significantly lower contract price
could adversely affect our operating profit margins. Accordingly, long-term contracts may provide only limited protection during adverse market conditions. In some circumstances, failure of the parties to agree on a price under a reopener provision
can also lead to early termination of a contract. Several of our long-term contracts also contain provisions that allow the customer to
suspend or terminate performance under the contract upon the occurrence or continuation of certain specified events. These events are called “force majeure” events. Some of these events that are specific to the coal industry include:
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our inability to deliver the quantities or qualities of coal specified;
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changes in the CAA rendering use of our coal inconsistent with the customer’s pollution control strategies; and
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the occurrence of events beyond the reasonable control of the affected party, including labor disputes, mechanical malfunctions and changes in government
regulations. In addition, certain contracts are terminable as a result of events that are beyond our control. For
example, we have entered into agreements with several coal synfuel facilities to provide coal feedstock and other services. Each of these agreements provides for early cancellation in the event federal synfuel tax credits become unavailable or upon
the termination of associated coal synfuel sales contracts between the facility and our customers. In the event of early termination of any of our long-term contracts, if we are unable to enter into new contracts on similar terms our business,
financial condition and results of operations could be adversely affected. Extensive environmental laws and regulations affect coal consumers, which
have corresponding effects on the demand for our coal as a fuel source. Federal, state and local laws and regulations extensively regulate the amount of sulfur dioxide,
particulate matter, nitrogen oxides, mercury and other compounds emitted into the air from coal-fired electric power plants, which are the ultimate consumers of our coal. These laws and regulations can require significant emission control
expenditures for many coal-fired power plants, and various new and proposed laws and regulations may require further emission reductions and associated emission control expenditures. A substantial portion of our coal has a high sulfur content, which
may result in increased sulfur dioxide emissions when combusted. Accordingly, these laws and regulations may affect demand and prices for our low- and high-sulfur coal. There is also continuing pressure on state and federal regulators to impose
limits on carbon dioxide emissions from electric power plants, particularly coal-fired power plants. As a result of these current and proposed laws, regulations and regulatory initiatives, electricity generators may elect to switch to other fuels
that generate less of these emissions, possibly further reducing demand for our coal. Please read “Regulation and Laws—Air Emissions” and “Regulations and Laws—Carbon Dioxide Emissions.” We depend on a few customers for a significant portion of our revenues, and the loss of one or more significant customers could affect our ability to maintain the
sales volume and price of the coal we produce. During 2006, we derived approximately 29.9% of our total revenues from two
customers, which individually accounted for 10% or more of our 2006 total revenues. If we were to lose any of these customers without finding replacement customers willing to purchase an equivalent amount of coal on similar terms, or if these
customers were to change the amounts of coal purchased or the terms, including pricing terms, on which they buy coal from us, it could have a material adverse effect on our business, financial condition and results of operations. Litigation resulting from disputes with our customers may result in substantial costs, liabilities and loss of revenues. From time to time we have disputes with our customers over the provisions of long-term coal supply contracts relating to, among other things, coal
pricing, quality, quantity and the existence of specified conditions beyond our control that suspend performance obligations under the particular contract. Disputes may occur in the future and we may not be able to resolve those disputes in a
satisfactory manner. Our profitability may decline due to unanticipated mine operating conditions and other events that are not within our control
and that may not be fully covered under our insurance policies. Our mining operations are influenced by changing conditions or
events that can affect production levels and costs at particular mines for varying lengths of time and, as a result, can diminish our profitability. These conditions and events include, among others:
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fires;
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mining and processing equipment failures and unexpected maintenance problems;
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prices for fuel, steel, explosives and other supplies;
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fines and penalties incurred as a result of alleged violations of environmental and safety laws and regulations;
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variations in thickness of the layer, or seam, of coal;
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amounts of overburden, partings, rock and other natural materials;
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weather conditions, such as heavy rains and flooding;
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accidental mine water discharges and other geological conditions;
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employee injuries or fatalities;
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labor-related interruptions;
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inability to acquire mining rights or permits; and
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fluctuations in transportation costs and the availability or reliability of transportation. These conditions have had, and can be expected in the future to have, a significant impact on our operating results. For example, during the past three
years, three loss incidents have occurred at our mine complexes. For details on these incidents and their negative effect on our results of operations, please read “Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations—Pattiki Vertical Belt Incident,” “—MC Mining Fire Incident” and “—Dotiki Fire Incident.” Prolonged disruption of
production at any of our mines would result in a decrease in our revenues and profitability, which could be material. Decreases in our profitability as a
result of the factors described above could materially adversely impact our quarterly or annual results. We carry commercial (including
business interruption and extra expense) property insurance policies; however, these risks may not be fully covered by these insurance policies. Available capacity for underwriting property insurance continues to be limited as a result of insurance
carrier losses in the mining industry and our recent insurance claims history ( e.g. , MC Mining Fire Incident and Dotiki Fire Incident). As a result, in conjunction with the September 2006 renewal of our property and casualty insurance
policies, we elected to retain a participating interest along with our insurance carriers at an average rate of approximately 14.7% in the overall $75.0 million commercial property program. The 14.7% participation rate for this year’s renewal
exceeds the approximate 10% participation level from last year. We can make no assurances that we will not experience significant insurance claims in the future, which as a result of our level of participation in the commercial property program,
could have a material adverse effect on our business, financial conditions, results of operations and ability to purchase property insurance in the future. For additional information on our property and casualty insurance program, please “Item
8. Financial Statements and Supplementary Data – Note 19. Commitments and Contingencies, Other.” A shortage of skilled labor may make it
difficult for us to maintain labor productivity and competitive costs and could adversely affect our profitability. Efficient coal
mining using modern techniques and equipment requires skilled laborers, preferably with at least one year of experience and proficiency in multiple mining tasks. In recent years, a shortage of trained coal miners has caused us to operate certain
mining units without full staff, which decreases our productivity and increases our costs. This shortage of trained coal miners is the result of a significant percentage of experienced coal miners reaching the age for retirement, combined with the
difficulty of attracting new workers to the coal industry. Thus, this shortage of skilled labor could continue over an extended period. If the shortage of experienced labor continues or worsens, it could have an adverse impact on our labor
productivity and costs and our ability to expand production in the event there is an increase in the demand for our coal, which could adversely affect our profitability. Although none of our employees are members of unions, our work force may not remain union-free in the future. None of our employees is represented under collective bargaining agreements. However, all of our work force may not remain union-free in the future. If some or all of our currently union-free operations were to become
unionized, it could adversely affect our productivity and increase the risk of work stoppages at our mining complexes. In addition, even if we remain union-free, our operations may still be adversely affected by work stoppages at unionized
companies, particularly if union workers were to orchestrate boycotts against our operations. We may be unable to obtain and renew permits necessary
for our operations, which could reduce our production, cash flow and profitability. Mining companies must obtain numerous
governmental permits or approvals that impose strict conditions and obligations relating to various environmental and safety matters in connection with coal mining. The permitting rules are complex and can change over time. The public has the right
to comment on permit applications and otherwise participate in the permitting process, including through court intervention. Accordingly, permits required by us to conduct our operations may not be issued, maintained or renewed, or may not be issued
or renewed in a timely fashion, or may involve requirements that restrict our ability to economically conduct our mining operations. Limitations on our ability to conduct our mining operations due to the inability to obtain or renew necessary
permits or similar approvals could reduce our production, cash flow and profitability. Please read “Regulations and Laws—Mining Permits and Approvals.” Lawsuits filed in the federal Southern District of Western Virginia and in the federal Eastern District of Kentucky have sought to enjoin the issuance of permits pursuant to Nationwide Permit 21, which is a general
permit issued by the U.S. Army Corps of Engineers to streamline the process for obtaining permits under Section 404 of the CWA. In the event current or future litigation contesting the use of Nationwide Permit 21 is successful, we may be
required to apply for individual discharge permits pursuant to Section 404 of the CWA in areas that would have otherwise utilized Nationwide Permit 21. Such a change could result in delays in obtaining required mining permits to conduct
operations, which could in turn result in reduced production, cash flow and profitability. Please read “Regulations and Laws – Water Discharge.” Fluctuations in transportation costs and the availability or reliability of transportation could reduce revenues by
causing us to reduce our production or by impairing our ability to supply coal to our customers. Transportation costs represent a
significant portion of the total cost of coal for our customers and, as a result, the cost of transportation is a critical factor in a customer’s purchasing decision. Increases in transportation costs could make coal a less competitive source
of energy or could make our coal production less competitive than coal produced from other sources. Conversely, significant decreases in transportation costs could result in increased competition from coal producers in other parts of the country.
For instance, difficulty in coordinating the many eastern coal loading facilities, the large number of small shipments, the steeper average grades of the terrain and a more unionized workforce are all issues that combine to make coal shipments
originating in the eastern United States inherently more expensive on a per-mile basis than coal shipments originating in the western United States. Historically, high coal transportation rates from the western coal producing areas into certain
eastern markets limited the use of western coal in those markets. Lower or higher rail rates from the western coal producing areas to markets served by eastern U.S. coal producers have created major competitive challenges, as well as opportunities
for eastern coal producers. In the event of lower transportation costs, the increased competition could have a material adverse effect on our business, financial condition and results of operations. Some of our mines depend on a single transportation carrier or a single mode of transportation. Disruption of any of these transportation services due to
weather-related problems, flooding, drought, accidents, mechanical difficulties, strikes, lockouts, bottlenecks, and other events could temporarily impair our ability to supply coal to our customers. Our transportation providers may face
difficulties in the future that may impair our ability to supply coal to our customers, resulting in decreased revenues. If there are
disruptions of the transportation services provided by our primary rail or barge carriers that transport our coal and we are unable to find alternative transportation providers to ship our coal, our business could be adversely affected. In recent years, the states of Kentucky and West Virginia have increased enforcement of weight limits on coal trucks on their public roads. It is
possible that all states in which our coal is transported by truck may modify their laws to limit truck weight limits. Such legislation and enforcement efforts could result in shipment delays and increased costs. An increase in transportation costs
could have an adverse effect on our ability to increase or to maintain production and could adversely affect revenues. Mine expansions and
acquisitions involve a number of risks, any of which could cause us not to realize the anticipated benefits. Since our formation
and the acquisition of our predecessor in August 1999, we have expanded our operations by adding and developing mines and coal reserves in existing, adjacent and neighboring properties. We continually seek to expand our operations and coal reserves.
If we are unable to successfully integrate the companies, businesses or properties we acquire through such expansion, our profitability may decline and we could experience a material adverse effect on our business, financial condition, or results of
operations. Expansion and acquisition transactions involve various inherent risks, including:
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uncertainties in assessing the value, strengths, and potential profitability of, and identifying the extent of all weaknesses, risks, contingent and other
liabilities (including environmental or mine safety liabilities) of, expansion and acquisition opportunities;
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the ability to achieve identified operating and financial synergies anticipated to result from an expansion or an acquisition;
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problems that could arise from the integration of the new operations; and
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unanticipated changes in business, industry or general economic conditions that affect the assumptions underlying our rationale for pursuing the expansion or
acquisition opportunity. Any one or more of these factors could cause us not to realize the benefits anticipated to result from an
expansion or acquisition. Any expansion or acquisition opportunities we pursue could materially affect our liquidity and capital resources and may require us to incur indebtedness, seek equity capital or both. In addition, future expansions or
acquisitions could result in us assuming more long-term liabilities relative to the value of the acquired assets than we have assumed in our previous expansions and/or acquisitions. We may not be able to successfully grow through future acquisitions. Historically, a portion
of our growth and operating results have been from acquisitions. Our future growth could be limited if we are unable to continue to make acquisitions, or if we are unable to successfully integrate the companies, businesses or properties we acquire.
We may not be successful in consummating any acquisitions and the consequences of undertaking these acquisitions are unknown. Moreover, any acquisition could be dilutive to earnings and distributions to unitholders and any additional debt incurred
to finance an acquisition could affect our ability to make distributions to unitholders. Our ability to make acquisitions in the future could be limited by restrictions under our existing or future debt agreements, competition from other coal
companies for attractive properties or the lack of suitable acquisition candidates. The unavailability of an adequate supply of coal reserves that
can be mined at competitive costs could cause our profitability to decline. Our profitability depends substantially on our ability
to mine coal reserves that have the geological characteristics that enable them to be mined at competitive costs and to meet the quality needed by our customers. Because our reserves decline as we mine coal, our future success and growth depend, in
part, upon our ability to acquire additional coal reserves that are economically recoverable. Replacement reserves may not be available when required or, if available, may not be capable of being mined at costs comparable to those of the depleting
mines. We may not be able to accurately assess the geological characteristics of any reserves that we acquire, which may adversely affect our profitability and financial condition. Exhaustion of reserves at particular mines also may have an adverse
effect on our operating results that is disproportionate to the percentage of overall production represented by such mines. Our ability to obtain other reserves in the future could be limited by restrictions under our existing or future debt
agreements, competition from other coal companies for attractive properties, the lack of suitable acquisition candidates or the inability to acquire coal properties on commercially reasonable terms. Our business depends, in part, upon our ability to find, develop or acquire additional coal reserves that we can recover economically. Our existing
reserves will decline as they are depleted. Our planned development projects and acquisition activities may not increase our reserves significantly and we may not have continued success expanding existing and developing additional mines. We believe
that there are substantial reserves on certain adjacent or neighboring properties that are unleased and otherwise available. However, we may not be able to negotiate leases with the landowners on acceptable terms. An inability to expand our
operations into adjacent or neighboring reserves under this strategy could have a material adverse effect on our business, financial condition or results of operations. The estimates of our coal reserves may prove inaccurate, and you should not place undue reliance on these estimates. The estimates of our coal reserves may vary substantially from actual amounts of coal we are able to economically recover. The reserve data set forth in “
