ALLIANCE RESOURCE PARTNERS LP (ARLP) stock intrinsic value fair value estimate & owner earnings analysis

Alliance Resource Partners (ARLP) is one of the largest coal producers in the eastern United States, mining thermal and metallurgical coal from underground complexes in the Illinois Basin (Hamilton, River View, Gibson) and Appalachia (Tunnel Ridge, Mettiki, MC Mining). Beyond mining, ARLP has built two smaller but growing royalty businesses: a Coal Royalties segment that collects royalties on reserves it leases to other operators, and an Oil & Gas Royalties segment (built around its Alliance Minerals subsidiary and a stake in AllDale III) that owns mineral interests without the capital burden of drilling. In 2025 the partnership produced about 33.2 million tons of coal and sold roughly 33.0 million tons, with 89% of volume going to U.S. electric utilities. We estimate what the business earns for unitholders by starting from operating cash flow and removing the swings caused by working-capital timing, unit-based compensation, and the portion of capital spending that goes toward growth rather than simply sustaining existing mines. Over a full pricing cycle - from the 2020 pandemic trough through the 2022 coal-price spike and the more recent normalization - this owner-earnings figure has run from about $1.80 to $5.59 per unit, with a midpoint of roughly $2.89 per unit. We use that cycle midpoint, rather than any single year, as the starting point for value, because 2025's figure of about $3.02 per unit followed a sharp rebound from a soft 2024, and 2026 capital spending is budgeted meaningfully higher ($280-300 million versus $263 million in 2025) - a step-up that would compress cash generation even before any change in coal prices. Our first-year assumption in the base case (about $2.75 per unit) is therefore set below the trailing actual, not above it. A key judgment for a coal miner is what happens after the ten-year window we explicitly forecast. ARLP's own disclosed reserves - about 586 million tons of proven and probable coal - support only about 18 years of mining at the current production rate. That is longer than our forecast period but far short of forever, so we have not simply assumed the business continues at today's scale indefinitely. Instead, we treat most of the mining earnings as a stream that winds down over the fifteen or so years following the forecast window as economically accessible reserves are worked out, while treating the smaller, less capital-intensive royalty businesses - which do not carry the same fixed mine life - as more durable and capable of continuing indefinitely at a modest level. A meaningful share of what we calculate as long-run value depends on the company continuing to responsibly lease and develop reserves it already controls, not on reserves it does not yet have. Three cases: Bear case (roughly a one-in-ten outcome): coal prices stay depressed for an extended stretch, a costly geological setback (a longwall move gone wrong, harder mining conditions) raises costs at one or more complexes, and several utility customers retire coal plants earlier than currently scheduled, shrinking volumes faster than reserves alone would dictate. Owner earnings run in the $1.15-$1.60 per unit range through the forecast, and the mining contribution winds down over a shorter, roughly eight-year tail. On this path the units are worth on the order of $14-15 apiece. Base case (the median outcome): coal pricing settles near its cycle-average level, volumes hold close to today's roughly 33 million tons for most of the next decade as ARLP continues leasing additional reserves from the large pool it already controls in the Illinois Basin, and the royalty segments grow modestly. Owner earnings drift from about $2.75 toward $3.15 per unit over the ten-year forecast, and the mining contribution fades out over the following fifteen years as reserves are worked out. On this path the units are worth on the order of $34 apiece. Bull case (roughly a one-in-ten outcome on the upside): coal and metallurgical-coal pricing runs hotter for longer - a real possibility given tight met-coal export markets and the fact that several utilities, including some ARLP customers, have already begun delaying coal-plant retirements to meet rising electricity demand - and ARLP continues finding economically leaseable reserves, sustaining volumes near current levels well past the ten-year mark. Owner earnings run from about $3.80 up toward $4.65 per unit over the forecast, with a longer, twenty-year fade in the tail. On this path the units are worth on the order of $53 apiece. What could make us wrong: our base case assumes ARLP keeps replacing mined-out reserves at roughly its historical pace; if leasing or permitting proves harder than in the past, the wind-down begins sooner and value is lower than we estimate. Conversely, if coal-fired power plants serving ARLP's utility customers keep running longer than currently planned - a trend now visible industry-wide - both the mining and royalty businesses could sustain higher volumes for longer than our base case assumes. The balance sheet is conservative for the industry: about $435 million of long-term debt against operating cash flow that has run from roughly $400 million to over $800 million a year even across the cycle's lows and highs, so financial leverage is not a major source of downside risk here, unlike at some more heavily indebted coal peers. Given this range, the margin-of-safety price is about $20.40 per unit - a bigger discount to our base-case estimate than a steadier, non-cyclical business would warrant, to compensate for the real chance that a sustained coal-market downturn or a setback in reserve replacement proves this estimate too optimistic.