Initiating coverage with an Outperform rating. Alliance Resource Partners is a diversified natural resource company that generates revenue from the production and marketing of coal, and royalty income from coal, oil, and gas mineral interests located in favorable producing regions across the United States. Strong cash flows generated by the company’s operations are expected to support continued growth in its oil and natural gas royalty business, along with diversification into green energy sources that may include strategic minerals and metals, electric vehicle charging infrastructure, wind, and/or solar.Strong cash flow growth profile. Demand for coal, oil, and gas remains robust and prices have risen in recent quarters. Free cash flow in 2021 was $302.2 million, well above capital expenditures of $123 million. In 2021, Alliance paid down over $100 million of debt and recently increased its quarterly cash distribution to unitholders by 25% to $0.25 per unit, or $1.00 on an annualized basis, providing a 6.5% yield based on the recent closing price. In our view, the company's favorable cash flow profile could support continued reinvestment, debt reduction and greater cash distributions to unitholders.Solid balance sheet enhances financial flexibility. At year-end 2021, Alliance Resource Partners reported cash and cash equivalents in the amount of $122.4 million and debt in the amount of $435.0 million. Earnings, EBITDA, and free cash flow are positive and growing. Long-term debt as a multiple of adjusted EBITDA decreased from 1.5x at the end of 2020 to 0.9x at year-end 2021. Based on our forecast, we expect debt as a multiple of EBITDA leverage to improve even further in 2022.Management with skin in the game. ARLP benefits from a long-tenured management team and board whose financial interests are aligned with the partnership's limited partners. Executive officers and directors own 16.8% of the outstanding shares and have successfully guided and expanded the company through energy up and down cycles. ARLP's five-member board of directors, including four independent directors, has committed to returning 30% of the free cash flow, before growth investments, to unitholders each year in the form of cash distributions. Read More >>