Summary Alliance Resource Partners, L.P. earns a Buy rating, driven by strong operational efficiency, robust O&G royalty growth, and an attractive 10.4% distribution yield. ARLP’s O&G royalty segment is now a high-margin growth engine, offsetting coal price volatility and supporting distributable cash flow. The Mettiki mine closure is immaterial to ARLP’s profitability, with 93% of 2026 coal sales volumes already committed and priced. AI data center demand is extending coal’s relevance, while disciplined CapEx and low leverage (0.56x) underpin ARLP’s resilient financial profile. Introduction Alliance Resource Partners, L.P. ( ARLP ) has not really moved that much since I last reviewed it back in late October as potentially a great play with the surge in demand for energy, favoring overlooked coal companies. With the company releasing its latest quarterly earnings and the closure of Mettiki Coal, I believe that it is time to reassess my Strong Buy rating. Current Dynamics ARLP experienced a great surge in profitability during its latest quarterly earnings despite lower overall revenues. This was driven by 3 specific factors, with first, operational efficiency as Adj. EBITDA expense per ton fell by 16.3% compared to last year, meaning they got much better at controlling costs at the mine level. ARLP also booked a $17.5MM gain from a fair value increase in a coal-fired power plant investment. Plus, on a yearly basis, the 2024 numbers were artificially low due to a one-time $31MM impairment charge. That’s why EPS surged 433% to 64 cents, up from 12 cents, while total revenue declined 9.2% to $535.5MM. The hidden growth behind Alliance has been the Oil & Gas royalty segment , which has now become a high-margin heavy hitter for the company, as volumes hit record highs during the quarter, up over 20% Y/Y. Now this segment delivered $30MM in adj. EBITDA for the quarter provides a high-margin buffer against coal price volatility. The elephant in the room has been the Mettiki mine closure in West Virginia , which will cease operation after March 2026, following the loss of its primary customer. Therefore, the company is pivoting towards ramping up production in the Illinois Basin and at Tunnel Ridge. To reassure investors, management confirmed that 93% of their 2026 coal sales volumes are already committed and priced, significantly reducing the risk of a price crash for the partnership this year. But going back to the Mettiki closure, it was only tied to one major local customer, the Mount Storm Power Station in West Virginia, and Mettiki required this customer to purchase at least 1 million tons of coal per year to be profitable. Throughout 2025, the customer experienced both planned and unplanned outages, cratering demand. This was expected to continue through 2026, meaning that the customer could no longer commit to any additional coal purchases beyond existing contracts. And though this was a major headline for the company, I do not believe that this is especially detrimental to the company’s operations, as it only contributed $3.5MM in EBITDA, while EBITDA for the quarter stood at $173.6MM. Management is currently evaluating the potential asset impairment charge that will come in Q1, but this will only be a one-time paper loss on the books, not affecting the company’s cash flow. Now the guidance released for 2026 already accounts for the loss of Mettiki’s volume. Sales volume is expected to reach up to 35.25MM tons with realized pricing set to come between 3% and 6% below Q4 2025 levels, with higher realized prices in Appalachia at between $66 and $71 per ton. On the O&G royalty side, the company is expecting the segment to remain a significant cash cow with volumes staying near peak levels. Oil is set to reach 1.5MM to 1.6MM barrels and natural gas 6.3 million to 6.7 million MCF. Expenses are forecasted to remain low, at approximately 14% of royalty revenues. On the CapEx side, ARLP is planning a disciplined but significant investment year to modernize remaining mines and maintain production efficiency. Total CapEx is set to reach between $290MM and $300MM, while maintenance is assumed at roughly $7.23 per ton. Valuation ARLP currently has a P/E Non-GAAP close to 9.4, which is certainly lower than its O&G peers, highlighting the coal discount, but it still trades higher than the company’s historical average of 7.4x, reflecting how the market has been appreciating its growing royalty segment. On an EV/EBITDA basis, the company is trading at 5.29, considerably low considering the company’s high cash flow as highlighted by the 11.8% FCF yield. The company’s distribution yield has been one of the most attractive features for investors looking at ARLP, as it currently stands at an astonishing 10.4%, offering one of the strongest yields on the market right now. Plus, it has grown at a substantial rate of 20.12% CAGR over the past 3 years. Furthermore, the firm is one of the most conservatively managed firms in the sector, as highlighted by its net leverage currently standing at 0.56x. Valuation Metrics (Data from SA) The growth prospects for the company are heavily tied to the AI data center narrative, as highlighted by current CEO Joe Craft, who noted that the massive, 24/7 power requirements of AI data centers are creating a second life for coal-fired power plants . This is because wind and solar can’t always provide the baseload power these centers require, and the company is seeing customers extend coal contracts to ensure their data centers don’t go dark. And though the coal mines generally get the headlines, the O&G royalty segment is now the actual growth engine, as it has no overhead or equipment costs, and the company is guiding for another 5% increase in BOE volumes, essentially providing a high profit stream to the mining enterprise. The closing of the Mettiki mine, which is high-cost, will also improve profitability for the company as it will focus on sites like Tunnel Ridge and Hamilton, thus effectively raising the average profitability of their entire fleet. Plus, as the O&G royalty segment takes a larger share of revenue, we should see higher profitability across the board for the company, thus increasing Distributable Cash Flow. Margin Metrics (Data from SA) Return Metrics (Data from SA) Risks You might have noticed that I have not mentioned the wildcard in the balance sheet that is the Bitcoin treasury. Right now, the company is holding 592 bitcoins (BTC-USD) for a year-end value of about $51.8MM, and the firm has been using the excess electricity at its mining facilities to power mining rigs. I am not in favor of this, as I’m heavily bearish on cryptocurrencies, and I don’t see how, in the long run, this is accretive to the company’s business model. Though I concede that it makes sense on paper to monetize energy during periods when the grid doesn’t need it. But with the downward momentum of Bitcoin, this could hurt GAAP earnings for ARLP in the future. And though data centers are currently in need of coal for grid stability, tech giants are under pressure to meet carbon-neutral pledges. The simple long-term risk is that these companies will fund new nuclear or gas infrastructure to bypass coal-fired generation entirely. Conclusion I’m positive on the company’s current trajectory outside of the Bitcoin treasury, but I believe that I was too optimistic in my Strong Buy argument in my earlier analysis on the company. The company is one of the best managed in the coal industry, which has high momentum thanks to a surge in AI energy demand, plus it rewards unitholders extremely well with its distribution. In that sense, I give ARLP a Buy rating.
